The Canadian Investor - Small cap stocks and Dialogue Health Technologies

Episode Date: July 19, 2021

In this episode of the Canadian Investor Podcast, we talk about: The pros and cons of investing in small cap stocks How small cap ETFs perform vs. other ETFs The three legged stool principles from Akre Capital Management Dialogue Health Technologies which had its IPO in March of 2021.  Tickers of stocks and ETFs discussed: CARE.TO, XCS.TO, XIU.TO, VIOO, VOO, VSS, PCST, VBK, VBR, EEMS Getstockmarket.com Canadian Investor Podcast Twitter: @cdn_investing Simon’s twitter: @Fiat_Iceberg Braden’s twitter: @BradoCapital See omnystudio.com/listener for privacy information.

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We're talking small caps. We're talking acre capital management, a fund that I like to follow, Dialogue Health, which is care.to. And yeah, it should be a great episode. Simon, how are you doing, man? It's going very well. I'm surprised we're already July 14th. I guess it's just sinking in that we're this far into 2021 right now. Yeah, it's kind of wild. July 14th. Yeah, geez.

It is August already, it feels like. All right, let's kick this episode off. Let's talk small caps. Before we do that, just to pump my own book, TFI International is up 8.5% today on the news that they're reporting strong results out of that acquisition that they bought UPS Freight for. That was such a good acquisition. I can't believe the price they paid. And it's paying off now. So Alain Bedard of TFI International continues to get it done, making good deals.

So I've been talking about this company for a long time. Go check out their chart. All right, Simon, kick us off on small caps. Yeah, I'm excited to talk about small caps. I've been meaning to do it for quite some time. And then someone sent me a question and I figure it was just would be a good idea to talk about it this week. And as a side note, we have not forgotten about our poll. sent me a question and I figured it would be a good idea to talk about it this week. And as a side note, we have not forgotten about our poll. We'll be doing it soon for those two companies.

So to get started with small cap, what's a small cap? The most common definition out there that you'll find is about $300 million to $2 billion in market cap. about $300 million to $2 billion in market cap. Personally, I would probably include something a bit wider, even up to $5, $6 billion, because I find that that $2 billion mark, and it's very subjective, but that $2 billion figure to me is probably, was more accurate maybe like 10 years ago,

something like that. Right now, we're seeing like large companies. We're seeing companies over a trillion dollars. You know, 100 billion is not considered that much anymore. So to me, in terms of how the company will react and the type of businesses you have, personally, it's probably more like 5, 6 billion range, maybe 500 million to 5, 6 billion range. But again, very subjective. Maybe $500 million to $5-6 billion range. But again, very subjective.

And just to understand that these type of companies will behave a bit differently than their larger counterparts. For you, Brayden, how do you see that? Yeah, I think it's a very arbitrary, you know, market cap in general, like small cap, micro cap, large cap, mega cap. It's all very arbitrary. Now, I've always had a contrary take to what we define as small caps and mid caps. And the reason for that is like, if you Google small cap, it'll say like anything under 2 billion. I think the BlackRock billion. I think the BlackRock small cap ETF for Canada is anything under $3 billion. Now, the reason I have a contrary take to that is as a business owner myself, like a $2 to $5 billion company is a gigantic enterprise. Now, I'm going to talk a bit more about this after you speak about small caps and what you're seeing, but a lot of these companies in that range will be very large

businesses, huge businesses, medium-sized enterprises, if you will. Now, what's interesting about that is it'll be paired up with some speculative companies in the same market cap that are not well-established, that are not gigantic companies on their own. So I'm going to speak more about that nature of the arena you're playing in small caps, but you got to do a little bit more work for those reasons. Yeah. So a small cap, like I said, it really depends the way you're looking at it. Traditionally, I think it's been more the $300 million to $2 billion. But again, there's different ways to look at it. I'll go over some of the advantages of investing in small caps and then some of the drawbacks as well. With all all things being equal a company obviously that

