Yet Another Value Podcast - Brian Finn from Findell Capital is back to dissect $CUTR and $OPRT

Episode Date: May 15, 2023

Brian Finn, CIO of Findell Capital Management, is back on Yet Another Value Podcast in the quickest turnaround in the show's history, and for good reason. Following earnings calls from $CUTR (idea recently discussed with Vince Martin, link below) and $OPRT (idea discussed on Brian's first appearance, link below), there was a ton information to dissect. Link to last podcast on $CUTR: https://youtu.be/LVqVzbAohus Link to last podcast on $OPRT: https://youtu.be/xoxdSl3FwOk Findell Capital Management Letter to the Oportun (3/29/2023): https://static1.squarespace.com/static/5e17f2a118561f6339437f24/t/64240b4f0cf8705352d472b7/1680083791192/Findell+letter+to+OPRT.pdf Chapters: [0:00] Introduction + Episode sponsor: Stream by Alphasense [1:38] Update on $CUTR following earnings, new board slate [9:27] What happened on the $CUTR earnings call, who's on the new board slate and CEO candidates [15:33] $CUTR cash burn and potential financing needs going forward [19:30] What happens with the $CUTR former CEO and former Chairman [23:39] How do you assign a value to $CUTR when looking at the potential upside with AviClear product [31:22] How $CUTR is dealing with management and board turnover [36:50] Final thoughts on $CUTR [39:00] Quick update on $OPRT following earnings call [43:24] How has regional banking "crisis" affected $OPRT [47:49] Thoughts on Tidewater earnings Today's episode is sponsored by: Stream by Alphasense Are traditional expert calls in the investment world becoming obsolete? According to Stream, they are, and you can access primary research easily and efficiently through their platform. With Stream, you'll have the right insights at your fingertips to make the best investment decisions. They offer a vast library of over 26,000 expert transcripts, powered by AI search technology. Plus, they provide competitive rates on expert call services, and you can even have an experienced buy-side analyst conduct the calls for you. But that's not all. Stream also provides the ability to engage with experts 1-on-1 and get your calls transcribed free-of-charge—all for 40% less than you would pay for 20 calls in a traditional expert network model. So, if you're looking to optimize your research process and increase ROI on investment research spend, Stream has the solution for you. Head over to their website at streamrg.com to learn more. Thanks for listening, and we'll catch you next time. For more information: https://www.streamrg.com/

Are traditional expert calls in the investment world becoming obsolete? According to Stream, they are, and you can access primary research easily and efficiently through their platform. With Stream, you'll have the right insights at your fingertips to make the best investment decisions. They offer a vast library of over 26,000 expert transcripts powered by AI search technology. Plus, they provide competitive rates on expert call services, and you can even have an experienced by side analysts conduct the calls for you. But that's not all. Stream also provides the ability to engage with experts one-on-one and get your calls transcribed free of charge, all for 40% less

than you would pay for 20 calls and a traditional expert network model. So if you're looking to optimize your research process and increase ROI on investment research spend, Stream has the solution for you. Head over to their website at streamrg.com to learn more. Thanks for listening, and we'll catch you next time. All right, hello, and welcome to you another value podcast. I'm your host, Andrew Walker. If you like this podcast, we'd mean a lot. If you can follow, rate, subscribe, review it wherever you're watching or listening to it. With me today, I'm happy to have back on for the second time. Brian Finn. Brian, how's it going? Good, Andrew. How are you? Doing good. Man, this is, you were just on last month. I think you're setting a record for

second guest appearance, but really excited to have you. I know we've got, well, let's do disclaimer first. Disclaimer, mind everyone, nothing on this podcast is investing advice. That's always true, particularly true today. We're going to talk about two smaller, probably messier than one of them is getting less messy by the second situation. So everybody should just remember, please do your own work. Nothing's investing advice, consults a financial advisor, all that. Brian, you're coming back on because I think for two reasons. We wanted to follow up on OPRT, which was the first podcast you did, just announced earnings, announced a lot of cost cutting, following a lot of the playbook that you laid out in your letter and the podcast we did, stocks performed really nicely. And I think you still think there's more as a go. So we'll talk about that on the back half of the podcast, but the main reason I think we wanted to come on and do this quick follow up was Q Terra. The ticker there is C-U-T-R. They, I just did a podcast on them last month. You and I have been exchanging notes on them. We think it's a really interesting situation. They just announced earnings, a settlement with two of the largest shareholders, a new board. I think the earnings call was absolutely wild.

And you and I are talking, we're like, hey, let's just get another podcast out there because this is one of the craziest situations I'm aware of. And we just wanted to, talk about it. So I'll pause there. What should people be knowing about Qatara now and since the last podcast? Yeah, well, maybe you guys covered a lot over the last podcast. I don't want to repeat too much. You know, you guys went over a lot as far as the products that Kutera has and some of the board drama. But I'll kind of maybe start at a high level of sort of how we started looking at this. You know, we were interested in Kutera because of Aviclear and the, you know, had done a lot of calls with dermatologists and had gotten great feedback

on that. But one of the things that we, we heard in calls with former employees and people kind of been around the business was that this was a company that had a very dysfunctional board. And it was so dysfunctional that it was distracting to, you know, senior level management and employees. So that was kind of a risk here. Now, what that was due to was, was unclear. You know, some of them attributed it to the presence of Dan Plants, who was the activist shareholder who was executive chairman others attributed to to other board members you know the the line that we heard on plants was that he was excessively interfering with things that he would have to sign off on press releases and you know almost acted like he was an executive within

