Investment Pitches

Pitch Summary:
Shares of real estate expert, Jones Lang LaSalle (JLL), also traded higher during the quarter on solid earnings results. Despite a slowdown in transaction and leasing activity due to higher long-term interest rates, the Property Management and Work Dynamics businesses delivered strong fee revenues and the business continues to prudently manage expenditures. Additionally, management highlighted a positive revenue outlook for 2024 and reiterated its 2025 financial targets. Despite the recent macro-uncertainty, company leadership is highly confident about the medium- and longer-term revenue outlook for both transactional and recurring revenue streams, alongside its efforts to streamline operations and increase efficiencies to generate higher profit over time.

BSD Analysis:
Ariel presents a constructive view on Jones Lang LaSalle despite challenging real estate market conditions. While transaction and leasing activity has slowed due to higher interest rates, the company's diversified business model provides stability through strong Property Management and Work Dynamics fee revenues. Management's prudent expense management demonstrates operational discipline during a difficult cycle. The positive 2024 revenue outlook and reiterated 2025 financial targets indicate management confidence in the business trajectory. Leadership's optimism about medium and long-term prospects for both transactional and recurring revenue streams suggests the current headwinds are viewed as temporary. The company's focus on operational streamlining and efficiency improvements should drive margin expansion and profit growth over time. Ariel appears to view JLL as well-positioned to benefit from an eventual real estate market recovery.

Pitch Summary:
Wellness provider onboard cruise ships and destination resorts, OneSpaWorld Holdings Ltd. (OSW) was another top contributor in the period, driven by its third consecutive earnings beat and subsequent raise in full year guidance. Looking ahead, we expect OSW's spa services to continue to be met with high demand and spend levels, particularly as OSW continues to launch new higher value spa services and occupancy rates increase over time. Meanwhile, management continues to pay down debt and return capital to shareholders through buybacks. At current levels, we see the risk/reward skewed sharply to the upside.

BSD Analysis:
Ariel maintains a bullish stance on OneSpaWorld based on consistent operational execution and favorable industry dynamics. The company has delivered three consecutive earnings beats with management raising full-year guidance, indicating strong business momentum. The wellness services model benefits from high demand and spending levels on cruise ships and destination resorts, with occupancy rates expected to continue improving. OSW's strategy of launching higher-value spa services should drive revenue per customer growth and margin expansion. The company's disciplined capital allocation approach, including debt reduction and share buybacks, demonstrates management's commitment to shareholder returns. The manager views current valuation levels as attractive with significant upside potential given the company's market position and growth trajectory.

Pitch Summary:
Shares of luxury adventure travel services company, Lindblad Expeditions Holdings, Inc. (LIND), traded higher in the quarter following a significant bottom-line beat and positive free cash flow generation. Future travel reservations continue to be strong with the company increasing its prices heading into the new year. Although more expensive fuel prices and an uptick in discounting from certain competitors may present short-term headwinds, cancellation rates are slowly improving and should result in higher cruise occupancy. LIND also recently completed its marketing and technology infrastructure upgrades and will enter 2024 with a new website, client relationship management platform and reservation system, which should enable LIND to more effectively target customers. Longer-term, we expect LIND's fundamentals and the extension of its strategic relationship with National Geographic through 2040 will pave the way for multiple expansion as the company extends its market share in the expedition tourism niche. At today's valuation, we believe LIND's risk/reward is skewed sharply to the upside.

BSD Analysis:
Ariel presents a compelling bull case for Lindblad Expeditions based on strong operational momentum and strategic positioning. The company delivered a significant earnings beat with positive free cash flow generation, demonstrating improved financial performance. Strong future travel reservations and the ability to raise prices indicate robust demand for luxury expedition cruising services. The completion of technology infrastructure upgrades, including new website and CRM systems, should enhance customer targeting and operational efficiency. The extended National Geographic partnership through 2040 provides a significant competitive moat and brand differentiation in the expedition tourism niche. While near-term headwinds from fuel costs and competitor discounting exist, improving cancellation rates and higher occupancy trends support the investment thesis. The manager views current valuation as attractive with asymmetric upside potential.

