Yet Another Value Podcast - Papyrus Capital's Nitin Sacheti updates his $VATE thesis

Episode Date: June 23, 2023

Nitin Sacheti, Founder and Portfolio Manager at Papyrus Capital, is back to update his INNOVATE (NYSE: VATE) thesis. In his first appearance on the podcast, Nitin went into detail on all segments of the INNOVATE business, a highly levered holding company with three operating segments in: Infrastructure, Life Sciences and Spectrum. The stock has been volatile of late, and as Nitin notes in the beginning of the interview, "because there's a lot in here, there's some businesses that have done better than I had originally thought they would do when we first discussed it 20 months ago." Tune in to learn more. Link to Nitin's first appearance on YAVP talking $VATE: https://youtu.be/eVJMeJFNXIY For more information on Papyrus Capital and Nitin Sacheti, please visit: https://papyruscapital.com/ Chapters: [0:00] Introduction + Episode sponsor: Stream by Alphasense [1:38] Update on INNOVATE $VATE since Nitin's first appearance on Yet Another Value Podcast (link here: https://youtu.be/eVJMeJFNXIY) [7:21] Controlling shareholder, Avi Glazer from Lancer Capital, and how that affects $VATE [16:41] What is going to change the $VATE story? What's tracking better than Nitin's thesis on $VATE? [23:32] Update on the DBM segment [27:24] Other $VATE segments that have worked better than Nitin thought they were going to play out; closer look at R2 segment and Meta Beacon segment update [36:08] What makes the Meta Beacon platform valuable? [40:18] Update on the Spectrum segment and how Nitin thinks about it's value [51:22] What does Nitin think is the most likely piece for $VATE to realize value? Today's episode is sponsored by: Stream by Alphasense Are traditional expert calls in the investment world becoming obsolete? According to Stream, they are, and you can access primary research easily and efficiently through their platform. With Stream, you'll have the right insights at your fingertips to make the best investment decisions. They offer a vast library of over 26,000 expert transcripts, powered by AI search technology. Plus, they provide competitive rates on expert call services, and you can even have an experienced buy-side analyst conduct the calls for you. But that's not all. Stream also provides the ability to engage with experts 1-on-1 and get your calls transcribed free-of-charge—all for 40% less than you would pay for 20 calls in a traditional expert network model. So, if you're looking to optimize your research process and increase ROI on investment research spend, Stream has the solution for you. Head over to their website at streamrg.com to learn more. Thanks for listening, and we'll catch you next time. For more information: https://www.streamrg.com/

Are traditional expert calls in the investment world becoming obsolete? According to Stream, they are, and you can access primary research easily and efficiently through their platform. With Stream, you'll have the right insights at your fingertips to make the best investment decisions. They offer a vast library of over 26,000 expert transcripts powered by AI search technology. Plus, they provide competitive rates on expert call services, and you can even have an experienced by-side analysts conduct the calls for you.

But that's not all. Stream also provides the ability to engage with experts one-on-one and get your calls transcribed free of charge, all for 40% less than you would pay for 20 calls and a traditional expert network model. So if you're looking to optimize your research process and increase ROI on investment research spend, Stream has the solution for you.

Head over to their website at streamrg.com to learn more. Thanks for listening and we'll catch you next time. All right, hello, and welcome to yet another value podcast. I'm your host, Andrew Walker. If you like this podcast, it would mean a lot. If you could follow, rate, subscribe, review it wherever you're watching or listening to it. With me, say, I'm happy to have on for the second time. Nitton Sitchetti.

Nitten, how's it going? I am good. How are you doing, Andrew? I'm doing great, man. Let me start this podcast the way to do every podcast. Quick disclaimers to remind everyone that nothing on this podcast is investing advice. That's always true, but particularly true today. You know, we're going to be talking about a company, a little over $100 million market cap, very levered,

a big, semi-controlling shareholder. So people should just remember this is E-liquid, microcap levered. all of those come with absolute out of risk. So please, we're not financial advisors. Do your own work. Total financial advisor, all that type of stuff. Anyway, the company we're going to talk about is innovate. The ticker is VAT, V-A-T-E.

You actually came on about 20 months ago to talk about it for the first time. So we're kind of doing an update podcast. In honor of that, I was re-listening to the podcast. I wore the same shirt as I didn't hear the last one. So I'm ready to go, man. You know, people should go listen to that. I'll include a link in the show notes. A lot of what we discussed has held up

pretty well. Some things have obviously changed there. So I'll just flip it over to you. As we're talking June 2023, like, you know, what's changed? What's different? What are you thinking about they? Yeah. Thanks. No, thanks for having me back on. I always love talking to you generally and coming on here. So I appreciate it. Look, what I would say is I guess I would start by saying the stock has been extremely volatile. And, you know, I think when we were originally talking about it, it was higher than it is now. I think it's, you know, even this past quarter of the stock, you know, rallied back into the threes. Now it's back in kind of the, you know, the $30, $40 range. It was down quite a bit on sort of triple witching last Friday. So it's volatile.

And, you know, is it some combination of retail plus quants, plus options, plus illiquidity? Yes, you know, all the above. We don't quite know. But what I would say is that, You know, the value is there, especially on the asset side, the monetization potential is really there. And I think, you know, there are some businesses, because there's a lot in here. There's some businesses that have done better than I had originally thought they would do. One we first discussed it 20 months ago. Some have done worse than I would have thought they would have done. But I think all in, you know, things are going along as planned.