the firm and you know as some found out he yeah i mean obviously the last podcast we talked about him wanting to be CEO i completely agree and he even said in his letter hey hey, I was spending 20 plus hours a week working on this company, like going to field visits, going to, like, that is, it's approaching a full-time job at that point, right? Like, I'm sure you and I work more than 20 hours a week, but it's starting to, you're going from part-time to salary once you're over 20 hours per week, right? Exactly. But to, you know, to plants his credit, he did own a lot of shares and was highly incentivized

to see the share price work here. So in that sense, you know, he was aligned with. shareholders. You know, on the other side of this, you had the entrenched slate, you had two guys who'd been sort of more legacy board members, and then the three new board members who'd come on board, you know, within the last two years, they were the three women, Sheila, Julianne, and Woodman. You know, the issue with that slate was that none of them really owned shares. And while they did, you know, as we sort of had conversations with them, you know, they made a good point that, hey, look, Dan's a bad guy, or at least this was their point. Hey, Dan's a bad guy. We can't let this

guy who owns 6% of the company take the whole thing over. That's not in the fiduciary interests of shareholders. All right, point taken. But, you know, the problem was they didn't really own much in the way of shares. So, you know, it was hard to see kind of where their incentives were. They hired a Kyle Lefeek from Sidley who really is regarded as the best activist defense lawyer in the world. He's very aggressive, but he's very good at what he does. And that I think would install fear in the heart of folks who are on the opposite side of him. So they hire very good and a very aggressive lawyer. One thing I heard on the heels of the podcast, two people reached out They were like, oh, I kind of, I saw this situation.

I thought about getting involved. But when they saw the lawyer who was hired, they were like, no, just, it's really just not worth the headache at that point. So obviously, extremely well respected on the activist defense side. Yeah, I would not want to get on this guy's bad side, put it that way, having heard stories. So, you know, they hired a great lawyer, but they were in kind of a weak position here in many respects. I mean, they didn't own any shares against them.

you had, you know, obviously plants and Maori, the former executive chairman and the former CEO. You had, you know, the different employees that had written in support of Maori and plants. And then you had the 13D filers, Pure Vita and RTW, who kind of written, you know, basically, not totally neutral, but saying, hey, look, you know, you guys, you need to keep Maori, you need to not fire plants, like, let's get to a resolution here, let's have the special meeting. you know, in thinking about these different cast of characters, you know, with, with plants, obviously thinking about trying to come on as CEO and having whatever incentives he has, these board members wanting to perhaps stay on as board members, you know, because of the prestige and the money that comes with that, but not owning any shares, really the only side here that it made sense to side with as a, as a shareholder were, you know, the other large shareholders

in RTW and Piravita. These were at least two big hedge funds that know the space and care about shareholder returns and weren't looking, weren't angling to run the company. They just wanted to make money. So, you know,

in seeing them file their 13Ds, our hope was that, you know, you get to some sort of resolution with them that the company would, would, or the entrenched board would see the light and realize that their best shot of winning this battle was to align with those shareholders. And we finally got that. The problem is that it came late Tuesday night after the

earnings. So, you know, the messaging on this was all terrible. You say after the earnings. I think it was actually during the earnings call it came. Right. And maybe it was like, yeah, a couple minutes before the earnings call ended. So the whole thing was like super bizarre. I mean, why couldn't they have announced this, you know, at four o'clock on earnings or the morning of? The whole conversation would have been about this new slate and talking about what an amazing. new slate this is and how this really does go a long way towards solving the issues here. You've got, I mean, I can go through each of them, but you basically, you know, to think about it in kind of a basketball analogy terms, I mean, this new slate is like bringing on LeBron James and Joel

Embed and Luca Donchick, you know, onto like what has hitherto been like a dysfunctional college basket. Right. Luca didn't even make the playoffs this year. You got to give you careful throw. running out Liga Donchig's name. He's not even making the playoffs. Hold on a second. I just got to. So, you know, I think it's important to kind of go through who each of these guys are.

But rather than having, you know, rather than having that be what gets discussed on this call, instead we have what was a really bad earnings call, you know, bad on a number of levels. from, you know, just the timid and tentative tone of the interim CEO, Sheila Hopkins, to the lack of guidance. It was really strange because, as you said, timid, there was one point, like, I was wondering what the heck was going on because, like, how is she doing this, the earnings call while she, this was, again, the press release with the settlement with the two major shareholders came out like kind of halfway to actually more like 80% through the earnings call.

And at one point, somebody said, hey, like they pulled guidance and they said, we can't pull guidance. And they said, hey, like, we really depend on guidance or at least product placements to kind to think about this company. Like, how are you guys in? And she, an almost direct quote is, hey, I'm not familiar enough with this company to provide guidance yet, right? And the CFO left alongside earnings, one of the many members who signed something

supporting the prior management is like the CFO left, the interim CEO from the board takes over, gives this really typical call and says, I'm not familiar enough with the business. like i almost thought she was trying to light the company on fire during this call until like it was just very strange sorry to ramble but i that's been like sticking in my brain for 48 hours and i had to say it or else i might have gone crazy yeah and i think if they hadn't announced this slate the stock would have opened you know way lower than where it actually opened um if they had announced the slate prior to the call and had the call be about hey look this is where we're headed towards we've got this new board slate coming on and you know we're

we're going to bring on a real CEO, you know, not this whole interim CEO situation. I mean, Sheila's just not the right person, not qualified. You mentioned the LeBron, James and Joe Illandbide coming onto the board. And I know there's one in particular whose background you want to describe. But one thing I thought was very interesting on the call was she said, hey, none of the kind of current board members, I promise to everyone, none of the current board members are going to. to become the CEO of this company. And I thought that was really interesting for two reasons.

