QSV Equity Investors Q2 2019

Following the wild gyrations of the equity markets in late 2018 and first quarter of 2019, returns were
more modest during the quarter ending June 30, 2019. Each of the QSV Equity Investors strategies
exceeded its primary and secondary indexes during the quarter and we are pleased to note that the BEM
Quality Value Midcap strategy marked its three-year anniversary on June 30 with competitive
performance. More information including since-inception performance for each of the strategies may be
found at www.qsvequityinvestors.com.

QSV Strategy Performance

The QSV Quality Value Midcap Strategy produced a return, before fees, of 5.76% for Q2 2019,
exceeding both the Russell Mid Cap Value Index return of 3.19% and the Russell Mid Cap Index return of
4.13%. Notably, the Strategy’s three-year annualized performance of 12.76%, before fees, also surpassed
the returns of 8.96% and 12.15% for the Russell Midcap Value Index and Russell Midcap Index,
respectively. Security selection added value in several sectors; most impactful were holdings in Consumer
Discretionary, Materials, Financial Services and Technology.

Quality Value Midcap Top Contributors

The leading contributors to performance of the BEM Quality Value Midcap Strategy during the quarter
were Total System Services and Copart.

Total System Services (TSS) is a leader in payment processing services to banks and other financial
institutions. QSV believes the company benefits from high switching costs, with large price reductions
being necessary to incentivize a customer to change to one of its competitors and sustainability of growth
driven by a continued move to card payments. Its leadership position was heightened during the quarter
with the announcement of an all-stock “merger of equals” with competitor Global Payments (GPN). It is
anticipated that the merger will quickly be accretive, with mid-single-digit growth in earnings in 2020 and
low double-digit earnings growth in 2021 and thereafter.

Copart, Inc. (CPRT) is the largest player in the automotive salvage market duopoly, providing auction and
related services to approximately 40% of the North American market. Service revenues are generated
from fees earned from consignors (insurance companies and charities, primarily) and buyers (including
salvage yards, rebuilders, remanufacturers and scrap recyclers). Growth opportunities include the
expansion by CPRT into non-U.S. markets, including the U.K, where the company is the leading salvage
auctioneer, Brazil, Germany and the U.A.E. CPRT has a long history of generating real economic returns,
supported by its competitive moats, and delivers a robust 25% return on invested capital.

Quality Value Midcap Top Detractors

The leading detractors to performance of the BEM Quality Value Midcap Strategy during the quarter were
Core Laboratories and Waters Corporation.

Core Laboratories (CLB) is an oil-services company that helps oil and gas companies better understand
how to improve production levels and economics with core and reservoir analysis. The strategy of CLB is
to focus on high end energetics segment of the market (50% of CLB’s revenue in in its Production
Enhancement segment in 2018) while ceding share in the standard perforating gun market. Competitive
advantages include its intangible assets (patents, proprietary technology and human capital) and network
effects (multi-client reservoir studies). The cyclicality of the oil services business is a primary risk; that risk
was highlighted in the second quarter and impacted the stock price of CLB as worries heighted over
possible global economic slowdowns driven by potential tariffs and trade wars. QSV believes the
competitive advantages of CLB to be sound and shares are currently well below our estimate of fair value.

Waters Corporation (WAT) is a leading supplier of analytical instrumentation and consumable products
to pharmaceutical, life science, biochemical, industrial, academic and government customers. WAT
designs, manufactures, sells and services liquid chromatography equipment (70% of the business) where
it has a market leading position. It has a #3 position in the Mass Spectrometry market (20% of revenues)
and a #1 position in thermal analysis (10% of revenues). A large installed base of customers and high
switching costs stand as its primary competitive advantages. QSV believes these to be sustainable due
to the long upgrade cycles and superior technology of WAT. Capital spending by large pharmaceutical
companies is the greatest risk to WAT and recent political rhetoric has rattled many investors conviction
in health care stocks.