And you kind of have the opportunity, your listeners have the opportunity to start. step in here even lower than when we originally discussed it. So I think that's a positive. You know, what I would say is that there's just very little price discovery in small and microcaps right now. I think you've had capital sucked out of the stock market, you know, in businesses like this that are hairy special situations, even mid-cap hairy special situations. You've seen massive multiple contraction, you know, small cap plus hairy special situation. You've seen even and more. And so there's just so little price discovery here in terms of what is the actual price of the stock and where should it be. I was talking to a friend the other day and basically

saying if you told me the stock were at a buck 50 today, I'd be like, yeah, that makes sense. If you told me the stock worth 350 today, I'd be like, yeah, that makes sense. There's just sort of this range. For us in the fund, we were, in my fund, we were, you know, stepping in and buying this thing, hand over a fist when it was trading in the dollar, you know, below a dollar late last year. And, you know, when it kind of, you know, rallied back above, you know, 250, 3, 350, we were kind of pairing back our position because it got, you know, really, really big. So we've sort of traded around it a fair amount. We were buying a little bit on Friday, just given the other, you know, the opportunity we had to buy it in, you know, the buck 30, buck 40 range. So I think, you know,

it's, again, I still feel like it's a very, very interesting story. And the, the, crux of the story for for anybody who listens to the first 10 minutes and then and then drops off. The crux of the story here is that they have a giant maturity that comes due in early 2026 at the old go level, right? Andrew and you know as well as I do. And this business has a lot of asset value, right? But you also have holders of it. You mentioned, you know, the control shareholder chairman. You have holders of it who have a lot of patience and they understand that there's huge asset value here and that asset value is growing, right? And so they're not as focused on the short-term stock price as they are on monetizing the businesses and the assets, you know, at the point at which

they can extract the most value. So what does that mean? If they could, you know, snap their fingers and sell one or two of the healthcare businesses today for, you know, quite a bit of money they would, but the thing is they're not going to get the same amount today as they will in a few years. years. So why sell Meta Beacon for $500 million today when, even if it makes your stock go up to five or six, right? When you could sell it for a billion dollars in a few years. So, and I know you've covered sort of that very well in that piece of the business. And Andrew, so my point is that you really don't have a drop dead date until this maturity in early 2026. And so the nice thing we have here is we know that we kind of have that light at the end of the tunnel. And we know that we probably have room for upside before that as they monetize assets. But look, again, until asset monetization happens, this thing could trade in the $1.50, $2, $3, $4 range between now and then, right? It's all about kind of sentiment, the sentiment trade and the theoretical nav value people put on it before we actually

see asset realization. But again, we have a wall with that debt maturity. And, you know, if that debt maturity were to happen today, you know, that the company could snap in their fingers and sell some assets, right? And the stock would go up multiples, right? But they just don't care about that when they know they can sell those assets for more in the future. So I'll leave it there because I think that's kind of a good kind of a couching of the thesis. Look, it's one of the things when you've got, once a shareholder, a semi-controller control shareholder gets over like 20, 30, 40%, they kind of know, hey, the stock price on the market doesn't matter to me because I'm never realizing that price, right?

Like, hopefully if you've got a company that's like really cash rich, they can go and buy that stock and take advantage of it if it's too cheap or they can issue shares if it gets way too expensive. But they kind of don't, the day-to-day movement might not matter as much as us, everyone else in the world cares about like where it's moving because, again, they can't realize. it so that a lot of them are focused on long-term value. Let's actually start with the controlling shareholder, right? So the controlling shareholder here is Avi Glazer.

He owns about 30% of it through Lancer Capital. Lancer has done, we'll talk about some of the deals in second. But I guess Avi Glazer, you know, another situation I'm following is Manchester United, right? And Manchester United is rumored to be up for sale and the Glazer family. It's like a little mini-drama. I follow them on Bloomberg now and, oh, my God, the Daily Mail, like seven articles a day, like clockwork following everything. But I guess a few questions.

A, just to start, Manchester United, doesn't matter if they sell for $6 billion, or if the glaciers are maintained control and just get some minority investments so that they can improve the stadium. Like, do you think what happens there will have an effect on bait? And that's a small question.

I'll use it to expand into bigger questions. Yeah, I mean, look, I will say I'm not going to, you know, talk about somebody I don't know, you know, with any certainty. So what I am hearing and what I'm seeing is kind of the same as what you are, I guess is the first thing I would say. But, you know, from what I'm seeing, some of it, some of the rumors are that it could be the, it could be the super voting, right? And so, you know, certain people out there are saying, oh, well, if you are a buyer of Manu, why would you not just buy out the family with the super voting and leave the public shareholders to kind of twist in the wind, right? Other people are

saying, well, you know, it's a trophy asset. Any buyer of a trophy asset is going to consolidate the whole thing. Are they going to hit the bid, you know, that, I should say, is the bid going to hit the ask that the glazers have? And I don't know what the answer to that is. I don't know how it unfolds. I think at least over the time I've been in this industry, you've seen, I've seen, I've been surprised by how much trophy assets go for and kind of the sheer amount of wealth out there and what people are willing to pay for this stuff. So, you know, maybe, maybe not. I just don't know. In terms of how it affects vaid, the one thing I would say is that there is a poison pill in place because there's a very large NOL here. And so at this point,

if anybody who's well capitalized, and, you know, even though, you know, one thing I can say is clearly the glazers are well capitalized, again, not that I'm speaking from any experience or any knowledge of my own. You know, they are well capitalized, so they could buy stock at any point. And we know historically he had been buying stock below $4. And so, anyway, long story short, you know, maybe. But again, it would have to go through the board and they would have to make an exception of the poison pill or wait for it to expire.

let me use perfect so I guess the three things I want to jump off from there is you mentioned the poison pill and you've been buying stock and when we last spoke October 2001 october 2021 obvi and lancer had come off like one of the things i think was interesting was they were buying stock on the open market pretty aggressively they got up to about 30 percent which is about where i think they're a little under the tax on the tax plan but they're not much the poison pill or whatever you're called they're little under it but i think they're basically brushing up against the limit So I believe he requested an exemption last year.

I don't think that was granted. I guess I just want to ask him, we can use that to talk about the board drama that played out as well last year where he announced that he wasn't going to vote for three members of the board and they basically got his board. But I guess just why isn't he buying what's going on with the poison pill? He asked for an exemption. Why wasn't that granted? Like what's going on with the board drama there? So the issue you have here is this whole change in control, right? excuse me, change of control and how it impairs the NOL. What am I saying? And so, you know,

that was why the poison pill was originally put in place. Now, a lot of those, a lot of those initial transactions happened around the time of the activist. And so that was 2020. And so, and that was, again, when the activist came in, when the chairman came in, when a couple other larger investors came in, whether for or against Phil Falcone, the previous CEO. And now we're sort of getting past that three-year point of, you know, impairment of the tax asset from changing control. And so what I would say is that, you know, you kind of have this 50% threshold, right? And so as, again, more of those original transactions sort of expire, I guess, is the way to put it three years later.

you have less and less of a need for that poison pill to be in place. As to the board drama, I can't speculate as to what exactly happened. But what I can say is the exemption was not granted and that now we're at a point where, you know, it could be, right? you know, the board could make special, you know, the allowances for, you know, shareholders to come in and buy more stock, right? And that could be very well be the case that, you know, he steps in and buys more. Again, I can't speculate as to what he would do. But, you know, without tripping any of repairing any of the NOLs, he could very well step in later this year and buy more stock.

