The Canadian Investor - The Risk of High Dividends and a Canadian Tech Spin Off

Episode Date: March 2, 2023

In this episode, we start by discussing the recent Indigo-Chapters cyber attack and the Lumine spinoff from Constellation Software. We then talk about the recent decision from Intel to cut its dividend, Teladoc’s earnings and the importance of having a good management team for publicly traded companies. We also cover some other earnings including Nutrien and Autodesk.  Symbols of stocks discussed: NTR.TO, CSU.TO, IDG.TO, INTC, ADSK, TDOC, GFL.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 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. Register for ShakepaySee omnystudio.com/listener for privacy information.

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

coming through the pipeline or simply want to lower the risk of your overall investment portfolio, EQ Bank's GICs are a great option. The best thing about EQ Bank is that it is so easy to use. You can open an account and buy a GIC online in minutes. Take advantage of some of the best rates on the market today at eqbank.ca forward slash GIC. Again, eqbank.ca forward slash GIC. This is the Canadian Investor, where you take control of your own portfolio and gain the confidence you need to succeed in the markets. Hosted by Brayden Dennis and Simon Bélanger. The Canadian Investor Podcast. Today is February 28th. Welcome to the show. My name is Brayden Dennis, as always brought to you with the famous Simon Bélanger. I say famous because, the famous simone belanger i say famous because oh baby this pod is on a growth train right now that cannot stop it the train has left the station and we are uh we're going to the moon

thanks to the listeners of the show so we appreciate you very much simone um speaking of growth the show it is february 28th meaning that if you haven't been on join tci.com uh our portfolio updates will be live tomorrow so if you're listening to this they're now available at join tci.com yeah yeah no it's always it's kind of fun to look back at the month honestly i enjoy the exercise. I always do it a couple of days in advance and then look at the actual figures for the returns the day before. Yeah, it's fun just because you kind of take a look back and you have to also explain the reasoning, which I enjoy.

And it ensures that when we do make moves, there's some sound logic behind it. It might not always be the right move, but at least there's some good logic behind it. That's right. Yeah. And that's the good point too, right? It's like the decision you make in the short term, if you sell a stock, it's a sure thing that it goes up after, right? It's like the laws of the universe.

We don't make the rules. We It's like the laws of the universe. We don't make the rules. We just live in the laws of the universe. And you and I both sold something this month, which there might not ever be a history of joinTCI.com Patreon where we both sold a stock in the same month. Today we're talking news earnings. It is a Thursday release. You're going to talk about a cyber attack on a Canadian company here. I'm going to talk about the Lumine spinoff from Constellation Software. And then we rip off the Band-Aid with your update on Teladoc. And then I'll get into Autodes you know a couple more news items let's get into it first up what do you got for us yeah so you referenced it so the indigo website their

official website was under attack and now it's been it may sound like older news but we hadn't had the chance to touch on it was in the middle of earnings season and uh so on february 8th indigo chapters was hit by a ransomware attack since then their online site and app have been unavailable for customers and as you were talking I just double check and it's at least still the case for their online site they do have one online but it's a temporary website with a limited selection of books that can actually be purchased and originally they put it online for people wanted to browse and then go in the store to actually buy the book.

Not great. Like I said, still down. And there's a few angles here. I won't do a huge segment on this. But first, when you look at businesses that you want to invest in, for sure, cybersecurity is not something that companies can cut out and i i mean you talked about that we're seeing companies trying to cut costs uh improve their margins because either revenues are slowing down or expenses as a whole are going up so

something's got to give if they want to keep their level of product of profitability so that's something that they will probably not be cutting. The second part here, it's been, you know, close to three weeks since it happened and hasn't been resolved. There's no doubt that this will impact their current quarter result and could have a longer lasting impact by damaging their reputation with their customers. And the last one is a bit different, not an investment perspective, more from a personal finance perspective. So, you know, as a consumer, it's important to always be aware of what's going on, especially with your credit. So they did say that their consumer data

had not been compromised. However, I think they said some employee data may have been, but there's countless example of the consumer data being stolen. And that's why it's important to keep an eye on your credit because you can actually spot any weird transactions. So that will be a sign. I don't know about you, but I have a friend in particular where they tried to buy a house. I think it was like seven, eight years ago. They eventually bought it, but it was a mess because her husband Actually got his identity stolen

So it was a whole mess to actually get sorted out because there was a bunch of loans against his name and him He didn't know until he went to go buy a house. Yeah, exactly because the bank Dude, yeah That's kind of the nightmare scenario. I'm not saying that will happen. But in order to do that, there's a ton of option. Equifax obviously has some products where you pay for. There's also free options like Credit Karma where, you know, it's free.