has a smaller market cap say 500 million dollars market cap will have more growth potential than 100 billion dollar company and i can just see brayden here saying like oh what about google what about amazon and things like that but all things being equal if you have two similar those are they're more those are defying exactly yeah those are defying the laws of of physics of large numbers of large numbers exactly it just doesn't make any sense um but but yeah it's a good thing to bring up yeah as generally i would say you know small companies will have more growth potential. They tend to not have a lot of analysts covering them. Sometimes they will have zero analysts covering them. So there's potentially more value to Unlogged because they're more under the radar. The arbitrage can be a lot

more significant for small caps. I remember about three, four years ago, I was looking at this small cap. The ticker was PFB.TO. And they had announced that they had a special dividend of $1. And their share price was under $10. So that's a 10 plus percent special dividend. That was actually on top of their regular dividend. And it took, I think, several months until the market actually caught up and then the share price actually ticked up to make it a bit more reasonable in terms of dividend. But that's just a random example there where you can really find some pretty interesting arbitrage, but you

have to be willing to put the work in those. Institutional investor will tend to not be in small cap aside from some specific ETFs or venture investors or smaller institutional investors. That's pretty simple because an investment for a lot of institutional investors that would make the needle move for them would mean that they would have to become significant shareholders in the stock, which comes with more regulatory scrutiny. And Warren Buffett has actually mentioned that several times. So there's a reason Buffett will often trim really good businesses that he owns because he's reaching a 10% threshold, which has a lot more regulatory scrutiny. 10% threshold, which has a lot more regulatory scrutiny. And it just shows that a company, for example, for like Berkshire, it would be very unlikely for them to invest in a small cap because it wouldn't do anything to the bottom line. And the last thing about small cap is they

will tend to act as a whole a bit differently than large company, than larger companies, or even if you compare the indexes or the different ETFs, they will move similarly, but they do have, you know, they might have bigger swings at times too. So that's something else to keep in mind in terms of the advantages. You have any comments on those before I go to drawbacks? No, other than the fact that you brought up, there's could be no analysts covering the business. And this can be one of your greatest strengths is that you don't have anyone looking at it. And that can be a significant advantage to a retail investor. Yeah, yeah, exactly. I mean, it can have a downside too, right? Because if you're looking

at low multiples, if it always kind of remains a smaller company those multiples may never expand so that's that's something to to keep in mind but now some of the drawbacks of investing in small cap stocks like i mentioned they will be more volatile than midge large or mega caps since the businesses tend to not be as mature and well established. Obviously there's exceptions to that. I'm sure you can find some companies that are a billion market cap that have been in business for years that are well established that have you know are growing slowly but are more mature businesses but as a general rule of thumb less or no analyst following can mean that it's more difficult to find information.

And we've talked about this before where, you know, analyst price targets, we really don't pay attention to those. But you can find good information by reviewing what analysts are actually saying about certain stocks. So you don't have that option or you'll have limited information when it comes to analysts for smaller cap stocks but like i said it could be viewed as an advantage like we just mentioned but also as a as a drawback there's a higher proportion that will be listed on secondary exchanges like the tsx venture which have less stringent requirements than larger exchanges this means that you can find companies that are doing shady or kind of financial shenanigans, things like what PhaseDrive is doing, that will tend to be much more prevalent

in smaller cap businesses, especially when you're looking in the less than like a billion dollar kind of sector. You know, we've mentioned it before. We've been contacted by companies wanting to do stock promotion. And those, I would say, they're either very small cap or micro caps for the most part. But you don't see that as often in mid to larger cap. I mean, you can still see fraud in larger companies. And Enron, obviously, is a good example right there. And you have Luckin Coffee that we saw recently. But it's just more prevalent in the smaller cap stocks.