Is he going to take this company private with, you know, menu proceeds. I think that's the question we're sort of dancing around two. And I don't know the answer to that. But I think that, you know, it's hard to impair NOLs and, you know, a real driver of value, you know, just to consolidate, if that makes sense. Oh, you know what? I should just disclose right now. Maybe I should do it another cut. We have a small position in both Vait and Man U. So I am kind of talking my own book here. But that wraps into all the disclaimers and everything. Yeah, I guess the thing with Glazer, I was kind of. dancing around that, but I guess what, the other thing I was answering it was like,

Manu has been, they announced they were doing a sale in November. I'm not saying you were, I was in my answer. Say again? You were, I'm not saying you were dancing about that. I was, I guess what I was kind of trying to work towards is, man you, the sale was, the strategic arts was announced in November. Here we are end of June. There's been like, like, the, the Qatari bidders have a lot of like five bids. Everybody says this process has been really disjointed. The family isn't altogether. Obviously, that's a family trust, you know, which has success. session issues and stuff like succession the TV show style issues and dynamics around it but I guess

when I look at bait and I'm like oh like there's some drama here right laser like it doesn't real like the board the tax I'm like it it just seems so disjointed I just wonder about the disjointed and then there's the really anyway let me go to something else so so can I'm just going to add yeah is that you know this isn't a disjointed situation because you have you know one person yeah right and he's the only one sort of involved here for what that's worth. So, you know, he can come to a decision if he wants to buy more stock or vice versa. But I think that the connection is really, are there proceeds for Manu to step in and buy more? Yes, but is he also very well capitalized? You know, again, I don't know,

but I would assume so. So, you know, we don't necessarily need Manu to go through for, you know, for somebody who's a large owner of the stock to buy more. Either way, whether or not man, you happens, do I think that this business gets taken out or, you know, a take under happens? I'm not sure just because, and I think it's doubtful because, you know, you impair the NOLs. And now, a quick word from our sponsor. Are traditional expert calls in the investment world becoming obsolete? According to Stream, they are. And you can access primary research easily and efficiently through their platform.

With Stream, you'll have the right insights. at your fingertips to make the best investment decisions. They offer a vast library of over 26,000 expert transcripts powered by AI search technology. Plus, they provide competitive rates on expert call services, and you can even have an experienced by-side analysts conduct the calls for you. But that's not all. Stream also provides the ability to engage with experts one-on-one and get your calls transcribed free of charge, all for 40% less than you would pay for 20 calls in a traditional

expert network model. So, if you're looking to optimize your research process and increase R.O.I. on investment research spend. Stream has the solution for you. Head over to their website at streamrg.com to learn more. Thanks for listening and we'll catch you next time. Let's turn to, you mentioned, so at the start of podcast, you mentioned, hey, some of the pieces have worked better than I thought since last time.

Some of the pieces have worked worse than I thought would happen. And one of the things, you know, I relisten to, I'm going to say 90% of the podcast that we did last time in prep for this one because the last 10 minutes, I just, I had something else do and I couldn't quite sneak it in. So maybe I'm bad podcast. But one of the things that jumped out to me is when we were talking about it, you had a direct quote that you said, look, innovate has been a perennally underperforming some of the parts story, right? This goes back to the Phil Falcone days and everything. You said that. And here you and I are almost two years later. And we'll talk about the parts performing, better parts performing works,

but we still have a perennally underperforming some of the parts story. So I guess just like, what's going to change the story? Is it just the whole code act coming to do and like them being forced to sell because you've just got all these parts and I think people are just so burnt out on this thing. I mean, look, it's until now some of the parts trades are our sentiment trades, right? Until those some of the parts are realized. And this is no different than that. And I think you're in a very different market than we even wore in 20 months ago, right? And I think that is a very different some of the market, excuse me, some of the parts market than we were in five years ago. like I can tell you that when there are a lot of hedge funds, sort of, you know, small, long, short funds, you know, value special sets funds in the market, buying these sum of the parts stories, you would see, you know, stocks get buoyed based on sentiment based on, you know, trades, right? Investment thesees. You wouldn't necessarily see the actual realization of the assets. I think what's happened since then is you've had this, again, sucking of capital out of special situations, right?

Out of special sits and it's AI. All you got to do is going to. Well, so you mentioned at the top of the podcast. Some of the stuff has worked. Some of the stuff has not. Let's start with what do you think has worked out well over the past? Let's call it two years. Like, kind of what's tracking better than your thesis?

So I think that the revenue at DBM has tracked better than my thesis. The margins have been, the EBITDA margins have been lower. And so I think you kind of shake out at as expected. I think what's been better about DBM than I would have expected is the tail. So I think this whole onshoreing boom and what you're seeing from IRA, what you're seeing from the semiconductor fabs, and sort of all that. And, you know, I was at an industrial conference last week. And every steel company I met with, every aluminum company I met,

it was just telling me they're not, even though people are talking about recessions, right, in the big projects at least. Yes, yes, the small projects where, you know, regional banks, were financing them and maybe after SVB and some of the issues we've seen in the last four months or so, you've started to see a decline in some of those commercial projects. But the large-scale projects, what DBM plays in, and you're not seeing any sort of drop in demand, right? And then they were also saying, and I think where, so that was better than what was expected for me. One of the things I talked through originally in the podcast was the

infrastructure bill, and we haven't seen any of that. So this revenue beat versus my expectations has been really just through everything we're seeing with the onshore and boom. I think the next step is really the infrastructure bill. And talking to sort of a lobbyist a few months ago and talking to some of these companies, one thing that they were saying is that they're seeing the subsidies from the IRA bill happen faster than the actual spending from the infrastructure bill, even though the infrastructure bill was significantly, you know, past significant, yeah, quite a bit earlier than the IRA.

and some of that was a function of the fact that how they were structured, right? When you're talking about actual funds moving from the federal government than to the state governments, from the state governments to private contractors, that takes a really long time. Whereas when you're talking about a subsidy, companies just get the tax subsidy, they just start spending right away. And so you've already seen IRA. You haven't seen infrastructure bill.