The QSV Quality Value Smallcap Strategy produced a return, before fees, of 4.48%, well ahead of the
1.37% and 2.10% returns, respectively, that were delivered by the Russell 2000 Value and Russell 2000
Indexes. Company selection helped performance, particularly in the Healthcare, Consumer Discretionary
and Technology sectors.

Quality Value Smallcap Top Contributors

Top contributors to the performance of the BEM Quality Value Smallcap Strategy were Computer Services,
Inc. and UniFirst Corporation.

Computer Services, Inc. (CSVI) is an “under the radar” provider of financial technology solutions and
regulatory compliance software to banks, financial institutions and a variety of other industries
nationwide. High switching costs in the heavily regulated markets served by CSVI result in high contract
renewal rates of over 90%. Contracts between CSVI and many of its customers have long durations. As
an example, customers of its NuPoint banking platform have average contracts extending eight years.
Business performance has been consistently high, with returns on equity and returns on invested capital
in excess of 20%. Record sales of the company’s core products, expansion into new geographic markets
and higher cross-sales have boosted recent results.

UniFirst (UNF) was founded in 1936 and is the second largest provider of rental uniforms in North
America, with a 6% market share. UNF will design, launder, service and deliver a customized garment to
a specific employee on a weekly basis and has a specialty uniform business handling nuclear and clean
room garments. Other services include servicing first aid cabinets and providing cleaning supplies. In
addition to its scale advantage, UNF management points to its corporate values, which include customer
focus, respect for others and a commitment to quality, as its source of competitive advantage. Returns
on invested capital stand at 8% and shares trade at a discount to QSV’s fair value.

Quality Value Smallcap Top Detractors

The greatest detractors to performance of the BEM Quality Value Smallcap Strategy during the quarter
were Kingstone Companies and Hollysys Automation Technologies.

Kingstone Companies (KINS) is the holding company for Kingstone Insurance Company, a provider of
property and casualty insurance to individuals and small businesses. The company has operated for over
125 years and has consistently earned an underwriting profit each year, including 2012 when results were
impacted by Hurricane Sandy. Risks to the business include such catastrophic events and its business
results and financial condition may vary significantly. Shares fell in the second quarter as the company
announced losses from multiple winter catastrophe events and the results of a claims review process that
resulted in a reserve charge. While impactful to financial results in the near term, these reserve charges
will strengthen the company’s balance sheet. Returns on invested capital are 10% and shares are
currently at a significant discount to QSV’s view of fair value.

Hollysys Automation Technologies (HOLI) is a leading supplier of process control systems for high-speed
railway signaling systems in China where 76% of the company’s sales are derived. Divisions of the business
are Industrial Automation, Rail Transportation and Mechanical and Electrical Solutions. HOLI is benefitting
from the long-term upcycle in China’s demand for industrial automation and its competitive advantages
include technology patents, brand recognition and its vast servicing network. A primary risk to the
company, a slowdown in Chinese growth, was highlighted in the most recent quarter, as fears of trade
wars rose. QSV continues to see a compelling opportunity, with HOLI producing strong free cash flows,
returns on invested capital of 13% and shares selling at a significant discount to fair value.

The QSV Select Value Strategy produced a return, before fees, of 6.72% for the second quarter,
exceeding the 1.90% and 2.96% returns of the Russell 2500 Value and Russell 2500 Indexes, respectively.
Company selection was a strong contributor to results, particularly within the Healthcare, Materials and
Consumer Discretionary sectors.

Select Value Top Contributors

Top contributors to the performance of the BEM Select Value Strategy during the quarter were Total
System Services and Broadridge Financial Solutions, Inc.

