Yet Another Value Podcast - Pitch the PM's Doug Garber on $TUSK's mammoth cash balance

Episode Date: May 26, 2025

In this episode of Yet Another Value Podcast, host Andrew Walker is joined by Doug Garber, founder of the Pitch the PM podcast, to dissect Mammoth Energy (TUSK). They explore TUSK's mammoth (pun intended) cash holdings relative to its market cap, past challenges including fracking and Puerto Rico operations, and the implications of recent asset sales. Doug shares insights into TUSK's business segments, corporate governance under Wexford, and potential capital allocation strategies. They also discuss the strategic outlook with the upcoming CEO transition.______________________________________________________________________[00:00:00] Podcast introduction and episode setup[00:02:06] Doug Garber joins the discussion[00:02:51] Overview of Mammoth Energy's business[00:05:14] Settlement cash inflow explained[00:06:59] Market mispricing and cash outlook[00:10:00] Investor skepticism around Puerto Rico[00:14:07] Corporate governance and Wexford's role[00:18:02] Discussion on capital allocation strategy[00:24:32] Business transition from energy to industrial[00:30:24] Aircraft purchase controversy analyzed[00:34:16] Interim CEO and leadership transition[00:36:51] Expectations for new CEO direction[00:42:06] Valuation from appraised asset values[00:45:35] Wexford's investment performance evaluated[00:46:00] Downside protection and risk assessment[00:50:21] Final thoughts and wrap-upLinks:Yet Another Value Blog - https://www.yetanothervalueblog.com See our legal disclaimer here: https://www.yetanothervalueblog.com/p/legal-and-disclaimer

you're about to listen to the yet another value podcast today's episode is episode number 314 we're having Doug garper on he's from a rival podcast the pitch the PM podcast but that's okay we're going to have a really interesting discussion about a very small company that has more than their market cap in cash and we're going to talk a lot about that company we're going to talk a lot about it you know the risk with cash shells capital allocation and all that sort of stuff obviously super small company so please be sure to see the disclaimer at the end of this episode but we're going to get to dog and the pitch but first a word from our sponsors this podcast is sponsored by fin tool look in those of you who have followed me on the blog on the podcast know that the two

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Doug, how's it going? Good, good. Thanks for having me on, Andrew. Look, I don't know how many times I've had a, quote, unquote, rival podcast host on. But, you know, a small value host got to stick together. Let me do this. Before we get started, just disclaimer. I'll include a larger disclaimer at the end, but the company we're going to talk about today is Mammoth. The ticker there is T-U-S-K-T-T-U-Sk. And I'll just remind everyone, this is a very small-cap company, 125-ish million market cap. So that carries extra risk. And I just wanted to grab that extra disclaimer, go do your own work, not financial advice, all that up front. Anyway, Doug, the company we're talking about today is Mammoth Energy. The ticker is Tusk. What is it and why is it so interesting? Well, I think it's a stock where there's a very limited downside. But before we get into the stock, I think I should also say, as a disclosure, I do own the stock. I do want to be transparent about that. And I don't know if I view it as a competing podcast. I mean, I think we're both, you know, Louisiana Tulane guys. So I think we're all, we're all in this. Now I'm in my home office. With my other office, I actually have a Tulane banner right there. And it's a,

you know, it's the same theme of stocks under rocks. And you know, I didn't want to really just do it on my own podcast and present it to myself. I thought it's such a more powerful dynamic when you're having the the back and forth in the conversation with another really intelligent investor who can poke holes in your story. And I think that that's the value that I see. And that's kind of why I wanted to to do it with you, Andrew. So thanks for for taking the time. And I know it's a small small cap stock. And essentially, I think the stock has been left for debt, right? It's about $118 million market cap today on, I was it May 21st, and it's a $2.45 cent stock.

And it's been one of us left for dead, and then it's recently done a transformation. So I've covered the stock since it did its IPO. The stock is owned 45% by Wexford. Originally, it was kind of a, a Northeast frack company for Gulfport. And then they also had their own sand. those assets are very little value. They've kind of rode those up and rode those down. And then the other thing that had it, like last year was probably the worst year for natural gas.

And by, I think it was 221 was the average. It was like worst year ever. So they essentially went to almost no utilization for some months. So that and they were reinvested in their fleet. But they've also been pretty entrepreneurial. If you know them, they've started some other industrial businesses from scratch. And there's been some other kind of. oil service energy companies that have also had industrial assets that have been completely ignored.

Now, now there's this company off the radar on the energy side, it's, it's off the radar on the industrial side, it's small. It's really off the radar almost everywhere. I mean, Wexford owns it. I saw Adage. Then you get some index funds. So the reason it's interesting to me is actually they recently sold, there's two things that have happened. One is they got about $180 million from a settlement from Prepa, from Puerto Rico for the work that they had done to restore the grid there after a hurricane. And essentially, the company was burning money before they had that money. They were doing their interest paid in kind.

