The Canadian Investor - Canada Goose Slashes Guidance and Brookfield Short Report

Episode Date: November 9, 2023

In this episode, we start by talking about Sam Bankman-Fried being found guilty, WeWork filing for bankruptcy, Brookfield Infrastructure Partners Short Report, Canada Goose earnings and TMX Group earnings. Symbols of stocks discussed: BIPC.TO, GOOS.TO, X.TO 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 Dan’s Twitter: @stocktrades_ca 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 Braden Dennis and Simon Belanger. Welcome back to the Canadian Investor Podcast. I'm here with Dan Kant once more to do the earnings and news. Before we get started, how's it going, Dan? I know you've been going down the rabbit hole of a certain short report that we'll be discussing a bit later in

the podcast. Yeah, I mean, it takes quite a bit more time than what I've spent on it, but I kind of got the gist of it. And it's actually a really interesting theory about the company that it's going to be a good discussion for sure, because I think there's a lot of things that people don't quite understand when it comes to that report. Yeah, and we're talking about Brookfield Infrastructure Partners here. So there was a short report that came out a couple of weeks ago. It wasn't very much, there wasn't

much publicity around it. I kind of heard through it, someone mentioned it to me on Twitter, but it'll be an interesting discussion. But aside from that, Dan, how are things going in Calgary? I heard that you're having trouble adjusting to the time change or what? Yeah. So I thought I was going to be late to the recording by an hour because we went back an hour and i don't i have no idea what provinces still do it what provinces don't so yeah i hate the time change i wish they would just turf it but i mean this one's better i didn't realize that i thought all the provinces did it but i guess not no i don't like i don't think saskatchewan does it okay i don't think so at least but they not everybody does it so it's yeah just get rid of it i think well yeah

we do it in ontario i mean and plus with a young baby we actually started a week in advance 10 minutes a day adjusting her sleep time and wake up time so she didn't freak out yeah when we actually did the time change so that worked pretty well but like i told you she's a bit sick right now so that's not so great but aside from that let's get started we have a lot of stuff to talk about first thing came in actually i think they filed officially yesterday so we work filed for bankruptcy so just a little overview on we work we haven't talked about them that much. There was a lot of news on them, especially in 2019 when they were on the verge of going public. So a little background, they raised over $10 billion in funding. In 2019, they had reached a private valuation of $47 billion.

WeWork was sold in terms of an investment as a disruptor, kind of a tech company too. And when it was really, in fact, just a real estate company and not a very good one at that. And they had announced that they would IPO, but ended up canceling it because there was a lack of investor demand. And there's also some big issue that came to light in the, sorry, is it the S1? I kind of blank right there when they filed for, it's the S1 filing, right? When a company goes public in the US? I think, didn't they go via a SPAC? They ended up going via SPAC, but that's after in 2021. And that's after they actually, you know, tried to do a regular IPO, if I remember correctly. Like S1 is a foreign company seeking to have their shares listed on American exchanges.

Okay. What am I thinking about then? Oh, yeah. S1. Generally before the IPO. Okay. But it said international. I was like, yeah.

Yeah. I wasn't sure. So I thought I was blanking there for a second. But essentially, when they filed the S1 back in 2019, it came out that they were just losing a lot of money. The management team led by co-founder Adam Neumann was clearly mismanaging the business. And there were actually some glaring conflicts of interest. One that came to lie during that time is that Neumann was actually leasing building that he was owning to WeWork so they can rent it out as a co-working space. So kind of double dipping on that, making money on both ends of this transaction, which is not a great look. And in 2019, Newman ended up leaving WeWork and got a severance package of more than $1 billion to leave

ended up leaving WeWork and got a severance package of more than $1 billion to leave backed by SoftBank. And it went public in 2021 under new leadership. And I think you're correct, right? It was a SPAC when they went public in 2020. Yeah, I think it was. Yeah. And then obviously, the last thing I'll add here is that the pandemic really hit them hard, like any other businesses, but it's not like they weren't good footing before the pandemic hit. And they had like massive lease obligations where they could not rent out the space as a co-working space to the same amount. So that's really what led to them filing the bankruptcy. Yeah, so I think just, I mean, I guess for people who don't know the business overall, like they pretty much were, they would go and they would lease office space and then they would put a ton of money into that office space, kind of redevelop it, make it more attractive and then

lease it out again. So I think they said SoftBank, something like $16 billion or something they put into the company. I'm not a hundred percent sure on those numbers, but they spent a lot of money. And yeah, I mean, it's just, it's not really a good business model. I mean, to throw that much money into like tenant improvements on the levels. And so eventually just the spaces weren't attractive enough to make more than they had pretty much in lease obligations. So they had $10 billion in lease obligations this year, and they won't even generate a third of that in revenue. So yeah, it was pretty nasty for the company. Now, I don't know if you have any comments on this, but I'm not 100% sure on how

the bankruptcy works, but I'm curious as to whether or not the leases could be restructured coming out of it. Maybe they can kind of turn this around and whether or not the leases could be restructured coming out of it. Maybe they can kind of turn this around and kind of get the leases less. And I don't know how that process works though fully. Yeah, that's what I've been reading and that's my understanding as well. So through bankruptcy court, essentially a potential buyer could just come in and say, okay, let's say you kind of break it down in three types of leases. Leases, the first one that they're properties that you want nothing to do because they're just not great. They'll never be rented to the level you want. You won't be able to get rent. So you can get rid of these

