Ariel Fund Investor Cl (ARGFX) N-CSRCertified annual shareholder report (management investment company)

Dear Fellow Shareholder: Three-quarters of the way into the year, two separate and distinct versions of the stock market are playing out. The big companies comprising the S&P 500 Index have posted double-digit returns, driven by very narrow tech stock leadership, while small companies have been sidelined. To this point, The Wall Street Journal notes, “The Russell 2000 Index remains in a bear market since peaking in late 2021 and has lagged behind the large capitalization Russell 1000 by 13 percentage points this year.”¹ The Federal Reserve’s monetary policy is principally responsible for this stark performance differential. To tame inflation not seen in four decades, the Fed has rapidly increased interest rates over the last 20 months. Many remain concerned these efforts to manage a slowdown will trigger a recession. These

have negatively impacted new home sales in recent months, companies like mortgage servicer, First American Financial (FAF); generator maker, Generac Holdings Inc. (GNRC); and pool provider, Leslie’s, Inc. (LESL) have traded down in anticipation of ongoing weakness. While housing affordability may be upended by Fed monetary policy in the near term, we believe a continuing housing shortage in the U.S. must ultimately be addressed. As new home sales normalize, we expect our oversold housing names to recover.

Fear and Loathing in Las Vegas

Someone once said, “Every problem can be an opportunity.” Herein lies the essence of value investing. Those of us who look for mispriced securities seek to determine if a distressed stock price represents a temporary setback or a permanent barrier. To that point, since its public company debut, Sphere Entertainment Company (SPHR) has been one of our most contrarian holdings whose compounding problems created a great buying opportunity that is beginning to pay off.

Sphere is a stock born in angst. This past April, long-time holding Madison Square Garden Entertainment Corp. (MSGE) continued a multi-year transformation by splitting into two companies. Madison Square Garden Entertainment houses the world-renowned Madison Square Garden and Radio City Music Hall, among other noted venues. Sphere Entertainment Company owns the new state-of-the-art Sphere in Las Vegas as well as the regional sports network MSG Networks. At the end of March, the combined company traded at a 43% discount to our estimate of its private market value. Executive Chairman and CEO James Dolan believed separating the businesses into two publicly traded entities would allow investors to value them properly. We agreed and still hold both in our various domestic portfolios.

The pre-market spinoff sentiment for MSGE was higher because of the cash flow generation of its renowned assets. By contrast, investors were negative about SPHR. Jim Dolan’s “pet project” was a fully immersive entertainment concept facing significant cost overruns. The building is the largest spherical structure in the world and can even be seen from space. It is so immense that the entire Statute of Liberty could fit inside. It holds up to 20,000 people and boasts the biggest LED screen in the world—measuring more than three football fields. The Sphere’s sound system, comprised of 160,000 speakers, is said to make every seat “the best seat in the house.” Solar power provides 70% of its energy.

SPHR closed at $25.61 a share on April 21, 2023, its first day of trading as a stand-alone company. In less than a month, the stock had drifted down to a $21.53 low. Even against conservative assumptions, this price tag was deeply discounted in our view. Then, as word of the inaugural U2 residency and the building’s breakthrough innovations began to spread, fear and loathing quickly turned to enthusiasm and anticipation. The Washington Post proclaimed, “The Duomo. The Pantheon. The Superdome. The Sphere.”² Shares jumped +11% after the building, and U2 opened to rave reviews in late September, closing out the quarter at $37.16—a +69% increase from its spring inception price.

Despite early successes, we continue to debate the investment by reference checking every aspect of the opportunity—from its staying power to its ability to replicate. Although we have taken some profits as shares have run up, we continue to hold the name as SPHR trades at a 35% discount to our private market value estimate as we write.

Our Ariel View

From where we sit, a recession is not guaranteed—although a world of “polycrises” is amplifying risk. Two terrible wars, congressional dysfunction, a looming government shutdown as well as an ever-worsening situation at the border point to escalating dangers to the global economy. As bottom-up stock pickers, we do not make macroeconomic prognostications and cannot predict what will happen. Still, if a recession does unfold, we continue to believe it would be mild when one considers the enduring strength in consumer confidence, labor markets, wages, and overall economic growth.

