Investment Pitches

Pitch Summary:
MillerKnoll is a designer and manufacturer of premium furniture for the office and home. While there continues to be a fair amount of uncertainty as it relates to the future of office, the company performed well during the quarter due to strong execution, cost containment, and an indication from management that a positive inflection point in demand is in its sights. We continue to favor the quality of MillerKnoll's collection of brands, its multi-channel distribution model, and its experienced management team.

BSD Analysis:
Vulcan Value Partners highlighted MillerKnoll as a material contributor to Small Cap performance, emphasizing the company's premium positioning in office and home furniture markets. Despite ongoing uncertainty about the future of office space demand, the manager credits strong operational execution and effective cost management for the quarter's performance. Management's indication of a potential positive inflection point in demand provides optimism for the business trajectory. The investment thesis rests on MillerKnoll's high-quality brand portfolio, which includes the heritage Herman Miller and Knoll brands known for design excellence and premium positioning. The multi-channel distribution model provides flexibility in reaching customers across different segments and geographies. Experienced management's ability to navigate the challenging office furniture environment while maintaining operational discipline supports the long-term value proposition despite near-term market headwinds.

Pitch Summary:
UnitedHealth Group is the largest health insurer in the country and also owns Optum, which is a rapidly growing healthcare services company. The health insurance business benefits from demographic and network effects as more members attract more providers and vice versa, which reinforces United's value proposition and bargaining power with each side of the network. Over the last five years, Optum has grown significantly and roughly half of United's 2022 EBIT was generated from the Optum business. Optum Health provides care for 102 million consumers and serves more than 100 health payer partners. We expect Optum to continue to grow and be a significant contributor to UnitedHealth Group's future successes.

BSD Analysis:
Vulcan Value Partners initiated a position in UnitedHealth Group, emphasizing the company's dual platform of insurance and healthcare services through its Optum division. As the largest health insurer in the US, UnitedHealth benefits from powerful network effects where increased membership attracts more providers, creating a virtuous cycle that strengthens bargaining power with both sides of the healthcare ecosystem. The Optum business has become increasingly significant, generating approximately half of 2022 EBIT and serving 102 million consumers across more than 100 health payer partnerships. This diversification into healthcare services provides multiple revenue streams and reduces dependence on traditional insurance underwriting. Demographic trends including an aging population support long-term demand growth, while Optum's scale and integrated model create competitive advantages in care delivery and cost management. The manager expects Optum's continued expansion to drive future value creation for the combined entity.

Pitch Summary:
Texas Instruments is the world's largest designer and manufacturer of analog semiconductors. These semiconductors convert real-world signals, such as temperature, pressure, and sound, into digital data. Analog semiconductors are also used to manage power in electronic devices. We are drawn to this company because its products are mission critical, and product cost as a percentage of total system cost is low. Moreover, market positions are stable over long periods of time and barriers to entry are high. Its management team thinks strategically, in terms of decades, and focuses on maximizing free cash flow per share over the long term.

BSD Analysis:
Vulcan Value Partners added Texas Instruments, the world's largest analog semiconductor manufacturer, highlighting the mission-critical nature of analog chips that convert real-world signals into digital data and manage power in electronic devices. The investment thesis centers on the company's dominant market position in a segment characterized by high barriers to entry and stable competitive dynamics over extended periods. Analog semiconductors represent a small percentage of total system costs, providing pricing power and customer stickiness since switching costs are high relative to the component's value. Management's long-term strategic focus on maximizing free cash flow per share over decades aligns with Vulcan's investment philosophy. The analog semiconductor market benefits from secular growth trends in electronics while maintaining more stable demand patterns compared to digital semiconductors. TXN's manufacturing scale, technological expertise, and customer relationships create sustainable competitive advantages in this specialized market segment.