leases. There might be certain properties that may be worthwhile at the right price. And then there might be some prime properties, again, that may be worthwhile. And again, at the right price, but probably a bit higher price. But yeah, typically it will allow them to restructure the leases, obligations, obviously debt to that effect. So it may end up becoming a good business if it's properly structured and the leases actually make sense. And I think that's probably the lesson to be learned here is real estate can, you know, you can make a lot of money in real estate. And I guess until a couple of years ago,

a lot of people figured that, you know, you could leverage up and make tons of money with other people's money. And they're really learning the hard way that you have to also be smart when you run a real estate business, whichever kind of real estate business is, because if you're not, then this kind of stuff can happen. And I pulled a graphic here. It's pretty crazy. The amount of money they lost since, I believe it's September of 2020, in terms of each quarter, it's massive. If you just put it as free cash flow or net income, it's in the negative. They've never been profitable since then. I think they've only had one month, which was December of last

year, where they actually were profitable. But that's one month, not even a full quarter. Yeah, it's pretty crazy the amount of losses. I think like March 2021, they lost $2 billion, almost. It looks like $670 million in free cash flow loss. Like, it just seems like a really odd business, like the fact that, you know, they would lease these spaces and dump so much money into them and expect to make it back. But I mean, office space is so like, it's so in the tank right now. I mean, somebody could come in and, you know, go to these people leasing it to WeWork and be like, you know, we're going to pay you 40% of what, you know, the lease agreement is like, are you going to take it or leave it? And maybe some, maybe some

of them will actually take it, which could end up turning a lot of these things profitable in a way. I don't know. It'll be interesting. Yeah. It's all about the structure. So it'll be, like you said, it'll be interesting to see which way it goes, but I think this was definitely a long time coming. And it also shows because WeWork and Adam Neumann, who co-founded that, it actually started right after the great financial crisis. And the 2010s in terms of decades was essentially a low rate decade. So I think it just brings to light of, you know, these companies that were especially venture backed. It was all about growth, growth, growth, but not about profitability. And now we're seeing with higher rates and capital being harder to come by

that the discourse is actually shifting to profitability. And I know I haven't read some venture and listening to some venture capital people that that's the name of the game. Now you have to show that you're either profitable right now or you will be becoming profitable very soon. Yeah, because eventually, you know, when you're bleeding this much money, eventually the well is going to run dry and you're not going to get any more. And then you're faced with a situation where you, you pretty much go broke pretty quickly as, as we're seeing here. Unless you,

you know, you have soft bank banking you and just throw money blindly. But I mean, even they're going to run out of, and clearly after, I mean, again, I'm not a hundred percent sure on the number,

but I'm pretty sure it's like, it's like 16. I can't even remember. It was a lot of money. And I think even they eventually were like, no more, I guess. Yeah. Yeah. At some point you got to stop. 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. Here on the show, we talk about companies with strong two-sided networks make for the best products. I'm going to spend this coming February and March in an Airbnb in South Florida for a combination of work and vacation and realized, hey, my place could be a great Airbnb

while I'm away. Since it's just going to be sitting empty, it could make some extra income. But there are still so many people who don't even think about hosting on Airbnb or think it's a lot of work to get started. But now it is easier than ever with Airbnb's new co-host network. You can hire a local quality co-host to take care of your home and guests. It's a win-win since you make some extra money hosting on Airbnb, but can still focus on enjoying your time away. Find a co-host at Airbnb.ca forward slash host. That isbnb.ca forward slash host. That is airbnb.ca forward slash host.

We'll move on to something different here. So SBF, Sam Banken-Fried, the former CEO of FTX and former CEO of Alameda Research as well. So he was found guilty on all counts. So since the trial was close to cameras, I wasn't able to follow it like in a live like I would have liked to. But I definitely stayed on top of it. I was listening to some people, some journalists that were there. I know the Wall Street Journal had a good series where they did a regular recap of what happened during the day. So in short, there was a New York federal jury convicted that convicted him of all seven counts he faced. The verdict came exactly a year after the infamous Coindesk article on Alameda's balance

sheet, which came out. And that report had shown that Alameda Research, which was the hedge fund that was also owned by SBF, consisted in large part of FTT tokens, which were issued by FTX. So FTT tokens were essentially crypto that was created by FTX. It was kind of a form of equity that they would all offer their traders on there to allow them to save on fees and things like that. But at the end of the day, it was not liquid at all. And for a pretty big hedge fund to have that massively on their balance sheet and being intertwined with FTX in that way, there was a lot of issues that were raised. And a few days after that, CZ, which is the CEO of Binance, he tweeted that he would be selling all of the FTT tokens,

which started a run on the bank for FTX. And I say that in air quote, run on the bank, because it's an exchange. So there should never be a run on the bank, because you should have one for one the assets that your people have on that platform. It's no different from a self-directed platform. If I have shares of, let's just say if I have five shares of BIP, I expect and they should have the exchange those five shares of BIP in my name. They make money in other ways, charging fees or things like that. And the same would apply here for FTX. If I have one Bitcoin, you should have one Bitcoin backing it, not these FTT token.

So during that time and throughout November, SBF went on a PR tour with tons of interviews and tweets, which end up biting him in the rear and during the trial, because nine days later, well, I'll talk a bit about the trial a bit later, but nine days later, FTX and Alameda Research would end up filing for bankruptcy. And again, without doing a full recap of the trial, things were not going well for SBF.

