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SaaS versus Semis

For this month’s Stock in Focus, we’re doing something a little different.

Rather than spotlighting a single company (though we will highlight one), we’re zooming out to explore a significant rotation: The growing dispersion between software and semiconductors, particularly within the broader AI thematic.

Both groups sit under the ‘tech’ umbrella, but their near-term investor narratives couldn’t be more different.

Put simply:

• The application layer (SaaS) is being severely punished for uncertainty around the durability of its business models in an AI world.
• The picks and shovels (semis, AI Infrastructure) are being rewarded for their growth potential and the earnings certainty that AI investment is creating for them.

This dispersion is throwing up big opportunities for Ophir in both application companies and semis, but we are mindful of managing downside risks as debates about the impact of AI continue to play out.

Source: Ophir. Bloomberg.

The Software Shakeout: Zero-Seat Threat

The woes of the software sector started as a slow bleed in the second half of 2025 when it became clear AI investment would skew heavily toward infrastructure, rather than application-layer enhancements. Investors began recalibrating growth expectations for software businesses.

But then the software sector was rocked on January 12 when Anthropic released its Claude Cowork preview. It showcased autonomous agents that could perform complex workflows with minimal human input.

This wasn’t just another chatbot. It highlighted that entire seat-based workflows (licensing models based on the number of users) could be replaced.

For the past decade, enterprise SaaS companies have grown alongside corporate headcount. Products were priced ‘per seat’, and forward multiples assumed that more humans meant more licences.

But if AI agents can perform a week’s worth of work in a day, the unit of value in software – the human seat – comes under serious structural pressure.

This is the Zero-Seat Threat.

While big-cap incumbents like Salesforce (CRM) and Adobe (ADBE) have launched AI initiatives (Agentforce, Firefly) to defend their moats, these have yet to translate into a tangible revenue uplift, and investors fear that incumbents are simply running to stand still.

When long-duration stocks lose revenue predictability, multiples compress quickly. Morgan Stanley’s SaaS index forward earnings expectations are now trading on ~15x, compared to a 30-40x range since mid-2022.

Source: Ophir. Bloomberg.

The software sector is now showing its weakest technical breadth since 2018. The S&P North American Software Index recently hit it’s most oversold level ever based on its 14-day RSI (relative strength index) – even more than in the tech wreck of 2001!

Source: Ophir. Bloomberg. U.S. Software Index refers to S&P North American Technology Software Index (SPGSTISO).

Given the quantum and indiscriminate nature of the price moves in the sector, we expect there to be opportunities to invest in companies that have been oversold.

However, we are mindful that as uncertainty persists and the debate around future earnings continues, it will be difficult for many software names to see their multiples re-rate.

Meanwhile in Semis: Earnings Visibility is the New Growth

While software stumbles, semiconductors are going from strength to strength.

Semis are benefiting from both a cyclical rebound and structural AI demand.

It began, of course, with Nvidia, the poster child of the AI build-out, but it’s now expanded into the broader infrastructure stack.

The major driver is huge AI capex.

Microsoft, Amazon, Alphabet, and Meta have all locked into multi-year AI capex plans, committing hundreds of billions each toward training clusters (specialised supercomputers to build large language models) and inference capacity (infrastructure to run AI for users).

In their recent results, all of these companies provided capex guidance for 2026 that was well above market expectations.

This obviously creates surging demand for chips and chip-making infrastructure.

Source: Ophir & Company Reports. Figures in $USD.

Semis have typically been more cyclical, but massive AI capex has given them what investors love – earnings visibility.

With AI being funded in real time, order books are now full, supply is constrained, and lead times are stretched.

This has shifted the entire sector’s narrative from ‘cyclical’ to ‘critical infrastructure’.

At the same time, semis are benefiting from a broader macro recovery in PCs and smartphones.

And in January there were several key events that added more fuel to the fire:

• At CES (Consumer Electronics Show), Nvidia CEO Jensen Huang called out memory and storage as the next AI frontier.
• Samsung and Micron said the price of memory was increasing 40-50%.
• TSMC came out with really strong capex guidance of ~US$52-56 billion, which was well above market expectations.

As a result, memory and storage names have continued to surge, including (approximate 1-year returns) SanDisk (+1,520%), Seagate (+335%) and Western Digital (+450%).

Silicon Motion Technology Corp (Nasdaq: SIMO)

A key holding for us in the storage space is Silicon Motion (SIMO), which performed strongly in January following CES.

The company is a global leader in the semiconductor industry, specifically acting as the ‘brains’ behind modern storage.

Silicon Motion is a ‘fabless’ company, which means they design the hardware and software but outsource the actual manufacturing to foundries like TSMC.

The company designs NAND flash controllers. A controller is a small processor that manages how data is stored, retrieved, and protected on NAND flash memory (the chips found in SSDs and smartphones).

Silicon Motion’s products are found in:

• Solid State Drives (SSDs): Used in PCs, laptops, and data centers.
• Mobile Storage: eMMC and UFS controllers used in smartphones and IoT devices.
• Specialty Solutions: Industrial-grade and automotive storage (e.g., in-vehicle infotainment and ADAS).

Source: Ophir. Bloomberg.

Managing Exposure Across the Stack

So how is Ophir playing this dynamic?

From our seat, this isn’t just about picking winners amidst an ever-shifting debate and material share price movements.

It’s about managing risk and not doubling down when stocks could de-rate further.

We believe in application-layer AI, but the market will take time to separate the winners and the survivors from the losers and the disrupted.

