Yet Another Value Podcast - Chris McIntyre thinks Garrett Motion could hit turbo mode Post-Reorg $GTX

Episode Date: May 17, 2021

Chris McIntyre, founder of McIntyre partnerships, discusses his investment thesis for Garrett Motion (GTX). GTX just emerged from bankruptcy after filing in 2020, and Chris thinks the stock is significantly too cheap. He walks through how Garrett's near term projections are significantly understated, how minority shareholders are aligned with the new controlling shareholders, and why the company is likely to "melt" at a much slower rate than the market is pricing in.Chris's GTX website: gtxisacheapstock.comChapters0:00 Intro1:25 Garrett Background8:40 Why Garrett is better than your average auto-supplier11:15 Why wasn't the bankruptcy auction more robust?16:15 Why Garrett filed for bankruptcy25:55 Risk from Garrett's controlling shareholders32:30 Garrett's management team36:00 Garrett's valuation and prefs versus common43:25 Why Chris thinks Garrett can far exceed their bankruptcy projections52:10 Medium to longer term capital allocation at Garrett56:35 Garrett's melting ice cube1:01:30 Closing Thoughts

All right. Hello and welcome to the yet another value podcast. I'm your host, Andrew Walker. And with me today, I'm excited to have Chris McIntyre. Chris is the founder and CIO of the Atlemaid McIntyre Partnerships. Chris, how's it going? Good, good. How about you? Doing good. Hey, well, let me start this podcast the way I do every podcast and that's by pitching you, my guest. You know, I was telling you before the show. It's kind of weird. We've been emailing for years and this is the first time I'm actually putting a face-in email address. But we've been emailing for years. Chris, is one of the sharpest investors I email with. He runs the portfolio that I love to see investors run. I probably get a little bit too distracted to run this at all times. But, you know, it's five to seven names, very concentrated, good work, differentiated view. And I just love that. So I've enjoyed talking to you over the years. And I'm excited to have you on the podcast today. Thank you very much. Well, hey, that pitch off the way, let's just turn to the stock we're going to talk about. This is the stock, you know, I've been following them for several months. There's a lot of background here.

I know they're pretty popular on Finchwit, maybe a little bit because I was posting on them. But the stock is GTX. We'll just give a quick disclaimer. They just emerged from bankruptcy. The stock is still pretty thinly traded. Both Chris and I have positions in GTX. So everybody should keep all of that in mind, positions, recent bankruptcy, decently liquid stock. But with that disclaimer out the way, Chris, I'll top it over to you.

What's going on with GTX and why are you so interested in them? Yeah. So I like to always break and like I always split my like kind of stock pitches between like the long term stuff, which we can definitely talk about like the business where it's going over the years. And then I also just like to kind of start with like a like, you know, like trader talk. Where's the stock kind of? What's the setup? Yeah. So the basis set up, yeah, is it's the pitch is it's a recently reorganized company. And it's actually a high growing high quality business that basically reemerge from a. non-fundamental bankruptcy, meaning, like, they didn't have money, and we can talk about that later, but, um, so it went through this non-fundamental bankruptcy. And after a period of like yelling and fighting, which I know you've covered a bit of, um, the socks reemerged. And basically it is an auto supplier trading like, I think roughly five times this year's free cash flow, four times next. Um, the clearest comp is Borg Warner trades 13 and 11 times. They have similar leverage. They have similar long-term worries about, you know, internal combustion engines with battery

electric. And so I really think it's basically getting along this high quality company that went through this non-fundamental, very fundamental event. And you're basically just getting a chance to buy it before everyone else figures out that it should really be trading a lot higher than it is. And so that is a very simple, short kind of trader talk pitch. It's a pretty clean balance sheet now. It's a pretty clean business. And yeah. No, that's a perfect, that's a perfect background, on a perfect overview. And I've got, look, I've been following them. There's, I think people are going to guess some of the pushbacks I'm going to have,

but we'll get to the pushbacks in a second. But I guess let's just take another step back. You know, you mentioned Borg Warner as a cop, but what particularly does GTX do and, you know, how do you look at this business? Because I do think there's been a little misperceptions on probably the business and how cyclical it is as well. Sure, yeah. So the business is turbochargers.

And it's actually, it's one of the, the deepest moated, one of the reasons I like it so much is it's really like we talk about moats and what they are, but it really has like one of the biggest moats like I've ever seen a company really had. They have about 35% share of the turbocharger market. They and Borg Warren are basically shared duopoly with roughly 70% combined share. And then there's some smaller Asian competitors that actually chase after them. But one of the things I always like to point out when talking about what they do, what it is, it's an auto supplier. And so it's a part of an engine.

And so what actually it is, there's a couple that chase after them. And so they're like a fast follower market. So there's two leaders who basically are like several years ahead in R&D. And then there are smaller Asian competitors who try to like knock them off and, you know, a couple of years later come to market with a thing. But it, they have basically the highest margins of any like non-software auto supplier. I mean, among the highest, at least. Maybe there's a niche product here, there.

But like they're very high margins. They're basically an 18% EBITDA margin, something like a 15 plus percent. EBITDA minus CAPEX margin, average auto supply margins, 6, 7%, with 3% price downs, which is these guys are at 15 plus with 1% price downs. And one of the things I also like to went out to people is that Bosch and Mall, which are basically two of the largest auto suppliers in the world, in the late 2000s, they actually tried to get into this business, invested several hundred million in startup expenses, 10 years,

complete buy-in from the OEMs trying to break this duopoly, and they gave up. They actually sold it for almost big. basically costs the Chinese private equity a couple of years ago. And so we're getting into the product in a second, but it really is like one of these like great excellent businesses. If it weren't for eventually the threat of battery electric switch function, we'll talk about. I would say it's one of the best companies I've ever analyzed.

And so what they make are turbochargers, which are basically, it's actually came out of Honeywell originally. And there's sort of basically, they're basically mini jet engines. Like, you know, like when you look at a plane and the jet engine in the front has the turbine that spins, exactly the same. thing, except it blows, it takes the air that comes out of the engine and blows it back into the engine. And so that causes more power. And so a lot of people historically think about turbocharges as like, you know, like fast and the furious, you know, racing down the highway,

turn on the turbo, nitro, whatever, you know. Instant first thing I thought when you mentioned when we started looking at these for sure. Yeah. So that's like what turbocharger means to me before I knew about the business. But the flip side of that is if you want to also increase gas mileage, right, you're taking the air that's coming out of the car, it has force and isn't going anywhere, just going out the muffler. And you're pushing it back on the engine, so you're conserving power in that way. And what it does is basically, they're a big play on hybrids and, like, fuel efficiency because what you can do is you can go from a three-liter engine to a two-liter engine.

But when that happens, you lose a lot of power. And then what you do is you add a turbo to jam the air back in there and you get your speed back up. And that way, you have 55 miles an hour, 55 miles per gallon. and you don't take 15 seconds to get to 60 miles an hour the way like a one and a half liter engine like some of these turbos or some of the hybrids currently have would have without turbocharging

and some of the other power train electronics that they're adding to it. So it's really just this big play thing to step back. It's kind of a big play on CO2 efficiency in cars. And so 47% of all cars in the world were turbocharged. Not all of the park, just all of the new cars made every year were turbocharged in 2017, and now it's like 51, 52, and 23. It should be like 53%.

