Yet Another Value Podcast - Lake Cornelia Research's Judd Arnold describes MiX Telematics $MIXT and Powerfleet $PWFL merger

Episode Date: March 27, 2024

Judd Arnold, Lake Cornelia Research Management @CorneliaLake, joins the podcast to discuss the MiX Telematics $MIXT and Powerfleet $PWFL merger. $PWFL / $MIXT Memo: https://drive.google.com/file/d/1eONP4_CF6UPAKXYuZiDedUt2jRimujTa/view For more information for Lake Cornelia Research Management and Judd Arnold, you can can Follow on Twitter/X @CorneliaLake: https://twitter.com/CorneliaLake Chapters: [0:00] Introduction + Episode sponsor: Tegus [2:53] Overview of $MIXT / $PWFL [10:18] Why $MIXT / $PWFL merger is so interesting to Judd [21:21] Pushback on the bull case for the merger [27:56] Switching costs / AI [34:22] Open vs. closed systems [37:38] Management and incentives [48:44] Management's comments and vision post-deal [53:58] Thoughtful pushback Judd has received on thesis [59:20] Merger background [1:07:26] Why Judd publishes these long notes? Today's episode is sponsored by: Tegus This episode is brought to you by Tegus, the future of investment research. From the beginning, Tegus has been committed to creating efficiencies in the research process by making it easy to access the content that investors need to get to differentiated insights. Today, they’re taking it one step further by bundling qualitative content, quantitative data, and better automation and technology together in the same platform. Instead of piecing together data from fragmented sources, just log in to Tegus to get expert research, company- and industry-specific metrics and KPIs, SEC filings, and more, all under the same license cost. You can even take your work offline with an Excel Add-in that updates almost any model with the latest financial data — keeping all your custom formatting intact. Tegus is the fastest way to learn about a public or private company and the only platform you’ll need for fundamental research. To try it free today, visit Tegus.com/value

This episode is sponsored by TIGIS, the future of investment research. From the beginning, TIGIS has been committed to creating efficiencies in the research process by making it easy to access the content that investors need to get differentiated insights. Today, they're taking it one step further by bundling qualitative content, quantitative data, and better automation and technology together in the same platform. Instead of piecing together data from fragmented sources, just log into TIGIS to get expert research, company and industry specific metrics and KPI's, SEC filings, and more, all under the same

license costs. You can even take a look at your work offline with an Excel add-in that updates almost any model with the latest financial data, keeping all your custom formatting intact. TIGIS is the fastest way to learn about a public or private company and the only platform you'll need for fundamental research. To try it for free today, visit tigis.com slash value. That's Tegus.com All right. Hello, welcome to yet another value podcast. I'm your host, Andrew Walker. If you'd like this podcast, I mean a lot of you could rate, subscribe, review wherever you're watching or listening to it with me today. I'm happy to have on for, I think it's the third time. My friend, definitely one of the people's favorite guests, Judd Arnold. Judd, how's it going?

It's going great. Thanks for having me again. I just want to give everybody a warning. My daughter really wanted her stuffed animals in the background. It was a very big thing. So we are joined by a few. This is my investment team right here. I like it. I like it. Where's the hat? I sent you a hat. I know I sent you a hat. I sent you a picture. I posted a picture of me wearing a hat. That's right. That's right. I don't wear hats in, you know, indoors with a hat. You know, look at, oh, you've got a hat. I mean, yeah, like, you know, you've got to hit. Like, my head's got to breathe, you know. It's, uh, my wife is big on me not wearing hats indoors as well. So you're, you're just adding fuel to that fire. There's actually a Sopranos episode about this with Tony. making the guy take his hat off at the restaurant when they're inside. So I'm siding with your wife here. That feels very sopranos, like the respect.

I get you. Well, unrelated. Before we get started today, let me just remind everyone, where I start every podcast, quick disclaimer, nothing on this podcast investing advice. Please keep that in mind. Consult a financial advisor. Do your own work.

I have to add mine my disclaimer too, which is, please read the memo for the full disclaimer. some or all the securities we discussed may or may not be suitable for you investing contains risk of loss do not make an investment decision before consulting and consultant investment advisor everything we say may or may not be true please take it with the grain of something verified this is for discussion purposes only and now this is investment advice and if you lose money it's not my fault talk to you later it might be this stuffed animals faults perfect great great disclaimer so look the reason we're hopping on is because you publish

a novella on mixed power fleet about two weeks ago. We wanted to do the podcast right when it came out, but I was a little tied up so we couldn't. You were saying, dude, we got to do it. We got to beat the sell side. People are going to start doing the math. You were right. The sell side came on, but I'll include a link to the memo to the novella in the show notes

so people can go see it if they haven't seen already. But we wanted to do two things. A, go through the investment thesis. And B, we'll also discuss a lot of the feedback that you've gotten on it. So people can kind of get in up to the moment, you know, how are people responding to and everything. So all that out the way, let's start. Mixed Powerfleet.

The tickers are M-I-X-T, P-W-FL. They're going through a merger. Obviously, you think this is a really attractive story, so I'm going to toss it over to you. What is it and why is it so attractive? This was, it's super attractive because you are buying something at the most fundamental level. You are buying an Internet of FACE company,

which, for those who don't know, I walked through and to your point, novellica. It ended up being 98 pages, which is a little crazy, but we'll get into why I write long memos as well and poor it's why I'm going longer. I mean, the guy last year was 72 pages and anyway. This is an internet of things company that got a new management team two years ago. The guy came from private equity.

He ran a senior operating role as both president and like a very senior role that wasn't CEO for a Francisco partners deal, a Goldman Sachs merchant banking partners deal. And I think I want to say KKR too. Anyway, a real, what I would call a real guy. And if you're listening and not watching, I'm doing my air quotes for real guy. Brought in an entirely new management team as well. And with a situation that was a struggle. This is, I'm talking legacy powerfully.

They did a, I certainly say disastrous, but like a, the nature of the merger and specifically the financing, which came from Avery Partners, which get into as well. It was a bad merger that like the stock was, you know, in the dumps and real covenant issue and 17 times levered headline. Anyway, new management came in two years ago, has made a series of moves. This is what I would call the capstone that gives them the full product suite and you create a business at one and a half times revenue. This is when I wrote the memo. The stock's up 50% already. So we'll say low twos. And, you know, five and a half times ebita then now it's you know six and a half seven times evit down now but oh

it's it's like five anyway um versa comp samsara which is the ticker's iot and this is really confusing this is like the only time i'll write a memo where i don't use the ticker of something so we're writing about iot and samsara's ticker is iot so from now on i'm just going to when i say iot i mean internet of things for this conversation and if i'm talking samsara i'll say samsara samsara has been a wall street darling it is a darling it is the fast his business that I know of, they say this, to get to a billion dollars of AR. And we're talking about internet of things. These are all the devices tracking and whatnot.