And last, the lower volume means that the spread between ask and bid can be quite significant at times. And it could impact your entry point. So if you are interested in small cap stocks, look at that volume. So if you are interested in small cap stocks, look at that volume. And for the most part, you'll probably need to put a limit order if you want the price that you're looking to get in to actually be executed. The kind of market order may be kind of tricky to put. You may end up paying more than you intended to. So now what do the numbers say? So I wanted to draw a little bit of numbers and look at the ETFs that are tracking small cap, compare them with some of the

larger cap ETFs. The first one that I looked at was in Canada because we are the Canadian investor. So it's XCS.TO, the iShares S&P TSX small cap index ETF, compared it to the XIU.TO, the iShares S&P TSX 60 index ETF. So what we can see is clearly that the larger index has outperformed the small cap in that proportion. What I have over here, the numbers are a little small, so I'm having to squint quite hard, but it's outperformed it by quite a bit. If I'm looking at the small cap, it's about 36% and change, and then the large cap, it's more than doubled. So you see quite a significant difference. And then if you're looking at the US, the VIO, so the Vanguard S&P small cap 600 ETF, you compare it with VO, which is the Vanguard S&P 500 index fund. Again, same kind of result, although I would say much closer. So this one, the small cap has done close to 250 percent and then the vo has done close to 300

over 300 percent and i forgot to mention this is over a 10 year period so i wanted to take as long as an horizon as i not i could but you know a pretty long horizon because we invest in the long term so it's very clear that in the past 10 years, the larger caps have outperformed the smaller caps over here. But there is more to these indexes, more to smaller caps than these indexes. There's other types of indexes or ETFs, I mean, that you can invest in that focus on smaller caps. And here's a few of them for people who are interested. But I encourage you, again, to do your own due diligence on this. But there's other ones. So this is not like just all the ones I could find. There's plenty of them that you can find out there.

Some will be specific to countries. Some will be more specific to sectors while still focusing on small caps. So the first one is VSS, so the Vanguard FTSE All World XUS Small Cap Index Fund. So these are small caps excluding the US. When you see an ETF that has X something like XUS or X China, that means it's excluding that specific country. PCST, that's one I've mentioned before, the Invesco S&P Small Cap Information Technology ETF focuses on small cap information technology. VBK, Vanguard Small Cap Growth ETF, that one has actually had some pretty awesome growth if people look it up. It's performed quite well. well VBR which is the Vanguard

small cap value ETF and then the last one that I pull was the EEMS the iShares MSCI emerging markets small cap so these are just example that you don't have to necessarily you know have a kind of broad market small cap you can also find a bunch of different mall caps small caps you'll find them for specific countries emerging markets things like that i would say a word of caution on investing in small caps that are specific to an emerging country is those can be very very volatile also very risky just because in often oftentimes in those countries you won't have the same regulation as canada the u.s for example so keep that in mind if you're

looking for like a small cap in in brazil for example there's one thing that I would advise folks look into is if you look at XCS.TO, which is BlackRock's iShares small cap index ETF for Canada. It's the S&P TSX one. If you look at the holdings there, they're all under $3 billion in market cap. all under $3 billion in market cap. Now, structurally, if you were thinking about managing your own portfolio and compared to how this ETF is managed, it by nature and by structure and by strategy sells winners. Now, this is kind of contrary to what you and I talk about on this podcast so much, which is let your winners run, average up on them. If the company is doing better, it's worth more than it is in the past, it deserves a larger portion of your portfolio. Now, if a company crosses that 3 billion in threshold because it's a great business,

the ETF sells it, right? So if you have this awesome winner, this small cap that you picked up at 500 million in market cap, it rises to 5 billion in market cap. You love the business. You like it even more. It's proven itself. The growth has been tremendous. It's gained market share. And then now you're going to sell it. I mean, come on, right? It's the complete opposite of what we try to do as investors is let those winners really run, double down on them. It deserves it and uh that's kind of the problem with these etfs products that are structured like that i just would never manage my own portfolio like that so it's hard for me to get behind investing in a small cap or like a market cap based

index to begin with yeah i mean i can definitely see that i mean for me i see it more as gaining exposure to sector of the market that you don't have exposure to, especially if we tend to focus. I think most of my portfolio is either mid or large caps or mega caps. So I think for me, I enjoy having a small portion allocated to small caps, fully knowing that, yes, there is going to be that rotation. But you can also make a case that that company that is growing and is indexed out of it, and they're investing in another company that you're recycling that capital and potentially getting more growth. But I do get your argument. For me, I think personally, I do have some exposures to small cap in my portfolio. It's not a big portion. But you know but it's good to understand the advantages and the drawbacks. But again, these are just ETFs. And later on, I'll talk about dialogue technology, dialogue help, and just look at what a small cap kind of looks like, one that recently IPO'd.