And so it's just a very clear line of sight on that growth. And the other thing that's really, really interesting about Garrett and about turbo's is they're really designed into the cars and they're designed in years in advance. Like, you're not, no car is going anywhere without the engine, right? It's a very basic concept, right? and they designed the engine a couple years in advance. And basically, Garrett bids on these contracts five years, four years, three years before they actually come to market. And once it's designed into the car, I mean, it's literally, you have to design it into the engine, right?

You can't just, like, swap them out. And so they just have, like, a really sticky, high visibility model. And they're selling into a cyclical market auto. But the thing that they're selling is, like, they know that, you know, the Mercedes-A. AMG, you know, GLC, whatever exactly it is. Like, they know three years in advance, they're like, all right, you've won the contract, and every single one of them will have it. And so they actually, but there are 35% of a market that's 50%,

roughly speaking of the overall car market, right? So they're diversified across geography. They're diversified across OEM. They're diversified across model. And so really the key variables, auto sales, it's not, if the F-150 doesn't launch well this year, it's not like their earnings numbers go down 30% or something like that, like certain other auto suppliers might. And so it's really this like sticky, high barrier to entry, you know, growth story, frankly,

because, you know, CO2 efficiencies are going up and that's the law. And we can talk about battery electric, but it's currently not a nearly large enough part of the market to really move the needle. And so they just kind of have to go to like these hybrid fuel trains. I'm a little pissed because you front ran all of my questions and all my fundamental questions with your answer. But just to sum up, make sure, and so that listeners think I'm smart when I'm sending all this up and everything. But I think the basics of the investment thesis here is, hey, these guys have, they should have years of pretty good visibility because if you've ever worked with a car manufacturer, and this is not unique to them.

But car manufacturers, as you said, they build for their platforms years in advance of making the cars. And once you get in, you know, Sirius XM is a popular company among Finchwick because Malone's investment. And they say, look, we love to be in every car we can. But unfortunately, if you bid today, you're bidding to get into the 20204 and 2025 models. It takes three or four years. For these guys, they bid. They get into an engine. It's three or four years in advance.

They'll be locked on that platform for five or seven years, however long it lasts. It's a duopoly, as you said, them and Berg-Warner control 70-ish percent of the market. So doopoly with lock-in and long-term visibility, you combine those three together. And that's the recipe for a good business. Is that a pretty good summary? Yeah. And I would even like a lot of auto supply. has like a duopoly characteristic, right?

Like, let's say seating. But the thing that's even better, I would say, than most of auto supplies duopoly kind of thing is like, the way I pitched it is like, like if you and me take $50 million, we will be able to figure out how to make a car seat, right? Like I'm not saying we can deliver it just in time on a scale of millions of units, you know,

with, you know, 10 days notice between like the order to delivering it anywhere in the world. Like that's a very different, difficult thing. but we will figure out how to make one. Like turbochargers, the turbine, so like the thing you see in the front of the jet engine, it's much smaller, obviously. It spins at like 150,000 rotations a minute,

and the distance between the turbine and like the wall of the turbo sometimes is like a seventh of a human hair. Like we're not, you're not just getting into this business. You can't throw money at it. You need years of know-how. And so like a lot of the times I see an auto supply is like there's a one in a two, but like they keep the OEMs, do a good job of keeping a three or four on the margins to, like, make sure that the one and two

don't get enough size and run away with price, you know? So they're always like, oh, we'll just give it to your competitor. And you're like, no, no, no, we'll do it at a, you know, 20 gross margin instead of a 25, right? That's really not the case here. It's really just Borg and Garrett that can make the first-gen stuff. And so, like, there's only two companies bidding on these. And so it's a little bit, I would just argue it's even better than most duopoly auto-supply I do not disagree with you. Oh, is that on my end? Okay. I do not disagree with you in any way,

shape, or form. But let me provide some pushback. You know, we'll talk about the bankruptcy and why why now the bankruptcy happened in a second. But there was a bankruptcy. And in the bankruptcy, there was a, you know, as you do in a bankruptcy, they ran an auction, right? And the auction resulted in. Initially, KPS, a private equity firm bid $2.1 billion. They walked up to $2.6 and maybe walked up a little higher. There was Center Bridge, the party that ultimately won with a recap bid that I think valued the company around $3 billion. And then there was a kind of equity holder committee that tried to get a bid together. I think that failed at the one yard line. But you know what, there were three bids in the $2.6 to $3 billion range is what I'd said. And when I look at that

and I say, you know, EBITA here, I think you and I think in the short term, in the medium term, probably can get to around $500 million. So this is a six times EBITA business. You can correct me if I'm saying anything to this wrong in a second. But, you know, when I look at those numbers, I say, oh, okay, like, cool, you had a, a business that goes for six times EBDA, like, it went through bankruptcy, ran a process, and these were the best bids that can get, like, those numbers aren't exactly jumping off the page to me as this is a really good business. So how would you kind of respond to that? So the symbol is, so how much you want to talk about, like, the bankruptcy process? We can talk about it, but it kind of explains how the bids came in, but I don't know how

specific you want to be. Let's go to the bankruptcy process in one second. Let's just stick on that kind of valuation focus I had for a second, and then we'll go to the bankruptcy. Yeah. So I would say, so two things in the valuation focus. One is, I think people, they filed at a time when auto supply was still in question. And so, you know, you were going to lockdowns, what are things going to look like? And for a variety of reasons, I think Garrett was management, as we're talking about back to the process, you're very specific on who you're talking about, but Garrett management was very conservative on their forward guidance. And so I think something, for instance, the first pushback I would have is like the $500 million number where they are already much ahead of

all of all those by basically, they're already at like record profits. So they're actually breaking up to new highs. And so if you just take their Q1 number where they did about 176 million in EBITDA and you annualize it, you're already at roughly 700 million pace. And so like the numbers from when they file that many people, I think we're looking at through the process are completely wrong and they're coming in well ahead of them. And the second thing I would push. I was just on the numbers, I remember one of the filings was like, hey, here's our 2021 projection quarter by quarter and they had just completed quarter one.

And there was like a footnote that said like, oh, our 2021 projection, like we smash the quarter one estimates. We're so far ahead of it. It's ridiculous. But we're keeping our 2021 estimates. And I read that. I was like, wait, what? What?

Yeah, yeah, yeah. You know, they're running a process. They're dealing with lenders. You know, there's only downside to overstating your number to a lender. So they just, I think, for a right of reasons, is quite conservative. And they've been coming in well ahead of what I think some people might have looked at it and heard previous, you know, your podcaster took a shot at it in the bankruptcy court. They're coming in well ahead, which I think is an underestimated part of the story.