They're going vehicles, other things. It's a massive subscription business, tons of recurring revenue. Samsara trades at 15 times revenue. You are buying this thing again at one and a half to two times revenue. And the question that the memo dives into is, is this now merged upstart, a Is it a comp? Is it credible? And man, if it is, I said $6 this year was the target, which is really like eight times even if it's up. If you really want what we didn't put in there, management thinks this could be worth five to eight times revenue, which will get you to $13 to $21 a share stock. When we put them out all, it's about three. It's about $450, $4.60 as we record this right now. You can get to very, very big numbers. And you're also part of a massively growing. TAN. It's at least $75 billion. It's growing. And we walked through this in the memo and I'm sure we'll dive into this. The big thing about this, and this isn't going to be a recurring thing. A lot of people ask me how I found this. Why? And I think this was interesting. And I'll start right here. I've done work and I've lost money in IOT. The ticker was K-O-R-E core. It was a D-Speck. I lost a little. All the promise of internet of things. I've looked at Internet of things on and off everybody has for 10 years. And the start is what I would call a throat industry or just like a garbage thing where it's gimmicky, product base. Oh, we have a sensor on your tires and they tell you

if your tire pressure is low. These are all arpoos of like $2 to $3 and just crap. With Samsara and the number two in the industry is Geotap, what they did is instead of starting as an amalgamation of products, they started as the whole encompassing system providing an enterprise solution to customers, which are the companies that said, we're going to unify all of these disparate devices, and we're going to be able to deliver to you suggestions on business process improvement contemporaneously, the insurance companies and the regulators look at this and says, wow, I can do ESG compliance monitoring and tracking, what are your carbon emissions, what's this, what's that? And for insurance companies, it's, hey, I'll give you a fleet insurance

product for all your drivers of trucks, but I want to know that you're only going 55 miles and out. And we can use this up track. What I'm getting to, just to come back to that point, though, this is a gimmicky industry, very low arpoos that was delivering ROIs to the

customers, the companies that were very well. Oh, great. You tell me my tire pressure. I'm not going to pay a lot. This doesn't move the needle. Once you integrate it all into a system and you deliver business process improvements, the realized ROI to the customer, the companies, goes vertical.

And your ability to drive ARPOO goes up a lot. It's a step function change. And we'll talk about this as we keep going, which is technological innovation is omnipresent and we'll keep going. Arpoo's should go down over time because the cost of devices should go down, the difficulty in delivering them should go down, and the differentiation between different IoT companies should decrease over time. But what's happening, and if you're listening, you just have to, like, imagine my hands.

We had Arpoo's stark high, think 10, 15 years ago, and gravitate to zero as the products themselves became commoditized. The difference between all of them is very low, and the delivered ROI's were low. Now, if you think about a graph, we step function very high on Arpoo's. There was a big differentiation between Samsara, Geotab, and Power Fleet. and I'm arguing that the differentiation between those three isn't so big that PowerFleet can't get what the other guys are getting

and maybe there's other people that can do that. But those ROIs are massive today and the Arpoos are step functioning up and then over time those should come down so you have to throw your company by deploying more and penetrating that tam. Talked about a lot there. We can unpack a lot.

That's a fantastic overview. So I've got so many things to ask, but let me start with this. I think part of what you're going at is, hey, I love when you say my target is eight times EBITDA, six times, $6 stock price, the best comp trades for 10 times revenue, right? I love when your EBITDA target is below the peer revenue target. But I think a big part of this story is combining PowerFleet with Mix, right? I don't think, you can correct me wrong, I don't think you would have been as interested in PowerFleet if they weren't going through.

this merger. And I love that for two reasons. A, I love big merger stories because I think they're one of the last places where an investor can go and do a lot of work and say, yes, I believe this merger creates value. I can put this on because guess what, quots can't really go by a merger, by a like transformative merger play, because there's no numbers out there for them to put on it. It's like on U.S. and analysts to do the work and say, yes, I believe these synergies. I think the synergy is But what I'm trying to ask is, A, talk to me about the merger story and why PowerFleet plus mixed is like, I think what really attracted you here.

And then there are actually a lot of place I'll go from there. But why don't we start with that? PowerFleet without this merger was a dead company. Mixed without this merger. Dead company. Okay. Samsara and Geotab are running the table because they have a unified product offering that has all the devices you need and a overlay with software,

which is really the key thing, that unify at all and deliver that business process improvement potential and to do all the compliance and insurance monitoring at the same time. Before this deal, PowerFleet by itself, let's leave the balance sheet issues out, and that's a huge part of this too for PowerFleet. But in terms of product offering, the ability to offer it, they did not have the full product suite.

What they really were missing in the breakthrough product of all the devices that Samsara has and GeoTab has is the AI-powered in-cab camera that allows for monitoring. So what these cameras do, and we put some examples in the memo, and you can Google and look online. It's one, you can, there is not enough compliance people in the world to monitor a full fleet of truck drivers. So an in-cab camera that faces both out and in, what it's doing is it's looking at the inward, which is in many ways more important in the outward.

The outward just tracks. You get in an accent, it records everything and whatnot. The inward is more important, I would argue, because it's staring at the driver. If the driver's using a cell phone, that AI powered thing sends a warning to the driver, you're using a cell phone. If you're not wearing a seatbelt, it sends a warning. You are not. It logs it too, and it alerts the compliance people internally at the corporate HQ. do. Oh, he's distracted or she's distracted. And so that AI allows this to scale massively at very high incremental markets.

Because otherwise, like, if you just had in-cap camera without AI, a human has to look at all this stuff in real time. And even without AI, it's still useful. Like, this is more Uber consumer that, but it's useful in an Uber, right? Because it shows like if there's a dispute, you're my Uber driver, we drive somewhere, there's a dispute. you've got the camera, you can show it to the police. You know, it still would be useful without because you could go to the police in an accident and say, hey, here's the video. My driver wasn't distracted, so you shouldn't hit him with reckless.

But as you said, with the AI, all of a sudden it's, hey, pay a couple bucks per month per user, and you're going to save $500 per month on insurance because the insurance company knows that your drivers are no longer distracted. They're not causing catastrophic injuries. Like, that is the type of return on investment. It's the win-win that you're looking for. massive. I mean, these companies are earning across all their devices

$10.00 Arpooze. Now, the full in-cab suite is like a lot higher. I think it's about 60 to 70 bucks, but like still to your point, you know, a big piece of power fleet is warehouse forklifts. It's like a big part of their legacy business.

The average forklift safety incident is cost $50,000. So would you pay you know, $1,000 a year, to reduce your forklift, you know, per forklift, to reduce the probability of a forklift accident, truck, obviously a lot higher. And again, it's not just would you do it? So much of the demand for IoT is coming top down or push down from both regulators in terms of compliance

monitoring and safety and OSHA stuff, as well as the insurance companies that insure all the stuff they're saying, no, we're just not insuring you unless you have it, because you see massive reductions in all these safety incidents so going back to the merger one is it fills out the product suite two the business product suites are incredibly complementary legacy powerfully i'm going to exclude the connected vehicle thing that powerfully does which they picked up from the pointer acquisition from 2019 because it's not pretty homogenous it's important don't get me wrong but most of the folks in the memo was their core product offering which is in warehouse container so most forklifts use power fleet it's not a super competitive uh smart piece of the market

which is nice the returns are a little bit better um they also do containers both uh cold storage and not cold storage so you think about like a warehouse logistics then you add in the mixed tea cap at in cab camera now you have the forklift the container and the truck you got all three you're unified it's a full use case and so the cross sell between the two and this is where Geotab and Samsara were taking a lot of share, which is, it's not just power fleet and mixed tea before this merger, but there's all these legacy IoT companies that started as quote-unquote product companies where it was the founder came up, he or she came up with a unique device that was gimmicking, never was able to expand around it, and just had one-off

devices here and there. Samsara and Geotab said, we're going to go the other way. We're going to deliver a full platform in a closed architecture system to integrate all the stuff. It won't be up to the company to do that we're going to do that for you all right should now with power fleet mix my argument essentially is this unification of these products gets them to enough scale plus the software overlay that we'll get to that which is called unity that they have to unify all those and third-party devices makes it so wow you guys can do everything so bidding on RFPs depending on the company and whatnot they all of a sudden there's you know both companies said well hey, I can do two out of three requirements and whatnot.

