1Q2025 Investor Letter

May 12th, 2025

“Suffering arises from trying to control what is uncontrollable.” - Epictetus, Enchiridion , 1

Dear Partner:

Eaglestone Capital Partners LP (“Eaglestone Partners” or the “Fund”) indeed suffered through a volatile 1Q2025, generating returns for the typical limited partner for the periods ending 1Q2025 and YTD 12 May 2025 as follows:

Long positions in IES Holdings (IESC), Comfort Systems USA (FIX), W.R. Berkley (WRB) and Netflix (NFLX) were the largest contributors (in that order) to the Fund’s positive performance while long positions in Alphabet (GOOGL), Tesla (TSLA), Amazon (AMZN) and BellRing Brands (BRBR) were the largest detractors from performance (in that order).

With Epictitus in mind let’s re-visit BellRing Brands (BRBR) to update thoughts following the 2Q2025 earnings release (they have a September 30th year end) and the significant stock “sell-off” following.

BellRing Brands Case Study Update

BellRing Brands (BRBR) is a consumer-packaged goods (CPG) firm spun out of Post Holdings in March 2022. BRBR operates two brands - Premier Protein (85.5% of sales) and Dymatize (12.5% of sales) with ready to drink (RTD) protein shakes constituting the majority of Premier Protein sales.

Premier Protein Brand

• Leading market share has increased from 26% share 1Q2025 to 30% share 2Q2025 in the RTD convenient nutrition category which includes protein shakes and meal replacement drinks; the #2 in the market is Core Power (owned by The Coca-Cola Company).
• Product line: RTD shakes (14 flavors) with 30g protein, 1g sugar, 160 calories.
• Positioned to benefit from health & wellness trends and GLP-1 therapies, which drive muscle-preservation demand.

Company-wide net sales of $588mm for 2Q2025 (+19.9% YoY growth) driven by 21.7% YoY net sales growth in Premier Protein RTD shakes comprised of 15.2% growth in volume and 6.5% increase in price/mix. Net sales driven increasingly by price/mix over volume growth has been the trend for the past 4 quarters (see breakout of quarterly price vs. volume growth below).

Growth Drivers

• Elevated protein demand from GLP-1 users seeking to maintain muscle mass.
• According to Cargill’s 2025 Protein Profile, 61% of consumers are increasing their protein intake in 2024, up from 48% in 2019 and by 2030 an estimated 9% of U.S. adults could be using GLP-1s.

What Triggered the Sell-Off

BellRing Brands sells primarily to Costco, Sam’s Club and Amazon and therefore concerns arise when there are differences between consumption (Premier Protein RTD shake sales by the channel retailers) and BRBR’s net sales to these retailers. Consumption of Premier Protein RTD shakes for the 2Q2025 grew 24.9% YoY (higher than net sales growth of 21.7%). Historical consumption numbers are detailed below:

While management’s earnings call disclosed an unusually large decline in Club channel inventory raising investor concerns about unexpected declines in demand, channel consumption trends (see below) appear to be outpacing shipments from BRBR so any fears regarding declining consumer demand appear unwarranted. On the call, management disclosed 16% consumption growth in April 2025 and for 3Q2025 management projected consumption growth of 15%-18% but due to the Club channel inventory reduction , only single digit sales growth. For the full year 2025, management affirmed net sales guidance of $2.26 billion to $2.34 billion (13% - 17% growth) and EBITDA guidance of $470mm - $500mm (7% - 14% growth).

Another area of concern involved the supply chain and cost pressures. While management said that tariff-related input costs (dairy protein is 40% of costs of goods sold and some is purchased from New Zealand and Europe) might impact BRBR later in FY2026, SG&A expenses grew from 14% of net sales in the prior year period to 15.4% of net sales in 2Q2025, driven by higher marketing, consumer advertising and increased distribution & warehousing expenses.

