Baron Capital Management leaders recently invited the chief executive officers of four public companies to the Baron Investment Conference in New York to make presentations to thousands of investors who own shares in the Baron Funds.
The CEOs of Douglas Emmett, Inc., Bio-Techne Corporation, Bright Horizons Family Solutions, Inc. and IDEXX Laboratories, Inc. each discussed the prospects for their respective companies and offered their vision for achieving future growth and profitability. Baron Capital Management is known for seeking and investing in companies that offer long-term growth and good management, so the presentations gave each company’s chief a chance to explain why investors should take an interest.
Douglas Emmett, Inc. (NYSE: DEI)
Jordan Kaplan, president and CEO of Douglas Emmett, Inc., explained the unique approach the company uses to be competitive in the Los Angeles industrial real estate market. Douglas Emmett uses a Fully Integrated Operating Platform to achieve high occupancy rates in its properties. The platform provides tenants with a full array of in-house services — management, leasing, legal, construction, etc. — that minimize vacancy and turnover cost.
Additionally, 40% of Douglas Emmett’s tenants do not use a broker. This also reduces cost and expedites the leasing process. The average time from letter of intent to occupancy with Douglas Emmett is only four months. That time frame is considerably shorter than with Douglas Emmett’s competitors, Kaplain said.
Results of all these initiatives are high occupancy rates and higher profit margins. At 92.3%, Douglas Emmett’s occupancy rate is 2.6% higher than the averages in the Los Angeles submarket and 6.8% higher than occupancy rates in Los Angeles County, Kaplan reported.
Due to these operational efficiencies, Douglas Emmett doubled its free cash flow per share over the last decade. Since the company’s initial public offering in 2006, shareholder return is 137%. This level of return is higher than the return for any of its major competitors and more than double the MSCI REIT INDEX (RMS).
Douglas Emmett seems to have found a way to thrive as a niche provider in a very competitive industry.
Douglas Emmett, Inc.’s share in each of the following Baron funds is:
- 2.8% in the Baron Real Estate Fund (BREUX);
- 2.4% in the Baron Growth Fund (BGRUX);
- 1.6% in the Baron Partners Fund (BPTUX).
Bio-Techne Corporation (NASDAQ: TECH)
President and CEO Chuck Kummeth spoke about Bio-Techne’s distribution model, research and development. Kummeth compared the current biotech market to the California Gold Rush in terms of opportunities for growth and return on investment.
The management team made changes to enable corporate operations to keep up with the company’s scientific and technological progress. Two major changes were the establishment of a subsidiary model for global growth and the elimination of distribution intermediaries by converting the company from an original equipment manufacturer (OEM) strategy to a direct distribution model.
One of Bio-Techne’s focus areas is automation of medical and clinical testing. Bio-Techne’s testing equipment and reagents simplify and speed up the testing process. Faster test processing allows researchers to spend more time focusing on the actual research.
Since 2013, Bio-Techne’s revenues increased more than 60%. Adjusted operating income is 17% higher. Adjusted earnings per share increased 13% from $3.20 per share to $3.60 per share. The company’s stock also has followed the trend. Its stock price increased from a $63.89 low on April 21, 2013 to around $106.5 per share as of Nov. 14, 2016.
Mr. Kummeth and his leadership team are confident that the company can reach $850 million annual revenue by 2021 through organic growth and more than $1.3 billion with further mergers and acquisitions. Additionally, Bio-Techne is projected to double the adjusted operating income and nearly double its earnings per share from $3.60 per share to $6.40 per share by 2021.
It remains to be seen whether Bio-Techne can cash in on the “Gold Rush” opportunity.
Bio-Techne Corporation is included as
- 1.8% share in the Baron Growth Fund (BGRUX)
- 1.6% share in the Baron Asset Fund (BARUX)
Bright Horizons Family Solutions, Inc. (NYSE: BFAM)
CEO David Lissy presented Bright Horizons Family Solutions as an innovative company seeking to prosper in the very competitive child care market. Bright Horizons Family Solutions has grown to become a major provider in early education and preschools, employer-sponsored child care, back-up care and educational advisory services.