These guys can now fulfill for most RIPs the full suite of requirements as well. So it gets them to that critical thing. Next thing this merger does, you had two subscale companies. When I mean by subscale, I need it in this sense, I mean that in the financial sense, which is all businesses have a fixed amount of corporate overhead. That's just table stakes, corporate GNA, salesports, and all the other stuff. You need enough gross profit to finance. that powerfleet zero ebid up right on that cash burn level mixed tea same thing the merger plus

the synergies that come with us which they said was 25 million bucks i think the real number is 45 all of a sudden you get the pro forma company massively free cash flow positive and able to sell fund which is really important because samsara and geotap investing a ton in rmd and investing in ton of sales. So all of that. And then lastly, for PowerFlead specifically, this disastrous merger they did in 2019 with this horrific fight that they got this convertible preferred note that had exploding interest rate that all of a sudden five years out starts going from seven and a half percent a year to 17 percent a year, anti-dilution protections, all this restrictive stuff. Basically, I sum it all up with, you were 17 times lever with a gun to your head and you

were about to die if you were powerfully. And the impact that has on the organization, you couldn't really issue equity because it was the anti-dilution would kick in with the preferred and then all this other stuff. Mixed Tee at Tobolian lever business, their issue was listed a South African, you can't make this up, South African company that had a U.S.

ADS, and I don't know what the difference between an ADS and an ADRs. And I don't need that. I just assume it's all the same. They list in the U.S. still had the Johannesburg ticker in 2013. They switched from IFRS to GAP in 2019, and the management team just said it again and again

through all the calls, and they sent up the investor day. The number one piece of investor feedback they got was nobody cares because we're not in an index and we're an ADS security. So you look at the holders list. They had a guy who worked for Warren Buffett for seven years and started his own fund,

like very value heavy what I would call like deep VIC guys like value that's value investor close with people that are now people who are like very focused on low PE multiple that's the whole shareholder was pretty illiquely I feel I feel very seen right now Judd I've yeah but but with nix it's just to complete the point mixed the best thing for power fleet was mix was essentially all equity finance. And so this deal is a massively massive de-leveraging transaction for PowerFleet, which is you go from 17 and a half times lever, 17 times lever to 1.5 times levered overnight and you get rid of the average preferred. So you go from a cash poor management team to, you know, all of a sudden cash generative tons of balance sheet capacity to finance more

deals. It is when you this is, why if this isn't a transformational deal, I don't know what is a transformation. This episode is sponsored by TIGIS, the future of investment research. From the beginning, TIGIS has been committed to creating efficiencies in the research process by making it easy to access the content that investors need to get differentiated insights. Today, they're taking it one step further by bundling qualitative content, quantitative data, and better automation and technology together in the same platform. Instead of piecing together data from fragmented sources, just log into TIGS to get expert

research, company and industry-specific metrics and KPIs, SEC filings, and more, all under the same license costs. You can even take a look at your work offline with an Excel add-in that updates almost any model with the latest financial data, keeping all your custom formatting intact. TIGIS is the fastest way to learn about a public or private company and the only platform you'll need for fundamental research. To try it for free today, visit TIGIS.com slash value. That's T-E-G-U-S-com slash value. Let me provide my first real piece of push back here, right? So you have mixed merging with Powerfleet. And as you said, both these companies have been known in the value investor community, right? Like, I remember PowerFleet when they did the pointer acquisition. I remember

people who were a long pointer. Mixed. I've known people who were longed them for years on this thesis. Hey, you're paying a value, exactly what you said. You're paying a very low value multiple for a, for an Internet of Things company. This is, you're probably paying too cheap for the business and you might catch fire and catch a multiple, I know a lot of people were pretty frustrated with the management team on and off at times. I believe Samir Patel actually came on this podcast when he was frustrated with them and talked about a lot of the frustrations and said, this has the potential to be a really good business. So I guess my first piece of pushback would be you take these businesses that are subscale, struggling, maybe not

executing perfectly, right? You mash them together. And I do hear you on the synergies, but hey, we're competing against, you know, these things, they tend to scale really well, but we're competing against two scaled players who are already together. By the time we mash these together, start realizing the synergies and everything, aren't we just so far behind the leaders? Like, I kind of think of, cool, if you're the fourth largest player in internet, search, cloud services, that's cool, but like you're just getting out scaled uppaced and you kind of fall far behind. Does all that make sense? it does and this is a huge point and like a lot of people have asked how i found this and this is

sort of the key key point and yeah well i'm now going to say because everybody sees me pausing so i was trying to come with a metaphor for this i guess i well i share ideas with a lot of people and obviously as my online presence has grown more people show me stuff because they want me to write a big memo and publish it because i perform If everything's going to perform, like, powerfully that. I'm going to start showing you all my ideas. So, I get a lot of stuff. And my progression on this was I have a background where I spent seven, eight years on a merger

art desk. And the initial reason why I, my filter of should I spend any time on this or just no was reverse merger index implications, but they're being added, they're probably going to be added to the Russell. and the person who pitched me all they had was it's a reverse merger they're going to get added to the Russell and here's the math it's five and a half times even if it's up well there was also people were worried about the financing for a while and i think mixed was trading for a 25% discount to the power fleet stock now there were

borrow implications of everything but that was also a kind of attractive one but like i saw there was a 20% merger arp spread yeah the person who pitched it to me who's brilliant by the way even they didn't they didn't really have a ton of conviction either they were like hey this is interesting. And the initial piece of interest to me was, wow, it's a 20% merger arm spread. Why? Oh, it's a reverse merger. And right and me understanding reverse mergers and merger arm. So in a reverse merger, there are more shares booking to be armed than there are shares available to short against them. So let's just do the map. Power fleet standalone is 37 million shares. The pro forma share count is going to be 108. I put 115 in the moment I had for the

MIP and like the management count, but let's just talk static, okay? 37 million powerfully shares before the deal. The mixed T guys are getting 71 million shares in the pro forma. So the pro forma is 108. So in a theoretical max ARP situation, you have people with 71 million shares looking to short and hedge out to capture that 20% ARP spread against 37. You can't. There isn't enough. That's why the spread is 20%. Because the ARBs themselves can't drive it. What else happens in these reverse merger situations, and this just comes from experience,

which is the ARB pressure is inordinately higher than it would be in a normal merger. So most mergers, there's a standard trade that I used to do, which is late in the merger. The ARBs are really pressuring it. And you can buy the deal if you like the pro forma. and the deal's going to close and the selling pressure is going to go away. You can usually make 10 to 20% coming out of an ARP deal if you buy it at the right price, at the maximum pressure from ARPS.