Markets worldwide continued their upward trajectory through the first half of 2023 until the third quarter arrived. The dominating performance of the “magnificent seven¹” and excitement for artificial intelligence technologies, overshadowed a potential debt ceiling breach, a brief banking crisis and ongoing inflationary pressures for most of the trailing one-year period. More recently fears of a government shutdown, striking autoworkers, surging oil prices and the prospect of interest rates remaining higher for longer drove the stock market rally to sputter. Against this backdrop, government bond yields soared and equities came under pressure. As the Federal Reserve attempts to steer the economy, some worry the risks of a hard-landing are growing. Although uncertainty and volatility are likely to remain elevated, we view the recession guessing game as noise within the context of our long-term investment horizon. Ariel Fund traded +14.56% higher over the trailing one-year period, outperforming the Russell 2500 Value Index’s +11.34% return and the +11.28% gain of the Russell 2500 Index.

Global cruise vacation company, Royal Caribbean Group (RCL), was the top contributor over the trailing one-year period. Shares surged following robust top- and bottom-line financial results, as stronger than anticipated consumer demand drove a record cruise season. Forward booking trends are also ahead of historical ranges at record pricing. These factors combined with further improvement in onboard spend and solid cost containment led management to increase RCL’s full-year 2023 guidance. We believe the revised revenue and earnings outlook lays the foundation for RCL to exceed its three-year strategic imperative, the Trifecta Program.

Live entertainment, media and technology company, Sphere Entertainment Co. (SPHR) was another top contributor to results. Shares jumped following news the Las Vegas venue was on track to open in late September and costs were in-line with expectations. Additionally, the company delivered a profitable fourth quarter relative to the loss posted a year ago. While the Sphere venue will take some time to reach its full potential, the company is planning to have events 365 days a year. In addition to hosting concert residencies, marquee sporting and corporate events, The Sphere Experience will debut in October, consisting of a series of exhibits chronicling technology’s impact on the development of human potential. Management also believes there is a significant opportunity for advertising and sponsorship on the Exosphere (the Sphere’s exterior) as well as licensing interior VIP hospitality suites. Meanwhile, U2 opened to great fanfare on September 29th—sending shares even higher into the month of October. In our view, the Sphere’s new experiential immersive venue and the company’s two regional sports and entertainment networks present a long-term opportunity, which remains meaningfully underappreciated at current trading levels.

Markets worldwide continued their upward trajectory through the first half of 2023 until the third quarter arrived. The dominating performance of the “magnificent seven1” and excitement for artificial intelligence technologies, overshadowed a potential debt ceiling breach, a brief banking crisis and ongoing inflationary pressures for most of the trailing one-year period. More recently fears of a government shutdown, striking autoworkers, surging oil prices and the prospect of interest rates remaining higher for longer drove the stock market rally to sputter. Against this backdrop, government bond yields soared and equities came under pressure. As the Federal Reserve attempts to steer the economy, some worry the risks of a hard-landing are growing. Although uncertainty and volatility are likely to remain elevated, we view the recession guessing game as noise within the context of our long-term investment horizon. Ariel Appreciation Fund increased +14.95% over the trailing one-year period, ahead of the Russell Midcap Value Index and Russell Midcap Index, which returned +11.05% and +13.45%, respectively.

Global leader in electrical protection and connection solutions, nVent Electric plc (NVT), was the top contributor to results over the trailing one-year period on robust top- and bottom-line financial results. This performance reflects strong sales, margin expansion, healthy cash flow and continued execution of the company’s global strategy, which is focused on high-growth verticals, new products and innovation. Looking ahead, we expect NVT to benefit from secular trends towards increased electrification and data center development, as well as from internal operational improvements.