And while we remain exposed to some AI infra winners, we’re conscious that ‘earnings certainty’ trades rarely last forever as the market eventually overcapitalises future earnings and pays too high of a multiple.

While we will selectively invest in SaaS names that have cash flow support and have catalysts to reduce uncertainty, we won’t be relying on a recovery in software or a continuation of semi strength to drive future performance.

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Finding Alpha in Zeta

In a sea of marketing tech companies competing for attention, Zeta has quietly established itself as one of the most compelling players in the space. But it hasn’t all been smooth sailing, especially when it listed.

We first met Zeta in 2021 during a virtual roadshow shortly after what can only be described as a disastrous IPO. Just after listing, the analyst from the bank who listed the stock came out with a Neutral recommendation and a price target below the listing price. This contributed to the stock falling nearly 50% post IPO, and for a while, Zeta became a name most investors avoided.

So we took a meeting, did the work, and came away with a very different conclusion.

How We Gained Conviction

Major agency partners are the core customer base in Zeta’s market. After a series of diligence calls, we found repeated evidence of Zeta’s superior return on ad spend (ROAS) compared to the incumbents. We also sat through a two-hour technical demo with Zeta’s product engineers and walked away convinced the platform had the scalability, usability, and performance to support sustained growth with large enterprise clients.

In short, Zeta was misunderstood, but not broken.

Keeping Our Finger on the Pulse

In Q3 2024, with the stock having exceeded our price target, we exited our position. After consistently beating and raising every quarter post IPO, we believed the stock was priced for perfection and the market was paying two years forward. We still liked the story, but felt the set-up required growth to accelerate further.

Source: Zeta Global Investor Day Presentation, October 2025.

As anticipated, guidance wasn’t enough to satisfy the markets’ elevated expectations.

Following the conservative 2025 guide, a short report attacking Zeta’s data integrity was released. This is a classic vulnerability for advertising technology (AdTech) businesses and the stock was sold off aggressively. We had already done deep diligence on Zeta’s data pipeline and knew from customer and partner conversations that the underlying data quality had been reviewed and validated by some of the most sophisticated agency buyers globally.

We believed the short report, while well-timed, was opportunistic. So we re-entered in Q4 2024 at a significant discount to intrinsic value.

Source: Ophir. Bloomberg Data as of 10 December 2025.

What They Do and Why It Works

Zeta is a leading U.S. marketing technology (MarTech) company. Their platform helps large enterprise customers identify, engage, and retain customers more effectively by using predictive AI, real-time signals, and a differentiated first-party data graph.

Unlike traditional software companies that sell you an “empty” database to fill with your own customer data, Zeta provides the software already filled with a massive proprietary dataset of consumer identities and behaviours.

This unique combination allows them to bridge the gap between AdTech (acquiring new customers via ads) and MarTech (retaining customers via email/SMS), a convergence that defines the current industry landscape.

Source: Zeta Global Investor Day Presentation, October 2025.

The Thesis in Focus

Zeta is a classic, Rule of 40 compounder, but isn’t currently trading like one.

• Organic revenue growth of 20%+
• EBITDA margins in the low 20s, growing toward 30%+ by 2030
• Multiple M&A levers to accelerate platform expansion
• Trades on just ~11x forward EBITDA

With margin expansion and top line momentum both in place, we believe Zeta deserves to re-rate back to the high-teens multiples it saw during prior periods of growth acceleration.

COR refers to Cost of Revenue, S&M to Sales and Marketing, and G&A to General and Administrative expenses.

Source: Zeta Global Investor Day Presentation, October 2025.

What Gives Us the Edge

• 20+ customer and agency diligence calls across several years
• Portfolio company usage validation from advertisers and data partners
• Three separate product walkthroughs with Zeta’s engineers to assess capability evolution
• Built conviction through multiple cycles — pre-IPO dislocation, post-rally exit, and re-entry after short attack

Why We Still Hold

We held a mid-sized weight going into the most recent result, halved it post-print due to macro uncertainty, and have since increased our position size as macro uncertainty has started to abated (relatively speaking).

• Q3 results beat EBITDA by ~10%, and consensus for 2026 was upgraded
• Yet the stock finished flat for the month
• Multiple is now at its lowest in years, despite ongoing earnings momentum

This isn’t about betting on the macro, but if risk sentiment improves, Zeta is well-positioned to slingshot out of this multiple compression phase.

Managing the Beta

It’s important to highlight: Zeta is a cyclical, higher-beta name. And that’s a feature, not a bug.

• It offers tremendous upside when confidence returns to the macro
• We believe the downside remains manageable, but it can be volatile during periods of macro uncertainty

For now, we’re happy owning a mid-sized position given the attractive multiple and as the macro backdrop shifts, we can flex the weight accordingly.

Final Word

Zeta may have started its public life under a cloud, but what’s emerged since is a category leader with a clear value proposition, an expanding product suite, and the kind of performance profile that earns loyalty from budget-conscious agency buyers.

With ongoing growth, rising margins, and a valuation that provides more reward than risk, we see Zeta as a name that can quietly compound, then quickly re-rate when sentiment catches up.

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Seeing in the Dark

At Ophir, we’re always looking for exceptional businesses sitting just outside the spotlight. That’s how we came across Exosens, the European leader in night-vision components.

We first encountered Exosens – which is based in Merignac, France – through our investment in Theon International (THEON), a night-vision device manufacturer that IPO’d in February 2024. During diligence on THEON, it became clear that a key strategic supplier, Exosens, was a company we needed to know better.