In a reverse merger, it's even greater. We put it in the memo. Up to 50% of the volume has been arming. And so you think about that release and, you know, that's going to come. And so our two nearest term catalysts that we were like most bullish on was, one is going to get added to the Russell. Why? Because powerfully, 37 million shares is going to 108.

times the share price of three, all of a sudden, 300 million, that's going, that's for sure making into the Russell. Now, as we talk today, it's, you know, almost 500 million bucks for sure. I'm doing an S&P, baby. Plus, the merger hour pressure goes away. Plus, I'm paying five and a half times EBITDA. That's kind of my response to almost every negative about this thing, by the way, is I'm paying five and a half times EBIT. I don't even care that the COPS is 15 revenue. I'm paying five and a half times as price then. Anyway, that was the initial reason to go deeper. When I got a little deep, the core investment question in my view was, I was going to name the report, is this just a lie we tell ourselves in Microsoft Excel? That was the flashing

red light, which is, everybody can, on a spreadsheet, you can't tell the difference between Citigroup, investment bankers, Morgan Stanley Investment Bankers, Goldman Sachs, JP Morgan. If you live in the real world, you know there's a difference between those places. It's doesn't show up in the Excel, okay? Every industry, you know, Coke and Pepsi, Coke versus R.C. Cola. You know, we can take R.C. Cola. We can merge it with five other things and we can make it look really pretty in a spreadsheet. We can do that little lie like, oh, if they just get 1% more market share, we're going to make 20x. That's not the question. The question was, I needed the diligence, two main points. How sticky are these customers? Number one, and two,

is what is the nature of competition? So the customer's thinking this was big, and you can see it financially as well, which is people just don't switch. These devices have a five to seven year average life. Switching is really painful, because if you're doing a truck fleet, you've got to bring all the trucks in.

You probably are only installing them in one location, otherwise you have to deploy a tech team all over the place. So now you have to reposition a lot of assets. If you have devices, they're like, man, you've got to put a new device on before the device is old. one other question on the switching cost one quick question I agree with you like this is well known in a lot of things right if you've got it if you've got a little tiny thing attached to a thousand trucks and that's producing data it's really sticky because you have to go take a little tiny thing off a thousand trucks could I just on AI does the AI piece actually increase stickiness because I could imagine hey we've had an AI piece in you know a thousand trucks for two years right studying the data and its feed and when Judd, when his eyes go down, it's because he's looking at a cell phone, right?

I could imagine not only is it difficult in terms of costs to go and replace all those, but also you need to train the AI up for two months to re-recognize that on the new system, because if you replaced me as the IOT provider here, I would not give you all the data, right? Generally, the provider owns the data. I could imagine that. However, I could also imagine you say, no, you've kind of trained it up on a prior data, so just wondering, does the AI actually include?

Yeah, it's not that, but it's related. Well, I quickly figured out this was a minimalist standard as opposed to a maximalist. And what I mean is, you talk to these IT directors, and they're like, the difference between all these companies in terms of what I actually need delivered is very small. There's a lot of bells and whistles you get with Samsara and Geotab that you just don't need. And so I put in like, is this Alexis versus Toyota Camry? You can use all these things? I like that.

Can you give an example of a Bells and Whistle that SimSaur might provide that you don't need? And I did like the Lexus Toyota Camry example in the memo. I think of it more like the other example I put in, which is like Ascastle versus Bloomberg, iOS versus Aladdin versus bespoke. Like when I was at Citadel, like it was immaculate, the trading, the trading system that you could use in all the risk systems. It's so easy to use, so intuitive and whatnot. I went to Newburgh and Berman by fun.

We didn't have that. We got Bloomberg off the shelf, not that there's anything wrong with Bloomberg. We also tested out. I was Castle. Just buggy. and like there were all the things that I could do on the Citadel system I wish I had did I need them

no and you know a lot of stuff I mean think about Bloomberg a lot of the stuff on there you just don't use I had to switch when I left hedge funds from Bloomberg to a definitive icon I miss my Bloomberg but I can't sit here and tell you that like I'm still not making money

with icon you know and so it was really more they do enough enough people said all of them have their own issues in terms of install and the buggyness and whatnot. That's what you're talking

about retraining them is the IT guys said you have to think about it way bigger than IOT. They're like, I'm running sales force. I'm running this enterprise application. This stack on top of that

all the IOT. Every IOT device I've ever run because these things are they're a little cheap plastic boxes. Okay, let's talk about the actual device. These are little cheap pieces

of garbage, okay? Yes, the camera's really nice, but I guarantee five years from now, those cameras are going to be like $3 items. I thought about them a lot, like, flat screen TVs where like I had this awesome Samsung Blu-ray when I was like a young hedge fund buck in like 0607, then cost me $5,000 bucks. I have a Samsung curve now. It's better than like what I ever had. And, you know, it's a $200 million TV. So technology increases. My point was most people don't.

it's not even like the difference between the bells and whistles most people aren't going to use all the bells and whistles in terms of what you use it's really the software interface that helps drive the business process improvement which is the ability to track drivers and be like okay this guy habitually gets better miles per gallon on this route let's go back to the game tape like and that's really what iot allows it's like game tape coaching for everybody all right hey everybody Joe is driving really well he's 20 cents per mile cheaper than all of you

here's what he's doing and here's what you guys have to do and so and that comes for the software overlay so powerfully started developing unity a long time two years two years ago they did this awesome

acquisition which I put in there called moving dots which they got the entire IOT division from Swiss were a 40 data scientists they got paid 8 million euros to take him off Swissory's hands. It's crazy, really up their game. They got unity to replace.

So the difference between what I realized from talking to tech directors, the difference between isn't enough that they care. These guys can compete on price and they did say they're cheaper and I've gotten data points from other people like it's cheaper. The other huge thing is Geotab and Samsara are closed infrastructure. They're like Apple. Where powerfully is open architecture. where that matters, I had it reversed, which is I was like, would I take an iPhone or an Android

as if I'm making like a DeNovo decision? What I learned from talking to these tech directors is like their thought process is I already have all these disparate devices and even if my IoT is all the same. I still have to integrate it with my sales force, with my other enterprise apps and whatnot. I'm going to have this problem. And then like most asset intensive industries like trucking, forklists and all the other stuff. You do M&A. Okay, we just bought another truck. Are we really going to add a $500 cost to like really upgrade everyone? Are we going to, wouldn't it be nice if we can just

accept it and just integrate it into our system already? They're dealing with a least bad alternative as opposed to an ability to like get perfection to begin with, which I'll just wrap it all up into. This to me all went with this. The IOT industry is massively fragmented. Semsar is like five, six percent. Me. Maybe geotab's not that big. Some of it's geographic, some of its product, all the other stuff. Is there a place for this, this being power fleet mix, and is the tan grow? And whether, and if I'm wrong on a place for this, I'm going to be right on the tan.

And if I'm wrong on the tan, there's probably a place or what I really think is going on is I'm right. There's a, there's a product market fit for this. The other two guys aren't doing this. I've got an awesome CEO who is just laser focused on delivery. this, that was what the vision he set out to do. He's now executing it. And we're part of a growing 10. And we're paying five and a half times even tough for this. We're going to go to CEO in a second because I really do want to talk. But just one question that jumped to me as you were saying it, right? You said, hey, Tsumara and JTep, they are both closed systems and this is open system.

And you argued for why open system is better, which actually makes a ton of sense to me, right? As you said, you're trucking, you have 200 trucks. You do an M&A. You get 50 trucks. Like you'd rather just be able to put them on no matter what system they're on. That makes sense. However, you also talked about the two largest people who are trading at 10 times revenue, growing like weed. They're running closed system and they appear to be winning. So why are they winning with a closed system and like powerfully, obviously, going open? It seems to make sense, but it's also different than larger guys. So like why is that the right move when it seems like people are naturally gravitating towards the closed?