Pitch Summary:
Marriott is a company that we have owned several times in the past. The company is an asset-light global lodging franchisor and operator that benefits from strong network effects. Approximately 99% of Marriott's global rooms are managed or franchised which enables the company to generate high returns on capital. Marriott has an extensive portfolio of brands ranging from luxury brands such as The Ritz-Carlton, to premium brands such as Westin Hotels & Resorts, to select brands such as Residence Inn by Marriott. The company is doing an excellent job converting independent hotels into the Marriott system through its soft brands including the Luxury Collection, the Autograph Collection, and the Tribute Portfolio. This conversion opportunity should benefit Marriott's net unit growth in a period when new hotel development could be challenging in North American and Europe. The company generates robust free cash flow through its long-term, contracted franchise fee and management fee revenue streams. Its competitive advantages include brand strength, operational scale, direct booking systems, and loyalty programs. We sold Marriott in the first quarter of 2020 because of our concerns about the company's debt structure. Since then, Marriott has restructured its debt and improved its balance sheet. Additionally, average daily rates (ADR) on corporate travel have returned to pre-Covid levels.

BSD Analysis:
Vulcan Value Partners re-initiated a position in Marriott International, a company they have owned multiple times previously, emphasizing the asset-light business model's capital efficiency advantages. With 99% of rooms managed or franchised rather than owned, Marriott generates high returns on capital while benefiting from strong network effects that reinforce its competitive position. The manager highlights the company's diverse brand portfolio spanning luxury (Ritz-Carlton) to select service (Residence Inn), providing exposure across market segments. A key growth driver is the conversion of independent hotels through soft brands like the Luxury Collection and Autograph Collection, which should support unit growth during a challenging new development environment. The business model generates predictable free cash flow through long-term franchise and management fee contracts. Previous concerns about debt structure have been addressed through balance sheet improvements, and corporate travel rates have normalized to pre-pandemic levels, supporting the recovery thesis.

Pitch Summary:
Diageo is a global spirits and beer producer with over 200 brands, including Johnnie Walker, Crown Royal, Guinness, Smirnoff, Baileys, Don Julio, and Casamigos. Diageo's spirits segment generates more than 80% of the company's revenue, and the spirits segment has been taking share from beer and wine over the last decade. The company is diversified across geographies, brands, and alcohol categories. Diageo has strong margins and high returns on invested capital. Its management team has an excellent track record for brand and product innovation, moving into high-growth categories at the right time. The company has pricing power and performs well during recessions. Additionally, the premiumization trend has been a tailwind to Diageo's revenue, and we believe this trend will continue, driven by an expanding global middle class and preference for higher quality spirits.

BSD Analysis:
Vulcan Value Partners initiated a position in Diageo, highlighting the company's dominant position in the global spirits market with over 200 brands including premium labels like Johnnie Walker and Don Julio. The manager emphasizes Diageo's structural advantages, noting that spirits have been gaining market share from beer and wine over the past decade, with the spirits segment generating over 80% of revenue. The investment thesis centers on the company's pricing power, recession-resistant characteristics, and strong financial metrics including high returns on invested capital and robust margins. Management's track record of successful brand innovation and strategic positioning in high-growth categories provides operational confidence. The secular premiumization trend, driven by an expanding global middle class seeking higher-quality spirits, represents a key long-term catalyst. Diageo's geographic and brand diversification provides defensive characteristics while maintaining exposure to this favorable industry dynamic.

Pitch Summary:
LS Electric is another name in Korea that is poised to benefit, but for additional reasons. While LS also makes transformers, it mainly focuses on hardware & installation services to connect new factories to the grid (e.g., switchgear, switchboards, controls, etc.). With the CHIPS Act ($280bn designated for tech onshoring), Korean car, battery, and semiconductor companies are building facilities in the U.S. and taking LS along for the ride. LS has long-standing relationships with these Korean customers and is winning business as a turnkey electrical solution provider for their new U.S. factories. The company's backlog now stands at KRW 2.5tn (nearly a year of sales), up 43% vs. a year ago and up 133% vs. December 2021. At a very reasonable 9x PE, we think LS is far from peak earnings – especially if they achieve margins equivalent to the last cycle (8-9% net income margins vs. 4-5% currently). We believe the stock could double from here.

BSD Analysis:
The manager presents a compelling bull case for LS Electric, highlighting its unique positioning to benefit from U.S. technology onshoring trends driven by the CHIPS Act. Unlike pure transformer manufacturers, LS Electric specializes in turnkey electrical solutions including switchgear, switchboards, and installation services for factory grid connections. The company's competitive advantage lies in established relationships with Korean industrial clients who are building U.S. facilities, creating a natural customer migration opportunity. The $280 billion CHIPS Act is driving Korean automotive, battery, and semiconductor companies to establish U.S. operations, with LS Electric following as their preferred electrical infrastructure partner. The strong order backlog of KRW 2.5 trillion represents nearly a year of sales visibility, growing 43% year-over-year and 133% since December 2021. At 9x PE with current margins of 4-5%, the manager sees significant upside potential if margins return to historical levels of 8-9%, potentially doubling the stock price.

