Investment Pitches

Pitch Summary:
By comparison, 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:
Ariel maintains conviction in Core Laboratories despite near-term headwinds and mixed earnings results that pressured the stock price. The manager emphasizes the company's ability to maintain solid profitability and achieve operating margin expansion even amid contract delays and reduced U.S. activity. While acknowledging geopolitical disruptions from the Russia-Ukraine conflict and associated sanctions, Ariel focuses on improving trends in both onshore and offshore operations globally. The investment thesis centers on management's proven track record of operational excellence and capital allocation discipline. Strong free cash flow generation and consistent capital returns to shareholders demonstrate financial strength and shareholder-friendly policies. This pitch reflects confidence in the management team's ability to navigate cyclical challenges while maintaining operational efficiency and profitability.

Pitch Summary:
Additionally, financial services provider, Charles Schwab Corporation (SCHW), advanced in the period. A stronger than expected short-term debt paydown, better than expected net interest income and high confidence SCHW can meet the new upcoming regulatory leverage ratio requirement ahead of expected implementation, more than offset an aggregate decline in cash balances and a downward revision to full-year guidance. In our view, SCHW's risk/reward is skewed to the upside and expect the company to flex its scale and customer-centric focus in support of its industry leading cost advantage. We also think the TD Ameritrade acquisition will continue to create incremental value and further enhance SCHW's marketplace standing and long-term growth trajectory.

BSD Analysis:
Ariel maintains a bullish outlook on Charles Schwab despite mixed quarterly results, focusing on positive operational developments that outweighed guidance concerns. The manager emphasizes stronger-than-expected debt paydown and net interest income as evidence of financial strength and effective capital management. High confidence in meeting new regulatory leverage requirements ahead of schedule demonstrates proactive risk management and regulatory preparedness. Ariel views the risk/reward profile as asymmetrically positive, suggesting limited downside with significant upside potential. The emphasis on scale advantages and customer-centric focus highlights competitive moats that support industry-leading cost structures. The TD Ameritrade acquisition continues to be viewed as value-accretive, enhancing market position and providing long-term growth opportunities through integration synergies.

Pitch Summary:
Alternative asset manager, KKR & Co. (KKR), also traded higher following solid earnings results in a challenging market environment. This performance was supported by improving trends for fundraising, deployment and monetization in the asset management business. KKR also agreed to acquire the remaining stake in its insurance affiliate, Global Atlantic, which we believe will drive organic growth opportunities and synergies going forward. Notably, management laid out a goal to double the size of the company twice over the next 10 years, highlighting asset management, insurance and the core private equity business as key drivers.

BSD Analysis:
Ariel expresses strong conviction in KKR's growth trajectory, emphasizing solid earnings performance despite challenging market conditions. The manager highlights improving fundamentals across key business metrics including fundraising, deployment, and monetization, suggesting operational momentum. The acquisition of the remaining stake in Global Atlantic represents a strategic consolidation that Ariel believes will unlock organic growth opportunities and operational synergies. Management's ambitious goal to quadruple the company size over the next decade demonstrates confidence and provides a clear growth roadmap. The focus on asset management, insurance, and private equity as key growth drivers shows diversification across complementary business lines. This pitch reflects optimism about KKR's ability to execute on its expansion strategy while maintaining operational excellence.

Pitch Summary:
Alternative asset manager, Carlyle Group Inc. (CG), advanced over the quarter following a solid earnings beat, highlighted by positive investment performance across all its major product lines and continued progress on previously articulated cost savings initiatives. Management also guided to higher transaction and advisory revenues to close out 2023. We believe these results reflect early signs of execution across a number of the strategic initiatives and expect CG will deliver continued growth and margin expansion over time.