Total System Services (TSS) was discussed above in commentary for the BEM Quality Value Midcap

Broadridge Financial (BR) offers products for investor communications, securities technology and
operations outsourcing and is a critical intermediary between issuers and investors in the U.S. proxy
system. BR’s proxy voting service processes 95% of all publicly traded U.S. companies, as well as mutual
funds and ETFs, when those companies are held in “street name” and 72% of the shares voted outside the
U.S. Its Investor Communications Services (ICS) segment handles approximately two billion investor
communications annually. BR has considerable scale and its primary competitive advantage is high
switching cost sustained through recurring revenues that equal 60% of income. BR deploys cash for
buybacks, dividends and acquisitions; most recently the company announced the $300 million purchase
of RPM Technologies, a leading Canadian provider of wealth management software solutions and services.
Risks to the company include the regulation of fees the company may charge by industry overseers NYSE,

Select Value Top Detractors

The greatest detractors to performance of the BEM Select Value Strategy during the quarter were Core
Laboratories and MGP Ingredients, Inc.

Core Laboratories (CLB) was discussed above in commentary for the BEM Quality Value Midcap Strategy.

We cited MGP Ingredients, Inc. (MGPI) as a top contributor to performance of the BEM Select Value
Strategy in Q1 2019. Shares fell in this top 10 holding during Q2 2019, resulting in it being the second
greatest detractor to performance. MGPI is a manufacturer and distributor of food, beverage, specialty
wheat protein, and starch food ingredients, operating through two segments, Distillery Products and
Ingredient Solutions. MGPI’s alcohol products (whiskey, rye, bourbon, vodka) are produced for the
premium beverage market. MGPI’s whiskey-heavy spirits mix has been growing around 7% which is about
2% higher than the industry average resulting in average returns on invested capital of 20%. QSV
continues to hold MGPI and like it long-term as it expands its distribution channels, achieves distillery
economies of scale, and demonstrates continued success with its own brands of premium bourbon and
rye products. Risks include the lumpy nature of premium beverage sales and the costs of commodity
inputs to its products, such as corn and wheat flour. Shares are currently at a significant discount to
QSV’s estimate of fair value.

QSV’s Outlook

QSV offers no prediction on the direction of the markets over the coming quarter or year. Our team
does focus its efforts on building high conviction portfolios of quality businesses as we seek to reward
clients with performance that is above our benchmarks and peers over a full market cycle with less
volatility. We believe this is the best way to help clients meet their financial goals and for us to do the
same with our personal assets managed along-side. As we begin the third quarter of 2019, news sources
remind us that we are now in the longest (121 months!) economic expansion in U.S. history. Those same
sources report daily on the erratic behavior of short-term traders as they digest the latest news on tariffs,
trade wars, Fed policy and political machinations. Block out the noise. Focus on stable, quality companies
purchased at reasonable valuations. This remains our advice. We are grateful to our clients and invite
other like-minded investors to contact us if we may be of service.


Returns are for the respective composites of QSV Equity Investors. Gross returns are calculated
net of trading fees. All dividends are assumed to be reinvested. The returns of the BQV Midcap Strategy
are compared to the historical performance of the Russell Midcap Indices as they are a widely used
benchmarks for mid capitalization securities. The returns of the BQV Smallcap Strategy are compared to
the historical performance of the Russell 2000 Indices as they are a widely used benchmarks for small
capitalization securities. The returns of the QSV Select Value Strategy are compared to the historical
performance of the Russell 2500 Indices as they are a widely used benchmarks for SMID capitalization
securities. An investment with QSV Equity Investors (BEM) should not be construed as an
investment in a program that seeks to replicate, or correlate with, these indices. Market conditions vary
between the BEM products and these indices. Furthermore, these indices do not include any transaction
costs, management fees and other expenses, as do the BEM Products. Lastly, BEM may invest in strategies
and positions that are not included in these indices.

No client or potential client should assume that any information presented should be construed as
personalized investment advice. Personalized investment advice can only be rendered after engagement
of the firm for services, execution of the required documentation, and receipt of required disclosures.
Investing carries risk of loss.

QSV Equity Investors, LLC is a registered investment advisor. For additional information about the
firm and its professionals please visit the SEC’s website at www.adviserinfo.sec.gov

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