They had leased things out. They were in a tough financial position. And then they finally settled and got that money. And then I thought what they were going to do was pivot. And they have a transmission and distribution business, a segment of industrial. that's been really essentially hot with the AI, I think a mini Quanta or Mazdaq. And I thought they were going to grow that business

and just kind of leave the other businesses alone. And they announced, so the first thing is they got that money, fixed the ballot sheet. Then they announced the sale of the transmission and distribution business, which was essentially their biggest business. And they sold it for just under $110 million. Now, they had started that business,

five, six years ago for, I don't know, maybe 10 million bucks and grown it. So it was kind of a nice organic grow and they got a 9x multiple on it because, you know, the market, people like these sort of T&D assets, the recurring nature of the utility spend and the growth from kind of the AI. So now when they did that, they got even more cash. So now the company has called 155 million of cash. Now 20 million of that is restricted until October, it's in a letter of credit tied up with the Prepa and the municipalities that should roll off in October, depending on what happens. But I feel pretty good they're going to get that $20 million there. But if you think, you know, why is the stock priced the way it is,

you would say, all right, I'm not going to give them credit for any of the money that is related to the Puerto Rico until it's in their bank account. That's what we've seen and been trained to do with this last, you know, lawsuit that that finally settled. So then you would say, all right, well, the company has $135 million of cash, market caps $118. All right, about 87% of cash value. That's a good value, but that's not too unusual in small-cap land, especially if you have a business that is cash flow negative.

Now, last year they were cash flow negative, right? Their main business was natural gas energy. And they've been, you know, I think last quarter, they had positive one million of EBITDA, but still had negative cash flow with the, with the cap X. So that kind of couldn't, that makes somewhat of sense, right? If you don't give them any credit for what is likely to happen in the future and their actual business lines. So they've got probably about another $40 to $50 million to collect. They've got 10 million escrow from the deal that they have recently finished. They have another 20 that we just talked about.

That's a letter of credit that they should get in October related to the preface settlement. And then another 20, and this 20 is in their accounts receivable. And that 20 million, we don't really know the timing of when they'll get that. But they've agreed to that 20 million in their settlement. But it has to do with when the bondholders ultimately, settle. And I don't know how long that will be. You know, so I kind of discount that in my model. I call it 75, 80 cents on the dollar. There are markets out there to pull that, pull that forward because it's actually an administrative claim, which means it's not that

risky. It's just the time. Let me just pause you there. I think you've done a nice job going through all the stuff. But I think what it's coming down to is the stock, as we talk, is 250 per share ish, right? I think you just laid out a path to, even ignoring the businesses, approaching $3 per share in cash with another 50 cents to a dollar per share of kind of cash-ish assets that should be, I don't even want to say on the come, but that should be coming through at some point. Am I laying that out about correctly? Yeah, exactly. There's another, I call about 90 cents of cash that should be coming on top of, you know, the current 280. So let me ask you the first question. I actually have some push for this. Let me just

frame it to you. I mean, the market is a really competitive place. Now, we're getting into the much smaller cap lane, but, you know, the market can do math. What do you think the market, what are you think you're seeing that the market is missing when it comes to making this kind of a risk-adjusted alpha opportunity? I think the market is given mammoth and tusk credit for the current cash on the balance sheet. And they're not giving them credit for the next call it 50 million that's supposed to come 40 of it from the Puerto Rico and the 10 million that's an escrow unless they can see it in front of them they're not giving them credit for that so I think they're saying all right you have 135 of cash I'll give you credit for that but these

businesses that you know the appraised value might be about 145 million on top of it they have negative cash flow last year so I'm going to give you a discount your cash because you're actually burning money so I think that's what the market is saying is looking at today And I think there's, you know, on top of that, I think there's the likely chance that the market's not giving them credit for is the future events of getting this $40 to $50 million, which could be another, you know, 87 cents. The share is kind of how I discounted. And I understand why they're not getting them credit for it because, you know, it's Puerto Rico. And in the, we had the same issue when they were owed $360 million. for years from from preppa and they finally settled that and got a 180 of it with it essentially got the principal and only a little bit of the interest they didn't get all the interest yeah um so the market's like hey i'm not going to give you credit for it until it's here that's how i think the market thinks about it no look i think that's i think you're driving at that because i will say

like i've got a lot of history with the stock and i'm not the only one who you know for years they were saying hey these are good claims on prepa we did good worker and get it and they were financing with picking everything. But if you go back to last year, when they took the deal, you know, it resulted in like, from memory, well over $100 million of write-offs, right? Because they've been accruing all of that interest on the balance sheet. So I think the first thing people look at this and say, oh, cool, you've got the cash. And it's not lost to me that this company is kind of trading around cash, but getting hit with huge discounts on anything that's not cash. Because I think they look at the prior claim to say, oh, I don't know if I can trust that.

you're getting anywhere close to face value. Yeah, I think that's exactly right. And if you dissect, one, it was the time to get the money from Puerto Rico, but this money has the kind of three tranches, right? There's the 10 million that's an escrow from the recent sale. We can say that's pretty safe. They might, you know, normal dings on that after a year, closing adjustments, what one have you.