Pitch Summary:
Illumina: Illumina was our only detractor in the quarter in reaction to new CEO, Jacob Thaysen, lowering guidance for 4Q23 and for 2024, which the company now expects to be flat year over year. Several factors were cited for the below consensus guide including weakness in China, macroeconomic headwinds globally, sluggish academic spending, and the continued transitional effects we detailed recently. All these issues, other than the transition headwinds, are impacting the entire sector, evidenced by 3Q23 guide downs from most major players. Illumina's guide seemed more negative than most and likely incorporated some conservatism from the new CEO. The stock did get a boost at the end of the year (it was a top contributor in December) following the company's announced plans to divest Grail (a potential positive we have been highlighting throughout the year), a liquid biopsy business it acquired for $8 billion in August of 2021. We continue to view the company's core genomics industry as offering one of the larger total addressable markets that we cover, and ILMN is the clear innovation leader in sequencing and array-based solutions for genetic analysis. With less than 0.02% of humans having been sequenced and 99% of the variants discovered in the genome having not yet been deciphered, Illumina, at less than $5 billion of TTM revenue, is still in its infancy in what is potentially a greater than $50 billion genetics analysis tools market opportunity.

BSD Analysis:
Despite near-term headwinds, the manager maintains a bullish long-term view on Illumina based on the massive genomics market opportunity and the company's dominant market position. The new CEO's conservative 2024 guidance incorporating China weakness, macro headwinds, and sluggish academic spending likely reflects prudent expectations rather than fundamental deterioration. The manager notes these challenges are sector-wide, not company-specific. A key positive catalyst emerged with the announced Grail divestiture, removing an $8 billion distraction acquired in 2021. The investment thesis centers on Illumina's leadership position in sequencing and array-based genetic analysis solutions within an enormous addressable market. The manager highlights the early-stage nature of genomics adoption, with less than 0.02% of humans sequenced and 99% of genetic variants undeciphered. With current revenue under $5 billion, Illumina operates in what could become a $50+ billion genetics analysis tools market. The combination of Illumina's innovation leadership, dominant market share, and the secular growth potential of genomics applications creates compelling long-term value despite current cyclical pressures and transitional challenges.

Pitch Summary:
Netflix: NFLX was a top contributor in the quarter following strong third quarter earnings and fourth quarter guidance driven by better-than-expected subscriber adds (+8.8 million versus estimates of +6.1 million). The company's subscriber growth continued to accelerate following the company's crack down on password sharing, and the rollout of the advertising supported subscriber offering known as the Ad Tier. ARPU came in below expectations, but management announced price increases in the US, UK and France effective immediately. NFLX guided full year 2023 operating margins to the "high end" of the prior guidance, guided 2024 operating margins to a range of 22-23%, ahead of investor expectations of 22%, and raised 2023 free cash flow guidance from $5 billion to $6.5 billion. The recent re-acceleration of subscriber growth, plus price increases on premium memberships and a stabilization of content investments, should position the company for low double digit annual revenue growth over the next few years while driving improved operating margin to more than 25% (revenue grew 8% for 3Q23 and operating margin was 22.4%, up from 13% in 2019). We also believe that the stabilization of content spend should allow the company to continue to scale its FCF.

BSD Analysis:
The manager maintains a bullish view on Netflix based on accelerating subscriber growth and expanding profitability metrics. Subscriber additions of 8.8 million significantly exceeded estimates of 6.1 million, driven by successful password sharing crackdown and the new ad-supported tier launch. While ARPU disappointed, management's immediate price increases in key markets (US, UK, France) demonstrate pricing power. The profitability trajectory is compelling, with 2024 operating margin guidance of 22-23% exceeding expectations and 2023 free cash flow guidance raised from $5 billion to $6.5 billion. The manager's thesis centers on Netflix's ability to achieve sustainable low double-digit revenue growth while expanding operating margins beyond 25%, compared to 22.4% currently and just 13% in 2019. Key drivers include the subscriber growth re-acceleration, premium pricing increases, and critically, the stabilization of content investments which should enable continued free cash flow scaling. The combination of subscriber momentum from new initiatives, pricing power demonstration, and content spend discipline creates a favorable setup for both top-line growth and margin expansion over the next several years.

