Yet Another Value Podcast - Jacob Rubin from Philosophy Capital on $ESGC

Episode Date: March 2, 2021

Jacob Rubin, managing member and CIO at Philosophy Capital, joins the podcast to talk about his long thesis on Eros STX (ESGC), how he thinks the stock could respond to a global refi, and the long term upside as they successful integrate their assets.Disclosure: ESGC is a small cap and has a going concern risk; please do your own work and remember nothing on here is investing adviceChapters0:00 Intro4:00 Eros overview6:00 Pattern recognition from Loral (LORL)10:15 LORL's upside optionality / Canadian C-Band16:00 ESGC's solvable credit problem19:30 Eros's history with short reports22:40 Taking comfort in Liberty and Eros's CFO DD29:30 Pushing back on asset value36:00 Quantifying the post-refi upside52:40 Pushing back on the STX upside1:00:30 Pushing back the Eros Now Upside1:11:40 Quantifying the upsidePhilosophy Capital's Website: http://philosophycap.com/

All right, hello, and welcome to the yet another value podcast. I'm your host, Andrew Walker. And with me today, I'm happy to have on the managing member and CIO of Philosophy Capital, Jacob, how's it going? Andrew, hey, it's going great. Thanks for having me. Hey, thanks for coming on. You know, let me just dive right into it and start this podcast the way I do every podcast, and that's by pitching you, my guest. I actually met you only a couple months ago. I think it was the GTX bankruptcy that we met in, which was sounds about right. Yeah, which was very interesting, very lucrative, very cool. And you've quickly become one of my favorite people to bounce quirky ideas off of. You know, I always think I'm at the edge of the bleeding edge of quirky ideas. And then I meet someone like you who, hey, let's look at this bankrupt auto supplier. Let's look at a distressed Indian content player. Let's look at the Canadian satellite company.

So I've just really enjoyed getting to know you, and I'm happy to have you on here and dive into an idea. It's kind of funny, and it's a little bit rewarding that I've, built a wolf pack. I've got all the people I talk to. And there does come a time where they'll come in and say, I've got the perfect thing for you because I know that I can't go near it, but you'll actually, you know, roll up your sleeves and look at it. And it's just so funky. So I'm going to give it to you. I just get a kick out of that. It's kind of fun. You know, my partner, Chris, the way he started, uh, Rangely Capital firm I'm with as a whole is he was at a, um, I just say like a hedge fund consultant shop or something, right? And he'd go on these calls and then,

and every now and then there would be an idea and you'd be like, what about this? And one of the analysts would be like, oh, that's out of our fund mandates and every fund's mandate, but we're just stuffing it into our personal account. And Chris, one of the research funds was, I just want to go invest in everything that they're stuffing into their personal account. So I definitely feel you, you kind of want to be the person who people come to you and say, hey, I could never touch this in my fund because, you know, we wear suits and ties and we're really buttoned up.

But this is really interesting. It takes a lot of work. It's got a lot of hair on it. Check it out. And, you know, the key is really to live. as a value special sit event distress kind of guy we do long short equity credit find this stuff that fits what you just said and then spend a lot of time understanding one how it got there and two underwriting the bridge from that to something that whole crowd can look at and simply moving from

one bucket to the other from distress to deep value from deep value to value from value to garp garp to growth, if you can get those sort of category jumps, the audience growth. And I mean, you're just talking about the structure of the market, the number of people who will and can look at it just increases almost exponentially, if not exponentially. And so that's a big part of our process, not just finding the, you know, completely crazy house-on-fire situations. It's, is there something underpinning? Is there bedrock?

Is there something I can actually wrap my arms around? and is there a narrative that ultimately, if we can clean this up, if it's fixable, that people could really could see and understand and appreciate and put a multiple on? So that's the name of the game. You know, I'm with you. And it can be so frustrating because sometimes you do all the work and you sit there in this distress name or something, right? And you'll spend six months and hundreds of hours doing it, and the stock will move from 2 to 250. And then you have a friend who'll come in and be like, oh, yeah, the balance sheet's clean now.

This looks like a good story. And as soon as that it flips from distress to deep value or, you know, Twitter going from kind of value to growth at a reasonable price, it's up 50% in, you know, four days or something. It's just, it feels almost like cheating to be able to catch that. But I'm with you. It's a great thing to catch. Yep, that's the plan. That's the plan. So. Well, let's talk about a name that maybe, you know, I think it's pretty distressed right now, but you and I've talked on and off about it. I think the thesis here is that it might be catching a flip from distress to maybe growthy story pretty quickly. the near future wants a few things that I'm sure you'll talk about clear up. So let's just do quick disclaimer. Stock, we're going to talk about a little more, little smaller, more on the liquid side. There is a lot of debt here. So everybody should just remember nothing on here is investing advice. Do your own work, do your own due diligence, all that. Stock you want to talk about is Eros STX. The ticker is ESGC. I'll let you take it from here. Why is this attracted to you? Yeah. So I mentioned our mandate, equity and credit, long and short, doing value.

and distress and event driven. And really, though, I spent six plus years with a guy named Jerome Simon at a fund called Lone Star Capital, who in his world was just this, this almost like a myth. Just he's so good. And the stories I have from essentially being a cobbler, you know, apprentice style at his elbow for all those years, just seeing how the sausage gets made, those stories would fill a book for sure. And ultimately, what it came down to is after all that I had three different degrees and whatever, all that academic crap, ultimately it was pattern recognition.

It was, okay, you learned all that stuff in school and I was a banker and, you know, you got some basics. You can talk the language. But now you just need to check yourself, see how much you don't know about what really goes down and just observe and hopefully spot patterns. And then couple pattern recognition with swim in your lane, don't try and get all fancy or do new stuff all the time, just rinse and repeat. And so the crux of ESGC, really, Aeros STX is that as soon as I started hearing about it, it reminded me of all sorts of examples I have of things that have worked. Now, philosophically, at a theoretical level, a fundamental level, there's merit underpinning the pattern. And I got my head around it four patterns ago, right? four instances ago.

So I don't have to relitigate why this works. I've been down that road. I just know it works now. And so one example is, and I don't want to go too far off, I had chatted with you briefly, but about this LaRAL, L-O-R-L. This is a top position in our fund. And I found, and again, I'll keep a brief, but I found LaRal at a time where anyone I mentioned it to, puked. It has this guy Mark Rosheski and MHR, which there's a lot that goes with that.

The other owner is PSP Canadian pension, and the two had been locked in a battle and threatened to sue each other for five years for a botched takeout offer in 2015. If you read the 20F or the 10K there, you'll just see this unbelievable history. It was one of the most entertaining financial statements I've ever read about how they hated each other. It was a hold code. with the stake in a private Canadian company. It had a geosat's business, and geosat, you know, is in decline. Nobody wanted it. It was messy, murky, opaque.

But under the surface, a lot was going on. And they were doing a lot of work. Moreover, there was some value that I could just rest on. They had cash coming for clearing out some spectrum. They had a free cash-filling business where if I ran a DCF, unitively and gave the backlog zero, it would make a certain amount of cash. And if I added Holdco cash, FCC, C-Band clearing cash, and the ice cube, and I microwave the hell out of it, I get my entry price.