Several people from his inner circle testified against him, including his ex on and off girlfriend, Caroline Ellison, ex on and off girlfriend Caroline Ellison, who was co-CEO of Alameda Research for about a year following a Sam or SBF stepping down. So SBF ended up taking the stand himself, which is typically advised against for defendants. So lawyers will typically advise their client not to do that in what really seemed like a long shot attempt to try and put doubt in the juror's view of the trial because it was not going well for SBF at that point. And from all accounts, Danielle Sassoon, the assistant U.S. attorney who was questioning Sam when he took the stand, completely destroyed him when she was doing so. She would ask him if he recalled something and then SBF would answer vaguely or say he didn't remember. And then she would show him a piece of evidence like a tweet or, you know, something that he put in writing showing that he indeed said or did what she was asking him after just saying he couldn't remember.

And then after just a few hours of deliberation, the jury came out with the verdict, which found him guilty. And that's pretty amazing that just a few hours it took them for those seven counts. And now we'll have to see what will be the sentence. It's scheduled to happen on March 28, 2024. And he could be facing up to 115 years in prison. So that's kind of a recap. Dan, any comments on that before we move on to the next thing here not really i mean i didn't follow this situation too too much i mean it's pretty it was

pretty much a house of cards really like just completely collapsed based on that one article that coindesk put out about like just how the assets were all this this token yeah yeah it was uh it was definitely i remember it was more of like a i don't even know what to call it like a like a soap opera i just remember seeing this on twitter like some twitter accounts i've seen gained like hundreds of thousands of followers just kind of keeping up on this whole situation because the crypto world was just so interested in it but no i didn't i didn't pay too much attention to it but even a light sentencing for him i think he's in he's in a bit of trouble yeah yeah well i mean it was like watching a train wreck because he was tweeting some things or doing interviews and saying you know everything's fine and then stuff

would come out just a couple weeks later kind of showing that we was blatantly lying when he was doing saying those tweet or you know doing those interviews and you know for me there's one thing that i will never understand and i hope he like every time he would say that is that run on the bank like it's not like you're an exchange you're supposed to be fully back a hundred percent you're not a bank you know fractional reserve is for banks not for exchanges so yes you can have a run on a bank we saw it earlier this year with svb and the other regional banks that happened to but those are fractionally reserved in exchange should not be i think that stops that's where it stops for me yeah yeah and i think it's just such a it's such a young industry to just the crypto world in general.

Like there's just not as much regulation as, you know, major banks. I mean, I seem to remember, didn't he, it was in their rumors that he was going to pay Donald Trump like $5 billion or something to not run for president again. I mean,

he did a lot of, I think that's going to be another trial, but he did. Yeah, there's another trial coming. And those are for like political donations. I don't think he was very partisan when it came to that. I think he donated to both sides of the aisle in the US. And one of the things that a lot of people in the crypto space really hate about him and even before it all imploded is he was advocating essentially for you know defy so decentralized finance to essentially all be outlawed so that centralized exchanges just like an ftx would essentially be the only regulatory or you know approved regulatory option for people and then when this came out, it was probably a long shot by him to try and, you know, buy

himself some time, have almost a monopoly, maybe with a handful of other companies. So he could build back whatever money or whatever customer funds he gambled with or try and hope for another crypto bull market. It kind of sounds what he was trying to do. Yeah, wait for a recovery, I guess, is pretty much just delay, delay, delay. Yeah, it's a crazy story. Yeah, exactly. And now speaking of exchanges, let's talk about a Canadian exchange that actually reported earnings.

I think it was a couple of weeks ago. I think it was last week at one point. Last week, okay. But that's TMX. So I think like TMX is, I don't think it's a very well-known company, but it's pretty much they run the TSX and the venture. So it's pretty much, it's an interesting barometer just on the overall activity of the market. So I kind of find its earnings interesting. I have a very small position in this one. It's very small, kind of just a starter position. But the company delivered a relatively

inline quarter, but it continues to mention challenges when it comes to market conditions. So the reason I view the company as a good barometer for the markets is, as mentioned, this company operates the venture, the TSX, and I'm pretty sure the CSE is too, but nobody really pays too much attention to the CSE much, especially now, but trading volumes, new IPOs, things like that. This is kind of the KPIs that the company is going to report on the quarter. And overall year over year trading volumes are down 20 percent and transactions are down 24 percent pretty much.

And the more notable portion was the TSX venture. So it saw total transactions dip by 33 percent. So there is a significant, you know, drawdown in I guess there is some larger larger companies on the venture, but mostly small micro cap, more speculative companies. And the venture reported a 28.4% drop in dollars raised, despite overall financings actually increasing. It was only by like 1% though. So financing are pretty much flat while dollars raised are down 28.4.