You've been thinking about like a trading perspective on what is actually playing out in the market right now. And then the second pushback I would do is there are, even minus capex is like 15 and like most autosupply when someone throws like the six x they're at like a seven eight nine and so they're actually just converting way more free cash flow they also have a little extra uh they have like an advantage tax rate they're like actually a swiss based company uh engine design really happens before battery electric almost entirely in europe and so they're just actually actually a swiss company it's actually quite difficult to get a Swiss tax rate you can't just pop down and try to apply for it it's not like certain other countries like so they actually have the even better tax rate and so like they actually have an even better tax rate and so like Like, they have higher margins and lower taxes. And so, like, the free cash flow conversion from comping them on EV to EBITDA to say, Borg Warner, like they're converting at a much higher rate because Borg has this business just like them, but then they have a bunch of other lower margin businesses that blend down their overall EBITDA conversion.

So I think those would be the two pushbacks on just a straight EBD EBITDA calculation, why I think it's a little bit unfair to care. No, that's great. And we'll turn to the bankruptcy in one second. I'll just interject one more thing here because the thing I've struggled the most with it is with it is I look at and I say, oh, I think this is cheap. I think it's pretty clear that they're going to blow away numbers. And aside from you, me and a couple other people, I don't think people are talking about, hey, you know, the 2021, like, you could probably cut out Q4 and they might

hit their 2021 numbers at this point. So I think it's super cheap. But the like kind of incentive-driven event investor me looks at and says, well, three parties shopped it. This was the best bid. you know, I do think the controlling group, the Oak Tree group that ended up taking this, they really wanted it. But I look at it and say they won with the best bid. And right now, if you're buying the common stock because of the way the prefts work and everything, you're probably paying the topping price to the best bid. So, you know, I kind of look at it and say, is there that much upside here? But that's just the event investor in me, because I think the numbers speak for themselves. Let's turn. The first pushback, anybody's going to say when they look at this,

They're going to say you're, you guys are here saying it's a good business. You guys are out here saying they've got years of visibility. They went bankrupt last year. So what happened with the bankruptcy? So I like to pitch it by taking a step back and saying that there's basically three ways, reasons a company filed for bankruptcy, right? The first is they can't make their interest payments. The second is they can't refinance their debt when it's due, either because they tripped a covenant

or because whatever's happening, like the credit markets are not open to this company. And then there's option number three, which is contingent liabilities, which is what there is. But number one and two are basically what most people think of when someone files your bankruptcy, right? It's like, we ran out of money. We don't have any more money for bankrupt, right? That's like what it means.

And so, you know, I've done to stress debt many years. You can make money in that. There's a whole business out there trying to make money in that. You have to be a quib for the most part, which is a different thing. The problem of those bankruptcies is, look, you're almost always screening for bad companies, right? There's bad companies are idiotic management. Like those, that's how you end up in bankruptcy, right? With certain rare exceptions.

The third one, which is contingent liabilities, like the filing has nothing really to do with the business. So they filed because they had a disagreement with Honeywell about some liabilities that were put under the company when it was spun out of Honeywell. But the actual liability that we're discussing is their asbestos liability, which is related to a company called Benedict's, which is not even Garrett. It's just something else that was in Allied Signal when it was applied in the late 90s. The point is like, they stopped making these brake pads in like 1982. Like it has nothing to do with the business. It literally is older. I'm not that old, but I hope I don't, not that old.

But like it's before I was born. And so it just has absolutely nothing to really do with Garrett's criminal business, which I think is like the interesting thing about Garrett's specifically. Contagintit liability bankruptcy is in general. Festus, some famous distressed that trades from like the early 2000s where certain now famous investors bought a ton of equity in certain companies. And then, you know, there's the wildfire fires in California, which we're going to argue maybe is more ongoing, but like certainly like whether or not, like there's a legal liability from wildfires not related to whether or not someone uses a lamp in Los Angeles.

And so it's really, you know, it's a bankruptcy. So it's lumped in and like, oh, it's a bankruptcy. It's probably a crap company. No, this bankruptcy has absolutely nothing to do with its current operations. They're totally different. They just have nothing to do with each other, which I think is a real opportunity to get, you know, an actually very good company that actually is going through this process. I don't know if you want to interject there or? No, that's great.

I guess the summary there would just be GTX spun out of Honeywell at the time. And Honeywell did this with another company too. Honeywell spun them out and part of this spun out with some weird financial engineering where Honeywell said, hey, we've got these legacy liability. that have nothing to do with you, but as part of the spinout, you take, you take these liabilities paying back. And it was actually structured in a really weird way where it was a liability for the company, but it wasn't tax deductible. It was strange. But Garrett, in 2020, they looked at it and said, hey, if we file for bankruptcy, we think we can take a huge haircut to these contingent liabilities. So is that kind of putting it correctly? Yeah, I think you can talk about what exactly

went, I think that's definitely putting it to you correctly. You're talking about what exactly went damage between Garrett and Honeywell, but yeah, basically by filing for bankruptcy, you were forcing someone to settle. We can like drag out a fight in court for many, many years, right? But like when you hit a bankruptcy court, you know, the way it works to bankruptcy is like, if you have debt, you show up and you're like, I gave them a billion dollars. I want my billion dollars back. If they don't give me my billion dollars, I'm going to be a creditor and then there's a whole thing. But like the way these liabilities were structured, they're basically an indemnity. And so like actually they're like,

Garrett's not on trial for the asbestos, Honeywell is on trial. And then Garrett's indemnifying Honeywell. And so the thing is, when you fall for bankruptcy, you say the contract is worthless. And so, like, Honeywell has to accept whatever the bankruptcy court puts on the contract or they accept zero. And so, like, you're basically, you're forcing someone to settle rather than by dragging it out with yours with fuels and, you know, all this kind of stuff. And so, yeah, they took the route of forcing Honeywell to the table. Maybe we could have come to a conclusion without going through a $400 million bankruptcy.

Um, but that's how it went. Um, and so yeah, that's basically it. Perfect. So I, I think that's a great overview of the, uh, I think that's a great overview of bankruptcy. We probably don't need to talk about why they went bankrupt into bankruptcy court anymore. It probably, I think that you and I would say the whole thing could have been handled better, but they went into bankruptcy. And then they run an auction. And, uh, you know, I was saying my worry is the auction didn't produce results that were a lot higher. And I think, if you think the stocks are you going to work, you need the auction results. I've been wrong. This to be a lot higher. So maybe we can talk about the auction process for a second and kind of

why you think that might not have yielded full value for Garrett versus what you're seeing today. Sure. So the sort of like, the critical part of like the auction is, well, what is Honeywell going to get? Because essentially, right, like if you're coming in as a third party bidder, right? So you're just, can I, and the reason that's critical is, you know, KPS who was the original bidder, their final bid was about $2.6 billion. And Honeywell was owed. about, what was it, 1.5 billion, right? So, 2.6 billion versus 1.5 billion. The reason you say what is Honeywell is going to get is because they were owed so much money that the haircut on that side was the most critical thing to this bankruptcy. Yeah, it's basically, it's really,

I think actually KPS's final bit, I think it's more like 2.9 something, just to say apples, yep, apples that or whatever I'm looking for. Yeah, so it's just like a huge part of it. And it's also like, the reason, so basically what happened is through the process, there were a bunch of different recap proposals, some talked about in court, some officially filed in court, whatever, right? Like a lot of people, and also I'm sure plenty of come to stress funds poked on the sides that we don't really, never got filed, never really talked about. But I'm sure someone asked Honeywell what they want for it, you know, we'll write you a check kind of stuff.