In addition, board chair Robert Vitale who owned ~ 1.465mm shares of BRBR going into the quarter sold off about 25% of his holdings (or about 368,000 shares) in February 2025 spooking some investors.

However, in contrast to these issues, the underlying demand from US consumers for higher protein foods is undeniable and growing. Convenient RTD protein shakes that taste good should see commensurately high demand.

In addition, BRBR has a highly capital efficient business model, employing third party manufacturing and distribution (think The Coca-Cola Company), as demonstrated below by BRBR’s high returns on invested capital.

BRBR’s returns on capital employed (above 60%) are exceptional. In contrast, the Coca-Cola Company has both lower returns on invested capital and lower returns on capital employed as detailed below. However, notice Coke’s exceptional negative 16.5 days cash cycle indicative of their control over supply chain payment terms.

Eaglestone Partners investment thesis for BellRing Brands (BRBR) is simple: continue to hold the investment position so long as the business profitably grows its core Premier Protein brand from 20.9% household penetration towards the 50% household penetration target with an expectation that larger CPG companies will eventually become interested in an acquisition to capture BRBR’s brand name and growth prospects for themselves while allowing BRBR to better amortize marketing and distribution costs over the acquiror’s existing brand portfolio.

Comfort Systems USA (FIX) Case Study

Comfort Systems USA (NYSE:FIX) based in Houston, TX provides mechanical and electrical contracting services principally to the new-build construction market. The mechanical segment (~75% of revenues) includes heating, ventilation and air-conditioning (HVAC), plumbing, piping and controls while the electrical segment (~25% of revenues) includes installation and servicing of electrical systems. While contracts are generally agreed upfront on a fixed price basis and require complex cost assumptions, in 1Q2025 and the previous year 1Q2024, FIX recorded positive impacts to revenue of +5.8% and +4.1% due to changes in estimates associated with performance obligations.

Timing differences in revenue recognition and billing create contract assets (revenue recognized exceeds billing) or contract liabilities (billing exceeds revenue recognized). Construction businesses often face poor working capital dynamics, as they incur upfront labor and material costs before receiving payment from customers.

However, FIX has carefully managed its working capital, often generated cash from a mix of customer deposits and favorable billing cycles. As of 1Q2025, FIX has ~$205mm of cash on its balance sheet, and contract liabilities exceed contract assets by over $1 billion while total debt has remained around $70mm for the past year. Cash from operations was -$88 million for 1Q2025 compared to +$146.5mm in 1Q2024.

Data Center construction has been a key revenue driver for FIX - in 1Q2025 revenues of $1.8 billion increased 19% YoY inclusive of 3.7% increase related to business acquisitions while operating income increased 55% YoY and contracted backlog increased 16.5% YoY to $6.9 billion (representing almost 12 months of revenue).

At Eaglestone Capital, we love companies that earn high returns on capital employed (ROCE) while growing earning per share (EPS) and compounding book value. Over the past 1Q2025, FIX grew EPS 77% and book value per share 30% while growing ROCE to 41.8% over the past year as detailed below.

Regards,

Eaglestone Capital Management LLC
66 Palmer Avenue, Suite 32B, Bronxville, NY 10708
914.202.8811
www.eaglestonecapital.net

Eaglestone Capital Management LLC prepared this letter. NAV Fund Services, our administrator, is responsible for the distribution of this information and not its content.

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Eaglestone Capital’s Investment Philosophy

Eaglestone Capital is an independent registered investment adviser (RIA) based in Bronxville, NY, founded by Fred Stupart. It serves as the sole investment adviser to Eaglestone Capital Partners LP (the “Fund”), which targets 15% absolute annual returns to its limited partners through investments in daily-liquid securities. The Fund primarily invests in U.S. equities and may employ leverage to boost returns. The Fund offers an alternative to the array of index funds, annuities, and other common products available to individuals seeking a secure retirement.