A, you know, there had been a lot of accusations that the current board members were trying to become the CEO of the company. But B, the use of current was very big in there because right after she says that the settlement with the new Joelle Embede and LeBron James of the board come on. And I thought it was interesting to use current because I said, oh, you know, these guys do have good backgrounds. Maybe one of them is a high priority candidate, not just to become a board member, but to become the CEO, probably not guaranteeing.

because obviously not guaranteed because they're still doing a search. They could have just named them CEO to begin with if they wanted to. But it seems like that use of the current board members there instead of just board members, I was very, I thought that was very targeted. Yeah. You know, and I mean, this is all speculation. I'm sure we're still a while's away from actually figuring out who the right CEO of this firm is. But the only thing that did, another thing that did catch my eye was the fact that they named Taylor Harris as a special advisor.

consultant. William Blair also came out with a piece after earnings and after this press release kind of noting that that Taylor might be the one to be the next CEO. And if you just do a quick switch on that guy's background, I mean, he's someone who, you know, he's been a CFO of a number of three different businesses, each of which has sold for multiples of kind of, you know, when he started to when when the business was sold so he did it with uh myocardia which was a clinical stage biotech company um developing treatments for for cardiovascular diseases that was sold for 13.1 billion to bristol myers he did it with zeltique which is kind of the best comp here which is an aesthetic device company that did the whole cool sculpting um that reduction device

He sold that for $2.5 billion to Allergan, which was roughly six-time sales. And then he did it with Thorotech, which is another medical device company. And he sold that to St. Jude for $3.4 billion. You know, I wish I could pull up the chart prices here. But each of these, these were all, you know, multi-baggers for the investors that came in kind of when Taylor came on. So I think he'd be an amazing CEO candidate. and hope someone like him or someone of his caliber gets brought on. But I think what makes Katera so interesting

and why I think there is all this sort of agitosh about gaining control over it is because they really do have a potentially game-changing product here in AvaClear. And I think that's why, you know, there is this whole, as you refer to it, kind of Game of Thrones power struggle happening to get control. Luckily, I think the guys that have the best, you know, our interests at heart the most in these two different hedge funds, you know, are, it looks like now kind of like leading the, directing the ship here and bring on the right set of people who can, you know, have the right set of experiences to do what needs to be done to take advantage of the opportunity that. that Advoclear presents. And now, a quick word from our sponsor. Are traditional expert calls in the investment world becoming obsolete?

According to Stream, they are. And you can access primary research easily and efficiently through their platform. With Stream, you'll have the right insights at your fingertips to make the best investment decisions. They offer a vast library of over 26,000 expert transcripts powered by AI search technology. Plus, they provide competitive rates on expert call services, and you can even have an experienced byside analysts conduct the calls for you. But that's not all. Stream also provides the ability to engage with experts one-on-one and get your calls transcribed free of charge,

all for 40% less than you would pay for 20 calls in a traditional expert network model. So if you're looking to optimize your research process and increase ROI on investment research spend, Stream has the solution for you. Head over to their website at streamrg.com to learn more. Thanks for listening and we'll catch you next time. That all makes sense. I want to talk valuation and like I know one of things and one of the things I kind of regret that we didn't really dive into in the first podcast is I think Avalclair like I do think we talked about how big Ava Clear could be but you know if if it hits its potential this has like blockbuster grand slam opportunity I know some people who think hey you know this is going to do well not but I do

think this has a lot of but there is one thing I want to talk up before we get there the company is burning a lot of cash right and now they have a lot of cash on their balance sheet as well but they're burning a lot of cash and I think there has been some debate over and there were two questions on the earnings call on this and there were some uh there was some analyst chatter actor and you know if something gets asked twice on an earnings call it's generally because people are worried about that and it's hey you're burning a lot of cash are you guys going to need to are you going to guys going to need to raise more capital to fund this business because it's pretty simple right the stock has been roughly cut in half by all this game of thrones drama uh if you're burning cash

and you need to say raise capital now it's probably going to be pretty expensive capital is probably going to be pretty dilutive to shareholders. You know, the company, I guess I'll pause there. Like, what do you think about the company's kind of cash burn and financing needs going forward? I think the analysts that, I think it was Piper that came out saying they might need to raise cash. I think they're completely wrong.

They've got plenty of cash. The cash burn is going down each quarter. So I really view it as a complete non-issue. I know it's kind of causing agitos among investors right now. But they have a couple hundred million dollars in cash here. I think there's things they can do to maybe clear out some of the debt overhang. But that was one thing I heard. I didn't speak to the management team, but I spoke to an investor who did,

who said that they did mention that the cash burn situation is getting a lot better and should subsequently get better each quarter. So, again, I think this is what happens when you have. have, you know, an interim CEO, it doesn't really know the street, you know, a board, I mean, there's just all this, all this stuff, you know, agitas that's being kind of dealt with at the moment where, you know, the communications about the basic things that are happening in the business are not happening the way they would normally happen. It was just really, which is one of the reasons why they need to bring back, they need to bring back

Dave Maury, the former CEO, to at least provide some sort of kind of consulting arrangement and help improve their ability to do things like guide and to communicate to the street. Because I think the street's totally wrong about the need to raise cashier. It was just surprising to me because I think they've got about 270 million in cash on the balance sheet at the end of last quarter. They burned 37-ish million in cash from operations during the quarter, a little bit more. or if you include cap X, but they said on the call, like, hey, this is the peak burn period. And it makes sense, right?

