Yet Another Value Podcast - Richard Sosa sees value in DFIN's niche

Episode Date: November 18, 2021

Richard Sosa, host of the Riches in Niches podcast, discusses his thesis on Donnelly Financial (DFIN). Despite a strong recent run, DFIN trades at a value multiple, and Richard breaks down all the reasons why he thinks the stock is too cheap and why DFIN is a huge beneficiary of the current SPAC / IPO boom.My twitter background thread on DFIN: https://twitter.com/AndrewRangeley/status/1460661067395305479?s=20Riches in Niches podcast twitter: @RichesNichesPodChapters0:00 Intro1:40 Some background on Richard4:10 Why Richard likes niches5:10 DFIN overview10:45 DFIN's classic spin dynamics14:35 DFIN's public to private headwinds before the SPAC boom18:30 Regulatory headwinds in the print business21:55 More DFIN background29:30 What the capital markets business does and how it benefits from the M&A / SPAC boom37:00 Comping DFIN to Workiva39:40 How sticky is DFIN?43:20 Breaking down DFIN's valuation46:30 Is DFIN's shifting segment disclosure concerning?50:15 Why is the market trading DFIN at such a low multiple?53:25 Is management and the board fully aligned here?57:00 DFIN's history of capital returns1:02:25 More on DFIN's multiple1:04:55 Closing thoughts

All right. Hello and welcome to yet another value podcast. I'm your host, Andrew Walker. With me today, I'm happy to have Richard Sosa. Richard is the co-founder of Think A-N. Is it Think A-N or Think A-E-N? We just said it. Think A-N. He's also the host of the Riches and Nicious podcast. So I've got a little bit of a competitor on here. But that's okay because I really enjoy the riches and niches podcast. Richard, how's it going? So I'm going, wow. How you doing? Doing good. Hey, let me start this podcast the way I do every podcast. First, the disclaimers, remind everyone, nothing on this podcast is investing advice. Everyone should do their own research and keep that in mind. And then the second way I started your podcast with a pitch for you, my guess, I guess I'll give two pitches for you. First, I mentioned up front, riches and niches podcast. You know, it's very similar to this podcast. A lot of times it's people coming on, particularly microcap companies,

pitching microcap companies, giving you detailed history. My buddy Dave Waters has been on several times and I've certainly listened to those. So that would be the first pitch. And then the second way is, just a pitch for the company we're about to talk about. Back in February, I said, hey, I'm looking for ways to play the SPAC boom. I want kind of picks and shovel plays. And the only person who mentioned the stock we're going to talk about today was you. And you said, this is the most obvious way in the world. This company is way undervalued whether you think SPACs have legs or not. I ignored it because it had spin dynamics. I looked at it in the past and I thought it was broken. And shame on me because the stock is a triple in 10 months since then. So good for you for staying up today and kind of recent.

thinking the story as things evolved. So net pitch out the way, I'll just turn over to you. The ticker, the stock is Donnelly Financial. The ticker is D-F-I-N. I'll give it to you. What is D-F-N and why are we so interested in it? All right. That's great. Thanks for the intro. Andrew, I really appreciate you having me on. Look, I'm passionate about three things. One, investor education, two, storytelling and three niche investing. Are you passionate about baseball too? Because I saw throw. goes lefty in a profile somewhere. And I feel like there might be baseball as well. And I see a football helmet back there. I'm a big football guy. I like baseball growing up. I guess I'm a

pretty big baseball fan. I'm from Northern Virginia and like the Washington Nationals and kind of was excited to have them come from Montreal. And of course, yeah, I like sports. I like the competitive nature of it. And I'm a big Washington sports fan. But not to get you up to passion about niche stocks. All right. So first, you know, on the investor education side, thank you for having me on the show. I'm a big believer in people doing their own research, right? And with investing in stocks and really in any asset class, the more education you have, I think, the better. And your show does a great job into just finding people and having them talk ideas. Because at the end of the day, you know, people have to get their ideas from somewhere.

And ultimately, it's the conviction level and the sizing that make great investors, right? And it's really just being in front of ideas. I think it's super important. And it's why I started a podcast and why I like your podcast and why I like a lot of podcasts. It's out there. Everyone's got to find what's comfortable for them. So I think it's great that you do. I like your format, really simple. And it breaks it down and it goes into a deep dive on certain names.