BSD Analysis:
Ariel maintains a bullish stance on Carlyle Group following strong quarterly execution that exceeded expectations. The manager highlights positive investment performance across all major product lines as evidence of the firm's diversified revenue streams performing well. Management's progress on cost savings initiatives demonstrates operational discipline and margin expansion potential. The guidance for higher transaction and advisory revenues suggests improving market conditions and deal flow. Ariel views these results as early validation of strategic initiatives, indicating confidence in management's execution capabilities. The expectation for continued growth and margin expansion reflects optimism about Carlyle's ability to scale efficiently. This pitch emphasizes both near-term operational improvements and longer-term strategic positioning in the alternative asset management space.

Pitch Summary:
We purchased manufacturer and marketer of integrated circuits, Taiwan Semiconductor Manufacturing Company, Ltd. TSMC has a dominant share of the global foundry market and is an industry leader in terms of scale, technology, customer service and execution. Although demand for smartphones and PCs is stabilizing, we expect the company to benefit from the secular growth trends of Artificial Intelligence (AI) longer-term. A downturn in the foundry industry this year presented us with an attractive entry point, as we think the current forward price-to-earnings ratio does not fully reflect the high-quality nature of the business model.

BSD Analysis:
Ariel initiated a position in Taiwan Semiconductor Manufacturing Company, viewing the foundry industry downturn as creating an attractive entry point for the global market leader. The fund emphasizes TSMC's dominant foundry market share and industry leadership across multiple dimensions including scale, technology, customer service, and execution capabilities. While acknowledging near-term stabilization in smartphone and PC demand, Ariel's investment thesis centers on TSMC's positioning to benefit from secular AI growth trends over the long term. The fund believes current forward price-to-earnings ratios fail to reflect the high-quality nature of TSMC's business model and competitive advantages. Management views the cyclical downturn as temporary while TSMC's structural advantages and AI exposure provide compelling long-term growth prospects. The investment represents a contrarian bet on the world's leading foundry operator at attractive valuations during a cyclical trough.

Pitch Summary:
We added positions in, leading providers of dialysis services, DaVita, Inc. and Fresenius Medical Care AG & Co. Fresenius Medical Care AG & Co. is the worldwide leader in the treatment of renal disease, while Davita, Inc. administers its services to over 2,700 outpatient dialysis centers across 45+ states and operates over 350 outpatient dialysis centers in 12 total countries. The shares of each company came under pressure following the release of clinical data on the efficacy of glucagon-like-peptide-1 (GLP-1) weight-loss drugs and their potential to negatively impact the demand for dialysis, providing us with attractive entry points in both names. Even assuming high rates of both uptake and effectiveness, we believe the overall impact on dialysis volumes will be small in the near-to-medium term. We also think the cardio protective effects of the GLP-1 class may enable patients to live longer, thereby increasing the overall size of the end-stage renal disease incidence pool. We believed the market misunderstood the actual long-term clinical impact on dialysis and were able to purchase at attractive valuation levels.

BSD Analysis:
Ariel initiated positions in both DaVita and Fresenius Medical Care following market concerns about GLP-1 weight-loss drugs' potential impact on dialysis demand, creating attractive entry points. The fund views market fears as overblown, believing the actual impact on dialysis volumes will be minimal in the near-to-medium term even under high GLP-1 adoption scenarios. Ariel's contrarian thesis suggests that GLP-1 drugs' cardioprotective effects may actually extend patient lifespans, potentially increasing the overall end-stage renal disease patient pool over time. The fund emphasizes DaVita's extensive network of over 2,700 outpatient dialysis centers across 45+ states and international operations spanning 12 countries. Management believes the market fundamentally misunderstood the long-term clinical implications of GLP-1 therapy on dialysis demand. This misunderstanding created valuation opportunities in leading dialysis providers with established market positions and essential healthcare services.

Pitch Summary:
We found an attractive entry point for London based, agriculture machinery manufacturer, CNH Industrial NV (CNHI), as shares are currently pricing in multi-year declines similar to the slope of the last agricultural downcycle (2014-2016). Although farm incomes have begun to moderate and will likely translate to lower machinery purchasing in 2024, our analysis of U.S. farm fundamentals suggests the severity and longevity of the next downcycle will likely be shallower and shorter in duration. Additionally, CNHI remains on track to deliver on previously articulated operational efficiency and cost savings targets, which should drive margin improvement and profitability growth over the near to medium term. Looking ahead, we believe the industry will benefit from precision agriculture.