Exosens is the European leader in high-performance electro-optical technologies. It specialises in image intensifier tubes (IITs), the critical components used in night-vision goggles and weapon sights. (The tubes convert low-level light into bright images that humans can see.)

With more than 85 years of experience, Exosens has quietly built a strategic position as a mission-critical supplier to NATO forces, holding 42% global market share in IITs, and 72% market share ex-U.S.

Importantly, Exosens is “ITAR-free”, meaning it is not subject to U.S. arms export restrictions – a major advantage for European buyers seeking sovereign and secure supply chains.

Outside defence, Exosens also supplies radiation detection (24% global share), nuclear control components (38%), and imaging systems for high-end medical, scientific, and industrial use (~7% share overall, focused on niche segments). These non-defence operations provide valuable diversification and help create a steadier, less cyclical earnings base than defence alone.

Company Overview

Source: Exosens Company Report October 2025.

So when Exosens went public in June 2024, we were ready. With a front-row seat for the THEON process, and strong conviction in the electro-optical space, we became a top-five initial holder in Exosens. Since its IPO, Exosens shares have surged around ~130%, supported by growing investor enthusiasm for defence-related stocks.

After a three-day research trip to Europe in September 2025 – where Exosens stood out among 15 company meetings – we increased our position further.

Exosens is one of the most attractive under-the-radar growth stories in the whole defence and industrial imaging landscape. We are confident it will remain a fantastic investment for several key reasons.

1. A Secular Defence Tailwind

The first is that the company is well placed to benefit from surging defence spending in Europe.

The global market for night-vision IITs is highly concentrated. Alongside U.S.-based L3Harris and ElbitUSA, Exosens is the only other player of scale. Importantly, it is the only non-U.S. option with mass production capabilities and NATO credibility.

Europe’s penetration rate for night-vision remains low at ~30%, compared to ~100% in the U.S., offering Exosens significant room for growth.

If Europe’s penetration rate were to increase to 50%, it would imply roughly 400,000 additional devices – each requiring one or two IITs, depending on whether they are monocular or binocular.

Further supporting demand, Germany has announced plans to expand its armed forces by 40–45% by 2030, from approximately 180,000 to 260,000 troops.

Procurement ratio and penetration remain low outside of the U.S.

Source: Exosens Company Report October 2025.

As defence budgets across NATO continue to rise, electro-optics are growing even faster, driven by rising electronics use in warfare; night-fighting capability gaps across Europe; and shifting NATO procurement policies that favour ITAR-free, interoperable technologies.

We believe Exosens is uniquely positioned to capture this growth as the only European manufacturer producing mission-critical IITs at scale.

2. A Clear Vote of Confidence from THEON

Further supporting our thesis is that THEON recently entered into an agreement to purchase a 9.8% strategic stake in Exosens at a ~25% premium to the last close prior to the announcement (EUR54.00 per share).

The rationale for THEON’s deal with Exosens is two-fold:

• It strengthens THEON’s relationship with Exosens as its key supplier for image intensifier tubes, thereby mitigating supply risks in the near term; and
• It lays the ground for future collaboration on digital technologies which can provide further capabilities to night-vision products and other product segments.

We see this as a strong validation of both Exosens’ strategic importance and the robust demand outlook for THEON’s products.

3. Diversification and M&A

The third reason is Exosens’ track record of successfully diversifying through acquisitions.

Since 2022, Exosens has completed eight acquisitions, expanding its reach into nuclear, detection, and industrial control markets. These deals bring not only incremental revenue but also margin uplift and a more diversified customer base.

Exosens has also attracted suitors of its own. In 2020, U.S. electro-optical conglomerate Teledyne (TDY) made a bid for Exosens at roughly 11x EBITDA – before the surge in valuations following the Ukraine conflict. The bid was blocked by the French government due to the company’s strategic importance, and Teledyne went on to acquire FLIR Systems (FLIR) a year later for 17x EBITDA.

In calls with former Teledyne employees, we confirmed that the bid for Exosens was driven by its superior technology and market access – reinforcing our conviction in the quality and positioning of the business.

4. High Margin Optionality: Drone Imaging

The final reason for our confidence in Exosens’ ongoing success is the massive potential in drones.

Exosens also supplies imaging technology to the drone market, though it is not yet a material contributor to group earnings. Our research with a dozen global drone companies suggests this could evolve into a meaningful revenue stream, with incremental margins exceeding 60%. While it may not appear in near-term results, it provides substantial upside optionality for future years.

In our view, the market continues to underestimate the scale of this drone opportunity.

Just look below at the comparison to some Australian-listed companies – Droneshield and Electro Optic Systems – that saw significant share price appreciation on the global defence thematic.

(These two names have given back a lot of the recent gains, which demonstrates the volatility associated with investing in an undiversified business exposed to a ‘hot’ thematic.)

By the numbers, every US$50m of incremental drone revenue would be ~US$30m of EBITDA, adding ~15% to outer year EBITDA.

If even a portion of Exosens’ drone exposure materialises, its earnings base could expand materially and potentially warrant a significant multiple re-rating in line with other high-growth defence and imaging peers.

Gaining Our Edge Through the Fog of War

Exosens has carved out a rare position: a high-margin, IP-rich business with both defensive resilience and offensive growth.

We expect the company to deliver a top-line compound annual growth rate (CAGR) in the mid-teens over the next three to five years, underpinned by strong structural demand and disciplined execution.