Shares of oil services company, Core Laboratories Inc. (CLB) also advanced over the period on solid earnings results and a subsequent increase in full-year guidance. This performance was driven by steady activity in the U.S. and an uptick in international markets, illustrating the operational leverage within its global, asset-light business model. CLB also continues to pay down debt. The ongoing geopolitical conflict between Russia and Ukraine, as well as associated European and U.S. sanctions, continue to disrupt the business and create near-term uncertainty, however, CLB is seeing progress in both onshore and offshore activity across its global operations. We have conviction in the management team’s long history of delivering strong operating results, robust free cash flow and returning capital to shareholders.

Dear Fellow Shareholder: The third quarter was difficult for financial markets as hawkish signals from the Federal Reserve sent interest rates higher and U.S. stock and bond prices lower. Growth beat value, while small companies underperformed larger ones. Both factors were headwinds for Ariel Focus Fund. Our holdings remain cheaper than the broad market as well as the large-cap value index.

To this point, at quarter end, Ariel Focus Fund traded at 10.9x forward earnings, significantly lower than the S&P 500 Index at 17.9x and the Russell 1000 Value Index at 13.7x. This noteworthy discount has persisted for several years now. While we believe our value orientation will generate future returns, it has undoubtedly been a challenge in the face of growth stock outperformance. Our all-cap strategy allows us to purchase companies across the market cap spectrum. Lately, smaller cap names have presented attractive opportunities, causing our market cap to lie well below the indices, creating a headwind this year. As such, Ariel Focus Fund returned -5.87% for the quarter and -3.68% year-to-date. The Russell 1000 Value Index lost -3.16% in the quarter and rose +1.79% year-to-date, while the S&P 500 declined -3.27% in the quarter and gained +13.07% year-to-date.

Past letters have discussed the underperformance of value versus growth in U.S. equity markets. Chart 1 on the next page shows the dramatic outperformance of the Russell 1000 Growth Index versus the Russell 1000 Value Index since the

While this negative environment has clearly been challenging for Ariel Focus Fund, we see a light at the end of this long tunnel. The one-year rise in the Consumer Price Index of 3.7% (through September) is down significantly from its recent 9.1% peak in June 2022. Higher rates from the Fed, combined with a significant slowdown in money supply growth, are working. While one cannot rule out a policy mistake, we believe we are at or near the end of rate hikes. When this becomes apparent to the market, we should see confidence build in the U.S. economy. An end to recession fears should boost value stocks.

Portfolio in Focus

The three companies adding the most to relative performance in the third quarter shared no common traits. By contrast, our three biggest detractors were all housing-related, negatively impacted by increasingly hawkish comments from the Fed and the prospect of “higher for longer” interest rates.

APA Corporation (APA) was our largest contributor, jumping +21.1%. The company benefited from rising oil prices as well as more information on its large South American oil discovery. The contract price for West Texas Intermediate Oil increased from below $70 to above $90

Portfolio Comings and Goings

During the quarter, we initiated a position in Chevron Corporation (CVX), the second-largest integrated energy company in the U.S., operating in exploration, production, and refining on a global scale. We view the company as competitively advantaged with a strong balance sheet, sustainable growth pathway, and an effective management team. Going forward, CVX expects improved cost efficiencies and production growth via its differentiated position in the Permian Basin and the recent acquisition of Noble Energy. Additionally, management believes a combination of its new higher-margin projects along with operational improvements will drive a double-digit return of capital employed by 2027.

We also added consumer health company Kenvue, Inc. (KVUE) through an exchange offer from our position in Johnson & Johnson ( JNJ). We view Kenvueas a beneficiary of current demographic and global economic trends. As populations age and disposable incomes rise, spending on healthcare should continue to grow.