Pitch Summary:
Snap: SNAP was a top contributor in the quarter following strong third quarter earnings driven by continued growth in users and better advertiser engagement, especially large advertisers and direct response programs. Revenue growth of 5% beat estimates and marked the return to growth after three quarters of flat to down revenue. Following a $38 million loss last quarter, Snap reported EBITDA of $40 million (compared with estimates for a $69 million loss). Daily Active Users (DAUs) were also ahead of investor expectations, ending the quarter at 407 million (about 1 million better), driven by continued innovation in Snap's offerings. Although the company continues to face near-term macro headwinds (some advertisers paused spending following the Hamas attacks on Israel in early October), we believe SNAP can accelerate its revenue growth over the next several years. With 2023 revenue expected to be $4.6 billion (as compared with Meta's $134 billion), we believe SNAP has a long runway for both revenue growth and expanded profitability as it improves platform functionality, continues to grow its audience (daily active users continue to grow at a double-digit rate), and expands its monetization.

BSD Analysis:
The manager presents a bullish turnaround story for Snap based on returning to revenue growth and achieving profitability inflection. After three quarters of flat to declining revenue, the company delivered 5% growth that beat estimates, marking a crucial operational turning point. The profitability improvement was dramatic, swinging from a $38 million loss to $40 million EBITDA versus estimates for a $69 million loss. Daily Active Users of 407 million exceeded expectations and continue growing at double-digit rates, driven by platform innovation. The manager acknowledges near-term macro headwinds including advertiser pauses following geopolitical events but maintains conviction in the long-term opportunity. The investment thesis centers on Snap's significant monetization gap, with 2023 revenue of $4.6 billion compared to Meta's $134 billion despite a substantial user base. The manager sees multiple growth drivers including platform functionality improvements, continued audience expansion, and enhanced monetization capabilities. The combination of user growth momentum, profitability inflection, and substantial monetization upside creates an attractive risk-reward profile for accelerating revenue growth over the next several years.

Pitch Summary:
Microsoft: MSFT was a top contributor in the quarter following strong FY1Q24 earnings in late October. In that earnings report, MSFT delivered better-than-expected revenue (+13%) and earnings (+27%), with growth in both accelerating from the prior quarter. All three major segments grew revenue faster than expected, highlighted by 28% constant currency growth in Azure, the company's cloud offering. This marked the first quarter-over-quarter acceleration for Azure in six quarters. Operating margins (48%) were 400 basis points better than expected and earnings came in 13% ahead of expectations. Cloud-based services have become the company's largest revenue and earnings producer. The company's Azure platform alone has the potential to grow to more than $100 billion in annual revenue over the next decade. Overall, we believe that the company will continue to deliver double-digit revenue and EPS growth and generate an enormous amount of free cash flow to both return to shareholders and use for acquisitions.

BSD Analysis:
The manager maintains a bullish stance on Microsoft driven by accelerating cloud growth and exceptional profitability metrics. The company delivered 13% revenue growth and 27% earnings growth, both beating expectations and accelerating from the prior quarter. The standout performance came from Azure with 28% constant currency growth, marking the first quarter-over-quarter acceleration in six quarters, signaling a potential inflection in cloud demand. Operating margins of 48% exceeded expectations by 400 basis points, demonstrating the company's pricing power and operational efficiency. The manager emphasizes that cloud services have become Microsoft's largest revenue and profit driver, with Azure alone having potential to reach $100 billion in annual revenue within a decade. The investment thesis is anchored on Microsoft's dominant position in enterprise software and cloud infrastructure, supported by secular trends toward digital transformation. The manager expects continued double-digit revenue and EPS growth, with the company's massive free cash flow generation providing flexibility for both shareholder returns and strategic acquisitions to maintain competitive advantages.

