Investment Pitches

Pitch Summary:
Dentalcorp continues to be a very steady business - with consistent mid single digit organic growth and acquisitions being integrated seamlessly. We believe there are several tailwinds at the back of Dentalcorp. First and foremost, margins should be expanding in the next 12 months, as the inflation costs that have been making margin expansion very difficult finally subside. DNTL's stock has seen significant pressure, down 34% LTM (S&P/TSX, -1%) with the valuation now at ~8x NTM EBITDA. We spoke to someone who works in M&A at their main competitor, 123 Dentist with several key takeaways. 1. Margins have improved the last few months and he expects them to continue improving as labor inflation has receded 2. He believes platform dental assets are currently being valued at 12-13x and should be valued at 14-15x in a normal environment 3. He has respect for Dentalcorp and would be comfortable personally investing in the company. He thinks the shares are dramatically undervalued. The main issue with Dentalcorp the past few years has been the margin headwinds they have faced as a result of inflation. It was music to our ears to hear that the labor headwinds affecting the industry are beginning to abate, and we think this will be a significant positive for Dentalcorp as the inflationary pressures impact them less going forward. Additionally, we think the shares will re-rate higher and think (and the comps support our analysis) that Dentalcorp is worth more than 100% upside from where it is currently trading today. While it is hard to predict when the multiple re-rates, we are comfortable owning a business that trades below 10x free cash flow that will grow free cash flow 15-20% over the next 5 years regardless of the economic environment. We think as the company de-levers and margins expand while concurrently growing the business, the multiple should expand dramatically.

BSD Analysis:
Buckley Capital identifies Dentalcorp as an undervalued consolidation play in Canadian dental services, trading at just 8x NTM EBITDA despite consistent mid-single-digit organic growth and successful acquisition integration. The investment thesis hinges on margin recovery as labor inflation pressures subside after creating significant headwinds over recent years. Primary research with a competitor (123 Dentist) validates the margin improvement narrative and suggests platform dental assets should trade at 14-15x EBITDA versus current 12-13x levels. The 34% stock decline versus flat S&P/TSX performance has created an attractive entry point for a defensive healthcare services business. Management's deleveraging strategy combined with margin expansion and continued growth should drive multiple re-rating over time. At below 10x FCF with projected 15-20% FCF growth over five years, the risk-reward appears compelling even in challenging economic environments. The fund sees potential for 100%+ upside as margins normalize and the multiple expands to peer levels, supported by the company's market-leading position in Canadian dental consolidation.

Pitch Summary:
Light and Wonder has been a very successful position for us since our purchase in late September last year at around $43/share. It was a lollapalooza - a perfect confluence of events that gave us an incredible business run by a great management team at an exceptional price. Light and Wonder was previously an over-levered business that we had followed for years. At peak, Light and Wonder was levered at 10.5x. Last year they finalized divesting their Lottery and Sports businesses for $6.5 billion and have reduced their debt by $4.8bn dollars since December 2021. Most recently, in Q2 2023 LNW was levered at 2.9x (with the intent to be between 2.5-3.5x net debt/EBITDA over time). We purchased the business at 9.5x our estimate of forward free cash flow for a business with high recurring revenues (roughly 70%), significant growth, an appropriate leverage profile, and an exceptional management team. Light and Wonder competes primarily with Aristocrat and IGT selling slot machines on a global basis. Aristocrat has been the most successful of the three, with the stock up over 10x over the last 15 years. Light and Wonder has poached 65 executives from Aristocrat, and now is essentially running the exact playbook of Aristocrat that was so successful over the past 15 years. We purchased a highly predictable business, run by a new, very competent and highly motivated management team at an extremely reasonable price. If they hit their targets, LNW could generate close to $10 in FCF per share in 2025. Historically, Aristocrat traded at a high teens or low 20's multiple of FCF, which would imply roughly a triple from today's prices (and a 5x from our initial purchase price) should LNW hit their targets and trade at Aristocrat's historic multiple. In the most recent quarter, LNW grew adjusted EBITDA 33% YoY, showing that the combination of a great team re-energizing and refocusing this business is producing exceptional results. Light and Wonder has taken significant market share in Australia over the last few years as a result of the management refresh, roughly doubling their market share from 10 to 20%. Australia is a heavy gaming country, and is often viewed as a bellwether for global gaming. We are starting to see data that the market share gains in Australia are starting to shift into North America, a much larger and more important market.