And then there's the LOC, which is already at a bank. So that, that money they should be getting back in October, unless they, somehow it gets extended and you know they have to take some efforts to extend that LLC with the municipalities so that money is actually you feel pretty good about that coming in October and then there's the next 20 million that's in AR where they again they had to take all these write-offs that um they're they're owed this money they've agreed to it it's already been settled and it's an administrative claim which means it's higher up in the pecking order but again this is the same sort of thing as you know that 360 is before is where i'm really

not going to give you credit because i have no idea if it's going to come in one two or seven years, right? So that last 20, you don't really know the timing. And I think just even that first 20 that's in the LLC, people just kind of say, well, let's too complicated. I'm not going to give them credit for it until it's here because it's still related. The Puerto Rican municipalities could fight it. And so I think they're not going to get credit for that until it's, we've been trained from, you know, not to give them credit until it's here because of what happened. And I think the bet is that, you know, it's more likely than not that we're going to see most of that money in the next, you know, in those three kind of increments. I think the other thing that, yeah, I want to say

the market, but you know, it's close to. I've spent a lot of time on the busted, the busted biotechs recently, right? And these are biotechs that have 300 million dollars in cash on the balance sheet, and they trade for $150 million in cash. And I think the two things the market looks at with those is, I mean, the main one, let's talk about the main one right now. The main one the market looks at is corporate governance risk, right? The market is really worried, like, hey, at these busted biotechs, the board doesn't own any stock, management doesn't own any stock, and I've called it a YOLO problem, right? Like, management can say, hey, we could return stock to shareholders, and then we put ourselves out of a job, we get nothing because we don't own any stock,

or we could take that $300 million and buy literal lottery tickets with it. And then if they hit, we're going to be make a fortune. And if they lose, well, hey, we actually are better off because we collected another three years of salary. So, you know, this is controlled. Tusk is controlled by Wexford. They own about 50% of the stock. So you don't have that misalignment problem that you might have at the, at some of the busted biotex. But, you know, that does carry other issues. I've certainly seen 50% shareholders create a lot of problems at their companies before. So I just want to toss it over to you. Like, what do you think about the, you know, when you're buying a cash shell, you're relying on the corporate governance. So what do you kind of think

about Wexford and what their plans for this cash are. Yeah. So I, that's kind of your risk is that somehow they do something that's not favorable to the, you know, the minority shareholders. That's always possible. I've, you know, I've seen, I've known Wexford. They've been in out of, you know, the public markets with IPOs and at some point, they kind of, um, they kind of create companies and then they have them go, go public, right?

So if they do that, they'll lose their reputation and they won't be able to access the public markets in the future. I think they've had a long history access in the public markets for IPOs and such. So I never say never, right? I don't, that's the risk here is that something happens. I don't have a reason to believe that will be the case. It appears that everyone is aligned here. But yeah, you are essentially without a voice and you're kind of hoping that Wexford act. in your self-interest and theirs and everyone's aligned, you know, they could, could they go

private at a real cheap discount and then you're, you get a little bit and they get the rest? Yeah. I mean, that's always a possibility. In theory, there are fairness opinions that, you know, they pay bank. So they kind of get, you kind of get whatever, whatever number you want there. When you're kind of pay to play on those fairness opinions, you know, that's the risk is that they decide to take this. private at a discount to what I view the NAV at, you know, at least 2x above it.

And but why would you do that? You have an asset. You have a public company asset. You've got all the controls. And it's, you know, they can incubate things. They can incubate things privately or buy them publicly. It's like another another option for them because they're a kind of a more diverse hedge fund private equity blend. But yeah, you're absolutely right. That's risk here is that you're not you know you're on the outside we're in the cheap seats where we said we don't but like again i would just say i don't just go and strange a question it's going to do something like that i kind of i have known them their reputation and it's been it's been solid strange question here they own they round it up to 50% of the stock right half to stock i believe they have board

members like the CEO used to the old CEO used to be a consultant to wexford they filed a 13g here and i don't know of any, like, it's really rare for a company to file a 13G once they go over 20%, like almost every investment manager flips to a D once they go over 20%. How are they a 13G file here? Is there less control than I'm thinking? Or is there something else I'm missing here? That's a great question. I actually don't have the answer to that. I mean, whether in terms of all the legalities, but they're essentially in control. I mean, I don't know if they have the majority of the seats on the board, I think they own 45, 46%, but my understanding is they're essentially calling the shots, right? The chairman of the board is the former GC, retired GCE from Wexford, but I haven't.

That's just why I find it so strange that they, that they've got to third's cheap. Let me flip to a different question. Capital allocation, right? Like, one of the tough things, and we can talk timing and everything, but one of the tough things when you buy something, $10 in cash, the stock's at 8. If you got that $10 next week, the IRA is insane, right? If you got that $10, 10 years from now, your IRA is, you know, you'd have been better having a bank account, basically. Here, I, Western Controls 50%, so I'd hope for a rational capital allocation,

but it's not lost of me. They just announced, I believe when they announced the deal, the deal to sell the, the deal they didn't just now to sell one of their divisions, They said, hey, we amended our revolver so that we can buy back shares and everything. But it's not law some of me that I think they announced the share buyback in August of 2003. They extended it again in 2024 and they never execute on it. So I would pursue like, what do you think is the most likely outcome for this cash?