So the fact pattern was very cheap, downcase coverage with, and then the question is, what's my upside? And that was free. It was like, in my mind, free upside, free call options. And then I started learning and I learned that they had spectrum and the Canadian spectrum could be worth the market cap or two times a market cap. And then they had this Leo project that was differentiated. We ran the math and did a blitz on the industry to figure out if it could hold water and we think it can.

And then you get like 20 bagger potential. And so those setups where it's expectations are horrible. Everybody, by the way, that when I mentioned the lawsuit in the five year history, it was a $70, $80 stock that went to $17 over a long period of time. So everybody got burned, everybody lost money. And you talked to, nobody's turning over the rocks. Everybody's burned and moved on. And then you're striking a sore court because we know it well. I mean, MHR, you know, I think, and you know this as well as I do. Like the knock on him for a long time has been he does not sell his companies, right? Like Lionsgate is another one he controls.

Hasbro gave them a $40 bid maybe two years ago, three years. years ago. The stock is 12 or 13 right now, right? LaRalle, the Canadian Pension Fund, gave them an $80 did, as you said, five years ago, and he turned him down trying to get them to 82. And the stock, after a huge run, is that, I think it's at 40 now? You can correct me over now. 47. Yeah, but to your point, it's, so when you hear that, that was one of the first things I heard hearing about that situation, you start diligence, well, has anything changed? What's changing now? And when it came to Rosheski, we saw that the lease on his office was up this summer.

Oh, that's great. Really? We saw, yeah, it's in the filings. We saw changes to their website at his own website. I don't know if he's going to raise money or not. But we started thinking they seemed to be teeing things up. And then you saw a slew of announcements with his companies. He actually started doing things after years.

Change was... Navstar over the summer to... Correct. He'd have been a post to for years. Correct. So change was in the air and something was going on. And then as you poke around, tell us at, and you see LinkedIn postings and you see they changed the whole website, all of a sudden they had a Twitter account. They never had a Twitter account before.

You know, you just do some of that grunt work. And it tells you, you know, this time is different because all this stuff's happening. And then you start trying to figure out why. So it all leads me to ESGC because I- Let me ask you one on the Rout just because we were there. This is more out of my curiosity than probably listeners. But one of my big misses in 2019 was I thought the C-Band that IntelSat owned, which the Rout owns 5% of that in the U.S.

I guess that's passed now. But I thought the C-Ban was going to be a home run. And actually it was a home run just IntelSat went bankrupt before they could realize value. TelSat owns the C-Band up in Canada, right? Do you think that's going to be super valuable or how much do you think that's going to be worth? I think it's a monster. Yeah. And I think what's what the critical component, and we've talked to some analysts who just miss it,

they got 344 million U.S. for their C band in the U.S. But they were, they had it. It was a small, very, very small. They own a big amount of space in Canada, 3.8 band. I want to say it's 500. There's 100 buffer of the 400, 200, 200, their monster. they'll monetize and I think 200 they won't and the key here is can Canada is playing catch up they just did a process they had a comment period then a comment on a comment period that wrapped

at the end of November and now we're sitting here waiting to find out what they'll what they'll do there are some reasons to suspect they'll play catch up and do a lot of the work coincident with what's going on in the US there's going to be interference it's going to be a headache the whole process. And so you might as well do it all at the same time. So if you want to get a read on what they're going to do, what they're thinking with regard to Telasat and their spectrum, you know, the game theory, this is what I studied in school and I try and bring to a value investing approach, the key players here north of

the border in Canada who make the decisions, who's going to get money for spectrum, will they get money, how much and when, what can we look at to determine what they might do? I mean, it's a probabilistic exercise. I'm public. I never get freeze tagged. I know MNPI, but they committed publicly, Justin Trudeau himself on a videotaped event used Telasat and Telasat Leo in an event where they committed 600 million Canadian to the Leo project. Then the government in Quebec, just announced a whole bunch of money. And the federal government up there gave $85 million in grant money. Meanwhile, you can check the lobbying records.

They've been having 15 meetings a month going back a long time. I mean, Dan Goldberg's CEO, I don't know, but I'm guessing he is pre-COVID going to every gala in Ottawa and very vocal. so and well connected this is a canadian multi-decade 50 year plus company they have jobs they're going to bring more jobs this is a geopolitical thing what their manufacturing partner tallus is is a french company you know france france and canada share share history so would they do all this and then screw them on spectrum yeah just basic i mean could they sure is it likely no What's the fact pattern telling you? And so the more we dig and the more we poke around, the more it looks like they'll get rewarded for spectrum, if you run the megahertz pop numbers from the U.S. auction, it just gets silly.

So we're finding ourselves hair cutting everywhere. Like, oh, well, it's not as valuable up there. Oh, well, they're not going to get all the benefit. Oh, they won't. And we read the counterproposals in the comments. And so we haircut and we haircut and we haircut. And it's just relative to this market cap. It's still silly.

So, again, just Spectrum plus the old existing free cashling business covers you, even today. And then Leo, you say, well, is that worth anything? It's a science project. I'm a distressed value type guy, asset coverage. How am I going to do 2030 EBITDA? Like, I don't do Tam stories. But we just did a lot of checks. And first of all, Spectrum plus export, import, financing will pay for it.

So I'll get the equity upside. I'm really not going to pay much for it. They're partnering with the likes of Amazon and Blue Origin. They have code written by Alphabet. I mean, they're doing real work with real partners. So I don't know if it will work completely. They also have an existing business with governments and enterprise. They're not competing with Starlink.

If they get just a smidge of Starlink credit, you know, our model says they do $3.5 billion at EBITDA, you know, as I go out. and I put any multiple on that nine times. I mean, whatever you want to call it. And this talk goes to 300 plus. So it's just stupid. And as a value guy, when I get to that point, I'm not going to be overly scientific. I mean, look, I just love the, A, I don't think there's anything that's burnt event investors more than MHR controlled companies, LaR, being the specific one. And B, Spectrum plays after Intel Sad and all the other guys got burnt on C-Band.

So I just love stepping in and saying, hey, everyone in the world's been burned on this thing. Let me kind of come to this with a fresh pair of eyes and a much lower stock price. But why don't we turn over to the story we were trying to get to? That's my bad. Yes. So my bad. But PC. So similar, I would say here's something that's similar.

In a sense, there's the trade and then there's the investment. You know, and like if we're marketing our fund, I don't want to be thought of as a trader. But in special sits, you know, sometimes the trade is just staring you in the face. So with this one, where to start? We do credit and we do distress. So I know that a solvable credit problem is massively good for the equity every time always. Most recently we saw that with, well, we saw it with Tupperware. We saw it with Party City, we saw it with Bombardier, we saw it with Hovenanian.

If you go find broken cap stacks with imminent maturities that need to be solved or else they're dead, we call it an existential bet. And you go pounding the pavement, understanding the landscape of who's lending, what they want, you know, where the process stands, you take the temperature. If you think that credit gets fixed, the returns are. are asymmetric and you're not talking percentages. You're talking multiples. Just to clear, this is, I think the simplest pattern would be company has a going concern warning in their 10K, right? Hey, their debt is, it is March. Their debt stack is due in June.

