The Canadian Investor - 4 Takeaways from This Earnings Season

Episode Date: November 10, 2022

Earnings season continues with a slew of Canadian companies reporting. In this episode, we look at earnings from companies like Lightspeed, Constellation Software, Nutrien and Canada Goose. We also give our thoughts on emerging themes from this earnings season as well as the new tax on buybacks that was announced by the federal government. Tickers of stocks discussed: CSU.TO, TOI.V, LSPD.TO, MG.TO, BIPC.TO, GOOS.TO, SBUX.TO, NTR.TO, NVEI.TO Shakepay Bitcoin Survey Check out our portfolio by going to Jointci.com Our Website Canadian Investor Podcast Network Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital Want to learn more about Real Estate Investing? Check out the Canadian Real Estate Investor Podcast! Apple Podcast - The Canadian Real Estate Investor  Spotify - The Canadian Real Estate Investor  Sign up to Stratosphere for free 🚀 our platform for self-directed stock investing research. Register for EQ Bank, the seamless digital banking experience with better rates and no nonsense.See omnystudio.com/listener for privacy information.

Welcome back into the show. This is the Canadian Investor Podcast, made possible by our friends and show sponsor, EQ Bank, which helps Canadians make bank with high interest and no fees on everyday banking. We also love their savings and investment products like GICs, which offer some of the best rates on the market. I personally, and I know Simone as well, is using the GICs, which offer some of the best rates on the market. I personally, and I know Simone as well, is using the GICs on a regular basis to set money aside for personal income taxes in April of every year. Their GICs are perfect because the interest rate is guaranteed, and I know I won't be able to touch that money until I need it for tax time. Whether you're looking to set some money aside for a rainy day or a big purchase is

coming through the pipeline or simply want to lower the risk of your overall investment portfolio, EQ Bank's GICs are a great option. The best thing about EQ Bank is that it is so easy to use. You can open an account and buy a GIC online in minutes. Take advantage of some of the best rates on the market today at eqbank.ca forward slash GIC. Again, eqbank.ca forward slash GIC. This is the Canadian Investor, where you take control of your own portfolio and gain the confidence you need to succeed in the markets. Hosted by Brayden Dennis and Simon Belanger. The Canadian Investor Podcast. Today is November 8th, 2022. Welcome into the show. My name is Brayden Dennis and with me, the very accommodating Simon Belanger, as I have running around like an absolute psychopath.

Thank you for making today's recording as seamless. Hey, you know what? The people need to give Simon, the co-host here, some shout outs of being just so easy to work with. I appreciate you a lot, brother. Hey, no problem. I know it's not easy and we actually did this recording yesterday, but we had technical difficulties. The people don't have to know.

And so now we're able to make it work today. It's always a bit tricky with a baby, but I think we have a good one hour window to get us done without too much crying. Yeah. Baby's crying, dog's barking. I got my dog here as well in the office here, but he's pretty quiet. But that Amazon delivery guy shows up to the door and it's going to be out of control in here. All right. Today we have lots of fun stuff and tons of earnings, especially last week.

But that really core two weeks of like, it feels like everyone reporting at the same time, that's mostly slowed down. We're going to have a bunch more trickle in. Lots of Canadian names reported last week. So of course, as the Canadian Investor Podcast, we're going to touch on those as well. But before we do that, Simone, we've had enough to decompress our thoughts on the third quarter. And it's particularly interesting because of what you hear from a macro perspective, everything that, you know, from fear mongering to, you know, the bulls, we've seen it all now. And I just want your top two high level thoughts on the third quarter so far. Yeah. what difference a year makes. Actually, if we remember 2020 was a weird year, then 2021, I guess everything came back in force. And now it's definitely different than 2021. Now, my main takeaways have two big ones. Some sectors

are still thriving while others are starting to struggle. And it's pretty apparent. Some that come to mind retail so you have target walmart nike already saying they're experiencing inventory headwinds having to do discounts to be able to offload merchandise i'm assuming amazon was the same thing with their prime day that happened a couple weeks ago they can leverage their platform and do that and of course they had lighter than expected guidance for q4 which is typically their obviously their strongest core in terms of retail sales i'm not talking about aws here and like we'll see in this episode light speed and canada goose are also guiding a bit lower and

those are tied to retail as well and i'll explain why Lightspeed is. Consumer staples on the other end are doing very well whether it's Pepsi, Coca-Cola, some of the like Procter & Gamble is another one that comes to mind. All these type of companies, the consumer staples, things that people have to buy, they are doing well because if people are saving money or trying to cut on spending, it's not going to be the things that they need. And then tech as a whole has been struggling. I know there's some exceptions here. It's not all of it. But as a whole, definitely has been struggling, especially compared to last year. And then my second takeaway is businesses are just starting to cut spending. So I think this is obviously an effort to keep, you know, profit for the most part, the businesses that are profitable to at least the same level.

So we're seeing workforce reductions or job cuts, obviously, or I've seen marketing spend being something else that companies are starting to be affected by that amongst the most prominent one is Google, which is still doing well, but they actually had lower than expected results. Yeah. And people are being reminded that the ads business is cyclical. And of course it is, but these businesses are just so well positioned and that's just not the only line of business that they have. And right now, Google trades at 17 times EV to net profit if you reduce their net profit by 20% next year. That's the forward multiple. And so it's obviously less than that on trailing 12 months. So I think that the opportunities here still are rampant from an investing perspective that you and I are both quite happy about the opportunity of money being deployed right now as investors. I'll say my two, there's generalization of the companies I care

about coming out with solid results despite ridiculously hard comps in 2021, right? So much pulled forward demand and growth, especially on the tech side. I suppose, Simon, pat myself on the back. They must have heard my PSA in the last earnings round up where I said, hey, tech CEOs, buckle down on spending and potentially, hey, Google, don't hire 13,000 employees in one quarter when you're going to be heading into a tougher environment. And so we've seen post earnings results, tons of tech freezes, layoffs. And of course, we don't want to be insensitive to that. But at the same time, And of course, we don't want to be insensitive to that. But at the same time, the job market is still so hot. And so these skilled workers are going to be just fine finding jobs. And so we're