The reason it's critical is what happened is centers in oak tree who ended up winning. basically went out and locked up, let's say, Honeywell basically, into this sort of like settlement. And like the bankruptcy judge took the view of it very publicly, you know, kind of like challenged it and said like how is it's not anti-competitive, you know, very much said it. But what it really does is the problem is, so say you're a separate private equity fund, right? You're, you know, let's not use an actual one, I guess. your ABC private equity fund, right? And you're like, you know, I think this could be worth, like, I think if I buy this with three and a half billion, numbers could come and better.

You know, we could see a way to get over this sort of thing, right? The problem is you need Honeywell to settle. And Honeywell is agreed only to settle with Center Bridge and Oak Tree. So I don't have that settlement. So then I have to run the risk of like, I have to overbid. So I have to beat Center Bridge and O'T, which are two very large, well-funded, well-respected, private equity hedge fund, whatever exactly you want to think of them. So I have to beat two of my.

large liquid competitor, not liquid that way, but having liquid lots on money competitors. And then I don't have a settlement with Honeywell, so I don't actually know what I'm buying. Yep. Right? You know what I mean? I don't know if I'm paying $3.5 billion and I'm buying a billion in equity, or if I'm buying $200 million in equity on top of it, or maybe I'm actually not going to win. And they're going to say Honeywells do more than that.

And so I'm, you know what I mean? Like it's a really complicated thing. And so what it did basically is it, and the judge, you could just, I guess, There will be a transcript at some point available, I believe. But if you've actually listened into the hearings, right, like he was very much like, you know, it's not just my opinion that this is anti-competitive. It's sort of anti-competitive.

And so it's not a real go-shop period because basically within a month of filing, it looked pretty obvious that the equity was going to be, you can see it trade up, right? It looked like obviously it was going to stay listed, right? Like, vulnerable parties agreed to keep it out there. And so it's sort of like, so now you have to bid higher. And it just made it not, in my opinion, a fully, real auction. And I would point out that outside of KPS, all of the other bids were like people

who are shareholders bidding to recap the company that were made public in like, you know, Al Creek had won with the Morelander Jeffries Group, O'd WJ. And so it's not, it was a somewhat intentionally not competitive auction. And I think that's a really critical detailed thesis because it's like, they're like, well, that's the market clearing price. That's what we got. And it was like with the caveat that the most important thing was locked in by one of the who has no incentive to gun it because they think they've locked in the most important detail. And so they're going to win no matter what, which is actually what happened. So I think it's a little bit different.

That's perfect. And let me move to, you know, I think the next thing. So Center Bridge and Oak Tree, and I'll just do a quick thing. But, you know, they locked in Honeywell. And then they structured the way that the company basically eventually emerged. And they had to tweak it around the edge. just because there was a competitive shareholder group that basically forced them to. But, you know, I would say the way they emerged was with a rights offering that highly,

highly advantaged the Center Bridge Oak Tree group, right? So when I go through those two, you know, now the companies emerge, but they emerge with Center Bridge and Oak Tree back then. Center Bridge and Oak Tree owned the majority of the common equity. They own the vast majority of the preferreds at this point. So we can talk how we valued and everything. But I think the biggest risk that I'm worried about, aside from being wrong on the valuation right now would be, hey, Center Virgin Oak Tree, their private equity firms, they are here to make

money for themselves. And I think we're kind of aligned because we own the same securities at this point, but at the same time, the bankruptcy process showed that they have no qualms taking a knife and shoving it into minority shareholders' kidneys, because that's pretty much what they did the entire time through this process. So how do you think about kind of those controlling shareholders? So I think, like, you know, they're the new money investors in a bankruptcy process, and they own The way it works is they own 4.9% roughly each of the company, like one share shy of 5%, not literally, but in the ballpark. And then they got to put in the recap.

So they mainly own the pref. And so when you, I don't want to talk, we can talk about the preff, but like the preff is like super liquid right now. It will be listed later. But so you can think a couple months out, but there's going to be some restrictions on who can actually buy the preff now, but we'll go away in July. The way I think about it is like, yeah, you got to think about what they own. And there are certain ways that they can maybe advantage their piece of what they own.

versus your piece. But ultimately they still own upside from five and a quarter on the preff and their shares, right? Like that is the big way that these guys are going to get paid. There's way too many involved third-party shareholders

who are not Center Bridge and Oakry who also own a piece of it. For I think like, you know, if they owned 80% of it, I think I would be a lot more like, all right, we're going to own 1% or, you know, I'll own 3% of the available 20% or something on that. And you're like, okay, I, you know, they can, there's certain things they

could do. They could put like a private equity style, in theory, they could put like a private equity style like, you know, management fee or something like that, like sweep out three percent of the cash to themselves, you know, there's sort of like things you could do. But there's so many other funds involved who are also big, you know, like you can't push them around quite as much. It's a pretty well-trafficed name. Like, I think one of the interesting things about it is, if you look at the shareholder list, it's like a, for lack of a better phrase, like a who's who of distressed debt investing have all shown up as shareholders and or bidders for the entire company, which might hint potentially at why that there might be a value there, like it

feels unlikely that the Bell process of Cyrus, Wollender, Centerbridge, and Oak Tree, all are incompetent, and they're all wildly off that they all thought this thing was interesting, you know, so I think that's maybe a little bit of a bullish argument. But I think the thing to be, to get comfort in it is like I don't think you really have a high likelihood of if they were to come out like the way that I think they would get screwed now is they would do we'll bid seven dollars to the rest of the equity um and so like that would in some ways be bad or they could come out with a low ball bid but then there's still going to be majority minority shareholders so you have to get that and you'd still have to run a real auction and this time it's not quite as you can't just you know it wouldn't be as lopsided as sometimes new money injections and bankruptcy are I think new money injects these and backups here, particularly sometimes lopsided. There's all kinds of horror stories. You can find all sorts of smart guys screaming on the courthouse steps that their bonds worth more than they're getting, and they still end up getting the price that was originally agreed upon, versus it's a different thing with a publicly listed company.

And I'd also point that they own so much of this, and this is such a big bet for them. And it's also like, okay, like, are you really going to get, does Santa Virgin O'Tree really think they're going to screw the bow post? you know like who owns i don't know exactly how the pro ration came out for their um the backstop on the one the pre fact but do you really feel like how much you're really going to get chasing out retail accounts when 80% of this is now owned by a bunch of funds who are quite knowledgeable you know at this point and do know what they're doing you know what i mean it's not you know the ugly part of this business sometimes is when people might take advantage of like you know retail accounts and like a transaction that's unnecessarily complicated sometimes right

versus now it's like there's really not that much left versus like the value of the public listing. And if this does well, they get to put, you know, they can sell their stock in the public market. They don't have to do a private transaction. So it's, I think we're actually pretty well aligned. And the other thing I think the the flip side of it too, though, is, I don't know if you had a comment or like on your offer. Please continue. The flip side of it when you're dealing with like, all right, so we have like a big controlling shareholder, right? and you're worried that they won't treat you failure.