You're just starting to see that. So look, I mean, cyclical businesses, we see the backlog. We can look out 12 to 18 months, but their cyclical, for a reason and they could tail off. So I'm not saying I'm 100% certain on anything. You just can't be. But the point being that I actually think the tail on DBM is longer than expected. And now maybe it's worth getting into the quarter and kind of a comment they made

in the drop in the stock price based on DBM, if that works. Yeah, go ahead. Okay. So basically one of the things that they said this past quarter was that the is that they're seeing more competition in some of the smaller projects, right? or there's more bidding going on. And the direct quote is beginning to see the market somewhat tighten and more competition on project bids, yep.

Yeah, good point. And then on top of that, we saw a miss in revenue in the quarter in DBM. And so what I would say is that the miss in revenue, and so people putting those two statements together obviously freaked out and then sold the sock down. Or maybe it was the Kwanso knows. But the point being that when you say, see those two statements together, you know, it's understandable that there's a risk. I think the backlog, the 12-month backlog, you know, hasn't changed. And historically, that 12-month backlog

is, you know, pretty much come to fruition. And so it was a timing issue. These are very, very lumpy projects, you know, a single project is potentially 10 to 15 percent of revenue. And so, you know, if you have timing in terms of the JFK, you know, the one that was highlighted is really the JFK expansion, right? And if you have that timing not happen this quarter, happen next quarter, happened the following quarter, right? It's going to affect your revenue booked in that particular quarter. So I think that is sort of the first issue that the revenue missed was really just timing. I don't think there's much of a problem there when you look at the 12-month backlog and kind of the overall backlog. In terms of the

statement around the more competition, I think the point there is to say that this is not going to keep growing at the same rate at which it's been growing the last few quarters. And again, some of that's my interpretation, some of its conversations with management, some of its conversations with sort of outside experts. But I think all of those triangulate to the conclusion that this business isn't going to keep growing. But that doesn't mean there isn't a long tail to it. And if there is, you know, $120, $130 million in EBITDA on a long tail to that, I think we're comfortable putting, you know, six to seven to eight times multiples on that. So that's, that's sort of where I would

leave the, where were we right, where were we wrong on DBM. Let me just one more on DBM. So I do hear, especially if you and I have been talking six months ago, you know, after this is their fiscal Q3, 22, oh, no, that's, that lines up with calendar. I've got my date so confused at this point. Calendar and fiscal Q3, like they had a massive jump and backlog, right? It goes from 1.5 billion to about 2 billion. And at that point, I think a lot of investors start saying, all right, the DBM story really has legs. As you said, IRA is coming through, infrastructure just starting to come through. Yeah, the margins haven't inflected yet, but we're going to start getting that margin. And I definitely do hear it, right? Like,

this is a project management business. Projects gets delayed, like revenue can get pushed from one quarter to the next. But I do just want to dig on two things. Like, A, the backlog, it's still above where it was before that big jump, but it's come down quite a bit since that big jump. And they say, hey, we're still seeing projects. As you said, it does sound like they're getting like the weakness thing that we talked about in the Q1 call. They did not have that in their prior call. So it does sound like they're acknowledging the markets.

And then B, I'm just a little disappointed. Like their backlog went up so much. It seemed like the environment should have been great for them. And the margins never really got much better. So I look at the two. And like we talked and people can go listen to call. If you just slap a, it doesn't take an aggressive multiple on even the results DBM's producing now to get a value probably a lot harder, higher than the markets kind

pricing on this. But I was just like a little disappointed by that all in bundle if I can just kind of throw a random stream of thoughts at you. Yeah. So what I would say on margins is that you're still working off some of the COVID related stuff that was at much lower margin. So as that's right as that revenue is recognized, those margins are lower, but you are seeing them creep up. The other thing I would say is that, you know, OPEX is fairly fixed, right? And so in something like this past quarter where certain contracts, you know, we're not, we didn't recognize the revenue this past quarter, right? You're going to have a lower EBITDA margin because, you know, your revenue base is lower on the same OPEC, right? So, you know, that, but that will reverse itself in the quarters when

you book, you know, greater revenue, right, on the same fixed OPEX. So I would say that's part of it in the short run on margins. So I do think they are going to creep higher over time. Are they going to get to 13%, probably not. Are they going to be above 8%, you know, very, very likely, right? So I think that's kind of the steady state, which, you know, where we are in terms of margins. On terms of backlog, I think it jumps around a bit, right? Like one of the other things that they've talked about is that there are projects that they're fighting for, right? And so all it takes is a couple of those projects to get back to above $2 billion, right? So it's just, and again, the reason there's so much uncertainty here and the reason the stock is

where it is now is like you can make either argument, right? Like I can say to you, you know, 1.8 billion, oh, that's the backlog. There's going to be three new projects. That's going to get you up to 2.2 billion, right? Like, or you could say, oh, well, you know, this construction boom is declining and, you know, we're lapping the onshoreing and, you know, backlog is going to keep declining. And I think everything I'm hearing is that that's not the case with large-scale projects. But again, there's uncertainty in a cyclical business, right? We just don't know. The world changes very quickly in these sorts of businesses.