still in a weird place where the job demand is so hot. My second thing here is travel's back, baby. Travel stocks all reported recently. I think Friday we we had Booking Holdings report 22% higher top line than their 2019 number. So they are now 22% higher than their record year. It's kind of crushing it across the board. And most of them materially higher than 2019 pre-COVID numbers. This is kind of cementing my anecdotal belief that no matter what, even if tougher times are ahead, people are willing to spend money on experiences over things. Leading the way with millennials and Gen Zs are just not that into buying crap. And of course, there's still going to be a massive industry of virtue signaling your wealth and status games. That's a part of human nature and capitalism. But for the most part, people flexing on their friends

is traveling in Europe and backpacking in Asia and South America. This trend, I believe, is here to stay. And airlines as a business suck, but their business is back in a big way, especially in terms of volumes. I just mentioned booking holdings. Airbnb had mostly great numbers last week. Look at Live Nation, the owner of Ticketmaster. They had 40% increased in capacity in all their venue types. Ticket sales were up 33%. Sponsorship deals are up almost near 60% and well, well above their 2019 levels. And so this is just kind of, it feels like it didn't miss a beat in terms of that trajectory that it was on despite this giant hiccup that, you know, plagued the world for almost two years. Yeah, no, I think, yeah, it's definitely looked like it's trending in the right

direction. Even, you know, airlines are, you airlines, they're not investments I do, but they're pretty close to their 2019 levels as well. I think in the US, if they're not there, they're pretty much there. And Air Canada is what I think 5%, 10% away from them. So it's looking pretty good. Delta, for instance, I do know when we went through the latest results that it was a record in terms of top line and passenger volume. Probably a record in terms of expenses. Oh, yeah. Oh, for sure. Now, I wanted to touch quickly on the Fed interest rate release last week. Obviously, they went up 75 basis points. The the reason because obviously we talked about it on the episode it was kind of happening as we were recording our monday episode so the last one that

came out and you know some things came out in the press release that were quite different when jerome powell started talking and started taking questions and so on so essentially powell mentioned one of the things that rattled markets because we saw the markets being up on the press release and then sharply down after the the press conference started happening and one of the big things is Powell said that the terminal rate will most likely be more than five percent or higher than they have previously suggested and the terminal rate is just a fancy word to say. It's basically the max rate that they'll reach in this rate hiking cycle.

Now, Powell said on top of that, that the path to a soft landing is narrowing, meaning that the fact that they're raising rates is more and more likely to cause at least a decent economic slowdown and having flat to no growth is becoming less and less realistic. And they did say, of course, that they realize that the effect is lagging in terms of when they raise rates and the effect it will have on the economy. So I think for a lot of people that you know try to read between the lines i think my impression is that maybe they will do the hike a bit less aggressively in the coming months and

quarter still hike but a bit slower just to see the lagging effects and what effects it will have on the economy but that doesn't mean that they will stop hiking. And that could very well continue for quite some time because if they don't see the desired effects, which is bringing inflation back down to 2%, he did mention that that's their main goal. So I don't foresee them stopping until they reach that. What a difference a year makes. Oh, yeah. To steal a quote from you earlier in today's episode. What a difference a year can make. I mean, the cost of capital is entirely different. What's the GAC you can get now

with our friends at EQ Bank? I think for a year it's 5.1. 5% on a one-year GIC. Yeah, 5.1. And so, they're not telling us to say that, although they sponsor the show. This is just us commenting on, my goodness, how different the cost of capital is and how different hurdle rates have become. And so, I'm not surprised. And if it's your first time investing in a rapidly rising rate environment, this is what it's like. This is my first time seeing this kind of movement on rates

as an investor. We've had such an era of lowering rates, lowering rates to basically zero rates in 2020. And you've seen now so much stuff go wash and you seeing like the tech bubble type busts in terms of valuations just not valuations but just share prices get absolutely decimated even if they were real businesses and we just seen like bubbly type stuff like FTX just like panic sold to finance today did you see that yeah well there's an offer I was gonna say I think we'll probably keep that for next week because I saw that today too. Like the details are still emerging.

But yeah, there's some big news happening there. I think probably by next week, the time we record the next earnings episode, we'll probably have a better idea of what's actually happening. But the news is Binance offered to buy FTX non-US operations because of a liquidity crunch, which is very surprising. But at the same time, when you have a market that's not super regulated and you're dealing with non-public companies, you don't really know exactly what's going on right on their balance sheets.

So anyways, I will definitely touch on it next week once we have more information. Sounds good. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense. And with them, you can buy all North American ETFs, not just a few select ones, all commission-free, so that you can choose the ETFs that you want. And they charge no annual RRSP or TFSA account fees. They have an award-winning customer service team with real

people that are ready to help if you have questions along the way. As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I need done quickly. Switch for free today and keep more of your money. Visit questrade.com for details. That is questrade.com. So not so long ago, self-directed investors caught wind of the power of low-cost index investing. Once just a secret for the personal finance gurus is now common knowledge for Canadians, and we are better for it. When BMO ETFs reached out to work with the podcast, I honestly was not prepared for what I was about to see because the lineup of ETFs has everything I was looking for. Low fees, an incredibly robust suite, and truly something

for every investor. And here we are with this iconic Canadian brand in the asset management world, while folks online are regularly discussing and buying ETF tickers from asset managers in the US. Let's just look at ZEQT, for example, the BMO All Equity ETF. One single ETF, you get globally diversified equities. So easy way for Canadians to get global stock exposure with one ticker. Keeps it simple yet incredibly low cost and effective. Very impressed with what BMO has built in their ETF business. And if you are an index investor and haven't checked out their listings, I highly recommend it. I bet you'll be as pleasantly surprised as I was that BMO, the Canadian bank, is delivering these amazing ETF products. Please check out the link in the