Is it coming back to shareholders or is it going to incubate and build new businesses, which can be fine, right? That could create value. But I look at that and I worry like, hey, again, I know plenty of companies where there's a big controller, even if a rational financially sophisticated control like Oxford, I know plenty of companies where there's a big controller and they sat on a big cash balance for three, four, five years because they were always looking for that big deal.

They never hit. And then at the end, shareholders kind of look around and say my $8 in 10 example. They look to say, oh, cool, we've generated a 1% IRA over the past five years as this company has just like held onto the cash balance, hoping for a grand slam. So it kind of started a lot at you there, but I'd love to get your thoughts on kind of the cash and how likely this something's done there.

Yeah. So, yeah, I mean, there's a repurchase. Obviously, I would like them to do because you're buying 50 cents on the dollar. I think it's a smart use of cash. I don't think companies this small with this limited float typically exercise the repurchase. There's a scale thing there. So I don't expect the money to come back to shareholders in that form or in a dividend.

I think you've nailed it in that. The key here is. um the time in and the use of the capital right they're going to have a lot of money to deploy and the key is i think uh kind of for continuing the shift away from the energy the frack and the um the sand assets and and more towards the industrial businesses that are a little bit more stable less cyclical um now the time's not necessarily right to exit the energy businesses. I mean, in fact, they actually just upgraded, spent, I think, was $12 million on tier four engines to kind of get their couple fleets competitive to get them working. So they didn't

have to, you know, they had something that they could offer. So that's the market's like, all right, you're just investing back in frack. What has really changed here on the capital allocation that I know you're not just going to invest into a, you know, a cyclical capital intensive business where there's not a lot of scale. Now, my conversations with management, they kind of know they don't have the scale at this point to compete in the frack business i think they're just trying to like when they did the the t and d sale they kind of made a point to say hey we exited this at four times tangible bulk they're not looking to exit things at liquidation they're looking to operate them and exit them at two three four times uh the asset thing they could

be more patient um and again like we have to go back to the natural gas market was the worst almost ever last year um and the actual outlook for the natural gas market And I know the frack business and energy is obviously oil and gas. They're obviously much more levered to the gas market in the Northeast. Obviously, all the equipment has has wheels. Most of it has wheels. And they can, you know, so, but the gas outlook, we're doing with 105, you know, billion of BCF per day or million BCF per day of demand.

And there's talk, you know, with more LNG exports and with AI data center in demand. And that could easily be 120, 1.30 is kind of what, you know, the consensus is pointing to. You know, I'd probably have to dig into that and haircut that. And that's, that'd be pretty good. And the other thing is most of the gas, the outlet for the gas market, this is kind of a closet play on gas, too. Because what's happened in the gas market is a lot of that incremental demand has been filled for free as the permian and the oil basins have grown. So we had all this associated gas for free. There's even negative prices in the Permian. but the Permian is starting to slow down. Not just because of prices,

but they were slowing down before that just because of Tier 1 acreage and interference. So you never really had the need to, you had free natural gas. Now, if you actually need to go back to drilling in the Hainesville and then the Northeast over the next handful of years, it's kind of a free call option

on their energy assets and gas. And I think this time the company would actually exit if that happened. And what you're seeing is the, you know, the start as an energy. company, but they've got into all these infrastructure businesses, transmission and distribution. Obviously, they got to Puerto Rico, which was a huge headache, but what's left in the infrastructure and the industrial businesses and these businesses are more stable, kind of, you think eight to

10 times EBITDA, steady, you know, less cyclical, kind of steady ROAs, low double digits. You know, they did, they have an engineering business, which think like a Jacobs, like a higher higher margin professional services business in there that they did kind of from scratch they built they have another business that they still have that's similar to transmission and distribution it's a fiber business like think dicom or i mean i guess you know um quots and moscoc have those businesses as well so those are little businesses they're slowly incubated think it's a and then you know the overall the way i think about this is you're buying into a private equity fund with no two and 20 at 50 cents on the dollar

But yes, you are trust in Wexford to do the capital allocation to exit energy in a couple of years and find good industrial deals or something else. But I think they'll hopefully stick to industrial like they're investing in rentals, which they are rental, you know, telehandlers and cranes. But that equipment is going somewhat to the to the oil patch, but it is industrial equipment that they're going to start doing construction with two to kind of build that out. So it's like a little tiny URI, right? And then I think, you know, they just did this, you know, they've done two capital allocation things in the last six months other than the divestimate. What I like, they did a sale, essentially bought aircraft,

11.5 million of aircraft and kind of bought them with leases. So it's not destroying capital. That's a sell that I'll probably add, you know, call it a million, call a 10% return. You put some leverage on that if you want. And, you know, it's not the best business in the world like software, but it's probably a solid, solid use of cash. And I would, if they grew the rental part of the business, I think that'd be good. Now, the other thing they did that I personally didn't, I didn't think was great.