So I think that's great. I appreciate that. Just with that, you know, I like getting swag from people and passionate about people that, where I believe in the mission, an on-ramp academy, it's a firm started by Tyrone Ross, this on-ramp. And what I believe they do is they provide registered investment advisors with tools to invest and manage crypto assets. And they also have on rent academy, which is really just investor education. And they sent me this a couple of days ago.

And I said, you know what, this is kind of a perfect place to put this on because, again, there's an education. I have some thoughts on crypto, but I'm not going to share them here. But what I do believe in is education. If you're going to invest in anything, you've got to get up to speed. And there's really no excuse because there's plenty of resources out there. And for people who are listening on the podcast, because we're doing this with video over Zoom, but most people actually listen on podcasts, Richard is wearing an on-ramp sweatshirt. So that's the swag he's talking about there.

All right. I appreciate it. And then, you know, on niche side, you know, niche markets by definition, they're smaller. And because they're smaller, it generally attract less capital and less competition. That's why in my day job, I like finding managers that are experts. or what I call Masters of Nitch, right? Because there's less capital and less competition, I believe you have opportunities for outside returns.

And as a personal investor, I kind of have the same philosophy. And I look at stocks where I believe, look, there's not a lot of capital here, but maybe at some point there will be. And like Andrew said, there's not investment advice. You know, D-Fin is just a company that I was fortunate enough to be at the right place, at the right time. And then there were some things that happened over the last few years that kind of raised my conviction level on the company. So I wasn't sure how to start on defense, but I think what's the best way to describe it.

And I'm going to read this straight from their 10K because it's very simple. What do they do, you ask me. They provide regulatory filing solutions, software solutions, print and distribution solutions to public and private companies, as well as mutual funds and other regulated firms. So they're really kind of a one-stop shop for public companies, private companies, and investment managers. They file, they'll print stuff when a company does a deal, does M&A, they're really the leader in that. That's what they do. Before I go into DFIN, I wanted to kind of give a background on the company and why I think it's so cheap. And I think it's important to understand where the company is, where the company had been to where it is now.

So this company was part of a larger company called R.R. Donnelly, which was a holding company, kind of a jack-of-all trade printer. I mean, they basically printed everything. They had this financial services arm. They had a magazine arm. They had a traditional book, a textbook. I mean, they did everything, right? And it was a roll-up strategy in a 150- or something-year-old company.

With DeFIN really being, you know, most of DeFIN was acquired at R. Donnelly over the last, you know, from like 2005 to 2010. So it really was the newer part of Donnelly. And in 2015, as you can imagine, the printing business was hemorrhaging losses, right? And it was just, look, at the end of the day, people were printing less stuff, right? And the company had, since it had been built really on acquisitions, had a ton of debt. And there were some good parts and some not so good parts. And in I think 2015, they made a decision, hey, we got to split this up.

Like, this doesn't make any sense being this big company with just a lot of debt. We have to realize value in some way for shareholders. really, I think, to remain, you know, to not go bankrupt. I mean, it was, it was bad. So at that time, they decided to split up into three. And from what I've heard, like, they always split it up where they'd remain, R.R. Donnelly would be just, you know, some of the traditional printing stuff, LSC communications. That was really the magazine and textbook printing that they did for clients. From my understanding, that was always split up to sell. to another company and you know I'm blanking on the company now for some reason I'm blanking on it

not important it was intended to sell that company and and they actually had a merger in place and the the FCC came in and said no oh I actually remember that yeah I remember that and I remember because loose memory but you're right I think that it's it's like textbook or magazine publishing or something and the FCC blocked it I remember you know I'm friends with several M&A involved people and all of them were like, especially the libertarian runs, were like, all right, I, I understand there's a need for antitrust, but are we really concerned about magazine publishing right now? Is that really where the competitive landscape is? Exactly. That's exactly what happened. And so with DFIN, it was always kind of set up, you know, spun off to sell to

Broadridge. It was just the most complimentary business. And it was, and then not to mention the synergies, right? Broadridge. People don't know this. I'm shocked. I've actually spoken to Broadridge investors, 20% of their business is printing documents. I think a ton of proxy savings. That's where they print most of their stuff. I don't even think you can find the word print in their filings. That's really funny. They print a lot of stuff.