And investors are saying, I don't know if they can refinance this or not. And what you're saying is if the company manages to refinance that 99 times out of 100, the equity is going higher, if for no other reason, then the equity call option, right? The equity is a call that the business is worth more than that that call option just got lengthened right it went from a three month call option to if they were five for five years it's now a five year three months call it's funny you say that because i literally sent lps a note on bombardier equity last year because they were closing a deal selling the train business to ulston yep and i i sent a black shul's analysis at the money call theoretical pricing three months three years plus three months because the

the cash proceeds of the deal we're going to pay off the next three years of maturities and i just said you clear the runway, which was great because it's a plain company. So for the cheesy jokes, I've used that joke so many times. So you get three years of runway. What does it do to the call option price? At the time, it added an incremental 15 Canadian cents and the stock was 27 cents. Yep. And I just said, okay, buy. And of course, you know, we had front end bonds and that's a different story. But then the equity, of course, works better than the bonds. The bonds was the no-brainer and the equity was speculative, and then you just say,

why do I even bother with credit? So the setup here, they didn't refinance. They have a facility with J.P. Morgan. They have over 300 in total debt on the company. It's coming due. And going concern language got put in by the new global auditor, Ernst & Young. Okay, so that's one thing. What else?

Eros is the Indian side of the business. This is two turnarounds stapled together last year. Eros, a digital streaming platform in India that also is a film, you know, movie TV studio. And STX was actually Simon's TPG and X because X was the top secret. That's STX. I just learned that from the company recently, which was, which is a fun anecdote. But it's a movie studio in Hollywood stood up in 2011 by Bob Simons, the head of it, a TPG, a guy named Bill McLaughlin there, former partner there, and then, like I said,

the X. And they were going to basically run a leaner, meaner and nuanced differentiation movie studio to make content. On the Ero side, so you got hair everywhere. Iroside, everyone I've talked to, who I, when I started looking at this, said, oh, the Indian fraud, because there were short reports everywhere. And so the first thing I did is I read every single short report. And I, we do long short. I love a good short report. And I read it and thought, wow. And I looked at the stock price, you know, good on you as maybe, you know, an Australian or someone would say.

It's good job. You nailed it. I mean, the visits to seeing sort of Indian slum subsidiary auditors in a one-bedroom apartment. I mean, nailed it, nailed it. The DSOs trending up forever, receivables that never go down will never be collected clearly. you know, very, very, there's a family involved, it has a sketchy reputation, the Lula family. So plenty of hair over there.

And a lot of people, and we went to some long-onlies who do India sort of all day long, and it's just like not touching it. Then we go to the SDX side. The TPG partner I alluded to, McLaughlin is tied up in the college cheating scandal. So he just pled it in court. And I don't want to get anything wrong. Disclamor, this is me off the top of my head.

So I don't want to get anything wrong. But I read that he did a plea deal. He may well be going to jail no longer at the firm. And he, at TPG, my understanding is they sort of have silos these days, partners covering different areas. He was the entertainment, Hollywood media type guy. And he was apparently a rainmaker doing great. And this was his thing. But he's gone now.

The champion's gone. Furthermore, at the time, they had a fund called Star. Ultimately, the investment in ESGC from TPG was in Star and growth four. But Star was right at the end. It was almost fully invested. It was their last capital went in here. That's a 2007 vintage. So now you have TPG filing a 13D every week because they are puking it every single day this year except one trading day.

So they are selling. So the story is, okay, why is TPG selling? They have no partner. He went to jail. You've got short selling on the other side. You've got going concern language. You're also trying to wrap your head around how these two things fit together. And by the way, COVID for movie studios with movie theater.

We've seen everybody knows AMC. So movie theaters aren't open. Nobody's looking at it. So a couple of things intrigued me right off the bat. Let's see, where to start. Of course, you have a reopening bet, but forget that. You have, who is buying all that stock and how is it hanging in there at two bucks? And so that's something I've had a really fun time following breadcrumbs on because someone is buying a lot of $2 stock.

Andy, Andy's a CFO. And Andy was brought over by John Malone. And John Malone owns over five million shares of this thing. Why is John Malone here? He's really smart. I've invested in Liberty entities in the past. They don't do dumb things. They also probably would have turned over every rock in the world on Eros.

So, you know, and also between Liberty and TPG resources are infinite. I'm sure they did some checks. So I'm thinking, Andy was CFO at Discovery, CFO of NBC Universal, CFO of Liz Claiborne. He's been a CFO for a long time. And not only did he take this job, he also bought stock at $3.8 in a pipe last year, personally, several million dollars worth. And he's been incredibly accessible. We've had a lot of great calls. And I mean, he's a believer. He's here. Go ahead. Can I just, John Malone, when did he got involved with, because Aeros and SDX, as we talked about, they merged, they merged early to mid-2020. Did Malone put his money in

In the merger? STX. He came in through the STX. And I'll get to him and them and how I think they play a role here. But just the things that started to intrigue me. Someone is buying a lot of the stock. There is a reopening play. There is a credible CFO.

And this was for me, being that I do credit, understanding there's a real CFO. Who's the auditor? They brought in Ernst & Young. And we all know Big Four's. We've seen wire card, you know, having a great auditor doesn't mean all that much. But not only did they bring in E&Y with a real CFO who put his own money in, they wrote those receivables down. They've actually been written down three times.

Yep. So, you know, I look at that and say, okay, shorts, you're right. Receivables written off. The shorts also were talking about liquidity and debt and that the company could run out of cash. And I think they might have been right. If STX hadn't come along, that's what might have happened. But now you think about the refi. This is where we can add some value.

What's going on with the refi? Well, the company had a November call. You could find a transcript on the investor relations website. And the CFO, who again is credible, and I've done many industry checks on, is he real? I also had multiple calls myself, and I found him to be credible for whatever that's worth. He said on the call publicly, he used the phrase 100% sure. or 100% something that the refi would get done, which obviously I joked with him about like legally you should never say that.

I mean, who knows what will happen? A meteor could hit. But, I mean, think about the fact that he said that. And they touted J.P. Morgan as having been in charge. And they have a very credible explanation of how the hell they got G.C. language in their filings in the first place. Yep. Which is the following.

These two things were merging. It was a ton of legwork to get. to get the deal done, to get the financials looked at, Ernst & Young in the room, to do a pipe, to get the pipe shares registered, to put out pro forma financials that took a long time. Approaching banks at a period of uncertainty, they don't have the same mandate I have. So when you approach a bank from a position of weakness to ask them for something or to try and cut a deal, you won't get an optimal result. And so he faced a trait.

Do I accept this legal language and getting uncomfortably close to maturity? Yep. But try and get to a position of strength first, get all my ducks in a row, my house in order. Or do I just cut some survival deal right now? And I don't even know if that would have been on the table. Maybe the bank said, we'll only do it if you get it all done. I don't know that. But what I do know is they got all their homework in.

They did what they had to do. And now they have FTI just doing appraisal work on the STX film library. It's 48, 41 done, seven coming, 48 films. They had, I think it was Duff and Phelps doing appraisal work on the Indian library. They're going to use both libraries as collateral to approach J.P. Morgan, the incumbent bank, and I'm sure a collection of other possible lenders, and there'll be, I'm sure, a data room. And they're running a process right now. They just put out a release last week that the refi will be announced shortly,

which you don't put out publicly unless you're pretty far along. We're basically, they approach all of them now with all that dirty work done, with a world that craves content and craves subsidiary growth and a streaming platform, where they are in demand, where they have, I mean, they have films with A-A-List celebrities. I mean, Will Smith, you know, you name it. They have, I mean, Angelina Jolie, Kevin Hart, you know, Guy Ritchie directed movies. I mean, they have real power here. There is a deep bid for what they do.