So I can't tell you we know, but I do think we're being compensated for that in the stock. But what I would say is, again, you put a seven times multiple on, you know, a run rate, what do you call steady state ebidon in this business, right? Even if backlog is coming down a bit, 110, 120 million, you put, you know, a six to seven times multiple on that you take out the $2.40 million in debt and you're still at a stock price that's significantly higher than, you know, where the whole is trading right now for what that's worth. Let's go other segments. So again, you said some of the stuff has worked, some of the stuff has not. Is there any other segments that have kind of worked better than you thought they were going to

play out? You know, I think on the, in health care, I think R2 has probably worked out worse than I would have expected. So, you know, I've done a fair amount of work on that. I went to a couple of, like the dinners that they did in New York. I went to, you know, dermatologist's office who had the machine and kind of saw it in action. It didn't take any of my sunspots out. Sunspots out. I didn't try it. But I saw it being used. And it seems like it works. They're going for sort of additional use cases with it. And so I think things are chugging along. I think the China side of the story was weak with zero COVID. And they kind of highlighted that in the numbers. But it did it has not played out as I would have expected it to in terms of a revenue run right. That said,

I think that Meta Beacon and again, you've highlighted this too. Let's just pause on R2 for a second because it was a big piece of story. And I guess Lancer, which is obvious firm, has been doing a lot of lending into R2. It's been like pretty distressed financing and it started to come in bits and drabs. now. I think like 18 to 20 percent interest rates. Obviously, those are related party loans. It's due. Actually, they took it out with a convert note, if I'm remembering correctly. But I guess, you know, when you just look at R2, do you think, is that a write-off at this point? Obviously, there's always like kind of call option value there. But do you think that's just completely behind us or do you still see a good chance of value there?

No, I think there's a real value there. And I think that it is worth several hundred million still. I think the timing, it's just taken longer. I think the technology is real. I think the use cases are real. I think they're proving more use cases out of it. I think it's more sort of benign than in terms of the treatment than a laser, which is kind of the substitute treatment, which a lot of these dermatologists are using. So I think there's a lot of use cases for it. I think they've shifted from a purchase the machine up front to a leasing model. And that shift to a leasing model has kind of reduced some of the, you know, initial revenue growth you would have seen from it. But it's also probably increased the number of, you know, aesthetic facilities and so forth,

small dermatologists that would buy something like this. So anyway, long story short, I do think, I do think it's real. I think there's value to it. I think it is worth several hundred billion dollars. I think it's taken longer than expected. So that's where I would put that. I'm sorry my tone came across that I just I remember being very excited about this and I like I followed it and kind of stayed up to you I've been just really disappointed in that

segment because I'm with you I thought it had a great shot obviously the management team there had a history of like kind of building up pretty nice sized businesses these these businesses where you get something into a dermatologist or whoever's office requiring use like there's always teens who have skin issues. I certainly have some skin issues. It's just a great market. Once you get into it and break into it, lots of expenses up front. But I've been pretty disappointed. You know, like QTERRA is a company that I've done two podcasts on here. They, you know, apples, oranges, they both do skin, but that's acne versus some, but, you know, they just, like, they've shown me the leasing model is the way to go. It's good that R2 switch there,

but they're growing so much faster. And even their disappointment on growth. I just, I kind of look at R2 so far. I'm like, ooh, I don't know. it's really off to a slow start. I think it takes time. The other thing one of the dermatologists had mentioned to me was that why isn't Rox Anderson behind this kind of advocating it the way you know, it was done with Cool Scope. And again, I can't say I know him. I don't want to speak for somebody. I don't know. But what I would say is he has started to. And you've sort of seen this at a couple industry conferences. And so I do think there's value there. I think it's going to take time for what that's worth. But I do think MetaBeacon is performing. Yeah, let's talk

MetaBacon. Great. I mean, I think it's performing above my expectations. I think one of the feedback I received after I did your original podcast from somebody involved was that, you know, what I missed was the potential value of Meta beacon. And so I think that is, you know, bigger than what I expected it to be. You know, since then, I've talked to kind of more kidney specialist, apologist, and, you know, they've said, wow, this is very cool. You know, there's no real kidney GFR measure, you know, real-time measuring system out there.

You know, they're sort of, they've pretty much gotten through the FDA pivotal trials, right, which is obviously a lot faster for a device than it is for a drug. And so my sense is that this is the big monetizable. asset here, right? They're not going to monetize DBM. BBM cash flows effectively cover, you know, corporate OPEX over time as they're waiting to monetize some of these other interests. But I think that that MetaBeacon is really the one that they could press a button today and sell it if they wanted to. But I think, you know, if they pressed a button in, you know, two or three years, I think it's worth significantly more. And so I think that's really the value of this one.

So MetaBeacon, they are preparing for FDA submission. They're going to do sometime this quarter. We're talking June, 2012, 23. So, I mean, at this point, it's this month, right? Because I don't believe they've submitted yet. Yeah, I mean, from what I understand, timing to actually get approval is sort of what I've been kind of asking them about. And that is end of this year, early next year. And then so great.

So timing to get approval, end of this year, early next year. year. And MetaBeacon, they own, I think it's a bit over 40% diluted. Tell me what you think MetaBeacon could be worth if they get approval and this kind of works out. I mean, again, so hard. I do think it's a unicorn, right? And if it's a unicorn. And again, I think the idea is it's a platform, right? Yeah, obviously the kidney addressable market is huge, but, you know, there's so many more organs that the platform could be used for. And so I, you know, again, I think, I think it's a multi-million dollar company. And think about how much value that is for exactly what you said the ownership stake is.

So is it, it's Shudong, I believe is there a Chinese partner who's providing a lot of the funding? The last time they funded this was they funded $10 million in kind of late 2020. I guess just two questions. How does that partnership work? And if this has such unicorn potential, why are they letting Hu Dong kind of dilute the potential here instead of maybe I don't think, I don't think Innovate has the capital to fund that $10 million, but maybe go into Lancer and seeing if they can get really expensive debt, but that doesn't dilute their funding or something. Yeah, I mean, it's a good question. My take is that this doesn't as a whole going

forward. It doesn't really require much additional capital. And so if it, you know, doesn't require much additional capital, then, you know, I think you can hang your hat on the current ownership state. And so you expect the FDA, hopefully approval by the end of this year, and then I guess they start ramping up next year and then maybe a monetization event, maybe 18 months, two years from now is kind of how you're thinking about it? Yeah. I mean, I think, you know, you have a monetization event later this year, and then you have something like, excuse me, you have a monitor, you have the FDA approval later this year, early next year, And then you have something like a monetization event, if you need it.