Pitch Summary:
Uber Technologies: UBER was a top contributor in the quarter following better than expected 3Q23 earnings and 4Q23 guidance. Gross bookings of $35.3 billion were up 21% year over year. Mobility gross bookings of $17.9 billion grew 30% over last year driven by a combination of product innovation and driver availability. Delivery gross bookings of $16 billion were up 16% from last year and continued to be strong throughout the quarter. 1Q Adjusted EBITDA of $1.1 billion, up $576 million year over year, was better than management's guidance of $1 billion, and the company generated $900 million of free cash flow, up from $358 million last year. Management guided to continuing growth in 4Q Gross Bookings (23.5% growth) and Adjusted EBITDA (of $1.2 billion). UBER remains the undisputed global leader in ride sharing, with a greater than 50% share in every major region in which it operates. The company is also a leader in food delivery, where it is number one or two in the more than 25 countries in which it operates. Moreover, after a history of losses, the company is now profitable, delivering expanding margins and substantial free cash flow. We view UBER as more than a ride sharing and food delivery service; we also see it as a global mobility platform with 142 million users (by comparison, Amazon Prime has 200 million members) and the ability to penetrate new markets of on-demand services, such as package and grocery delivery, travel, and hourly worker staffing. Given its $5.2 billion of unrestricted cash and $5.1 billion of investments, the company today has an enterprise value of $128 billion, indicating that UBER trades at 21x our estimates of next year's free cash flow.

BSD Analysis:
The manager presents a strong bull thesis for Uber based on accelerating growth across both core segments and the transition to sustained profitability. Gross bookings of $35.3 billion grew 21% year-over-year, with Mobility leading at 30% growth driven by product innovation and improved driver availability. The profitability inflection is particularly compelling, with Adjusted EBITDA of $1.1 billion beating guidance and free cash flow surging to $900 million from $358 million prior year. The manager emphasizes Uber's dominant market position with over 50% ride-sharing market share globally and top-two positioning in food delivery across 25+ countries. The investment thesis extends beyond current services to view Uber as a comprehensive mobility platform with 142 million users, comparable to Amazon Prime's scale. The manager sees significant expansion opportunities into adjacent on-demand services including package delivery, grocery, travel, and staffing. With a strong balance sheet of $5.2 billion cash plus $5.1 billion investments, the company trades at 21x estimated next year's free cash flow, suggesting reasonable valuation for the growth profile.

Pitch Summary:
Shopify: Shopify shares were our top performer in the quarter following a strong 3Q earnings report that included better than expected revenue growth and substantial margin expansion. We wrote in October, after Shopify was our worst performer, that the stock had been volatile, despite the fact that the company's underlying business has been "steadily improving following a post-Covid e-Commerce slowdown." The most recent quarter, reported in early November, was a continuation of this steady recovery. Revenue growth of 25% was 3 percentage points better than investors expected and an acceleration over last year's 3Q growth of 22%. More impressively, SHOP reported operating income margins of 16%, 600 basis points ahead of investor expectations. Free cash flow margins were also 16%, and the company guided 4Q free cash flow margins to the "high teens." A combination of new merchants to the company's platform, increased adoption of SHOP's offerings by existing merchants, and e-commerce market share gains (SHOP merchants US sales on Black Friday grew 24% year over year vs US E-commerce in aggregate growing 7.5%) are driving this revenue growth and profitability. Last year, 10% of US retail e-commerce sales flowed through SHOP, second only to Amazon, and the company is still enjoying significant tailwinds as retail merchants of all sizes adopt SHOP's software tools to display, manage and sell their products across a dozen different sales channels. We believe that the overall growth of e-commerce, combined with the development of new products and services, such as its digital wallet Shop Pay, should continue to drive revenue growth of more than 20% per year over the next several years, accompanied by re-acceleration of operating margin growth and FCF generation.

BSD Analysis:
The manager presents a compelling bull case for Shopify based on strong operational momentum and margin expansion. The company delivered 25% revenue growth in Q3, beating expectations by 3 percentage points and accelerating from 22% in the prior year. Most impressive was the 16% operating margin, which exceeded expectations by 600 basis points, demonstrating significant operating leverage. The thesis centers on Shopify's dominant position as the second-largest e-commerce platform in the US with 10% market share, trailing only Amazon. The manager highlights multiple growth drivers including new merchant acquisition, increased adoption by existing merchants, and market share gains evidenced by 24% Black Friday growth versus 7.5% for overall US e-commerce. The investment case is strengthened by the company's expanding product suite including Shop Pay digital wallet and multi-channel selling capabilities. The manager projects sustained 20%+ revenue growth with continued margin expansion and free cash flow generation, supported by the secular shift to e-commerce and Shopify's platform advantages.