description of today's episode for full disclaimers and more information. Now, one more piece of news here from you about the Canadian fall economic update. I don't know if I was living under a rock or if this had been hinted at by the Canadian government. I knew there was talks of this in the US, but I honestly, I don't know if this was discussed before. This came as a surprise to me, and I'm still trying to decompress how I think about this item here. Yeah. So for those, I'm sure everyone has heard of it. I mean, if you haven't, you probably should, because it does impact you if you're investing in publicly traded companies. So the federal government in their fall economic update,

they said they would include a 2% buyback tax that would be effective starting in 2024. The federal government is following the lead from the U.S. government here who announced a similar tax on corporation who buy back shares. The U.S. though will be 1% but it will be starting earlier in 2023. There had been some rumblings about like a week before the actual announcement came out but in all honesty I'm not surprised because once the U.S. announced it that was very easy for the Canadian government to say well point to the U.S. It's happening there. I do find it funny that they decided to do 2% when the U.S. is doing 1%. But, you know, my view on that is we'll see. I do understand they're trying to find more sources of revenues on one hand.

And on the other hand, they say they want to encourage corporations to reinvest in their businesses and their workers. We'll see if that actually happens. I think one of the byproducts you might see of that is you'll see corporations in Canada doing a lot of buybacks between now and the end of 2023 to try and avoid that tax, which may end up being, you know, it's kind of funny because if the prices are depressed, which they are, and maybe it'll continue into 2023, you may have a lot of businesses are like, you know what? This is great. We'll buy back without the tax right now. We think our stock is cheap. And then in 2024, you might see businesses opting

to pay a dividend instead of buying backs, or it might start in the US starting next year. Yeah, I'm still trying to figure out how I think about this because I understand both sides of the coin to play devil's advocate. It's capital allocators of these large public companies. Their perspective is probably don't mess with company capital allocation decisions. And I can understand that. I really can. I understand why you would want companies to, with the laws of capitalism, deploy capital more effectively than the government can. I think that we can probably all safely agree on that. But at the same time, the other side of this coin is buybacks are not helpful to employees as stakeholders. It doesn't really invest in

the business in terms of innovation, growing new product lines, providing more opportunities. It basically just affects the one stakeholder, which is existing shareholders. And so I understand why there maybe should be a mechanism for that question of do we be cannibals and buy our own stock or invest in the other stakeholders and potentially make – I get that. I totally understand it. And so we'll see how this all shakes out. I think 2% is pretty firm, especially if the US is doing 1%. Yeah, yeah. And obviously, the other option is still dividend too. And for the most part, if there's a dividend paid, the government does see, yeah, there's taxes there. Obviously, there are some exceptions if it's held in a TFSA, for example. But at the end of the day, it'll be interesting in terms of a couple of years down the line after it's been there for a few years just to see if it actually affected the capital allocation

decisions. Who knows? For now, I guess we'll have a preview with the US first. Yeah, exactly. All right, let's get into our first earnings of the day. Last week, we had Constellation Software and Topicus report. Constellation Software, for those who do not know, is ticker CSU only on the Toronto Stock Exchange. Topicus is TOI.V on the Venture Exchange. It is an operating group of Constellation Software that they spun off onto the venture, and they mostly operate in Europe. Now, I'll start with Constellation Software. Those who do not know, it is my largest individual holding by quite a significant amount. Revenue is up 33%. Net income rose 27% year over year. Free cash flow was pretty flat with 229 million for the quarter.

Organic growth was down 3%. But if you factor in for foreign exchange, it was actually positive 2% organic growth. So that's pretty in line with the number that they typically have. And anytime they can have organic growth in net net and constant currency, that's actually probably a pretty good outcome. So one quick thing, how often do you see just wide discrepancies in the figures reported with currencies these days? Throw that on as my number two and a half takeaway for the third quarter. It's the supply chain issues of 2021. Now it's currency headwinds in 2022. Yeah, yeah, yeah.

Just throw that at the beginning of the conference call with the operator, just like how we had to do with supply chains last year. Expenses increased 43%, which is not great to see, especially when it's growing faster than the top line. It's really around high staffing costs, especially from the companies that they're acquiring. They're bringing on more staffing, but also traveling costs increased by I think about 70%. And it's not a huge line item for them, but it is significant. This is probably a lot of pent up demand for them going out to meet the companies that they're acquiring and trying to source some more deals, maybe some pent up demand there. The maintenance and other recurring segment.

Talk about a Berkshire-like business. Constellation Software is the most boring website, no quarterly conference call, just like the most boring press release ever. It's like a page out of Buffett's book with Berkshire Hathaway's quarterly releases. And the reality is, right, it's like, there's not much to report on each quarter for this business. It's like same as always, and same as always at an accelerated pace. And that's what's been so impressive about this company. So that maintenance and other recurring segment is probably the most boring name ever, but it's the most important one because it encapsulates all the software subscriptions that they charge their customers. For context, this segment is almost 70% of the top line revenue. In this segment, organic growth was up 5%, which is nice

to see and delivered 31% top line revenue growth. I pasted a graph here from stratosphere.io on the constellation page. That graph looks like a nice software graph. That's the bread and butter of this business. All right. Now, in the quarter, including Topicus, they acquired 34 businesses in the quarter, which is a record number of transactions. They are acquiring a new software company in exactly 52% of business days. So one of every two business day, they're completing an acquisition. They've deployed a staggering 1.7 billion in the last 12 months on small to medium size and one outlier large transaction. Now let's go on to topic as quickly. Top line grew at 29% and expenses grew 33%,

again driven by staff and travel increased costs. Organic revenue growth was up 3% and more the same, which is an accelerated ability to scale up this acquisition machine in this very decentralized model of operating groups, buying as many niche vertical market software companies as they can at a good price and make sense to tack on and bolt on to their business. So Mark Leonard, keep doing what you're doing. You wizard who has two photos of him on the internet, keep doing what you're doing, Mark. And potential shareholders are getting an opportunity to buy it because I think it trades for less than $1,900 Canadian today. Yeah, just under. And I draw a very important technical analysis chart. And every time it dips below that