So what this should tell investors pretty much is that companies are having a crazy hard time raising capital in this environment relative to 2020, 2021, when we were seeing just absolutely crazy amount of IPOs and just ridiculous valuations. So you can probably expect many new companies to either bite the bullet and accept the fact that they're not going to be able to raise as much or just, you know, kind of delay, keep delaying IPO until, you know, the environment improves. Because there's no doubt it's really bad right now. Again, we have interest rates, the highest interest rates of what, like 20 some years. So, yeah, like it's you're probably going to see a lot of people um or a lot of companies kind of delay ipos uh i don't i don't even know what the most

notable one we would have seen here in canada in the last year oh that's a that's a good question i'm not sure yeah telus international maybe a few years ago yeah i'm not sure but i think it's a good point and just to remind people when rates rates are higher, I mean, for investors, you have to compare. And Berkshire just reported earnings last weekend. And that's one of the things, right? Their cash pile has grown a lot. But I mean, there's less of a pressure to invest that money when you can get 5% plus on US treasuries. when you can get 5% plus on US treasuries. And the same kind of thing happens here for the venture, especially where you have these companies that are more speculative generally. In the past, I've seen quite a few scams, to be honest, on the TSX venture, which I don't think is a bad thing that there may be a bit of a down action because it's probably weeding out some of those scams.

But that's what it is, right? When you can have a 5% plus guaranteed return with treasuries kind of raises the bar for more speculative investment. When there's a 0% interest rate or close to it, then people are willing to take more risks to try and keep that purchasing power. Yeah, definitely. I mean, it's not worth the risk of, you know, investing in these smaller companies. I mean, it's pretty clear that, I mean, I would imagine the US markets are fairly simple or similar in terms of money raised and all that kind of stuff. I would imagine maybe not as much just because the venture is a lot smaller and just the TSX in general as well. But yeah, it's seeing a pretty notable decline in just overall activity. I mean, even as somebody who owns an investment website, we're noticing a big kind of reduction in interest in the markets overall. And I think that's a result of rates as well. I mean, people's mortgages are going through the roof, there's less disposable income, you don't have as much to invest. And outside of that note,

I mean, in terms of TMX, which trades under the ticker X, it has a 10 year compound annual growth rate of 15%. So this company has it's outperformed the TSX by like double more than double and it's outperformed the S&P by about two and a half percent annualized so it's been like it's been a pretty successful company primarily I think because it has absolutely no competition outside of the NIO which is like a brand new exchange that came about yeah and the CBOE bought them right I think yeah pretty sure yeah it's just been like a few years now that they've come and they mostly get kind of niche products like they've got yeah all the cdrs i think trade on the neo exchange the canadian

depository receipts and evolve etfs they have a bunch of etfs on the neo but outside of that i don't really think it's a good i really don't think it's good competition in terms of like if you're somebody who's going to get you want to ip IPO, I don't think you're going there versus the TSX. And just in terms of overall volume, I just think there's very little competition for the company right now. But yeah, that's pretty much it. They're a pretty good indicator of sentiment in the markets just because they report volumes, market volumes, transaction volumes, things like that. Yeah, definitely. I mean, capital markets, right? I think that's a good, definitely a good indicator there. And typically I would say,

you know, there's the US and there's the rest of the world. I think that's how I see things, the IPO market is just massive in the US. But even then, I'll have to look at some data. The IPO market is just massive in the US. But even then, I'll have to look at some data. Usually, I think EY comes out with a report every year on the IPO market and how it's looking. So I think they usually come out either in Q4 or they do it every quarter or just early after the year end. So it'll be interesting to see what happened this year. But I think you're right. I mean, my perception as well is there just hasn't been a lot of ipos and the ones in the u.s that ipo that made the headline so you have an arm you have also a instacart i mean it almost felt like it was a forced ipo where they needed to get

some cash and arm i mean we talked about i think it was early on. So the backer of WeWork, I'm missing the fund, the Vision Fund, when we were talking about WeWork, the big investor there. In WeWork? Yeah. SoftBank. SoftBank, there you go. Sorry, I'm blanking on a few things. But SoftBank, I think they just wanted to get some cash out of Arm.

And that's a big reason and obviously their investment so the vision fund that was referring to hasn't performed all that well in recent years so you can see why they needed some more liquidity and i'm not quite sure the story behind instacart why they ipo'd but that's kind of the theme is where there's almost companies that are feeling like they have to ip IPO at some point and they might as well do it now because things might not get better in the future. I think that's how they see it or they need the capital. They need the infusion. I think so. Yeah, they just they need the capital now.

So they just settle for a lower valuation, I guess. I mean, even WeWork, I think at one time, they were like 585 bucks a share and now they're 84 cents. So like right after their IPO, like the valuations that were coming for companies outside, like during that rock bottom rate environment was pretty crazy. Yeah, no, I totally agree.

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. Here on the show, we talk about companies with strong two-sided networks make for the best products. I'm going to spend this coming February and March in an Airbnb in South Florida for a combination of work and vacation and realized, hey, my place could be a great Airbnb while I'm away. Since it's just going to be sitting empty, it could make some extra income. But there are still so many people who don't even think about hosting on Airbnb or think it's a lot of work to get started. But now it is easier than ever with Airbnb's new co-host network. You can hire a local quality co-host to take care of your home and guests.

It's a win-win since you make some extra money hosting on Airbnb, but can still focus on enjoying your time away. Find a co-host at airbnb.ca forward slash host. That is airbnb.ca forward slash host. That is Airbnb.ca forward slash host. We'll move on to what we talked about at the beginning of the episode. So we'll talk about Brookfield Infrastructure Partners, so BIP's earnings and short report. We'll start with the short report here. So that came from Keith Darlimple from Darlimple Finance. He issued that short report on Brookfield. He's on Twitter at Jonathan

underscore Keet2. Now, everyone knows actually BIP is one of my largest individual positions. And so I was definitely interested. And I always try to look at things from a try not to be biased, because obviously, if you own a company, usually you'll be seeing it favorably. So I really wanted to make sure that I was looking at this objectively and not try to just brush it off and say, Oh, you know, here's another short report trying to crash the shares to make some money. Because a lot of people I've noticed, if you look at message boards and stuff like that, they'll see a short report on the company they have and they just dismiss it. They don't even really take the time to look at it.