Markets worldwide continued their upward trajectory through the first half of 2023 until the third quarter arrived. The dominating performance of the “magnificent seven¹” and excitement for artificial intelligence technologies, overshadowed a potential debt ceiling breach, a brief banking crisis and ongoing inflationary pressures for most of the trailing one-year period. More recently fears of a government shutdown, striking autoworkers, surging oil prices and the prospect of interest rates remaining higher for longer drove the stock market rally to sputter. Against this backdrop, government bond yields soared and equities came under pressure. As the Federal Reserve attempts to steer the economy, some worry the risks of a hard-landing are growing. Although uncertainty and volatility are likely to remain elevated, we view the recession guessing game as noise within the context of our long-term investment horizon. Ariel Focus Fund advanced +7.83% over the trailing one-year period, underperforming the +14.44% return posted by the Russell 1000 Value Index and the +21.62% gain of the S&P 500 Index.

Global leader in enterprise software, Oracle Corporation (ORCL), was the top contributor to performance over the trailing one-year period. Fiscal full year 2023 revenues reached an all-time high led by accelerating growth in the cloud applications and infrastructure businesses. ORCL is benefitting from a significant expansion in artificial intelligence (AI) demand, with existing customers burning through commitments at a heightened rate. We believe these results highlight ORCL’s ability to effectively cross-sell and upsell apps and infrastructure, as well as the emergence of the company’s cloud platform as a competitive offering. Looking ahead, we expect ORCL will be a continued beneficiary of generative AI workloads.

Supplier of solutions for combustion, hybrid and electric vehicles BorgWarner, Inc. (BWA) also advanced in the period following a top- and bottom-line earnings beat, as well as a solid financial guidance for 2023, despite foreign currency headwinds. Meanwhile, BWA continues to successfully execute on its Charging Forward initiative and remains on track to deliver $4 billion in electric vehicle sales by 2025. In our view, BWA’s electric motor and driveline technology offerings position the company to grow intrinsic value throughout the evolution in the hybrid and electric vehicles market.

Dear Fellow Shareholder: The U.S. Federal Reserve’s September meeting proved tumultuous for equity markets in the third quarter. Against a backdrop of strong economic and labor growth, the Fed signaled that interest rates would remain “higher for longer,” leaving open the possibility for an additional increase this year and defying market expectations for a series of cuts beginning in 2024. While the concern that a Fed-induced recession would normally favor so-called defensive sectors, rising rates have been a headwind for some slower-growing but high-dividend paying sectors like utilities.

Negative sentiment pushed major equity indices into the red for the month of September and for the third quarter.

Headwinds and Opportunities

Positive data has reduced the likelihood of a hard economic landing in the U.S. in the near term. And yet, the prospect of better economic growth has pushed up the yield on 10-year treasuries to levels not seen since 2007, making a future slowdown more likely. Meanwhile, inflation in developed markets like the U.S. and Eurozone remains above government targets.

Compounding the risk of stagflation is the war between Israel and Hamas, which is unlikely to be short-lived. The conflict could lead to a reduction in the energy supply or simply an extended period of risk priced into the commodity markets—both of which can elevate inflation while slowing growth. Despite these potential challenges, market volatility remains low, and many stocks are still unfazed by the growing threats.

Our largest regional overweight is in Europe, where we mostly own less cyclical businesses selling at attractive valuations. Our overweight to Emerging Markets remains unchanged from last quarter—and will remain in line with our investment guidelines. That said, we believe EM economies offer better relative earnings and GDP growth in the coming years. In many cases, these countries exited the COVID recession later. Persistent slack in EM labor markets and low factory utilization rates should ultimately boost profit margins over time.

Interest Rates Higher for Longer

With interest rates likely to remain higher for longer, we shifted our positioning among European Financials, taking profits in Deutsche Boerse (though still retaining a position) while increasing our exposure to BNP Paribas and KBC Group NV.

We believe Deutsche Boerse has a very strong business model with longer-term growth possibilities. In the current market environment, increasing market volatility is a positive for a stock exchange that can offset the potential of market declines. But on the heels of strong performance, a rising valuation, and a growing position size, we pared back the name given its limited upside relative to other European Financials.