I don't know. So I don't agree with the way that you phrase it, which is they're gravitating. They're gravitating. I think you have a sea of customers and for some of them open is going to make more sense certainly where my diligence was focused was with powerfully starting in forklifts and trucking

does this work and in talking to tech directors there it seemed like yeah these guys have 300 million bucks of revenue of which product based revenue is like you know about 50, 60 million so you're talking 250 of ARR and then I go through in the memo

some of these are like The legacy business mix is actually not great, and this is a little bit of play on an improving business mix. The true, like, Tam applicable ARR, so the ARR that they have that looks like the rest of the Tam is probably $125 to $150 billion of a $75 billion tan. Can this thing get to a billion of ARR? That was the question. Like, if these guys get to $600 million of ARR, like, we're hitting a 10 ball. on this stock so there i think you know going through samsara you know which is look the other reason this was interesting to me i followed samsara since they went public and it's like this is

super interesting but samsara's got like talks about some of their customers they have six of the top 10 airlines if you're an airline i totally get why this is closed loop you're probably starting to know though in terms of like you don't have sophisticated devices on any airplanes you know because you think about the legacy iot stuff which is like tire pressure gauges on like earth moving equipment that stuff's not going on planes we need a technological improvement to get to the point where like they can add value to like air freight okay can mix tea powerfully compete there no on like a totally global multinational asset heavy you know two million dollar a r type customer I would suspect Geotab and Samsara are going to win in that bigger market.

I would point out, though, half of their ARR for Samsara, they disclose it, is guys who pay under $100,000 a year ARR. And that was sort of my thought, which is like, fine, we'll give these guys. And I don't even know if that's true, by the way, that those guys are better. I just was able to determine and get conviction that there was certainly a viable place. there was a path to probably get to a billion of ARR, and that was enough for me. Let's go to management, right? So management, I want to talk about the, there was a prior management team, powerfully, powerfully management teams taking over.

I want to get your thoughts on everything. You mentioned the management comp package in your memo. I want to talk about that. And I have some other things that management has said, particularly that the investor day, I want to get your thoughts on, but why don't you just talk to me about the management? I think the most important thing for me with management, or one of them, I shouldn't say BEMA one of the most I have it in the memo the chairman of the board in the 2002 Investor Day introducing the new CEO and he gives this one thing and at the start you

it's in the memo and you can find it obviously Antigas or wherever if you look at it's the 22 investor day and he says we wanted to bring in somebody who is a software guy and not a product guy and you know I thought about that a lot and I'll go back to core for a moment Core and all the legacy IOT stuff, but Sam Sara was so gimmicky to me. Oh, I can do this little thing. I have this like one

business process that I've stuck for. Like Core at one point, the CEO was raving about this like remote control airplane that could like, it was like a radio flyer basically that could take vaccine pills through Africa. And it would make... The SPAC days

were glorious. It was like, I called the guy up, I was like, hey, what do you make on this? He goes, oh, it's $3 a month, ARPU. And I go, why are you even talking about this? You think about, like, the problem with the legacy IOT guys is they were appealing to literally every use case. And one of the legacy power fleet ones was, oh, we have a deal with Avis where we can, like, unlock the car doors. And it works across all car models for when you're renting, you just show up and you have to talk to a person.

All right, great. So now I have to install a new sales force that understands all of these products, can sell them all. all of them have like this limited tan they're all like very discrete use cases where you go to like what samsara does in geotab their show their whole sales force is showing up we do a unified enterprise encompassing solution for everything and that's where power fleets going that's how you leverage the iot i mean it was kind of to me like i was thinking about the salespeople when i was at newburger and we we raised money for our hedge fund we're going and like i asked a few of those salespeople i go what do you even do i you do it and they're like why i go you've a menu of like 50 different funds that you theoretically could sell to an allocator i should pick which ones there's not where you know all the stump it's too much and they're like you're right i just pick one or two that like are working right now and that they're like i can't sell all so my point just being it's like a triple negative to have a quote-unquote product approach in iot which is your like scale stinks you can't like your r and

is really high because you've all these disparate small low markets. Your salesports doesn't know what to do. And your customers are lost. You're always spending all this money in R&D. And it's like, this is just like crazy. What new management did allude to me was, and this is coming from me, not from them. They're actually incredibly polite with British accents. Well, the CEO.

The start of the, I think it was the merger. They come out and they say, look, I know you have not what you expressed. I'm this, I'm this. And I'm British. And it made me laugh. But they kind of said, and this is why I was going to the chairman. The old guy was really excited. He came from Qualcomm.

He was just very into products. And that's what Sam Sara and Giotab do different. And that's what Steve, Steve's the CEO, PowerFleet that came two years ago. Steve came with his vision of it's the software, not the product. And that's really, that insight is the most important thing. And everything he's done, starting with moving dots, which is getting, you know, the data science group out of Swiss 3 that does IOT, building unity, this unified solution, and his device agnosticate approach.

That was what he saw coming back. He's like, there's room for this. I need to deliver it. He believed in product market fit. Now, what's nice, I thought this is going to take two or three quarters to prove out where I was going to say, like, it's coming, it's coming. The Q4 earnings were powerfully, man. You know, nine and a half percent organic growth, 16 and a half percent growth in the

United States where unity is most deployed, like you have product market fit. Now, the 16.5% growth in the United States with unity, and they're beating out, like, they're at Walmart, they're in all these, like, reputable places, right? They're beating out Samsara in Geotab. Look, Samara's still growing 50%. Like, this is, there's an element here of, again, this is the bull case. Like, for me, I go back to, like, Zo Edison, Alonco, where, like, these are animal health companies that, you know, Alain, sorry,

so Lennist trades at like 32 times earnings and Alon that's at five or six activists. It's got another one right now trying to close this gap and it's at 14 times. I'm laughing because I know the Alon. Yeah, and like Alonco's more lever and whatnot. But like in the back of my mind when I was like starting to scale this up, I was like, you know, I would love for PowerFle to be a log coach. Just traded a 50% discount. Like, that's pretty,

that's pretty good. So anyway, so oh wait, back to management in the company they also so they came when the stock was five bucks um they really don't get paid until 15 bucks this year i have heard and we have told the board you said 15 not 50 just because it was it was a lot yeah yeah i knew from the memo i just wanted to make sure because i don't bro those listeners might have heard 50 and been like oh oh no problem what look i told the you know we wrote a note to the board and um we told management as well obviously self-serving for them like we would feel a lot more comfortable if there was new management comp laid out because as part of this that's more realistic one because I think they should get paid

two I don't think the board or the management team fully appreciated the situation that they were in when those guys joined two years ago like they knew they were in trouble and they made a change but this abri preferred just literally nuke the company and it became existential and it drove the stock you know right before the merger was announced powerfully it was a two and a half bucks and I I'm looking at this thing, and I'm like, you know, you really can't fault management, new management at this point in time. This is, they joined at the start of 2022. It's mid-20203 when they table this dealer, I stay, October 23.

The stock's down 50%. And I mean, they've done everything right. And so I think there is a case to like get new comp. But anyway, it's more than just Steve. He brought a new CFO, chief product officer, merger integration. Like, it's a great team. We put a bunch of the bios in there. We think this thing can scale.

Let me just on management. So we talked about incentives. I do agree. And the other thing, the other reason is, you know, if you bring a team in, and as you said,

it's not like this is discovery, where you've had the same, Warner Brothers Discovery, where you've had the same CEO in there for 12 years and he's just done one value, destructive deal after another in the stocks found out. Like, you brought a new team in and they had this disastrous preferred,

which it's so funny. I know like four or five companies that did the similar preferred with, lever deal interest rate have to pay off 50% in five years and they think oh we'll grow into it and all of them have choked on the all of them have choked on the preferreds

but in this case what I'm trying to say it wasn't management's fault right they had this awful preferred thought maybe we can go out of it and they're kind of choking on it could I just say something before we move on I put the meme in there from Hunt for Red October

I saw you you arrogant at you know ours you killed us I negotiated some of these preferred. When I was in distress, distressed dead hedge funds, like we did, you know, I did a few. I didn't want it to DHT, um, holding the shipping company back in the day and I've done

other ones. I, for the life of me, don't understand why Avery or anyone would want these terms. They made all their downside scenarios like manifest into awful.

