Investment Pitches

Pitch Summary:
CYG provided a 1HFY24 trading update, with the encouraging trends disclosed at the AGM in October accelerating into the end of the calendar year. 1HFY24 sales are expected to be $185.5 million, up ~5.5% on the prior corresponding period (pcp). More importantly, 1HFY24 EBITDA is expected to be $9.8 million, up ~18.0% on the pcp. The initiatives to grow EBITDA margin to 10% in the medium term that were implemented early in the financial year gained momentum in the December quarter with 2QFY24 EBITDA forecast to be up ~28.5% on the pcp. Demand continues to remain solid in the company's core end markets (mining and resources, infrastructure, commercial construction and industrial) and the Enterprise Resource Planning (ERP) upgrade continues to track to schedule and budget. CYG operates in large, fragmented markets and has very modest market shares. We expect the strong top line growth that has been demonstrated over the past 5-6 years to continue into the medium term, with operating leverage and margin expansion initiatives translating to significantly faster earnings growth.

BSD Analysis:
Sandon Capital highlights Coventry Group's accelerating operational momentum with strong margin expansion driving earnings growth. The company delivered 5.5% sales growth to $185.5 million in 1HFY24, but more importantly achieved 18% EBITDA growth to $9.8 million, demonstrating effective operational leverage. Management's margin expansion initiatives are gaining traction with 2QFY24 EBITDA forecast up 28.5%, supporting the medium-term target of 10% EBITDA margins. The fund emphasizes CYG's exposure to resilient end markets including mining, resources, infrastructure, and commercial construction where demand remains solid. The successful ERP system upgrade provides operational efficiency benefits while maintaining budget and timeline discipline. Sandon views CYG as operating in large, fragmented markets with modest market share, providing significant growth runway. The combination of consistent top-line growth over 5-6 years and accelerating margin expansion creates a compelling earnings growth trajectory through operational leverage.

Pitch Summary:
A2B had an extraordinarily busy month in December announcing the settlement of its remaining properties; Downing Street, Oakleigh for $8 million and O'Riordan Street, Alexandria for $78 million. Following the sale of these properties, the company announced a larger than expected fully franked dividend of 60 cents per share to be paid in late January. The positive surprises didn't end there. On 22 December 2023, A2B announced it had entered into a scheme of arrangement with Singapore's ComfortDelGro. If approved, shareholders will receive a total of $2.05, comprising $1.45 per share in scheme consideration and the aforementioned fully franked special dividend of $0.60 per share. When we first invested in A2B, its market capitalisation was approximately $110 million and the company was committed to a strategy that we believed was eroding the value of the business. Our campaign to change the Board, including the appointment of Mark Bayliss as Executive Chairman, has led to a significant change in fortunes for A2B and its shareholders. Mark and his team have executed one of the most successful corporate resurrections we have witnessed – non-core property assets have been sold, the core taxi despatch and payments businesses have been successfully turned around, and these efforts have been capped off with the announcements of the large special dividend and the scheme implementation agreement with ComfortDelGro. The company today has a market capitalisation of more than $260 million (prior to the payment of the special dividend). In less than three years, more than $150 million of shareholder value has been created.

BSD Analysis:
Sandon Capital presents A2B as a successful activist turnaround story, highlighting their role in driving strategic changes through board appointments. The fund's intervention led to the appointment of Mark Bayliss as Executive Chairman, who executed a comprehensive value creation strategy including property asset sales and operational improvements. The company's transformation culminated in a takeover offer from Singapore's ComfortDelGro at $2.05 per share, representing significant value creation from the original $110 million market cap. The manager emphasizes the successful turnaround of core taxi dispatch and payments businesses alongside strategic asset divestments. The special dividend of 60 cents per share demonstrates strong capital allocation following property sales. Market capitalization growth to over $260 million represents more than $150 million in shareholder value creation over three years. This case study exemplifies Sandon's activist investment approach and ability to drive operational improvements through governance changes.