They are tying in to Netflix and Amazon Prime and all these, you know, and Apple Plus. They are in the ecosystem. So they approach these banks and say, here's what we want to do. We want a new term facility, take out our old sort of working capital type, you know, movie financing vehicle, take out our UK debt, take out our Indian sub debt, for all I know, they have that EIML, you know, partially owned subsidiary that's listed in India, get rid of that thing. Like, we want to clean all of it comprehensively because we think our story will resonate more and we will command a better multiple in the market. We'll do better with movie stars getting

the sign on for projects with a clean, comprehensive solution to our credit issue. And for that, we're willing to pay. We'll have a fair rate and we'll collateralize you two times over, whatever. And let's push this out. So what I think they're going to come with is push it out I hope five years. That'd be great. That's, you know, my boge. The five-year option we talked about, yep. I mean, I'd love to see them push it out five years. I think they redo all of it. They get rid of all that messy stuff that shorts could go after. So it's one clean facility. Moreover, I'll also tell you Bob and Andy, the guys in Burbank who run the show now,

like they literally control the cash now. This is a JPMorgan Chase corporate cash account, two signatures required to fund a project to send a check. Like, they control the show. So another thing the shorts used to worry about were the cast of characters. I haven't heard anyone say any of those claims against the SDX side. Let me provide my first pushback here, right? because I agree with you, but the last podcast I did was on Wild Brain,

which owns peanuts, Snoopy, all that type of stuff. And this is pretty much the same pushback at a then, right? Like you say, hey, they're appraising the library on both SDK and their side. They're getting to appraised, professionally appraised. They're going to go to that and use it to borrow from banks. But, you know, I do think a fair pushback is if you look at how much libraries go for right now, you know, like MGM, everyone says they're trying to sell themselves. No one's really beating the door down for MGM.

I use this example. Obviously, you know, MHR controls Lionsgate. Lionsgate, you know, 18 months ago, CBS bid $5 billion for stars. Lionsgate owned stars plus all the Lionsgate films. The market, the enterprise value there is about $5 billion. So you could say, you know, things have gotten a little more complicated since then, but you could say, hey, the market is looking at this insane, this business is worth stars and the Lionscape movie studio and all that is kind of worth zero. And I just, I don't see a lot of transactions in terms of library, because I don't disagree, like, there is demand for this. And even arrows, right? They're coming on. They're saying, hey, the way you really budge the needle, because they've got arrows now, which I'm sure we'll talk about, they said on the call, the way you really budge the needle, you need to have all that library stuff, which we've got. But you budge the needle with this new, buzzy stuff that gets people on the service, gets people streaming, gets people watching.

So I think the first pushback would be, hey, how can you feel so confident that there's this value in the library that can support them refinancing? the debt. First of all, relative to the debt, 300 something that needs to need to be collateralized. And my guess is they collateralize it two times over. Yep. So to come up with 700 plus a value, which is, I think you'll get 400 plus from the STX side by our math.

And Eros is a little more of a black box. We'll just wait and see. There are a bunch of ways to do it. I mean, first of all, you can do very accelerated book accounting. I mean, that's how this works. They write it down very rapidly. And so the majority of the value will be recent releases, you know, the bad moms of the world, which these guys did. Or Greenland, they just did.

You know, the gentleman, whatever. But they actually have, we went through, I asked the question, how does FTI do it? And there are four categories, and I don't remember all four, of types of ways of analyzing income streams. And it's not as willy-nilly as when you read sell side stuff. And you say, oh, well, they got Bond franchise or whatever, right? Not these guys. It's actually what rights have been sold, what haven't, what platforms have bought, what haven't, where are we in each? And you go film by film.

So what we did internally is we listed every single movie STX is made. When they made it, what the budget was. And we worked from there. And you can also, you know, as rough estimates, start thinking about, well, how much money did they pump into these movies? You know, how much box have they done so far? You know, suffice it to say, both sides have spent billions. I mean, I think SDX has probably spent on order of, call it, one and a quarter to one and a half billion on their movies to date. And arrows from what we've gathered is a couple billion probably spent on building out what they've built out.

So, yeah, we approach it. I mean, the book is very aggressive. It also, book accounting has not really caught up to some of the avenues of monetization that exist today with streaming platforms all around the world. And when I say all around the world, I think that's relevant here. They have PCCW, Honi, which is Lenovo. they have, so those two groups out of China as major, major strategic shareholders here. So they've got, you know, ties into China, ties into India. They've done plenty through the Middle East in terms of financing.

These guys are globally plugged in. So if there's an outlet to monetize, they've got it. And so when it comes to just coming up with 700-odd value to cover your refi, and I compare to all spent in our own internal modeling with accelerating, to depreciation, I feel great about it. I also think, you know, if you listen, if you listen that November call or if you have calls to management, they're better at selling than I ever could be. They know, they know what they're doing. This is an exact in the media. That is their job, right? And I'm always impressed by how good they are at it. Well, and so something I didn't even

talk about is they're going to be in the same bucket as us. So there's a little bit of detail to come, you know, Mike at non-gap, shout-out should probably dig in here. But there is a MIP, an incentive plan for management of about 40 million equity awards. I'm expecting to read about some kind of pricing announcement on that plan anytime soon. I believe it's in front of the board. I believe I believe it's not a like bullet dodge. You know, we're going to strike it super low under two. I mean, Andy already was buying stock at three. I think it's going to be RSU heavy.

And, you know, I've gotten the touchy feelies that I believe we are all rowing the boat in the same direction. And ultimately, these guys are going to own a lot of stock. Yeah. And they're going to get paid on the stock. Do you think they're trying to get that struck before the refi gets announced? because that would be the real Mike from Nongap, who he was actually the second guest on the show, but that would be the real Mike from Nongap. Hey, get the RSU struck and then announce a global debt reply two days later.

Look, I mean, part of the job, right, of being an active investor is, I mean, I read the Riot Act. I do not want to get freeze tagged. I don't want to go anywhere near any line ever. I've got three little kids and a wife, and this is not worth it. I'm trying to read the players at the table. And I've asked 100 different ways all about the incentives here. And all I can say is my overall interpretation is, I think we are very aligned. Okay.

So let's take on the assumption, hey, 750 million, a billion, a billion, a half, whatever you want to call it of library value, that's going to get them the global. that's going to get them the global refi that kind of clears out this huge overhang that, you know, anytime you see a going concern, that's going to stop 95% of investors in their traffic going to further. So let's say they get the global refi. What type of valuation, what's attracted to the story to you kind of post refi though? I know the refi trade is a big piece of the thesis here. Yeah. I mean, we've spent a lot of time. What is this worth? You're paying 1.1 billion enterprise, right? It's a 800-something equity cap here, fully diluted

when you include the MIP, you get to, that'll take you from, call it, 380 shares to 420. So 420 times to 840 and then three out of debt, call it one in a, one, one, two, call it. What do you get for that? And they've put out guidance. And ultimately, if you go out year, so not the next 12 months, they're a March year end. So, you know, 800 and then a billion plus are sort of the revenue top lines. And by the way, my own interpretation there is, it's conceivable that they would miss top line and actually the story would be as good or better

because in a streaming world like what they did on Greenland, they don't get the theater top line hit, but margins are so much better. And so EBITDA and free cash will be better or the same. So we'll see if they hit the $1 billion plus in the out year being essentially calendar 22. This is why it's one of the reasons why Redditor is going so crazy for AMC was so surprising, Because you saw a lot of these movie studios back end of 2020, they started releasing their movies onto the streaming services or through real premium on-demand year, $40 per download.