It was kind of countercyclical as they, when they got the money last year from the Puerto Rico settlement, they decided to pour some of that into, you know, upgrading their frack equipment. And it's like putting good money after bad. Now, I get it. It's countercyclical. You don't want to just shut down the business. You want to get it marketed and going so you can sell it for more than equipment value. And they already had the customers and the people. And it's kind of a sunk cost.

So they did do that. I think when they did that, that was I wasn't excited to see that last year as an announcement. But I think it's such a smaller part of the story now with the sale of the T&D business. and like you went through a lot of a lot of the different segments right and you talked about hey how the outlook a lot of the segments are kind of like down on their lock

how the outlook you know with cyclical businesses you generally want to buy them when they're down and I definitely hear that but every most of the segments you listed like I don't know you mentioned their engineering segment and said hey you've got a mini Jacobs I've seen this company's financials for a while it's hard for me to like look

at this and say, hey, there's a mini Jacobs in here. Or, you know, you mentioned, if I remember correctly, like drilling services, right? Even in 2022, it's basically adjusted EBDA break even. It's like, hey, they're redoing, I don't know, like all these businesses. Now, this can still work without these businesses needing to be Jacobs, right? Like, we're buying below cash. But if you had to ask me before they sold infrastructure services this year, what the sum total of all these investments have done, I would have said, hey, they're investing a dollar and turning it into 70 cents. And selling the infrastructure services is a big market in their favor, right? Like they sold it for a multiple book value. I think book value was a little depressed, but

they probably got a good return on that. But I still look at these businesses. I'm like, look, these, these look pretty commodity to me. And I have trouble believing that any dollar in here is going to produce any like economic profits, if that makes sense, right? I'm not not saying it's turning a dollar to 70 cents, but it's hard for you to see how they're turning a dollar to a dollar. And again, coming back to the original point, hey, you're buying a lot of this cash. If it's going to get invested to growing these businesses and it's a dollar is going to turn into a dollar, well, over time, like your IRA just keeps ticking down, keeps ticking down. So what do you think about that? I mean, I think it's a very valid point. And historically,

the big driver here has been the frack business and the sand business. And, you know, The sand business was a northern white business that completely got priced out by the local sand. They're selling a little bit into Canada because they have to be on the CP. But that business is not, it's worth a frat, a couple percent of what it was initially. So that business has essentially been wiped out. You know, I'm giving it in my, I'm giving it a million dollars of value in my, in my, in my, you know, half a million of EBITDA two times. And then the frack business, again, I'm only giving them credit at, you know, eight million of EBITDA two and a half times, but you know, that could be zero.

That could be 20 to 30 if the cycle actually picks up. But right now there's no indication of that to scan a little better. But the capital allocation based on what they did in history and if they were going to invest in frack, I agree a dollar is going to be 70 cents or profit, you know, a dollar becomes two cents. but I would I don't I'm pretty sure they're not going towards the the energy is not the driver anymore right they had they built these infrastructure businesses the all these other segments in industrial within infrastructure and there's doing more of that is their strategy in the rental business to get that more towards construction towards aircraft so you're right that's why I was annoyed when they I don't say annoyed but like it's not my choice. they have a longer time horizon, you know, I'm not in the boardroom, but when they reinvent, then they start to reinvest in the frack business. But I guess you don't want to shut it down. They have more patience, their longer term, right? You know, we tend to be a year. They say,

all right, well, those wait till the cycle tends to pick up at some point when we're short those equipment. Usually have, you know, one or two good years out of every five in the frack world. And if they invest in frack, I agree. I wouldn't want to do this. But I don't, I don't believe they're going to do that. I think they're going to get it going and punt it and hopefully invest in more like aircraft and other industrial businesses. But that's the key is doing a pipeline. And a lot of that pipeline probably comes from Wexper and like, do we do it privately? Do we do it in Tusk? So I don't really know that dynamic. But that's exactly right. You know, I feel like an aircraft lease business, then you know, I've got 10% return it's. Let me let me pause it because the aircraft is now,

you know anybody who's followed small public companies before can point to a dozen companies that they announce an aircraft purchase and what it is is they bought a small private jet for their CEO to fly around on the company's dime right so this is not that they bought uh i believe it's eight eight small passenger aircrafts for 11.5 or 12 million dollars right and this was in april so this is kind of using 10% of the proceeds of the infrastructure business they just sold let's it uh i don't i don't know the business well enough to note one way or another, but I was a practice, right? Like, this is a very small company with not a lot of people following it.

And when I said, hey, I'm going to be doing a podcast on Tust, I had three different people reach out and say, ask them about the aircraft. People were really upset about the aircraft. Now, I think these are smart shareholders. I don't think they think like they bought a PJ or something, but maybe they did. But, you know, it is another thing where you go, you buy aircraft. These are literal commodities. You know, you buy them for $11.5 million.