Pitch Summary:
Another weak name in the strategy was Paylocity Holding Corp. (PCTY). The company provides software for payroll and human-resources management using the software-as-a-service business model. Facing an uncertain U.S. employment outlook in 2024 and difficult year-over-year comparisons, Paylocity issued forward guidance that failed to reassure nervous investors. Moreover, client funds held on Paylocity's balance sheet provide the company with substantial interest income—which would be expected to decline in an environment of falling interest rates. Our long-term thesis for owning the company has not changed, so we maintained our position.

BSD Analysis:
Despite near-term headwinds, Wasatch maintains conviction in Paylocity's long-term prospects, demonstrating their focus on fundamental business quality over short-term guidance concerns. The company's SaaS-based payroll and HR management platform serves a critical function for medium-sized businesses, creating sticky customer relationships and recurring revenue streams. While management's conservative 2024 guidance disappointed investors amid uncertain employment conditions and difficult year-over-year comparisons, Wasatch views this as temporary noise rather than a fundamental deterioration. The managers acknowledge that falling interest rates would pressure the substantial interest income Paylocity earns on client funds held on its balance sheet, but this appears to be viewed as a manageable headwind. The decision to maintain their position reflects confidence in the underlying business model and competitive positioning. Paylocity's software solutions address essential business functions that are unlikely to be eliminated even in challenging economic environments, supporting the long-term investment thesis.

Pitch Summary:
XPEL, Inc. (XPEL) was also a major detractor. The company develops and manufactures automotive products including window tints and cut-to-fit protective films for painted surfaces. The stock was down on news that Tesla, a prominent XPEL customer, started offering color and clear paint-protection film wraps in two California service centers without using XPEL's products. This news caused investors to question how much business XPEL might lose if Tesla's recent move is the start of a broader trend. Our initial reaction to the news isn't overly pessimistic because Tesla vehicles account for only about 5% of XPEL's revenues and because other automobile manufacturers have been increasing the use of XPEL's products. Nevertheless, our senses are heightened as we continue to evaluate our position in the stock.

BSD Analysis:
Wasatch takes a measured approach to the Tesla-related concerns surrounding XPEL, demonstrating their analytical discipline in evaluating customer concentration risks. While Tesla's decision to offer paint protection services without XPEL products created investor anxiety about potential customer defection, the managers correctly note that Tesla represents only 5% of revenues, limiting the immediate financial impact. The broader concern is whether Tesla's move signals a trend toward automotive OEMs bringing these services in-house, which could pressure XPEL's business model. However, Wasatch finds some comfort in the fact that other automobile manufacturers are actually increasing their use of XPEL's products, suggesting the company's value proposition remains strong across the broader market. The neutral stance reflects appropriate caution while acknowledging that the Tesla situation may be isolated rather than indicative of a broader industry shift. XPEL's diversified customer base provides some protection against single-customer risk.

Pitch Summary:
The fourth quarter's greatest detractor was Fox Factory Holding Corp. (FOXF). The company manufactures suspension products and other components for cycling and motorsports applications. Investors reacted negatively to news that Fox Factory had entered into an agreement to acquire Marucci Sports, a manufacturer of baseball and softball bats and other sports-related products. Although acquisitions are often met with skepticism, in this case it was especially unclear why Fox Factory had decided to venture outside its core business. The unusual nature of the deal requires us to engage in discussions with management and perform an ongoing evaluation of the purported growth opportunities and operational synergies.

BSD Analysis:
Wasatch expresses concern about Fox Factory's strategic direction following the announcement of the Marucci Sports acquisition, which represents a significant departure from the company's core suspension and motorsports component business. The managers view this diversification move with skepticism, noting that the rationale for entering the baseball and softball equipment market is unclear and doesn't align with Fox Factory's established expertise in cycling and motorsports applications. The negative market reaction reflects broader investor uncertainty about management's capital allocation strategy and focus. Wasatch's neutral stance indicates they are taking a wait-and-see approach, planning to engage directly with management to better understand the strategic rationale and potential synergies. The acquisition raises questions about whether Fox Factory is losing focus on its core competencies where it has built strong market positions. This situation highlights the importance of management execution and strategic clarity in Wasatch's investment process.