BSD Analysis:
Buckley Capital presents a compelling turnaround story in Light and Wonder, emphasizing the dramatic deleveraging from 10.5x to 2.9x debt/EBITDA following $6.5 billion in asset sales. The fund's thesis centers on management transformation, with LNW poaching 65 executives from market leader Aristocrat and implementing their proven playbook. The valuation appears attractive at 9.5x forward FCF for a business with 70% recurring revenues and significant growth potential. Recent operational momentum supports the thesis, with 33% YoY EBITDA growth and market share doubling in Australia from 10% to 20%. The Australian success is particularly noteworthy as it's considered a bellwether for global gaming trends, with early signs of expansion into the larger North American market. If LNW achieves management's FCF targets of $10 per share by 2025 and trades at Aristocrat's historical high-teens to low-20s FCF multiple, the stock could triple from current levels. The combination of operational improvements, market share gains, and multiple expansion potential creates a compelling risk-reward profile.

Pitch Summary:
I have discussed OSW at length previously, including our Q3 2022 letter which partners should refer to for a deeper review of the business. In this letter, I want to highlight my view of the downside risks to our investment, which is at the core of why I am comfortable holding a large position. First, some basic math. After struggling along with the rest of the cruise industry for the last few years, OSW has at last returned to profitability and is on pace to earn ~$85MM in 2023 EBITDA and ~$100MM in 2024 on my estimates. As OSW's business is conducted at sea and cruise lines are responsible for the buildout of the ships' spas, OSW has minimal taxes and capex needs, which results in ~90% EBITDA to FCF conversion. With ~100mm shares outstanding, that corresponds with ~$0.75 in levered FCF/sh. this year heading towards ~$1.00 in 2024, depending upon the size of any share buybacks. At current prices, this corresponds to an ~8-10% yield, which combined with my strong belief that 1) OSW can consistently grow sales in line to slightly above overall cruise passenger growth (see chart below) and 2) OSW's management and board are good stewards of capital committed to returning cash to shareholders, yields a high teens IRR. We also could benefit from multiple expansion, but this is not necessary to my thesis. While I find OSW's discount to the market and long-term IRR math compelling, what really drives my enthusiasm is OSW's limited competition and only modest cyclicality. Regarding competition, OSW is a quasi-monopoly, meaning there is low risk that competitive pressures stop OSW from realizing growth in-line with the broader industry. Please refer to our Q3 2022 letter for a deeper discussion of OSW's competitive position. On cyclicality, OSW has been resilient during prior recessions. Cruise lines are highly incentivized to fill their ships given the low incremental marginal cost per passenger. As a result, cruise ships are almost always operated at max capacity. While weak consumer sentiment can impact onboard spend per passenger, OSW historically has executed well and only saw a 10% decline in sales, with EBITDA declining even less, during the 2009 recession. This mix of low competitive pressure and low cyclical risk makes OSW not just a strong IRR but a highly probable one as well. Further, I am favorably inclined to the IRR being driven significantly by yield rather than just growth, as it presents an opportunity for long-term shareholders to benefit if the share price falls in the short term. OSW has ~$140MM of net debt at present versus ~$60-$70MM of post-tax FCF earnings power in a recession. With no significant risk of extremely large operating declines barring another pandemic, I believe OSW would be an active share repurchaser. Taking a step back, I want to discuss OSW in the context of our overall "preserve capital and hit home runs" strategy. While a high-teens IRR is a good outcome for any investment, it is not exactly a "home run" in the way SHC doubling earlier this year was. The reality is that there are many stocks in the market that could meet OSW's IRR potential. For instance, I track several homebuilders trading at similar or even cheaper forward yields. If housing demand increases, recent land purchases prove well-timed, and sub-market competition remains modest, these stocks are very likely to achieve the same or better IRRs. However, if "higher for longer rates" drive a multiyear slowdown, builders purchased excess land at the top, and/or competitive pressures in specific sub-markets increase, these factors could overwhelm even well-run homebuilders and result in a lousy IRR with a lot of downside volatility. Further, most builders are capital intensive and will look to preserve cash in a downturn, the opposite of what long-term shareholders should want if they must suffer short-term market declines. As I can plausibly see any of these risks happening, I require higher IRR potential to invest in homebuilders, thus I am typically looking to buy homebuilders trading at distressed prices where "home runs" are possible. In contrast, OSW faces significantly less risk of a large multi-year downturn, which I believe makes its present high-teens IRR attractive. I may not see a path toward OSW rallying 200% anytime soon, but I also see low odds the shares will fall 50%. Further, if my market call is wrong and OSW shares were to decline dramatically, I can see significantly increasing our investment. I cannot control what prices our stocks trade, but I can control what stocks we own. My strategy is to limit my selection to those where either: 1) I am highly confident if the seas change, the business will be resilient and I would be comfortable adding significantly, or 2) the business is already priced for a worst-case scenario with sufficient liquidity to weather the storm. I believe OSW meets these criteria.

