"With the benefit of hindsight, the rise of e-commerce would have been an easy call to make in the early days of internet adoption. Yet the dot-com bubble of the late 1990s wiped out a host of promising e-commerce companies such as Pets.com and Boo.com that many had picked out as winners; meanwhile, Amazon.com, then a purveyor of books, grew to be one of the world’s largest companies by market value. Spotting the trend would have been easy. Singling out the winners proved anything but."

“We ended our investment campaigns in HubSpot, Inc. (NYSE:HUBS), Envista and Generac during the quarter. We first invested in HubSpot in February 2016 when it was a $1.1 billion company. After an extremely successful multiyear investment campaign, the company has outgrown our small-cap mandate, and we have exited the position.”

"While investors debate the next leg of growth for TEAM, we believe TEAM is a great long-term growth franchise with multiple long-term growth levers."

“Among our top contributors were Argenx, Atlassian Corporation (NASDAQ:TEAM) and Global Payments. Atlassian is a leading provider of team-collaboration software tools. The stock outperformed based on solid financial results. Revenue growth is stabilizing (after a period of slowing in 2022), and operating margins are expected to expand in the coming years after a period of heavy reinvestment. 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. While operating margin guidance of 18.5% in 2024 was a modest disappointment, it is being driven by a final investment push, and the company expects 2024 to be the peak year for spending. One notable area of investment is generative artificial intelligence, where management is focused on getting these tools integrated into its products to drive additional value for customers which, if executed well, could drive future price increases.”

“In the semiconductor industry, demand is closely tied to the economic cycle, and industry order patterns are magnified by its complex supply chain. Furthermore, it’s a capital and technology intensive industry, resulting in frequent overcapacity and product obsolescence. For these reasons, we shied away from any investment in the industry for many years. However, several years ago, we felt that segments of the industry had developed strong enough moats to merit investment under the right conditions. We made one investment (Analog Devices, Inc. (NASDAQ:ADI) in Large Cap) that we thought was compelling, but it wasn’t until late 2021 when the semiconductor industry entered a severe downturn, that we began purchasing semiconductor stocks in earnest. Our view on the cycle risk was simple – the long-term growth outlook was tremendous given the proliferation of electronics and software in everyday objects, and the downturn had already begun, and a healthy amount of it was known. We ignored the near-term outlook for profits, assuming they would be down substantially. It turned out that the downturn was more severe than most other investors or industry observers had forecasted. Thus, semiconductor stocks in general remain depressed, and our investments have so far shown mixed results.

However, we have not changed our view on the long-term attractiveness of the industry segments in which they operate, nor on the normalized earning power of these companies five to ten years out. Thus, we have been consistently adding to our exposure for the past two years, which, in addition to Analog Devices, now includes Microchip Technology (Mid Cap), MKS Instruments (Mid Cap), and Texas Instruments (Large Cap), the last of which was a new purchase in 2023. Each of these has wide and deep moats, top-notch management teams, and strong secular growth prospects. We expect our investments here to ultimately work out for us, but they are examples of how unpredictable, cyclical factors can overwhelm other factors in the short term.”

“Improving unit economics: Many of our companies were able to significantly expand margins during 2023 even though revenue growth decelerated for some of them, showcasing the power of their capital-light, recurring revenue business models, and their increased focus on efficiency. Another example is the cybersecurity platform, CrowdStrike Holdings, Inc. (NASDAQ:CRWD), which is expected to increase its operating margins from 15.9% in 2022 to 20.8% in 2023 as a result of growing efficiencies, while the company’s platform offering is resonating with an increasing number of customers (for example, deals with eight or more modules grew 78% year-over-year in the last quarter), which is a tailwind to sales productivity.”

“The top five contributors for the quarter were Gartner, Dollar Tree, Arista Networks, Inc. (NYSE:ANET), Glacier Bancorp, and Ross Stores. Arista Networks continues to produce robust revenue growth, as its emerging Enterprise business is offsetting slowing demand from their core ‘Cloud Titan’ customers. While sales in relation to AI are trickling in, most of the benefit is still to be realized.

During the quarter we sold two insurance holdings, trimmed our position in Arista Networks. We trimmed Arista Networks as its stock became an outsized position due to strong performance, but remain optimistic about the company’s prospects.”

"While the pullback was driven by investor concerns surrounding investment levels, competitive dynamics and forward guidance achievability, we have confidence in DASH's forward GOV and EBITDA growth."

“Recent investments in this bucket include Ball Corp, Fidelity National Information Services, Inc. (NYSE:FIS), and Avantor. Fidelity National Information Services is a payment provider for financial institutions and merchants around the world. We took a hard look at the business around the time we established our investment in Fiserv, discussed in detail here. Thankfully, we decided to pass at the time in favor of what we believed to be a much better competitively positioned business with a much stronger track record of execution. Since then, issues at FIS have gone from bad to worse. The $48 billion acquisition of Worldpay in 2019, which took leverage up to 5.5x on the balance sheet, hasn’t turned out quite as well as Fiserv’s acquisition of First Data. Fast forward to today, and FIS is unwinding prior mistakes, selling off a 55% interest in the recently acquired business (meaning we now have a hard number for the remaining 45% they own), and using proceeds to take leverage back down to 2.5x post close while repurchasing at least $3.5B of stock through next year. As a result, shareholders will be left with a cleaner balance sheet and a simpler organizational structure, consisting primarily of their very defensive, very profitable core banking business, which traded down to a single-digit multiple vs historical averages for the industry closer to 20x.”

“Shopify Inc. (NYSE:SHOP): 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.”

"The company expects continued strong revenue growth, driven by its land and expand go-to-market motion, and raised its long-term adjusted operating margin target to 25%+ vs. the 23% in 2023. Notably, the company seems to be past our previous optimization concerns based on current trends."

“Most of our portfolio companies have seen stabilization and modest improvements in short-term business fundamentals as the year progressed. More importantly in our view, many have been able to drive significant improvement in long-term Key Performance Indicators (KPIs) such as share gains, meaningful expansion of their total addressable market, and improvement in unit economics. These KPIs are significantly more important in driving the intrinsic values of our businesses, which we believe have increased noticeably during 2023. In the meantime, disruptive changes that we expect will benefit many of our businesses have also continued to pick up steam. Some examples include: ? Market share gains: Many of our companies have been reporting on customer consolidation trends and rising win rates against competitors. In its their most recent quarterly conference call, Datadog, Inc. (NASDAQ:DDOG) described a customer who replaced seven different tool providers with the Datadog platform and another one who replaced a dozen different tools and moved to Datadog.”