Pitch Summary:
Another strong position in the strategy was Pinnacle Financial Partners, Inc. (PNFP). Based in Nashville, Tennessee, Pinnacle is the bank holding company for Pinnacle Bank. Early in the year, the failures of three regional banks in the U.S. and the government-brokered sale of troubled Swiss firm Credit Suisse Group AG dragged down bank stocks generally. As the year progressed, investors remained worried that the Fed would continue to raise interest rates—and precipitate a recession and more credit defaults, which would clearly hurt most banks. Also, continually rising interest rates can be detrimental because banks then need to pay more to depositors, narrowing the spread between what's paid to depositors and what's received from borrowers. Even though Pinnacle announced strong earnings, the stock remained below its February high for most of the year. Then, in November, the stock began a dramatic rise based on dovish comments from the Fed, which eased worries about credit defaults and interest-rate spreads. We like Pinnacle, in particular, because it follows a responsible banking model with a diversified customer base, appropriate levels of loans and deposits, and a small securities portfolio. Moreover, we believe Pinnacle is well-managed and serves a geographical area with a healthy real-estate market, favorable demographics and above-average economic growth.

BSD Analysis:
Wasatch's investment in Pinnacle Financial Partners demonstrates their ability to identify quality regional banks trading at discounted valuations due to sector-wide concerns. Despite strong earnings throughout 2023, the stock was pressured by regional banking failures and Federal Reserve policy uncertainty that compressed net interest margins. The managers highlight Pinnacle's differentiated risk profile through its responsible banking model, featuring a diversified customer base, appropriate loan-to-deposit ratios, and minimal securities portfolio exposure. The geographic focus on Nashville and surrounding markets provides exposure to favorable demographics, healthy real estate fundamentals, and above-average economic growth. Management quality appears to be a key differentiator in Wasatch's thesis. The November rally following dovish Fed commentary validated their patience, as interest rate concerns that had weighed on the stock began to ease. Pinnacle's conservative approach positions it well to navigate credit cycles while benefiting from its attractive market footprint.

Pitch Summary:
Medpace Holdings, Inc. (MEDP) was also a significant contributor. The company is a contract research organization (CRO) supplying clinical development services to small biotechnology companies. Early in the year, the stock fell due to concerns that rising interest rates and tightening credit could make it harder for many of Medpace's customers to fund their research programs. Although short-term risk had increased back then, we believed the company's underlying fundamentals would support attractive long-term growth. Additionally, we liked that Medpace continued to generate significant free cash flows, which could be used to enhance shareholder value by repurchasing stock. Based on these views and our confidence in management, we added to our position in Medpace. During the fourth quarter, we were rewarded for our conviction and patience.

BSD Analysis:
Wasatch demonstrates strong conviction in Medpace despite early-year headwinds from rising interest rates that pressured biotech funding. The managers correctly identified that while short-term risks had increased due to tighter credit conditions affecting Medpace's small biotech customers, the company's underlying fundamentals remained strong for long-term growth. The investment thesis is anchored by Medpace's ability to generate significant free cash flows, providing financial flexibility and enabling shareholder-friendly capital allocation through stock repurchases. Management's decision to add to their position during the weakness reflects high confidence in both the company's fundamentals and leadership team. The fourth quarter performance validated their contrarian approach, rewarding their patience and fundamental analysis over macro concerns. As a CRO serving small biotechs, Medpace benefits from the ongoing innovation in drug development while maintaining a capital-efficient service model.

Pitch Summary:
The fourth quarter's top contributor was BellRing Brands, Inc. (BRBR), a relatively new holding for Wasatch. BellRing's offerings include nutritional shakes, powders, bars and other products primarily marketed under the Premier Protein and Dymatize brands. We like the company's asset-light operating model, which relies on outsourced production. Given the low cost of BellRing's products and perceived value among a loyal and growing group of health-conscious consumers, we believe the company has a durable, economically resilient business. Moreover, we think the intellectual property associated with BellRing's shelf-stable, good-tasting products is relatively difficult for competitors to replicate. Amid the fallout from the Covid-19 pandemic, the company's production capacity had been severely constrained, impacting revenues and earnings. In 2023, BellRing was able to add new outsourced production facilities—and even more will be added in 2024. Finally, the company and the stock benefited from the proliferation of GLP-1 agonists, such as Ozempic, being used for weight loss. Dieters often consume BellRing's products in an effort to ingest enough nutrients. That said, the GLP-1 trend wasn't part of our original investment thesis and isn't why we continue to own the stock.