The company’s AI opportunity derives from our belief that Samsung will become a competitive second source supplier of the latest generation of high bandwidth memory (HBM) technology. HBM is a high-speed computer memory interface that achieves greater bandwidth using less power and a smaller form factor than prior memory generations. AI accelerators are boosting demand for HBM, and while Hynix was first out of the gate, Samsung’s technology has caught up and offers additional earnings upside. In addition to its memory, smartphone, and AI opportunities, Samsung’s current valuation does not reflect any potential upside in its Display (including its market-leading OLED televisions) and Foundry (production of semiconductors designed by others) businesses.

Outlook

Although uncertainty is high and stagflation and recession are not out of the question, we view near-term risks as noise within the context of our long-term investment horizon. As value investors, we prefer to own business models and balance sheets that have the strength to cushion the blow from macro pressures. We have avoided the expensive U.S. market while leaning into undervalued opportunities in Emerging Markets and Europe.

“As value investors, we prefer to own business models and balance sheets that have the strength to cushion the blow from macro pressures.”

As always, we appreciate the opportunity to serve you and welcome any questions or comments you might have.

Sincerely,

Henry Mallari-D’Auria, CFA^®

Chief Investment Officer

Global Equities

This year’s rise in equity markets has had narrow leadership, particularly in the U.S. where the “magnificent seven¹” and excitement for artificial intelligence technologies overshadowed ongoing inflationary pressures and the new “higher for longer” rate regime as well as its implications for slowing global growth. While some investors remain cautiously optimistic central banks will engineer a soft-landing, others worry the stress of tight monetary policy will induce a hard landing. Although macroeconomic uncertainty and market volatility will likely remain elevated, we view these near-term risks as noise within the context of our long-term investment horizon. Against this backdrop, Ariel International Fund advanced +16.78% over the trailing one-year period, underperforming both the MSCI EAFE and MSCI ACWI ex-US indices, which returned +25.65% and +20.39%, respectively. Ariel International Fund also lagged both the MSCI EAFE Value Index and the MSCI ACWI ex-US Value Index, which returned +31.51% and +25.17%, respectively.

Ariel’s non-consensus approach seeks to identify undervalued, out-of-favor, franchise-quality companies that are misunderstood and mispriced. Ariel International Fund is significantly overweight Utilities, Communication Services, Health Care, Consumer Staples and Consumer Discretionary. The portfolio is meaningfully underweight Industrials, Energy, Information Technology and Real Estate as well as lacks exposure to Materials. At the sector level, our Consumer Staples holdings led the way, while investment choices within Financials and our cash allocation were the greatest detractors from performance over the trailing one-year period.

Leading electric utility in Spain, Endesa S.A., was the top contributor over the trailing one-year period. The company delivered solid earnings, highlighted by continued operational improvements across the generation, supply and renewables business and announced a higher-than-expected dividend yield. This performance was supported by successful repricing initiatives and enhancements to in-the-money gas contracts. Endesa also recently announced a 4-year strategic plan through 2025, increasing its 2022 EBITDA and net profit guidance, as well as boosting capex for additional renewable capacity. We view the company as an efficient operator with a strategy well-aligned with the energy transition.

French multinational tire manufacturer, Michelin SCA, also advanced over the period following robust earnings results and a raise in full year guidance. We remain enthusiastic about Michelin’s strong global competitive position, cyclical resiliency, pricing strategy and cost discipline. Furthermore, we expect the company’s “Around Tire” and “Beyond Tire” initiatives to drive profitable growth over the long term.

This year’s rise in equity markets has had narrow leadership, particularly in the U.S. where the “magnificent seven¹” and excitement for artificial intelligence technologies overshadowed ongoing inflationary pressures and the new “higher for longer” rate regime as well as its implications for slowing global growth. While some investors remain cautiously optimistic central banks will engineer a soft-landing, others worry the stress of tight monetary policy will induce a hard landing. Although macroeconomic uncertainty and market volatility will likely remain elevated, we view these near-term risks as noise within the context of our long-term investment horizon. Against this backdrop, Ariel Global Fund traded +15.64% higher over the trailing one-year period, falling short of both the MSCI ACWI Index and MSCI ACWI Value Index, which returned +20.80% and +16.98%, respectively.