And they definitely don't have a print division. I'm sure you can find print in there because obviously they have plants and, you know, there's a cost and working capital involved tied up with that space. but it's um it's uh that's been an absolute monster of a company and broadridge sprung out of adp i think in you know mid 2005 and it's just been a nice textbook compounder right the core business has got a nice moat very little competition but it's in a you know slow growth space i mean it ultimately you need more proxy battles you need more companies you need more these things happening and there's not a lot of growth there and and uh but it was a

highly cash generated business they go out to do deals do deals and they just been doing that you know even though it's only growing three to five percent a year it's been doing that and now the thing trades are like i don't know with 27 28 multiple and it's just a nice stock you know stock a coffee can't stock it really is and you look at a chart boom so um i give that background because it's important to understand that r r donnelly was a mess right when they bought from my understanding when they bought what makes up DeFIN today in like 2010. The biggest part of DeFIN really was purchased in 2010. It was called Brown and Company.

That's what most of DeFIN is today. And from what I've read and what I understand, like there was zero invested in the business. They didn't invest anything, right? And, you know, over the next five years, I mean, you had competitors come up and say, like, work Eva and say, you know what? We're just going to take market share.

I mean, Donnelly was doing some digital stuff. filings and they were doing some electronic stuff, but they weren't investing in it, right? They just had the moat, right? They had the business. They didn't really care. I mean, and then nor could our Donnelly do anything, right, which part of the reason another part that spun it off. That now is its own company, it could do all these things.

So you had a lot of underinvestment for really five or six years. I mean, you had no investment in what was Donnelly from 2010 to 2015. you had no. So it's, I mean, I put this up, but this is classic spin dynamics, right? For about six years before, R. O'Donnelly buys this business and then it's not their core business. The company's a little over leveraged. And they're just, not only are they not paying any attention to it, but they're just taking the cash flow out and taking it to nefarious corporate purposes, basically, right? So this spins out in 2016. And I and a lot of other people look at in 2016, and I can tell you I had this baggage until about four hours ago when I was

for this podcast. But it spins out and you look at it and you say, oh, no growth business, lots of print, you know, probably mismanaged and spins out me and everyone's passes. And if I remember correctly, the first earnings report, they just missed their numbers like crazy and the stock got hammered. So that's the background. But I think you start getting interested in 2020. So what attracts you and what's kind of changed about the story since then?

So you didn't ask. but you kind of implied it, like, what got me interested. I actually had been following the company. So I followed right then in 2007, probably 2017, probably right when you looked at it, because as I recall, there were a few activist investors immediately coming and telling the company sell. Yeah. Company just spun off.

It's not going to sell. Like, I mean, it doesn't work that way. Spinoff dynamics, don't, you can't just sell a company. I think there is usually a minimum of two to three years where you cannot, you cannot even engage. You could do it within one year, but it's two years if you don't. the reverse. It has to be someone has to engage with you. Yeah. Yeah. So it's possible you could, but you could do it within one year, but it's two years is good. And then John Malone, who the IRS

keeps really close tabs on. Three years is where it's like you can do anything you want, just go crazy and they won't care. So John Malone only does it after three years because the IRS is on to him. Yeah. Well, that makes sense. I mean, it's for a reason for that. So that's someone called me, you know, talking about network. You know, I believe in investing you need network, right, via podcast, via other investors. And a good friend of mine called him, he's like, Sosa, you got to look at this. It's Donnelly, they spun this off.

It's, you know, you remember RRD, like that terrible company. Like, this was like their prime, the crown jewel. And they're eventually going to sell the broader version. It's perfect. You know, the stock was at 25 or something. And it'll sell for 50, like that kind of thing. It was perfect. So I was like, ah, okay.

I looked at it. And I was like, man, it was a mess. like they spun off so company was doing about a billion dollars in revenue at the time doing 15% EBITDA margins you know generated good cash 25 50 million dollars but had 600 million dollars of net debt um at about six and a half percent combined interests right so it was manageable because it was even though the the revenues was volatile like the cash flow with cash was there it was it was there um but But still, it's a lot of debt for a company that was at the time, 40% of their sales came from printing, you know, printing documents, 40%. So it was, and then not to mention the fact that capital markets is extremely volatile. And, you know, since a lot, most of their print stuff where they have any kind of margin or business is in the IPO, M&A, distressed debt, bankruptcy, business. and they not only spun out with this mess, but over the next three years,

there was kind of a lull. People forget this. Like, you know, from 2016 and 2018, IPOs were, everyone was private, right? Everyone you wanted to stay private, you had all these, you know, companies that you're seeing now,

they didn't go public. It's something I was going to ask you about later, but I'll even add on to that. Not only was everyone in private, I mean, people forget, there were talks of what happens when all the, not just is everyone private, But what happens when all the public market companies go private, right? Because public companies were looking and they were saying, we don't get great multiples. We think our private market values higher. We go private. We don't have to report quarterly earnings, deal with short sellers, deal with activists. We don't have to spend, you know, public companies, big ones will spend 10 million plus on being an active, on being a public company. That's a lot of money. They're looking at saying, what's the point? We don't raise money from the private markets. Let's go private. So there was this huge take private trend. And I think a lot of people were looking and saying the number of public companies out there keep shrinking and shrinking.