Like you're approaching, I think it's a thousand avi clears have been slotted. Like, yeah, you place a thousand products in the past year. Of course you're going to burn cash. But, you know, now the cash is start flowing. And if you're burning cash even faster, it's because you're placing these products at an exponentially higher rate, which you would hope would be good for the business long term. And, you know, the stock would rise a lot higher. But if not, like, it does seem.

it just makes sense that the cash burn should start coming down. I was just very surprised by the focus on that with, you know, 10 quarters worth or eight quarters worth of cash burn at the peak in the bank account. I was just very surprised by that focus. Yeah. I think that's the kind of communication that will hopefully get sort of cleared up and clarified here as they bring on any management team. You mentioned back to Maui.

You mentioned Mallory coming back, the former CEO and former chairman. You know, the one hanging thread from this, so we've got, we've got the settlement with the two largest shareholders, we've got the new board, they've got All-Stars coming back, we've got that in place at this point. It doesn't seem like given the settlement with the two largest shareholders and that they agreed to vote for the remaining board members, it doesn't seem like you're going to have like mass exodus of the board or changing patrol. The last kind of hanging thread from the Game of Thuron style corporate is what happens with the

former CEO and the former chairman. Like it sounds like you think the former CEO should be brought back. in an advisory role in some capacity. You know, I don't know, because I think the company might push back, hey, the Q1 results, which he was in there for most of, were, I don't want to say bad because Obie cleared it did well, but it's clear that the sales force was still having issues. There are some other issues.

Like, they might say, hey, look, it was time for a change. Why do we need to bring them back? We've got this all-star new board. Let's just move forward, not look in the past. Well, no, look, I think it's right that they move on from Dave Maori as a long-term. solution to running this company and so there's no disagreement there and they'll find someone great with a lot of experience you know like a Taylor Harris or whoever but the reality is is that you need sort of a stopgat measure that that you need someone in there who knows the employees

who can keep the employees there who understands the business even if they're not going to be the person that's going to be running it for the next four or five years you know they talked about the fact that they're still negotiating with Maori and plants. You know, I have no idea how things end up with plants, but I hope that he sees that this new compromise slate is a decent path forward. And, you know, he doesn't look to kind of torch the company and continue to fight. But, I mean, I don't know to what degree, you know, he could even really do that at this point. But I hope that they do get to a resolution with Maui where he does come back in some sort of capacity and everyone kind of just sort of sucks up their egos and realizes that we got to like write the ship here because there's a huge opportunity if we do so.

And this company gets the right leadership to pursue AvaClear the way it could be pursued. You know, AvaClear represents a step change in the treatment of acne. You know, this isn't a treatment. This is a cure for acne. And it's a cure that's that's much different than something like acutane, which, you know, has all sorts of side effects and issues and reasons why, you know, patients really shouldn't take it. This is a treatment that I think once people, I could see AvaClear being something that gets on TikTok where you have teenagers showing how they took three treatments of AvaClear and how they went from having acne to never having acne again. and this becoming kind of a viral, a viral marketing phenomenon and, you know, dermatologists and med spas having to, you know, really need to get this, this, these lasers in place so they can do

these treatments. You know, I think that's, that's what makes this so interesting and compelling is that AVEClear is a step change in the treatment paradigm here. You know, it's not, it's not a treatment. It's a cure. And, you know, all the feedback, we've gotten from dermatologists about the efficacy of this has all been super, super positive. Now, whether people will pay for it, how it gets rolled out, how it gets commercialized. I mean, those are all things that, like, you know, the new management team will have to figure out. But they have an amazing product here. It's better, you know, than the other product, Accuclear, which is much more expensive and is

permanently more expensive because of some patents that they had to acquire in order to make the product. So AvaClear should be a clear winner from a cost perspective, from an efficacy perspective, and also from a customer experience perspective. It's just less painful than the alternative. So I think that's a great segue into, look, they've got AvaClear. And one thing that I think investors struggle with is AvaClear released a year ago, right? They're just really getting into, it did less than $5 million in 2020.

they released, you know, it is rapidly rolling out the products. It should, it has the chance to be a winner in the acne space. But people, I do think, struggle a little bit with, hey, there's this super messy situation going on. The company is burning a lot of cash. Like, how do we look at AvaClear and assign specifically AvaChiar, I guess the core business will, but how do we look at that and assign a value to it? Yeah.

I mean, I think, I guess two things. Like, let's just take the core business. Let's say that does about 250 million in revenue. um you know those those types of businesses might at the low and get like a you know a two x revenue multiple um which would put you at evaluation that's that's below where we're currently trading right now um it would cover yeah i think that's right yep um so you know we're trading kind of with no no have a clear upside um and i think that's because of all this board uncertainty all this management team uncertainty, you know, do people stay on board and continue to sell

these lasers? Do they leave and defect to other companies? Obviously, salespeople in this industry are, you know, they're just going to go work for whoever gives them the best, the best compensation. But to think about aviclear and why it's really exciting, you've got, you know, the way we modeled it out, you've got about, call it 8,000 med spas and 8,000 derm clinics. So that gets you to, you know, 16,000 potential places where you could, you could place a device. They're at, uh, it was 900, I think. I think that I had a thousand in my head, but it's approaching a thousand. Yeah. Yeah. So call it a thousand right now. Um, and, you know, they probably get to like 1,500 by the end of this year.