BSD Analysis:
McIntyre presents a compelling bull case for OneSpaWorld based on its quasi-monopolistic position in cruise ship spa services and defensive business characteristics. The manager projects OSW will generate $85MM EBITDA in 2023 rising to $100MM in 2024, with exceptional 90% EBITDA-to-FCF conversion due to minimal capex and tax requirements. At current prices, this translates to an 8-10% FCF yield with high-teens IRR potential driven by consistent growth aligned with cruise passenger volumes and disciplined capital allocation. The investment thesis centers on OSW's limited competition and recession resilience, having experienced only 10% sales decline during 2009 despite broader economic weakness. McIntyre emphasizes the defensive nature of the investment, noting cruise lines' incentive to maintain capacity utilization and OSW's ability to maintain pricing power. The manager views OSW as fitting his "preserve capital" strategy due to low downside risk and the company's capacity for share repurchases during market volatility. While acknowledging OSW may not deliver "home run" returns like other portfolio positions, McIntyre values the high probability of achieving projected returns with limited cyclical exposure.

Pitch Summary:
One recent example from our portfolio may be seen in our purchase of UnitedHealth Group (UNH). A few months ago, shares of UNH surfaced on our quantitative screens ranking potential ideas on the basis of free cash flow yield (as an improved proxy for earnings yield measures). Incidentally, UNH, a generally well-regarded and high-quality healthcare firm, had a free cash flow yield measuring 8.9% which stood out on three perspectives: 1. above its previous high set during the panic of COVID, 2. two standard deviations from its long-term mean, and 3. more than twice the free cash flow yield of 3.8% found on the S&P 500 Index. A valuation at that level begs rather simple questions and decision points, for instance, is UNH's outlook worse today than in the depths of COVID, or is the S&P 500 two times more attractive as an investment than one of the best-operated healthcare enterprises in the industry? Based on our research, the answers were no to both. Instead, we believe the bargain valuation reflected a mix of three factors, including 1. a market avoidance towards dividend growth stocks (due to higher interest rates) that pressured those names to be more competitive with treasuries, 2. near-term earnings concerns over latent demand for surgical services following COVID, and then 3. some uncertainty surrounding the effect of GLP-1s (Ozempic) on many aspects of the U.S. economy including medical device makers, food companies, and in this case, even healthcare payers and providers. In the months since UNH has reported earnings that beat expectations and helped calm fears over its fundamental strengths relating to these market forces. After further modeling and research, we found a probable outcome for future growth in free cash flows over the next several years of approximately 13%, compared with its historical record of 15.1% in the previous five years. All told, investors at the current valuation would receive 8.9% through UNH's current free cash flow, and then the potential of 13% annualized growth in those cash flows over the next five years. From a fundamental perspective, UNH's ability to continue executing its healthcare payer and provider model seems probable, in our opinion. To start, we believe the company's aggressive push into technology combined with the scale of its network confers a durable competitive advantage in terms of growing both sides of its business model. Our research suggests that UNH has considerable leverage in its negotiations with providers, supported by its large and expanding data enterprise—employing machine learning and AI techniques. Moreover, we believe UNH has the capital and expertise to continue building out its OptumCare business which includes healthcare professionals and key growth segments including home care. Home care in particular will be a continued focus for UNH and competitors as the current quality or absence of care can be increased in many regards, but also at a much lower cost (given the absence of hospital overhead). Finally, we believe that the secular demographic drivers related to an aging population in the U.S. provide an important growth tailwind for UNH and others. For example, the U.S. Census reports that the cohort of Americans aged 65 and over are growing at the fastest rate on record, dating back to the late 1800s. In the past ten years, from 2010-2020, the census reports that Americans aged 65 and over increased by 38.6%. Going forward, we look for UNH to continue expanding its free cash flows due to its strategic plan and strengths, as well as reward shareholders through its consistent reward of dividends and share repurchases.

BSD Analysis:
Templeton & Phillips presents a compelling value thesis for UnitedHealth Group based on an attractive 8.9% free cash flow yield that significantly exceeds both historical norms and the S&P 500's 3.8% yield. The managers identified UNH trading at two standard deviations below its long-term mean, creating what they view as a temporary mispricing driven by market concerns over dividend growth stocks in a higher rate environment, post-COVID surgical demand normalization, and GLP-1 drug uncertainty. The firm projects 13% annual free cash flow growth over the next five years, slightly below the historical 15.1% but still robust given the company's competitive positioning. UNH's dual healthcare payer and provider model benefits from significant scale advantages, advanced data analytics capabilities, and expanding OptumCare operations, particularly in the growing home care segment. The investment thesis is further supported by powerful demographic tailwinds, with Americans aged 65+ growing at record rates and increasing 38.6% from 2010-2020. The managers view UNH as a high-quality healthcare enterprise with durable competitive advantages that should benefit from both its strategic positioning and favorable long-term industry dynamics. Recent earnings beats have validated their thesis and helped alleviate market concerns about the company's fundamental strength.