We also anticipate continued EBITDA margin expansion driven by operating leverage, scale benefits, and an improving business mix.

Despite this growth potential – and the advantages outlined above – Exosens still trades on an attractive forward 12-month valuation of around ~15x EBITDA.

Source: Ophir. Bloomberg. Data as of November 2025.

Exosens sits at the crossroads of national security, advanced optics, and industrial innovation.

With a growing customer base, increasing optionality in high-growth verticals such as drones, and strong backing from sovereign governments, we believe Exosens stands out as one of the most compelling under-the-radar compounders in the European small-cap landscape today.

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Roses are Red, Violets are… Also Red

At Ophir, we leave no stone unturned. During our extensive travel and company visitation programs, we hate leaving any meeting slot unfilled. And that’s exactly what led us to Red Violet all the way back in 2018.

While on a fact-finding mission to Florida to see larger listed and core portfolio companies, this obscure, $100m data analytics company accepted our meeting request.

Within a year, after a full deep dive into the industry, we made our first investment and reinvested in the company earlier this year as we gained confidence growth rates could reaccelerate to above 20%.

Source: Ophir, Bloomberg. Data as of 30 September 2025.

Red Violet is a leading provider of identity verification and fraud prevention analytics. It applies proprietary models to massive, multi-source datasets to help clients across financial services, insurance, real estate, legal, and government uncover who they’re really dealing with in real time, with high accuracy.

Its cloud-native, multi-tenant architecture enables clients to integrate easily, ingest data quickly, and access deep insights across use cases such as:

• Fraud prevention and detection (e.g. digital payments, e-commerce)
• Regulatory compliance (e.g. KYC/AML for banks)
• Risk scoring and mitigation (e.g. insurance underwriting, claims history)
• Public records and background checks (e.g. for real estate, legal, and law enforcement)

Data Done Differently

Red Violet is one of only a handful of U.S.-listed, micro-cap (<$1bn market cap) Software & IT Services companies with positive net income and a 3‑year revenue CAGR above 10%.

With a Total Addressable Market exceeding $10bn globally, and current market penetration below 1%, we believe Red Violet is in the early stages of a multi-year growth story.

Source: Red Violet Company Presentation – August 2025. Ophir.

Legacy incumbents such as Equifax, Experian, LexisNexis and TransUnion dominate the traditional credit bureau model, but Red Violet is capitalising on key advantages to gain share.

Red Violet’s proprietary data platform, IDI, was built by the same tech team behind LexisNexis and TransUnion’s platforms. This is effectively their third and most refined iteration, incorporating everything that worked well in prior versions and improving on what didn’t. With the lead developer now retired, it’s likely to remain their final iteration, giving Red Violet a uniquely battle-tested and future-proof platform.

Source: Red Violet Company Presentation – August 2025. Ophir.

Red Violet’s architecture allows for:

• Faster ingestion and integration of new datasets
• More accurate and dynamic modelling
• Customisation across customer-specific verticals

Their technological edge, paired with strong customer validation, is allowing Red Violet to take share from legacy players.

• Revenue is growing at more than +20–25% annually
• It has 95%+ incremental gross margins, enabling significant operating leverage
• Long-term EBITDA margins could exceed 60%, with EBITDA compounding at 30%+
• Red Violet trades on a high-teens multiple of EBITDA, but we see the potential for rerating given its growth, margin profile, and balance sheet strength

Source: Red Violet Company Presentation – August 2025. Ophir.

Interesting Use Cases

Red Violet’s platform is used in ways that go far beyond traditional identity checks:

• Banks stop fraud in real time on new account openings
• Retailers flag “multi-drop” transactions to prevent high-value fraud
• Insurance firms detect repeat claim filers or link disparate records
• Real estate firms uncover bankruptcies or aliases during screening
• Law enforcement uses the platform for investigations

This diversity of applications shows how embedded the platform is becoming — and how non-cyclical much of its revenue base really is.

Building Our Edge

We’ve been tracking Red Violet for over seven years. Since our initial meeting in 2018, we’ve:

• Met with all major competitors, including the big credit bureaus
• Held calls with dozens of customers across financial services, insurance, real estate, and government
• Validated the long runway of growth through first-hand feedback on performance, accuracy, and pricing

This early access and sustained diligence has helped us build a high-conviction position before the market caught on.

Best Is Yet to Come

The stock has been a strong performer since our entry, but we think the best is yet to come:

• Revenue was up 25% in 2024, hitting $75m
• The business is profitable, with no debt and $36m in cash
• With continued share gains and vertical expansion, we expect years of compounding ahead
• And if margins continue to expand, we see 30–40% total shareholder return (TSR) potential annually for 3–4 years
• With limited analyst coverage it remains a relative unknown today, but as growth continues it will attract more attention

In a world where high-growth, high-margin companies often trade at 30–40x EBITDA, Red Violet’s current high-teens valuation offers meaningful upside from multiple expansion alone.

With its clean balance sheet, niche leadership, and embedded optionality, we see Red Violet as one of the most compelling compounders in small-cap tech today.

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Most of the portfolio companies in our global funds reported their Q2 results in late July and early August.

Our performance during this period was solid with both of our global funds up 4-5%, compared with the benchmark return of 2.1%:

• We maintained our history of owning more ‘beats’ (companies reporting better-than-expected results) than ‘meets’ and ‘misses’;
• A similar number of our portfolio companies either upgraded or maintained guidance; and
• Pleasingly, very few of our holdings downgraded guidance.