But what they'll do is they'll try to promote some products that would be a good fit for you like a credit card or stuff like that so that's kind of the trade-off here um so something to keep in mind i personally always keep an eye on my credit i go usually like once a month uh ever since i heard that story so it's just a little step to do and just gives me peace of mind there are lots of soft credit check things that are not going to affect your credit. I know my bank on the app, you can check on it

and it's not going to hit your credit score by checking your credit score. By the way, if you need an official credit score on the same business model as Credit Karma is BorrowWell and they're a canadian company they should sponsor the podcast dude like one second while i send them this clip while they get some free promotion your borrow well is is actually really dope they offer yeah they're like

hey this is a good option for you based on your credit like you know some credit card that's how they make money but if you need a credit check like say lots of things you know new house new rental application uh borrow well's dope i just recently used it and uh yeah credit karma is the same you can see your credit same thing yeah okay yeah same kind of thing so but they canadian though that's the question we'll support the canadian option no credit karma is into it so it's into no Credit Karma is into it. Oh yeah it's into it. Yeah it's into it yeah they're actually getting a lot of flack because they are saying you know they have these crazy growth rates for Credit Karma and I think those were issued a few years ago or some time ago and now kind of you know the economic outlook has kind of changed in debt as well so it's interesting because they're not really adjusting the growth trajectory for that.

But that's a side note. Intuit deserves a formal deep dive on this podcast, I feel like. It has a lot of tentacles. It has lots of tentacles and some really good businesses. I mean, QuickBooks is such a good business. But hey, Borawalk, come sponsor the pod. I'm with open arms. Come sponsor the pod. Let's talk about Lumine. Lumine is a operating group of Constellation Software. I've gotten so many questions. My Twitter inbox should just be renamed

what's happening with Lumine spinoff. Lumen, Lumine, I don't even know. And it is an operating group within an operating group of Constellation Software. Is that the most Constellation Software thing you've ever heard? It's a group within a group within a group. We have now confirmation that Lumine Group shares will now trade on the TSX Venture under ticker LMN on March 24th. That is the date that I have. Basically, what is happening here is they bought a company called Wide Orbit, which is a vertical market software company in the ad technology space. And they're merging it through this acquisition with lumine and so this

is now the second publicly traded spinoff for consolation software the first one being topicus uh here's the deal you're going to get three shares for every consolation share owned and i believe that cut off date was like a week ago. So sorry. But to pull off this purchase, they have wide orbit, they basically did this spinoff. And so they pull off this acquisition, there's value creation here being unlocked, given Topicus has always traded at a premium from Constellation. And they have fairly similar organic growth numbers as well. So Constellation Software is a Russian doll of software groups, each layer having significant autonomy with extreme decentralization. And so Constellation has nearly 1000 companies that it's

a perpetual owner of. And each operate, it owns six operating groups, each owning hundreds of companies. And they manage business units, which will own tens of software businesses, which is what Luma is. It's like a business unit, which has multiple companies underneath it. Mark Leonard quote about working with the founder of Wide Orbit. We look forward, quote, we look forward working with Eric. Him and his team have built an extraordinary business over the last 23 years. And he ends here with, I look forward to having Constellation's long-term shareholders become long-term shareholders of Blue Mind Group. I hope my grandkids are still holding shares 50 years from now.

End quote. Gotta love it. Me and your grandkids, Mark Leonard, will both be holding shares. Me and your grandkids. And I'm looking forward to how much money you'll make me along the way. Yeah, no, that's an interesting one. I know you're the go-to for constellations. I'm not surprised that you were getting a lot of questions.

I mean, whenever we get some through our email, I'm usually, I send those over to you because, I mean, I know it through you, but that's the extent that I know Constellation software. But it's funny how they go to the venture, huh? They go to the venture because they're cheap, man. They're cheap and they don't want anyone to be able to, they don't want the investing public to know about the shares. They want to keep them cheap

because the management team is required to buy shares. It is the most unique operating structure of incentives where if you are in the management team, director, your bonus is actually tied to you have to take that money and buy shares on the public market at the same price that regular public shareholders like you and I can buy shares at. There's no stock-based compensation. They started with 21 million shares when they IPO'd 20-odd, 25 years ago, and they have never issued or bought back a share ever. It's still 21 million shares. And that share count available to the public keeps going down and down and down because there's more and more insider ownership

because the executives and the management teams have to take their bonus and buy shares. So they don't want them to be too expensive. It's such a strange incentive structure that just kind of works really well. Yeah, no, I know you said that before, but it's always fascinating. It's very unique. You will not find this out in the wild very often or ever. Yeah. It's very unique. You will not find this out in the wild very often or ever.