Pitch Summary:
JOE owns approximately 170,000 acres in the Florida Panhandle. It has been widely known that JOE traded for a tiny fraction of its liquidation value for years, but without a catalyst, it was always perceived to be "dead money." Over the past few years, the population of the Panhandle seems to have hit a critical mass where the Panhandle now has a center of gravity that is attracting people who want to live in one of the prettiest places in the country, with zero state income taxes and few of the problems of large cities. The oddity of the current disdain for so-called "value investments" is that many of them are growing quite fast. I believe that JOE will grow revenue at 30% to 50% each year for the foreseeable future, with earnings growing at a much faster clip. Meanwhile, I believe the shares trade at a single-digit multiple on Adjusted Funds from Operations (AFFO) looking out to 2024, while substantial asset value is tossed in for free. Besides the valuation, growth, and high Return on Invested Capital (ROIC) of the business, why else do I like JOE? For starters, land tends to appreciate rapidly during periods of high inflation—particularly an inflationary period where interest rates are likely to remain suppressed by the Federal Reserve. More importantly, I believe we are about to witness a massive population migration as people with means choose to flee big cities for somewhere peaceful. I suspect that every convulsion of urban chaos and/or tax-the-rich scheming will launch JOE shares higher, and it will ultimately be seen as the way to "play" the stream of very wealthy refugees fleeing for somewhere better.

BSD Analysis:
The manager identifies St. Joe as a compelling real estate development play benefiting from demographic shifts to Florida. He argues the Florida Panhandle has reached critical mass for population growth, attracting residents seeking low taxes and quality of life away from urban centers. The investment thesis combines deep value characteristics with high growth potential, projecting 30-50% annual revenue growth while trading at single-digit AFFO multiples. The manager views JOE as an inflation hedge given land appreciation during inflationary periods, particularly with suppressed interest rates. The demographic migration theme from cities to peaceful locations provides a powerful long-term catalyst. This represents a classic inflection point investment where previous "dead money" perception masks accelerating fundamentals and multiple expansion potential.

Pitch Summary:
It may take some time still, but I believe that society will eventually settle on nuclear power as a compromise solution for baseload power generation. This will come at a time when there is a deficit of uranium production, compared with growing demand. As aboveground stocks are consumed, uranium prices should appreciate towards the marginal cost of production. Additionally, there is currently an entity named Sprott Physical Uranium Trust (U-U – Canada) that is issuing shares through an At-The-Market offering, or ATM, in order to purchase uranium (we are long this entity). I believe that these uranium purchases will accelerate the price realization function by sequestering much of the available above-ground stockpile at a time when utilities have run down their inventories and need substantial purchases to re-stock. The combination of these factors ought to lead to a dramatic increase in the price of uranium as it will take multiple years for sufficient incremental supply to come online—even if the re-start decision were made today.

BSD Analysis:
The manager presents a compelling nuclear energy thesis centered on uranium supply-demand fundamentals. He anticipates nuclear power will become the preferred baseload solution amid growing energy needs, creating structural uranium demand growth. The investment case hinges on a supply deficit as above-ground inventories are depleted while new production capacity requires years to develop. Sprott's ATM offering creates additional demand pressure by removing uranium from available supply precisely when utilities need to rebuild depleted stockpiles. The manager expects uranium prices to rise toward marginal production costs, suggesting significant upside potential. This represents a classic commodity cycle play with strong fundamental support and a clear catalyst mechanism through Sprott's ongoing purchases.

Pitch Summary:
Glass House (OTC: GLASF) announced yet another excellent quarter, which beat every forecast. But the most remarkable thing was the company announcing that production was much higher than expected. Glass House announced a production increase that was at least 30% greater than my estimate and announced that they expect ongoing annual production to be approximately 30% higher than they previously thought. Instead of 270,000 pounds of annual biomass production, they now expect at least 350,000 pounds and there may be further opportunities to improve from even that number. I don't think it is any coincidence that the two companies with the highest growth rates in cannabis (Grown Rogue and Glass House) are also the best performing cannabis stocks for the year.

BSD Analysis:
Edelheit highlights Glass House's exceptional operational performance, with the company significantly exceeding production expectations in their latest quarter. The manager emphasizes a substantial 30% upward revision in annual production capacity from 270,000 to at least 350,000 pounds of biomass, representing a major step-function improvement in the company's operational capabilities. This production increase suggests strong execution on scaling operations and optimizing cultivation processes. The fund also benefits from preferred equity investments in Glass House, generating over 20% annual interest payments plus warrants, providing downside protection while maintaining upside participation. Edelheit notes the correlation between operational excellence and stock performance, positioning Glass House alongside Grown Rogue as top performers in the cannabis sector. The production surprise indicates management's conservative guidance and potential for further operational improvements. The investment combines current income generation through preferred dividends with significant equity upside as the company scales production and benefits from potential cannabis rescheduling tailwinds.