Pitch Summary:
Vertex Pharmaceuticals develops drugs for treating cystic fibrosis, cancer, inflammatory bowel, autoimmune disease and neurological disorders. The biotechnology company has four commercial drugs used to treat cystic fibrosis. Vertex has other drugs in development, including additional cystic fibrosis treatments and medications addressing sickle-cell disease, beta thalassemia, alpha-1 antitrypsin deficiency and pain. Vertex is the global leader in treating cystic fibrosis and has additionally built a robust pipeline in several therapeutic areas. Late-stage studies in acute and neuropathic pain are expected to be another catalyst for the company. We believe Vertex's valuation is attractive and at a discount relative to its 5-year historical average. Additionally, the company is well capitalized, with roughly $12.5 billion in net cash on its balance sheet.

BSD Analysis:
The fund manager presents a strong bull case for Vertex Pharmaceuticals based on the company's dominant market position in cystic fibrosis and expanding therapeutic pipeline. The investment thesis centers on Vertex's monopolistic position in CF treatment with four commercial drugs generating substantial cash flows. The manager highlights the company's diversification strategy into pain management, sickle-cell disease, and other rare diseases as key growth drivers. The valuation argument is particularly compelling, with shares trading at a discount to historical averages despite the robust pipeline progress. The company's exceptional balance sheet strength with $12.5 billion in net cash provides significant financial flexibility for R&D investments and potential acquisitions. Late-stage pain studies represent near-term catalysts that could unlock additional value. This represents a high-quality biotech investment with defensive characteristics from the CF franchise and meaningful upside from pipeline expansion into larger addressable markets.

Pitch Summary:
Eli Lilly & Company is a leading pharmaceutical company that develops diabetes, oncology, immunology and neuroscience medicines. The company generates over half of its revenue in the U.S. from its top-selling drugs Trulicity, Verzenio and Taltz. The company operates in a single business segment, human pharmaceutical products. Eli Lilly has a deep pipeline in treatment areas focused on oncology, immunology, metabolic and central-nervous system disorders. Currently, there are two phase-three assets: Orforglipron, an oral GLP-1, and retatrutide, a triple incretin agonist, which have the potential to expand upon the potential success of Mounjaro. We believe that Mounjaro has the potential to commercialize beyond type 2 diabetes and obesity, potentially in the areas mentioned above of heart disease, sleep apnea, fatty liver disease and chronic kidney disease. We belief the premium valuation is supported by this outsized growth profile.

BSD Analysis:
The fund manager presents a compelling bull case for Eli Lilly centered on the company's dominant position in diabetes and obesity treatments, particularly the blockbuster potential of Mounjaro. The thesis emphasizes Lilly's robust pipeline with two promising phase-three assets that could significantly expand the addressable market beyond current indications. The manager highlights the company's diversified revenue base across multiple therapeutic areas and strong U.S. market presence. The investment rationale focuses on Mounjaro's potential expansion into cardiovascular, respiratory, and metabolic conditions, which could drive substantial revenue growth. While acknowledging the premium valuation, the manager believes it's justified by the outsized growth profile from pipeline expansion. The pitch demonstrates confidence in Lilly's ability to capitalize on the GLP-1 market opportunity and execute on its development strategy. This represents a growth-oriented pharmaceutical investment with significant upside potential from successful drug commercialization.