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Yeah, before we wrap up small caps, I just have a little section on, you know, my particular take on investing in small and micro cap companies. And really it is that there are awesome small public listings out there. There's, there's a ton of them. There's great ones. There's the hidden gems. The next big compounders exist in this arena. But focus on the ones that are actually high quality businesses, have a great management team, hopefully founder led, because if they're small, I want to see it still run by their founder. So in this arena, you're going to have like 750 million market cap companies that are growing high quality and even profitable. I know that cool P word that you don't see very often in that arena, but they'll also be 750 million in market cap. So like, like for like on market cap

that are completely speculative startups, junior mining companies, some ESG company that are raising tons of money in the public markets based strictly on an idea. And these scare me a lot. So let's think of like Nikola Motors, which still trades for 5 billion on the US market today, billion on the US market today, which is crazy to me, right? It's been a dumpster fire. Now, that stock hit over 20 billion in market cap because they were, air quotes, Tesla competitor. They had this electric vehicle company and they had these awesome looking car designs. They had this electric truck coming out, this electric semi truck coming out. Now the entire business, all 20 billion of it was based on a couple of drawings, some 3D renderings of what they may make. Now this madness happens all over the world. Nikola Motors had not sold a single dollar worth of cars and was

sitting at a 20 billion in market cap valuation. You know what they had, Simon? They had $30,000 on their income statement. Guess what that $30,000 was? It was Nikola Motors putting on a rooftop solar power system on the founder's roof, and they build it to the company under 30K of revenue. Now, this is just not only fraudulent and terrible, but it happens a lot. So building cars is obviously immensely complicated. There's this wild supply chain. There's hundreds of parts in each vehicle, and it requires millions or billions in capital expenditures up front. So the point I'm making here is that there's very good businesses in the small cap arena, but they'll also be trading at something very similar in valuation to these speculative public

listings that have not proven themselves, might not even have product market fit whatsoever. So for example, and I don't mean to pick on this listener, he's a great guy, but I got a request on Twitter today to check out this venture stock. It's a 650 million in market cap. It has 200 million in debt on the balance sheet, so 850 million in enterprise value. Now, last year in the trailing 12 months, this company did $4,000 in revenue. That's not a typo, $4,000. I make $4,000 in one day sometimes. You got to be justifying some real business if you're sitting at $850 million in enterprise value. So be careful in this area. It requires a little bit more work. Now your advantage may be, or disadvantage as Simon pointed out, but there's less people looking at it. And it's like the, you know, buy stocks when there's blood on the streets.

Small cap investors say buy stocks when no one's in the streets. Like no one's even looking at this stuff. And that could be your biggest advantage. So there are ways to win really, really big in small caps. And there's ways to lose really, really bad. Ian Castle, who focuses on micro caps, he's pretty big on Twitter. His bio says all great companies started as small companies. So I back that. I back that. All right, Simon, let's talk about Chuck Aker's capital management, Aker Capital Management.

He is a phenomenal investor and he's been doing this a long time. Are you familiar with Chuck Aker's work? A little bit. Not as much as you, that's for sure. Yeah. Well, I talk about him quite a bit. He's a fund manager out of the States. He has been early on some really, really big long-term compounders. His style, I feel, aligns a lot with what I think is great investing. So I typically have read a lot of his stuff and look at his 13Fs. So let's talk about it. Okay, so he has what's called the three-legged stool. The first leg of the stool is focusing on the business. So he's looking for enduring, predictable, high returns on equity and free cashflow. Okay. We talked about that quite a bit on this podcast. He says that the business must have pricing power in excess of a cost inflation to protect themselves. He likes businesses that are