The interesting thing here, I guess, comes back to kind of a drop dead date on the debt, right? So if the debt gets, you know, if you have sort of this debt coming due in February, right, then of 2026, then, you know, the question is, do you kind of hold on to Medibacon as you prove some of these other use cases? and does that, you know, potentially change in terms of increasing value going forward, right? Or do you monetize it because you have to? So I think in an ideal world, again, this is all very fluid, right? And so in an ideal world, you're not going to see monetization of an asset that could have much more future value, right? And so I think that's some of what it comes down to.

And how do you think about value? Because I'm actually with you, especially when I was first recently in this, I knew, like, there are four platforms within the life sciences, but I really had focused on R2, and I had not thought a ton about how to value Meta Beacon. So how are you kind of thinking about both the probability of FDA approval and how to value this if it is approved? I mean, so the way I'm kind of thinking about it is what is the kidney addressable market, right? And, you know, trying to think through, are there creative ways to put, you know, value on kind of a tracer technology and then, you know, can you figure out what a revenue

multiple on something like that would be? But it kind of shakes out to the fact that these platforms are worth quite a bit, right, at the end of the day. And, you know, you can kind of do all that math and then come out with something that's multiple billions of dollars. And I think it's all about the platform in the addressable market here. And, you know, that's kind of where I come out on it. So you said a few times the platforms are worth a lot of value. Can you just describe the MetaBeacon platform and what makes it so valuable? So it's really just this tracer technology, right? And so it's this idea that you're kind of ingesting this dye and you are, you know,

allowing it to perform functions on the kidneys. And then, you know, is that applicable again to other organs? Go ahead. Yeah, that's it. Okay, I guess what makes that so valuable, though? Like, you know, I was kind of looking at their website as you said that. And I saw the dye, the novel fluorescent agents. Like, what's so unique about these agents that, yeah, I just don't know.

Like, why are they so unique? I mean, I think some of it is is patenting it and the fact that it's working and it's working real time. And I think that's the other big piece of it is that it's working real time for, you know, for kidney GFR monitoring. Okay. Okay, cool. Let's, so that's life sciences. I guess let's just, so we've talked to. And we've talked life sciences. I want to go to spectrum, the other part, which I think if I remember back to our last podcast, that's where you and I kind of disagreed the most. And that is doing some interesting kind of change in businesses, business models there. But let's just talk. We've talked to the parts, right? Life sciences and DBM. How would you value those two if people are just thinking through some of the parts here?

So look, I think life sciences, you sort of put a high several hundred million dollar value on, you know, when you combine, again, you and I talked about last time that there's some other stuff in Pansan, but we're not really. It's four companies in total. They've got these two. And then Genevill and Triple Ring, but Genevill and Triple Ring have been like low single digit million investments. So, you know, if they turn out to be unicorns, awesome. But I think they don't even talk about them to my knowledge. the past, I think I read the past four earnings calls to prep for this. And I don't remember a single time getting mentioned. Yeah, and same thing with that Jansen option, right, on that

yeah, oncology business they sold. But anyway, so, you know, ignore all those. I think you just put value on these two, you know, if you were to put somewhere over a billion on Meta Beacon, total, and then, you know, somewhere on the low $100 million total on, you know, R2, do you get to high hundred millions, right? What are the odds of Metabeecan getting approved? I, from what I understand, and, you know, from talking to them and sort of outside experts, I think it's very high. I think that, again, a device recognition is very different than a drug. So a drug, if I remember correctly, a phase three trial, because these guys just did phase three, phase three trial for a drug, I think it's 66% likely to get approved. And you're saying

this is a device, so you think it would be over 66% likely to get approved? From what I understand, I haven't talked to them about kind of the exact probabilities. I haven't asked that question, but I think it's significantly higher. Yeah. I can't remember if a drug is 50% in phase three is 50% or 66%. So nobody holds me to the 16%. But it's one of those two, if I'm remembering correctly. Yeah, I think it's, I'm looking at something from another company I saw.

I think it's 68% is the historical record of phase three is getting approved. Yeah. Okay. Cool. So we've done those two segments. I guess it's just spectrum. So spectrum, 2022, they kind of re, redo their model. They cut off one of their partnerships. They're cutting expenses there. I think

there's two questions. And this is where we had the debate last time. Like, there's the question of the value as a standalone business model. And then there's the question of, hey, these, you know, you have basically nationwide coverage of these, uh, kind of lower value rabbit ear TV channels, but that spectrum eventually can be repurposed and sold to mobile players for to cover, to give them increased bandwidth. I guess my two questions are the one question. How are you thinking about spectrums value these days? Yeah. So I think what they did in Fort Wayne, Indiana, is interesting, right? Because they talked about that in the last call. And, you know, they're effectively getting, they did a trial, right? And they did trial to get LTE level speeds on some of this broadcast

spectrum. So it just goes back to this long-term use case of broadcast over LTE. And I, broadcast spectrum over LTE. So, you know, as we get to this point where all these 5G use cases come to fruition, there's more of a demand for spectrum. One of the things I would say here, too, is that, again, whether it was 20 months when we talked three years ago, you know, everybody who kind of followed, you know, these telecom businesses would have told, I don't know, I should say everybody. I would say that, you know, the school of thought was that, you know, 5G would bring in this,

you know, IoT demand of all of these. you know, all of these things out there that were all using a network and they were all going to increase the demand for spectrum. You know, you talk to somebody like DISH networks. In my mind, they were the people, when you said all these IOT and I was like, yeah, DISH really Dish bet the farm on that and they haven't seen enough of that demand come through. Not yet, right? So the question is, can people stay solvent longer than it takes for the demand to start? But, and that's very much the case, I think, on DISH. But anyway, the point being that, you know, these things will come to fruition, right, at some point. I mean, you just