Pitch Summary:
Founded in 1924 and headquartered in Japan, Daikin Industries is the world's largest commercial and residential air conditioner company. Daikin primarily manufactures and sells air conditioning systems, heat pumps, air purifiers and refrigeration equipment (which accounts for over 90% of revenue). Daikin has long been an industry leader in developing energy-efficient products, which was molded by its roots in Japan, a region with limited natural resources and high energy costs. The company's R&D consists of a global Technology Innovation Center and 39 other regional development facilities in charge of tailoring offerings to their local markets. Today Daikin's products are sold in over 170 countries, and the company boasts leading market positions in Japan and China, as well as in the U.S. residential market. Distribution is particularly important since air conditioning systems are difficult to install. Daikin's 2012 acquisition of Goodman in the U.S. added hundreds of distribution points across the country, providing Daikin with a leading national market position and platform from which to expand. In China, specialty retail stores (ProShops) sell directly to homeowners, focusing on high-end, multi-unit products at much higher margins than if they were selling to a developer or contractor. Some of the quality characteristics we have identified for Daikin include: Strong brand recognition and a large global distribution network are, in our opinion, strong competitive advantages and serve as high barriers to entry; History of technological innovation, particularly in energy-saving inverters and variable refrigerant flow systems; and Ability to tailor products to different local preferences across geographies and varied levels of HVAC regulations, thanks to Daikin's network of global production bases and development facilities. Based on our estimates, shares of the company are attractively valued. We believe greater global adoption of air conditioning, as well as higher priced and more profitable technologies (i.e., heat pumps and inverters), will lead to higher normalized FREE cash flow than currently appreciated by the market. Catalysts we have identified for Daikin, which we believe will cause its stock price to appreciate over our three- to five-year investment horizon, include: As the largest global supplier and a leader in energy efficiency, Daikin is uniquely positioned to benefit from the increase in worldwide air conditioning adoption rates (projected to triple by 2050) while leveraging its intellectual property in inverters and heat pumps; Market share gains in the U.S. as Daikin further leverages its technology in premium residential air conditioning supported by Goodman's distribution network; and Execution of its Fusion 25 strategic plan that includes making improvements in technological development, strengthening sales and service networks, promoting digital transformation, and more.

BSD Analysis:
Aristotle Capital presents a compelling bull case for Daikin Industries, positioning the Japanese HVAC leader as a beneficiary of global air conditioning adoption trends. The manager emphasizes Daikin's dominant market position as the world's largest commercial and residential air conditioner manufacturer, with strong competitive moats including brand recognition, extensive distribution networks, and technological innovation capabilities. The investment thesis centers on secular growth drivers, particularly the projected tripling of worldwide air conditioning adoption rates by 2050, which should benefit Daikin's leadership in energy-efficient inverters and heat pumps. The manager views the stock as attractively valued relative to normalized free cash flow potential from higher-margin technologies. Key catalysts include U.S. market share gains leveraging the Goodman acquisition's distribution network, execution of the Fusion 25 strategic plan, and continued technological leadership in premium residential applications. The pitch highlights Daikin's ability to tailor products across diverse global markets through its network of 39 regional development facilities. This represents a classic quality growth investment targeting a structural demand trend with a market-leading company trading at reasonable valuations.

Pitch Summary:
Lastly, shares of live entertainment business, Madison Square Garden Entertainment Corp. (MSGE), fell following an earnings miss. Revenue declined year-over-year due to fewer concerts versus the prior year period which benefitted from ~30 rescheduled performances due to COVID. Excluding the rescheduled shows, the number of events were up mid-teens and revenue per concert continued to increase. As a result of strong demand, the Christmas Spectacular added additional shows and given strong visibility into the event pipeline, management reiterated fiscal full year 2024 guidance. With marquee assets such as New York's Madison Square Garden, Radio City Music Hall, Beacon Theatre and The Chicago Theater, we believe MSGE is well positioned to capitalize on strong live entertainment demand. In our view, MSGE's assets are stable cash flow generators and should enable deleveraging. At current valuation levels, the company is trading at a significant discount to our estimate of private market value.

BSD Analysis:
Despite recent earnings disappointment, Ariel maintains strong conviction in Madison Square Garden Entertainment based on the quality of its venue portfolio and underlying demand trends. The fund contextualizes the revenue decline as a comparison issue against COVID-rescheduled performances, noting that normalized event counts were up mid-teens with increasing revenue per concert. This demonstrates both volume growth and pricing power in the live entertainment market. MSGE's portfolio of marquee venues including Madison Square Garden and Radio City Music Hall represents irreplaceable assets in prime locations with strong competitive moats. Management's reiterated 2024 guidance and strong event pipeline visibility suggest confidence in the business trajectory. Ariel views these assets as stable cash flow generators that should enable deleveraging over time. The investment thesis centers on the significant discount to estimated private market value, representing a classic sum-of-the-parts value opportunity in premium real estate and entertainment assets.

Pitch Summary:
Toy manufacturer, Mattel, Inc. (MAT), also traded lower in the period. Despite delivering a significant earnings beat, management maintained full-year guidance signaling a lighter-than-expected holiday outlook to investors. Nonetheless, we continue to expect MAT will gain share, improve profitability and generate higher levels of cash flow in this weaker retail environment. In our view, MAT remains an undervalued company with resilient consumer demand for toys such as Barbie, Hot Wheels and Disney Princesses, as well as an attractive opportunity for future film and TV projects.