Pitch Summary:
Grown Rogue is an investor's dream. It is a company with demonstrated operational and cost advantages that has a long reinvestment runway with extremely high returns on invested capital. In fact, in a Schedule 3 world with some financial protections from SAFER Banking, this is a lender or a private equity firm's dream investment. And the company is starting to go on the offensive with its cost advantages including entering the state of New Jersey. What happens when a company that is free cash flow positive at $800 to $900 flower prices enters a market with $2500-$3000 pricing and competition is low and so is quality? Even in its existing markets, Grown Rogue is seeing sales and profits continue to soar, with revenue soaring by 48% last quarter and cash flow by 79%. So, how does a company with some of the fastest growth in the industry that is now accelerating possibly trade at one of the lowest valuations on next year's estimates? First, not one analyst covers the company. Second, it is a microcap cannabis company and can be extremely illiquid. Third, even in cannabis, in which stocks are notoriously illiquid, buying Grown Rogue can be even harder than your average cannabis stock. For example, investors cannot buy the stock on Interactive Brokers, a major financial platform for small to medium sized money managers and investors. We have had to open two different Canadian brokerage accounts and work with sellers to buy shares. Though, we have done so happily. Due to our early conversion of our December convertible, we crossed the 5% ownership threshold in Grown Rogue between our two funds and now own over 8% of the company. I expect our ownership to only increase. Why? Because it's not often you get the chance to invest in the following: 1. One of the best operationally run companies in a sector. 2. The fastest growth rate that is now poised to accelerate. 3. A clear and long reinvestment runway (almost too many opportunities right now) 4. Focused attention when competitors are struggling financially and distracted. 5. And then trading at 2 times my end of year 2024 unlevered cash flow estimate. The problem in cannabis is not limited licenses, but a shortage of operational excellence. The governor or limiting factor for Grown Rogue is talent and making sure they don't bite off more than they can chew at any one time. Even though Grown Rogue is up more than 150% since the beginning of the year, I believe the upside is even greater now.

BSD Analysis:
Edelheit presents a compelling bull case for Grown Rogue, emphasizing the company's operational excellence and cost advantages in the cannabis sector. The manager highlights exceptional recent performance with 48% revenue growth and 79% cash flow growth, positioning the company as a standout performer in a challenging industry. The investment thesis centers on Grown Rogue's ability to generate positive free cash flow at low flower prices ($800-900) while expanding into higher-priced markets like New Jersey ($2500-3000), creating significant margin expansion opportunities. The fund has increased its ownership to over 8% through convertible conversions, demonstrating strong conviction. Edelheit values the company at only 2x 2024 unlevered cash flow estimates despite accelerating growth, suggesting significant undervaluation. The manager attributes this discount to lack of analyst coverage, microcap illiquidity, and limited trading platform availability. The investment represents a rare combination of operational leadership, accelerating growth, long reinvestment runway, and attractive valuation in a consolidating industry.

Pitch Summary:
Unsustainable business model; 13% of the NAV is estimated to be valued zero; distributions are not covered with cash; trading at x2 NAV whilst other comparibles trade at x0.85; Update 4/16/24 - Follow-up report: The company's financial structure incentivizes managers, but is toxic to limited partners.

BSD Analysis:
Brookfield Infrastructure invests across utilities, transport, midstream, and data assets. The bear case focuses on its reliance on constant capital recycling and external financing, making results highly sensitive to interest rates. The partnership structure is complex, obscuring distributable cash flow, while acquisitions carry execution risk. Leverage and FX exposure create additional fragility. Infrastructure;

Pitch Summary:
Other potential winners will be companies with large propriety datasets that are unique within their industry. For example, I do not believe that there are any companies in the US with as large of a dataset of the borrowing behavior of short-term, subprime borrowers as Enova International (ENVA), a portfolio holding of our firm. Companies that fail to take advantage of newly developing AI tools will be at a great disadvantage to their competitors who do.

BSD Analysis:
The manager views Enova International as a beneficiary of the AI revolution due to its unique competitive moat in proprietary data. The thesis centers on ENVA's unparalleled dataset of short-term, subprime borrower behavior, which the manager believes is the largest in the US. This data advantage positions the company to leverage AI tools more effectively than competitors in the consumer finance space. The investment rationale suggests that companies with unique proprietary datasets will be key winners in the AI boom, as these data assets become increasingly valuable for training AI models. The manager implies that ENVA's failure to capitalize on AI would put it at a significant competitive disadvantage. This represents a data-driven moat thesis in the evolving AI landscape. The position appears to be a current holding in the portfolio.

Pitch Summary:
Equifax is best known as one of three primary U.S. credit bureaus, but the company's crown jewel is the Equifax Workforce Solutions (EWS) business. The core business of EWS is Verification Services, which is powered by The Work Number (TWN) database with income and employment data on 120 million Americans. TWN is used for mortgage origination, pre-employment background screening, and government benefit applications. The EWS business generally grows at a teens rate with high margins, a long unit expansion runway, and pricing power. We think Equifax is underearning today due to depressed mortgage volumes and weak gross hiring. As these end markets stabilize, our view is that revenue and cash flows can accelerate meaningfully.