Eaglestone Capital views the U.S. economy as sui generis —truly one of a kind: unparalleled, irreplaceable, and impossible to replicate. Consequently, applying insights drawn from U.S. data to other markets can yield misleading conclusions. Furthermore, the foundation of continued U.S. economic growth—encompassing employment gains, real estate appreciation, and other asset expansion—is its dynamic, highly competitive private sector, exemplified by many publicly traded firms. As a result, investing in high-quality U.S. companies that uphold shareholder rights is vital to any robust investment strategy. Furthermore, Eaglestone Capital appreciates the opportunities available outside the U.S. but prefers to invest with U.S. companies with foreign subsidiaries as the best means of taking advantage of such non-U.S. opportunities.

Eaglestone Capital also believes in the individual’s power to independently analyze and choose their path to economic freedom. Today’s investors are well-informed and enjoy abundant investment choices. Although we applaud rising participation in U.S. equity markets, the growing concentration of a few companies in major equity indexes could dampen equity index returns if margins or topline growth at those companies decline and investors become more selective.

Eaglestone Capital believes that intelligence, effort, and patience yield the best results. While this should be self-evident, many index fund philosophies conflict with it. When Jack Bogle introduced the S&P 500 index fund in 1976, he offered a new, low-cost product that helped keep large asset managers honest. Yet what is initially a clever innovation often becomes overused. We may soon see many index funds lag behind AI-empowered active managers able to allocate capital more flexibly.

Eaglestone Capital oversees a portfolio of 20–30 liquid equities, each run by leadership teams possessing a “fiduciary gene”—managers who respect shareholder rights and strive to develop innovative, capital-efficient businesses that deliver strong returns to owners. Eaglestone Capital recognizes that risks and rewards vary widely across the U.S. economy, welcoming multiple industries and business models into its portfolio. Some firms have attained scale and efficiency and thus generate high margins and robust returns on capital. Others, analogous to partially finished real estate developments, still have room to grow margins and returns on capital and hence during this “development phase” they might appear to have very high valuations based on traditional EV/EBIT or P/E multiples.

Finally, Eaglestone Capital acknowledges the U.S. equity market’s potential volatility, as shifting momentum can strongly influence investor behavior. However, Eaglestone Capital does not equate volatility with risk – in fact, volatility is a key benefit available only to public market investors seeking high absolute returns. Sometimes “the market” decides that it wants to sell stocks – Eaglestone Capital respects the market’s momentum, appreciates its power and will wait for an appropriate time to exercise any judgement.

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General Disclaimer

By accepting this investment letter, you agree that you will not divulge any information contained herein to any other party. This letter and its contents are confidential and proprietary information of the Fund and any reproduction of this information, in whole or in part, without the prior written consent of the Fund is prohibited.

The information contained in this letter reflects the opinions and projections of Eaglestone Capital Management LLC (the "General Partner") and its affiliates as of the date of publication, which are subject to change without notice at any time after the date of issue. All information provided is for informational purposes only and should not be deemed as investment advice or a recommendation to purchase or sell any specific security. All performance results are based on the net asset value of the Fund. Net performance results are presented net of management fees, brokerage commissions, administrative expenses, and accrued performance allocation, as indicated, and include the reinvestment of all dividends, interest, and capital gains. The performance results represent Fund-level returns and are not an estimate of any specific investor’s actual performance, which may be materially different from such performance depending on numerous factors.

The market indices appearing in this letter have been selected for the purpose of comparing the performance of an investment in the Fund with certain well-known equity benchmarks. Statistical data regarding the indices has been obtained from public sources and the returns are calculated assuming all dividends are reinvested. The indices are not subject to any of the fees or expenses to which the funds are subject and may involve significantly less risk than the Fund. The Fund is not restricted to investing in those securities which comprise these indices, its performance may or may not correlate to these indices, and it should not be considered a proxy for these indices. The S&P 500 Total Return Index is a market cap weighted index of 500 widely held stocks often used as a proxy for the overall U.S. equity market. The Fund consists of securities which vary significantly from those in the benchmark indices. Accordingly, comparing results shown to those of such indices may be of limited use.