They just say, oh, it's a short and so on. So I try to approach it that way. So I'll start with kind of the three main takeaways and then maybe you can give us a few of your thoughts and I'll keep going after that. So first one, one thing he raises, he raises questions on the accuracy of FFO, so funds from operation. So the metric and how it's reported from BIP investments. He accuses BIP of overstating FFO coming from its investment and property that they own outright. So BIP, so Brookfield, they'll either have equity stakes in investments that they don't necessarily have like voting control, but they'll also own some things outright. And he's saying that they're over inflating the funds from operation or distribution that's coming from these

investments. And he gives a few example. One of the things that he does, he actually goes and looks at various filings in other countries, because some of the investment that he does, he actually goes and looks at various filings in other countries because some of the investment that they own, especially those that they own equity, are filed in other countries. And he's saying that it's not lining up with what BIP is saying. The second big piece here is that BIP's net, so net asset value, is not accurate and is overvalued. And based on that, it's due for a significant correction. And the last point he's saying is that in a low rate environment, investors may be willing to overlook all of this, but with rates are rising and having other options, investor will see BIP for what it is. So do you want to give your thoughts,

like kind of quick overview, and I can give some more points on the short report? Yeah. So Brookfield Infrastructure is actually like the least Brookfield company like I know the least about. I've never really owned it, whereas I've owned all of the other ones. So I didn't really I had to look into this over the last few days. And it's actually it's a pretty interesting short report. interesting short report and i mean in complete layperson's terms the the short seller is pretty much saying that brookfield is claiming earnings from distressed companies that it's funding with cash somewhere down the line so the one thing about ffo is it's not a gap metric so pretty much companies can just claim whatever they want in their FFO.

Like they're not required. Yeah. And just for those who are a viewer, so gap is generally accepted accounting principle. It is a US, it's for US companies typically. In Canada, usually companies will file IFRS. So it's pretty similar IFRS and gap. So these metric what Dan is talking about is these non official metrics. So non IFRS and non gap metrics. So sorry, I just wanted to clarify that. So it's not too confusing. Yeah, that's good. I should have said that anyway. But yeah, they so when you have regulations like that, that everybody, every company has to report regulations like that, that everybody, every company has to report the same, right? Like you can look at kind of numbers, apples to apples, whereas you could have a company like Brookfield who has significantly different FFO calculations than another company, than another utility.

So pretty much what the short seller is saying, I mean, in the easiest terms possible is it's the short seller is saying, I mean, in the easiest terms possible is it's claiming earnings from companies that it has equity interest in. So it's claiming those earnings in its funds from operations. But these companies are distressed, meaning that somewhere down the line, Brookfield is having to help these companies along pretty much with cash. So I think the one company they said has added, and again, the one thing I guess I should reiterate is, I haven't confirmed any of this. This is just what he is saying in the report. In order to actually confirm this stuff, you would need to be digging into the financial documents of these ventures that Brookfield's actually involved with, which I guess I should say it claims, the short seller claims that 54% of Brookfield's net assets

are equity investments that just have no financial filings. So he's claiming that half of the company's net assets you couldn't even look into anyway. But the one company that it is speaking on, it said the company has added about $1 billion in FFO to Brookfield since 2015. But the short seller says the company is actually in the hole around $256 million or something just in outflows it's had to help the distressed company. So this is the whole premise of the report. FFO is not a generally accepted number. It's not apples to apples across all companies. You'll see this a lot of the time in pipelines.

They'll use distributable cash flow, but Enbridge's distributable cash flow is different than TC Energy's, which is different than Pembina Pipes, which is different than Kieras. So with numbers like this, I think it's just really important that if you're using these FFO numbers to calculate payout ratios, that you really, really know what they're using to calculate them. Look at the footnotes, or usually either that or they'll have a section where they actually go over all the non-GAAP or non-IFRS metrics and then they explain it. I've seen that happen in kind of two ways. Real estate REITs tend to have like a full page that goes over every one of them.

But I think at BIP, it's more in the footnotes that you have to read, if I remember correctly. footnotes that you have to read, if I remember correctly. But I think I do agree with you that the importance of knowing how they define it, that's extremely important. And one of the things that the short report actually mentioned is also some of the assets that they have. So one of them that they go in detail is Buck Infrastructure. It's a UK connection company. So for new homes and houses being built, they do a bunch of different connections. So whether it's connecting them to, you know, a gas service, I think it's also telecom service and things like that. So they offer those services. But I think he goes on to say that they're overvaluing the FFO that actually comes from that buck infrastructure. valuing the FFO that actually comes from that buck infrastructure. So there's definitely some allegation, like you said, going through the filings of each entity that Brookfield owns. I mean, it would probably be hundreds of hours, right, to like go through that, if not more. So for me, my overall impression is, look, I do own it. It's a pretty big position for me. And I