Diefen is their shrinking business just because they're the company data set there after shrinking. So you kind of nailed there were two big headwinds that faced the company at that time. Well, three, you know, one was the debt, which at the time I thought was manageable. It was, you know, it was a high leverage, right? You had that. You had the whole, you had the fact that there were less public companies. There's less and less.

And people, exactly, what you said, that was that was. was a headwin. I mean, their business, their clients were just evaporating. And the third one was the print. Like you had, they were a business that printed a lot of documents and you knew for a fact that they're just going to be people printing that stuff over time. And that's just a natural thing. So, you know, in 2017, I'd followed it. You know, I think I'd purchased like a hundred share. I just wanted to follow it. Like, you know, the guy that pitched me the stock was pretty good with these things, right? So I took the time to try to understand the business and let me tell you it was, it was so hard, right? Because as you know, investors, to get a multiple, you need

consistency, right? That's what, that's all they care about. Let's be honest. Big investors, they want consistency and something that's predictable. And Diefen was not that. I mean, their revenues and profitability were all over the place, right? So in 2017, they said something pretty interesting and they had an analyst day and and they said it was conviction we know we are not going to do deals right we are going to focus on our software offerings and we're over time we're going to bring down our print business a lot and you know a lot of it would just come off from less printing but they were going to voluntarily print less where the contracts didn't make sense and use all that working capital really invest in the software business that as I mentioned earlier they had just

not invested in, right? So it was one of these things where that made sense to me. I was like what I find, what I struggle with with a lot of companies, it's the opposite where they go out and like no company wants to get smaller. It's just against everything that you're taught. It's against what you make, right? Just go out and say, we are going to print less. We're going to, so therefore decreasing sales considerably. And then not only do that, but take that money. and invest in something where we don't, you know, we believe we know the outcome, but ultimately we don't know, right? Because we're going to be having market share and we're going to be growing market share and taking market share from competitors where we lost market share,

right? So that's what they did. And that's got me more interested. And I said, okay, you know, that makes sense. I like that. You know, if that works, this is a home run. But, you know, how are you going to solve the volatility in the business, right? And then around the that same time they announced that their investment management business, which now makes up about 25% of the business of revenue, that that business was going to lose in one fell swoop, you know, $130 million in sales. $130 million in sales. So the investment management is it was much bigger, right?

So a lot of the pre-print declines that have come in the business have come from the investment management business from a regulatory change that said, okay, if you're an investment manager, your default setting doesn't have to be, you're not legally obligated to have your default setting be a printed statement. Yeah, if you're a mutual fund, you don't have to send your clients printed statements every month or every quarter. Unless they ask. Exactly. And I just want to put in perspective, you said this regulatory change costs them 130 million in revenue. This is, this year, they'll do about $900 million in revenue. I think they'll do a billion.

Fine, a billion. Keep the math simple. Two or three years ago, they were doing a billion dollars. So we're talking about more than 10% of their sales are getting evaporated by this regulatory change. Now, these sales are much lower margin than the rest of the business, but that is still a lot of headwind, right? A lot of sales had went, a pretty good earnings headwind, just to put that in perspective.

And, oh, by the way, all of that, a majority of that happened this year. So even with that Look The capital market's business has been No one could have predicted this to happen Right? Which has really changed Everything about defense

But you know For analysts had them doing $820 million in sales this year And they're going to do a billion dollars You know mostly because of this $130 million in sales That they predicted but they also couldn't Because at the end of the day you don't know What the band's going to be like

Even with the regulatory change right? Because, you know, some mutual funds, from what I've heard, they still want to send the print. They just want to do it, right? You know, they want to slowly roll that off. And I can see that because, you know, if you're, if you're delivering, like, when I get my bait statement online, I pretty much just trash it, don't look at it. But there is something about sending, especially in boom markets, sending a paper statement with, you know, like a branded fidelity. And the person sees, hey, my $10,000 grew to $11,500. Like, it does form a little bit of a bond.