Lissy explained that the traditional child care industry has low margins, weak consumer branding, low barriers to entry, high staff turnover and no proprietary technology. In this environment, Bright Horizons Family Solutions focused on redefining the industry. The company concentrated on developing a strong brand, creating proprietary solutions, lowering staff turnover and signing long-term agreements with corporate clients.
Bright Horizons Family Solutions operates 940 centers globally and has relationships with more than 1,000 corporate organizations. The corporate client base is diversified between some large corporation — 150 of Fortune 500 companies — and many small companies. The largest single client is less than 2% of total revenue and the top 10 customers combined still constitute less than 10% of total revenue.
Leadership of Bright Horizons Family Solutions took advantage of expansion to scale its business, streamline operations and increase profit margins. While total sales during the past 15 years grew at a compounded annual rate of 11%, adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) increased at 18.9%.
David Lissy also shared the company’s long-term plans, including annual top-line revenue growth between 8% and 10%, annual operating margin growth of 50 to 100 basis points and annual adjusted earnings per share growth of 15% to 20%.
Bright Horizons Family Solutions, Inc. has a share of:
- 4.0% in the Baron Small Cap Fund (BSCUX)
- 2.6% in the Baron Growth Fund (BGRUX)
IDEXX Laboratories, Inc. (NASDAQ: IDXX)
IDEXX Laboratories engages in the development, manufacture and distribution of technology and services for animal health care. In addition to the pet and veterinary services, IDEXX Laboratories provides products and solutions for livestock, water and dairy testing.
Chairman and CEO Jonathan Ayers explained the animal health care market in which IDEXX Laboratories operates. The entire veterinary services, pets and related products market is less than 0.8% of total consumption expenditures. However, that market segment has been growing much faster than overall consumption, with a particularly accelerated growth in the last 20 years.
Ayers shared a graph that showed a compound annual growth rate of 6.8% for consumption expenditures between 1960 and 2015. While pets and related products market growth rate was 8.5% during the same period, veterinary and related services have been growing at 10.2%.
One of the main drivers of strong market growth is increased pet ownership and a strengthened bond pet owners feel towards their pets. Ayers shared results of a survey showing that affinity for pets is even more prevalent among Millennials than among Baby Boomers. With the younger demographic group building enhanced connections with pets, the future looks promising for the company’s business expansion.
IDEXX Laboratories currently controls 40% share of the $1.35 billion global companion animal diagnostics and veterinary software market. The company has broadened its international footprint through direct sales and distribution models.
IDEXX Laboratories also managed to increase its share of recurring revenue from its companion animal diagnostics business by growing it from 81% in 2010 to 87%. Using the company’s stock price at the beginning of each month since 1991, IDEXX Laboratories’ share price has a compound annual growth rate of 21%.
While poll data presented by Jonathan Ayers indicates that people love their pets, the future will show whether IDEXX Laboratories’ stock will perform well enough to earn a similar level of love from investors.
IDEXX Laboratories, Inc. accounts for a share of:
- 7.4% in the Baron Asset Fund (BARUX)
- 5.0% in the Baron Partners Fund (BPTUX)
- 4.0% in the Baron Small Cap Fund (BSCUX)
- 3.4% in the Baron Growth Fund (BGRUX)
To emphasize his point about the growing bond people have with their pets, Ayers said research shows an increasing number of pet owners sleep with their animals.
Ned Piplovic is the assistant editor of website content at Eagle Financial Publications. He graduated from Columbia University with a Bachelor’s degree in Economics and Philosophy. Prior to joining Eagle, Ned spent 15 years in corporate operations and financial management. Ned writes for www.DividendInvestor.com and www.StockInvestor.com.
