GREENHAVEN ROAD CAPITAL

Digital Turbine has been a top-five holding for over a year and more than doubled since the end of March, becoming a major positive contributor to Q2 returns; the author praises management's execution, noting rising demand and revenue per device for limited app slots, marquee carrier and advertiser signings, new products and pricing models, and the accretive Mobile Posse acquisition that increased recurring revenue.

“Digital Turbine (APPS) – This has been a top five holding for well over a year. In the last quarterly letter, I wrote, “New phone activations will be impacted in the short term, but I am not ready to bet against humanity’s love of having a device in their hand, or advertisers’ desire to reach those consumers. Digital Turbine is positioned for revenue growth, margin expansion, and multiple expansion, despite what the share price said on March 31st.” The price has more than doubled since the end of March, making APPS a very positive contributor to Q2 performance.”

Gogo is a new investment in an in-flight internet provider whose share price fell almost 80% to a sub-$200M market cap after passenger traffic dropped 90%+, despite high debt; the author sees the thesis as contingent on multiple paths to a positive outcome rather than an immediate travel rebound, citing the CEO's 30% equity stake, a corporate-jet segment benefiting from the pandemic, cost actions including 60% workforce furloughs, CARES Act assistance, and a ~1.5% position size that limits downside if bankruptcy occurs.

“One of these investments – certainly non-consensus, but consistent with a view that the world will largely remain open – is Gogo, Inc. (GOGO), an internet provider for airplanes. Understandably, as passenger traffic declined 90%+ and planes were largely flying empty, the share price was decimated by almost 80%, resulting in a sub-$200M market capitalization at the time of our share purchases. To compound the risk, Gogo is highly indebted. This investment is not predicated on an immediate rebound in air travel, but, rather, the number of ways that the investment can “work out” and the potential payoff if it does.”

KKR is described as pandemic-resilient with a fortress-like balance sheet, nearly half the share price covered by cash and investments, a $200B+ locked-up capital base, and a variable cost structure; management has been aggressive, deploying over $12B during the pandemic including large deals across multiple countries and industries, and has agreed to acquire Global Atlantic, which the author expects will significantly expand its permanent capital base while fees and earnings continue to march higher.

“If there were ever a business that could survive a global pandemic, KKR is it. They have a fortress-like balance sheet with almost half the share price covered by cash and investments, a capital base of more than $200 billion that is locked up well beyond when a vaccine should be available, and a highly variable cost structure. The management team has been very aggressive investing during the pandemic, putting in excess of $12B to work with large investments like their purchase of the commercial beauty business from publicly traded Coty, their carve-out of a waste business from the British firm Pennon, and a €3 billion takeover of Spanish phone carrier MasMovil Ibercom.”