BSD Analysis:
Ariel initiated a position in CNH Industrial at what it views as an attractive entry point, with shares pricing in multi-year declines similar to the 2014-2016 agricultural downcycle. While acknowledging near-term headwinds from moderating farm incomes and expected lower machinery purchases in 2024, the fund's analysis suggests the upcoming downcycle will be both shallower and shorter than historical precedents. The investment thesis is supported by CNHI's operational execution, with management on track to deliver previously announced efficiency and cost savings targets. Ariel expects these initiatives to drive margin improvement and profitability growth over the medium term. The fund sees long-term structural tailwinds from precision agriculture adoption, which should benefit equipment manufacturers like CNHI. Management views current valuation as attractive given the company's operational improvements and the likely less severe nature of the agricultural cycle compared to market expectations.

Pitch Summary:
Finally, Japanese auto manufacturer, Subaru Corporation, weighed on results in the period. We believe this recent price action to be primarily driven by appreciation in the Japanese yen and think the weakness in shares runs counter to the company's strong business model. Subaru recently reported healthy earning results driven by robust demand in North America and lower raw materials prices. We remain focused on Subaru's solid business fundamentals and view its EV roadmap as a long-term opportunity to increase market share.

BSD Analysis:
Ariel views recent weakness in Subaru shares as primarily currency-driven rather than fundamental, with Japanese yen appreciation creating headwinds for the stock price. The fund emphasizes that this price action contradicts the company's strong underlying business model and recent operational performance. Management highlights Subaru's healthy earnings results, supported by robust North American demand and favorable raw material cost trends. Ariel maintains focus on the company's solid business fundamentals, viewing temporary currency impacts as disconnected from operational reality. The investment thesis includes Subaru's electric vehicle roadmap as a long-term growth catalyst and market share expansion opportunity. The fund appears to view current levels as attractive given the disconnect between currency-driven price weakness and strong fundamental performance. Ariel's conviction in Subaru reflects confidence in the company's North American market position and strategic EV transition planning.

Pitch Summary:
Biopharmaceutical company, Bristol-Myers Squibb Company (BMY), also underperformed in the quarter on mixed earnings results and a reduction in guidance due to a delay across several new product launches. Although the company's mid- to long-term targets remain intact, management expects a transition period before the company returns to top-tier growth. In our view, many of the new drugs represent either the first-in-class (the first molecule approved by the FDA) or best efficacy opportunities and believe the new product portfolio should outperform expectations over time. Meanwhile, management remains bullish on its maturing pipeline and reaffirmed it will continue to seek business development through bolt-on acquisitions and licensing deals.

BSD Analysis:
Ariel maintains a constructive view on Bristol-Myers Squibb despite near-term execution challenges that led to mixed Q4 earnings and reduced guidance due to new product launch delays. The fund acknowledges management's expectation of a transition period before returning to top-tier growth, but remains confident in the company's mid-to-long-term targets. Ariel's investment thesis centers on BMY's innovative pipeline, emphasizing that many new drugs represent either first-in-class molecules or best-in-class efficacy profiles. The fund believes this differentiated product portfolio will outperform market expectations over time as launches normalize. Management's continued focus on business development through strategic acquisitions and licensing deals provides additional growth optionality. Despite current headwinds, Ariel views BMY's pipeline quality and management's bullish outlook on maturing assets as supporting the long-term investment case for this leading biopharmaceutical company.

Pitch Summary:
By comparison, China's internet search and online community leader, Baidu, Inc. traded lower alongside Chinese equities as intensifying problems in China weighed on investor sentiment during the period. The company continues to invest heavily in Artificial Intelligence (AI) and recently launched its generative AI, Ernie Bot, aimed at rivaling Open AI's ChatGPT. While monetization of the new technology is largely dependent on regulatory review, we think Baidu should continue to experience margin improvement with the ongoing implementation of efficiency and profitability initiatives. While some investors remain on the sidelines due to uncertainty surrounding China's economic growth, government regulations, and the political rhetoric towards Taiwan, we remain enthusiastic about Baidu's longer-term opportunity for revenue growth and margin expansion across internet search, cloud, autonomous driving, artificial intelligence and online video.