BSD Analysis:
Weitz initiated a position in Equifax, focusing on the underappreciated value of the Equifax Workforce Solutions (EWS) division rather than the traditional credit bureau business. The investment thesis centers on The Work Number database, which contains employment and income data for 120 million Americans and serves critical verification functions across mortgage, employment screening, and government benefit markets. The manager highlights EWS's attractive fundamentals including teens growth rates, high margins, and significant pricing power with a long runway for unit expansion. Weitz views current earnings as depressed due to cyclical headwinds in mortgage origination and hiring markets. The opportunity lies in the potential for meaningful revenue and cash flow acceleration as these end markets normalize. This represents a contrarian bet on a high-quality data asset trading at a discount due to temporary cyclical pressures.

Pitch Summary:
Microchip is a leading provider of mixed signal microcontrollers and analog semiconductors to a broad range of industrial, data center, automotive, communication and consumer appliance customers. The company enjoys favorable product characteristics that help drive strong profitability, and it benefits from several long-wave demand tailwinds such as electronification, automation, and growth in data communications. While Microchip is not immune from semiconductor cycles, its cash flows have been durable through cycles. The multi-year outlook is sturdy, and we think the company is poised to further boost per-share value growth through increasing share repurchases at discounted prices.

BSD Analysis:
Weitz initiated a new position in Microchip Technology, viewing the semiconductor company as attractively valued despite near-term headwinds. The manager highlights Microchip's leadership position in mixed signal microcontrollers and analog semiconductors across diverse end markets including industrial, automotive, and data center applications. The investment thesis centers on the company's exposure to secular growth drivers like electronification and automation, which should support long-term demand. Weitz emphasizes the durability of Microchip's cash flows through semiconductor cycles, suggesting defensive characteristics. The manager sees opportunity for value creation through share repurchases at current discounted valuations. The multi-year outlook appears favorable despite cyclical pressures. This represents a classic value play on a quality semiconductor franchise trading below intrinsic value.

Pitch Summary:
During the third quarter, we initiated a new position in Equifax, Inc., (EFX). Many will be familiar with Equifax as one of three consumer credit reporting bureaus and an indispensable partner for lenders in the extension and pricing of loans. Right now, surging borrowing costs are pressuring demand for mortgages and, therefore, banks' demand for credit reports. Mortgages remain an important end market for Equifax, but we believe the current environment has overshadowed the opportunity within the faster-growing, higher-margin Equifax Workforce Services (EWS) business. EWS extends Equifax's traditional credit reporting business with additional sources, most notably income and employment data sourced directly from employers' payrolls or third-party payroll providers. This additional data increases the potential use cases for Equifax's verification services into faster growth end-markets, for example employment background screening or qualification for government benefits programs.

BSD Analysis:
Weitz initiated a new position in Equifax during Q3 2023, viewing the current mortgage market weakness as creating an attractive entry point. The managers believe the market is overly focused on near-term headwinds from reduced mortgage demand due to higher interest rates, which pressures traditional credit reporting volumes. However, they see significant value in Equifax's Workforce Services (EWS) division, which represents a higher-margin, faster-growing business segment. EWS leverages employment and income data directly from payroll systems, expanding Equifax's addressable market beyond traditional credit reporting into employment verification and government benefits qualification. This diversification strategy positions Equifax to capture growth in less cyclical end markets. The investment thesis centers on the market undervaluing this business transformation during a temporary downturn in core credit reporting demand. Weitz appears confident that EWS can drive long-term value creation as economic conditions normalize.

Pitch Summary:
Ferguson is the nation's leading distributor of plumbing supplies and is growing in the related field of HVAC (heating, ventilation and air conditioning). It's a good business: pipes, valves, boilers, water pumps and the like are mostly unbranded products. There are a lot of manufacturers with limited pricing power. On the other side, plumbing and HVAC contractors are mostly small businesses without a lot of negotiating clout. The distributor sits in the middle with more buying power than the manufacturers and more pricing power than the plumber. It's a competitive industry, not a monopoly, but Ferguson is #1 in most of its categories. With its size, it offers good service and a deep inventory position to contractors. Earnings have compounded steadily over time, but likely will be flat in the coming year, partly because residential home construction is off. We bought the stock for about 15 times 2024 earnings and feel like that's a good value given Ferguson's financial strength and long-term outlook.