Maybe they're just adding a thousand of these a year. You can see, you know, a couple years out, say by 2025, 2026, you know, there's, in, call it a quarter of the effective market here, you know, they get to like 4,500 installations of this. If you have them doing, call it 1.5 sessions per device per week, now how this thing gets utilized, how it gets, how it gets penetrated, how it gets utilized will depend a lot on, you know, customer feedback and how they market it and how they market it and how. this new management team goes about bringing this this thing to market so there's a lot of if there are people on tic-tok talking about how the lasers have cleared their skin up and everything

like that exactly but i think there's there's you know there's a sort of a conservative case here where where you get to you know a quarter of the the effective penetration you assume you know like a relatively low uh you know per session per device per week rate and you know you're already at, call it 250 in revenue. And this is a very high EBIT margin product. This is like a 50% EBIT market product at scale. So, you know, that's looking at 125 million in EBIT. I think there's sort of upside scenarios there. I think, you know, this could easily be a 200 million or higher EBIT business, you know, if it really catches fire. So I think, you know, you're looking at between 100 to 200 million in EBIT for this business.

apply whatever multiple you want to that. But that could easily get you to, you know, a stock price that's five to six. Let's talk multiple real quick. I mean, this is kind of like recurring MedTech-ish type revenue. If it was doing a hundred, let's just take the low end to make the math very easy, a hundred million in EBIT at kind of full scale run rate. What type of multiple do you think like peers would suggest this would trade out? Good question. I mean, I had them at like 15. Yeah. I was thinking 12 to 15 in my head, MedTech, you know, acne is not going anywhere until

they cure your acne, but then there's a new person coming who's got it. Yeah, I was kind of thinking 12 to 15 in my head if they hit 100 million. So that would be, let's take 15. That be 1.5 billion. The enterprise value here is 500 million. The converts would start kicking it at some point. But I mean, you know, you would be talking about a 4 to 5x at minimum on the current stock price, and that's without giving any value for the core business, that, as you

mentioned, does have value that covers a lot of that in prize value today. Correct, yeah. You know, what I'd say about this treatment is that, you know, right now we're thinking about this just in terms of our, you know, like how many teenagers will want to go do this. But if this really represents a cure for acne, you know, there are lots of adults that still struggle with acne or, you know, get flare-ups occasionally. three thousand dollars never have to worry about that again you know i think it's worth it you know they might not be in a market for acutane or for other types of acne treatments but if it's like hey

you come three times and you never have to think about this problem again yep i think they're you know i think the market's a lot bigger than people think um people that aren't in the acne market today because they're not teenagers that are that are constantly dealing with acne but people that you know have had acne occasionally or still have sort of remnants of it i think we'll get treat it with this, you know, because again, it cures you versus treating you. So that's why, you know, I think everyone has dollar signs in their eyes when they look at Kutera and they look at the potential, you know, upside here that could be realized with kind of the right approach to commercialization and, you know, go to market strategy. So that's why there's

been all this drama. All this drama has obviously caused the stock price to get, to get killed, but kind of therein lies the opportunity. You know, you've got at the moment, it looks like peak pessimism. I mean, there's still no resolution on the management side. You know, me talking about Taylor Harris, it's speculation, you know, we don't know who's going to be the UCEO. Sheila did not inspire any confidence in talking to investors. You know, she, she's not, and she's a placeholder, too. We still have the concern about people leaving the company and, you know, do they get to a solution with Dave Maury and does that help STEM, you know, whatever folks are leaving? People might still have concern about the cash burn, but I think, again, those have been over-exaggerated.

The sell-slide all just gave up on the stock entirely. You know, we had a total capitulation after this earnings call. So to me, it looks like peak pessimism, but now we're starting to see kind of the right things in place. We've got this board that comes from two, you know, well-respected hedge funds in the med tech world who, you know, have our interests as shareholders at heart. We've, we'll hopefully have a management succession plan here, put in place shortly.

Yep. I think moving forward, you know, once we get, once we get past sort of all this, this drama, you know, we'll have a much clearer senses to kind of what the commercial potential of AvaClear is. And that, I think, will, we'll start to bring. people back into the stock who have been burned and, you know, I just want to mention one more thing. I guess a couple more things. Like, look, it has been rocky, but I do think the fact you just had more than half the board is now going to be replaced and appointed by the two

largest shareholders who are, I don't want to say smart money, but they, you know, they are very large. They are very experienced. They just put more than half the board on. If I remember the number of people they did correctly like this should be whether you think the opportunity works out or not this should be a board that is pretty focused on driving and creating value right could be wrong like you know maybe tomorrow we come out with a pill that solves acne and one swallow with no side effects or something right like that that is a risk there's risk here but you should have a board that's pretty focused on the business and you know I just I think it's pretty asymmetric once you've got you've got all this fight I think one of the reasons people are fighting over this is

because they do see a lot of value in upside here. And this is going to be about the best line board you can think of after this changes. As you said, the LeBron James and Joel and Bede. Just two more quick things on the conference call that I had to point out. You know, I will never get over when she said, hey, I can't provide guidance because I'm not that familiar with the business. It's like, okay, great, good to hear the board member who's interim CEO, been here for a month, isn't familiar enough with the business to provide guidance. Awesome.

Number two, I did love when, to your point, and I want to switch this to a risk factor in a second. But people were asking, hey, you know, you had a bunch of executives sign a letter saying keep the old CEO in charge. The CFO left just before the call. How are you guys dealing with turnover? And I loved when the C. The interim CEO said, I'm looking around the room and everyone in the room is nodded at me and saying, yes, we've got your back. Like, this is great. It's like, yeah, you're the interim CEO and you're looking at people with direct eye contact.

