Intrinsic Investing

Ensemble Capital Joins Corient Private Wealth

26 February 2025 | by Sean Stannard-Stockton, CFA

This website and its content is not affiliated with Corient Private Wealth LLC or its affiliates. The information and opinions expressed herein reflects the personal opinion of the author and does not reflect the opinion of Corient Private Wealth LLC, any of its affiliates or personnel.

A little over a decade ago, Ensemble Capital was a group of four people managing $350 million for mostly San Francisco Bay Area families. Since then, we built our company up to 18 people managing approximately $1.8 billion on behalf of clients who live across the country and around the world. Over the course of last year, we were hard at work planning out how we could best further expand the investment options and wealth planning services we offer to our clients as we continue to grow.

Today I am thrilled to announce that late last year we closed a transaction to join Corient Private Wealth, a national wealth management company that we consider to be one of the most prominent financial advisory firms in the country.

Corient was formed to allow boutique financial advisory firms to come together to form a national scale wealth management partnership. Like Ensemble, Corient is a partnership where owner-employees make decisions about how to best serve clients. Our shared focus is to seek investments that have the potential to produce higher returns, offering high touch personal service, and striving for simplicity in our solutions.

From the press release:

Corient Acquires $1.8-Billion Ensemble Capital, Bolstering California Presence
San Francisco-based firm known for expertise in philanthropic planning

Corient, one of the nation’s largest and fastest-growing national wealth advisors, announces the acquisition of Ensemble Capital Management, LLC (“Ensemble”), a San Francisco-based registered investment advisory firm with $1.8 billion in assets under management (at October 31, 2024). The acquisition expands Corient’s capabilities in serving clients throughout California.

“Twenty years ago, we began a journey to build a financial advisory firm that would serve clients in a clear and transparent manner. Over the years, our firm has grown significantly, especially in our ultra-high-net-worth client base,” said president and co-founder Sean Stannard-Stockton. “In joining forces with Corient, we are thrilled to offer our clients a significantly expanded suite of services and investment opportunities, tailored to meet the diverse needs of all we serve – whether it’s retired couples, multigenerational ultra-high-net-worth families, or foundations and endowments. This partnership represents the perfect alignment of values and vision, and we couldn’t be more excited to continue our journey together.”

“Ensemble Capital’s strong track record of delivering personalized wealth management, including their refined philanthropic planning capabilities, make them an ideal addition to Corient,” said Kurt MacAlpine, Partner and Chief Executive Officer of Corient. “Ensemble’s client-first approach aligns perfectly with our drive to put our clients at the center of everything we do. We look forward to building on their impressive foundation to deliver even greater value to clients in California and across the U.S.”

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As part of Corient Private Wealth, I will no longer be posting to Intrinsic Investing, marking the end of an era. I co-founded Ensemble Capital in 2004, just a month before Facebook was founded and the era of social media, or what was then called Web 2.0, began to expand in earnest. In 2006 I launched the Tactical Philanthropy blog to support Ensemble’s focus on working with philanthropic clients. In 2008, I started posting to Twitter and building a following on social media. In 2015, I launched this blog, Intrinsic Investing, along with a new presence on Twitter.

Having been professionally active on social media for nearly two decades and having built two significant communities of readers, I have to say that social media was an incredibly powerful catalyst in the success of my career and the building of Ensemble Capital. And engaging with robust social media communities, online as well as in person, has been one of the major pleasures of my career.

For me, social media and blogging was incredibly enjoyable and supercharged my own learning process. So, I want to end by saying thank you to all of you who have reached out to connect over the years. I’ve learned so much from our readers, made so many valuable professional connections, and even met friends.

When I ended the Tactical Philanthropy blog, readers wondered if that meant I no longer cared about philanthropy. But well over a decade later a quarter of the assets our team manages belong to philanthropic entities. Similarly, the ending of Intrinsic Investing does not mean any change to our investment philosophy.

The last few years have been a roller coaster for investors. But one thing I’ve learned over my career is that reality is always a roller coaster. So, I wish you, our readers, the very best as you seek to navigate the turbulence and opportunities that characterize every investing age.

Veeva: A Winning Platform Strategy in Life Sciences

23 July 2024 | by Ensemble Capital

Veeva Systems: During our second quarter portfolio update, we profiled portfolio holding, Veeva Systems Inc. (VEEV). Below is a replay of our live commentary on the company from our quarterly portfolio update WEBINAR and an excerpt from our QUARTERLY LETTER.