look at, and I hate to be a futurist about this and be like, look at autonomous cars and look at the amount of data that an autonomous car, you know, spews. But it is real. And if you're talking about kind of continuous 20, 30, 40 megabits a second in data from an autonomous car, right, that, you know, that has to go to kind of an edge data center, like it's real. And so the point is all that demand will come. But again, it comes back to do you monetize assets today? Do you think your assets are worth a lot more in three, four, five years? Do you monetize them then? I would probably say, and again, I haven't corroborated this with anyone. So take what I say here with a grant of salt. But I would probably say you could, you know, press a button and sell the entire kind of scalable

broadcast asset for a couple hundred billion dollars today if you wanted to. Why do you think that? Who do you think would buy it? Are you thinking like a telecom player buys it? Or are you thinking a strategic, you know, a Nexar or a Tegna or take your pick of local broadcasters buys it? I think that if there were a well capitalized local broadcaster that had the cash, right? I think there's value in white space TV assets. I think, you know, if you're a fang and you're looking for a distribution asset that costs you very little money and has the kind of scale that takes years and years. I mean, the key to this asset is scale, right? And it's no different than, you know, any business where you have, you know, where you've done a lot of kind of aggregating to fill in, right? And, you know, that's what this asset is. It's a ton of these channels that, you know, have nothing on them and that basically cover such a large percentage of the. But like, you've got a ton of channels that have nothing on them. So I can, you and I can debate the asset spectrum value, right?

Because I think that is a very, we have not, to my knowledge, really. seeing a big spectrum mark since C-band. And I think this, which is much lower than C-band, I think there's a very interesting and open question of how big the range of values for the spectrum could be. But on the, on like the actual operating business side, I'm just curious, like, you've got all these empty channels, like you access them over rabbit ears. It's not like this empty space hasn't been out there for a while. I do hear you, hey, it's much easier for Amazon to come and buy 100 channels in one fell swoop

than to go roll like a hundred different ones up one by one. But, you know, I just look at them like, why would they even bother? Like, why do they care if they have something people can get over rabbit ears, analog TV? Like, they can just, most of the people, they can just reach over, hey, go to Amazon.com slash prime TV and access this website. And the few people who they can't, like, it's not driving that much value to get to them over rabbit ears. They think it's the distribution mechanism that it is over time, right?

It's not necessarily just, we see it as a distribution asset. of broadcast TV, right, of, you know, video images, but it's, and I think this trial in Fort Wayne has kind of shown you that it is a distribution asset of something bigger, right? And yes, maybe there's no value to that today. But describe the Fort Wayne trial, because my understanding was it was just a two-way trial where, hey, we can send you a station and you can send us back data, basically, right? So you're basically for me, you're proving that this technology, you can use it as kind of a mobile network for broadcasting, right? But is there something else to it? No, it's data transmission, right? But data transmission is really a valuable resource over time,

right? I'm talking about, you know, could somebody buy this for a few hundred million dollars and have data transmission for three quarters of the country? Yes. And I think that's really what this comes down to. Do you know what speed they did the Fort Wayne trials at? It was LTE level speeds. I'll see. Okay. So yeah, so you would get like, if you're thinking about this carrying and doing a smart, as you said, like internet of smart things throughout an entire like city or state or something, it would be pretty. You could use this as an interesting backbone for that. Though, you know, you and I've done a lot of cable and you would wonder like, hey, a buy versus build where you go and buy this and then you build out all the towers and stuff versus, hey, maybe you could just rent this from T-Mobile, right? Like, hey, T-Mobile, we just want to do this all across your spectrum and you've already got all that built. No. Yeah. I mean, there's just so, I just think a nationwide, or I shouldn't say nationwide, a majority of the nation, distribution mechanism that right now is just white space TV channels has so much value, right? Because at the end of the day, the data that you distribute over this is, you know, again, it has so many different cases and so many different uses, right? And so my point is just that if you you were to sell that tomorrow for a few hundred million dollars, would there be a buyer that sees the optionality probably? Is this worth a lot more? I mean, I think the number that we use in the original sum of the parts was several hundred million dollars, right, when we talked about it

last time. So do you wait a few years and you do more of these trials? You kind of prove this is real. And do you get it to be a lot bigger in the future than it is today? And I think that's really the key. But the point is that, again, this is just like a metab beacon, right? This is an that you could probably sell today for a very small amount of money, obviously a lot smaller than Meta Beacon, but could you sell it for a couple hundred million dollars? Do you own the majority of it? Yes. And that's, you know, it's real nav value for the stock at this price. Is it extracting the most value out of it? No, right? And that's really the key. And that's why there's no price discovery in this stock is because they're not selling any of these things

today. But, you know, the optionality and, you know, people are looking at this dog and be like, oh, glad I stayed away from VE. But, you know, it's going to take time, right? Because the asset value is there. It's just a question of pressing that button at the time when they want to press the button to get the most value out of the assets, right? And at least the one thing we have from public market investors who are measured on a market to market, right? You know, you would hope that you're marked to market that you're measured on is multiple years, not. you know, three months, like a, like a platform. And, and so the one thing we have here to really realize value, again, is this February 26 matured. And just, I want to go back to

the February 26 maturity in a second, but spectrum itself has 70 million of debt that's due in 2024. Do you think that's a catalyst? Like they're going to have to, I mean, they might have to sell spectrum just to cover that debt. And then if you think it's worth $200 million, that's $130 down to Vade or something, right? So do you think that spectrum thing is a catalyst or do you think they can easily refinance and kind of keep trying to build this out? So they refinanced it last year and they refinanced it with their existing lenders. And the existing lenders that they refinanced it with basically just took some equity and extended out the maturity. It's due 2024, right? I'm looking at the Q-1-9- Yeah, they read they basically.

basically extended the maturity out. But so, sorry, they extended it past 2020. I'm sorry, the refinancing. They extended the maturity out. Oh, okay. I thought it said maturity 2034, so I've got it wrong. No, no, no, you're right. It is now.

So, sorry, what I had meant was that they extended the maturities out last year to 24. And their lenders were pretty, pretty flexible with them to extend out the maturities. They gave up some equity in terms of warrants for that maturity extension. What's the strike of the warrants that they gave out? I don't know the answer to that. I don't think it was. Okay. I was just wondering if I think they were pretty much, we walk through kind of the level of equity that they get.