It's the old, you know, Jay C. Penny, one of the things. things they said when they lost, when Ackman took over with the old Apple guy and they tried to turn it around, they stopped doing mailers. And they said that really decreased their store traffic. And it's funny because over the summer, Bed Bath and Beyond stopped doing mailers in 2021. And next quarter, they come out and say, that was a mistake. It decreased foot traffic. And yeah, that's different than these paper statements. But I'm just saying it is, there is brand there, right? Like a lot of people are sloping in. It does have an effect. And it is a different effect than email. Exactly. And it is. And that all happens.

happened this year. And I believe in my heart of heart, that's what forced them to say, you know, we got to be careful. Like, you know, we're losing this, you know, this even though it sounds good with the story that I'm telling, like, you know, on the business perspective, they're losing a lot of business, right? And it was profitable, right? It wasn't like it was, you know, maybe low margin is better than no margin. And I think that kind of forced them to say, hey, we need to just focus on the software because we have this, you know, just to reiterate on both sides on the capital market and investment management they do have a moat much more so on the capital market side but they really are you know a big player and i'll i'll get into that later

i just want to kind of finish my thought on um on that that forced them to i think stay focused um because i don't like companies with a lot of that i don't want a company that i own to go to zero um and they were really diligent and i think that's what now in 2018 fast forward a year when when what i think something happened that really changed the way I thought about the company is look I'm not a huge activist investor fan but I do believe some activists can add tremendous value and what happened here was an activist by the name Jeff Jacobowitz. He came in Simco Capital and took a significant state. I mean he owns the biggest shareholder outside of a black rock right. He took a 3.3 million, 10% stake in the company. And his background is

activism but that he's he wants to be involved like he wants to be involved and he's a software guy that he had a huge winning with teller who's on the board of that company um he he was uh really involved in um kind of blanking on that one uh the the the print the mailings that the stamp what was it stamp company um uh just recently the the stamp um you know stamps dot com is it yeah stamps dot com he's like He wasn't on the board, but you see the same, you see a pattern, right? Like, you know, there's going through change and people don't value the change accordingly, right? So he is that kind of guy. And I know you plugged in some of your podcast guests, but I believe this is the perfect time to plug, to reiterate a couple that you've had, both of us had.

But, you know, you can put the links on this as well. But I want to just mention Dave Waters and Jeff Moore, you know, and blend Ben Claremont, because those three, I think those podcasts will kind of, I've evolved as an investor, and a lot of those things, I've evolved because of some things I've seen. And, you know, one with Dave Waters and Jeff Moore, first and foremost, like, they talk a lot about Peter Kamen and Rob Alpert and Clark Webb, like they have a playbook, right? And that playbook just for some reason doesn't get, people don't get excited about in the short term, but it works.

It's like, you can't predict the business all the time, but you can predict, I think you can predict people and what they're going to do. And when Jeff came in, you know, I had, I read about him and I already kind of liked Dief and I wanted to own it. I didn't really own it. I think I had actually traded a little bit and lost, actually lost money. And the thing just went straight down. And by the way, he got on the board with no, just pretty much walked in. I don't know what the process right. There was no, I mean, there was no campaign or anything. She came in, came on the board. And then I think once he started, the communication was just much more focused on we're going to build a software company. We are a software company. And that's when

they announced their 44% software by 2024 and it reverberated around the company. People have talked to me, they at that point in time, I think they became a software company. And they said they're going to focus entirely on doing this. It's going to be our mission. We're going to have to make a lot of short-term sacrifices, right? Because they had to lay off a ton of people in print. And that had to have been difficult, right? That is always difficult to do. And, you know, they've quarter after quarter,

I talked about how hard that was to lay off me thousands, a thousand people or something, right? That's a lot of people. And, but doing that, I think doing that in 2018 and 2009, you started seeing it slowly. You started seeing the business become less volatile. The IPO market still was not that great. The M&A market was better.

I think that was helping them a lot. But in 2020, when they reported the fourth quarter earnings in February, this is February, right, before everything happened, they had blowout quarter. Like, it was amazing. Everything that they had talked about, boom, was just like everything, you know, the software was growing. They had, the print was slowing down. You know, you could see the light at the end of the tunnel where they, would eventually stop hemorrhaging print sales. Because the end of the day, people need print stuff, right?