easy to understand, have strong balance sheets, and have identifiable, sustainable, competitive advantages. So that is stool number one, the business. Stool number two is management. He wants management with exceptional skill, integrity, and passion. They treat shareholders like partners. They don't care about Wall Street short-term focus, and they are compensated rationally. That's number two, management. Number three is reinvestment. This may be the most important one, which is a pattern of disciplined reinvestment and extensive opportunities to reinvest free cash flow organically or through acquisitions. Now, this is that optionality that we've been talking about,

and he believes that that's important in reinvestment. So he thinks that if you have three things here, the three-legged stool, you can find what are called compounding machines. Chuck talks about compounding machines all the time. I'm trying to find them in my own portfolio all the time as well. Okay. So before I wrap it up with Chuck Aker, these are his top 12 holdings. And I just kind of arbitrarily picked one because these are all at least 4% weightings, whereas the rest of them drop off a cliff are not quite small. So in order of largest to smallest, I own a lot of these names and that's just, I don't know if it's by fluke or like I study his work a lot and I come to the same conclusions. I'm not really sure,

but MasterCard, Moody's Corporation, American Tower, Visa, KMX, CoStar, O'Reilly Auto Group, Adobe, KKR, Roper Technologies, S-BAC Communications, and Brookfield Asset Management. So see a lot of high quality compounders. He lets his winners run. Like MasterCard is worth 14% of the portfolio, which is quite high for a fund like this. So I like his style.

And I think people can learn a lot from his investment framework. Yeah, no, well put. I don't have too much to add there. Let's hear about DialogHealth, care.to. Yeah, so DialogHealth, I mentioned the name before prior to their IPO when we talk about WellHelp, but also CloudMD. And I wanted, I was interested in seeing when Dialog would go IPO just to see what their business looked like. It's a telehealth play, if people are familiar with them. A little bit of a background on them. So they IPO'd in March of 2021. They are down more than 20% since their IPO.

They have a market cap of around $700 million. Before I get into the business, that's a good indication why personally I do not like to invest in companies that IPO right away. I like to try and wait at least a year just to get a good sense where the business is going, have a full year financial statement, understand the business a bit better. You get a bigger, better picture by doing so. Whereas when the company IPOs, oftentimes there's going to be a lot of hype around it. You only have the information based on the prospectus. So you don't have the full picture.

If you do like to invest in IPOs make sure that you allocate accordingly I would not start a big position especially even if you're super excited in a company it's fine to try and get skin in the game but try to make that a very small portion if that's something you're interested in personally I like to wait and see a little bit so this core idea of evolving to an integrated health platform, a one-stop healthcare hub that centralizes all your programs in a single user-friendly application. And they provide access to services 24 hours a day, 365 days a year. And you can access from your smartphone, computer, or tablet. I have used One's Dialog in the past. It worked fine.

The outcome, you know, I didn't love the outcome because I ended up having to call my family doctor anyways. But no, the app and everything worked pretty seamlessly. Dialog is a business-to-business model, so B2B, which means that employer and organization subscribe to their services for their employees. According to their perspective, they partnered with a bunch of large insurance providers, including Beniva, Canada Life, Desjardins, Industrielle Alliance, and Sun Life.

They have relationships with over 2,000 customers in Canada and Germany as well. They recently made an acquisition in Germany. Some of the services offered are primary care that can include prescriptions, mental health, EAP, which is employee assistance programs, and occupational health and safety. They primarily generate revenue from customers through a per-member, per-month subscription model, also known as PMPM. And the contracts that they have with employers or organization will typically be from one to three-year contracts. It provides some significant revenue visibility.

some significant revenue visibility. Members, so if you're a member and your employer subscribes to DialogHelp, you have unlimited access to their platform and you don't pay any extra fees unless the service that you want to access is outside of the subscription that your employer paid for because they do have different bundles

available for employers. 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. Calling all DIY do-it-yourself investors. Blossom is an essential app for you. It has been blowing up with now more than 50,000 Canadians plus and growing who are using the app.