Pitch Summary:
One of our favorite names in the space is HD Hyundai Electric, a Korean company that was historically more domestically-focused but has seen a surge in demand from U.S. utilities as U.S. transformer manufacturers have run out of capacity. HD also has easy access to electrical steel in Korea, a unique raw material its U.S. counterparts struggle to get. HD is now working on a U.S. capacity expansion and they think profit margins can hit historic highs as U.S. sales carry higher pricing/margins. Expectations are for 20% growth next year with expanding margins, yet the stock trades on less than 10x PE with a 7.5% FCF yield. Its order backlog is an impressive KRW 4.7tn (2-3 years' worth of sales), up 60% compared to a year ago and up 147% compared to December 2021.

BSD Analysis:
The manager presents a strong bull case for HD Hyundai Electric, positioning it as a key beneficiary of U.S. electrical grid modernization trends. The company has transitioned from domestic focus to capturing significant U.S. utility demand as domestic transformer manufacturers reach capacity constraints. HD Hyundai's competitive advantage stems from privileged access to electrical steel in Korea, a critical raw material that U.S. competitors struggle to source. The fund expects the company's U.S. expansion to drive margins to historic highs due to premium pricing for U.S. sales. With 20% expected growth and expanding margins, the current valuation appears attractive at less than 10x PE and 7.5% free cash flow yield. The impressive order backlog of KRW 4.7 trillion represents 2-3 years of sales visibility, having grown 60% year-over-year and 147% since December 2021, providing strong earnings predictability.

Pitch Summary:
U.S. investors laud Tesla as the epitome of success in the EV market, but China has BYD. Tesla's nearly 1 million units is impressive on its own but pales in comparison to BYD's forecasted volume for 2023 of 3 million units. BYD is by far the worldwide leader in NEVs. The company's sales are growing double-digits while Tesla's have stalled, and they spend more than twice as much as Tesla on CapEx for growth while generating significantly more free cash flow. A recent tear-down of BYD's newest model shows that it can be made in China for 25% less than a comparable vehicle in Europe or the U.S. In a market where operating margins of 5% are considered good, this cost advantage would be disastrous for the high-cost, unionized producers in the West.

BSD Analysis:
The manager presents a compelling bull case for BYD, positioning it as the true global leader in New Energy Vehicles (NEVs) with superior scale and economics compared to Tesla. BYD's forecasted 2023 volume of 3 million units significantly outpaces Tesla's 1 million, demonstrating the company's dominant market position. The fund highlights BYD's superior financial metrics, including double-digit sales growth while Tesla's growth has stalled, higher capital expenditure for expansion, and stronger free cash flow generation. Most importantly, the manager emphasizes BYD's structural cost advantage, with recent analysis showing 25% lower production costs compared to European or U.S. manufacturers. This cost leadership in an industry where 5% operating margins are considered good creates a potentially insurmountable competitive moat. The analysis suggests BYD is well-positioned to benefit from the global EV transition while maintaining pricing power.

Pitch Summary:
Amazon is a case in point. The chart below shows the stock price of Amazon from 2019 through September 2023. It's no secret that sales estimates rose sharply during the COVID pandemic lockdowns. Sales estimates (by year/vintage) increased 20-30% through mid-2021 only to reverse course through the end of 2022, ratcheting back down each quarter. The stock soared over 100% and then collapsed during this time. However, at the stroke of midnight on December 31, 2022, the stock began climbing again, sharply. This time there was just one, small upward revision to sales estimates in the second quarter of 2023. The chart looks essentially the same for all the FAANG+ companies. This mega-cap market rally has been fragile and premised on a very small positive signal; many more positive revisions are already priced into these stocks. At 39x 2023 earnings and staring into the teeth of a possible consumer recession, we struggle to explain why speculators have bid up Amazon (and others) and the market along with them.