BSD Analysis:
Wasatch presents a compelling bull case for BellRing Brands centered on its asset-light business model and strong competitive positioning in the nutrition market. The managers highlight the company's durable economic moat through difficult-to-replicate intellectual property in shelf-stable, good-tasting products that serve a loyal health-conscious consumer base. The investment thesis is strengthened by BellRing's recovery from COVID-related production constraints, with new outsourced facilities coming online in 2023 and additional capacity planned for 2024. While the company has benefited from the GLP-1 weight loss drug trend as dieters use their products for nutritional supplementation, management wisely notes this wasn't part of their original thesis. The combination of low-cost products, perceived consumer value, and expanding production capacity positions BellRing well for continued growth in the expanding nutrition market. The asset-light model provides operational leverage and capital efficiency advantages over traditional manufacturing competitors.

Pitch Summary:
Lastly, leading global dental manufacturing company, Envista Holdings Corp. (NVST), declined on disappointing earnings results. Challenges with sanctions in Russia and China due to volume-based procurement (VBP) reimbursement, as well as a weakening environment in North America for large dental equipment and implants resulted in management reducing its sales and profitability guidance for the year. While shares may be range bound for the next couple of quarters as NVST works through these headwinds and invests in future growth, we think NVST has multiple opportunities to drive upside over the long-term. We believe NVST will benefit from its rich research and development pipeline, several new products in high-growth dental segments, successful execution from recent M&A, facility consolidation and previous IT investments. We anticipate a re-rating of the stock and multiple expansion relative to peers.

BSD Analysis:
Despite near-term challenges, Ariel maintains a constructive long-term view on Envista Holdings based on the company's innovation pipeline and strategic positioning. The stock declined on disappointing earnings with management reducing guidance due to sanctions in Russia, VBP reimbursement issues in China, and weakness in North American dental equipment markets. While acknowledging shares may remain range-bound as the company navigates these headwinds, Ariel emphasizes multiple long-term value drivers. The rich R&D pipeline and new products in high-growth dental segments should drive future revenue growth and market share gains. Recent M&A execution, facility consolidation, and IT investments position the company for improved operational efficiency and margin expansion. The manager expects these fundamental improvements to drive stock re-rating and multiple expansion relative to dental industry peers. Ariel appears to view current weakness as a temporary cyclical downturn rather than structural deterioration.

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 view on Mattel despite recent stock weakness and conservative management guidance. The company delivered a significant earnings beat, demonstrating operational execution even in a challenging retail environment. While management's maintained full-year guidance suggests caution around holiday sales, Ariel believes this conservative approach may create opportunity for upside surprises. The investment thesis centers on MAT's ability to gain market share and improve profitability during industry weakness, leveraging its strong brand portfolio. Iconic brands like Barbie, Hot Wheels, and Disney Princesses provide resilient consumer demand and pricing power. The entertainment expansion opportunity through film and TV projects represents a significant value creation catalyst, as demonstrated by the success of recent Barbie movie initiatives. Ariel views current valuation as attractive relative to the company's brand strength and cash generation potential.

Pitch Summary:
Alternatively, 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 near-term headwinds, Ariel maintains conviction in Core Laboratories based on the company's operational resilience and management track record. While the stock declined on mixed earnings and faced contract delays in the U.S., CLB demonstrated strong profitability with operating margin expansion, indicating effective cost management. The geopolitical disruption from the Russia-Ukraine conflict and associated sanctions create temporary uncertainty, but the company is showing progress in both onshore and offshore operations globally. Ariel emphasizes confidence in management's proven ability to deliver strong operating results and generate robust free cash flow across cycles. The company's history of returning capital to shareholders through various market conditions supports the long-term investment thesis. The manager appears to view current challenges as cyclical rather than structural, maintaining faith in CLB's fundamental business quality.

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.