Every time I go on there, I am shocked. The engagement is amazing. This is a really vibrant community that they're building. And people share their portfolios, their trades, their investment ideas in real time. And it's all built on the concept of transparency because brokerage accounts are linked. And then once you link your brokerage account, you can get in-depth portfolio insights, track your dividends, and there's other stuff like learning Duolingo style education lessons that are completely free. You can search up Blossom Social in the app store and join the community today. I'm on there. I encourage you go on there and follow me,

search me up. Some of the YouTubers and influencers and podcasters that you might know, I bet you they're already on there. People are just on there talking, sharing their investment ideas and using the analytics tools. So go ahead, Blossom the app store, and I'll see you there. So the numbers, what do they look like? It looks pretty good at first glance. They had 321% year-over-year increase in revenue Q1 versus Q1 of last year. So that's 15.2 million versus 3.6 million. Obviously, we've seen this with Teladoc. We've seen this even with Wellheld with a bunch of different telemedicine providers. They got a huge tailwind from the pandemic. They have $65.3 million in recurring revenue. So I'm assuming it's essentially their Q1 revenue just extrapolated on a yearly basis. It'll be interesting when they come out with their full year financial results,

how it looks. They have 1.3 million members, which is a 534% increase year over year. They have 102% net retention rate, which is something you always want to see at least 100%. And that's a key metric. Whenever you have have a subscription model you want to see that net retention rate to stay as close to three digit as possible if it's slightly under I guess it's all right but again the higher it is especially over 100% that's really what you want to see because they're increasing their subscription base their gross margin were a bit disappointing, I'll be honest. So it's 41.5% gross margin. And as comparison, people know I own Teladoc. Teladoc has around 65% gross margin. So that's a pretty significant difference. I don't know if it's because WellHealth is still

a pretty small company compared to Teladoc. Maybe there's room to grow there. But I remember Well Health, and I don't have the gross margins offhand, but Well Health was similar in gross margin. I think it was in the high 30s, low 40s. But Well Health had a more diversified operation than just telemedicine. So for them, it made more sense to me. At Tel Health Play, I don't know. I would expect slightly higher gross margins. operation than just telemedicine. So for them, it made more sense to me. A telehealth play, I don't know, I would expect slightly higher gross margins.

Yeah, when you consider the revenue mix for well is like primarily clinics compared to a technology platform providing telemedicine, 41 seems low. Yeah, exactly. It'll be something just to keep an eye on. There's almost one positive thing. There's almost no debt on the balance sheet, very little debt. They are free cash flow negative, 4 million plus free cash flow negative in Q1. It was around, so I guess that's around 15 to 20 million if we extrapolate that over the year. So that's something to keep an eye on. That's something I would also like to get better over time definitely improve year over year a company

that's growing this quickly obviously there's a bit more leeway there but that's something you still want to improve because that's essentially cash burn right there there are some significant backers for the business this business so i had a look in the prospectus and when they went IPO. So this may have changed a little bit because oftentimes those early investors will sell a bit after it IPO. But I'm pretty sure Sun Life with what I saw, I did some research are still pretty significant shareholders. So when they IPO, Sun Life had a 16.23% share in the company. They had investment from WSC IVLP, which had 15% share in the company. And as well, HV Old Springs Venture Fund, which had 11%. So there's a few other

pretty significant investors with high single digits, low double digits, but those were the main ones. A lot of them are actually venture firms that invest in the company. And the CEO of the company is Sheriff Abib. He's a pretty young guy, late 30s. He's the co-founder of the company as well. He's obviously the current CEO. There's some interesting people on the board as well, including one board member who's part of the Caisse de dépôt de classement du Québec. For those who are not from Québec, it's the investing arm of the Québec pension plan. So they have quite a bit of investment everywhere. So it's interesting to see that. There's also Paul Desmarais, who people might know from PowerCorps, who's also on the board. So there's

really some interesting people on that board of directors. And the last thing that I just had a look at, we've mentioned this before. It's always interesting to see how the employees raid the business. You can have a look on glass doors just find that information at a glance this one had a decent but not huge sample about 70 employees actually 48 I just have the number here so a decent sample not super huge but the 87% of them approve of the CEO and the overall rating of the company if they would recommend it to a friend was 73 percent and 3.9 star out of 5 so that's pretty good it's not i've seen better