line, my complex AI algorithm says, buy it. No, I'm just kidding. This company is just doing what it needs to do. And I'm a happy shareholder. Yeah. I mean, I'll have a look at that technical analysis and I might start a position. Yeah. Brilliant technical analysis, cup and handle, head and shoulders patterns. Buddy, I got all the tricks of the trade. No, no. And I mean, obviously, you know, this company. Well, I hope so, because, you know, it's your largest position, but we'll move on to another software company. This one is Canadian. I know we have a lot of people do own it. So and I've had some questions recently about it. Lightspeed released their Q2 2022 earnings. If you check the stock of Lightspeed when they released their earnings last week, you

probably know it was kind of not the greatest earnings release. I'll go over it and I'll give my take after that. So revenues were up 38% to $184 million, which is obviously good. Subscription revenues up 25% to $184 million, which is obviously good. Subscription revenues up 25% to $75 million. Transaction-based revenue up 56% to $101 million. This is interesting because they had said, and I haven't listened to their calls, but they had said, I think a few months ago or earlier this year, that their main goal was to get the subscription revenues up that's really what they were focusing on not the transaction based revenue so it's interesting that

transactions actually growing faster gross margins were down 400 basis points to 44 percent operating expenses went up 20 percent net loss was 80 million versus a net loss of $60 million last year. And then for the first six months of this year, they've lost $63.5 million in free cash flow, which is more than double that of last year. So the guidance was also something that the markets did not like. They reduced their guidance if we take the mid-range here by 2%. Lightspeed cited macroeconomic uncertainty and currency headwinds as a reason for lowering its guidance. They said that because they're very tied to the retail market that they think a lower volume from their clients will negatively impact them, especially in the holiday quarter coming up. Now, Lightspeed stands at $2.2 billion in market cap. That's US dollars. I like to use US dollars here because they released their

figures. All the figures I talked about are in USD. Apparently, I mentioned this at the beginning of the year when we did our bold predictions that it could be an acquisition target. I completely forgot about it. And it'll be funny when as we usually do. Yeah, it'll be funny when we've reviewed them. But at 2.2, I mean, I can just see a bigger player because they have some really good solutions to, you know, give a really generous premium and integrate Lightspeed into their system. So it'll be interesting what happens. They do have a decent amount of cash on the balance sheet. I think it's close to 700 million, maybe a bit more than that,

just going on memory here. So they're trading at about three times just their net cap position, which is fairly cheap. But as we've seen here, they're on pace to burn about 130 million in free cash flow this year alone. So yes, there's a good amount of cash. Yes, it's trading cheaply, but we have to see them getting closer to profitability. And right now, they're actually doing the opposite. So many of these names, right? It's like you keep growing the top line at a very impressive rate and the bucket is so leaky. It's so unbelievably leaky and losses just increase more and more. And it's astounding to me that this has happened.

I think that there's a giant regime shift happening right now that people are realizing you can't keep doing this. We've been sold a lie by YC and Silicon Valley that you can keep doing this forever. You can't. I agree with you that 2.2 billion in market cap, it could certainly become an acquisition target. I mean, I think investors have lost a little bit of faith in their capital allocation strategy, buying a bunch of point of sale players basically at the peak, at stupid multiples that really didn't make sense. And you and I have been fans of Dak Da Silva and what they have done. And I think their product is stellar. I really do. I think their product is awesome. From a business perspective,

you and I have been so hesitant because it's so competitive. Point of sale seems fairly commoditized to me, even if the product is good. And there's lots of point of sale players. And it's ripe for consolidation in my eye. And the multiples have come screeching to a halt, probably for good reason. Yeah. And some of them with much deeper pockets than a Lightspeed, right? If you're thinking about a Square or even you can, you know, Shopify, you know, has some solutions as well. So, you know, just things to keep in mind. I do hope

they become profitable, but at this point, I think it's time for them to show that they can trend towards that. Speaking of Square and them, or sorry, Block, not to be confused. Block and their acquisition strategy. Dude, how about the founders who sold after pay? They went, bye-bye. Probably the best time they could have. I mean, I guess they got a bunch of block stock. I'm not sure. I forget how that deal worked. Yeah, it was mostly, I think it was, I'm just going on memory. I think it was half and half or something like that. Half and half. I could be wrong, but I know there was a big stock kind of component to it. Because Affirm, their biggest competitor has been absolutely smoked from like their share price.

competitor has been absolutely smoked from like their share price. Oh boy. All right, let's move on to Magna International, the Canadian-based auto parts manufacturer that I actually used to intern for most of my engineering internships. I had a great time there. I actually always have a lot of respect for this company and especially the founding story from Frank Stronach. respect for this company and especially the founding story from Frank Stronach. Just one of the best Canadian entrepreneurial stories. I love it. All right. So let's talk about their quarter because they saw sales increase a nice 17% to 9.3 billion and saw global light vehicle production increased 24% for them. So those seem like some pretty staggering numbers for a slow grower dividend growth play like Magna. But unlike a lot of the tech companies that had a lot of pulled forward growth, this was kind of the opposite. Because remember how you couldn't get the stuff, the chips,

the materials during the third quarter of 2021. So again, what a difference a year makes as well for this one. So excluding the impact of currency, you see a huge discrepancy of revenue up 27%. That's the reality of these companies doing business all over the world. The impact of currency has been gigantic. Now, I don't have a whole lot more to add here from their results, a whole lot more to add here from their results. But what I did want to highlight here is four quotes from their quarterly report that I thought was particularly interesting, more so than even just what Magna is experiencing, but just on a global perspective. Quote number one, the increase largely reflects the significant industry production disruptions during the third quarter of 2021 caused by global semiconductor chip shortages. So what I had just mentioned,

you know, is like you get in a cab and, you know, how about those chip shortages, right? Like everyone was talking about it. Quote number two, these industry production disruptions continued in the third quarter, but to a lesser extent. So saying, it's getting better, but we're still dealing with it. Number three, we continue to experience higher commodity, freight, energy costs, and wages in most markets that we operate with such pressures expected to persist into 2023. I was told it was transitory. What do you mean persist into 2023? Powell told me it was transitory back in the day. What's going on? Additionally, we may continue to experience price increases or surcharges from sub-suppliers in connection with the inflationary

pressures they face. So again, the auto part manufacturing business, it's like there are suppliers that feed the tier three, tier two, tier one, right to the OEM suppliers. It's very complicated supply chain. Last quote number four here, the inability to offset inflationary price increases through continuous improvement actions. Price increases to our customers or modifications to our own products or otherwise could have an adverse effect on our earnings. So they're saying, hey, look, we're really good at cutting costs and I can actually vouch for them on that.