Of course, they're going to be like, good job, girl. Like, come on. But I do want to ask like, you know, it's only been. it's been less than two months since all this drama really started. Do you think that, do you think that with the new board in place, hopefully a new CEO soon, like the turnover from this can be minimized because we are in launch phase. Like if you if you botch a launch that can have dramatic implications for the business longer term, the sales force can get motivated and retain like all that sort of stuff. Have you kind of seen that or you think it's okay?

Yeah, I mean, from when I heard, you know, we had an analyst go to the, they had a big conference out in Vegas, like a big dermatology conference. And, you know, we talked to different folks on the, on these, you know, who sell these products. You know, they were all kind of like, look, you know, we're, none of this matters to us. Like, we're out here trying to place products. You know, we don't really care what's happening at the board level. at least that was the color from those guys you know I don't know to what degree that's true I mean I've heard in some of other calls from people that have left but these were more senior people you know they they thought that the board drama was just generally distracting but I imagine if you're a guy and you're out there selling lasers

you know you care about making sales and getting commissions and they put in a package to retain a lot of these folks that cost them about 13 million So I think generally, you know, the sales guys, the guys that are driving the ship forward every day, you know, they're probably not affected by any of this. But you're right, that I don't think that that that news call, that that earnings call did not give anyone confidence in Sheila Hopkins's leadership. I mean, it was it was just not, you know, she didn't seem like she had a firm grip on, on the relevant details here. you know, from her, from her posture and her tone and to the content of what she was saying.

But the reality is like, you know, look, that would be a major problem if she was the CEO going forward. But she's not. She's just the placeholder. And she'll, you know, the sooner they get her out and bring on a real, our real hitter, this company will be in a much different position. Yeah. On the Salesforce, just I guess my worry was. So Q4 last year, they said, hey, the old CEO says, hey, we had some problems. We were probably encouraging Abby Clear a little bit too much with our sales force and neglecting the core business. We've made some incentive changes and we think we've got that buttoned up going forward.

Then Q1 this year, Sheila comes on and says, hey, the incentive changes we made at the end of last year weren't enough. We had to really go back and redo all the incentives and we think we've got in place. She didn't mention a retention program, but we think we've got it in place now. It's going to be okay going forward. And I look at that and say, ooh, like normally I do think like the corporate boardroom drama gets overstated in terms of the effects it has on the underlings, you know, it could have an effect on the people you're selling to who might worry the company's not stable, but here

you're selling to doctors and you're selling once they have the product, they don't care who kind of has it. So I have trouble believing that, but I just worried two different incentive changes inside of four months for the Salesforce plus corporate turnover. Like, it does seem, as you said, these Salesforces are very in demand, always good selling people. It does seem like, oh, if there was ever a time to see a lot of turnover and stuff, this would be the time. But as you said, we got the retention package in place. It doesn't seem like they've seen that yet. So hopefully they get the new killer CEO in here in the very near future. And then we can just be focused on, hey, obviously, they're placing a lot of devices. We're just starting to see the revenue and

cash flow coming. By the end of this year, cash burn should be down a ton. Yeah, anything else you want to talk about, QTara? No, look, I think the sooner they get someone like Maori back in as a consultant, As soon as they get a real heavy hitter CEO, then I think, at least from a stock perspective, it should start to work. And then the longer term story here, there's massive upside if they get out of a clear to really work. So I think right now it's like the near term, the medium term, and the long term, I think, all look good. Like I think the near term, just given where the stock's trading, it's just already, you know,

it was at a super depressed level. And then I think this board botched this whole announcement. And so went to an even lower level. But it's like we know the ship's kind of finally turning here. And so I think in the short term, the stock should, should re-rate. And I think in the medium term, it should go even higher as they get these other pieces in place. And then in the long term, if this really works with the other clear, then you've got a multi-bagger. Yeah.

No, I'm with you. The interesting things to me is like at this point, when we did the last podcast with Vince, all options were on the table. And now I do feel like we've narrowed it down to, hey, with the settlement, with some really good board members on here, I don't think the company is going to sell in semi-distress or in turmoil. I do think we're at the point where, hey, we're going to hire a full-time CEO and we're going to run this business for two or three years and see, you know, if we're right on AvaClear and how big it can be, the math on the stock is almost undeniable at these levels, right? And if we're wrong, we're wrong, but it does seem like a lot of the more tail things. Now, there was the possibility that this board just tried to sell the company for a premium, and it might look silly in hindsight, but I kind of think we know what we're getting at this point, and you can kind of just safely bet on AvaClear.

It doesn't mean there won't be bumps along the road, but the math here seems pretty compelling to me. Yeah, and the reality is, you know, the base business provides, you know, a margin of safety, and they also have lots of cash. They're not going to run out of cash anytime soon. The cash burns going down. So, I don't know, the business is going to do fine, resolving all the stuff on the board, level is what really mattered and it looks to be resolved. And now we got to sort of follow the next couple steps here. And hey, I just want to do a quick update on opportunity. So I'll include a

link to the podcast we did about a month ago in the show notes. Obviously, you came out, you said, hey, look, the company, the main focus of the letter, and I believe this is the first public kind of letter to board you ever put out was, hey, the costs here are absolutely outrageous. We need to admit our prior mistakes and cut some costs. And just a couple days ago, the company released earnings. And I mean, credit to you, this stocks up nicely on it. But they said, hey, you know, I don't think they're going as far as you suggest they could, but they're cutting like $80 million in costs. I think there's probably more room to go. They're winding down a lot of the things that you had said that you had wanted them to do, probably not all. But anyway,

I'm rambling. I'll let you talk about OPRT, kind of what they said on the earnings call and where you think we go from here. Yeah, I mean, you know, I guess two. Well, the first thought is like, look, it's good that it's good that they did this cost cut. You know, that helps show that they listen to shareholders. You know, they listen to my letter. But it wasn't just, you know, other people felt the same way. So I wasn't alone in advocating for this. I think this was sort of a universal thought about the company.