And they're the go-to people, right? I mean, it's always going to be part of their business. So that happened. And then COVID happened, right? So I think I was just in the right place, the right time. I was excited already when they announced this earnings. And then, oh, by the way, COVID's happening. Right?

So you had these two things happen at the exact same time where there was an inflection point where you see the business actually turning where a software was becoming just bigger and bigger. And everything they've been saying for quarters, was you know they were actually for the first time i think they started this in 2019 late they started being super conservative on like yep on guide on everything and giving you less information um forward looking because they were just sticking with you know we're going to do this we're going to do this we're going to do this but you know we can't we can't control the volatility

so that happened and that's when i took a position i said you know this company yeah i didn't take a position then actually because i was worried about covid because i was like oh man that that's great that they're doing this but But no one cares, man, it was the end of the world, right? And February wasn't the end of the world yet, right? As I recall, it was like, things were getting bad. I'd be honest. I didn't want to be the market, right?

You knew it would be panic, right? You see senators, like, you know, selling their stocks, right? Well, you didn't find out about the senators selling their stock until a couple months after that. Right, right. So then in April, they announced earnings. and they announced for first quarter earnings because it might have been May and then they this will got me really excited

and this I believe was all because of Jeff Jacobitz in the heart of no actually so I'd purchase theirs at the bottom when I think in April it was the bottom Fidelity had blown out that I was told that the portfolio manager retired and they just unloaded like an 8% position as everything was blowing up

So the stock went to $4.50. I bought some shares there because my thesis was this guy's doing the right thing, it's not a zero. And plus, like, the bankruptcy business, that's a huge part of their business. It's not anything now because no one's going bankrupt, but that's a huge part of their business. So that happened. And then they reported first quarter, good quarter, but then they did something like wild. Like I do not see companies. You never would expect that R.R. Donnelly company to go out and they went and bought a bunch of eight and a half.

eight and a quarter percent coupon debt at a massive discount with cash and stock. Like that is just some, it was, I think I'm trading like in the 80s, right? You know, eight and a quarter percent coupon debt in the 80s, right? And they use their revolver. You know, these are just things that you don't see companies do. And it's a really good trade because everybody wants share buybacks, right? but buying 8.5% debt at the 80s, that is a basically risk-free 10% return, as long as, you know, if you're going to hit financial distress, it's not going to be risk-free

because that's going to push you into bankruptcy. But short of that, I mean, it's just an incredible, incredible trade. So that's what I think the turning point for me got me super excited in the company. I was like, this is, I now, like a big knock on the company then was like they don't trust management, right? It's like our Donnelly people. They're going to go out and lever themselves and buy debt, you know, they're going to take more leverage, right, and buy companies, which they could have done. But that told me they're not going to do that.

These guys, I don't know what they did in their board meeting, but to go out and do that when nobody else was doing that. People thought that, I mean, nobody else was doing stuff like that. Yeah, so that's great background. But let's fast forward a little bit to today, because I'm worried we're going to start running into a little bit of time constraints here. So that's great background on the story.

We've got the spin. we've got everything, you know, today, the print business is largely gone away. A lot of their business, let's say the business state, it's benefiting from a lot of trends. It's benefiting from the SPAT trend. It's benefiting from the M&A trend. We talked about that. I want to talk about two things. A, you mentioned and you said we were going to talk about it later, the moat they have as kind of the largest provider of SEC connections.

And B, how are, how specifically are they benefiting from the SPAC trend? Because I think we can talk valuation too. I think the market is clearly saying this is a one-time boom. where you and maybe the company would say, well, actually, there's probably some legs and there's probably some things on the back ends to that. So we can start either moat or how they're benefiting. Right. So thank you for stopping there. I'd say I'd like to give too much background, but it was important. So on the capital, let's just keep away from the investment management side because it's smaller. On the capital market side, which has really been

a big driver, it's really accelerated all their plans. They're, you know, 44% 2024, all these long-term goals that they had pre-COVID all got accelerated because of this massive we have never seen the capital markets like this i mean not even in 2000 right the we are 20 IPOs away from doubling last year which was a record year you know so they're the only company on the capital market side they're the only company that can service the issuer like full stop they can from being private to IPO to SEC filings to ERP to SOX, M&A. Let's just talk real quick. So servicing them as private, IPO, and public.

What are they going to do for private companies? Just help the filings. They can print stuff. They can help their filings. They can help with accounting. They have so many things that they can do with that. And by the way, help you set up everything to go public, right? So which banks do too, but they use them as well.