Like these people know how to make our auto parts. Seriously, very, very well oiled machine in these places. All of the things we can do to make our auto parts. Seriously, very, very well-oiled machine in these places. All of the things we can do to cut our costs, yeah, that's cool and all, but we're not safe from extremely high material, freight, energy, and people costs. This is just the market that we're facing. Here's a global manufacturer out of Canada, headquartered in Aurora, Ontario. These four quotes describe everything you need to know about manufacturing globally today, in my opinion. This is the kind of stuff that they're facing. But net-net, they also have the benefit of not having to deal with zero ability to get semiconductors.

No, exactly. I was just looking up some data here. For people to get semiconductors. No, exactly. And I was just looking up some data here. So for people to get some context, so the global container freight rate index, so basically just the cost for shipping a container by sea is actually dropped by about 60, 65% since the peak of last year, but it's still more than twice of what it was when the pandemic basically started. So just to give some context here. So it is coming back down, but it's still relatively elevated if we're thinking about pre-pandemic. Yeah. No, well put. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using

Questrade as our online broker for so many years now. Questrade is Canada's number one rated online broker by MoneySense, and with them, you can buy all North American ETFs, not just a few select ones, all commission free so that you can choose the ETFs that you want. And they charge no annual RRSP or TFSA account fees. They have an award-winning customer service team with real people that are ready to help if you have questions along the way. As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I need done quickly.

Switch for free today and keep more of your money. Visit questrade.com for details. That is questrade.com. So not so long ago, self-directed investors caught wind of the power of low-cost index investing. Once just a secret for the personal finance gurus is now common knowledge for Canadians, Once just a secret for the personal finance gurus is now common knowledge for Canadians. And we are better for it. When BMO ETFs reached out to work with the podcast, I honestly was not prepared for what I was about to see. Because the lineup of ETFs has everything I was looking for. Low fees, an incredibly robust suite, and truly something for every investor. And here we are with this iconic Canadian brand in the asset management world,

while folks online are regularly discussing and buying ETF tickers from asset managers in the US. Let's just look at ZEQT, for example, the BMO All Equity ETF. One single ETF, you get globally diversified equities. So easy way for Canadians to get global stock exposure with one ticker. Keeps it simple yet incredibly low cost and effective. Very impressed with what BMO has built in their ETF business. And if you are an index investor and haven't checked out their listings, I highly recommend it. I bet you'll be as pleasantly surprised as I was that BMO, the Canadian bank is delivering these amazing ETF products. Please check out the link in the description of today's episode for full disclaimers and more information.

All right, let's move on to, wow, so many. We are really true to our name here with all the Canadian earnings. Yeah, a lot of Canadian earnings. Yeah. And I think we'll probably have a few more next earnings episode as well. So the next one, Brookfield Infrastructure Partners, I chose that one. Renewable Partners also reported, but I didn't want to do both. Now here I'll talk about funds from operations. So for those who are new to the show or not familiar with this, funds from operation is typically used for asset intensive businesses where they have real assets that are being depreciated and amortized. But it doesn't have actually an impact on the cash flow generated. So it's a metric that you'll see a lot for REITs, real estate investment trusts. So I'll be referring to this for Brookfield Infrastructure Partners as well.

So FFO increased 24% to 525 million. It was supported by strong organic growth of 10% and of course acquisitions, true to their name. FFO of the utility segment was up 8% to 196 million. The business benefited from inflation indexation and the commissioning of approximately $500 million in capital projects. FFO for transport segment was up 12% to $203 million. FFO for the midstream operation was up 65% to $172 million. But before you get too excited about this,

I mean, this was largely due because of the inter-pipeline acquisition that was done last year and closed in late October. So you're comparing essentially this segment to pre-acquisition. So of course, it's gonna look really good. And the FFO for their data business was up 3.5% to $60 million.

Now, Brookfield also announced several initiatives during the quarter, including a partnership with Intel to invest in a $30 billion semiconductor foundry in Arizona. A foundry essentially just actually produces the chips. We've talked about them before. One of the premier foundries in the world is, well, the premier foundries in the world are owned by Taiwan Semiconductors in Taiwan. We talked about that a bit recently, but Brookfield will be providing $15.15 billion for a 49% interest in the facility. The funding was secured primarily from non-recourse debt,

which Brookfield loves doing. Non-recourse debt, which Brookfield loves doing. Non-recourse debt is essentially debt tied to assets. So it's not tied to the business itself. It's tied to assets like property, for example. I am so glad I am an investor in the Brookfield family because I read this stuff and I'm like, my goodness, these people are so much smarter than me. read this stuff. And I'm like, my goodness, these people are so much smarter than me. Like from so many perspectives, especially just some of the really complicated structures that they put together, especially in terms of financing. I'm like, how do you even think

of this? It's like create, it's creative is what it is. And you mentioned here, don't get too excited on this growth FFO for midstream up 65%. To me, I'm like, that's the exciting part. They ripped inner pipeline off the public markets for the price of a bag of pox. This is why people like Bruce Flatt and Brookfield and team is because they're willing to go in places that people find really ugly if it's private or public. And inner pipeline and oil and gas names, when they rip this from public market investors' hands, was a very unloved sector. Yeah, yeah. Now it's like a love sector again. They are very opportunistic. What they're doing here with the

need for us to make fab foundry capacity here in North America, again, opportunistic. This is what makes the company exciting. Yeah, exactly. I mean, the reason why I said don't get too excited, just so people didn't think it was just organic growth. That's the reason. But I totally- They tripled FFO. Yeah, I totally agree with you. They're great at buying assets that are not loved by the markets. I mean, one of the most famous ones is when they bought Terraform Power with Brookfield Renewable Power. I mean, I believe, if I remember correctly, they were in bankruptcy hearings and Brookfield just bought the asset, invested in them, made them more efficient. And now it's a big, big part of what they own for Brookfield Renewable Partners.