BSD Analysis:
The manager presents a bearish case against Amazon, highlighting the disconnect between stock performance and fundamental revisions. They argue that Amazon's recent rally is built on fragile foundations, with only minimal positive earnings revisions supporting significant price appreciation. The fund views the current 39x 2023 earnings multiple as excessive, particularly given the potential for consumer recession headwinds. The manager traces Amazon's volatile journey from pandemic-driven estimate increases of 20-30% through mid-2021, followed by subsequent downgrades through 2022, and then another rally starting in 2023 despite limited fundamental improvement. They believe the mega-cap rally, including Amazon, is premised on overly optimistic assumptions about future sales and earnings growth. The analysis suggests that many positive revisions are already embedded in current valuations, leaving little room for error.

Pitch Summary:
LS Electric is another name in Korea that is poised to benefit, but for additional reasons. While LS also makes transformers, it mainly focuses on hardware & installation services to connect new factories to the grid (e.g., switchgear, switchboards, controls, etc.). With the CHIPS Act ($280bn designated for tech onshoring), Korean car, battery, and semiconductor companies are building facilities in the U.S. and taking LS along for the ride. LS has long-standing relationships with these Korean customers and is winning business as a turnkey electrical solution provider for their new U.S. factories. The company's backlog now stands at KRW 2.5tn (nearly a year of sales), up 43% vs. a year ago and up 133% vs. December 2021. At a very reasonable 9x PE, we think LS is far from peak earnings – especially if they achieve margins equivalent to the last cycle (8-9% net income margins vs. 4-5% currently). We believe the stock could double from here.

BSD Analysis:
The manager presents a strong bull thesis for LS Electric driven by U.S. industrial onshoring trends and established customer relationships. The company benefits from the CHIPS Act's $280 billion tech onshoring initiative as Korean manufacturers build U.S. facilities and bring LS as their preferred electrical contractor. LS's competitive advantage lies in long-standing relationships with Korean automotive, battery, and semiconductor companies, positioning it as a turnkey electrical solution provider for new U.S. factories. The investment case centers on margin expansion potential, with current 4-5% net margins expected to reach historical 8-9% levels. Trading at 9x P/E with a KRW 2.5 trillion backlog (133% growth since December 2021), the manager sees potential for 100% upside as the company capitalizes on the industrial reshoring theme.

Pitch Summary:
One of our favorite names in the space is HD Hyundai Electric, a Korean company that was historically more domestically-focused but has seen a surge in demand from U.S. utilities as U.S. transformer manufacturers have run out of capacity. HD also has easy access to electrical steel in Korea, a unique raw material its U.S. counterparts struggle to get. HD is now working on a U.S. capacity expansion and they think profit margins can hit historic highs as U.S. sales carry higher pricing/margins. Expectations are for 20% growth next year with expanding margins, yet the stock trades on less than 10x PE with a 7.5% FCF yield. Its order backlog is an impressive KRW 4.7tn (2-3 years' worth of sales), up 60% compared to a year ago and up 147% compared to December 2021.

BSD Analysis:
The manager presents a compelling bull case for HD Hyundai Electric based on structural demand drivers and competitive advantages. The company benefits from U.S. grid modernization needs as domestic transformer manufacturers reach capacity constraints, creating export opportunities for Korean producers. HD's access to electrical steel provides a key raw material advantage over U.S. competitors who face supply challenges. The investment thesis centers on margin expansion as the company shifts toward higher-margin U.S. sales while expanding domestic capacity. With 20% expected growth, sub-10x P/E valuation, and a substantial 2-3 year order backlog worth KRW 4.7 trillion, the manager sees significant upside potential. The 147% backlog growth since December 2021 demonstrates strong demand momentum in the high-voltage transformer market.