BSD Analysis:
The manager initiated a position in Ferguson, recognizing the company's advantaged position as the leading distributor in plumbing and HVAC supplies. Ferguson benefits from a favorable industry structure where fragmented manufacturers lack pricing power while small contractor customers have limited negotiating leverage, allowing the distributor to capture value in the middle. The company's scale advantages provide superior service levels and inventory depth that contractors value, reinforcing its market leadership position across most categories. While the business model isn't monopolistic, Ferguson's #1 market position creates competitive advantages through procurement scale and distribution efficiency. The manager acknowledges near-term earnings headwinds from weak residential construction but views this as cyclical rather than structural. At 15x 2024 earnings, the valuation appears attractive for a business with steady long-term compounding characteristics and strong financial position. This investment reflects confidence in Ferguson's ability to navigate cyclical downturns while maintaining market share and pricing power.

Pitch Summary:
Turning to our new positions, we have been following Fiserv for a couple of years now and finally bought a position during the third quarter. Fiserv has two businesses that reinforce each other: it is a key technology provider to several thousand global banks and credit unions. Mid-sized financial institutions need to offer a full complement of digital banking services to compete with larger national banks, but they can't afford to build out an internal tech capacity. It's more cost effective to outsource to Fiserv. Fiserv's other business is, broadly, payment processing: when you tap and pay at your favorite restaurant or retailer, you may be using a Fiserv device. That device, in turn, may connect directly to the business owner's bank – and Fiserv built out the bank's tech stack. The synergy here is important. Fiserv can sell terminals to the restaurant itself, but banks may also sell Fiserv products as part of their customer relationships. There is terrific distribution synergy. For the next few years, Fiserv's growth should be led by Clover, a payments acceptance system that offers merchants faster transaction times, better fraud protection and stronger operational controls than many existing acceptance networks. While Clover is a clear leader in acceptance, it has a small market share today and could grow at double digit rates for some years. In turn, that should drive solid earnings growth for Fiserv. I believe the stock trades for a low-teens multiple of likely 2024 earnings, an attractive price for a steady compounder.

BSD Analysis:
The manager initiated a position in Fiserv after years of research, attracted by the company's dual business model with strong synergies between banking technology and payment processing. Mid-sized financial institutions rely on Fiserv's technology stack to compete with larger banks without building expensive internal capabilities, creating sticky customer relationships. The payment processing business benefits from distribution synergies as banks can cross-sell Fiserv terminals to their merchant customers. Clover represents a significant growth catalyst, offering superior transaction speeds, fraud protection, and operational controls compared to legacy systems. Despite Clover's market leadership in acceptance technology, its small current market share provides runway for double-digit growth over multiple years. The manager views the low-teens 2024 earnings multiple as attractive for a steady compounder with multiple growth drivers. This investment reflects confidence in Fiserv's ability to capitalize on digital banking trends and payment modernization while benefiting from cross-selling opportunities between business segments.

Pitch Summary:
Ashtead Group operates the second-largest US equipment rental business, Sunbelt Rentals. The market seems concerned that a slowdown in commercial construction will hurt Sunbelt, but I believe federal infrastructure projects, new semiconductor plants and warehouse and factory construction combine to create a healthy market. Ashtead has a terrific management team and a number of advantages of scale. We felt comfortable adding shares at about 15x earnings.

BSD Analysis:
The manager added to Ashtead Group despite market concerns about commercial construction weakness, viewing the valuation as attractive at 15x earnings. The company operates Sunbelt Rentals, the second-largest equipment rental business in the US, benefiting from significant scale advantages and strong management execution. While traditional commercial construction may face headwinds, the manager identifies multiple growth drivers including federal infrastructure spending, semiconductor plant construction, and industrial facility development. This diversified demand base should support rental volumes even if certain construction segments weaken. The equipment rental model benefits from high barriers to entry due to capital intensity and local market dynamics. Ashtead's scale advantages in procurement, maintenance, and geographic coverage create competitive moats. The manager's confidence in adding shares reflects belief that current market pessimism creates an opportunity to acquire a quality industrial business at reasonable valuations with multiple demand catalysts ahead.

Pitch Summary:
I have written about Schwab in prior letters, but at the risk of being repetitive I believe it offers a strong value proposition both to individual investors and professional investment advisors who run their businesses on the Schwab platform. It has chosen to reduce the fees it charges for trading and other services to win investor trust and fuel growth. Consequently, it may be overly dependent on its practice of sweeping customer cash balances into its bank, where it reinvests those deposits into safe fixed income securities and pockets the interest. As interest rates have risen over the past 18 months, many Schwab customers are leaving less idle cash in their accounts and putting more of their funds into US Treasuries or money market funds. This leaves Schwab with lower earnings. Importantly, Schwab continues to add hundreds of thousands of new accounts every month. The issue of customers leaving less cash in their accounts has leveled off recently, meaning Schwab should begin growing again as it keeps adding accounts. Even if so-called cash sorting never levels out, Schwab has significant pricing power it could tap while remaining a low-cost provider for customers, including charging more for some trades, margin loans or wealth management services, or perhaps charging modest custodian fees to investment advisors, a common industry practice. It has tools in the toolbox to offset a long-term loss of interest income, even if it prefers not to use them. The combination of steady account growth and pricing power tell me Schwab's earnings won't be permanently impaired.