So there's a lot to like here. And it's interesting that they have 49% with Intel, which I think is probably smart. They're probably thinking, you know what, we will provide you with control here because you know how these operate. We don't. We still want half of the business, but we'll give you that 1% to have control because we trust that you know what you're doing because you're the experts here. Yeah. I know so many people have wanted to get long Intel, even though it's been such a dog of a name, just because they're having this realization that you and I have had over the past like couple months, which is, oh, we need foundry capacity here and we need it quickly. It seems too risky. This is a way to play it, hiding in plain sight.

Yeah. Right here. You know what? Because I've been digging so much in semiconductors recently, maybe in the new year Intel, we can have a look at it I so far I kind of have mixed feelings about Intel as a play and I'm learning a lot about it and I'll be able to explain to people why you know there's some pros and cons here it's not as obvious as it may look yeah yeah it's it's not black and white and it's been a dog I don't know about recently, but- Oh, it's yielding like 5%, I think. Yeah, it's not. Yeah, over 5%. If you've made no money on the stock, if you've held it since 2002, even earlier actually. I mean, this is market time, but if you've owned it since April of

2001 or mid-03, you've made no money the whole time, which is quite fascinating. All right, let's give a quick update on the Roger Shaw deal. This is timely because this week, they have the public hearing. It just started. I think the first day was yesterday. And Canada's competition watchdog says it still intends to block Rogers Communications' $26 billion proposed deal of Shaw Communications in the I'm off to sleep following the competition watchdog on one of the telcos here. But the public hearing started and they've basically reiterated that them selling Freedom Mobile and not including it at part of the deal is like, hey guys, you're not fooling me. This hasn't eliminated our concerns around the area of this could lead to worse services in higher prices for consumers, end quote.

Look, this is an area where Canadians are very sensitive. They're very sensitive to this oligopoly of telcos and the public eye, the competition or lack of it and price for wireless in this country has been a talking point for a long time. And so it's not one that's just going to fly under the radar. And it certainly hasn't. And what a year for Rogers Communications, man. Wow. It's been a fun one for them. Imagine if their presentation during their hearing is, look at our nice PR videos that we've done following the outage. You can trust us. Yeah. They just like, madam, I have something to share. I'm going to share my screen, okay? And they like show one of the commercials that they show during the hockey games, which is like,

that they show during the hockey games, which is like, we are committed to reliable network, like the PR stunt for having the huge blunder they had about, you know, not, the Rogers was down for what? Like a full 24 hours or something like that. Yeah. And then the PR cover up thing, dude, those videos are so cringy. It's incredible.

But yeah, I'm imagining that this hearing is just as cringy as those commercials. No, exactly. So now we'll move on to another Canadian name. Surprise, surprise. Canada Goose. They released their earnings. I mean, it was okay, but they definitely went back and cut back guidance, which affected, obviously, the share price.

Now, their sales were up 90 percent to 277 million direct to consumer sales they were up 15.6 percent all sell up 21.2 percent north american sales were strong with canada and the u.s being up respectively 25 and 20 percent asia pacific was the only area that had a decline and that is also one of the reason why they reduced their guidance they essentially said that covid disruptions in mainland china and uncertain macroeconomic outlooks led them to cut their full year guidance so they cut it at the mid range 7.4%. However, even factoring that in, they would still have a 13.5% increase in sales for the full year if we take that mid range of their guidance. You know, overall, I think it was good. Their gross margins were up

180 basis points. Operating margins dropped 370 basis point to 1.7%. Obviously not great, but it's also not their best quarter. The upcoming quarter is where they make most of their sales. And net income also dropped 66% to 3.3 million. So not huge figures here. Like I said, it's not their busiest period. But again, we're seeing what's happening in mainland China. Just having effects on companies that are doing business there, especially with the COVID disruption. And I know it's a theme

that you'll be talking about with your next company as well. Yeah, this quarter, I mean, it's the summer, right? So it's a seasonal business. Now, what I did find impressive was that direct consumer off pretty hard comp still being being up mid-double digits at 15.6%. That seems really solid. The real concern here is the Asia-Pacific market. And that's definitely a concern and a concern with my next company here that I'm going to talk about as well. But before I do that, this is a name here that trades basically at its TSX IPO price. And you've been banging the drum on just the execution really just being there quite considerably. I mean, I'm not surprised that it hasn't done exceptionally well in the market because what

has, right? What has done well during this latest stretch? But I mean, the fundamentals look solid. It's really around like, when does the Asia Pacific market start to look better again? And you and I, or maybe no one has the answer to that, right? Yeah. If you guys know, let us know. Yeah. Slide in those DMs if you know what's happening. All right. Let's talk about Starbucks, Seattle's own Starbucks. I was looking at it the other day and I don't look at Starbucks that often, but I didn't realize that this is still a well over a hundred billion in market cap company.

Like I just don't, I just didn't picture it that, you know, because it's down almost like 25% from the peak. I didn't realize how freaking big this company is, other than you see one on every street corner. Now, as for their results, this was their fiscal 22. So they reported their fourth quarter. And since we're a long-term investor here, we're going to focus on their full year results. quarter and since we're a long-term investor here, we're going to focus on the full year results. Same store sales grew 8%, really nice. Same store sales 8%. So basically, flexing pricing power on all inflationary costs pretty much. 5% increase on average ticket size. The Christmas cups are out. I saw them this weekend. So on Sunday morning, I got convinced to head to good old Woodbine Beach in Toronto and go for a polar dip. I stayed in there for almost five minutes as part

of this like ice bath challenge with all these lunatics like me. And you know what? It felt great. I would do it again. I can see the value of the ice baths, it's good for your body, whatever. But it was good for my mental and I came off the beach and I was like, dude, the Christmas cups are everywhere. Just being out in the city, these Christmas cups are everywhere. So, I can't wait to have one of those sugar-filled peppermint mocha soon. That's going to be exciting. Are you into the sugar-filled crack drinks? Not really. I usually get half sweet, so I kind of go easy on the sugar. But I've done some, I've been swimming. Well, usually I've done like Nordic spas and stuff like that. You don't stay as long. The old Scandinavian spa.