Ariel’s non-consensus approach seeks to identify undervalued, out-of-favor, franchise-quality companies that are misunderstood and mispriced. Ariel Global Fund is significantly overweight Communication Services, Health Care, Information Technology, Consumer Discretionary and Consumer Staples, as well as meaningfully underweight Industrials, and Financials. Additionally, the Ariel Global Fund lacks exposure to Energy and Materials. At the sector level, Utilities, Consumer Discretionary and Consumer Staples holdings were the largest sources of positive attribution. Meanwhile, our allocation to Cash and avoidance of Energy were the greatest performance detractors over the trailing one-year period.

As enthusiasm for artificial intelligence grows, enterprise software provider, Microsoft Corporation, was one of the top contributors over the trailing one-year period. Microsoft stands to do well as this new technology advances given its large investment in Open AI, the parent company of ChatGPT. The company should drive value creation by capitalizing on a broad and deep set of opportunities, most notably within Azure, its hybrid cloud infrastructure. The platform continues to demonstrate share gains and strong multi-year purchase intent as enterprises transition to end-to-end, secure, cloud-based solutions. Looking ahead, we continue to like Microsoft’s sound fundamentals, competitive positioning and long-term business outlook.

Shares of biopharmaceutical company, Gilead Sciences, Inc., also advanced over the year period on broad outperformance, highlighted by a significant top- and bottom-line earnings beat and meaningful raise to full year guidance. Strong performance of Veklury, an antiviral medication, sales growth across its HIV and cell therapy businesses, as well as renewed optimism in Trodelvy, a drug used to treat metastatic breast cancer, drove shares higher. We maintain a positive outlook on the company, which is bolstered by the resilience of its core virology commercial

Established in 1985, Direct Line Insurance Group Plc (DLG) is a prominent insurance company that holds leading positions in the Motor and Home insurance markets, as well as strong positions in Rescue cover and Small and Midsize Enterprise (SME) commercial lines. Headquartered in London, the company owns some of the most powerful insurance brands in the UK, including Direct Line and Churchill, which drive high retention levels and impressive cross-selling rates. Additionally, its in-house repair network, DLG Auto Services, plays a key role in efficiently managing the impact of increasing claims inflation, which contributes to improved margins.

We’ve Got You Covered

Direct Line’s success is deeply rooted in its diverse portfolio. The company offers an extensive range of solutions, including auto, home, pet, travel, and commercial, establishing itself as a versatile, all-in-one destination for insurance needs. Although U.K. motor insurance significantly contributes to its earnings, Direct Line stands out as one of the few U.K. “personal-lines-focused” insurers that have successfully diversified beyond U.K. motor insurance. This diversification ensures a constant revenue stream and serves as a risk mitigation strategy across various market segments, enabling the company to maintain a resilient industry position.

Technological Transformation

Direct Line Insurance Group has embraced technology to enhance its services and operational efficiencies. In the past, technology may have posed challenges for the company, but after several years of significant investments aimed at improving speed, sophistication, and the overall customer experience, technology is now considered one of the company’s strengths. A major aspect of Direct Line’s transformation is the migration of its business onto a new underwriting platform, encompassing all of Direct Line’s

The Interpublic Group of Companies (NYSE: IPG) is a leader in marketing communications, serving the largest advertisers in the world. Founded in 1930 as a creative agency, Interpublic has evolved by acquiring smaller agencies and expanding its capabilities to media buying/planning, data analytics, public relations and live events. While Interpublic is the fourth largest advertising agency holding company in the world, it has outperformed its peers with stronger revenue growth and margin expansion both before and after the pandemic. Notable Interpublic agencies include FCB, McCann and MullenLowe for creativity; IPG Mediabrands for media; Acxiom for data; Weber Shandwick for public relations; and Jack Morton for sports.