Yeah. 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 airbnb.ca forward slash host now we'll move on to some earnings uh the first one

is teledoc um one that i own for how long i'm not sure we'll see um so i'll go over that reasoning so i'll let people uh listen to what i have to say first so it was q4 in their full year earnings so q4 and full year revenues were up 15% and 18% respectively. Full year revenues ended up at $2.4 billion. Access fee revenues were up 21% and other revenues, which includes visit fee only, was up 4%. For those not familiar, I have talked about Teladog before, but if you're a new listener, so access fees are when employers or insurers essentially pay the subscription fee to allow employees to use the service as they need, whereas visit fee is for individuals to pay on a visit only basis. It's a small portion of their revenues compared to the access fee only. They had a $23.49 loss per share in Q4 and $84.60 loss per share for the year.

So that was primarily driven by Goodwill impairments. One earlier in this year for the Livongo acquisition, and now it's just laughable. They did another Goodwill impairment or write off of $3.7 billion in the quarter. Free cash flow was down 87% to $16.5 million. So at least there's still free cash flow positive. And in January, Teladoc laid off 6% of its workforce to put more emphasis on efficiency and improve profitability, which is not surprising. I mean, that's been a trend, especially in these. I guess it's a health play, but also a technology play. So it kind of aligns with most of the industry here. Before I kind of give my thoughts, any comments before I give the guidance and kind of where I'm at with that holding in my portfolio?

Other than this was a, what, 46 billion in market cap at one point or something like that it was i don't know if it was that high but it was at least yeah like 30 or something like that yeah and uh and the acquisition was 19 for lavango i believe i think so i mean it's been a couple of years now yeah lavango Livongo. They overpaid. Yeah. They overpaid. I'm just, while you're talking, I'm just looking it up. And so the run rate on the company was about a little over $400 million a year on Livongo.

And they paid $19 billion. I mean, of course, we can sit on the podcast and dunk on this acquisition till the cows come home like we usually do uh and in hindsight 2020 it's insane but uh i'm just looking up these numbers because i i kind of have forgotten and it doesn't help their case the more i look into it no no um so the guidance is where it really is disappointing here so guidance for 2023 and i i like to use the mid-range like you know whatever brackets the mid-range i think it's always a good kind of starting point here so revenues to increase eight percent to 2.6 billion net loss per share of a dollar 5050 and adjusted EBITDA of $300 million. So I'll talk a little bit about

the guidance here as well. So the obviously improved profitability was a big part of the conference call, which I took the time to listen to because I've been on the fence now for Teladoc for about a year. I kind of had the approach, I'll wait and see with the whole Livongo acquisition, how it pans out. Obviously, management said they are focusing on more responsible growth approach, but basically putting more emphasis on growing while keeping expenses in check. And like I said, I've owned it for a while. I first bought it in 2017, so it's been more than five years.

And I believe that the time in the growth story before the pandemic they were growing at a pretty impressive clip so from 2017 to 2019 revenues compounded at 33 percent a year growth was a combination of organic and acquisitions usually pretty smaller kind of tuck-in acquisitions which is a bit different from what they did obviously with Livongo now clearly growth got supercharged during the pandemic, and then they made the Livongo acquisition in the back end of 2020. It looked expensive at the time. We talked about it, and now it looks like really a terrible mistake, to be honest.

They sold the Livongo acquisition as a way to continue having strong growth by offering more and more services under their banner and integrating their chronic care from Livongo. So having this kind of unique offering, that's how they were selling it. But they just guided for 8% revenue growth. So to me, what would have justified at least in part the Livongo acquisition would be, look, you have for several years, let's say like minimum 15%, but probably growth in the 20% plus range. And there would have been no reason to not have some growth there, but also profitable growth. But the fact that it's 8%, that's just not acceptable for me. And at this

point, I'm probably going to be selling the remainder of my position in Teladog just because I just don't trust the management team anymore. And I did trim a big chunk of, not a big chunk, but a decent chunk of my position. It was close to all-time high because I just felt like it was too big of a position for my portfolio. It was trading at pretty nosebleed multiples. Clearly, I should have sold the whole thing. But yeah, hindsight is 20-20. And the last thing I'll say, it's not all bad. Their balance sheet is pretty decent. They have $900 million in cash. It's been slightly growing because of them being free cash flow positive. They do have $1.5 billion in convertible debt. So it's not

too bad, especially since it's convertible debt but um they're not on the brink or anything but i just i yeah i can't really justify owning teledoc anymore so that's why i'm most likely going to be selling it in the next few weeks but for sure at some point in this quarter it's you know if you want eight percent top line growth go buy disney you know yeah if that's the number you want go on some stalwart um that is probably not going anywhere this is the problem with you know lack of margin of safety combined with you know the tide turning on the expectations for the actual business moving forward as well. That's like the recipe for disaster in share price from the market is extreme expectations, no margin of safety, nosebleed valuation multiples, and extreme