It was that it had been grossly mismanaged by Raoul. You know, the enterprise value had come down literally every year. The revenue had gone up. I mean, that fact alone should tell you. you that you've got a management team that's trying to grow an empire but not thinking about shareholders. So we got them to stop building that empire and begin to curtail it. And the stock react, the stock was up. Now, I think they could have gone a lot further. You know, there were, they're still, they're still doing a lot of stupid fintech stuff. I'm sure there are many people

that that are still there that shouldn't be there. You know, it sort of remains to be seen how they really pivot back to kind of the specialty lending business and, you know, taking advantage of the fact that they have this retail presence, they have these call centers, they have these assets that are valuable if they really spend time and exploit them and away from kind of all of the sort of the glittery fintech stuff that's just been a stupid distraction and wasted a lots of money. So, you know, I'm pleased to see that they're turning the ship in the right direction. But what will matter here going forward is how they actually execute on that. You know, so I, you know, I still don't think Rowell was the right guy to lead

this company. I still think the board needs to be pressed. I mean, I'm happy that they made this first pivot here. But, you know, the jury's still out on kind of how they, how they execute. If they do execute, then this is a company that could easily do three to four dollars in earnings next year that should do that. And that should be, you know, a $20 stock. versus $5 today. So it's like you go out there and you fire a bunch of your silly middle management folks who aren't adding any value to the company. You stop spending money on these different fintech initiatives.

You can generate a 4x return for your shareholders. Like you should be pressing full speed ahead to do exactly that. You know, it's annoying that, you know, we basically had to metaphorically put a gun to their head to tell them to do this and they did it, but I'm happy to see that they did it. I'm happy to see that they were willing to kind of think about it in kind of a constructive way. So I want to continue to be constructive with them and with my, you know, to the degree that we have follow up conversations with the board and with the management team. But, you know, I think we reserve the right to press harder if we don't think that they are, you know,

as fully committed to this pivot as they should be. So, you know, we put out a nice statement commending them for starting the cost cuts, you know, want to have a constructive dialogue with them. And, you know, there's no reason to be too antagonistic about this. But, you know, we were right about the need to cut costs. We were right about how the market would react to that. And we're, you know, we're right that they need to go further. And the further they go, the better the stock will react. then the better, you know, the more viable the company will be in the long run.

I just want to ask one other question on opportunity. Look, obviously, this is a quote unquote digital bank, but they're digital banking products. They're more fintech. They don't have like bank deposits and everything. They're subprime, the unbanked. But I just said to like since we last talked, the regional banking crisis, quote unquote, has, it's definitely spread, right? First Republic went under Pacific West, seems to be struggling.

quite a bit. A lot of banks are struggling. Does that have, you know, as they cut, obviously this is more a cost-cutting story than anything. Their funding is fine. Like, they do rely on external funding at some point. They've got credit lines and stuff. But does everything going on in the regional banking sector, does that have any impact on them either on the negative side where, hey, it's going to be tougher to roll their funding and get all these lines of credits going forward and kind of warehouse your loans? Or on the positive side where, hey, a bunch of banks are going down. Banks are raining in their credit. That's probably more like business and loan and construction related. But, you know, on the margin, there's probably more on banks and maybe

that's more opportunity for these guys to underwrite loans or maybe, you know, what used to be maybe they get a little bit more spread on their loans because there's just no one else or there's less competition for it. Yeah, no, I think I've heard obviously both sides of it. I think generally, though, you know, if you have someone who's more of like a prime borrower who all of a sudden becomes more of a, isn't considered more in the prime borrower bucket, but prime lending goes away, you know, then he's going to maybe seek to get money from more of a subprime lending source. So I think they can kind of upgrade their credit quality, the type of people that are borrowing

from them in situations like this. you know, the counter to that is obviously the macro environment is getting worse. And so people's ability to repay is getting worse. When thinking about their lending book, obviously the pre-2020 vintages are, you know, problematic and will probably stay problematic. But they're being kind of cured in the sense that they're lower and lower percentage of the overall book here. And the post-July 2022 vintage has been performing well.

So it was really kind of when they made this big grab to increase their lending in, you know, in 2021 that they kind of ran into trouble. So I think as inflation comes down and unemployment stays at a relatively stable level, these guys should be fine. You know, the folks that they're lending to are folks that we still need. more of these types of people, you know, working in our economy. We might need less white-collar service workers, but we do need more, you know, people working at restaurants and in construction and the sorts of the sorts of people that they lend to. So I think from a macro perspective, it's fine. But those types of people are more affected by inflation. And that was always kind of the scary variable for people looking at this company was, well, if inflation gets way

worse, how does this cohort do? And I think, at least for now, inflation looks like it's tempering, and the unemployment situation is fine for them. You and I are both in Tidewater, so we know oil prices have come down. Inflation can't help but come down, right? Exactly. And now, a quick word from our sponsor. Our traditional expert calls in the investment world becoming obsolete? According to Stream, they are, and you can access primary research easily and efficiently through their platform. With Stream, you'll have the right insights at your fingertips to make the best investment decisions. They offer a vast library of over 26,000 expert transcripts powered by AI search technology. Plus, they provide competitive rates on expert

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I can talk tidewater on the call, not to put you on the spot, but I thought earnings were great. I don't, I mean, I did two podcasts, including one with the CEO at the start of the year. I don't think you and I've mentioned Tidewater on the podcast, but, you know, we got two minutes might as well. I mean, I thought earnings were great and the thesis is right on track. Obviously, if oil goes to 20, like everything changes. But to me, it's been reassuring them, all the offshore drillers and everything have basically said, look, oil went from 80 to 70, but we've seen no slowdown in demand.