think the short report does raise some good question about the opaqueness of VIPs financial reporting. So whether you know, like you said, FFO, DCF, or CAD, which is cash available for distribution, they're all cash flow metrics, but they're pretty commonly used by utilities, but they're never the, you have to make sure you understand what how they're actually calculated. And it's hard to fully understand the FFO that's being generated by some of VIP's asset, especially those that they don't control and only own equity in. And the NAV question that he says, I think that's a bit overstated because NAV is just whether it really impacts the valuation of the business or not or the future

returns. I think that's debatable. The higher level distribution to BAM is something that he mentions versus regular shareholder is not great. And I think obviously, Keith or Mr. Darlanpull, he's definitely got interest in VIP going down. Clearly put a lot of hours into that. And you can tell that he does have a pretty strong accounting background. But at times I found that his understanding of BIP's business is a bit of a head scratcher. And I'll just show a tweet that he did. So word for word, this tweet is BIP owns a company formerly known as Enercare. In Brookfield's nomenclature, it is their residential energy infrastructure operation. Enercare's primary business is renting water

heaters to retail customers. So I think Keith's tweet is definitely misleading there because I'm quite familiar with Enercare. We actually lease our boiler from them. So a boiler is just, it's like a furnace, but it's like those old radiators. So it's like heat that comes out of them like slowly. So we lease it from Enercare and it's added to our Enbridge bill. And we same thing for our water heater. So he's not wrong for the water heater part, but I actually went back and Entercare back in 2018, they got purchased by Brookfield, but you can still access their financial statements from there. And their revenue breakdown was pretty interesting. So the segment where they lease or sell HVAC products,

like a water heater, furnaces, and so on, that accounted for 38% of revenues, but 62% of revenue were actually coming from their services segment, which provide repairs and replacement of system in terms of services. Granted, that was five years ago, but I think it also shows a little bit of what, you know, you have to take this with a grain of salt and understand that they have vested interest in making the stock go down. Just that tweet obviously was probably trying to be you have to take this with a grain of salt and understand that they have vested interests in making the stock go down. Just that tweet, obviously, was probably trying to be provocative a little bit. I get it. But at the same time, I mean, to me, it showed really a lack of understanding of that business. And if he dug just a little bit, he could have seen those older financial

statements. And I'm going to go on a limb to say like the revenue breakdown from the business, I don't think probably change all that much on a percentage basis. But that was my final thoughts in terms of what I do from my position. I'm debating trimming a little bit of BIP just because I don't, the one thing that it has highlighted for me is the opaqueness of Brookfield Infrastructure Partners. And that makes me a little nervous. And I do like, you know, from what they mentioned, from what I've seen in their financial statements, their assets, but at the same time, just the how complex it is, their structure, I'm debating trimming a little bit just to take some risk off from that aspect that I don't feel as comfortable with for that business.

Yeah. And I think in terms of when I read that, and again, I don't know if this was actually correct. It's coming from this guy who, as you said, like the one thing I guess I should say is these short reports that I've been actually like, I think Nuve, Lightspeed, Shopify, Dollarama, like all of them have one thing in common. They make them huge. They make them very confusing. They make them difficult to process. I would actually say scare you to an extent because obviously, like you said, this guy has a vested interest. He's taken a short position. He wants the stock to go down. So the more people that he can get to sell the stock from this report, the more he benefits ultimately. And just in the portion of Brookfield's FFO here,

I put just kind of an image on their FFO calculation. So the main metric in question in the short report is Brookfield has an area where they add back the FFO contributions from investments in associates and joint ventures. So over the course of the year, they've generated 1.1 billion in FFO and 484 million of it has come from this segment. So it's a pretty healthy portion of FFO, which is why I think it has a lot of people worried. Pretty much what this guy is saying is that they're overstating this portion of FFO. They're taking the earnings from the distressed companies and they're not, you know, kind of accounting for the cash outflows to some of the distressed ones, which I think it's, it's pretty extreme to think that all of them are distressed, which is, I mean, again, this guy doesn't have a clue either if 54% of them don't even file anyway. Right. So, I mean, I think it's,

you do have to take it with a grain of salt because this is like, this isn't even him coming after like a tinier company either like the one thing about all these companies like nuve light speed dollar i'm a shopify they were all pretty tiny when they issued uh short reports and they were much much larger institutions issuing them as well but like brookfield's uh you know 15 16 billion dollar company like this is it's definitely uh it's a pretty interesting interesting report take it with a grain of salt i think yeah yeah i think so i think me my biggest takeaway i think you just said it and but i think it just highlighted one thing that really kind of you know struck home with me is how complicated and how opaque it is and hard to understand. And it that's a risk for me as an

investment, it is a risk like that's maybe people will disagree with me and VIP is one of my biggest position. But that's something that I don't feel 100% comfortable with. And I'm not gonna sell my whole position, obviously, but I'll probably trim a little bit just to kind of hedge a little bit and make it to, you know, a sizing that I'm more comfortable with in terms of the opaqueness of the business. Yeah, there's definitely like there is a lot of, I mean, again, when you look at adjusted funds from operations, like these joint ventures account for over half, which when you have 54% that you can't access the filings, like there is an element of just uncertainty there. And, you know, they are like very complex business models. I mean,

every single Brookfield pretty much is, but yeah. Yeah. So I guess we'll finish here on Brookfield to with the results. So, so let's forget about the whole short report and just focus on what they came out for results. Overall, FFO was up 7% to 560 million. It was led by their utility segment. The drop in FFO for their pipeline was because they sold their stake in a US pipeline, commissioning of approximately 1 billion in new projects for the quarter. Some new investments were not reflected in this quarter, but will be next quarter, so Q4. FFO was also negatively impacted by the sale of close to $2 billion in asset sales.