deceleration on the top line in just like a year or two equals value destruction. And that's kind of what happened here. And here's the thing, and I'm sure you're aligned on this. Let me know how you're thinking about this as well, is you're looking at this and for the most part, you and I, you have to rip the shares out of our hands as investors. We don't sell on bad news. We sell on bad fundamentals or deteriorating investment thesis. And it's a lot easier for me to say, screw it, I'm out on this thing when I no longer have a lot of conviction in the management team. That is when it's really easy for me to sell shares. And that's when I recently sold a stock. That was the main thing was like, this is not living up to

my expectations and neither is the management team, the way they talk, how they've deployed capital over the last two years. I've lost a little bit of faith in that and for this one that definitely rings true from my perspective how do you think about that oh yeah like losing faith in management is probably the death knell here like even you know it's not all bad there's still a create you know they're free cash flow positive. Like there are some positive things here, but, um, yeah, it just, it doesn't feel either like management is really taking ownership of this either. Um, and that's what I find disappointing. Like they, nowhere during the call that I get the sense that it was a, you know, probably not the best idea to take ownership of it where they're

just like still pumping the fact that they bought Livongo and how it's going to help the business going forward. I mean, I don't know, 8% is just, yeah, not there. But like you said, it's something I've been, you know, I've talked on the podcast pretty much for the past year. I said, I don't love where this is going. I'm going to take a step back, see how this year goes. I give management kind of, you know, a little bit of, you know, benefit of the doubt. And clearly, I mean, they disappointed on that. So that's, you know, that's my opinion. If you do own shares, obviously make sure you don't necessarily sell just because I'm selling here. Make sure you do your own assessment. But that's where I stand for that company. It wasn't you know overall it's been a a pretty good bet for me just because I was

good enough to trim we're not start we're not having any uh bake sales for you when you your your biggest loser is one you made a ton of money on that you sold most of your position already yeah and right now it's around my cause basis just just a little lower. But it doesn't matter. Even if it was half of my cause basis, if what I just said would have been true, I'd be selling as well. And I think that's important to remember for people because I know sometimes people just kind of wait to break even price anchoring. So just keep that in mind. Yeah, good call. Price anchoring has no place in investment management. No place in portfolio management does price anchoring fit into any strategy. It should be avoided at all costs. It is your brain playing tricks on you when it has no

basis for reality moving forward with returns. All right, let's talk about, where are we? Autodesk. Autodesk, ticker A-D-S-K, a position I've owned for, gosh, I don't know, long time now. It's fiscal 2023 that they just reported. So full year 2023 numbers. Total revenue was $5 billion on the nose, an increase of 14%. Total billings increased 20% to $5.8 billion. It's a nice little leading indicator there. Operating margin of 36%. And as per usual, gross margins exceeding 90%, which have been rock solid at 91, 92 for about four-ish years since they finished the SaaS transition. So two, three-ish years now. Now, if you look at the segments, the architecture, engineering, and construction, their bread and butter was up 16%, which was the best performing segment, which is the best kind of news.

When you have your bread and butter and biggest segment is still growing at the fastest level, that's always really nice to see for any business and especially this one. That AutoCAD segment, good old AutoCAD, still growing double digits at 11%, manufacturing at 12%, and media and entertainment at 12%. So double digits across the board in their small other category, which has some optionality and some interesting design and visualizations and gaming engine type integrations at up 87%. But it's small, so not worth talking about just yet. That AutoCAD segment, dude, oh my God. Is it the most successful software of all time? Let me answer that for you. Yes. $2 billion in free cash flow for the company, which has been the goal, was around $2.4 billion, for the company, which has been the goal was around 2.4 billion, I think they set out in 2017 from the current CEO. And the market was mad that they didn't hit their goal way back on free cash

flow. I look at that the other way and it's like, they laid out a path for free cash flow in a market that has not been focusing on profitability in that time frame at zero rates, grow at any cost. And they're off by 400 mil, but they're still generating $2 billion in free cash flow and 5 billion on the top line growing at nearly 20%. And probably going to keep going double digits for quite a while still here. It was rough transitioning from their previous business model in 17, 18. So it's kind of nice now you're seeing the short-term pain that they laid out for the benefit of nice margins, recurring revenues, and cash flows. If you look at their recurring revenue base, which we do track on Stratosphere and their KPIs, you'll see their recurring revenue base is now nearly $5 billion a year, growing mid-teens year over year. And the subscription base has nicely exceeded over 6 million active subscribers.