Pitch Summary:
We previously wrote about Text (formerly LiveChat) in our fourth quarter 2020 letter. Ever since, the company has continued to exceed our expectations; revenue in the core LiveChat product has grown at a 23% CAGR, as the company managed to introduce a significant price increase for LiveChat last year on top of the ongoing per-seat to per-agent pricing model transition we initially highlighted. Following last year's price increase, the LiveChat product's average revenue per user has increased by 60% since early 2020. While LiveChat still accounts for about 93% of sales and is still growing (26% y/y last quarter), the newer Chatbot and HelpDesk products are also slowly becoming meaningful contributors as well. Chatbot has grown revenue at a 42% CAGR since our initial update and now accounts for approximately 6% of overall revenue. That growth has been driven by 20%+ growth rates in both the total number of paying users and average revenue per user. At only 2% of sales, the company has just recently begun to provide more detailed HelpDesk KPIs, but the revenue generated by the product has grown at a 62% CAGR since our write-up in 2020. We believe both products have long runways ahead as Text can cross-sell each into an existing LiveChat customer base that is 13x and 38x the current customer bases for Chatbot and HelpDesk, respectively. While growth-y SaaS companies have fallen out of favor over the last 18 months, we believe Text remains an attractive investment for the same reasons that we did three years ago. It is growing revenues at higher rates than its competitors while maintaining industry-leading margins and high levels of free cash flow. Part of this has been due to Text's access to lower-cost labor in Poland and a weak Zloty over the past two years (most revenues are generated in USD), but even after adjusting for this, we believe Text sets the standard for what a quality SaaS business's financials should look like at maturity, let alone one that is still in growth mode. Despite the growth investments in the new products mentioned above, the company has consistently returned excess cash flow to shareholders in the form of dividends (4.5% yield at current prices) rather than chasing low-ROIC growth, and these dividends have grown at a 27% CAGR since 2018. At 16x current PE, shares remain attractively priced given the runway for continued double-digit EPS growth.

BSD Analysis:
The manager maintains a strong bull thesis on Text S.A., highlighting the company's exceptional execution since their initial 2020 investment. The core LiveChat product has delivered 23% revenue CAGR with successful price increases driving 60% ARPU growth since 2020. The investment case strengthens with emerging product diversification, as Chatbot (42% CAGR) and HelpDesk (62% CAGR) products gain traction with significant cross-selling opportunities into the existing customer base. Text's competitive advantages include lower-cost Polish labor, USD revenue exposure benefiting from weak Zloty, and industry-leading margins with strong free cash flow generation. The company's disciplined capital allocation, returning cash via dividends (4.5% yield, 27% CAGR growth) rather than pursuing low-ROIC growth, demonstrates management quality. At 16x PE with double-digit EPS growth runway, the valuation remains attractive despite the SaaS sector's recent underperformance.

Pitch Summary:
LS Electric is another name in Korea that is poised to benefit, but for additional reasons. While LS also makes transformers, it mainly focuses on hardware & installation services to connect new factories to the grid (e.g., switchgear, switchboards, controls, etc.). With the CHIPS Act ($280bn designated for tech onshoring), Korean car, battery, and semiconductor companies are building facilities in the U.S. and taking LS along for the ride. LS has long-standing relationships with these Korean customers and is winning business as a turnkey electrical solution provider for their new U.S. factories. The company's backlog now stands at KRW 2.5tn (nearly a year of sales), up 43% vs. a year ago and up 133% vs. December 2021. At a very reasonable 9x PE, we think LS is far from peak earnings – especially if they achieve margins equivalent to the last cycle (8-9% net income margins vs. 4-5% currently). We believe the stock could double from here.

BSD Analysis:
The manager presents a strong bull thesis for LS Electric based on its unique positioning to benefit from Korean industrial onshoring to the U.S. The investment case centers on the CHIPS Act driving $280 billion in technology onshoring, with Korean companies building U.S. facilities and bringing LS Electric as their preferred electrical contractor. LS's competitive advantage lies in long-standing relationships with Korean automotive, battery, and semiconductor companies, positioning it as a turnkey electrical solution provider. The company's backlog of KRW 2.5 trillion has grown 133% since December 2021, providing strong revenue visibility. At 9x PE with current margins of 4-5% versus historical peak margins of 8-9%, the manager sees significant earnings upside potential. The manager's price target implies the stock could double, suggesting substantial conviction in the thesis.

Pitch Summary:
One of our favorite names in the space is HD Hyundai Electric, a Korean company that was historically more domestically-focused but has seen a surge in demand from U.S. utilities as U.S. transformer manufacturers have run out of capacity. HD also has easy access to electrical steel in Korea, a unique raw material its U.S. counterparts struggle to get. HD is now working on a U.S. capacity expansion and they think profit margins can hit historic highs as U.S. sales carry higher pricing/margins. Expectations are for 20% growth next year with expanding margins, yet the stock only trades on less than 10x PE with a 7.5% FCF yield. Its order backlog is an impressive KRW 4.7tn (2-3 years' worth of sales), up 60% compared to a year ago and up 147% compared to December 2021.