Ensemble has recently taken a position in Veeva Systems, which we believe is expanding its lead in the life sciences software market. As pharma, biotech, medtech and contract research organization (CRO) companies buy more of Veeva’s applications that tie together on its cloud-based Vault platform, the more efficient and stickier those customers become. We expect this to fuel above-average growth in revenue and profits for Veeva over the next decade.

Founded in 2007, Veeva started by selling customer relationship management (CRM) software designed to meet the complex processes and regulatory requirements of pharma companies like Pfizer and Merck. Veeva’s CRM was built on the Salesforce cloud-based platform — Veeva’s CEO was previously the SVP of Tech at Salesforce — and Veeva’s CRM was quickly adopted when the iPad was released in the 2010s. Pharma sales reps could use Veeva’s CRM on tablets to track and facilitate their interactions at doctors’ offices. By 2012, Veeva had over 80% share for its CRM.

Although Veeva’s CRM has the most market share in life sciences, its CRM suite is now only about one-quarter of Veeva’s total revenue as it has successfully upsold other applications. CRM is within Veeva’s Commercial Solutions segment (50% of fiscal 2024 revenue) that is growing single digits annually. Aiding growth is software like PromoMats to create and distribute marketing content, and its datasets like Compass transaction data on patients and prescribers and national projection data, which companies use to target customers like doctors.

In 2012, Veeva launched its own Vault platform on which its software in the R&D Solutions segment (50% of fiscal 2024 revenue) is built. R&D Solutions target the development side of life sciences firms, and its subscription software sales are growing at a double-digit pace while replacing legacy and fragmented solutions that don’t “talk well” to each other, and even paper. Switching to one of Veeva’s modern applications can result in a 30%-40% cheaper total cost of ownership versus a legacy solution. An executive of a large pharma company described Veeva as having the potential to become the Microsoft Office of clinical operations, replacing outdated software the equivalent of WordPad – not even Word!

Top selling R&D Solutions applications include Vault QualityDocs for document management related to quality and manufacturing records, Vault Submissions for regulatory documents, and Vault eTMF (electronic trial master file) software that stores essential documents for clinical trials. Veeva is also pushing further into clinical trial management system (CTMS) software that manages the logistics of a trial, and electronic data capture (EDC) software that collects data from a trial. There is a lot of opportunity for growth as Veeva goes deeper into clinical trials. Clinical trials are becoming more digital and decentralized, which increases their efficiency and the number of eligible participants since it can lessen the need to be near a physical site.

Life sciences companies face an imperative to boost efficiency. Eroom’s Law shows that since 1950 there has been a long-term decline in the number of FDA-approved drugs per billions of R&D dollars spent. Eroom is the clever backward spelling of the much more productive Moore’s Law in the semiconductor industry. And while software alone can’t reverse life sciences’ fall in productivity, it can help.

The broad adoption of Veeva’s software reflects customers’ need to be more efficient. Veeva has over 1,400 customers and its software has been used by 47 of the top 50 biopharma companies like Ely Lilly, emerging biotechs like Replimune, medical device firms like Boston Scientific, and CROs like ICON that run outsourced clinical trials. Its revenue has become more diversified as a result, with the top 10 customers accounting for 28% of revenue in fiscal 2024, down from 61% in fiscal 2012. It has also expanded internationally with 59% of revenue from North America, 28% Europe and Other, 11% Asia Pacific, and 3% the Rest of World in fiscal 2024.

The majority, 94%, of Veeva’s revenue comes from biopharma customers, 4% medtech and 2% consumer products as of fiscal 2q24. Of its biopharma revenue, 66% comes from large enterprises, 25% small medium businesses (SMBs), 4% emerging biotechs and 5% CROs. While Veeva counts most large biopharma companies as its customers, it has many more products left to sell them, and further to penetrate SMBs and emerging biotechs. Veeva recently launched Vault Basics, a low-cost, easy-to-deploy software package that offers smaller companies a chance to expand.

Contributing to Veeva’s success is its distinct corporate culture reflected in its decision to convert to a public benefit corporation (PBC) — the first public company to do so in 2021. Being a PBC gives Veeva legal runway to consider the interests of customers, employees, and communities, alongside the financial interests of shareholders. Veeva says, “As a Public Benefit Corporation, we are guided by our core values — do the right thing, customer success, employee success, and speed — to help the life sciences industry improve health and extend life and to create high-quality jobs that benefit our employees and communities.”