Nothing really to add here. I mean, the market marked this thing down again. So it's never been a cheap stock but it has gotten cheaper and cheaper over time i'm thinking about adding to it here even though it still feels expensive companies like this always feel expensive we're talking about one of the most sticky software businesses in the history of software businesses yeah no definitely looks uh i mean still expensive like you said but definitely looks like it's coming down a bit and if you believe in the long-term growth and trajectory of the business obviously this could be a pretty

interesting play i mean i know the autocad software really well just because i think i mentioned before my dad was in architecture so i remember when i was a kid where you actually needed like a special square mouse and a i'm trying to explain that but it was like it had like forms on it it was this like a rectangular probably like a large book size kind of size and then you bring that special mouse on it and click whichever kind of form you needed and then you start drawing the plans with that yeah exactly and so there's that stickiness on like skilled labor like your dad but there's also the i do believe the narrative that you know increased competition competition will come for this.

And I wholeheartedly agree. I mean, whenever you have margins like that in a very important industry like architecture, engineering, construction, massive total adjustable market, ridiculous margins, there's always going to be more and more competition. And I think that that's a fair point. But what is a little bit overblown is I'm an engineer. I still talk to my buddies who are in engineering. I'm always checking up on this stuff, getting their opinion on if anything's changing, what are the upstarts? And I've got them to even show me demos of their competitors. what are the upstarts? And I've got them to even show me demos of their competitors. And my buddy was showing me this really cool 3D visualization software for this new big tower they're working on in Toronto. And he's like, yeah, and I just bring this file in and then

it'll load up. And I was like, hold on, can you go back a few steps there there and he was bringing in an autodesk file into the the competitor's stack and so i was like so autodesk is still obviously involved in this process they're they're being built on top of and he's like yeah and i'm like okay well what about could there be a different file input that replaces it? And he's like, basically no, because no chance the architect is going to switch. You know what I mean? It's too big of a barrier, too big of a switching cost. And so there are many things happening outside and adjacent,

but they seem to still be operating on the rails of Autodesk. If that changes, I'm willing to change my mind. But right now, this is why you buy and hold and you verify. You verify the thesis, you verify the thesis, and you keep verifying the thesis as long as you're a shareholder. Yeah, and I'm not an expert with AutoCAD or anything, but you know, it's a more advanced, like it's a software for some pretty technical professions too. Right. So it's not like, it's not something where you're necessarily like designing like Photoshop or something like that, which, you know, you know, requires, don't get me wrong, does require some getting used to the software and some technical knowledge as well. But, you know, people go to school for several years to do these professions and usually they will in school learn how to use these software as well. So just the

training that would be required if you're a business to train your architect or whichever workforce uses that. I can just imagine the training costs, how high it would be. And there could also be some pushback from the employees, right? They may just not want to learn something new too. Yeah. And mastery here is on a different scale, right? Like the Photoshop example. Yeah. Master mastery can probably be achieved in months to years. Mastery on these types of tools are in the decades. And that's a material difference career-wise in terms of stickiness. Yeah, no, well put. As do-it-yourself investors, we want to keep our fees low. That's why Simone and I have been using Questrade as our online broker for so many years now. Questrade is Canada's number one rated online

broker by MoneySense, and with them, you can buy all North American ETFs, not just a few select ones, all commission-free, so that you can choose the ETFs that you want. And they charge no annual RRSP or TFSA account fees. They have an award-winning customer service team with real people that are ready to help if you have questions along the way. As a customer myself, I've been impressed with Questrade's customer service. Whenever I call or email, every support rep is very knowledgeable and they get exactly what I need done quickly. Switch for free today and keep more of your money. Visit questrade.com for details. That is questrade.com.

Here on the show, we talk about companies with strong two-sided networks make for the best products. 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. Now we'll move on to, you know, might as well talk about some other not great management. So Intel slashed its dividend, which was kind of obvious that they needed to do that. They cut it by 65% from $0.365 per share to $0.125 per share. You actually texted me the morning of like, oh, here it is, like the dividend cut. And honestly, it was the right move, but the timing was definitely odd to say the least. And here's what I mean. So management got asked about the dividend during the earnings call on