BSD Analysis:
Despite near-term headwinds affecting Chinese equities, Ariel maintains conviction in Baidu's long-term prospects as China's leading internet search and online community platform. The fund acknowledges the company's significant AI investments, particularly the launch of Ernie Bot, its generative AI platform designed to compete with ChatGPT. While AI monetization remains subject to regulatory approval, management expects continued margin improvement through ongoing efficiency and profitability initiatives. Ariel recognizes investor concerns regarding China's economic growth, regulatory environment, and geopolitical tensions, but remains optimistic about Baidu's diversified growth opportunities. The investment thesis spans multiple business lines including internet search, cloud services, autonomous driving, artificial intelligence, and online video. The fund views current market sentiment as creating an attractive entry point for a dominant Chinese technology platform with significant AI capabilities and multiple growth vectors.

Pitch Summary:
Global communications and technology leader, Verizon Communications Inc. also traded higher in the period following solid earnings results, highlighted by postpaid consumer net additions and an upward revision to free cash flow guidance. From a competitive and financial standpoint, we view Verizon to be among one of the best positioned telecoms in the world. The company's solid long-term fundamentals are underscored by its predictable, recurring revenue streams and ~7% dividend yield. At current levels, Verizon is trading near an all-time low valuation presenting a compelling total return story for patient investors.

BSD Analysis:
Ariel maintains a bullish stance on Verizon, viewing it as one of the world's best-positioned telecommunications companies from both competitive and financial perspectives. The fund was encouraged by solid Q4 earnings results, particularly postpaid consumer net additions and management's upward revision to free cash flow guidance. Ariel emphasizes Verizon's attractive fundamental characteristics, including predictable recurring revenue streams and a substantial ~7% dividend yield. The investment thesis is anchored on valuation, with shares trading near all-time low multiples despite the company's strong competitive position. Management believes this valuation disconnect creates a compelling total return opportunity for patient investors. The fund views Verizon's defensive characteristics and cash generation capabilities as particularly attractive in the current market environment.

Pitch Summary:
New holding, Intel Corporation, one of the world's largest semiconductor chip manufacturers by revenue, outperformed in the quarter. Intel is benefitting from the near-term rebound in semiconductor demand driven by the cyclical recovery of personal computers (PCs) and central processing units (CPUs). Shares also traded higher following the company's Artificial Intelligence (AI) Everywhere launch event. Intel introduced its capabilities across cloud, edge and client hardware and showcased it can benefit from an enterprise upgrade cycle as both cloud-based and traditional enterprises look to incorporate AI features into core technology platforms. In our view, the market is also overlooking the progress Intel has made towards regaining its manufacturing technology advantage and believe the foundry business will continue to experience strong momentum as it grows its customer base and revenue. We purchased Intel Corporation, one of the world's largest semiconductor chip manufacturers by revenue. We believe Intel is well-positioned to benefit from the near-term rebound in semiconductor demand driven by the cyclical recovery of personal computers (PCs) and central processing units (CPUs). In our view, the market is also overlooking the progress Intel has made towards regaining its manufacturing technology advantage and believe the foundry business will continue to experience strong momentum as it grows its customer base and revenue.

BSD Analysis:
Ariel initiated a position in Intel during Q4 2023, viewing the semiconductor giant as undervalued amid a cyclical recovery in PC and CPU demand. The fund highlights Intel's AI Everywhere launch event as a catalyst, demonstrating the company's capabilities across cloud, edge, and client hardware platforms. Management believes Intel is well-positioned to benefit from enterprise AI adoption cycles as businesses integrate AI features into core technology platforms. The investment thesis centers on Intel's progress in regaining manufacturing technology leadership and the foundry business's momentum in expanding its customer base. Ariel sees the market overlooking Intel's operational improvements and foundry growth potential. The position represents a contrarian bet on Intel's ability to capitalize on both cyclical semiconductor recovery and secular AI trends. At current levels, the fund views Intel as attractively valued relative to its technological capabilities and market positioning.