Caring about doing the right thing does not mean Veeva doesn’t care about profits or shareholder returns. In fact, Veeva ranks near the top of public global application software companies by their 3-year average GAAP operating margin, per Bloomberg data, with room to grow. Veeva’s CEO and founder Peter Gassner is also the second largest shareholder – behind only Vanguard, with almost 8% of the shares outstanding worth over $2 billion. We like that he has that amount of skin in the game, alongside us shareholders.

Being a PBC is a competitive edge for Veeva as well, as it signals to customers that they are a priority. This is important in life sciences where customers put sensitive information into Veeva’s software and may use it for decades.

Another edge for Veeva is that its key competitors are not focused on life sciences software. Top rival Medidata was acquired in 2019 by the French company Dassault Systèmes, more known for its engineering software for manufacturers of products like airplanes and cars. Oracle is gigantic and sells software to many different industries. IQVIA is focused on the life sciences industry but is not known as a software developer. IQVIA was formed in 2016 by the merger of Quintiles, a CRO, and IMS Health – the largest provider of US physician prescription data.

IQVIA sells CRM software that is built on the Salesforce platform, like Veeva’s original CRM. In April 2024, Salesforce and IQVIA announced a deeper partnership to co-market a new CRM and other life sciences software based on Salesforce’s platform and IQVIA’s expertise and data. This was preceded by Veeva announcing in 2022 that it would move its CRM off Salesforce onto Veeva’s own Vault platform. Veeva launched its Vault CRM for general availability in April 2024 and will convert existing CRM customers to Vault through 2030. Having its CRM on the Vault platform will enable[…]

ENSEMBLE CAPITAL SECOND QUARTER 2024 WEBINAR REPLAY

16 July 2024 | by Ensemble Capital

During our second quarter 2024 portfolio update, Ensemble Capital’s Chief Investment Officer Sean Stannard-Stockton, and Senior Investment Analysts Arif Karim and Eileen Segall discuss current market and economic conditions, a few short updates on Analog Digital Devices (ADI), Illumina (ILMN) and Chipotle (CMG) as well as an introduction of Veeva Systems (VEEV). There’s a Q&A with the team at the end of the presentation.

Below is a replay of the full webinar as well as a link to Ensemble Capital’s QUARTERLY LETTER.

ENSEMBLE CAPITAL’S SECOND QUARTER 2024 INVESTMENT AND MARKET UPDATE

5 July 2024 | by Sean Stannard-Stockton, CFA

Each quarter, Ensemble Capital hosts a webinar to discuss the current market, economic conditions, and a few of our portfolio holdings. This quarter, we’ll be talking about some unusual dynamics driving the S&P500, some important factors affecting a handful of our positions, and providing an overview of Veeva Systems Inc. (VEEV).

The event will use a webinar format. Participants will have a chance to ask live questions of the research team during the Q&A portion of the event.

This quarter’s webinar will be held on Tuesday, July 9 at 1:30 pm (PST)

We’d love for you to join us, which you can do by REGISTERING HERE.

If you’d like to listen to our previously-held quarterly updates, an archive can be FOUND HERE.

We hope to see you there!

Perimeter Solutions: Doing Difficult Things Well

9 May 2024 | by Ensemble Capital

During our first quarter portfolio update, we profiled portfolio holding, Perimeter Solutions. (PRM). Below is a replay of our live commentary on the company from our quarterly portfolio update WEBINAR and an excerpt from our QUARTERLY LETTER.

Perimeter Solutions: Perimeter Solutions is the sole company that sells fire retardant to the US Forest Service. This mission critical component, the red stuff you see dropped out of planes during major fires, is needed to protect people, property and forests from out of control wildfires. Around the country, and even outside the US, government agencies that are tasked with protecting society from wildfires often look to the US Forest Service’s list of approved products and only buy items from this list. The general idea is that if it is good enough to pass the Forest Service’s extensive testing requirements, it is good enough for any agency to use.

But the Perimeter Solutions story is bigger than just wildfires. The company was founded by a group of investors led by Nick Howley, the founder of a very successful airplane parts maker called Transdigm. We owned Transdigm for many years until we sold it just before the COVID pandemic hit and over those years we came to appreciate Howley’s highly successful approach to M&A, running businesses in a profit maximizing way, and aggressively managing the capital structure to the benefit of equity owners.