BSD Analysis:
The manager maintains conviction in Schwab despite near-term earnings pressure from cash sorting behavior as customers move funds to higher-yielding alternatives. While the company's low-fee strategy has created dependence on net interest income from customer cash sweeps, this headwind appears to be stabilizing. Schwab's continued addition of hundreds of thousands of accounts monthly demonstrates the strength of its value proposition and platform stickiness. The manager emphasizes Schwab's significant untapped pricing power across multiple revenue streams including trading, margin loans, wealth management, and custodial fees. This optionality provides a buffer against permanent earnings impairment from reduced cash balances. The combination of robust account growth and pricing flexibility creates multiple paths to earnings recovery. The manager views current challenges as temporary rather than structural, with the business model remaining fundamentally sound. This represents a contrarian bet on a quality franchise trading at depressed valuations due to cyclical headwinds.

Pitch Summary:
We exited a larger position in SS&C during the quarter. We're fans of this business and its founder and CEO Bill Stone, but SS&C financed a large acquisition in 2018 by issuing debt at floating interest rates. As rates climbed over the past two years, SS&C's interest payments on its debt have risen from about $202 million in 2021 to an estimated $460 million this year. This heavier burden of debt service is devouring modest underlying profit growth. SS&C will report lower earnings per share in 2023 than it did in 2021 entirely because of the burden of interest payments. Bill Stone owns more than 30 million shares of SS&C; no one has a stronger interest in making prudent financial decisions than Bill. We could revisit SS&C at some point if it made significant progress in reducing its floating rate debt. But with the debt burden currently high, the cost to service the debt rising, and the business growing slowly, it feels like SS&C made a capital allocation error that will take time to unwind.

BSD Analysis:
The manager exited SS&C despite admiring the business and CEO Bill Stone due to a significant capital allocation misstep that created a debt burden headwind. The company's 2018 acquisition financing with floating-rate debt has proven costly as interest payments more than doubled from $202 million to $460 million, completely offsetting underlying business growth. This debt service burden is causing 2023 earnings per share to decline below 2021 levels despite modest operational progress. The manager acknowledges Stone's strong alignment with over 30 million shares owned, suggesting confidence in eventual resolution. However, the combination of high debt burden, rising interest costs, and slow business growth creates a challenging near-term outlook. The manager remains open to revisiting the position if meaningful debt reduction occurs. This exit demonstrates disciplined capital allocation when financial leverage overwhelms operational performance, even in quality businesses with aligned management.

Pitch Summary:
We exited our small position in Ciena at a loss. Ciena is a technology leader in network communications infrastructure. It's largest competitor, the Chinese company Huawei, has been banned from many Western nations for fears that it cooperates with the Chinese government in spying on customers. We bought Ciena with an expectation that its future looked bright given healthy demand from both telecom and cloud computing customers, plus a less competitive bidding environment. Unfortunately, we were disappointed with Ciena's difficulties managing its supply chain, inventory level and backlog. We opted to sell the stock in the belief we could find better opportunities elsewhere.

BSD Analysis:
The manager exited Ciena at a loss due to operational execution issues despite the company's strong competitive positioning. While Ciena benefits from reduced competition following Huawei's ban from Western markets and enjoys healthy demand from telecom and cloud computing customers, management's inability to effectively handle supply chain disruptions and inventory management proved disappointing. The company's struggles with backlog management suggest operational inefficiencies that could persist in a complex supply chain environment. Despite the favorable industry dynamics and competitive moat, the manager prioritized capital allocation toward opportunities with better execution track records. This exit reflects a disciplined approach to cutting losses when operational performance fails to meet expectations. The decision underscores the importance of management execution even in companies with strong market positions. The manager's willingness to exit demonstrates focus on finding superior risk-adjusted returns elsewhere in the portfolio.

Pitch Summary:
Over-reliance on Tesla, which signaled reduced cooperation in the future; massive undisclosed risk from the primary supplier; overvalued (trading at x24 EBITDA, x52 FCF)

BSD Analysis:
XPEL sells paint protection films, window tints, and related auto-care products, primarily through installers. The company has posted impressive topline growth, but the bear argument stresses concentration risk, competitive encroachment, and valuation premium. Much of XPEL’s success has come from penetrating luxury auto aftermarket customers, but this niche is inherently limited in scale. Gross margins are strong but face risk as larger chemical and coatings firms (3M, Eastman) ramp up competing product lines with deeper distribution. The stock trades at a premium multiple relative to traditional aftermarket suppliers, with the assumption that XPEL maintains high double-digit growth. Any slowdown in luxury vehicle sales or installer expansion could compress multiples quickly. Capital intensity is low, but dependence on installers makes growth harder to control directly.