Pitch Summary:
Global leader in money transfer services, Western Union Company (WU), traded lower in the period, despite the delivery of solid earnings and a subsequent raise in full year guidance. These results were aided by regulatory change in Iraq and margin expansion in the retail business. Meanwhile, management continues to make progress executing on its Evolve 2025 Strategy and continues to return capital to shareholders through dividends and share repurchases. Although the company anticipates the macroeconomic environment will continue to slow, it reminded investors remittances have proved resilient in prior periods of economic contraction. At current levels, WU is trading at a discount to our estimate of private market value.

BSD Analysis:
Ariel maintains a bullish stance on Western Union despite recent share price weakness, citing solid earnings results and raised full-year guidance that demonstrate underlying business strength. The positive impact from regulatory changes in Iraq and margin expansion in the retail business highlight operational improvements and market opportunities. Management's continued progress on the Evolve 2025 Strategy suggests successful execution of long-term transformation initiatives. The commitment to returning capital through dividends and share repurchases demonstrates confidence in cash generation capabilities. Western Union's reminder that remittances have historically proven resilient during economic contractions provides defensive characteristics in uncertain macro environments. The global money transfer leader's established network and market position offer competitive advantages in serving underbanked populations worldwide. At current valuation levels trading below estimated private market value, the market appears to be overlooking the company's defensive qualities and strategic progress.

Pitch Summary:
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 a bullish long-term view on BorgWarner despite recent earnings disappointment and reduced guidance driven by EV launch delays and slower OEM sales momentum. While near-term headwinds from delayed electric vehicle launches have pressured results, management's expectation of over $10 billion in annual EV sales by 2027 demonstrates significant long-term growth potential. The company's diversified portfolio across combustion, hybrid, and electric vehicle technologies provides multiple avenues for growth regardless of adoption timing. BWA's strong positioning in low-emission combustion and hybrid technologies offers near-term revenue stability while EV adoption accelerates. The company's technological capabilities across the entire powertrain spectrum position it well to capture value throughout the automotive industry's electrification transition. Ariel expects intrinsic value growth as the hybrid and EV markets evolve, making current weakness a potential opportunity for patient investors.

Pitch Summary:
Oil and natural gas explorer, APA Corporation (APA), declined despite delivering healthy earnings results, the operational momentum was overshadowed by a softer than expected 2024 outlook for oil production. Investors were also disappointed with the flat capital expenditure guide for 2024, as management decided to reallocate savings from the North Sea to the Permian Basin. Meanwhile, APA continues to express confidence in the Suriname development and is working with TotalEnergies to complete a plan for the oil hub. Looking ahead, APA is focused on higher-margin oil developments, driving safety and operational improvements, and prioritizing a reduction in carbon intensity. At current valuation levels, APA is trading at a discount to our private market value estimate.

BSD Analysis:
Despite recent share price weakness, Ariel maintains a bullish stance on APA Corporation based on healthy earnings results and strong operational fundamentals. While investors were disappointed by the softer 2024 oil production outlook and flat capital expenditure guidance, management's strategic reallocation from the North Sea to the higher-return Permian Basin demonstrates disciplined capital allocation. The continued confidence in the Suriname development, being advanced with partner TotalEnergies, represents significant long-term value creation potential. APA's strategic focus on higher-margin oil developments should drive improved returns on invested capital over time. The emphasis on safety, operational improvements, and carbon intensity reduction positions the company well for the evolving energy landscape. At current valuation levels trading below estimated private market value, the market appears to be overlooking the company's operational progress and strategic positioning.