And they invested in this business, as you can imagine, three or four years ago when everybody was going private, right? So the things they were able to do. So that's how they would help the private side. I think the jewel, but it is quite volatile, right, because you need IPO volume. But the jewel is the IPO business. So when a company is IPOing, what is deep in doing from them and what are they getting paid for it? Well, the biggest, you know, the biggest driver of sales is really printing their documents, right? They print a lot of prospectuses, right?

And it's literally just printing the prospectus is what they're getting paid for. Printing the spectrances, like digital filings. They'll help, you know, set up meetings and a lot of paperwork that goes on between the bankers and then the issuers, like they have all these remote offices. They will, they have venue, which is a data room that helps on some of those things. That's more for M&A, but it's helping the IPO as well. So they'll do a lot of little things like that to really expedite the process, right? And by the way, last year during COVID, like they're the prime reason why a lot of, I mean, a lot of IPOs were done virtually.

It's because of companies like DFIN that were able to really manage everything on the compliance side. Because I think people don't realize there's a lot of compliance-related stuff that goes on when you're doing, especially in IPO. I think more so than a follow-on offering, much more so than a private offering, at least on the on the venture capital side but on the IPO side there's so many laws there's so many laws and you know you use defin because you know that they're not going to mess it up on the putting side like you can't just go to kinkos right and print a document there are so many checks and balances go on with with with paperwork and it's incredible so i talk to anyone who's gone public and they will say the six to nine months leading

up to the IPO is like the worst months ever to be a manager because there's just so much going on. And as you said, it is so regulated. Like, you can't do anything. I always get frustrated because, you know, these IPO guys will have the NetRod Show, right? It's NetRod Show.com. And sometimes they'll have slides,

but you can't download the slides. You can't save the slides or anything. It's like, I want these, I want to save them from my files or something, even if I'm not interested, but you just can't keep them. So, yes, super regulated. And obviously, you need someone told your hand

because the other interesting thing is you're only going to do it once, right? You're not going to build this thing in a house or something. You have to go to an outsource provider because as an IPO company, you do it once. Right. So they are, I mean, they have like 65% or 70% market share. I've never figured out the answer to this, but for some reason, on the biotech side, they have an over 95% market share of initial public offering filing.

So they'll, I mean, they'll literally do everything. And these things cost money. I mean, to put it in perspective, a traditional IPO, that's where they make a lot of money. On the larger side, like a large IPO, like an Ali-Bah, you know, Think about a big IPO, right? You know, one that you'd read about, a big one. And they're making, you know, two to three million dollars in sales. That's how much they get out of a big IPO.

Same, maybe not so much, but on a big merger, the same thing, the amount of documents and compliance related to a big merger, that's also a big moneymaker for them. And that is why the SPAC boom is, will, should have benefit them tremendously going forward. And I want to just on the SPAC side, it's actually not the SPAC where they make much money on. They don't make money. I mean, to file a SPAC, literally you pay them like $25,000 or something. It's when the DSPAC, when they merge with somebody, the complexity involved, that's where they'll do as much as a traditional IPO. Yep.

And that's you front ran me. But this is one thing the company said, you know, a lot of people look at this year's results, which there has been a mammoth spec boom. I think almost 500 SPACs have IPOed so far this year. I can't remember exactly. But people look at this year's results and say, oh, yeah, you guys were a huge SPAC boom beneficiary. As I said, you were the one who said, this is a picks and several plate for the SPAC. But the company would argue, hey, the SPACs are just the beginning.

Now there's 300 SPACs that are waiting for a merger target. And when all of these SPACs find a merger target, we're going to get M&A revenue from them. And that's 10 times what we got from the spec. And by the way, now that they're public, they're going to need somebody to do their compliance and reporting stuff. And we've already got this great relationship with them. So that's 500 potential new customers that are going to create annual recurring revenue for us.

Exactly, exactly. And, you know, they talked a little bit more about this, this quarter and have it. What I think is kind of a big wildcard with the company is, you know, the IPO activity, we'll be honest. That that's volatile and can go away tomorrow. We know that. I mean, I worked in investment bank and missed my background. It could literally go away tomorrow. Yep.

But what it has done and what you're starting to see more is that active disclosure, like that business, it's a significant part of their business. It's like a third of their software business is filing financials, actual 10Ks, 10 Qs. That is, that has nothing. I mean, that's not a volatile business. So that's what they do for a public business, right? If I'm public business, I'll contract with DFIN to I give them my 10K and they file it for me. Is that right?