but i've seen a lot worse as well so it's something it's a company to keep an eye on it is a small cap business so there's definitely some growth potential here it's not trading cheaply it's trading over uh 10 times sales um so obviously it's more of a growth stock but it's not trading cheaply it's trading over uh 10 times sales um so obviously it's more of a growth stock but it's definitely in that uh would qualify in that small cap arena at 700 million market cap yeah well put and you've hit on some of the key aspects here i like that you pulled up some glassdoor stats too, because that's important with small caps, especially when they're founder led, that'll give you an idea into some of the culture. And if the employees actually like working there when it's founder led, that's really important. It's really hard to value something like this, right? Like it did Q1,

it did 15 million revs, which was up 321%. Now, my question for something like this, I have two questions that whether or not we have the answers here right now, I don't know. But it's always good to kind of ask yourself, and this is kind of a candid, I haven't looked into this business at all. I just knew Simon was doing a segment on it, is one, how do they expand out of Canada? I don't know the answer to that i guess they're doing this acquisition strategy in germany as well yeah they're they've done a few small acquisitions so they're definitely a bit of acquisitions going on nothing major but a few acquisitions here and there yeah okay so that's that's interesting and then two with it

being b2b if i'm a large enterprise here here in Canada and I want my employees to have access to telemedicine as a benefit to being an employee, you know, post COVID, why would I continue to do that? I don't know if there's going to be a whole lot of appetite. But I don't know. It could be a thing. Yeah. There's a lot of traction gaining out of the pandemic for a business like this. So the next few quarters are going to be incredibly instrumental for the business. And they'll tell a lot into what's going on. I would say I'm not too concerned

about the businesses not continuing those subscriptions just because think about the time that you save if you need to use telemedicine versus going to an urgent care clinic or going to the hospital. For an employer, just that time saving alone, it could be the difference between you contact, you use the app, takes you half an hour, 45 minutes overall to see the doctor, the nurse on that application. You're done. That's it. Versus having to go in person. If you don't have a family doctor, you have to go in person potentially to the emergency room, takes you seven, eight hours. You have to take the full day off. So for me, there is definitely value for employers there. What my biggest question, and this would apply also to Teladoc, so it's not specific to dialogue. It's really like you said, the pandemic portion,

that hike in revenue and Teladoc has warned out a little bit that they would see there was a lot of growth just pulled forward because of the pandemic but what do the numbers look like next year because there was obviously looks amazing comparing this year to last year because there was this massive adoption to telehealth because people really did not have a choice but to see if they'll be retaining that and i would also like to see if they end up having an option where it's pay as you go. So you don't need to be part of a big employer. You're a self-employed person. You pay $50 per visit or whatever it is.

You're still saving time versus having to go in person. Having that kind of service I I think, would be very beneficial. I know Teladoc does offer the kind of pay per visit model as well for people that are not insured. So that's something that I would be interested in seeing from them. But my take is it's promising. I would not invest in them right now. I definitely want to give it some time, probably another year, now i definitely want to give it some time probably another year just to see how it evolves over time and just you know are those gross margins improving are they losing business to a teledoc to wealth help to a doc md or whichever one it was cloud md sorry cloud cloud md and how or maple you mentioned your previous employer they They had Maple. So how they do, are they expanding in the US

and starting to compete with much larger players or are they focusing on expanding in Canada and maybe underserved countries? That might be something else that they're doing. The problem or the thing that I can't wrap my head around with these telemedicine companies is the benefits to software. If I were to wrap them up,

where our operating leverage scale and like those two kind of combine and you find it in their margins. Now, you can scale so well with software incrementally. That's what's creating that operating leverage as you grow. But with something like this, expanding into different jurisdictions is a lot more difficult. There's all these different headwinds you have to face