And the movie studios looked around and were like, oh, this is kind of nice. Like, this is really working for us. And that's one of the reasons. Like, you look at classic movie theaters and say, oh, these guys are in a lot of trouble. Because as you're saying, revenue might be lower in a streaming world, but the margins are so much better. So part of our approach, both to LaRalle and to this one,

is we come up with a list of people we want to talk to. Yep. And then we just go gangbusters and we're not shy. We're annoying. We're just annoying. It's part of the job. And we call everybody. I remember early in the business, I'd be nervous to go to the chairman of a board,

a CEO. And now it's like, I'm going to go there and I will cold email. I will, if I know someone who, and luckily, the more time you do this, the more it's all warm and you know somebody, you know somebody and you can get access. But that's how I keep up with the multi-billion dollar. funds because you know we're over a hundred but we're not billions and so the billions just flex for us it's scrappy right so we got i don't know 25 30 calls um and and as we dig in we we find that industry checks basically told us movie studios have been waiting for years to try

the things that they're finally they have cover under covid to try yeah taking it straight to streaming at a premium price of 20 bucks after just a few weeks or straight to streaming from the jump and then going sort of from PVOD to VOD, maybe, you know, I don't know how your AVod is, and then going, you know, going on down the list and then ultimately selling off the rights, you know, in sort of phase two to HBO. Like this business model is awesome and they're doing it now, which is great for the business because I was just on with management, literally right before this pod, and they're finding ways, and we'll see if it continues, but it may be the case that they can get the same kind of returns in the new model,

just de-risking the hell out of it. So imagine as a hedge fund you can put up what you've put up without having to go jump into the burning building that is Aeros SDX. Like, what if I could just buy, I don't know, pick your blue chip company. What's the biggest blue chip? Yeah. I can buy Apple and yet have this kind of upside. And maybe this unique circumstances unlock that. So one thing I'll tell you is so far everything I'm talking about is the trade, right? It's the management's aligned. They're going to get a refi done. The things that

keeps everyone from looking at it that were highlighted in the short reports that had absolute merit to them. Liquidity, that's going to be solved with the credit thing, if I'm right. The receivable written down, not a problem anymore. And by the way, they hired Scadden, K&E, Ernst & Young, all to do diligence before they did the deal with Eros. And I would ask any skeptic here to think about this. STX and TPG and Liberty Global, all the guys on that side, didn't have to do this. They sure they wanted to list. They tried listing in Hong Kong a couple years ago and for several reasons that didn't happen. They wanted liquidity. They wanted a list. They could have spacked. They could have done something else. They chose arrows. Do you think these guys were wanting for

resources to do diligence? Do you think they rushed it? Do you think they didn't have access to every single short report and go through point by point? I asked that to them. I said, first thing I did is I went through these reports and went every single point by point. I thought there were some tremendously problematic points. Did you see that? And it's like, absolutely, number one, It was the biggest problem the board had doing this without question. So we had to go way above and beyond to address it. This is just sort of the logic of what happened. That's the great thing about high profile short reports on a company, right?

If they announced a merger, it went in one of two ways. A, either the target or whoever they're merging with did all the due diligence in fully rebuffed it or B, and this has happened. The target is just completely head in the sand and did the merger and didn't address any of the points. And it's going to go to zero and really died. But here, obviously, it sounds like they did the due diligence and you had very sharp guys who were looking at it. But there is possibly the other side. And being someone who likes the short side and believe shorts play an amazing role for our markets.

And if they have something here that I've missed, you know, ultimately, I'll be respect to them. But one beautiful thing is here. It may be the case that the guys writing those reports were dead right. They got it right. The receivables were garbage. They were written down. The characters were questionable. They are now sort of put in boxes.

They are not running the show. They are sort of risk managed. And they have assets. They are on the ground and they've done some real things in India, which there are a recent, a recent FT article about how all the Goliaths are trying to crack India. it's a tough nut to crack. I know that my wife worked at a while ago Visa and they were looking at India. This is going back a decade.

I think she went to India 18 times and ultimately Visa could not get it done. She didn't do anything because it was too complicated. These guys are already there. This is the next battleground and they're there. It's really, reading the presentations up, it's really interesting. I haven't been to India. I've looked at the markets a couple times, but just like there's so many different dialects and stuff. and Netflix is obviously trying to crack India

and they're coming out with a little different strategy but with all the different dialects and stuff they were even saving their presentations at least like hey Netflix can be a huge success with a huge population and they're still going to be hundreds of millions of consumers they haven't had time to address that we can address with our dialect focus

and all that side of stuff which I think is really interesting because when I think Netflix I think of the scale benefits up hey they make stuff for the English market for the British market and it translates really well to America and it almost doesn't write you hey, if you make something for one piece of India, it's not going to apply to 75% of the rest of the population.

Right. And I haven't gotten into the merits of the investment, which I'll get to in a minute. But the language, yeah, go ahead. Well, all right, to wrap the trade up. The debt reply. I was saying that. And when does it clear? When do you think they threw this up?

I think it's, well, it's risky to give a really tight window because obviously it could be wrong. I think at the next month. I mean, I don't know. When, here, when will I start being worried as a holder? And I, there's a full disclosure. I'm talking my book, if that's not abundantly clear. But I would be worried that something's amiss if we, if we got to the end of June. Okay.

Okay. So that gives March, April, May, and June, four, I mean, four months should be plenty. I would be, I will be asking really hard questions if we get to May. and I will be scrambling. This is part of my job is I have a list of targets of things I watch for, both magnitude and time. And when something goes off course, we go just full like calling,

freaking out, pestering, bugging. And sometimes it's as easy as just reading the body language of how they respond to you. Yeah. Yep. That tips me off, you know,

one way or another and nobody crosses any lines. It's just this is human beings. And if you're getting all in their grill and this and that, they respond in different ways just as if you're, you know, at a poker table, hounding someone. So to wrap the, the November, I think it was a November 4th, 2020 call. They said 100% confident that we're going to get this reply done. And then it was last week. So what, February 25th, 2021. They put out the press release that says, engage JP Morgan, update shortly on the financing.

So you feel end of June is, it would be. really, end of May, end of June will be really crazy. But based on their language, I mean, I feel like we should be seeing something next end of March. Well, so they did have that comment about March 31 talking about finally getting the audited Ernst & Young numbers out. Yes. Yes. And so I don't know if that would be a gating item. If the lenders say, we'll do this deal, contingent on seeing that the final E&Y audited figures, blah, blah, blah, like I don't know what they're saying. So that if it pushes into into April, it might have something to do with wrapping that up, you know, but they don't have,

they know they don't have all that much time to play with. And they also, you know, they had an investor day scheduled for January that they pushed because of this. And the idea was, what the hell are we going to talk about if all anybody wants to know is, are we going to go bankrupt or are we going to get the refi done? So they pushed it, which is another, this, the CEO to me said that when they were looking at this, there's an element here of course. a coiled spring. And that's what I see to. It's, there's so much value we'll get to in the

business. And it's, it's coiling, being compressed as they work with Ernst & Young, as they do the diligence, as they line up the lenders to get this deal done, as they push the investor day with minimal disclosure. They are not selling this yet. That's going to change. Yep. Anyway, so that's the trade. I was just trying to say, like in terms of making peace with the short elements here, I think they can be right and we're right too. Yeah.