Pitch Summary:
Additionally, manufacturer and distributor of floorcovering products, Mohawk Industries Inc. (MHK), traded up in the period following a top- and bottom-line earnings beat. Although consumer demand and pricing remains muted due to a challenging macro backdrop, higher than expected sales volumes and cost deflation more than offset these headwinds. Management also expects 2024 margins will experience tailwinds from lower cost inventory and remains optimistic volumes will increase as the housing market improves over time. In our view, MHK's healthy balance sheet and success managing through economic cycles have the company well positioned to benefit from long-term growth in residential remodeling, new home construction and commercial projects. At current levels, MHK is trading at a -57% discount to our estimate of private market value.

BSD Analysis:
Ariel presents a compelling value opportunity in Mohawk Industries following strong quarterly results that exceeded both revenue and earnings expectations despite challenging macro conditions. The company demonstrated operational resilience with higher-than-expected sales volumes and beneficial cost deflation offsetting muted consumer demand and pricing pressure. Management's outlook for 2024 margin expansion driven by lower-cost inventory provides near-term earnings visibility. The expectation for volume growth as housing markets recover positions MHK for cyclical upside. Ariel emphasizes the company's healthy balance sheet and proven track record of navigating economic cycles as key competitive advantages. The positioning to benefit from long-term growth in residential remodeling, new construction, and commercial projects offers multiple avenues for expansion. At a 57% discount to estimated private market value, the current valuation presents significant upside potential for patient investors.

Pitch Summary:
Global investment bank, Goldman Sachs Group, Inc. (GS), also increased in the period on solid earnings results. The top-line came in strong led by elevated financing activity and an improvement in advisory revenues, despite weak transaction volumes within the investment banking segment. Should conditions remain conducive, management remains cautiously optimistic the business will experience continued recovery in both capital markets and strategy activity. Meanwhile, GS continues to successfully execute on its strategic initiatives to improve the overall return of the company. It is right sizing headcount and narrowing its ambitions in consumer strategy through divestitures and an enhanced focus on driving profitability in Platform Solutions by 2025. With potential regulatory capital constraints from B3E, GS noted it will reign in buybacks over the short-term but maintain its dividend. Looking ahead, we continue to view the near and long-term outlook for Goldman as attractive at current levels, given favorable business trends, continued positive momentum on strategic initiatives and active expense/capital management programs.

BSD Analysis:
Ariel maintains a bullish outlook on Goldman Sachs following solid quarterly earnings driven by strong financing activity and improved advisory revenues, despite weakness in investment banking transaction volumes. Management's cautious optimism about continued recovery in capital markets and strategy activity suggests improving business momentum ahead. The firm is executing well on strategic initiatives to enhance returns, including right-sizing headcount and refocusing consumer strategy through divestitures. The emphasis on driving Platform Solutions profitability by 2025 demonstrates disciplined capital allocation and strategic focus. While Basel III Endgame regulations may constrain near-term buybacks, the commitment to maintaining dividends provides income stability. Ariel views current valuation levels as attractive given favorable business trends and continued progress on strategic initiatives. The combination of operational improvements and active expense management positions Goldman well for sustained outperformance.

Pitch Summary:
Manufacturer and distributor of medical devices specializing in spine and dental products, ZimVie, Inc. (ZIMV), advanced following a top- and bottom-line earnings beat and subsequent increase in full year guidance. Also in the quarter, ZIMV announced an agreement to sell its Spine business to an alternative investment firm, further aiding shares. Management believes the deal will be accretive to ZIMV's revenue growth, EBITDA margin and cash flow conversion, enabling it to streamline operations and use the sale proceeds to pay down debt. We believe the divestiture allows ZIMV to reshape its portfolio as a pure-play dental company in higher-growth end markets with the best long-term growth potential.

BSD Analysis:
Ariel presents a compelling bull case for ZimVie following strong quarterly results that exceeded both revenue and earnings expectations, prompting management to raise full-year guidance. The strategic divestiture of the Spine business represents a portfolio transformation that should enhance financial metrics across multiple dimensions. Management expects the transaction to be accretive to revenue growth, EBITDA margins, and cash flow conversion while providing proceeds to reduce debt burden. The repositioning as a pure-play dental company positions ZIMV in higher-growth end markets with superior long-term prospects compared to the spine segment. This strategic focus should allow for streamlined operations and improved capital allocation. The combination of strong operational execution and strategic portfolio optimization creates a favorable setup for sustained outperformance. At current levels, the market appears to undervalue the benefits of this transformation.