because the healthcare system in Canada is so, so different than the healthcare system in the US. So for a company like Teladoc, there are companies that provide these kinds of services as being an employee, as one of your benefits to being an employee. There is like this health coverage in Canada that just doesn't exist because of the free healthcare. So this pulled forward revenue in Canada, I'm just wondering how sticky that really is when a customer does not need to keep doing that post pandemic. No, it's a good point. It seems like a nice to have, right? It seems like this nice to have thing. Yeah. I would say that's actually one of the biggest items. For several years, Teladoc was saying that they had slower growth because of all the regulatory hurdles that they were facing

in the States. And that's one thing I found in their prospectus is they're actually turning this around for dialogue. They're seeing that as an opportunity because it's still quite underserved in Canada because it's so traditional government focus, our public health care, that they see some potential growth as the Canadian health care system embraces these type of technologies more and more. So it's funny that you mention it. You kind of mentioned the counter argument.

They kind of take it over. But prospectus tend to be very positive. They're going to attack every risk that someone like me can think of that hasn't done zero due diligence on the business. They're going to want to get in front of that right away, right? So like, if I can just on your little spiel here, think of some potential risks in the business model, they're going to want to be ahead of those right away. So just like anything, if you're looking at investor presentations, you're looking at prospectuses, I'm okay with management being optimistic. I'd prefer if they're optimistic. I mean, like if they're going to take my capital, I want them to think that the

business is growing, but you just have to peel it back a little. Exactly. Yeah, that's it. And just looking at the numbers, oftentimes we'll give you a good idea whether what management is saying makes sense or not. They could be saying a lot of good things about the business. I know we talk about phase drive a lot and that's an extreme example, but according to them, they're going to be the next Fortune 500 company. And then you look at the number, and it's like, wow, will they even survive this year? So I think looking- Yeah, or this quarter.

Exactly. Like the management discussion is always a great thing to read, but you kind of take it with a grain of salt and you compare with those numbers to see if it actually makes sense another thing that i try to pay attention to is if they're reporting on some kpis when i say kpi i mean like key point indicators so if it's if it's spotify they're saying how many subscribers they have to their premium service and then how many subscribers they have to the ad supported service those are like the easiest KPIs that they cover right away. Now, be wary, unless the business has changed fundamentally, be wary if they have some new KPI they're charting out that

is going in a direction that looks nice. And Spotify is killing us killing us i don't use as a bad example but like if the kpi that they're tracking is changing kind of every annual report i'm a little concerned because uh the fundamentals that they cared about before if they're not trending the correct way they're not going to have on a nice fancy fancy, nice looking chart right on the cover page of the report. Yeah. For companies like this, and that's not specific to telehealth, I would say subscription services, the one thing that tends to be reoccurring for KPI membership, overall membership, the increases and also the net retention rate. Those are two that you'll see quite a bit. So anyone interested in this one, those two right there would be two key metrics that I would keep an eye on.

Obviously, you'll have to do more research than that, but those, especially the net retention rate, that's probably one of my most important when it comes to... Especially for a company like this where we're concerned about it to begin with yeah so if they can back it up then okay maybe i shouldn't be that concerned about it um okay guys hope you're having a great summer it is already mid-july which is a little scary thank you so much for listening we will see you on the podcast next week. As always, Monday morning, the show comes out. If you're not following us on Twitter, go to Twitter at CDN underscore investing. That's

where we keep you all up to date on what's happening with the podcast. Speaking of that, if you are a Spotify listener and you download the show so that you can listen offline, you will have to re-download those episodes. We have upgraded our technology, our publishing technology for you guys, and you're going to need to re-download those shows. So if you notice that they're not on your phone anymore, just go ahead and re-download them. All right, that does it for this week, guys. Go to getstockmarket.com. Getstockmarket.com is where we find almost all of the data and analytics that we talk about on the show. It'll redirect you to my business. It's called Stratosphere. It's the platform for long-term self-directed

investors. We have our own in-house research and analytics platform. I think you'll really, really enjoy it. Again, that is getstockmarket.com. See you next week. Bye-bye. The Canadian investor is not to be taken as investment advice. Braden or Simone may own securities mentioned on this podcast. Always make sure to do your own research and due diligence before making investment decisions.