Yep. They were right two years ago and they were massively right. But now much lower story, new management team, the merger assets are different. And I'll tell you as it personally, being right on both sides, getting a short right and turning out and going long, it happens.

You know, if you were lucky enough to get Valiant off the very bottom after a heck of a short. if you shorted Steinhoff and got into certain Steinhoff distressed bonds, like there are ways to do this. It's very intellectually rewarding to do that to both appreciate a short and then go long. So the business. We are in a world that values content in a big way.

You know, I think COVID was an accelerant, certain trends that were there anyway. There aren't many movie studios, period. These guys don't really compete with Lionsgate when they're competing for talent, for directors and all that. I think it's Fox. Hold on. Let me. It's four. It's put this down.

I want to get the exact right guys that they consider. Fox Universal Sony Warner Brothers. That's it. A lot of those guys, the reason they created STX in the first place is those guys have massive overheads. That's why they need the universals or the Star Trek's or the Star Wars. They need to make the billion-dollar movie to pay for essentially their fixed cost, the legacy. And by starting from scratch and having a leaner operation with a different approach to sort of monetization and de-risking along the way, they can go after smaller budget films.

And there is a pitch to talent about where their back-end breaking. even is and about movies that can get made and even about the targeting of their own audience, the Kevin Hart audience, the J-Lo audience, the Guy Ritchie audience, they can pitch them on with a smaller marketing budget. We will micro-target you. They have AI and ML going through all the social media channels to get Kevin Hart's fans pumped for his new movie that they're doing. So they've made some big advances there. But in poking and prodding, I think that part of what happens is there is a hole in the market in terms of pitching stars for these types of projects where the stars can actually make as much money as big ones because they get it on the back end because the break even so much lower. You know who this reminds me of.

I'm sure you've heard of them Blumhouse, the people who did get out in all these movies and people would laugh at them. you know, but the budgets were $5 million, and it's exactly what you're saying. Actually, Jennifer Lopez did two movies with STF. She also did one with Blumhouse. And it was exactly the argument that you said, right? They said, hey, bet on yourself, do a small budget film. We're going to do a lot of innovative stuff. You know, like if you watch a Blumhouse film, they never have lots of extras in the background

because extras cost $200 per day. That's a big expense for maybe not a lot of value at. We'll cut the budget to the bone, but you're going to get all the upside on the back end. So if it's a get-out tight success, you're not. not going to make, you know, four or five million, you could make a hundred million dollars with all the back end versus big. Yeah. And part of the fun is, you know, because the big studios are a bit in a corner that where the back end, the budgets are so big that the back end becomes so unlikely or so questionable, but for the major surefire hits like a James Bond or something

or Top Gun too someday. The actors, and everyone else, all the talent. They want all their money up front. Yep. And that blows the budget up. And it's in this cycle. If everyone wants to get guaranteed pay up front, well, these guys can sort of go the opposite way.

And the back end's interesting. And then the other part of their pitch, beside more interesting projects that can be really lucrative, even though they're not the gangbuster, boring, but gangbuster projects, they're plugged into these foreign markets, where they can go to foreign stars and pitch them on getting relevant here or go to stars here and get their,

them relevant in China or India in a way that's somewhat unique because they're the backers 10 cent and and the Lenovo the Honi group PCCW all these guys and now what they're doing in India they have some real ties so they can pitch people on global relevance which everyone likes better projects quicker break-evens nice participation and it's working I mean they are signing up top-tier talent and I think there's a lot in the pipeline right now of really good stars signed up with them. So my point is, there's somewhat of a differentiated concept. This is a real thing.

It's like in my world, sometimes you're dealing with like very questionable. Like, what is the liquidation value? This is not a liquidation value play. This is a real movie studio that stands out. On the other side, you have a platform in India. We talked about the hair. We didn't really talk about what's good about it. They have grown to, I think last check was 36,

but now it's surely 40 and growing. Can I jump in? Let's talk to Eros now because I think that's the biggest space. But let me give you a pushback on, we were just talking about pretty much the upside for STX, right? And I think the pushback would be like, yes, all that sounds great. And I think there's even upside like, you know, there's all these articles out on Disney Plus. How do you get a back end when they're putting it straight onto streaming and stuff? Maybe STX can solve a lot of that. But I do think there would be a push at that, hey, this company, you know, they announced the merger with Eros. I don't think they gave an exact valuation of one company. you know, the other, but it's not like STX was this giant home run, right? Like the combined companies worth less than a billion dollars right now. So, you know, you paint a pretty picture and it all sounds really nice. Yeah, why didn't they sell? No, why didn't they sell it for two, three billion bucks, you know, when the Hong Kong IPO didn't happen, right? Yeah. Like, why do this? And I asked that question. Yep. And the story that I get, first of all, their library, this is a relatively new, this was created in 2011. It takes a while

to get going. The rate of releases is growing. This is an industry where the accounting, 75% of cost hits you in the first six months and only 50% of the revenue. So as you're growing, it's a perpetual headwind to your margin, which will release and go the other way when you hit sort of homeostasis. But they were new fledgling that the headwind, they were too small. Like, what were they going to get? Like, they were dreaming so much bigger. and we're going to sell a movie studio and they made 20 movies. I mean, they're just starting. So, you know, I think and then and then the TPG thing happened. So I really don't think there was a great, you know, bid that would be attractive to everyone involved. I think they, you know,

it was just too early. Tell me if I'm putting words in your mouth, but it almost sounds to me like you're saying, hey, STX, they weren't quite there, right? I like to use the term flywheel all the time, right? They had the flywheel starting to spin, but it was by no means. all the way spun up. It needed a little more time to bake and get spinning. But because of maybe some external events, I mean, COVID being a giant one, their backer in CPG getting shut down, they had to almost sell themselves or do something at an inopportune time. And maybe. Yes. So, yeah, I think ultimately they could have tried to just take it public in a SPAC or something like that or do this deal. This was presented to them. Everyone around the table who had a vote

at the STX side, new Eros. They had all looked at it. They'd all done work. And it was some combination of too long a put, life is too short. And so there is a way in which this company, and I'm borrowing phrases left and right, but this company is like outsourced due diligence. Yep.

And will there be a bid for it once all this homework is done and all this heavy lifting? It's like in my, you know, in some Silicon Valley neighborhoods like where I, live, if you want a fully beautiful, perfect house, you are paying through the nose. If you're willing to take on a bit of a project and do some work and go fire the, hire the contractor and find materials and do the design and get the permits with the town, like you're going to get it way, way, way cheaper.

This management team's savvy. And I think everyone around that table, all their backers, the Liberty ones and TPGs and honies and all those guys, basically they knew Eros, they'd done work on it. And they said, this is a great opportunity to essentially put adults in the room, do some heavy lifting, do that. And then we have an option. We will have just done a tremendous amount of value add work for all these buyers. And we could sell it on to them for whatever, five to ten bucks to share, whatever it is, a few billion dollars. It'll be the cheapest movie studio you could buy on the market when the comps are five and a half or six billion. You know, so maybe you spend. spend two or three here, you know, or what if it works? And that sort of what if question is like in LaRalle, what if Leo works? So here it's what if it works? So in India, they have built, they have a library of thousands of films and TV shows, and they have built a sub base of 40 million and growing thereabouts, I'm guessing, because I'm extrapolating from end of September

you know, till now. There are poo is nothing. They had to sign wholesale telco agreements to get people on the platform at all. When you ask and do checks on the brand power in India, you'll get, you know, you get the eyebrow raise. Like, it's like if someone here, you know, there's Netflix and Disney Plus and Hulu and Prime, and someone's like, yeah, yeah, I was watching this show on stars. And you'd kind of be like, really?