BSD Analysis:
Ariel maintains a bullish stance on Mattel despite recent share price weakness and conservative management guidance. The fund views the significant earnings beat as evidence of operational improvement, while interpreting management's cautious holiday outlook as prudent guidance in a challenging retail environment. The investment thesis centers on Mattel's portfolio of iconic brands including Barbie, Hot Wheels, and Disney Princesses, which demonstrate resilient consumer demand across cycles. Ariel expects the company to gain market share and improve profitability even in a weaker retail backdrop, suggesting confidence in management's execution capabilities. The fund also highlights the attractive opportunity for content monetization through film and TV projects, representing potential upside beyond traditional toy sales. This appears to be a classic value play on a consumer discretionary company with strong brand equity trading at attractive valuations during a cyclical downturn.

Pitch Summary:
Shares of oil services company, Core Laboratories, Inc. (CLB), declined in the period on mixed earnings results. Despite contract delays and lower-than-expected activity in the U.S., CLB maintained solid profitability, delivering operating margin expansion. Although the ongoing geopolitical conflict between Russia and Ukraine, as well as associated European and U.S. sanctions, continue to disrupt the business and create near-term uncertainty, CLB is seeing progress in both onshore and offshore activity across its global operations. We have conviction in the management team's long history of delivering strong operating results, robust free cash flow and returning capital to shareholders.

BSD Analysis:
Despite recent share price weakness, Ariel maintains conviction in Core Laboratories based on the company's operational resilience and management track record. The fund acknowledges near-term headwinds including contract delays, reduced U.S. activity, and geopolitical disruptions from the Russia-Ukraine conflict. However, Ariel emphasizes CLB's ability to maintain profitability and expand operating margins even in challenging conditions, demonstrating operational discipline. The investment thesis centers on management's proven ability to generate strong operating results and robust free cash flow across cycles, with a history of returning capital to shareholders. Progress in global onshore and offshore activity suggests the business is stabilizing despite macro uncertainties. This represents a contrarian value play on a cyclical energy services company with strong fundamentals trading at depressed valuations due to temporary headwinds.

BSD Analysis:
Ariel presents a measured bullish view on Jones Lang LaSalle despite challenging real estate market conditions. The fund acknowledges the headwinds from higher interest rates impacting transaction and leasing activity but emphasizes JLL's diversified revenue streams through Property Management and Work Dynamics businesses. Management's ability to deliver strong fee revenues while prudently managing expenses demonstrates operational discipline during a difficult cycle. The positive 2024 revenue outlook and reiterated 2025 financial targets suggest management confidence in the business model's resilience. Ariel's thesis appears to center on JLL's market-leading position in commercial real estate services and the eventual recovery in transaction volumes as interest rates stabilize. The investment represents a contrarian bet on a cyclical business with strong fundamentals trading at attractive valuations during a downturn.

Pitch Summary:
Shares of global leader in for-profit education, Adtalem Global Education (ATGE), also increased following a top- and bottom-line earnings beat and subsequent raise in full year guidance. After several quarters of annual enrollment declines, total enrollment trends turned positive led by strong growth at Chamberlain and Walden. Revenue per student also came in better than expected, as ATGE optimized program pricing and offered lower discounts. Although enrollment trends across the medical and veterinary schools continue to face headwinds, they appear temporary, with management having already implemented the necessary changes to convert strong underlying demand into new student enrollment. While investors remain skeptical of the near-term backdrop, we believe ATGE will benefit from the healthcare worker shortage in the U.S., evidenced by its market leadership as the number one grantor of nursing degrees in the U.S. and the largest producer of African American MDs, PhDs and nurses in the country.