At Ophir, we are always looking for companies doing better than the market expects because earnings beats typically translate to share price appreciation.

With no clear business cycle, we entered Q2 with a portfolio designed to work in either a strong or weak macro environment.

That positioning certainly helped our performance.

Two companies that we have recently added to our portfolios, which thrive in strong or weak macro, include Resideo (REZI) (see below for a deeper dive) and Descartes Systems (DSGX).

These sit alongside existing names like IES Holdings (IESC) and AAR Corp (AIR), a group that lets us participate in a recovery while providing downside protection.

We looked at both businesses in more detail previously (here and here).

Below, we look at a winner and loser from results season.

But first, stepping back, there were six key issues and themes that emerged during the period that particularly gained our attention:

1. Investors take profits

On balance, we saw profit-taking throughout reporting season, particularly for companies whose share prices had run strongly into their results.

Companies that delivered strong quarters, often saw their share prices fade a few days after earnings.

This was particularly the case for companies with a more cyclically dependent second half.

2. Market breadth widens

The share price fades were a sign that investors were rotating into less well-held names.

This apparent rotation is reflected in the continued widening of market breadth.

Within the Russell 2000 index, the micro-cap subset has been outperforming over the last few months.

Source: Ophir. Bloomberg.

3. Rate cut prospects boost small caps

As the chance of a Fed rate cut in September increased, we saw this flow into small caps more broadly in August, with the Russell 2000 up 7% compared to the S&P 500’s 2% gain.

Source: Ophir. Bloomberg.

Direct beneficiaries of these lower rate expectations were home builders, building product suppliers and select REITs as the market anticipates housing transaction volumes to recover from their current historically low levels.

4. Tariff uncertainty continues

Investors questioned companies with tariff exposure that had strong quarterly results. They were concerned that pre-buying ahead of tariffs had pulled forward demand, giving the results a one-off boost.

5. Tech and healthcare struggle

The reporting season showed little patience for ‘good but not great’.

This was especially true in tech and software, where AI-fuelled names are facing growing fears of commoditisation.

Some examples (that we don’t hold) include The Trade Desk (TTD), HubSpot (HUBS) and Twilio (TWLO), which saw significant drawdowns in their share prices despite relatively solid results.

Healthcare was another tough spot. Investors were concerned about cost-cutting mandates (including RFK Jr. policy noise) and looming cuts to Medicare/Medicaid, and as a result, aggressively rotated out of the sector.

6. Positive outlooks tempered by caveats

However, when providing forward-looking statements, most companies sounded more constructive than last quarter. Though almost all added a caveat around tariffs and the consumer outlook.

Several also referenced concerns about “a left-field tweet” or regulatory surprise.

This is something investors must get used to under a Trump Administration.

Two results case studies (a winner and loser)

Below, we take a closer look at one winner and one loser from the recent results season.

The Winner – Resideo Technologies (NYSE: REZI)

Spun out of Honeywell in 2018, Resideo operates two distinct business units:

• Products & Solutions (P&S): Smart thermostats, air quality monitors, fire/security systems, and
• ADI Distribution: Access control, fire protection, AV, and connected home product wholesaling

We’ve known Resideo for several years and re-initiated a large position ahead of the quarter. Our thesis was simple: The P&S division was quietly outperforming peers; gross margins were improving, and the company’s valuation was highly attractive at <10x earnings.

Source: Ophir. Bloomberg.

What Drove the Result

REZI’s Q2 result delivered on all fronts:

• Earnings guidance was upgraded due to stronger volumes and better margins
• A legacy environmental liability from the Honeywell spin was bought out
• Management announced plans to split the business into two standalone entities, unlocking appropriate multiples for each

Do We Still Own It?

Yes … and we’re still bullish.

The stock has rallied ~40% since our entry, but is still only trading on ~12x earnings.

With operational momentum accelerating, and a likely Investor Day in early 2026 to highlight the long-term earnings potential of each segment, we believe there is still meaningful upside ahead — especially if Fed rate cuts begin to support housing activity.

The Loser – Tandem Diabetes Care (NASDAQ: TNDM)

Tandem is the world’s #2 provider of insulin pumps, with its flagship t:slim X2 product integrating with CGMs (Continuous Glucose Monitors) to automate insulin delivery and improve glycaemic outcomes.

Why We Owned It

Heading into results, we believed the market was overly pessimistic and missing upside from three key drivers:

1. The launch of the Mobi, which is a smaller, next-gen device;
2. ASP (average selling price) uplift through pharmacy reimbursement; and
3. Early traction in Type 2 diabetes, expanding the patient pool.

With the stock heavily sold off prior to the result, we believed downside was limited and that consumables and renewals would provide valuation support.

We did extensive work, including site visits, peer calls, distributor checks, and endocrinologist interviews.

What Went Wrong

The bear case on lower U.S. patient adds played out, and Tandem took a more cautious tone on second-half growth due to a competitor launch.

While Tandem maintained its full-year revenue guidance, the mix shifted toward Europe, and the company trimmed EBITDA guidance (driven by non-cash adjustments).

Source: Ophir. Bloomberg.

Do We Still Own It?

No.

We were frustrated by the magnitude of the sell-off, particularly given revenue was unchanged. But in the U.S. market, perceived share loss is lethal. We are also aware that cheap isn’t a catalyst.

With our channel checks and industry research not as accurate as needed, we decided to exit.

While our thesis may still play out in time, it’s more valuable to reallocate capital to higher-conviction names than try to chase lost ground on Tandem.