Like, we know what we're dealing with as far as the brand. It's not Netflix. And when you're paying $25 a sub and Netflix is $1,000 a sub, like, duh. You know, so the question is, what do you have? You have 40 million in growing fast. And when you have an Arpoo, that's nothing. You could look at that as a problem. And you can also rightly see the challenge of getting someone used to getting

something for nothing to pay. Or you could see how easy it is to have major growth in Arpoo. And these guys look at both sides of that coin. And they're going to launch a prime service soon, where essentially they go after the English-speaking parts, the affluent parts of India, with a combined Hindi and local language and English product, where STX releases a new, cool, top-tier Hollywood, A-level talent, movie every month. That'll be dropped exclusively on this, in this product. and they're going to charge whatever for it. I don't know yet. Something.

And that something will be if the current ARPU is like 10 cents a month. I mean, what if they charge two bucks a month or whatever? Like what multiple is that of what they get today? And so the chance to blend ARPU up. And so what they need to do is disclose what the ARPU is. They haven't disclosed it. Disclosed how much, disclose whatever they can about the streaming business. some of those numbers will be horrible, but this is comparable to a kitchen sink where you just

get out the information what it is today and everybody appreciates it's on the floor and now we can see your progress. And as we can track progress and see an Arpoo blend and a growing subbase and we get your audited financials, E&Y is now the global auditor replacing Grant Thornton who was doing the India side before and certainly didn't look good in those short reports. we can rely on what you say, you disclose more, and you start trending it up. If they can ever get anyone to buy into looking at this on a subs basis, forget it. Like this is one of those things where it just, yeah, it's like nine times forward EBITDA,

you know, yeah, it's a double-digit free cash yield on what they've guided for, you know, on a forward basis, you know, one times forward revenue. Like it's, you can look at it that way. like that's not how this is going to play out. This is going to play out. Phase one, the trade works and it goes to four or five bucks. That's unscientific. Phase two, if this Arpoo and something happens, if Hollywood helps the Indian platform have more value to Indians, and India as a Tam helps attract Hollywood talent to work with STX, now you get both sides helping each other. There actually is industrial logic. You know, besides what I see.

skeptically thought was, the real logic was take these adults, the Andes and Bobbs of the world, clean arrows and flip everything. Maybe it actually works. Maybe you get the Tam and the Hollywood content engine put them together. And I don't know if it'll work, but I have until the stock's four or five bucks to figure it out. I mean, I'm paying two right now. Yeah. So I do think there is something to like, hey, I'm about to provide pushback to the point you just made by talking about the competition from Disney Hot Star and Netflix and all that. And then the other thing is like, you're just saying, hey, once the trade works, here's how big the upside possibly could be if it worked. So we're almost talking like too bullish of a case to debate. But I do want to

Yeah. No, that's great to push back because Chris are analysts. We were going for a run the other day and shout out Chris. He's awesome. Real digger. And we're running after work and we're just spitballing about how big India is. Yeah. And just thinking through, okay, because Because on one hand, a lot of India is very poor. There are a lot of problems in India. But my God, there are a lot of people in India. And they love entertainment. They love content.

I mean, Bollywood, it's a thing. And these guys are already there. And how many players are winning at the same time in the United States? I mean, I rattled off the Hulu and Prime and Netflix and Disney Plus. It's funny. You say it now. if you would ask three months ago, it would have been like Netflix and Disney Plus. But now like, look, every single domestic streaming service has doubled or tripled in the past month, right?

Discovery's gone from 25 to 60 in three months. And dude. Like, I think the winning pool is getting proven to be a lot bigger, at least here in America. It's a lot bigger than anyone's dream of two months ago. Well, and I mean, like Apple Plus content, these, I remember I was skeptical. I was like, oh, what's this like, whatever that show up with Steve Corell, you know, the movie studio, TV studio. and Jennifer Aniston and I have not watched that one yet

so it's awesome it is so good and then and then Ted Lassow and I'm like I watched Ted Lassow and that got me into the Apple Plus I mean Ted Lasson it's so good so good and then I watched

oh god I watched they had this weird one Myth DeQuest yeah loved it hilarious right and it's just like Apple's freaking killing it like and then you go

and I mean I'm sucked in to Netflix I think a lot of other stuff is very low quality now. But still, like, they have so much stuff that, you know, my wife could be like, you never watch Gilmore Girls ever. Like, we're watching Gilmore Girls and you have to. Like, it's your homework. And then we, it's there on Netflix, right?

And then, you know, Amazon's got its stuff every now and then. And then I've got these little kids I mentioned. And Disney Plus is just like, thank you God for existing Disney Plus. And they're all winning in different nichey ways, like the Disney Plus with the PJ mask, that's for my kids. And by the way, I might watch Mandalorian. And then when my kids sees Baby Yoda, that becomes for my kids too. And then you go over here for this one and over here for that one. Well, I mean, I think India is big enough to have a few winners. Let me give, I'm going to help you with the bull case here because I believe Eros, one of the things

I highlighted when I was prepping, they said, hey, of the past 10 years, the top 110 grossing films in India, we own over 30% of them. Right. So when I start thinking exactly on your lines, right? Like, there can be a lot of winners here. Eros has a great app catalog to, for any streaming service, right? Like, anyone would love to have the 30% of the top grossing films on their catalog. And you look at that and say, hey, if you're trying to get into India, what's the way to differentiate? Having all these popular movies is a great way. So to me, it screams Eros at least has a shot, right? People think Viacom CBS is a shot because they have top them, right?

Eras at least has a shot. And B, as a strategic acquisition target at some point, Aeros is going to make a lot of sense because if you're Disney Plus as hot star, Netflix will just go Netflix and be Netflix on their own. But at some point, an Amazon trying, I don't know the exact person, but somebody's going to peek up, NBC Universal is going to want to make a play for India. And the best assets to do that might be going and buying Eros and getting 30 of the So ask yourself, ask yourself, did these guys do a service for anyone by getting in here, putting top tier law firms, a top tier accountant,

a very well-regarded CFO and doing the dirty work. I mean, this is why my fund exists. We exploit market mispricings where it takes rolling up your sleeves, where you go in, all the numbers in Bloomberg are wrong. The management team on Bloomberg is stale. Like, they are literally, their IR guy who used to be the, for the last 10 years, was the publishing analyst at Goldman Sachs, another data point that these are real people. you know, he's having to go correct fact set, like calling them. I mean, rolling up your sleeves

adds value to price discovery and markets. These guys are doing that. So to your point, you know, is there elevated strategic potential here on the backside of all this hard work? Yes. It just, they got to get it done. So anything else you want to talk about the indie opportunity or should we wrap it up by maybe talking about just kind of how you think this plays out over the next couple years. Yeah. So look, I think India, there's an opportunity here for us in full candor to do more work. And I'm doing it. I'm talking this week to the founder and PM of a very well-regarded fund who's from India, does everything in India, has done it for over a decade. And I'm not sure. I think at some point in time was involved in Eros in one way or another. And I don't, I'm not sure.