I look at them and say, hey. a business that I'm not sure if it's earning it's cost capital you're throwing 11.5 million aircraft. I can kind of get the concern. It sounds like you're pretty bullish on the aircraft purchase or I just discuss that real well. I wouldn't say I'm bullish. I'm I mean relative to reinvest in frac. Yeah, I think they're more likely because it came with contracts to get a return on capital there with contracts that actually adds free cash flow to the to the P&L. And it's Not energy. It is industrially. So if I had a, you know, think about it. I mean, energy is cyclical. So you got a time and right. I kind of put those in the kind of letter C category. I put some industrial businesses. These are more, you know, in the, in the Bish category. And then you look at some amazing businesses, whether it's, you know, a software or a capital light business, professional services. Those would be more in the A category. So as long they are still moving up from the C to the B. But it also has to do with their partners at and where they're seeing their deal flow.

And my conversations with the management team, they are more focused on the rental segment, which is called a URI. If you call that stuff commoditized, but you provide a service, right? It's telehandlers, crane, stuff like that. That's okay business. It's not, you know, Apple, but it's fine.

It's solid. If it's run nicely, run well. And you also, I think you have to look at, we generally talk about the P&L over the years, which was this Puerto Rico disaster and the frac, the cyclicality. And we don't really talk about the T&D business that actually was a good return or the tiny engineering business or the fiber or the rental. Those businesses are now, I mean, they're tiny, but like they're now actually, they could be more meaningful if they put the capital into those businesses. So I kind of think of this as like a little

It's a little private equity. They're incubating little companies. And, you know, they have a couple choices. They have a handful of choices in the industrial world. The energy world, they kind of do one more hurrah, kind of invest, get it running, get the customers, get it flowing, and then hopefully exit to someone who has more scale. And it becomes an industrial company. So you have to believe that they can execute on that vision to become a,

an industrial someone who can consistently grow a solid industrial business and allocate capital in a way that is accretive to earn it it's kind of like a blank slate right now no that's what makes it a little hard to talk about right it's like hey

stock trading in 250 with $3 per sure in cash you can talk about everything till the cows come home but ultimately it's like what is the cash what gets done with it but speaking of what gets some of the cash the company has a strange setup right so the their CEO is going with the infrastructure assets that they sold so he's going over there but he's also staying on the company as the interim see he's staying on mammoth as the insert CEO while they try to find his replacement so he's running the other assets but he's interim CEO here that's a very strange setup now this is small company

I understand but it's a very strange setup so I guess what's actually like what do you You know, the next big catalyst here is probably going to be a CEO announcement and a CEO saying like, hey, excited company here's what I think I'm going to do with this $150 million cash pile that this company sit on. What are you kind of looking for? What are you looking for in the next CEO? Like is, is it going to be an operating guy? Are they going to announce, hey, we've got a 38-year-old former private equity guy who's coming and he's going to actually turn this into a mini private equity firm. He's not an operator at all. How do you think about that? Yeah, I mean, that is essentially the next key catalyst is who is the NIC CEO and what is their vision.

When I met with Phil, who was essentially the head of the T&D business, the utility, I'm like, all right, they're going to grow this into like a baby, a little quanta, right? Because that's the business they're focused on. That's the steadiest part. It makes sense that he would go with them. They probably wanted it. The fact that he's staying on, it's a little unusual, but he's just staying on until July, right? gives them a couple, you know, whatever it is 90 days to find someone that they're doing a search, right? The board is, I don't know who is going to be announced. It's, um, hopefully I don't think

it'll be an operational guy. I think the reason it was an operational guys because that was the biggest segment. I don't think it would be one of these segments, right? These aren't necessarily big enough to say you're going to run the company. You're going to be in charge. So hopefully it is someone who has more of that because the key debate, like you said, is deal flow and, you know, execution on deploying this capital at a decent pace. And that is the key. So hopefully it is someone that has more of a kind of a funnel and more of a private equity deal flow person or you're just a capital allocator, I think would be really good. Someone who's savvy with investments. You know, I've known the CFO more for a long time. I actually think he knows all the businesses.

He thinks about it properly from a, you know, capital allocation and strategy perspective. Now, the key, obviously, for the CEO is the ability to source and execute deals. So that is, you know, that's what the board's looking at for now. So they probably have a bunch of people. I don't know what's in the Wexford stable as well. But essentially, I think they're probably looking, you know, internally. and whatnot, but yeah, that'll be the key,

given confidence that we could deploy this money. Yeah, no, I would say, having followed it for a long time and like, I'm just kind of flipping through my notes, I will tell you, like, the one thing that, they sold infrastructure service for a nice, a nice figure, but the one thing that really, yeah, I'm looking at the old adbacks and infrastructure service, they kept accruing the interest on the prepal loans and reporting it in their adjusted

EBITA, and then they wrote all of that off in 2012. 24 and it just kind of left a bad taste in my mouth that they, you know, look, I know tons of friends and I had some stock too. You invest in this and you're like rational capital allocation buying a big discount. It was tangible book, not cash at that point. But buying a discount eventually collect from Prepa. And then they just took such a huge haircut and the write down. It was like, oh, you know, the, it was just kind of disappointing. It kind of left a bad taste of my mouth. But, you know, the history is neither here nor there except to the point you kind of question the the operators here, I guess.