BSD Analysis:
The manager presents a compelling bull case for HD Hyundai Electric based on structural demand drivers and competitive advantages. The thesis centers on the company's positioning to benefit from U.S. electrical grid modernization as domestic transformer manufacturers reach capacity constraints. HD's access to electrical steel in Korea provides a critical raw material advantage over U.S. competitors. The company is expanding U.S. capacity to capture higher-margin international sales, with management expecting record profit margins. At less than 10x PE with 7.5% FCF yield and 20% expected growth, the valuation appears attractive. The impressive order backlog of KRW 4.7 trillion represents 2-3 years of sales and has grown 147% since December 2021, providing strong revenue visibility.

Pitch Summary:
Shockwave is a medical device company developing and commercializing products for calcified cardiovascular disease. The company received FDA approval much earlier than expected for its C2 Plus intravascular lithotripsy device for coronary procedures, which provides a 50% increase in treatment capacity versus the current C2 device. The company reported strong financial results, including 49% revenue growth that exceeded expectations. However, shares experienced weakness due to an uptick in expenses and reduced operating margin guidance as the company invests in its sales force and product pipeline. We continue to be excited about the company's long-term potential and used the share weakness to add to the position.

BSD Analysis:
Artisan Partners maintains a bullish long-term view on Shockwave Medical despite near-term margin pressure. The fund emphasizes the significant catalyst of early FDA approval for the C2 Plus device, which delivers 50% greater treatment capacity than the existing C2 system for coronary procedures. Strong financial performance with 49% revenue growth demonstrates robust market adoption of the company's intravascular lithotripsy technology. While shares declined due to increased expenses and reduced operating margin guidance, the manager views this as strategic investment in sales force expansion and pipeline development. The fund's decision to add to the position during weakness reflects conviction in the long-term growth trajectory. Shockwave's innovative approach to treating calcified cardiovascular disease addresses a large and underserved market. The manager's bullish stance indicates confidence that current margin compression is temporary as the company scales its commercial operations and advances its product pipeline.

Pitch Summary:
Adyen is a payment company providing merchants with a single platform to accept e-commerce, mobile and point-of-sale payments in multiple countries. Shares fell after the company reported disappointing results where revenue growth slowed due to increased competitive pressure within e-commerce as clients switched to lower cost payment providers. Given the uncertainty around competitive intensity and pricing pressure, we exited our position.

BSD Analysis:
Artisan Partners adopted a bearish stance on Adyen following deteriorating competitive dynamics in the payments industry. The fund highlights that the company's unified payment platform, while comprehensive across e-commerce, mobile, and point-of-sale channels, faced significant pressure from lower-cost competitors. Revenue growth deceleration reflected clients migrating to cheaper payment processing alternatives, indicating pricing power erosion. The manager's decision to exit the position demonstrates concern about intensifying competitive pressure within the e-commerce payments space. This competitive intensity suggests margin compression and market share loss risks. The fund's bearish view reflects uncertainty about Adyen's ability to maintain premium pricing in an increasingly commoditized payments landscape. The exit decision indicates the manager believes competitive headwinds may persist, undermining the investment thesis despite the company's technological capabilities.

Pitch Summary:
Atlassian is a leading provider of innovative, customizable team-collaboration software tools. Shares underperformed in 2022 as the company experienced slower software user additions as customers of all sizes moderate hiring and spending. However, shares have rallied as strong fundamental performance has eased investor concerns. Recent earnings results topped analyst expectations, and the company offered solid guidance, including 25% to 30% growth within its strategically important cloud business for its 2024 fiscal year.

BSD Analysis:
Artisan Partners views Atlassian as a leading collaboration software provider that has successfully navigated through a challenging 2022 period. The fund notes that shares initially underperformed due to slower user growth as corporate customers reduced hiring and technology spending amid economic uncertainty. However, the investment thesis has strengthened as recent earnings demonstrated resilient fundamentals and exceeded analyst expectations. The company's guidance of 25-30% cloud business growth for fiscal 2024 signals strong momentum in their strategically critical cloud migration. This cloud transition represents a significant revenue opportunity with higher margins and recurring revenue characteristics. The manager's bullish stance reflects confidence in Atlassian's market-leading position in team collaboration tools and the accelerating cloud adoption trend. The recent share price recovery validates the fundamental strength despite temporary headwinds.