Scandinavian spa. You know, you also have to be careful as guys for shrinkage. But aside from that. Especially in Lake Ontario in November. Oh, man. Shrinkage is out of control. Yeah. So that's great. Revenues were up 11% to a record $32.3 billion for the year for Starbucks in their full year. Now, can you believe this, bro? The company opened

763 net new stores in the fourth quarter. What? This is eight stores per day. I don't even know how this is possible. I had to triple check on their statement because again, I don't look at Starbucks that often. I had to triple check that I wasn't reading full year because I'm like 763 for the full year seems insane, let alone for the quarter. They have gone from owned stores in the past 10 years from 9.4 thousand to 18.2 thousand. So a clean double there. Clean double on licensed stores, franchise model at 8.6 thousand to 17 and a half thousand. So they have well over 30,000 locations globally. And look, it's a real blue chipper that continues to get it done, brand loyalty. They flex their pricing power in those types of businesses that you and I love. But my goodness, the real weak spot here is China.

Same store sales for their 6,000 stores in China fell 24%. And this is largely driven to the zero COVID policy that they have in the country and how the population continues to be largely locked down in many parts in large populated areas. How miserable is that? I feel terrible for the people who live there. But at the end of the day, if you're not out of your house up and moving around, you're not participating in fast food and buying coffee and walking across a Starbucks and seeing the Christmas drink and thinking, I need to inject this sugar into my veins right now. So this is a situation where you and I have been talking a lot about the China

factor recently over the past month. And here's a perfect example of it materially affecting their results. Luckily, the business is doing so well ex-China that they're able to make up for it yeah no i mean the china factor right we're seeing it and you know it's kind of i agree with you it's pretty crazy and i saw that disney and china their theme park day i don't know how many they have i know they at least have one they had you know people in the park and then the park got closed and essentially shut down because of COVID outbreak. Like midday? Midday during the day. So people were not allowed to come in and the ones already there were essentially had to get a test, test negative before they could actually leave the park, which is, you know.

You're kidding. No, it's crazy. Like they couldn't leave until they tested negative. That's pretty crazy. Yeah. I mean. How many people at Disneylandneyland at any given time i don't know that is mental yeah it would have taken forever yeah so no i mean it's just kind of crazy it's not obviously we're not seeing that here and i think with all that we know about covid at this point to think you can have you know zero covid is just mind-boggling but you know we've talked about it before is xi jinping that was you know i think it worked well at the beginning and china was the

example of containing covid and now that we're seeing that it's not really possible i think it's more pride than anything that they're continuing with that rather than admitting they were wrong. Yeah. My goodness. That is mental. Yeah. I don't even know what to say about that. Before we get out to your last two names here on the podcast for earnings here, I just want to say November 29th, okay? Mark it down in your calendars because Stratososphere.io, the pro plan is moving to $300 a month because we are serving professional investors. And that's basically the minimum for

them to even respect it in terms of pricing. And we're recording here on November 8th. So you have exactly three weeks to get on any paid plan, even the personal plan on strategy.io to lock in and be grandfathered into that $300 a month pricing, $300 USD a month pricing, and then take an additional 15% off with code TCI. It's a pretty good deal. Obviously, it's my company, Simone, you're an investor in it now as well. So this is an important next step for us being legitimate in the professional research space is this kind of pivot that we're doing. But you can be on this professional terminal. On the 29th, the terminal is going to be amazing. You're going to love it. But you can get on any paid, like get on the personal plan. You'll be

grandfathered in on the pro plan, which is going to cost 300 USD a month. I just want to get that out there because you're going to hit me up in December and be like, hey, bro, can I get the pricing from before? And I'm going to be like, man, I don't think I can do that. So you're going to want to do that now before November 29th. Now we'll move on to the last two names here. The first one, Nutrien. So we've talked about them before. They had some pretty impressive numbers. Sales increased 36% to over $8 billion for the quarter. And we also saw gross margins are actually increasing, which is normal.

The price is much higher compared to last year. Their net earnings per share increased 135% to 294. And then their free cash flow increased 79% to 1.5 billion for the quarter. And- Jesus. Yeah, they're really pumping cash. Goshing cash. Definitely. And one of the things, if some of people have been following the name or you own it, you'll notice that the stock took a bit of a hit. That's because they revised their guidance

down once again. They had revised it down the previous quarter compared to what they had said at the beginning of the year. And I personally really like this business, even though it's a commodity play. But I think it's a reminder to take management with a grain of salt when they do guidance for a commodity based business, because I'm sure, you know, they did the best projections they could, they were trying to be as transparent that they could. But the reality is, is you really don't know what the price will be. So if you're ever investing in these type of companies, whether it's, you know, nutrient or even oil and gas plays, you can be a specialist in these type of commodities.

And you'll probably still have a hard time getting the price right over a one or two year period. One and a half billion. That's for the quarter, right? It is for the quarter. Yeah. That's for a three month period. half billion. That's for the quarter, right? That is for the quarter. Yeah. That's for a three-month period. My goodness. That's incredible. Wow. No, you know what? There are so many great commodity businesses in this country. There are. Don't hear what I'm not saying because I am pretty hard set on not owning commodity names for the long term.