A Trusted Advisor

Interpublic is a durable business that is well diversified. While advertising platforms can change over time, Interpublic is insulated from these shifts by managing spend across all marketing channels. The company’s devoted client base consists of the world’s largest advertisers who invest in their brands for the long-term and are less willing to succumb to short-term challenges compared to smaller companies with fewer resources. Interpublic’s exposure to a wide variety of clients and sectors enables them to develop best practices and scalable tools that can be leveraged by each of its agencies. As the advertising business becomes increasingly complex with new digital platforms, data analytical tools and changing privacy restrictions, we believe Interpublic’s role as a trusted advisor will become even more valuable. Interpublic’s client relationships span multiple years and even decades, which enables it to become a fundamental component of its clients’ marketing teams.

Mattel, Inc. (NASDAQ: MAT) is a leading toy company with renowned brands such as Barbie^®, Hot Wheels^®, Fisher-Price^® and American Girl^®. It is also a partner of choice for companies that license their intellectual property (IP). On that point, Mattel has the coveted licenses for Disney Princess^®, Frozen^®, Jurassic World^®, WWE^® and Star Wars^®. While competitors like Hasbro outsource manufacturing, Mattel produces its core brands in its own facilities, which gives the company greater flexibility to move quickly, innovate and respond to market demands. Under the leadership of CEO Ynon Kreiz, Mattel is being transformed into an IP-driven toy business by expanding its entertainment offerings through movies, TV shows, books and games.

It’s a Barbie^® World

The first leg in Mattel’s new entertainment strategy is off to an incredible start. The Barbie^® movie is the highest-grossing film this year with over $1.3 billion in global box office revenue. While past attempts to bring toy IP to the big screen by other companies had varying degrees of success, Mattel is taking a different approach. Rather than using media content primarily as a marketing campaign to sell more toys, Mattel is giving movie directors the autonomy to create authentic material that resonates with audiences. With this approach, it is expected to generate $125 million in gross billings from the Barbie^® movie in 2023 driven by box office profits, toy sales and licensing fees. The company has adopted a capital-light approach to manage the risks associated with major Hollywood productions. While limited investment also reduces the upside, we believe it is a prudent path given the unpredictable returns from content development. Mattel

Founded in 1996, Prestige Consumer Healthcare, Inc. (NYSE: PBH) offers a wide range of essential consumer products. The company’s extensive product line consists of well-known products in Women’s Health (Monistat^™; Summer’s Eve^™); Gastrointestinal (Beano^™; Fleet^™); Eye & Ear Care (Clear Eyes^™; Debrox^™); Analgesics (Goody’s^™; Ecotrin^™); Skin Care (CompoundW^™; Nix^™); Oral Care (Dentek; Efferdent^™); and Pediatric Care (Bourdreaux’s ButtPaste^™; Little Remedies^™).

Innovating for Consumer Preferences

The consumer healthcare sector remains highly competitive. Along with larger branded companies, the industry consists of cheaper, private label products. Private label threats have been a concern in the branded space for decades. However, for several of Prestige’s over-the-counter healthcare items, which are typically used on an “as needed” basis, consumers often continue to choose the brand they know and trust. Approximately 58% of Prestige’s revenue is derived from brands that boast the #1 market position.

To enhance its portfolio, the company focuses on innovation within its current product base to improve and upgrade its offerings. Prestige has taken products that were historically in drinkable form and created tablets and powders for better usability. For example, the company utilized the original Dramamine^™ formulation and created less drowsy, chewables, Ginger flavored, and nausea relief variations. In 2023, the company is launching several new offerings, including Summer’s Eve Spa Renewing Wash^™, CompoundW Total Care^™, Nix Lice Prevention Spray^™, Tagamet Cool Mine^™, and Fleet Fresh & Clean^™. In 2022, the company launched DenTek Fresh Protect Dental Guards, Dramamine Nausea Ginger Chews^™, BC Max Strength^™ Lemonade flavored powder, Summer’s Eve Spa Luxurious Wash^™ and Clear Eyes Sensitive^™.