January 26. An analyst asked management about the current level of the dividend and if management and the board were considering keeping it at that current level or looking at reducing or increasing it. So the current level was 36.5 cents per share. Here's what the CFO responded. The best like politician non-answer that you can kind of get. Yes, well obviously we announced 36.5 cent dividend for the first quarter. That was consistent with the last quarter's dividend. I just say the board, management, we take a very disciplined approach to the capital allocation strategy, and we're going to remain committed to being very prudent around how we allocate capitals for the owners. And we are

committed to maintaining a competitive dividend. What the hell? A competitive dividend. Exactly. And I mean, go ahead. If you want to listen to call, those comments and the question were right around the 53 minute mark. So I wanted you know just to because it obviously when you look at it and sorry when you listen to it and the tone um you'll understand the cfo was very hesitant didn't seem like almost sure it's almost like he was trying to hide something and clearly you know in hindsight hold on let me just flip to my notes because I knew this question was coming. Yeah, exactly. And to me, honestly, this is just a big red warning sign about that management team because, you know, the smart thing to do, which they did not do, they had a terrible quarter and

it was a bad year for Intel. Anyone who listened and looked at their earnings can tell you that. So when you have a bad year and quarter and your guidance is not good, it was not good either, why would you delay this kind of move a month? Just rip off the Band-Aid. It's not gonna affect your stock even more. People will actually probably commend you

for cutting the dividend because that's the smart thing to do. And honestly, right now, looking at that and the transformation that Intel is trying to do, I just don't understand why they even kept the dividend. I would say if I was in their situation, I would cut the whole thing and say, look, we'll reevaluate it on a year to year basis. But right now our priority is to gaining back some market share that we lost and making sure that our turnaround plan is properly funded. It just,

it does not make sense. Oh, that's just my honest opinion there. I wholeheartedly agree with your opinion. And this is the difference between executives who are, it's all incentive structures. You just follow the money. It is so simple. If you look at the incentive structure here, the last thing these executives of Intel, a large American corporation, they're collecting their gigantic paychecks. And the last

thing they want to do is see the value of their shares go down. And they're acting in the short term versus being owners for permanent capital for investors. Align your portfolio to people who are managing permanent capital for their shareholders and focused on the long term story. This is a turnaround story. Hopefully, that's what investors should be hoping for. Not collecting that big, fat, juicy dividend that was going to get cut. If it didn't, they were going straight into bankruptcy. So you knew they were going to be cutting it and they cut it 65%, which is as obvious as the sun coming up tomorrow. So I saw a lot on Twitter, these Facebook groups that I try to promote stratosphere on. People, look at the dividend

of Intel. I'm buying shares. I want this juicy fat dividend. And I'm just like, oh my, this is such amateur hour. Don't fall for this trap. If I was running this company and I was the sole owner, yes, no more dividend. Take it to the woodshed. This is a turnaround story. The government of the US wants nothing more than them to succeed. I mean, if you're bullish on this company, you're like, If you're bullish on this company, you're like, they're not going to let Intel fail because they need fab on US soil. What better is it than the US government is the biggest proponent of wanting you to succeed? So, dude, I would so run for the hills on this story. It's a tire fire. Yeah.

And I think they also need to pick a lane um i think trying to be an integrated uh semiconductor company um it worked in the 1990s in the early 2000s but clearly has not been the best strategy in the last decade or so so i mean you know they're trying to to do both things but i've you know maybe they should just look at being a fab try to competing with uh you know taiwan semiconductor and leverage the u.s government because the u.s government will probably you know in being they'll probably be more favorable to intel over taiwan semiconductors even if tsmC starts opening fabs in the US, which they will be. I'm sure the US government would be very happy to help out Intel at opening more fabs.

And by doing so, and just kind of, you know, not doing the whole chip design business anymore and producing their own chips, but producing chips for an AMD and Nvidia, if they become and they have advanced enough fabs eventually, you know, it could be a good business model and they would attract those customers because those customers would not be afraid of Intel actually stealing their technology, which is the case right now. Intel can say what they want. They said they're doing some, you know, they're actually progressing on that front, having some commitments for using their fabs, but it's always going to be a very difficult thing for them to do

because the chip designers will just be very reluctant to go for them. They'll go for a TSMC where they just produce it. That's it. They're not afraid of those designs being stolen. The writing has been on the wall for this industry where they just produce it. That's it. They're not afraid of those designs being stolen. The writing has been on the wall for this industry that the designers and the pure play fab is the way to run this business

and integrated is not the way to do it. The writing has been on the wall now for, what, maybe 10 years? Is that too much? Yeah, I would say it probably started shifting around that. I mean, what really helped the SMC is competition started cutting costs around the great financial crisis and they kind of bucked a trend and they continued investing. And that's where they really, really gained market share. That was around that time.