But the other flip side of it is, look, this is a company that inevitably in the next 20 years, let's say, I think their core business will be in secular client. But it's very cash-generated right now, and in my opinion, stock is very cheap right now. And so one of the critical things is like capital allocation, right? Like what's going to happen to the cash, right? And I think having a bunch of like skilled value guys who are pretty intelligent and have experience running deal process is basically with like running the show on the capital allocation. front, I think that's a very material positive. And so I think more than I would think an average stock that trades an average market multiple within controlling shareholder, I don't necessarily trust. Like, I mean, like, that's not great. But when something's traded five

and four times three cash flow, having a skilled capital allocator makes a huge potential discount difference on your eventual outcome. I couldn't agree more. When you've got something that's a, can you hear me okay, by the way? I keep hearing a little bit. Okay. It cut out a little bit at now time. I just couldn't agree with you more. You know, when you've got something that it's the classic, oh, this is trading for a 10% free cash flow to equity multiple. You know, my biggest mistakes in my career have generally been, hey, this trade's really cheap, but I kind of don't trust the management team. And then guess what? The management team takes all the money for themselves. And like here, it's going to be tough for them to take all the

money for themselves. At this point, I think you're aligned. And the most important thing is this is a business that generates a lot of cash flow. And because you're probably aligned, they're not going to go do a stupid diversification or probably won't. If they do an acquisition, it's going to be the sharpest guys in the room at least blessed it. And if they don't do an acquisition, they're not going to let that cash sit on their balance sheet. They're going to be putting its work by giving it back to shareholders because they want to juice that RR. So I just love that you've got an investor who is in a semi-control position. They are focused on maximizing shareholder value.

They make their living making money and you're probably on their side. So I agree with you there. Let me ask about management team because, you know, I think both you and I are a little critical of the process that resulted in the bankruptcy. I think you and I would probably be a little critical of the initial KPS deal, the way they structured and joined the Center Bridge deal, all that. So, you know, I do look at this and say, okay, you've got a management team that bungled a bungled a bankruptcy filing.

They've been running this for years. Like, why should we trust that this is the team we want to bet on? So, like, I think you can criticize a lot how things went down. And, like, the way, you know, it certainly wasn't. the dream as an investor in the company before the filing. But through the process, I'll say like, it still ended up, you know, basically if you What ultimately happened basically is like you took a $1.4 billion liability to Honeywell or 1.5 or whatever exactly it was at like a 9% or at a 7% discount rate called $900 million.

And so basically they got $900 million. And we equitized it at a 20% percent. discount to where the stock was trading the day before they said that they were thinking about filing. And so you're like, it's not all that bad. Like, it would have been better to get fully to participate in the offering, right? It would have been better to not, you know, there's certain things that could have gone better. But I think ultimately, it didn't work out all that poorly. And I think certainly if you are sort of knowledgeable and traded it well, if you could have worked out pretty well, as I'm sure any listeners in the podcast or the following

you might have figured out. Not investment advice, but I suspect that a couple might have. Yeah, yeah. Some people might have done. All right. I don't know. But look, it's sort of like one of these things that happened, and I don't really like exactly all the stuff that went down.

But I also don't think it's not as, it's not like egregious, you know, and then the way that I don't think personally that it's egregious in the way that finally went down. And then beyond that, they're actually really great operators. They have like extremely good reputations. The business, when it was like part of Honeywell consistently, one, like, you know, like best operating subdivision or what, you know, like they got like the gold star at the kind of thing, I don't work at a large company. So I don't really know how these things exactly work, how they sound. But, you know, they're quite good on operations. They keep a lean corporate structure, like the actual view of look at like the SG and Avers sales and other kind of stuff.

But it's really quite lean up top. and they pretty much with the rare exception with the exception basically like the auto downturn which is not like they created COVID

it's the best of my knowledge they do have a plant Wuhan but they you know they were like really good operators I don't really think but center bridge

and Otre are basically in charge anyway so it's like you know if they're like guys who are going to give themselves too big of an options package like got a nice options package here it's not as

yeah where do their options strike i don't remember i don't remember looking at their options no if it's public and not i assume probably they're going to strike a 525 um CEO actually bought stock this week um i hadn't seen that my form four yeah it's a it's a four-filing there's maybe some i asked the company i might have heard back there's maybe something around the contract but i think it's basically just straight up public market buy um yeah cool Right. Well, no, I look, I think that's good. Yeah, it looks like a straight-up public market buy. I'm kind of looking at the edge my interest. Very interesting. Let's talk about, so I think we've covered the bankruptcy process as a point. Is there anything on the bankruptcy process that you think we should go back and hit real quick? No, I don't think there's anything. So bankruptcy process in the past, passed in the past. They emerged in the past month. They emerged through it was a big, a big Series A preferred convertible, preferred offering that they did that kind of funded their whole bankruptcy. They just got that

done. The preferreds, I don't think they're trading yet. Hopefully they will at some point in the future. But as we talk, it is, what is today? It is Friday, May 14th. The Zodak is trading for about $6 per share. So can we talk for a second about valuation? And I know a lot of people have had questions on the convertible preferred A's, which will eventually trade versus the common. So let's just talk overall valuation. And then maybe how you look at the convertible preferreds versus the common. Sure. So I think the easiest way to think about it is, and I know it's sort of, it comes out with a little bit of a funky structure, not that funky of a structure, but like a little bit. The easiest way to think about it is to just convert the preferred

fully and then think about free cash flow per share on a fully diluted share base. And the reason I say it's the easiest is right now it has the capital structures is a term loan. There's a PREFA, which is what The recap is, I call it an equity recap, but it's really, we can be recapped it via the PREF, which is convertible at 525 a share. It's about $1.3 billion. And then they have a PREFB, which is like basically Honeywell got $375 million last Friday, two Fridays ago or whatever. And then they get this $584 million of present value. It has like $835 is the actual book value, but it's paid out over such a long period of time. At the 7 and a quarter discount rate, it's more like $584 million.

And Darren has the right to prepay it at a seven and a quarter rate whenever they deem. They can also prepay the first 184 million without trade. If they prepay more than 184 million, they have to basically, like, Honeywell can be like, you have to give me all the money, but they can prepay the first 184. So you think about like the simple capital structure is the term loan, the Pref A for 1.3 and 1.25, not respective, like the opposite of which. And then there's the Honeywell Pref P for $5. 84 and then there's 65 million shares out again.