BSD Analysis:
Ariel maintains a bullish stance on Adtalem Global Education, highlighting the company's turnaround story in for-profit education. The investment thesis is anchored on ATGE's market-leading position in healthcare education, particularly as the top grantor of nursing degrees and largest producer of African American healthcare professionals. The fund sees the recent earnings beat and guidance raise as validation of management's operational improvements, including enrollment stabilization at key schools like Chamberlain and Walden. Revenue per student optimization through better pricing and reduced discounting demonstrates pricing discipline and margin expansion potential. While acknowledging near-term headwinds in medical and veterinary programs, Ariel views these as temporary given underlying healthcare worker shortages. The structural demand for healthcare education, combined with ATGE's market leadership and operational improvements, creates a compelling long-term value proposition in a defensive end market.

Pitch Summary:
Global cruise vacation company, Royal Caribbean Group (RCL), advanced on another quarterly earnings beat and subsequent raise in full-year guidance driven by stronger than anticipated consumer demand and solid cost containment. The company continues to experience solid momentum in onboard spend, while 2024 booking trends are significantly ahead of historical ranges at higher pricing. We believe the resiliency of the core cruise consumer in combination with management's superior operational expertise and revised earnings outlook lays the foundation for RCL to exceed its three-year strategic imperative, the Trifecta Program.

BSD Analysis:
Ariel presents a bullish case for Royal Caribbean based on strong operational execution and robust consumer demand. The company delivered another quarterly earnings beat while raising full-year guidance, demonstrating management's ability to exceed expectations. Key positive indicators include solid momentum in onboard spending and 2024 bookings that are significantly ahead of historical ranges at higher pricing, suggesting strong pricing power and demand resilience. The fund emphasizes management's operational expertise and believes the company is well-positioned to exceed its three-year Trifecta Program strategic goals. The investment thesis centers on the durability of cruise consumer demand and the company's ability to capitalize on this through superior cost management and revenue optimization. This represents a classic value play on a cyclical business with improving fundamentals and strong execution metrics.

Pitch Summary:
Lastly, leading supplier of solutions for combustion, hybrid and electric vehicles BorgWarner, Inc. (BWA), declined in the period. Softer than expected earnings results and a reduction to both near and mid-term guidance driven by recent launch delays for new electric vehicles and slower sales momentum by several original equipment manufacturers weighed on shares. Nonetheless, management still expects electric vehicle sales of over $10 billion annually by 2027. Despite slower than anticipated EV adoption, we believe BWA remains well positioned near-term to benefit from its low-emission, combustion and hybrid vehicle product offerings and expect the company will grow intrinsic value throughout the evolution in the hybrid and EV market.

BSD Analysis:
Ariel maintains conviction in BorgWarner despite near-term headwinds from softer earnings and reduced guidance due to EV launch delays and OEM sales momentum challenges. The manager acknowledges slower-than-expected EV adoption but emphasizes management's $10 billion annual EV sales target by 2027, indicating significant long-term growth potential. The investment thesis focuses on BWA's diversified positioning across combustion, hybrid, and electric vehicle technologies, providing multiple revenue streams during the automotive transition. Near-term benefits from low-emission and hybrid offerings provide defensive characteristics while EV capabilities position for future growth. Ariel expects intrinsic value growth throughout the market evolution, suggesting confidence in the company's ability to adapt and capitalize on changing automotive technologies regardless of adoption timing.

Pitch Summary:
Also, toy manufacturer, Mattel, Inc. (MAT), traded lower in the period. Despite delivering a significant earnings beat, management maintained full-year guidance signaling a lighter-than-expected holiday outlook to investors. Nonetheless, we continue to expect MAT will gain share, improve profitability and generate higher levels of cash flow in this weaker retail environment. In our view, MAT remains an undervalued company with resilient consumer demand for toys such as Barbie, Hot Wheels and Disney Princesses, as well as an attractive opportunity for future film and TV projects.

BSD Analysis:
Ariel maintains a bullish stance on Mattel despite stock weakness following conservative management guidance that disappointed investors. The manager emphasizes the significant earnings beat as evidence of operational strength, suggesting the market overreacted to cautious holiday outlook commentary. Ariel expects market share gains and profitability improvements even in a challenging retail environment, indicating confidence in competitive positioning. The investment thesis centers on the company being undervalued relative to its iconic brand portfolio and resilient consumer demand. Strong franchises like Barbie, Hot Wheels, and Disney Princesses provide defensive characteristics and pricing power. The opportunity for film and TV projects represents additional monetization potential beyond traditional toy sales, suggesting multiple avenues for value creation and brand expansion.