Yeah, I mean, that was, yeah, obviously they got about 50 cents on the dollar, the 180 out of the 360, and I think their actual service amount they would owed was 145, so they got a little bit of the interest. So, you know, if you're arguing that you're owed it all in a court, you still have to, you know, accountant-wise, it's just accounting. You have to keep a crew in it because you're owed it via the contract until you're not. So I don't think I ever expect. them to get the interest. I was surprised they even got the 45 or I don't remember if I had like maybe I thought maybe they'd get 65% of the total 360. I don't remember what I used to have in my model. I never expected them to get the whole thing. And just that in, you know, again, the interest, I think they'd be happy enough just to get what they were owed at a had of Puerto Rico and they got a little bit more. But my disappointment was going back into the frack business after that. And then also I think they had some more like sale leasebacks and other things that I didn't realize.

that they had to use the proceeds for that, um, you know, they were really, um, running things leanly and thin because, you know, they're a liquidity strapped for a while, um, without that money. And yeah, so I think you've nailed it. It's the, um, getting confidence in the capital allocation or, and the running of it, um, from, you know, going forward and, you know, shift into higher quality businesses and getting that deal flow. Yeah. No, I can't remember who the, I'm just looking at the right. I can't remember who the CEO was, but I look through all my notes on the old earnings

calls and they were like, look, these are FEMA obligates Prepa, FEMA's on the hook for it. You know, they used to tell, I've got something really, the Q422 call where they're like, hey, we've got 650 per year owed from us from Prepa and we're working hard to collect all that money. It's just, I definitely hear you. but at the same time like I do yeah I don't know I don't know do you think Wexford's been happy with this investment so far well I'm not sure exactly when Wexford has exited and you know this thing we spend the 30 is when they and then Gulfport owned it so I haven't

I don't know how much they exited at what price when they initially I peoed it so I don't actually I haven't run the math right originally when the IPO it was at a multiple of the of the assets and um you know since then obviously the court the two core businesses the frack business and the sand business have really devalued so i don't know how they would be happy the stocks you know it's a couple bucks and before you know i think when it started it was in the 20s or 30s so i can't imagine they're actually happy with it um i think that's a sunk cost and now it's about how do we deploy this capital to value because it's you know you've got the call it 2080 of cash on the balance sheet

280 per share then you've got another 87 cents in my value of cash that you're going to get I actually believe the business is about free cash flow neutral right now as long as the frack business is doing one and a half fleets scale interest income and that's something different than the last year or two so then you actually they actually did an appraisal last year, and it was about $190 million less $45 for the assets they sold. So there's another $3 in appraised, you know, called steel value of assets. Now, I don't get there to some of the parts. I get to about half of that.

So you're dealing with, you know, if you literally just liquidated this entire company, you could get close to $6.57. Now, I don't think. they're going to sell their assets, they're going to try and operate them and have the, you know, create an entity out of it. And it'll be part of the, you know, Wexford has hedge funds in there. They've got all sorts of other vehicles. So I think this will be part of their stable. But that is the X factor. What is Wexwer going to do? And how are they going to allocate capital? And those are both things as someone on the outside. We don't know that until they have a CEO.

I'm glad you mentioned the appraised value because that that is like, and again, this is not unique to Wexford. happens a lot of times with these small cap companies, but it's kind of the curse of the small cap company, right? You say, hey, I value these businesses in $100 million. The appraised value is $200 million, right? So, and then we're buying them, as we've talked about, we're buying the company for like below its net cash. So you get the business on top. Like, that's a really nice, you know, very Ben Graham style setup. I'm rereading the Snowball. Like, that's the type of setup Ben Graham would love. But then your counter is, hey, they invested into businesses. The appraised value is 200 million because they invested 200 million into it and it's worth a hundred million in our

valuation now right so you're like hey maybe it's trading below net cash because they've got businesses with a praise value that they're operating and we think they're worth 100 million and that's like literally the definition of turning a dollar into 50 cents right so i've got one more thing in but i don't know if you have anything down on that i mean that was there historically in the fact business that's what you expect because that's you know that's a business unless you time it right or or premier operator like a Liberty or a Halliborne, most people don't really earn their stripes in that business. I would say I do want to differentiate a little bit, right? Because I have like some of the parts of the current businesses worth about 73 million. And then the appraised value is not

the book value, right? The book value is separate. The appraised value, they got an appraiser a range come in and do this at year end. And this is what they think, you know, the assets would a bank would underwrite and what they could sell to so it's um you know it's only worth that if they sell it and there are some things in there like drilling rigs right they've got some old you know 10 12 15 drilling rigs with you know walk-in systems they could sell those internationally they're not really making any money and you alluded to this that that business wasn't really making money for them those rakes could go internationally that could be 10 million of cash that they can unlock that no one's giving them credit for so there are some things now you're

right they did spend money on that and there's higher you know that it's a loss but it's still not generating cash could be worth something if they do sell it at some point internationally but um yeah i mean you know praise value is you know it's um doesn't count unless you're generating cash from it so the other thing i like here is look again i don't know i think wexford's got a lot of funds i don't know anything about them or talk to him but i you can look at their 13 f and mammoth tusk is their, it is their largest holding on their 13F. And again, it could be, you know, the 10th largest holding across 100 different funds and that's it. But there should be some institutional imperative to try to make the best of this investment. Doesn't mean it works out

well or not, right? But like, you should have a, like, I've seen people with huge alignment, you know, tons of stock and the stock goes to zero for whichever reason. But here you've got a bunch of cash and a kind of control shareholder who should be aligned. Like, you, 98 times out of 100, it's hard to think of a disaster scenario with that set up. Yeah. I mean, I think, you know, I think one of the big differences now when I, when I'm investing, is I think a lot more about downside protection, margin of safety, and not losing money. So it's like, how do I lose in this one? I don't really see that's kind of an asymmetric risk reward.