And it's like it's not even belts and suspenders, it's like I want belt suspenders and a parachute and you know at some point like you have to like set up a company to succeed and one and a half like the finest is a deal they get a one and a half at one and a half x prep right out of the gate they have this ticking time bomb interest they have anti-dilution so it's like your senior and you're protecting on the downside on the strike like why would you even do that and then I'm also At the same time, like, it's on the prime management team, though. Like, the prime management team, so that's the other way that deal all day.

You look at the deal background. This is like, I mean, I can't remember the last time I looked at a deal background on like a prior deal. So I get the pro the merger S4, uh, from the pointer deal from 2019 because I was like, how did this even happen? Like what and the merger background was they tried to do a stock for stock merger with point here. This is the 2019 deal in 2018. The deal died. The lawyer

told them, they're like, you should call Avery. This was like spring 2019. Six months, they negotiated this deal. Then, with that money, the CEO after getting just like dragged over six, I don't

understand how this thing can even take six months. Like, you have two weeks to come up with these answers in the world I live in. Anyway, then he goes, and he pays 10 times a fake EBIT dot number for pointer. Oh, completely overpays. And the guy's, you know, Israeli seller and everybody knows my history. Well, maybe you don't know my history with Pagaya, but, and I'm also Jewish.

I always have to make that caveat when I'm saying. I'm glad you hated on the Israelis for five minutes and then let everyone know you are Jewish. So you have earned that right. And I believe there. And I think it is the subset of Israelis that you deal with in public markets is just, universally the worst. It's so bad because they're brilliant, but they're amoral. And I can just picture what happened.

This sucker, I'm going to say sucker of a CEO at Powerfleet gets rejected on a merger of equals. Go gets dragged over the coals by Avery with his preferred, shows up with this inceit by instinct, says, hey, I'll buy you out now to the pointer guys. And the pointer guy says, sure, I'm at 12. Give me 18. you know and the guy takes it like you just anyway like see and like the pro forma they they asked for that they missed it by i mean not even a country mile they missed it by like 15 nautical miles plus like i don't i mean just atrocious let me bring it back to the present date the new

management team i mean look i am not as close to the name as you are i've followed the names lucy for a while I read most, not having completely gotten through both of the merger presentation and the investor day, but most of it. And I guess the one thing that jumped out to me, and this might be because I've been looking at some companies that, let's be generous and call them more promotional recently. But the management team did say one thing that jumped out to me. Where is it in my notes? He said, he talked openly about, hey, we think we're a rule of 40 company.

We think we deserve a five to eight times revenue multiple, right? And obviously, you're saying in a Super Bowl case, they can hit the, they can hit the kind of peer multiples and get there. And makes sense. But at the same time, it worries me a little bit to hear a management team talking about that. And again, it might be because I've been looking at more promotional companies. But when I hear that, it always makes me put a pause. Like, hey, you're treating it five times EBITI and you're talking about here's how we're going to get to five times revenue. Does that worry make any sense to you or any concerns there?

I don't think they're promotional. And I get what, look, you and I. and maybe more me than you like deal on this like tight rope of like yeah it's a little you know most stuff like you know

I pitch you know if I three four X or I strike out you know and I try to get out of my strikeouts you know with you know my wallet you know Pagaya we got out of there we made a little bit of money K&L I lost a little bit

you know but like that's sort of my game is get out of those but this I'll tell you the CEO I'm just more and more impressed with, with every interaction, number one. Number two, the quality of this asset in terms of investor interest level, I have never gotten this level of interest on a member. And my clients, like, I'll do a brief aside and I'll bring it back. I was really concerned when I left Wall Street, like, how do I stay in a loop of things?

And part of my consulting business, what I was trying to do is not, is sort of curate a client list which obviously i'm happy they they pay me for my ideas but everybody sort has a role too where like i've got like the people from different backgrounds and i get a lot of feedback when i pitch them ideas no different than you would if you've worked for a few different pms where you're like oh this would work with that person this would work with that person yep and this is one where like and you can see sort of you know you can see it in the stock action where this thing was trading, you know, the complex powerfully plus mixed tea. Inactive merger name was trading one and a half million dollars a day ADV.

You know, since the, since the memo, we're up to like 10 to 15 million bucks ADV. Now, part of that is that we highlight it's a Russell thing and other people initiated. But like, I would just say, like, people care. You know, Pagaya, like, so I would, that's what I would say sort of obliquely to your thing. the other thing yeah go ahead I'm sorry the other thing I say it's

I'm this exact point I was always a little skeptical of celebrate which is another SPAC name is really and it's worked incredibly well I was involved and I gave off where I don't know if it was management but it was like every cell side guy

was getting it for management about rule of 40 or rule of 40 and it's played out that way it took a while but it has played out people bought into that. But that was more spec-y and other stuff. This, like, I'll tell you what promotional would be

today. Like, I would be skeptical if they're like samsara's a 15 times revenue and we're worth 15. Like, these guys are reasonably putting like a academically and intellectually justifiable. Here's the numbers. Here's the grid. We kind of look like these guys.

We have a subscription-based business. If we execute, it would be odd, you know, if we don't trade you know mixed tea you you can read what the CEO said and there was one the best conference actually for the mixed tea CEO it fell off all my screens because it was just the webcasts with no transcript it was in December at this growth conference and after 30 days they killed it but I he just kept reiterating like I tried for 15 years to get people to care and no one cared my number one feedback I got from people was you're a South African illiquid random you know ADS ticker

And so I would just say, like, taken in totality, like, I think they're being quite reasonable with it. And I think it's a fair intellectual. Ultimately, the market will decide. And I think they've done the important things, at least I hope so, to allow that to happen. And from our target, again, like, we bought this thing at, you know, what an half times revenue 5.5 times you. That's kind of like my response.

Like, if I was an investment committee in the back of the memo, I have, you know, a rhetorical theoretical theoretical investment committee thing, basically. my response to every negative is we're not paying anything for this thing anyway so you know it's better than the response when you hear bitcoin people and you put put them anything they're like hey might go to infinity might not 50 50 shot who knows just you're not paying too much let me ask memos gone out tons of interest in it I can tell because I'm on Twitter I said you were coming on I've seen the replies what's obviously most of the feedback I think you can see in the stock price and you think you'd see in the replies has been pretty positive