Trinton, their global intermodal logistics operation, went private with Brookfield owning a 28% stake in it. They also entered in an agreement to acquire a portfolio of data centers from Sixtera, which filed for bankruptcy stake in it. They also entered in an agreement to acquire a portfolio of data centers from Sixtera, which filed for bankruptcy back in June. So overall, a good quarter, obviously. I think the short report

probably overshadowing that a little bit, but I think we talked about it long enough. I think we'll move on to a company that you referenced that also had a short report. What was it for Lightspeed? Like a year, year and a half ago or two years ago, maybe? Yeah, it was late 2021.

And it's just... Okay, yeah. So just when things were like really frothy. Yeah, and it went up. So I've owned Lightspeed pretty much since the IPO. Maybe like a few months after the IPO, I had bought it. And I've kind of went in and out of it quite a few times, like just because it gets so absurdly expensive, and then it crashes, and then it gets absurdly expensive again. Obviously, coming out of this, it's never really gotten expensive again. But it went a big short

report stating that they were like, I can't even remember. It was so long now, but they were kind of like making up their customer account numbers and kind of fluffing earnings, things like that. And again, it was a massive, you know, 100 page short report that just kind of confuses you before it really tells you anything. But well, one of the big things I remember is they were like one of their big like points was that it's overvalued. I'm like everything growth was overvalued back then. Like I remember Brayden and I talking about and say like, well, duh, like stuff is trading at what, like 15, 20 times sales. Like that's your bearish case on the company is that it's overvalued. If they're overvalued, I mean, everything else is, but there were other things, but that was one of the big points of their short report.

Yeah. I think Lightspeed was actually like 40X because they made it. I was being too conservative. Yeah, too conservative. But it happened so fast. Like, I think they went up. I seem to remember it being, you know, $50 a share. And then like two, three months later, it's $150 a share,

$140 some dollars a share. It was crazy. And mostly it was just due to acquisitions. But I mean, there was a big... After the short report, pretty much... There was a big claim in the short report, pretty much, that the company will never become profitable. It can't become profitable. It's spent too much on acquisitions, all that kind of stuff. But it actually reported a pretty strong quarter in terms of path to profitability. So they were expected to post a loss of $0.03 a share and negative EBITDA of $5 million. So instead, they posted earnings of $0.055 per share and positive EBITDA of about $334,000. Again, path to profitability has been a huge concern. It bumped its outlook.

It was a fairly small increase, so only about $5 million on the top end. But what they did was they bumped the bottom end up by 20 million, primarily just because of transaction-based volume. So that would more so be their point of sale element, payment processing, things like that, which is kind of surprising considering this company is so focused on small to medium businesses, which is kind of why it's taken kind of a hammering as of late as well. turn, those are the companies that suffer the most. And you can actually tell in its results that this is actually happening. So larger businesses are picking up the slack. So

companies generating under $200,000 a year in transaction volume. So that dipped year over year, just because of higher churn rate. Whereas their larger clients, the ones that are generating $500,000 a million plus in transactional volume, they're actually growing. They're growing that customer base by nearly double digits. So I mean, those are companies that are much less likely to churn. They generate a lot of revenue. They need the processing tools, things like that. And the other highlight on the quarter, the huge highlight on the quarter is stock-based comps, which was a huge issue in the short report as well. This company was just issuing so much stock-based compensation. It actually almost forced me to sell. I was ready to sell and move

on because they were, I can't even remember. I think at one point it got up to nearly 20% of their revenue they were issuing in stock-based compensation. So it was absolutely absurd, but stock-based comps are down 43% on a year over year basis. And it's probably going to continue to trend downwards in the future. But yeah, they got a long ways to go, but I still like them. Yeah. Okay. No, that's a good overview. I mean, stock-based compensation. Yeah. That's pretty common for the tech space, mostly because right, it doesn't have an immediate cash impact. I think that's usually why why they'll do it as doesn't it's like it's a future promise, but it dilutes shareholders. So that's a big problem with it. And I know it was a pretty big problem for a lot of tech companies. And I think a lot of them are trying to rein that back in. And I mean, right now is probably the time to do it as I think employment numbers start slowing down and companies probably don't have to be as generous for their packages to attract talent. Yeah, exactly. And it's kind of similar what you said with Brookfield infrastructure,

like you can kind of get away with that kind of stuff when, you know, the environment, you know, we're in a huge bull market, you know, nobody's really paying attention to that. But when it gets down to this, you know, times are tough, your share price is in the tank, the environment's a lot harder, like people tend to really focus on that kind of stuff. And it was a big issue, but they seem to have, they're on their way to straightening out at least. No, good well we'll go to another company that uh this one had a pretty terrible quarter so canada goose i'm actually like it's a company i've like talked pretty positively in the past couple years just because um everything seemed to be trending quite well i always saw that they would probably be okay because when there's a recession, the richest tend to do just fine. They may lose a little bit of wealth, but they have

enough of it that they can easily weather it and continue their lifestyle. But it's starting to look like they are also feeling it from a macro economic environment. So I'll go over the results and we'll talk about the guidance. So first, total revenues were up 1% to $281 million. Direct to consumers revenue, which they definitely tried to highlight during the call, that was up 15% to $109 million. Wholesale revenues decreased 10%. U.S. sales declined 8%, which is their largest market if you're looking at a single country. The rest of the geographies were either up in the mid single digits or flat. SG&A expenses grew 23% versus last year. So that's a massive increase, especially when your revenues are essentially flat.