Continuing to deliver despite macro conditions

This reporting season reaffirmed our conviction that valuation alone isn’t enough. You need the setup, the positioning, and the execution to all line up.

But we’re encouraged that even in a tough tape, our balanced, fundamentals-driven approach continues to deliver.

Our focus remains on companies with multi-year growth drivers, improving business quality, and compelling valuations… with or without macro support.

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20/20 Vusion

When you’re at the supermarket and you see all those price tags that change every other day with deals, specials, or to reflect higher prices have you ever thought to yourself, ‘I’m glad I don’t have to change them.’ Well what if they changed themselves… This transformation is underway for global retail and behind those familiar pricing labels on store shelves there is a multi-billion-dollar company you’ve probably never heard of that is leading the charge.

VusionGroup, (VU-FP), is a French technology company specializing in Internet of Things (IoT) and data solutions for physical commerce. The company has established itself as a global market leader for electronic shelf labels (ESL) and cloud-based software solutions (VAS), supplying retailers with its innovative solutions to enhance store digitalisation.

VusionGroup Product Features

Source: VusionGroup.

We first came across Vusion when spending a week on the ground in Paris to visit a long list of SMID-cap French companies around three years ago. What we discovered was one of the most compelling secular growth stories in global retail technology.

Shelf Control

After closely following the company for nearly a year, we took our position in June 2023. The catalyst? A short report that halved the stock price. At the heart of the bear case was the validity of its contract with Walmart – a major source of growth for Vusion in the U.S – and a large Chinese shareholder potentially selling down.

While definitely not our typical entry catalyst we were fortunately prepared and had done the following…

1. Spent over a year engaging with the company and built trust in management’s delivery during that time.
2. Spoke to multiple large U.S. and EU grocery chains about ESL and were already comfortable with the unit-level economics being generated.
3. Ran channel checks on the company’s Chinese shareholder
4. Conducted detailed discussions with management to address the other accounting concerns in the report

This allowed us to quickly conclude the short report was weak and the market had overreacted. We bought in on day two, once the dust had settled, at a time when the stock was trading at around €80.

A clear front-runner

Globally, there are four major providers of ESL’s: Vusion and Pricer in Europe, and Hanshow and Solum in Asia. We’ve conducted translated investor calls with Solum, met with Pricer management on multiple occasions, and held industry expert calls on Hanshow.

Through this work, one thing has become clear: Vusion has a material lead in the U.S. market.

The U.S. currently represents only ~5% of the global ESL market compared to ~40–50% for Europe. But with Walmart as a marquee customer and ESL adoption still in its infancy stateside, the U.S. is on track to overtake Europe by 2029 as the largest market globally.

Source: VusionGroup, Ophir.

This market share head start, combined with Vusion’s differentiated software offering, gives the company a substantial runway for growth.

Growth remains in its infancy

Adoption of ESLs in the U.S. remains in the low single digits, with Walmart acting as a first-mover. But the macro backdrop is increasingly favourable: rising labour costs, supply chain volatility, and stockkeeping unit (SKU) proliferation are all improving the payback profile for ESL rollouts.

Importantly, the use case is expanding. ESLs are moving beyond grocery into pharmacy, hardware and other specialty retail, effectively doubling Vusion’s total addressable market.

Source: VusionGroup, Ophir.

We model 25%+ revenue CAGR through 2027, supplemented by high-margin value-added services (VAS) products that Vusion bundles with its hardware. These software solutions, which include dynamic pricing, inventory automation, and theft prevention, are creating recurring revenue streams and best-in-class EBITDA margins that we believe increase Vusion’s competitive moat and customer stickiness.

Source: VusionGroup, Ophir.

Beyond the fundamentals, the technology itself is genuinely exciting. VAS features now enable:

• Optimised picking for online orders
• Time-of-day dynamic pricing
• Real-time inventory auto-replenishment
• Theft detection and loss prevention

These aren’t just bells and whistles, they’re solutions to real pain points for retailers, helping drive adoption and pricing power. And importantly, they deliver software-like margins on top of hardware deployments.

ESL penetration in the U.S. remains well below Europe despite a significantly larger store and SKU base, a recipe for catch-up growth.

• U.S. stores: Significantly more locations per chain; often with broader inventory complexity.
• Pharmacy and hardware: These verticals are still largely untouched and represent major future growth. Just picture an ESL replacement program on your next trip to Chemist Warehouse…

With ESLs moving from “nice to have” to operational necessity, we see a multi-year adoption curve ahead.

Why We Still Hold – The Price is Right!

Despite recent strength in the share price, valuation remains attractive. Vusion trades on ~12x forward EBITDA with 35%+ EBITDA CAGR expected over the next few years. With increasing operating leverage from software and international expansion, we believe this multiple does not reflect the quality or visibility of future earnings.

Source: Bloomberg, Ophir.

We feel like we’ve been told to “Come on Down” and we’re on to a winner with structural tailwinds, an expanding TAM, and operational leverage still ahead. You don’t need 20/20 vision to see further upside from here.

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iRhythm Technologies (NASDAQ: IRTC)

If you’ve ever had a friend or family member have their heart tested, you’ve probably seen the legacy Holter monitor – it’s all wires, electrodes, and an uncomfortable 48-hour test window.

But over the last ten years, San Francisco-based iRhythm Technologies has been displacing this legacy technology with their Long-Term Continuous Monitoring (LTCM) solution.