But would have been some of the more, like, some of the more thoughtful pushbacks and not in the sense of, you know, lighting the feasts on fire, but the places where people have asked questions that you thought that's a really good point. That's really good. I need to think more on that. It was exactly what I expected, which is, you know, look, you like to write a memo where, like, you can answer every question and you've given it as Folsom. So the key negatives, and we walk through this pretty much at length of the memo. the present day business mix of both of these is not great they're both they both have a big franchise business component what i mean by a franchise business which is premium economics something that you really can't expand beyond where it is it's a little niche so with legacy power fleet they have this israel business they got from pointer which is like all the public buses all the ambulances all the police guards in israel it's awesome they're in premium r oes can you really

fan with mixed tea they've got this south african car location b to c business and obviously there's a lot of crime in africa um and you know there's like two other players in the market but like they're an awesome r oes for like car location which is just nuts i mean that's like a very like i mean we can do like low jack came out in 1995 that's what that's what it is it's low jack um and so that was like question that was like a big thing and our argument in the memo is one you're you're paying for a franchise business you're not paying for a good one and m&A is going to solve those which leads to problem number two and pushback number two which is what this is a role they're going to buy more stuff they've said they're going to buy 90 million bucks of evadon the united states

um in europe which oh now i have to step back em it's emerging market lots of effects risk is another pushback that's obvious. Are people really that concerned with FXers? It's not like they're concerned. It's just like on a multiple revenue basis Sam Sar is predominantly US

and it's going to expand outside of US. It's just you look at like the decop and I have it of like quarterly revenue change. Like the change in FX. Now granted it's been a very noisy last three years with the Fed and with COVID and all this other stuff. But like there's some big FX moves that can dwarf. Yeah, I guess just just especially for,

a grower, I would just kind of be like, you know, FX kind of evens out in the end. And yeah, if FX goes against us 5%, okay, we lose 5%, but it might go for us 5%. I don't, I'm surprised there was that much pushback. It was more like it's worth it, you know, is that a half a turn or a turn? Like there's some level of

discount, okay? Then it's a roll up, all right, which sort of goes into this whole, what I was getting into earlier, which is, is this just a lie we tell ourselves in Excel? And this was really for me where I said, you know, And I think a lot of this would solve with the Q4 point because it was just so strong for legacy powerfully.

I thought we were going to be sitting there for two or three quarters where I'm like, yeah, I'm betting on certain synergies for now. The synergies are so big, but you're not going to see top line growth and you're not going to see positive forward motion on customer acquisition. And it's sort of like you could stay in the same place. I thought merger clothes and getting rid of short-ins shorting, plus the IWM ad, the Russell 2000 ad, would offset that. but I totally would take that like an investment committee every smart guy and girl I've worked for

like I put it at length in the investment committee thing like yeah I know I might be wrong on time and there might be a better place to buy but I think I'm hanging my hat on the Russell thing and deal clothes

to offset that like we might just be early in a role and we might go no go because this is this is where the rubber meets the road like I think I've said six because I thought you could six as like an out-of-the-gate target because I'm just like what

what I really say in investment committee is I hear everything you guys are said they're hitting 80 million of even though they said 100 there's no way they're not hitting 80 in 2025 okay and if I do five times that you know that's 400 million bucks less 100 million a debt like that's what we're paying like at worst we're buying like at worst we're buying this thing for five times 80 and like what good like is there anything remotely read like that's like a newspaper printing business trades for five times like come on give me eight man give me eight every turn is almost a buck a share like you can like you're just creating so much convexity and that's kind of it but like to get the real right tail they need multiple more work work if they show 15

growth. It's like game set match. We have a $20 stock. I don't think it's 10. But that's the question. Like you can sort of get six to eight probably just on the synergies, but you really for the follow through need to see top line growth. I was going to say you need to see it when I wrote the memo. Now I get to say you need to see it continue, which is like obviously nice. You know, just one other thing on this, I was just going back to my notes. Again, mixed in PowerFleet have been in the value investor circles for a long time. And we've talked a lot about how PowerFleet did a bad acquisition in 2019, got the new CEO in 2022.

You know, one thing that strikes me, and I think it's a little underplayed and even your memo, I don't think anybody was talking about the mixed team as like the next Jeff Bezos or anything. So I do think there's also something to getting mixed inside of this PowerFlea business with hopefully an upgrade of the CEO. Like it's not that you're just improving one side. You know, obviously the synergies are there. and everything, but I think you're going to kind of unlock a little bit of growth and

entrepreneurship at Mix as well. I didn't want to like really overdo this more out of a respectful point. It's a very thoughtful point that you make and it's it's right. I on purpose left it out of the memo. And what I would say is you have a founder CEO who has been there, I believe, for 30 years. This is the guy who ran next state. And this is stocked sideways. He is as frustrated as anybody else.

I think if you spoke to him or communicated with people around him, there is a lot of acknowledgment that the last few years, the desire and the energy level has been a little bit lower than needed there. And I think it is a testament to them. The hardest part of any merger is the social issues or one of the hard things. And kudos to this guy. You can read, you know, the explicit thing in the deal background is that mix at the end of 2022, hired a banker and had an existential search for what the heck do we do.

And they arrived at this. Part of that was also the mixed CEO said, look, on mid-60s, I don't know if I have the heart for this. And I think it says a lot. He has told everyone under the sun, this is the mixed CEO, that he is holding his one and a half million shares. And he's really bullish. But yes, there's a lot of upside from that.

On the merger background, I did mean to ask you this when I was first preparing when we started planning this. I forgot it, but now I'll ask it. I read the merger background as well. And it's interesting, you had that read because I was kind of reading it. And I was like, I could almost read it as these two were like the least popular people at the dance. And at the end, they were like the last two kind of up against the wall. And they finally decided to get together, you know? Because like power fleet, they're concurrently looking for a pipe as they're structuring this deal.

Mix gets told by a couple people like they get pretty deep in talks with the party B and they get told hey actually we don't want to merge with you guys would you guys just want to make a minority investments to them

and they're kind of doing talking to all these people and then they just like kind of stick together did you get that sense or did you get a different sense I get a different one I get where your point's coming from

I was just deeper due diligence to that point and I think I appreciated the strategic imperative of what was going on and I took it more positively as you know it's like from the movie margin call

where Tolts says be first be smarter or cheat. And, you know, those are the only three ways to win. I took it as these are two of the strongest guys that are about to die. And let's be clear, everyone but Samsara and Geotab are about to die. Because Samsara and Geotab, like, figured out, like, unified system, the devices don't matter. It's all about the software overlay and unifying all the devices.

And I put in this example in the memo about Calamp, which is, you know, a random device stock that was at, I think 300 split adjusted, it is now zero. All of these companies, except for SAMHSAAR and GeoTab, started out as single product companies that maybe added one or two more, but were existing, had a business model for this world where there was no unification of devices. And now that SAMHSAR and Geotab are doing that, you either answer that or you're dead. Because device margins 10 years ago, were 45, 50% gross margins, where are a device margin. margin is going to be in five years they're going to be zero like devices are going to be given

away it doesn't matter there's no differentiation we're going to convert to zero it's all going to get the software and the value added of unification all of those so i took it actually you know steve shows up in 2022 with his vision of he could have worked in a million other private equity operating companies and he said no i'm going for this i have a view device agnostic but unified strategy and i'm going to be the quote-unquote android and i'm going to i can compete with these two people and I can take this shell of a public company. I can take this like

2-7 offsuit and I can turn it into Aces, okay? And the mixed T guy I think was a little bit different. I think it was a guy who knew didn't know what he was looking for but knew what if he saw it,

he would know. And he did. And I think the proof and the pudding of that is him immediately going to, I'm ready to resign. and so everybody else and this is part of the M&A story which is these two guys have merged they're very complimentary

it solves everything they you know they're talking about M&A I put it you know the math in there the reason I think they can buy people out at two three times even if it's out post synergy is they're like it's 100% synergy buying a device and just adding it in adding into your thing it's like

think about like Salesforce you know or Oracle just talking in one of these companies that you know into their overall offering they can get rid of literally everything they can get rid of the SG like all the SG&A is gone the R&D doesn't matter all of a sudden and like you can take you know you can pay up on gross profit and you probably pay you know and you're going to have tons of synergies you plug it into your network and it's worth more as part of your network this also sort of goes to the prior point that I was making and I'm what I got where some people and this is why put the meme in at the start I think it's like page 10

where it's from Donnie Brasco where they're with the strip club guy and he's got the Tiffany Diamond and it's like it's not it's a Bugazi, it's a Bugazi and my point was it doesn't matter when people come at me in their life and I knew this was going to come that's why I put it there where they're like Sam Sara has a better camera

Geotab is a better AI in-cap camera or they have a better forklift monitoring device I'm like this doesn't matter guys there's good enough and after that it doesn't matter The guys just want a unified delivery thing. And as long as you meet requirements, you're fine.