And so I know it can be tempting to do around like an EV to EBITDA, like sort of calculation across this, but it runs into this sort of like someone ridiculous thing where like if you assume any kind of multiple on EBITDA, particularly on a one or two year out number, you end up with saying like the shares are worth like, you know, if you thought it was worth, say they're going to do 800 million in EBITDA, 700 million in EBITDA minus CAPX, which I think is a totally reasonable number by 2020. 23 limits. You know, if you throw like a seven times EBITDA multiple on that or something on that, you know, seven times EBITDA minus CAPEX, which I think for any business is not already in like negative revenue growth territory. At that point, I think they'll be growing revenues double digits. You would be coming up, if you try to do this EBITDA calculation, you'll come up with some sort of math where you're like, well, I think the equity is worth like $28 a share, but

then it's going to get diluted at $5.25, so it's sort of a little bit of a, it doesn't really fully make sense. And the second reason I think is that is, look, the whole structure is basically designed to collapse at $600 million in EBITDA. So the company basically originally, we talked about like how their guidance is way too low to what the business looks like now. And so they were like, look, by 2023, we should be doing $600 million in EBITDA. And so Honeywell has a put option when the company hits a $600 million, trailing 12 months of EBITDAQ two quarters in a row. They have the right to be like, give me my money back now at that seven and a quarter discount rate versus 585 current resident. So there's the put option.

And then two is like the actual Prefay force converts at $600 million in trailing EBITDA. And the stock price has to be 50% above the strike, which is like 775, 780, something like that. But it's designed to force convert, right? And so the calculus, there are calculations they give to the court are like, here's what we think it'll be worth. It'll convert. And that's all have $313,000. but the thing is like they're already way above that now like they're already at like seven hundred million dollar run rate and like they grew you know their sales are 19 percent

above Q1 2019 auto industry is down 13 versus Q119 right now and you're like we're already above this rate and so the thing is like either Honeywell is going to force push cap up to that they're going to be like we want our money back or I think even without them asking for asking for their money back like they're just going to refy this loan they're going to kick off so much cash they could should exit with something like 500 million let's say in cash on the balance sheet I think it might be more than that um and then they'll also like they'll probably generate another 400 million cash by year end like I think there's just a very good chance like they either refy it or pay it down with cash on hand or whatever exactly they're going to do like honeywell's

going to go away certainly within two years if not by like the fall um and so once that actually happens then you'll have just basically the common shares which would be you know, 20 for whatever 65 over 313 is right now. And so you have the common shares will be about 20% of the equity and the rest with the Prefay, which will be listed and traded. And so I think we can talk about Prefers equity, but in relatively short order, it will be very obvious that the thing I think will be forced converted. It'll take two years for the Prefay has to exist for two years.

You as a holder have the right to collect those dividends for two years before the automatic conversion kicks in. but I think it's a, it looks a little odd, but it should be cleaned up pretty quickly because they just have way more cash and there's no reason to pay seven in a quarter when you could probably refi it at three or four. So I just think it's a much simpler structure. So let me break this down and try to simplify a little bit. So, you know, I think the, I think that, and I agree, the whole, the whole structure was designed to collapse and really simplify when the company got to $600 million EBDA, whether they hit this this year, two years from now, we can debate. But if I just said, okay, the company, the target, the baseline target is $600 million

EBDA. The shares today trade for $6 per share. What's the company's EV at $6 per share right now? If you assume all the prefs just convert. Okay. So you want with the prep conversion. Yeah, let's just assume the prefs convert. And obviously you'd have to take a little bit for dividends and out, but forget that. Let's just assume the prefs convert. What's the company's EV at $6 per share right now? Okay, so $500 million in cash, $1.2 billion in term loans, a $700 million net debt, term loan minus cash. You have the Honeywell Pref, which is called $600 million, so that it gets you to $1.3 billion. And then you have $6 times $313, which is going to be something like $1.8, $1.9, something in that vicinity, I mean, $1.9,000, let's call it. So you had $700 plus $600, $1.3.3.3.3.3 billion is about the enterprise value we're looking at today versus we think the target

EBDA, and I think there's reasons to think they will exceed it, but target EBITDA 6. So we're talking, 600 million. So we're talking, if I'm doing my math, right, a little bit over five times EBITR right now. Is that about what you're looking at? Great. On numbers that I think could be higher. But yeah, yeah, I go. Because I'm just looking and you, oh, we should have mentioned, I believe GTX is a cheapstock.com.

Again, we're taping this Friday, May 14th. This will post Monday, May 17th. I think you're going to launch GTX is a cheapstock.com. We'll launch live so people can go there. to see some more of your thoughts on GTX. But you sent me some of your numbers ahead of time, and I'm kind of looking, Doc, at 1,000 was the company's last projections, I believe,

and they said they thought they would do that 600 in EBITDA number in 2022. I think you think they could exceed $750 million in EBDA by 2022. Yeah. And how are you getting to that number? So there's, they're very simple, I mean, like, so they did about a billion in sales the last two quarters. So if you ask to look at that docket, I'm sure it says, I think it probably says this in 20 or so they're going to do like 3.4. That might be right. I'm not actually sure. I'm not sure if you have it next to what they actually projected the sales at.

You know what? You keep talking and I will find here it is. Oh, I got it. Yeah. So total revenue 3.8 projection for 2020. Okay. So they probably had 3.8 and something like 15-ish EBITDA margin, probably how they're back solving into 600 million. That is exactly it. Yep. 15 to 16 somewhere there. They used to do like 20% plus EBITDA margin. So we're going to, I'll come at it with like more info and then we'll boil it down after. But they used to do like a 20 plus EBITDA margin. And so it's sort of the number one issue they've had, right, is that like we had COVID and everything imploded, right?

Like they did, to put that 15 in perspective in a down 50 auto quarter, they did like a 14 something EBITDA margin. They had like down 50 sales and we had a 14. But I don't really think it's a screaming bullish thing to say we're going to to gain 200 bibs of margin as we double our sales, right? I think most people would say you're probably going to gain more than 200 bits of margin when you double your sales instantly. Not instantly, I guess 12 months later.

The company used to operate at a higher margin than that. If you actually go, it'll be my, I think it's my side. But like if you go to the Deutsche Bank Auto Conference in like July 2020, June or the chief technology officer, the company was asked about margins. And they basically said like, well, like if auto, you know, like we think we can get back to like a 17 margin, if like auto is like still sluggish, but kind of at these levels because we're going above market, autos recovered much sharper than that. And they've actually outgrown the outgrowth that they thought they were going to get. They said they're going to go four or 500 bits above market. They just grew 1,000 in Q4 and 1500, 15% above market in Q1.

So they're actually coming in much higher than their actual numbers when they pre-filing said that they would be doing something like a 17 margin. And so the basic math is, look, the sales are coming in much higher. They used to do a much better even down margin. The number one, some of the headwinds to their margin that have been showing up beyond the number one issue being the crash, right? But they were losing margin on like sort of like diesel had like been falling as a percent of their mix and it's a higher margin than what's replacing it. But that's actually plateaued, it looks like.

And commercial vehicles are actually coming back. We mostly have a class eight orders are and all that kind of stuff, right? And that's actually higher margin. and the rest of the mix. So they basically have a number of mixed benefits coming, not to mention more important than in my opinion. They just have so much revenue growth right now. They have a very inefficient model.