We’ve followed iRhythm (NASDAQ: IRTC) for over six years after first encountering them on a company ideas trip. We previously owned their smaller listed competitor, BioTelemetry until this was taken over by Philips in 2021.

What attracted us to iRhythm was the growth of its end-market where the company is the market leader. That leadership meant iRhythm commanded a premium valuation in the past.

Source: Bloomberg. Data as of 30 April 2025. Ophir.

But then in recent years various reimbursement and industry-wide DOJ (Department of Justice) issues have acted as an overhang on the stock.

This presented us with the opportunity to initiate a position towards the end of 2024 with our investment thesis being predicated on:

• Top-line growth beating market expectations
• Growth optionality from international markets and new devices
• Multiple expansion as the market is willing to pay a more premium valuation as growth accelerates

A Market in Motion – and iRhythm is Leading the Dance

As mentioned, the market for ambulatory cardiac monitoring (ACM) – basically testing for irregular heartbeats that are symptoms of heart disease – is undergoing a secular shift away from Holter monitors toward longer-term, wearable, mobile-enabled cardiac patches.

iRhythm pioneered the Long-Term Continuous Monitoring category, and patients are tested with a 14-day wearable patch. The patch captures higher diagnostic yields, is easier for patients, and integrates seamlessly with digital workflows.

The current ACM total addressable market (TAM) in the US is ~27 million patients. This is based on the number of patients presenting in primary care who may be symptomatic or at-risk for arrhythmias. Due to the ageing population and prevalence of chronic disease, the TAM is growing at mid-single digits.

However, only ~25% of that base is currently being tested.

Source: iRhythm Technologies First Quarter 2025 Results: May 1, 2025. Ophir.

We estimate the actual testing market is growing at high-single digits and within that the LTCM segment is growing at 15–20%.

We expect this growth to continue for several reasons:

1. The legacy Holter monitor will continue to cede share to LTCM: Holter had 80% of the market in 2018, but that has fallen to 40% currently and continues to trend lower.
2. Testing rates will continue to increase: With testing rates currently at ~25% we expect this to increase. This will be driven by the Primary Care Physician (PCP) channel, which has been experiencing consolidation by private equity groups in recent years. Increased rates of testing have the potential to lower the total cost of care for these groups. For example, 30% of all strokes are caused by Atrial Fibrillation – a common heart rhythm disorder tested for by ACM.
3. iRhythm is taking share in LTCM: iRhythm currently has ~70% share of the LTCM market. We recently met with competitors who confirmed iRhythm has recently been taking incremental share.

The Beat Goes On – iRhythm’s revenue to beat while margins expand

The market has been assuming revenue growth slows to mid-teens, however we believe 20%+ top-line growth is sustainable for the next several years for the reasons mentioned above.

At the same time, iRhythm’s margin story is playing out nicely. We expect its selling & marketing spend to be stable at ~15% of revenue, with general & administrative costs to be largely flat.

This would drive a significant beat to the streets 2025 EBITDA expectations of ~$55m.

Top line optionality exists

On top of that, international expansion is in its infancy – the global market is a $US1 billion+ TAM and largely untouched by the competition.

Source: iRhythm Technologies First Quarter 2025 Results: May 1, 2025. Ophir.

iRhythm isn’t stopping with LTCM.

In 2026, they’re launching a new Mobile Cardiac Telemetry (MCT) product, allowing for further market share gains. MCT is a method of continuously monitoring a patient’s heart rhythm and electrical activity using a small, portable device that transmits data wirelessly to a monitoring centre. This would open up another 20-30% revenue opportunity. There has been evidence of early execution here via the Zio AT, iRhythm’s existing MCT device. This has been the main source of upside surprise from recent growth.

DOJ cases likely just a short-term distraction

Some investors may shy away because of a lingering DOJ investigation, which was announced in May 2023.

The case is part of a broader ACM industry probe (BioTelemetry, Boston Scientific, and Proventice all received similar inquiries). Proceedings revolve around a narrow document production request tied to attorney-client privilege.

iRhythm’s legal counsel is recommending the company defend the privilege to avoid setting a damaging precedent with the court hearing scheduled for December 12.

Based on the discussions we have had with legal experts, we believe this to be a short-term distraction that will soon be in the rear-view mirror.

Why we hold following the recent bounce – Growth on growth on growth

iRhythm just reported their first quarter 2025 results, which saw the stock up ~20%.

The result showed the initial stages of our thesis playing out with iRhythm upgrading its guidance for revenue and EBITDA margin.

However, we believe iRhythm is only at the beginning of a multi-year period of elevated top-line growth and expanding margins, supported by optionality, which will drive a multiple re-rating.

We think the stock deserves to trade 6-8x forward sales (vs ~5.5x today), aligning it with other 20%+ growth MedTech names.

And while many think the music is slowing – we think iRhythm is only just starting to feel the rhythm.

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AAR Corp. (NYSE: AIR)

The aviation supply chain crisis

Have you been wondering why there are so many more delayed flights since COVID? It’s because manufacturers are struggling to clear production backlogs, so planes are getting older.

We started thinking about who could benefit from this dynamic and it led us to our recent investment: Chicago based Aerospace and Defence company, AAR Corp (NYSE: AIR).

The aviation supply chain crisis

We have closely followed the global aviation supply chain for several years, and we have owned various companies from the sector during this period. However, we recently started digging deeper into the space following the persistent disruptions to both aircraft and engine production.