You don't need an F-15 for everything, like the best fighter playing in the world. Like, you can use an F-16. You can use, you know, some random, like, Soviet-era thing, like, because it's about the unified system. I'm glad you explained that because some of your, some of your memes make me realize how lacking I am in, like, my mid-90s meme game. Because I know exactly the one I just went and scrolled and found it. I looked at it.

I was like, I don't understand. Like, what's Johnny Depp doing here? I don't get the. So I'm glad that's the point, which is lefty can't tell what's real and what isn't. And the point of the meme is, it doesn't matter. Stop focusing on the product. It's the whole delivered experience. This episode is sponsored by Tegas, the future of investment research.

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intact. TIGIS is the fastest way to learn about a public or private company and the only platform you'll need for fundamental research. To try it for free today, visit tigis.com slash value. That's t-e-g-us.com slash value. I think we've done a nice job. I just want to go to one last thing. And I think this might be the most interesting point because I know a lot of people are just interested in your general model and everything.

But one thing you've said, people are like, hey, why is Judd publishing these, I've been teasing you, these novella length papers, right? Pagaya, 70 plus pages. this one. Let's round it to 100 pages. Why is he publishing these long notes? And you've been saying, look, it's because I'm doing, I'll let you say, I don't want to put words in your mouth. Why are you publishing such long notes? Why have you found you getting so much value out of it? Liquidity equals victory. Every event-driven train is about finding something before other people come in to buy it. You're hoping for, in a factor expression, changes in training activity.

Can I find something that's really interesting to a broad universe and they just don't know it yet? And when I was at New Burger, really especially, one of the big things I took out of that was seeing how long on these really think and how they trade. Most of these smith cap, you know, small, medium cap, mutual funds, and even the bigger ones. You know, these guys have, if you take out trading volume related to redemptions, inflows and outflows, these guys have 10% annual turnover. They're putting in, you know, two new stocks in years. and they're going to hold them for five years on average. And they do a ton of work in the beginning because they have to hold forever. And they got to be right.

And it's really much more. There's a big group of Newberger called the Genesis Fund. It's probably the best group. It's a very good. There's a lot of groups of Newberger are very, very good. But these guys, it's a $10 billion. It was $10. I don't know what it is now, right?

Then it was like a $10 billion. IWM, you know, Russell 2000 was the benchmark. They delivered the Russell. within like 10 or 20 basis points. The Russell total return with a beta of 0.8 to the Russell. Just unbelievable alpha. And, you know, I look at the work that those guys did. I'm like, these are all private equity people.

They like, they don't even need Bloomberg to like check stuff. Like, they're buying it. And when you have that approach, you have to do a lot of work. So what am I doing with a long memo, with a lot of primary research and whatnot? I'm spoon feeding them. I'm accelerating their process. at least I'm hoping to right and if I can do that I mean you sort of saw the last few days where like volume and power fleets are really ramping you know we're up the plus mixed tea

and you just see it where you're like there's got to be at least five or six funds that are you know four to five percent bee whopping into this thing they just don't care it's also funny not to blow smoke up your butt but like you know a couple of not goldmonds and stuff but a couple of sell side firms have initiated on the combined power fleet mixed and I think they might be taking many victory laps for, oh, the liquidity is way up, the stock's up on this. And I kind of look at him like, no, you guys are like pretty wrong. Judd put this out and Judd's got a pretty interesting track record of delivering some big moves or some good stock picks. And I think it's people getting really excited about Judd's memo. And Judge Memo is also

five times the length and goes into a lot more like kind of tactical things. I write from a bias, you know, the feedback, look, I appreciate all feedback. And like, you know, these things take a while and there's a whole process to writing these and i'm trying to get you know everyone i get a little better we added the investment committee Q&A section here which was like you know a new one i think i've gotten reasonably good feedback about it and whatnot but it's really you know the guy who pitched me this stock actually he goes the best thing about your your memo he's like you write it like a buy side and it speaks it's not from a sell side perspective and you're answering a lot i'm like you know look we we take all compliments okay i got a five and a half year old daughter

I got a life full of non-compliments coming. I've got a five-and-a-half month old daughter. So she's not going to be complimenting me a year or two. It's going to be mainly negative. You don't have a daughter. You have a boss. That's what they are. Look, we all work for somebody.

But that, look, that's the idea with the memos. The other thing, obviously, look, it's great. You know, it shows people I get my work. Look, if I don't write a 90-page memo, people know it's within me. It helps, you know, gets more ideas, generation, I've had a few more people reach out lately with ideas for me to look at. We're really excited about the next memo. It's also for me personally.

Look, it helps with conviction. I'm sitting here at great tell for me. It's not a bad screen. Does this work in a memo? Look, there's a lot of stocks that work that I don't really have much to say about. This was a super unique situation. And this is a setup that, quite frankly, I don't think I'm going to see this quality of a setup in terms of entry, multiple lack of knowledge.

I mean, you could go on Twitter before this. every day I was checking and I'm like literally no one is posting I'm next to the powerfully like when does this happen where you have merger our pressure into an IWM ad super low valuation with PE back management and you know and at top of 15 times revenue and I'm trying to get this thing like seven or eight times even tough like this just doesn't like you're not going to run into a lot of these things and so that really look I bought more options on this than I usually do, partially because I was, like, convinced

that the options were, like, totally mispricing this. So you can see which counter's I got. Like, the open interest on the next team. I don't know if we want to say too much more on options. Just remember to consult a financial advisor. Consult an investment advisor. But anyway, don't touch

the options now. I think that's well understood. But, or anyway, options are super risky to lose all your money. Be careful. Listen to the disclaimer at the start. There we go. We see I am. As expected, we're running a little long. I've got to run. I've got a kind of hard stuff here. But, Judd, look, A, awesome. Really glad to have you on. Glad we got to address all of this. And then right at the end, you mentioned the next one. So listeners, I'm going to tell them they

can be looking forward to hopefully another job of appearance in the near future because it sounds like you're working on something else interesting these days. Yeah, we are. We are. So I really appreciate you having me on. People are interested. I obviously, look, part of this is a business for me too. Love advising people on ideas. I try to come with three to five big ideas a year. This is certainly one of them. I don't think I don't have three power fleets in me a year. And while I shouldn't be taking a victory lap already, I'm pretty, look, the thing's already up 50%. Merger hasn't even closed, though. Merger hasn't even closed. So I'm happy to get, you know, happy to help people, you know, and really appreciate all the positive and the negative

feedback we like it all so if you're if you're so like listening link to judge uh link to judge write up is going to be in the show notes as well as to his twitter account so you can go read that follow them everything but john arnold thanks so much for coming on and look forward to having you in the near future thank you so much a quick disclaimer nothing on this podcast should be considered an investment advice guests or the hosts may have positions in any of the stocks mentioned during this podcast please do your own work and consult a financial advisor thanks