So my sense is they're close to at the money, but that's me speculating. And now, a quick word from our sponsor. Are traditional expert calls in the investment world becoming obsolete? According to Stream, they are. And you can access primary research easily and efficiently through their platform. With Stream, you'll have the right insights at your fingertips to make the best investment decisions. They offer a vast library of over 26,000 expert transcripts powered by AI search technology. Plus, they provide competitive rates on expert call services, and you can even have an experienced by-side analysts conduct the calls for you.

But that's not all. Stream also provides the ability to engage with experts one-on-one and get your calls transcribed free of charge, all for 40% less than you would pay for 20 calls in a traditional expert network model. So if you're looking to optimize your research process and increase ROI on investment research spend, Stream has the solution for you. Head over to their website at streamrg.com to learn more. Thanks for listening and we'll catch you next time. If people are thinking about this, it's like, look, I guess there's a lot of shots that could be, you know, potentially multiples here, right?

Meta Beacon and potentially Spectrum as well. You've got the 2025 hold code debt due, and that's you is the big catalyst where, hey, they've got all these shots, they're going to have to realize value for one of them before the 2025 debt comes because that's how they're going to be able to pay off that debt at some point. And that to you is kind of where the interesting crux and value of this thesis lies. Yes. What do you think is the most likely piece for them to realize value? It sounds like maybe Meta Beacon if they get FDA approval. And the time matched up, right? FDA approval now launches are expensive. You do an IPO in early 2024 with FDA approval to fund the launch and prove out the value

and push back the hold code out? No, I think you're right. And I think the value you have out of that is that you probably met a beacon, you probably extract the most, the closest amount to long-term fair value because people know what it is and they know how much potential this has. I think we're just still so early, you know, you've done one trial and one small town on spectrum.

I think we're just a little too early on that, right? So there's probably a bigger discount to what the longer term value is, I think R2, they need to kind of grow it, right? Because, you know, MetaBeacon has some real potential. Whereas, you know, something like R2, you know, people understand the platform potential, I think. Something like in R2, you know, you have, people need to see the proof of, in the concept, right? And they need to see that through revenue growth, right? Because it is a real product. So, again, that's going to take time. So I, I just think when I look at all of these pieces, I think you probably get the closest to fair value for MetaBeacon.

So it's the most likely sale candidate. And I think that's probably because there are also multiple potential buyers of it. Yeah. No, you know, the tough thing with this is just MetaBeacon is really interesting. But, you know, it's like, hey, R2 is really interesting. I've been really disappointed by R2. As you said, like, the founder had such a great track record. And it's just like, oh, it's been.

And then Spectrum, you know, I heard. And I said this in the first podcast, I remember when Phil Falcone in like 2018 threw this all together and they're like Spectrum, local TV broadcasting. It's the future. And I hear you like sometimes, unfortunately, like the value creation of a business and the value realization does not match the stock price on our screens. And we'd like everything to get fairly valued and instantly play out tomorrow and like sometimes these things take years. But I just like on spectrum, I've been hearing that story for so long. And I'm like, I just, I almost feel like the time has passed it by, you know. And it's like Meta Beacon to me is the really interesting one.

but then I look at R2 and I'm like, you know, I feel like Charlie Brown and Lucy with the football. Like they pulled it out once and maybe the value is still there for all too, but like I'm getting played again on the same like the same thesis, you know? Yeah, it's, I mean, you're right though. Like it's, but at the end of the day, like these, we're buying it. It's such a large, whether it's at three or one, right? We're buying it.

It's such a big discount to fair value. And I think it's because you have the cover of DBM that it's kind of running. You have a highly leveraged holdco, right? Like, if you've got one thing in there that can cover all the value, like, you get a lot of free shots at the dub side. And this is a highly, highly leveraged Dubco. Yep. And you're like, okay, fine. This one doesn't work as well as expected, but there's still value to it.

It's more than the market cap, right? And I say market cap because you're, like you said, you're covering all the EV with everything else. Okay, this one is, it's still got some value to it, right? And that value is still multiples of the market cap. Then you have this other piece that could be worth a whole. whole lot more, right? And so, again, I still, you know, one person I talked to was like, well, I don't really, you know, this is kind of the mayor case, right? One person I, I talked to was like, well, I really don't like it because, you know, if you think this thing generates $120, $130 million in

EBITM, and let's put a six times multiple on DBM, you know, all in, you get $6 or $7 in value when you include the old code debt and the DBM debt. And, you know, you're buying it for $3,6, do you really want to take the liquidity risk and the volatility and all that for just a double when we don't know when that double is going to come to fruition, right? And my take on it is, yeah, but you can't value all the other stuff at zero and just consider them free. Right, especially when you have such a sliver of market cap. So, and yeah, it's dicey. Is it moving around? Yes. Do you position size accordingly? Yes. But that doesn't mean there isn't huge long-term value here. Yeah. No, and look, I think on the first podcast, we focused a lot more on DBM. And we did start

off with DBM here. But as you said, like, DBM is one of the crux. It is a good business. I think reasonable people can argue on just like how good of a business, if this is more just like a commodity business where you just kind of slap a low to mid single digit, EBITDA multiple on them. Or I know some people, and I think you're one of them who says, hey, like, yeah, these guys are steel fabrications. It's not the best business history. But for this large scale steel fabrication business, you know, they did the Clippers arena. Like, there aren't a lot of people who can do this, especially it's a local business and locally there might only be three players like you can earn decent economic profits doing that and you know you get dbm it covers everything and then yeah i've

been disappointed in some of these moonshots but you just keep getting them for free and when one of them pays off as you said whoof uh look i know you have good no that's exactly right yeah i know you have a launch i actually need to go with the restroom but look we also i i know you and i have telecom in common we've got another refiner that we've been looking at in common so this has been great. We're going to have to have you back on sooner than almost two years next time. And yeah, it's Jenny. Thanks for coming on. And we'll talk soon. All right. Sounds good. Thank you, Andrew. Appreciate it. A quick disclaimer. Nothing on this podcast should be considered an investment advice. Guests or the host may have positions in any of the stocks mentioned during this podcast.

Please do your own work and consult a financial advisor. Thanks.