Like, the cycle is playing out exactly as we've been thinking. And I continue to think that's a massive positive. Yeah, I know. we had a call yesterday with the uh with someone from trans ocean and you know we also talked to valeris and one of the things that we asked both folks was like hey look just just do the basic math here there's a limited supply of of these rigs and you know demand has to be going higher just because of replacement right even if we assume that oil consumption doesn't go higher how does this not eventually get to sort of new build economics?

I mean, the way this cycle has always ended has been because of new build, right? Yep. Like, that's how it's always ended. And, you know, the color and the commentary that you get from these guys is that no one's building another rig ever again. And that looks to be right. I mean, the shipyards are obviously full. It's hard to get delivery.

The prices are way higher. But you think eventually. get to new build economics at some point you just have to from a pricing perspective because that's how these cycles always end so you know that would suggest that either we end up in a situation where day rates are you know like a million dollars a day for a floater um and you see more floaters ordered or they just have to stay at some super high rate for a very long period of time but I think in both those situations you win as a as an offshore investor no I do hear you on that I haven't done the math in a while.

I just, I think the setup's fantastic. I think Valeris and Tidewater in particular are really attractive. I do, it's tough for me to see a million dollars a day, day rate because, which would be the thing that was kind of needed to incentivize the new build. Because I don't think offshore wells would be profitable at like,

I think at current oil levels like $6.50 is about where you could pay a day rate without like really starting to question the returns from off. offshore drilling. So I don't know. I kind of think it's almost the best of both worlds where you could have as long as oil doesn't completely crap, right, which would obviously impact everything. But you could have like 500 to 600,000 day rates foreverish because it's not high enough to incentivize new build because nobody wants to go. It would have to just scream higher. But 500 to 600,000 run the math on these things and you just keep them forever and you kind of have the current fleet of drill ships and that's what the fleet looks like. And maybe some profitable offshore wells can't get done

because, yeah, oil's 80, and it'd be great to have more drill ships, but you can't, so you kind of max them out at this 550, 600, 650,000 range. I don't know, I'm rambling, but what do you kind of think about that part of that? No, no, I mean, that would be the Goldilocks scenario here is that you have, you just have some extended long period of time where rates are above, I mean, they just need to be about 300 and you're good. You know, we'll see. I think the key thing to watch here will be to see when you start to see.

longer-term contract signed when you see someone like Petrobras sign like a four or five-year contract, you know, at what rate do they do it? When did they do that? Petrobras's regard as kind of like the leading indicator, you know, the best, most forward-thinking customer in this space. So when they start to sign multi-year contracts at healthy rates, I think that's when you really know that like you're going to kind of win no matter what in this trade. Is Petrobras the leading indicator, or are they just the most aggressive? I've been told they're like the leading indicator. I've been told that they, you know, where they go.

Oh, sorry, they are the leading indicator. I just don't know if they're the most innovative or the most aggressive, but, you know, either one works for me as long as they, as long as we eventually get some four or five year, $500,000 per day rates on the drilling side and stuff. Is Tidewater your favorite in the space? I would say we're more heavily into, uh, to Valeris. and any, and Noble Energy. Tidewater is a great name too.

I guess it's just easier for me to follow the floater and the jack-up market, and it's easier for me to sort of see the supply situation there. OSVs and PSVs are obviously there's just, you know, way more of them. But Tidewater obviously can continue to go out and do accreted deals, and, you know, they've got a good management team in place, and they can generate the entire market cap of the free cash flow over the next couple of years. So that's all that's sort of a no-brainer. I kind of think all of them work, but the thing I've struggled with my head is Tidewater

announced a very accretive deal. They're much shorter term contracts. The stock's up like 50% this year. And then I compare it to something like Valeris, where the stock is kind of flatish on the year. The multiple is coming down. And I feel like the inflection is just starting to come. But, you know, this same thesis holds and either of them probably work. I will say, like, people can listen to the podcast I did with Tidewater.

I really like the management team and the control. And there is something to, hey, you might want to back the management team that you feel the most comfortable with because that does end up mattering eventually. It's just a brain. But look, all of them probably work. It's just Valeris looks so cheap versus, I mean, people don't even get on credit for the Saudi, JV. It looks very, very cheap. Anyway, Ryan, it's been almost an hour. great. I really appreciate you hopping on making the first record second appearance. People can

follow up with you. Look, I'll include a link to the first podcast we did on OPRT. I'll include a link to the podcast I did last month on QTERA. And people can follow up with you on Twitter if they've got any questions on either of those or now I've introduced the whole offshore energy crowd to you as well. So we can go from there. Cool. But Brian, thanks for coming on and looking forward to the third one. Cool. Thank you, Andrew. A quick disclaimer. Nothing on this podcast should be considered investment advice. Guests or the host may have positions in any of the stocks mentioned during this podcast. Please do your own work and consult a financial advisor. Thanks.