Manufacturers, most notably Boeing & Airbus, have struggled with supply chain bottlenecks, labour shortages and material constraints, all of which has led to delays in new aircraft deliveries and spare parts.

Airlines and operators have been forced to extend the life of their existing fleets. That has increased demand for maintenance, repair, and overhaul (MRO) services, as well as driven a surge in the used and surplus parts market.

Source: Company Reports, KeyBanc Capital Markets Inc.

All of this comes as the global commercial fleet already has an average aircraft age of ~15 years vs retirement age of ~23 years.  At the same time, we will likely see sustained growth in global passenger miles for the foreseeable future.

Source: IATA, Airline Monitor, KeyBanc Capital Markets Inc.

On the hunt for who could benefit

Given this backdrop, we asked: which small-cap companies could benefit from this dynamic over the medium-long term? We met with a multitude of players in the ecosystem, including:

• Parts distributors/MRO (maintenance, repair and overhaul) operators like VSE Corp (NASDAQ: VSEC);
• Original Equipment Manufacturer (OEM) suppliers like Woodward (NASDAQ: WWD), recently listed Loar (NYSE: LOAR) and Montana Aerospace (SWX: AERO); and
• Aircraft/engine lessors like Willis Lease Finance Corp (NASDAQ: WLFC).

We even flew to Montreal to meet CAE (TSE: CAE), the global leader in simulation-based training for aviation.

But we found one stock that stood out – AAR Corp (NYSE:AIR).

AAR gave us by far the cheapest and least-discovered exposure in the sector.

That naturally warranted a deeper dive. So, we contacted the company for a meeting and got on the next flight to Chicago.

At the time of our meeting, thousands of investors were downtown for the industrial sector’s Baird Industrial Conference – only 25 miles away – missing what we believed to be the main attraction! (As serial entrepreneur and PayPal co-founder Peter Thiel famously said, “the most contrarian thing of all is not to oppose the crowd, but to think for yourself.”)

Digging a little deeper into AAR

AAR Corp is an independent provider of aviation services to commercial and government customers worldwide.

The company purchases, sells, and leases new and used commercial jet aircrafts. It also leases a variety of new, overhauled, and repaired engines and engine products for the aviation aftermarket.

Operations are categorised across three core segments:

• Parts Supply
• Repair & Engineering; and
• Integrated Solutions

(Expeditionary Services is a largely immaterial legacy segment).

Business Segment Overview

Source: AAR Corp

AAR differentiates itself from its larger OEM competitors, by offering independent aftermarket solutions. This enables airlines, MRO’s, and military operators to reduce costs and improve supply chain efficiency.

What we’re most excited about

The secular tailwinds supporting growth in both parts supply and MRO activities is attractive. However, we are most excited about the potential for AAR to double market share in parts distribution.

AAR is the largest independent supplier/distributor of factory new parts, with approximately 10% market share. AAR look to partner with OEM suppliers on an exclusive basis to sell their product into the aftermarket (the market for replacement parts and accessories) – that is, they effectively act as a sales force extension for OEM suppliers, allowing the OEM suppliers to leverage AAR’s global sales network and relationships.

Satair (Airbus subsidiary) and Aviall (Boeing subsidiary) are the two largest competitors in this market with an estimated combined market share of 40-50%.

However, OEM suppliers and airline/MRO customers are increasingly partnering with independents like AAR because they offer greater pricing flexibility, better aftermarket reach, and faster inventory turnover.

Our recent channel checks suggest this dynamic is still in its infancy.

Over the next 3-5 years, we believe AAR can more than double their market share, significantly outgrowing the aftermarket industry.

Parts Supply: Distribution

Source: AAR Corp

Used Serviceable Market recovery provides a nice hedge

The USM division focuses on sourcing, repairing, and reselling used aircraft components, primarily engine materials. Instead of purchasing directly from OEM’s, AAR procures parts from lessors, airlines, and MRO’s, often from retired or surplus aircraft.

These parts are then inspected, repaired, and recertified before being resold into the aftermarket, providing a cost-effective alternative to new OEM parts.

This model is particularly attractive due to strong demand for engine materials amid supply constraints from OEM’s, making USM a high-margin and growing segment of AAR’s business.

Given the supply chain issues noted above, USM has been subdued primarily due to lower-than-expected aircraft retirements, which limits the supply of used parts.

If new aircraft deliveries accelerate and airlines phase out older fleets, we expect the USM business to recover, which often comes at higher margins. This provides a natural hedge to the business should we see any slowdown in aftermarket/MRO activity.

A win-win scenario

Having mapped out the whole ecosystem, we believe AAR offers the best return profile across the widest variety of industry outcomes.

Its USM business will benefit if aircraft production rates normalise and more planes are retired and stripped for their parts. But AAR will gain share in parts distribution.

Most other companies only win if one outcome is true.

Source: Ophir, Bloomberg.

As seen in the chart above, AAR has been delivering sound earnings growth with a largely unchanged multiple since September 2021.

We expect top-line growth combined with operating leverage to drive ~20%+ EPS CAGR over the next three years.

This will aid in deleveraging the balance sheet from the current 3.2x net debt to EBITDA level with management targeting 2.0x “two years after the recent Triumph acquisition”.

This will likely drive a multiple re-rating, with AAR currently trading on ~14x our next twelve-month EPS versus the closest peers VSEC on ~24x.

So next time your flight is delayed, it’s probably because the aging plane needs a new part, and AAR could be the one to provide it.

Learn more about the Ophir Global Opportunities Fund and Ophir Global High Conviction Fund today.