That's just the way I invest. I like investing in price makers and commodity businesses are price takers for the reason that you just mentioned. Even the management team can't reliably predict what the price of the commodity may be even just three months into the future. And so I think that's a good point that you called that out. But again, some of them are so well run and there's multiple ways to be successful as an investor. For me personally, having set rules to avoid making mistakes and things that I understand well is the way that I succeed, but there's a million ways to succeed here. And this is just a really, really well-run business. Yeah. And there's just not many producers in the world too, right? So

that's why I think it's such- Of potash. Yeah. Potash and nitrogen to fertilizer in general. So I think that's why it's such an interesting play. And now we'll move on to the last name here, another Canadian play, another one that's dual listed, Noive. So Noive is a payment processing company. So they had a total volume increase of 30% to $28 billion. E-commerce represented 87% of total volume. Revenues increased 75% to $197 million. Obviously, total payment volume, that's just a volume. The revenues

are just a fraction of that. That's why you see a difference for those who are not really familiar with these type of companies. Gross margins increased 100 basis point. SG&A expenses increased 40%, which is quite high. Operating margins went from 21.4% 4.8 which is a big big hit it's pretty obvious but it is a massive hit here and net income decreased 54 to 13 million they generated a total of 184 million of free cash flow for the first nine months of the year which is only down seven percent year over year so that's pretty impressive the last thing here i was looking at their share count it stayed pretty flat year over year just a small change nothing much which is pretty impressive for a tech company and they

also reaffirmed their outlook for the rest of the year but they did say that there would be certain headwinds that they would face like currency headwinds, surprise, surprise, and macroeconomic headwinds. So we'll have to see how they do. But compared to Lightspeed, I know they're kind of not serving the same type of markets here, but it's nice to see a company that's not spending a lot of cash. Well, they both are spending a lot of cash, but not burning cash. Wait, real free cash flow generation? Yeah. That's a fairy tale,

cow jumped over the moon type stuff. No, good for them. You know, this was a, what, 2019 IPO? Maybe later. Oh, I can't remember. But a newer name. Yeah, a couple of years it's been. Yeah, it's one of the newer names.

Yeah, and they really have found a lot of their traction in the niche of online gaming gambling so they're the payment processor for names like draft kings and fan duel and mgm bet which is a booming business online gambling is a booming business globally it's a great way to lose cash as an investor, but it's a booming business nonetheless. Yeah. Why gamble on the NFL games when you can just gamble on DraftKings stock and lose all of your money? Was that a SPAC? I believe so. Yeah. It's not been doing well. That looks like this mountain up and then straight down would look real good, right in the middle of British Columbia and Alberta. It'd fit right in there in the Rockies.

No, yeah, okay. This is a good episode. Lots of Canadian names. As you know, for folks who listen to the pod, we do a nice healthy balance between Canadian names were relevant, even though there's just not that many interesting ones and US stocks as well. Because let's face it, you can't be in this country in Canada investing in just Canadian stocks. We have talked about that so much that home bias is a mistake.

But there are lots of interesting stories and lots of interesting businesses coming out of here and headquartered here like Constellation Software, my largest holding. Look at me, such a hypocrite. I'm like, don't be too concentrated in Canadian stocks and then owns like a whopping 40% of my portfolio in the Constellation and Topicus empire. But for context, the sales numbers is minuscule in Canada compared to a global scale. So that's important little caveat. Anything else, Simon? No. I feel like this is a good roundup. Yeah. No, it was a good roundup. And are the US midterms today? Is that one that has been? Yeah. Yeah.

Okay. I think so, right? Yeah. So that'll be interesting. I'm just fascinated by the US elections. So it'll be fascinating, especially as an investor, depending on if the balance of power turns over to the Republicans, what kind of agenda they'll try to push that could impact the stock market. So that'll be interesting to keep an eye on. Yeah. Yep, certainly interesting to keep an eye on. to keep an eye on. Yeah.

Yep. Certainly interesting to keep an eye on. Look, the reality is no matter what the political landscape looks like, the stock market's been a good place for capital long-term, hence the long-term nature. So it's important to tune out a lot of the news and focus on what's really important, but you have to expect the unexpected over the next two years, I'd say. We're in a very interesting place here with the Fed basically saying, we're going to keep going if we have to with raising interest rates, tougher economy, lower consumer confidence, potential. Dude, I don't know if you've thought about this. This is what I think about in the shower. I'm supposed to be shampooing my hair. And I'm thinking about there could realistically be a tactical nuke from one of the aggressors in the next 12 to 24 months. And what would the markets do

if that happened? It would be chaos. And multiple people who are in high level said a small tactical nuke deployment is totally possible anytime. And so I'm like, wow, that seems like kind of crazy. How would the markets react to that? And so I've left this with, be aware that deployed capital, it can be bumpy, but just keep dollar cost averaging is the silver lining. Yeah. Braden doesn't care what the US election will do in terms of investing in things about tactical nukes. I'm thinking about potential tactical nukes. I'll just say this, whatever happens with the US election, I will go and say in the next two years, there's going to be some very favorable legislation when it comes to semiconductors that will be brought forward. Regardless of what happens, that is one space

that they can agree on. That is one space that they can agree on. Yeah, I think that that's a fair point. All right, let's leave it there. Let's not scare people with my shower thoughts. My shower thoughts. Hey, dude, this is a real possibility, man. And people got to be aware of that. Okay, thank you so much for listening. If you haven't given the show a rating, we really appreciate that you go ahead and do that. Share the podcast with just a few friends. If you think this podcast has been providing a lot of value for you, you like listening to the lads ramble on, share it with a friend. Other people might like it. I just went, I was just downtown Toronto doing a presentation on the podcast and like, you know, all the things that we've learned along the way. And there was like a huge audience of people who I would think that would love our

podcast. And like only one of like 300 people like raised their hand and did the podcast. I was like, we got some work to do. We got some work to do, man. So share this with the friends and we will appreciate that. We will see you in a few days. Take care. Bye-bye. The Canadian Investor Podcast should not be taken as investment or financial advice. Brayden and Simone may own securities or assets mentioned on this podcast. Brayden and Simone may own securities or assets mentioned on this podcast. Always make sure to do your own research and due diligence before making investment or financial decisions.