Net income was down 18% to 4.1 million. But what really hit the stock, I think, is the guidance. Here's a quote that they gave. Our outlook for the second half of fiscal 2024 has come under pressure due to the increasingly challenging global macroeconomic and geopolitical environments that have impacted consumer decision making and prioritization of spend. So basically, what they're saying is that people are buying more essentials and not spending $1,500 on a Canada goose coat. That's like that's a translation of what they're saying. But also, I mean, to be fair, that's not their big quarter, right? The big quarter is the one coming up. So that's the one that's going to be a make or break. But what

really hit the stock is the guidance. So essentially what they did is they reduced the guidance by 10% in the mid range for their revenue. So they are projecting now from 1.2 billion to $1.4 billion for full fiscal 2024. Now they're going actually in Q3, which like I said, is going to be their, it's always their biggest quarter. And that $1.2 to $1.4, that's compared to $1.4 to $1.5 previously. So if you use the mid-range of $1.3 billion versus $1.45, that's a reduction of 10% in guidance. So that's a massive reduction when you have your biggest quarter coming up in terms of sale because it's very cyclical based on their products. reduced their adjusted net income guidance from a range of $1.20 per share to $1.48 to a new range of $0.60 per share to $1.40. So they basically cut in half the bottom and kept the top. So it's, yeah, it's, I don't know, at that point, I don't know about you, Dan, but at that point, for me, it's just okay. Like, why don't you just pull guidance,

if you're really either you're trying to, you know, still save face, or you really have no idea what's going to happen. So that's why you're really creating that wide range, which, you know, at that point, just pull guidance, just say macro and economic environment is too unpredictable. So for the next little bit, you don't even have to come in until when just save until further notice, we're not providing any guidance. I mean, companies did it during COVID. Like, obviously, the stock would take a hit in the short term. But to me, it's ripped the bandaid off. And at least you don't have to deal with that in future earnings calls. Yeah, I think like pulling the guidance and issuing this guidance is essentially saying the same thing. You have absolutely no idea what is going to happen.

To go from like $1.20 to $0.60, but then you keep the top end the same, like, okay, it might be good, but it might also be really bad. It's a pretty wide range. Yeah, it's very weird. $0.60 to $1.40, that's massive. Usually companies don't do that. It's so crazy how wide it is. And I mean, the market's going to value the company based on that earnings projection. So like $0.60, if they came into the bottom end, that is a significant decline. I think COVID really kind of did this company in. I think they had really strong growth in China. And then when COVID hit, it killed their sales. It killed all the momentum. There was that one point where this was one of the strongest

growing brands in Canada. It's one that I actually owned at the IPO as well. I cashed in when it hit $90 a share. I sold half the position and rode the other half into the ground until I think like maybe 2021 I sold it off. But they produce a really good product. I mean, it's kind of a niche market. I mean, like you said, you got to spend. Not everybody has $1,500 to spend on a parka. Yeah. And they're rarely on sale too.

So like at some point, like they have good demand it. I mean, at least they did. But yeah, the luxury market, I don't know. I feel like LVMH, that's always been Brayden and I kind of chatting about it. I can just see LVMH at some point scooping in, coming in, giving them a nice premium to the price that they have. But because it's gone down so much, it would be, I think, a great acquisition for them. You buy it on the super cheap, kind of roll it up with the rest of your luxury brands probably would make a whole lot of sense. I think so. Yeah. I mean, it is very cheap. I think they had to alter. I don't think they use any real fur anymore, though. I think they got rid of that in 2022.

Now, whether that impacts whether, you know whether people who are seeking that would not buy it because it's all probably synthetic now. Yeah. I doubt it. Yeah. Yeah. I don't think so either. I mean, there are some people who probably would not buy it because of that, but most people would probably see that as a benefit. But yeah, I don't know. They've gone downhill. I used to really like the company and I think COVID just kind of killed its growth because it was just huge in China. It was such a huge growing brand. But then I think they were tackling a bit of, I can't think of the word right now, copies, fakes, like kind of ripoffs that were selling for a lot cheaper, which kind of hurt them as well. And just COVID kind of killed the spending,

the lockdowns there. So yeah, I don't know. The guidance is really, really weird. No, I totally agree. And I think that's it for today. I mean, it's been a longer than we thought, but I kind of thought it would take a bit more time, especially with the BIP short report. So yeah, it was great to have you again, Dan. We'll be making this permanent now going forward. So you'll probably notice in the next couple of weeks, Dan's voice sounding a bit crisper than it is right now. So we ordered a new mic. So you'll be on the same setup as Brayden and I. But yeah, it was nice. Great having you, Dan. Welcome to the team. And then if people haven't done it already, make sure you give us a review on Apple Podcasts. Give us a five star on Spotify if you're listening to us on there. And you can find Dan at StockTrades.ca.

Yeah, I'm super excited for this. Thanks for listening, everybody. Okay, thanks a lot, Dan. And we'll see you again soon, everyone. Thanks for listening. See ya. 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.

Always make sure to do your own research and due diligence before making investment or financial decisions.