And so to the downside, it's a bit painful because there's not so much to cut. But to the upside, there's not that much to add either. And so the basicist is like, they said they wouldn't do more than $4 billion in sales until 2023. We're already running at a billion dollar per quarter run rate. And we're growing, you know, 1,500, or bibs above the auto market, which itself is recovering and growing something like 10 to 15

percent. You're talking about what exactly it's going to come in at. But like there's just a lot of growth to run through that. And so you're sort of just like, oh, they're likely to leverage the cap their structure a bit more. And then there's a lot of growth. And so you just get higher numbers. Let me push back on one thing there. And I'm sure everybody who's listening loves to hear model critique without seeing a model or anything.

But I think your EBITDA number is higher than their projection. for two reasons. And number one, they think they're going to do about 15 or 16 percent EBITDA margin and you think they can get back to 20 percent. I think that argument makes all the sense of the world. But number two, you mentioned at the end, hey, they don't have themselves approaching $4 billion in sales for another couple of years. And you actually have them getting to $5 billion in sales by, I think, 2003. And they don't have anything like that. Right. So they were projecting, and I'm just reading from the docket, they projected 2012 sales of $3.8 billion. pre-COVID, they did

$3.2 billion. I think you think they could be $4.3 billion by 2022 and approaching $5 billion by 2023. So could you just talk, that sales is a big difference. So can you just talk a little bit more about why your sales numbers are so much further ahead of their

projections? So sure. The first thing I learned is, I won't even have two points. They're currently growing, which is way in advance of their actual projections. Like, it's just it's it's what they are growing like they are currently growing well in excess of what they said i forget what the i want to say they said they would do like 700 800 something in like q1 sales or something like that i mean we came in like 25 percent above our projections three weeks after

making them like it's not close to being accurate to what actually the business is running at um and it's sort of like it's hard to see they have a lot so bring it back to kind of like the the visibility of the company. They know what they're in. They know once they're on the product, they're in the market. They're not, they shouldn't be like shocked to find out. No one's going to rotate out them as a thing. It's not like, it's even like more competitive than like, like you could lose shelf space selling a consumer staple, right? You can't actually lose shelf space in this business model in comparison. And so they are already a billion dollar run rate. They are growing. There's a bit of seasonality to the business, which is basically related

to like people take slowdowns in the fourth quarter to sort of like repairs or whatever kind of stuff and it's the holiday season so there's a little bit of season out but not tremendous you can go look at what it's been historically but we're already at a billion dollar run rate I think auto is going to continue to recover I mean auto sales we had the largest post-world or two recession like pita trough decline in auto um so we're bouncing off that I don't think there's any secular change in the auto industry um that's going to drive overall car units for capital on a global basis lower. So we're just going to rebound off that.

And so auto is growing 12% right now with very clear production shortages, related to SES, ship prices, all that kind of stuff. And so, look, they're a billion dollars. The background market is going to grow and plus percent probably for at least two, three years. And then they're growing 15% above that market. I think if anything, it's hard to see, I'm sure we can see them slowing from that, you know, toward pace.

But like, it's hard to see how we're already at that. rate, we're not already, we're not going to have much higher numbers, even modestly performing relative to what we're currently at. Yeah. You know, I definitely, on one hand, I agree with everything you made. On the other hand, like, coming in, the thing, my two things, we said this is a better business because they have visibility. And then my pushback on this being super undervalued is, hey, this just got massively shopped and nobody paid higher. And like, again, it just comes back to managing me put out a projection. This thing just got shot and it didn't go higher. And then on the other hand, we're saying, oh, you know, explosive growth that makes this thing

dramatically undervalued and people had access to that. I guess that's on one side. On the other side, like, look, management had the deal wrapped up and they probably wanted to get their options struck at a pretty low level. So it probably does make sense for them to sandbag new-term projections once they were sure that the deal was going to get done. They kind of had the financing wrapped up because projecting 500 versus 600 million in EBITDA doesn't make much different on the debt side once you've got that baked up.

But it does make a lot of a difference for where your options get struck if you're trying to get rich. Yep, there's definitely, they were certainly not incentivized to gun projections until now. And I'll say now, I think you're going to see them materially increase their estimates. They had a Q1 sort of earnings-ish fall, but they didn't really provide any updated guidance, but they're clearly like, they're a little bit like, we're coming in a lot ahead of the plan, right? Like drag your Excel's model to the right, just drag the cell and, you know, you know,

you know what it spits out in a year or two. And so I think it's a material catalyst, but I think it's also one of the more obvious sort of like beat and raise setups to come in 30% above guidance and then like go like we're going to beat it again. Like, you know. So look, I think both you and I think this thing is going to be a cash flow machine in the near term. And the near near term, they've got to, you know, you probably do a refy of the bankruptcy exit. You probably do the refy of the honeywell. you probably need to get the convertible prefs to convert into com and everything. But in a year or two, this company is going to have to start having serious conversations

about what do we do on the capital allocation front, right? Because we're throwing off a lot of cash flow. I want to come back to the business's long term outlook in a second, but they're throwing off a lot of cash flow. What do you think with Center Burridge Oak Tree at the helm, what do you think capital allocation is going to look like? Is this going to be return of capital? Are we going to be talking about bolts on acquisitions, something that I'm not thinking

of right now? I think it's that. I think it's exactly that. We're going to do some sort of version, and it's a little tricky because you have to figure out once the press are listed and what kind of, how can we actually buy them back? Because you can't really buy that many shares. So there's a where are we going to, if we're going to do a buyback, how are we going to execute it? Like who are we going to buy it from? So there's a little bit of that.

There's also dividend, like it's a straight up obvious return of cash. And then the more interesting part of that, honestly more interesting at a four, five times three cash. when we're talking about, like, dividending it, right? That's a pretty juicy yield. But the interesting part will be, like, the M&A angle. And so, you know, I think, you know, Borg Warner basically is like we're going to go buy high-priced battery electric stuff. I think you might see these guys, which I think is a more interesting story,

is like there's maybe some interesting, you know, legacy, quote-unquote, internal combustion engine businesses that they could actually. to do some like M&A in, they have this nice tax rate. People had said that that's sort of something KPS was interested in, actually, when they were bidding for the company is they could use it as a roll-up story. And so, yeah, I think you're going to see them come out. I don't think it'll take two years. They're going to come out with some sort of like, you know, cash return plus maybe inorganic story.

And the other thing is like if they're not going to be playing a role in buying things, you know, I really don't think this company was fairly shopped because I think people didn't have an interest in making their return on 5% of the fund. They want, you know, 5% of the company, they want it to own 50 and then have a return. And so, you know, I think it's actually a pretty interesting MNA target straight up. Like if you want to do a roll-up of these legacy businesses, they're trading it like higher yields. Garrett is probably, it's high margin, it's low corporate overhead. It's a very nice business to throw into a roll-up story if you're going to see.

And I think you are going to see many of the. the German, or European, let's say, auto suppliers are talking about spinning out their legacy internal combustion businesses because the world's going battery electric. And so, like, I think with that kind of backdrop, certainly someone is going, some private equity fund somewhere is going to take a shot at rolling up a lot of these legacy businesses. So funny, just refer to something as legacy when it's 97% of the market. But the, yeah, I just think, I think you're going to see sane, reasonable capital allocation from the Center Bridge Oak Tree group and this is also on the board. I think you're going to see it laid out some point before the end of the year.