Pitch Summary:
Pinterest, Inc. is a social media platform that enables visual discovery and generates revenue mainly through online advertising and e-commerce. Earnings declined after the company saw tremendous user and revenue growth in 2020-2021 and grew operating expenses as if the pandemic-fueled growth trajectory would continue. Normalized growth trends and a macro slowdown that affected ad spend eventually hurt earnings per share. We believed that Pinterest had a significant opportunity to resume earnings growth because: 1. Pinterest has an attractive franchise and appears under-monetized vs. social media peers given how well its user experience lends itself to online shopping. 2. Its new CEO, who led commerce initiatives at Google, may portend a virtuous self-help/self-improvement opportunity to unlock monetization. 3. The high levels of operating expense growth vs. sales prior to our investment provides an opportunity for leverage and expense reductions to improve earnings. Pinterest's stock performed well in the quarter as the thesis played out and the company reported strong results while raising 2023 guidance. We pared back our position during the quarter due to stock appreciation and as the investment becomes less contrarian as our thesis plays out.

BSD Analysis:
Meridian's Pinterest investment thesis focused on monetization potential and operational leverage following post-pandemic normalization. The fund identified Pinterest as under-monetized relative to social media peers, particularly given the platform's visual discovery format that naturally facilitates e-commerce conversion. The hiring of a new CEO with Google commerce experience provided catalyst confidence for unlocking monetization improvements through enhanced shopping features and advertising effectiveness. The key opportunity lay in expense leverage, as Pinterest had grown operating costs during pandemic growth that exceeded normalized revenue trends, creating margin expansion potential through cost discipline. Recent strong performance validated the thesis as Pinterest delivered strong results and raised guidance, prompting Meridian to trim their position as the investment became less contrarian. The fund's decision to reduce exposure reflects successful thesis execution rather than fundamental concerns, with Pinterest demonstrating the earnings recovery potential that initially attracted their contrarian investment.

Pitch Summary:
The Honest Company, Inc. is a consumer products company focused on developing natural baby-care consumables, cosmetics, soaps, and other household supplies. Honest went public in 2021 as the pandemic helped drive high demand for its cleaning products. Subsequently, global supply chain challenges proved exceptionally tough for the smaller company. We view the Honest brand as an authentic differentiator that has outgrown its categories despite the operational challenges that significantly hurt recent earnings potential. The Honest Company's outperformance in the quarter and second half of 2023 was driven by the company showing increased traction on sales returning to growth – despite significant SKU rationalization – along with deepening relationships with the largest retailers in the US, Walmart, Target, and others. The results increased optimism into 2024 and beyond as the new management team makes improvements to the company's product positioning, along with improving cost control. With significant white space to grow sales of its winning products on shelves and online, we expect The Honest Company to see years of growth and increasing returns. We added to our net holding over the course of 2023 to take advantage of the deeply discounted stock. Yet, we harvested some tax losses early in the fourth quarter to manage taxes and maintain appropriate risk exposure.

BSD Analysis:
Meridian's Honest Company investment represents a contrarian bet on brand strength and operational recovery following post-pandemic normalization challenges. The fund views Honest's natural product positioning as an authentic differentiator that has demonstrated category outgrowth despite supply chain headwinds that particularly impacted smaller companies. Recent performance improvement stems from sales growth resumption despite SKU rationalization, suggesting underlying brand strength and improved operational focus under new management. Deepening relationships with major retailers like Walmart and Target provide distribution validation and growth runway. The fund sees significant white space for expansion both in physical retail and online channels, with new management driving improved product positioning and cost control. Meridian accumulated shares throughout 2023 at discounted valuations while using tax-loss harvesting to manage risk, reflecting confidence in the multi-year growth and margin expansion opportunity.