Statements herein that reflect projections or expectations of the future financial or economic performance of the Fund are forward-looking statements. Such "forward-looking" statements are based on various assumptions, which may not prove to be correct. Accordingly, there can be no assurance that such assumptions and statements will accurately predict future events or the Fund's actual performance. No representation or warranty can be given so that the estimates, opinions, or assumptions made herein will prove to be accurate. Any projections and forward-looking statements included herein should be considered speculative and are qualified in their entirety by the information and risks disclosed in the Fund's Private Placement Memorandum. Actual results for any period may or may not approximate such forward-looking statements. You are advised to consult with your own independent tax and business advisors concerning the validity and reasonableness of any factual, accounting and tax assumptions. No representations or warranties whatsoever are made by the Fund, the General Partner, or any other person or entity as to the future profitability of the Fund or the results of making an investment in the Fund. Past performance is not a guarantee of future results.

The funds described herein are unregistered private investment funds commonly called "hedge funds" (each, a "Private Fund"). Private Funds, depending upon their investment objectives and strategies, may invest and trade in a variety of different markets, strategies and instruments (including securities and derivatives) and are NOT subject to the same regulatory requirements as mutual funds, including requirements to provide certain periodic and standardized pricing and valuation information to investors.

There are substantial risks in investing in a Private Fund. Prospective investors should note that:

• A Private Fund represents a speculative investment and involves a high degree of risk.
• Investors must have the financial ability, sophistication/experience, and willingness to bear the risks of an investment in a Private Fund.
• An investor could lose all or a substantial portion of his/her/its investment.
• An investment in a Private Fund is not suitable for all investors and should be discretionary capital set aside strictly for speculative purposes.
• Only qualified eligible investors may invest in a Private Fund.
• A Private Fund’s prospectus or offering documents are not reviewed or approved by federal or state regulators and its privately placed interests are not federally, or state registered.
• An investment in a Private Fund may be illiquid and there are significant restrictions on transferring or redeeming interests in a Private Fund.
• There is no recognized secondary market for an investor’s interest in a Private Fund and none is expected to develop.
• A Private Fund may have little or no operating history or performance and may use performance information which may not reflect actual trading of the Private Fund and should be reviewed carefully.
• Investors should not place undue reliance on hypothetical, pro forma or predecessor performance.
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• The death or disability of a key person, or their departure, may have a material adverse effect on a Private Fund.
• A Private Fund may use a single manager/advisor or employ a single strategy, which could mean a lack of diversification and higher risk.
• A Private Fund may involve a complex tax structure, which should be reviewed carefully, and may involve structures or strategies that may cause delays in important financial and tax information being sent to investors.
• A Private Fund’s fees and expenses, which may be substantial regardless of any positive return, will offset such Private Fund’s trading profits.
• If a Private Fund’s investments are not successful or are not sufficiently successful, these payments and expenses may, over a period, significantly reduce or deplete the net asset value of the Private Fund. A Private Fund and its managers/advisors and their affiliates may be subject to various potential and actual conflicts of interest.
• A Private Fund may employ investment techniques or measures aimed at reducing the risk of loss which may not be successful or fully successful.
• A Private Fund may employ leverage, including involving derivatives. Leverage presents specialized risks.
• The more leverage used, the more likely a substantial change in value may occur, either up or down.

The above summary is not a complete list of the risks, tax considerations and other important disclosures involved in investing in a Private Fund and is subject to the more complete disclosures in such Private Fund’s offering documents, which must be reviewed carefully prior to making an investment.

Eaglestone Capital Management LLC is an independent investment advisory firm based in Bronxville, New York. Additional information about Eaglestone Capital Management LLC and its associated persons (including Form ADV) is available on the SEC’s website at www.adviserinfo.sec.gov. You can search this site by a unique identifying number, known as a CRD number. The CRD number for Eaglestone Capital Management LLC is 297958.