Pitch Summary:
Argenx is a commercial stage biotechnology company with an approved first-in-class, and potentially best-in-class, therapy (FcRn) for autoimmune diseases. The company's platform antibody treatment, Vyvgart, has one indication in market (for treating myasthenia gravis) that is experiencing a successful launch. However, the stock's outperformance has been due to a couple of positive developments. First, the FDA approved the subcutaneous injection version of the treatment, Vyvgart Hytrulo. And second, the company reported positive results for the treatment of CIPD (chronic inflammatory demyelinating polyneuropathy).

BSD Analysis:
Artisan Partners highlights Argenx as a commercial-stage biotech with significant momentum in autoimmune disease treatments. The fund emphasizes the company's first-in-class FcRn therapy platform, with Vyvgart already successfully launched for myasthenia gravis. Two key catalysts drove recent outperformance: FDA approval of the more convenient subcutaneous formulation (Vyvgart Hytrulo) and positive Phase 3 results for CIPD treatment, expanding the addressable market. The successful launch trajectory of Vyvgart in myasthenia gravis validates the platform's commercial potential. The subcutaneous formulation approval enhances patient convenience and competitive positioning. Positive CIPD results represent meaningful pipeline expansion into a larger patient population. The manager's bullish stance reflects confidence in the platform's best-in-class potential and multiple growth drivers across autoimmune indications.

Pitch Summary:
Lastly, leading manufacturer and distributor of coatings technologies, Axalta Coating Systems, Ltd. (AXTA), traded lower as earnings came in slightly below expectations due to currency headwinds and a near-term disruption related to the implementation of its new Enterprise Resource Planning (ERP) system. Nonetheless, management reaffirmed its 2024 full year outlook. We expect AXTA's margins will improve as inflation for raw materials ease. We also expect vehicle production and corresponding demand for mobility coatings to increase as supply chain constraints ease. Longer-term, we believe the company will continue to gain market share in its refinishing business and improve margins through cost savings.

BSD Analysis:
Ariel maintains confidence in Axalta despite temporary operational disruptions and earnings disappointment. The fund attributes recent underperformance to transient factors including currency headwinds and ERP system implementation challenges, rather than fundamental business deterioration. Management's reaffirmation of 2024 guidance provides confidence in the company's medium-term trajectory. Ariel expects margin improvement as raw material inflation moderates, providing operating leverage as input costs normalize. The fund anticipates recovery in vehicle production and corresponding mobility coatings demand as automotive supply chain constraints ease, benefiting AXTA's core end market. Long-term value creation is expected through market share gains in the refinishing business and continued margin expansion via cost reduction initiatives. The combination of cyclical recovery in automotive markets, moderating input costs, and operational improvements positions AXTA for sustained profitability enhancement. Ariel's continued conviction suggests they view current weakness as temporary, with the company well-positioned for multi-year margin expansion and market share growth.

Pitch Summary:
Leading global manufacturer of power generation equipment, Generac Holdings, Inc. (GNRC), also underperformed in the quarter. Management lowered full-year guidance as a soft consumer environment resulted in weaker-than-expected residential sales, margin contraction and an earnings miss. Subsequently, GNRC held an investor day and issued a new 3-year outlook above consensus driven by grid instability, climate change and accelerating power outages. In our view, GNRC's home standby generator business as well as its commercial and industrial opportunities will benefit from such heightened consumer sensitivities and result in a long runway of penetration across an expanding addressable market, margin expansion and free cash flow generation.

BSD Analysis:
Ariel maintains a bullish long-term view on Generac despite near-term operational challenges and guidance reduction. The fund acknowledges current headwinds including weak residential sales, margin pressure, and earnings disappointment in a soft consumer environment. However, Ariel focuses on the company's updated 3-year outlook that exceeds consensus expectations, driven by structural market drivers including grid instability, climate change, and increasing power outages. The fund views these trends as creating heightened consumer awareness and demand for backup power solutions. GNRC's positioning across both residential standby generators and commercial/industrial markets provides multiple growth avenues as infrastructure reliability concerns intensify. Ariel expects this to drive sustained market penetration across an expanding addressable market, ultimately leading to margin expansion and robust free cash flow generation. The combination of structural demand drivers and GNRC's market-leading position suggests strong long-term value creation potential despite current cyclical weakness.