So while we believe the Perimeter Solutions business by itself justifies a much higher share price, we also think that in the years ahead Perimeter will engage in a number of acquisitions that will drive significant increases in the intrinsic value of the business.

But the path to realizing these anticipated gains has not come easy so far. Last year ended up being the mildest fire season of the last three decades in the critical western region of the US. It seems to us that the stock ended up trading almost like a futures contract on estimated 2023 acres burned. Of course, the value of Perimeter is related to the long term cash flows it will generate over the next couple of decades of wildfire fighting. But even one Wall Street analyst came out with a report suggesting that the mild fire season may mean that the long term risk of wildfires was not as dire as previously thought.

But the evidence is clear that wildfires are a significant and growing risk in the US and around the world. This outlook is not conditioned on climate change triggering ever more risky weather, although we do believe that the science on this risk is very clear. Rather much of the risk comes from many decades of excessive fire suppression that allowed dry fuel to accumulate paired with the climate conditions that are already here.

Importantly, the validity of this risk is something that apolitical, profit seeking insurance companies have been warning everyone about. In California, where insurance regulators require insurers to assume that wildfire risk in the years ahead will be no higher than the average risk of the past 20 years, most home insurance companies have simply refused to write new policies in large part because they know that wildfire risk is in fact much higher.

And after the energy utility PG&E was bankrupted and convicted of manslaughter for their role in triggering massive wildfires, utility companies around the world have been sounding the alarm about wildfire risk as well. In his annual letter this year, Berkshire Hathaway’s Warren Buffett warn about the risk of wildfires saying that the big increase in wildfire activity, which he expects to continue to increase, risks the financial success of utilities to the extent they may need to become partially publicly funded entities.

Given Perimeter’s long term working partnership with so many government agencies, most importantly the US Fire Service and California’s Department of Forestry and Fire Protection, and their role as the only provider of fire retardant, the real risk to long term shareholders is not a mild fire season, but a breakdown in the natural monopoly position that Perimeter finds themselves in.

When we first initiated our position in Perimeter, a startup called Fortress had already become the first competitor to have its retardant product added to the Forest Service’s Qualified Product List. But the key to understanding Perimeter’s competitively advantaged business model is in understanding how challenging it actually is to supply retardant under life or death situations.
Rather than the company selling fire retardant as a product, Perimeter often fully staffs and maintains service operations on aerial firefighting bases. Inventory management of fire retardant is challenging because you need every base to be prepared to start fighting a fire at a moment notice, while also recognizing that many bases may not even have a fire each year.

The pilots of these firefighting planes take massive risks to protect the rest of us. A misloaded plane, or the slow loading of a plane, risks lives and properties. Going so far as running out of retardant during an active fire is unacceptable.

The best analogy we’ve come up with is the difference between selling tires and running a pit crew at a NASCAR race. The limiting factor to being a successful pit crew is not just obtaining qualified tires. Rather, running a pit crew is about operating flawlessly under mission critical circumstances. And operating flawlessly for decades is exactly what Perimeter has done.

But last year, as pessimism over the mild fire seasons pressured Perimeter’s stock price, it also became apparent that the federal government was going to give Fortress every possible opportunity to win part of the Forest Service’s annual fire retardant contract. While no one doubts how well Perimeter’s product works, and Fortress has been clear that their service wouldn’t be any cheaper than Perimeter, the federal government has a mandate to minimize sole source vendor relationships. Sole source means there is only one provider. And it appeared clear that despite concerns from firefighters about experimenting with an unproven product, Fortress was going to win at least some of the Forest Service contract.

We had bought Perimeter with this risk in mind because we believed that simply getting on the qualified products list was not winning, but rather Fortress still had a lot to prove in terms of their ability to actually deliver.

Last month, the challenges of this industry because clear when the Forest Service announced that they would not be signing a contract with Fortress because further testing had shown that their product corroded the airtanker planes it was used in.

In a press release, Fortress stated, “we have to assume based on this new information that Fortress’ proprietary, magnesium chloride-based aerial fire-retardant formulation will not be utilized for the foreseeable future in the fight against wildfires.”

There are many different kinds of competitive moats that give rise to lucrative businesses. But one of the least discussed is simply “doing truly difficult and important things really well.” We think Perimeter Solutions is a great example of just this sort of moat.