So I would say, yeah, probably around a decade was a turning point for that. Let's talk about GFL full year. The big green machine reported earnings and total revenues came in at 6.76 billion, an increase of 31.6%. So they continue to just really kind of impress on the top line and especially this organic line item. Organic revenue growth was up 13.6%. I think if you're going to take anything from this report, that is the bullish case, that they're able to kind of flex pricing power in this way. I think this is the most impressive metric from the report. And hence, Simon, why it sits at the very top of every report, every messaging, every press release, every presentation. They opened with that,

and as they should. I mean, it's a seriously impressive number for solid waste. Adjusted EBITDA of 1.7 billion, an increase of 22%. Now, that sounds pretty good. It sounds all very good. Now, here's where I'm going to take a turn on this. I'm a shareholder, okay? I'm a shareholder. I got to be honest. I own this business in my portfolio and still for the life of me, every time I look into the results, I get so damn confused. Their adjustments are, and you're smiling, grin, you're grinning ear to ear right now because you know this. The bear case is, yes, it's too highly leveraged. That's been the bear case the whole time.

How about I add, you got to be a financial auditor to go through these statements and make it make sense. After all, Charlie Munger famously quoted saying, every time you see adjusted EBITDA, replace that with bullshit earnings. He has no problem calling it like he sees it. Honestly, how often do we talk about this? If you're going to own something, you got to be able to understand it well. And I'm doing some self-reflection here live on the podcast because every quarter I have to go to the footnotes and really like dig into those adjustments and their competitors are not like waste management numbers

and waste connections are like so gap profitable. And so it, you know, ding, ding, ding, right? Like these should be some red flags that's all i'm going to say nonetheless the growth story here continues to be impressive their aggressive land and land and expand in the waste management business both organically and through acquisitions is very impressive they flex some pricing power and they closed 20 no they closed 40 acquisitions in 2022, which is a ton. They spawned out the infrastructure business, which I think was smart, and some of the non-core assets. That generated about $360 million in cash to really focus on the solid waste management business. I think this is the right move. The solid waste management business is still hyper mega fragmented.

It's more than 50% private, even though you have these giants like Waste Connections, GFL, and Waste Management rolling it up in North America. They're guiding for about 11% top line and 700 million in adjusted free cash flow, whatever that means. Interest expense is something you got to look at. How do you adjust for free cash flow whatever that means interest expense is something you gotta look at how do you how do you adjust for free cash flow that's my question this is what i'm talking about you gotta go to the footnotes and the problem is is that i'm having to look every single time because i still like i have to i forget like you know or like it changes. I don't love that.

I've never loved that. I think I'm just being more critical with self-reflection. I think this is part of growing as an investor and realizing you and I come on this pod. We learn a ton by doing lots of research. And you got to know what you own. And maybe I don't know enough. Maybe I'm not a financial auditor to be able to look through these statements every time. Regardless, the asset sales and the growth give this the chance of really ripping higher if they can contain those interest expenses.

The bear case, and I'm taking my own medicine here, is reading this report is like financial gymnastics, where you go from gap losses to $440 million in adjusted EBITDA. So given that mentally, I'm not selling my shares. I don't do anything rash. I'm confused. I'm going to sell it. But it is mentally on a short leash upon some self-reflection and my ability to understand it and my desire to understand it in the future is waning. Yeah, I mean, those adjusted metrics, that's the issue with the adjusted metrics is a company A will have adjusted EBITDA, company B will have adjusted EBITDA, and they'll be different the way they calculate it. And that's the problem, right? When you have GAAP or IFRS for Canadian listed companies is there's a set of accounting principles that they have to follow. That's why, you know, you can rely on those. Clearly, there's limitations with Berkshire.

That's always a good example because they'll have like either massive loss or massive profit just based on the value of their investments. So there's definitely limitations to that. But there's things you can look at, right? You can look at stock-based compensation when even, you know, without looking at these adjusted metrics, you can look at free cash flow. You can look at actual net income and make a better picture of what's actually happening with the company. Obviously, looking at the balance sheet as well.

I'm with you. The adjusted metrics. I mean sometimes it makes sense. But it seems like my god. Like so many companies actually use that now. The one I do like. And again you have to make sure you look at how they calculate it. But for REITs I like the adjusted funds from operation.

It's actually a harsher metric in most cases than the funds from operations. So just, yeah, I think it's important for people to look at that and, you know, not just looking at the top line saying, oh, well, adjusted, you know, EBITDA 440 million, everything's going well. You have to actually look at what's going on. That's right. And to be honest with yourself as an investor is, do you care to figure out what's going on? Because there are so many investment ideas that you can own and understand and have conviction in for a long time and not have to do financial gymnastics to get from

negative gap EPS to huge hundreds of millions of dollars in adjusted profits. You know what I'm saying? Dude, I'm on a hilarious blog post right now. Because I'm looking up Patrick DaVigi, the founder and CEO. The founder, yeah. He has a $90 million yacht. And I think he's trying to sell it now or something. Uh-oh.