How do I lose? All right, they invest in things and they go to 50 cents on the dollar or they, you know, buy it out at, you know, a tiny premium. There's just a lot of margin of safety when you're buying it below cash and then they're getting more cash than you have the businesses that they're not getting credit for. So it's, I think I see, you know, how much downside I don't really see any. And then you could see if everything goes right. it could easily be, you know, a $7 stop.

I'm just laughing to myself because that's the, that's the thesis for the shitty biotech trading that have cash I have, except in all of them, I say, how do I lose? I'm like, oh, I know. The management teams, they really enjoy taking a flamethrower to their cash balance and just like lighting it all on fire for whatever reason. Yeah, the question is, is it shareholders, is it their cash or is it shareholders cash? This is actually literally half the dollars are they could they're theirs right they could yeah um the question for them is do you take this thing private or do you keep a public vehicle even though it's discounted and and build something you know i i just think of it as a private as a private equity in the

public market um with no fees and at a discount so it's like buying as a private equity at 50 on the dollar with no two and 20 it sounds yeah and no no 100 page deck that you never end up reading with disclosure management changes that you get and can't wad them into whatever portal you have right you can actually so and i like that transformation you know hopefully from energy to industrial but um cool cool i think we've covered i mean i know we've covered all of my notes any any party thoughts or anything you uh you think we should talk about no i i think you've kind of nailed it you know kind of why the history why to a discount and why the history was kind of choppy and the lack of credibility from Puerto Rico and in the returns and the importance of the capital

allocation forward. And that's really the most important factor is something that's not been on the table yet. On Puerto Rico, it's funny. When I started, there were so many Puerto Rico investments. You know, there was all the bond insurers had huge exposure to, you know, the MBIs and in backs of the world had huge exposure to Puerto Rico. There's Liberty Lilac. There was this. I'm trying to think of a few others. I think that Puerto Rican bank actually, Banko Popular actually has worked out well.

It is kind of the exception that proves the role. But in general, like, if there's, in my history, if you have been like, hey, this investment touches Puerto Rico, it would have been better for me to just like go, I don't know, drink a fifth of bourbon and take a nap at 2 p.m. in the afternoon instead of even spending any time because the brain damage on all of them has just been enormous and almost all of them have gone just straight down again maybe with the exception of banko popular but this is another one and again i think people can hear like

for years it was hey we have these air the the interest is occurring FEMA backs them fema's pushing them like we're going to get it we're going to get it just everything porto it's just so crazy it is the place where stock market capital goes to die yeah there and you know i think that was Puerto Rico in the frack they had so much hair on them no one was touch it and yeah that's a great point butchering Puerto Rico and fracking i mean my god what i don't like so they've had a lot of they had a lot of hair and uh i think that's behind them now and now it's kind of almost a clean slate they still have to exit some stuff and they've got got some steel in the closet and they've got to allocate it so yeah it's the trust that that the management and the board are

going to allocate that capital um in a way that's good i mean so far in my opinion it's been okay i wasn't crazy about the fracked i like aircraft was okay um but they got to show that so yeah that's kind of where i am on uh it's kind of limited doubt that's what i look for these days well let's wrap it up there uh Doug garber pitch the pm uh i'm laughing because a lot of the pitch the p m self has been in video focused and i was going to say next to everybody but i i don't i don't even know how i could do a podcast on NVIDIA, to be honest with you. The largest, most popular stock versus the smallest stock that no one's ever heard of. And it's funny when you think about that the podcast episodes, like, I'm, I'm usually looking

for things that no one's ever heard of it. The stuff you're going to invest in isn't on TV. But, you know, I'm like, well, the video is kind of priced for perfection, high expectations, but you know, you still want to have kind of talk about large relevant companies as well. I've just been digging into that one for like a year. I wasn't a semi-guide to begin with, but kind of, yeah, kind of going on to kind of deep value now. No, I wasn't a semi-guide, though. I do think all the time in 2000, it was 2022. Somebody said, hey, the time you'll know AI is really here is when Nvidia stock just keeps going up.

And all of your smart techno friends just keep buying calls option and it goes up and up and up. And I heard that in Nvidia stock started going up and up and I was like, oh, I think AI might be here. Maybe I should just do it and buy some call options on it. and my God, would that have been a good decision? But I was like, I'm not a semi-conductor. I don't need to do the speculation. I should have just, shout up, Andrew. Go ahead.

Anyway, Doug Garber, pitch to PM. This has been great. We'll chat soon. All right, thanks. Bye. 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.