I don't think it would, you know, I think that everyone's sort of getting into their roles, but like I don't think it'll take all that much time because I don't think it's really tremendously complicated to think about we have a lot of cash flow. This business will shrink at some point. What are we going to do with the cash and like lay out plan, you know? I think you and I are both agreed. I would be a little bit surprised that this was still a standalone public company in the next three to five years. I think this is set up low multiple, good visibility, good solid cash flow. This is the type of business private equity was meant to own, maybe do some roll-ups, take advantage to those relationships and stuff. And, you know,

Center Bridge and Honeywell, they're going to be looking at after they convert all their prefs and stuff. They'll own, I think it's about 50% of the stock after they convert their prefs and stuff. You can get out of that two way. You can do a big secondary, which there's value leakage. And a lot of people do that, but I think the natural way is sell the whole thing to a private equity company that keeps this thing properly levered, which is probably higher than the capital market, the public market liked, and just keep taking cash out of this, keep taking cash out. Let's talk the outlook, because you did mention, it's funny that 97% of the business, 97% of the world's card are still ice. I think it's even higher than that, but that's the

kind of legacy business. At some point, you know, electric vehicles don't need. need turbochargers. I think most of them have it, though I did hear from some due diligence that a lot of the most popular hybrids do not have a turbocharger in them. But at some point, this becomes a melting ice cube. I do think one of your divergent opinions is that it's a lot longer than the market thinks. But how do you look at that melting ice cube risk for the turbochargers where an electric vehicle does not need that? So I think, you know, we're very geared in this very new economy growth kind of thing to think about you know how does disruption affect all these industries

and there's some of the examples but like the point I keep trying to make is like I think people are a little bit used to seeing software disingenuation where you push a button you distribute your product globally at a zero incremental cost and like and we're funded by VC so we don't have to make money for 10 years and they just destroy existing businesses and like this is not software this is a actual fundamental rethinking of like, I want to say global auto sales are like a $2 trillion industry. And then if you add in parts and repair and highways and all those other, there's a huge,

huge thing. And you're like, there's a lot of physical infrastructure. And so one of the points I, to simplify it, I like to point out that like to make the current generations of batteries, right, they require a bunch of cobalt, a bunch more cobalt than previously anything else needed. And so this runs into a sticky issue that 70% of the world's cobalt comes from the Congo, the DRC. The DRC is in recent

to increase to 30% battery electric penetration, which is sort of like, the bulls on battery electric are like above that even, but I think most industry people are like, that's a good solid, like, it's a tremendous growth to go from 2% to 30% of an giant global market, a $2,000

industry in like 10 years. That's a huge growth rate. It's not at all mild. But to see that you have to have a 4x increase in actually cobalt to apply. lives. And so you're sort of like, this is a country that is very much a frontier market. It has fought multiple civil wars. Parts of the country are under guerrilla control. 15 to 30% of

their mining is they call it artisanal and small scale, which is a polite way of saying we use child labor, which, as I would say, is in addition to being wildly unethical, is also not really rapidly scalable. And so you're like, well, where is this product going to come from? And they're like, well, price, and, you know, there's a way and going wrong, but it's not, you cannot go from 2% battery electric, let's say last year globally to 8% this year. You just couldn't do it. You couldn't actually make the things. It's not the same thing as some of the other, it is not Netflix taking out Blockbuster. It is a much, I fully believe will happen. It is just it's going to take a while. As you're saying, the reason software ate the world was because

the marginal cost of software was zero. So as long as everyone had a phone, they could just open up software and disintermediate blockbuster with Netflix. But, you know, in the real world, not that that's in the real world, but, you know, when you're dealing with physical products, as you say, whole supply chains need to get switched over and everything. And it reminds me of like, this is such a loose analogy, but like, you know, I love cable companies. And, you know, oh, fixed wireless. Like, yeah, I guess fixed wireless is a risk. But right now, your average mobile subscriber takes seven, seven gigs of data a month. And your average broadband subscriber does 700 gigs or something. So if you're going to switch all of that,

kind of hardline broadband onto me you're going to blow up the entire wireless system if you did even four percent of that tomorrow so and it's again looser because we're not Verizon and exactly employing child labor but uh it's looser but it's something similar right like there's a lot of infrastructure that needs to be built up before you can even think about making that switch and that takes years and years and years yeah it's just it's not i think it's going to happen it just not it does not scale the same way another one i just throw out to this is is like, some statistic that, like, in Europe, I think it's like, something like 70% of households or a single car household or something.

I'm a little stale in these numbers, but it's in the ballpark of that. And so, like, something like range anxiety when you have one car is a very real, when you have two cars, it's like, oh, well, you know, if we take a weekend trip, we'll take the other car and we'll put the kids in the dog in the back, right? Versus like, we have one car. So if we actually occasionally drive to Grandma's house, this is a much, this is a tougher bill. And then also on top of it, like a tremendous amount of Europeans actually don't have a garage. It's something like 50 plus percent actually park on the street.

So you actually have to redo all the streets, which you can do in 10 years. Like we can put charging stations all along, you know, Broadway and Fifth Avenue. We can redo it, right? But it's not, it's not, it doesn't happen overnight. It takes a lot. So, yeah. Cool. Perfect.

Well, hey, I want to be cognizant of time because this has been a lot of fun and we've actually gone over an hour. But are there any points? any points you wish we had hit harder any points that we didn't make that you wanted to get around to? Any kind of last thoughts here? No, I think like you know, the only thing I would say is we haven't talked about like the timing around like

the preflist thing and like what I kind of think that I think is a decently interesting catalystic thing about buying like the equity around like when it actually gets listed I think you would actually see like this used to be covered by five different brokers you know all of whom have relationships with any of the

parties involved in all of this. So I think you can actually see a number of people listing it. And once it's listed, I think you might see some self-side coverage pickup. And a lot of people are going to be staring at their old model when they're like, oh, it's complicated, don't touch it. And staring at, it's a lot of point now. So I think there was a nice earnings beat, relisting, resale side pickup coverage story that is pretty nice and catalyst rich in the next couple months.

That's perfect. That's perfect. Well, hey. The website. Yeah, yeah. And then one of other thing is like, yeah. So I'm throwing up a website, GTX is a cheapstock.com. Chris, you got to stop beating me to it.

I was going to wrap up by telling people, gtx and the cheeps.com. We're talking on Friday. It's not up, but Chris has promised me it will be up on Monday. The link will be in the show notes for that. So he's not going to let me down. I'm getting the site up.

Everybody should go check that out. You know, I think GTX is interesting. I'll just remind everyone post reorg equity. We both have positions. So please, nothing is investment advice. Please be careful. But Chris, this has been a lot of fun. You want to concentrate a portfolio.

So there aren't a lot of new stocks coming in and out of your portfolio that we can talk to. but the next time you have an idea, we're going to, you'll have to gin up a new website and we'll have to have you back on because this has been awesome. And I've really enjoyed this. Really enjoyed swapping notes with you over the years and looking forward to keeping it going. Sounds good. Really appreciate it. Thanks.