Never trust a guy with a $90 million yacht trying to make you money as a shareholder. Never trust that. This blog post is hilarious because it says, the one enjoying this stunning super yacht is allegedly Patrick Dovigi, a Canadian billionaire mostly known for being a former hockey goalkeeper he didn't even play one game in the nhl i think get a cup of coffee for a couple practices for the edmonton oilers that is hilarious his money obviously is from gfl this is brilliant i love the internet okay yeah i guess the last thing, this will be

a quick one. Just because it's a name I know a lot of people follow in Canada. So that came out, their earnings came out a few weeks ago. Nutrien, they released Q4 in full year. It's in US dollars because they're traded on both the Canadian and the US stock market. Sales were up 37% to 38 billion. Cost of goods sold only went up 24%, which is a good sign here compared to sales. Net income was up 142% to $7.7 billion. Earnings per share was up 157% to $14.18. And all segments were up for the year with the exception of merchandise and services, which were flat. They're also two of their smallest segments. Now, I'm not going to touch too much on the guidance here just because it's so tricky.

I mean, you can't really fault management. They do try to offer some guidance. But what tends to happen is every quarter they kind of revise it a little bit because it's so dependent on the price of commodities. revise it a little bit because it's so dependent on the price of commodities and obviously like we saw last year it's also dependent on what's happening on a geopolitical basis due in part by the russia ukraine war war will you know it will definitely increase the production and therefore require nitrogen and potash and russia well i think it was ukraine that's uh was a big exporter russia as well actually uh so it's going to be potential tailwind here for nutrient as long as unfortunately this war kind of drags on and prices for potash and potash and nitrogen have gone down in recent

months but they believe that supply constraint, like I just mentioned, and low inventory levels from growers should be a tailwind in the coming years. And again, I won't go over the guidance just because it's so tricky. If it is a name you're interested in, just be aware that it will be very dependent on the price of the commodities here. i mean i do like it as a commodity play a commodity play though because people have to eat our population worldwide is increasing and there are not that many companies that produce what nutrient actually produces which is um potash and nitrogen are the two main things that they produce it's funny you know Every time we talk about commodity businesses, it's the same old song and dance. So I'm not going to go there.

No, yeah. But what I will say is there are a few that are superstars and just absolute studs in terms of the way they operate, what they sell, it being so just so core, the amount of cash flow they're spinning off and just the the competitive landscape being really not that intense um this is a gem this is one of the good ones yeah people from saskatchewan uh really love you now yeah i'm trying to score points with the people from saskatchewan. So you're welcome.

No, I'm serious though. There are some gems and I'm so harsh on my... No, I'm not harsh. I'm just honest about how I do not want to own any commodity place because I can't predict the future and no one can. But there are really good assets and really good operators and there are some not so good ones in the mix and just own the high quality ones like it's really it seems ridiculous it seems simplified but it's not that hard to identify the high quality assets and the poor ones just by simply looking at you know the three financial statements it doesn't take a

absolute financial genius you need to't take an absolute financial genius. You need more of a financial genius to go from negative gap losses to $440 million in adjusted EBITDA. Exactly. Yeah. No, and they generate, even when the prices are lower, they will generate some free cash flow. It's going to vary.

So I think, and they've always paid a decent dividend. Obviously, they had that merger. I think it was, what, five years ago now? Five, six years ago? The old Agrium and Potash Corp. Potash, yeah. So that really, but just looking at Stratosphere, I was like, who was it? I think it was around there.

I think it was in like, it was 2018, but January forming merge. They completed the merger on january 2nd 2018 so yeah it was a 2017 story yeah and they they produce free cash flow i mean it's just gonna range that's it uh depending on the price apparently the merger was actually announced in september of 16 oh okay geez time that does not that's a bit scary that feels like two years ago in my mind uh time flies uh thanks so much for listening to the podcast folks if you have not given us a rating especially if you're on apple podcast it takes four seconds you just scroll down on the episode and then there'll be like five stars there. And

then there's also a little icon where you can press write a review. It's in purple writing. So you just click write a review, smash the five stars, and then leave us something. We've gotten so many in February and we noticed that it kind of moves the needle for us. And this podcast is completely free. You come here, you listen twice a week. We do all this research. All we ask is four to seven seconds of your time with hammering that review button on the podcast player. Yeah. Yeah. Until we get that Joe Rogan deal with Spotify. Yeah. Until we get the Joe Rogan deal, we need you Apple podcast listeners. No, but the Spotify listeners also can hit that rating button and it helps us a lot.

We'll see you in a few days. If you're new here, this episode's come out Mondays and Thursdays. We'll see you in a few days. Take care. Bye. The Canadian Investor Podcast should not be taken as investment or financial advice. Brayden and Simone may own securities or assets mentioned on this podcast. Always make sure to do your own research and due diligence before making investment or financial decisions.