It might not have been short. Like I, so I'm, we are doing checks on India. to get smarter, but, you know, ultimately for us, the fact pattern on that trade, like, I just, if, if Andy is not credible and if the refi doesn't happen, I'm dead wrong in this podcast will be a horrible embarrassment, but it will hopefully be a humbling thing I can point to and say, I'm not one of those sort of douchebags who only pitches my winners, like, look at that mistake I made and I would, but at least I hope I'm, I'm, sort of our thinking around it because I really need that refi and I really need these people to be credible.

That makes sense. So I guess just wrap it. So how do you think this place? There's step one, which is the trade, which in the next couple months, they get the debt stack refied, going in concern language drops, drops from all the finances and stuff. And who knows where the share price goes, but it's a lot higher than $2 per share just because the optionality is extended, bankruptcy risk in the short. to medium terms off the table.

So should be. And I'll note a couple things. So TPG is hammering it. Like when will that be done? This stock traded 25 million shares today. They had two multi-million dollar blocks that hit the tape. I don't know idea where they came from. But someone is buying and it intrigues me to no end.

I have a theory. I don't want to say it. I really, I'm not, no, I don't want to because I hate people who foster rumors. Obviously, I spent time thinking about it, and I think I have something that makes sense. And in due time, filings will be made and we'll see who's buying. But investor day, refi, someone's building a position, maybe one day we hear about it, trade works. In that time, we continue with the deep due diligence. Maybe I get an anonymous tip from some short that's like, dude, you missed X, Y, Z.

Go look at it. And then I go look at it. And I say, I'm wrong. I don't think that will happen, though, because I think the outsource. outsource due diligence is real. And then my hope would be transparency, disclosure, and progress, both releasing good movies, signing a new movie star to some cool new project, it hits the tape. Great, confirmatory of our thesis.

Subs are growing. Release ARPU metrics at some point. Start actually being able to monitor. Do they improve it? Evidence of cross-collaboration. And this thing could become a five-year hold. Like, it's one of those where we start with a six-month window on a trade. But if they start hitting all our data points, we'll hold it for a long time.

Let me ask one last question here. So I don't, I can't, I've got so many windows off. I can't find it right now. But I believe what they said is, 2,023 targets, a billion dollars plus in revenue, a 20% plus EBITDA margin. So just quick math, 200 million plus EBITDA. Oh, no. I don't think so.

Is that not right? What is the targets? So what I recall, top of my head, is forward 12 months, essentially. It's starting at the end of March. So their fiscal 22 starts in a month. So forward is 800 of REVs, high single digit EBITDA. So if you call it, what do you call high single digits? Seven and a half, eight percent on a 800.

I would call it mid-60s EBITDA. And then moving the next year to a billion plus rev and a high. 100 plus of operating cash flow, I believe. Also noteworthy that they switch metrics from an EBITDA margin to a cash flow. I sort of asked them about that. It's a longer story that frankly is not worth it. But I think COVID and the business model might cause problems. I don't know. I also think I have been told by all the checks I do, this is a lumpy business. You release a movie, you sell it to some rights to HBO and you get paid. Boom, you recognize it. If you're in COVID and you're holding back, you really get smacked, but you could really see it

on the other side. So I don't know that it's going to be linear. I'm not even caring as much about linear progression on their guidance. And I'm giving them some leeway in case the business model changes, as we discussed earlier with Greenland and the COVID, the new model, maybe top lines lower and even margins are higher. I don't know. No, everything we're saying is aligned. So I just so people know I'm not being crazy. So I'm just, I was reading it from consistent long-term outlook, 20 to 25% EBITDA margin. As you said, 800 million for fiscal 2020, which doesn't line up with calendar. They said 800 million fiscal 2022, consistent with previous forecasts for a billion for calendar 2002. So I think we're all aligned there. Yeah. Yeah. So I guess. And by the way,

that disclosure last week, they're trailing nine months figures were low. I mean, they got smacked and I asked them about it. India hasn't released a single movie since COVID. Yeah. Their studio, not one. And what they've done here is greatly curtailed. So there is no question that this thing, if you're looking at the numbers they just put out. And by the way, they hadn't put any numbers out for a very long period of time. So first, First, it was black. Then it was brutally tough numbers. I guess that's progress.

But next, hopefully, I mean, gosh, and imagine if reopening and the vaccine, we didn't even go to the sort of a macro, but if that kicks in, this thing really works. But if I'm just framing it upside, I mean, I guess what I'm thinking is. Right now, enterprise values around a billion dollars, right? Roughly. Yeah, one, two, maybe. Yeah, one, two. But I guess I'm just saying if they hit their targets, 2003, I'm kind of looking at a billion

revenue, 200 million EBDA should be pretty capital light, right? Like this is movie studios. They're not a ton of gap that's there. 200 million EBDA. And by the way, you're growing to Eros now, which has 40, 50, 50, 60, could be at 100 million sums by then. So you're looking at, if you're kind of believing the projections, you're buying them at five times out three years EBDA, six times out three years EBDA with a 100 million plus sub India DTC service. Am I kind of thinking about that right? Well, here's the thing. I don't know if it's come across. Distress investors care about, like, the worst asset coverage,

stripping it out, liquidation. I don't underwrite the pie in the sky. So everything you're saying, like, God bless. I root for it. If this market's taught me anything, if GameSop can be $300 per share, anything is possible. I mean, yeah, right? So you're not saying things that are structurally wrong based on what's been disclosed and the potential and et cetera.

I mean, shit, like India, like, what do you, where do you want to say subs go? These guys have just, they have a chart. They've gone to 40 million really fast. I think they slow down the growth because they're going to ask for people to pay for it. So that's not going to help. The wholesale telco deals were not good for them. This was a land grab. If they try and recut those deals or stop doing those deals that will slow the growth,

but maybe you start seeing some contribution, right? So it's going to be what do you care about? I think it's very dicey to go the way of Netflix where all anybody looks at is subs growth and you start slowing in the U.S. And now it's international and eventually you're going to slow your subs growth. Pivoting investors to start caring about profitability is probably going to be a challenge. These guys have a chance to sort of thread the needle up front. I don't know that it's going to be all about subs growth.

So I don't know if they'll go to 100. And I don't know if the margin will get there because maybe they're dialing up subs growth. I just know the potential and the value. And when Netflix is a thousand a sub or whatever it is, this is not Netflix. And it never will be, but the chasm. It's like Leo with Telasat. It's not Elon Musk. It's not Starlink.

They will never be that. But that's 50 billion plus, whatever the hell it is. and this is whatever this is when you X out spectrum and cash like it's somewhere in the middle and I'll probably be just fine and my fund will be okay and I'll find the next one

perfect I love it well when you find the next one we'll have to have you back on to talk about that one but if you're good wrapping up here Jacob Rubin philosophy cat I really enjoyed this and we'll have you on for the next one thank you very much and my only goal is to not sound too stupid

so you know please listeners listeners please go easy very fragile very fragile my my kids prefer their mom they make fun of me all the time you know so let's just if the bar was cleared that you know i'm not a complete idiot then this was a success no i think this was great so uh jacob's on twitter but i'll be sure to include a link to philosophy capital in the uh show notes so everyone can check them out there and uh jacob thanks so much for coming on all right thanks for having me