Exactly. And that's on the electronic side. So we've moved on from the printing side. This is one of the growth business and everything. For the electronic side, is DFIN the largest provider of the electronic filing for SEC? No, it's workiva. Okay. So what's about DeFin's market share on the electronic side for Publix?

Well, it's on the electronic side for Publix. Well, they do a couple business. They have venue, which is the data room, right? Which you can put on the digital side. That's going to be lumpy, even though. It is a software service business. I mean, you do pay yearly, but, you know, if there was no deals or no activity, you could see the turn be a little bit higher.

But active disclosure really is something that I think they're super excited about because that was a business that was not invested in, not invested in. And they had a dominant market share. And where Kiva came in, boom, you know, we have this great platform. It's all cloud-based. You can, you're Coca-Cola, you can be in Europe and in United States, and you can all collaborate together real-time. You know, you control the workflows with your auditors and your accountants. They did that and they pushed that.

And that company, by the way, is, you know, 20 times, 25-time sales. Are they publicly traded? WK, trading at, you know, 15, 20% sales. It does more sales because it's bigger. then active disclosure than active disclosure. But active disclosure, they've invested a ton of money in it. And they said multiple times that they're winning, they're taking back market share. They're taking back market share from Rikiva.

And so active disclosure actually grew more. Rokiva grew 30% in the third quarter, this quarter. And stock went up, you know, 10%. But it's huge multiple stock, right, 20 times sales. and obviously not making money because it's in a growth mode. Active disclosure, you know, 35% in the third quarter. I mean, so you're a company growing more. So, I mean, look, I'm not going to put a 20 revenue multiple in active disclosure,

which I don't know, it probably does $100 million. But, you know, you could, right? And it's taking back market share. And it's easier for them to take back market share. If they say, from what I've heard and heard from some clients, their new offering their new software offering is from the ground up they redid the entire platform and it is superior than workiva obviously that's what they're going to say and i've heard that from some clients but at the end of the day people don't need workiva if they can just do everything

with donnelly financial right so that actually that actually brings me into two questions on the wrist side i wanted to do on stickiness and competitors so let's start with stickiness right When I'm a company, and obviously, DeFIN does a lot of different things for a lot of different companies at a lot of different points in their lifestyle. So you can't brush it with two broadest strokes, right? But if I'm a company doing SEC compliance with DeFIN and I submit my annual report through them and DeFIN puts it on to SEC Edgar or something, I would guess that's quite sticky, right? Because all of my 2020 numbers are loaded in there. If I want to go get a whole new provider for 2021, I basically have to reconnect the whole thing. But then when I do, DeFan gets lots from M&A and IPOs.

Those are one-offs. I would guess those are not sticky, so you have to go win someone basically every time. Am I thinking about this correctly? Or is there kind of hidden stickiness in the IPO business I didn't think about? Or is the SEC business not as sticky as I laid out? The SEC business is sticky. And an M&A deal, it can get interesting. But first and foremost, in an M&A deal, a lot of times it's the same company.

The two companies use the same providers, right? So that doesn't matter and it'll defend will matter. when they're now merging and there's another competitor, like Workiva, for example, or on the, you know, SSNC on the data room side, you know, you're, it's more competition, sure, but ultimately, on an M&A deal that they're getting paid a one time, a ton of money to process that transaction. And they're right there in front of you, you know, trying to earn the business. And because they provide so many, and this is what, you know, I haven't mentioned, because they provide all these different platforms, there's, there's room to negotiate here. or here or here, no one else can do that, right? Like, they will cut deals in certain segments, like, okay, we'll give you a discount on the SEC filing if you do our, if we can print these documents for you, right?

And then vice versa, right? Whatever fits the client's needs, and they're able to do that. I believe that's why they don't give so much detail on every individual segment. They try to, but it's a challenge, right? There are, all the businesses are intertwined. Like, people in the past, oh, we'll just split off the print business. it's not that easy because it is so important to them because it puts them in the front door because everyone needs to print prospectuses.

So you're getting everything. And a lot of clients would just say, okay, I'll just do everything with you. It happens more and more and more. And you can see it in their numbers where this year that they're going to grow 10% when they lost 10% of their business, right? Like, phenomenal. Let me ask one more question just on the M&A side, right? If I'm going to do M&A and one of defense products is data room, if I'm going to do M&A, who decides and how do they decide who's running the data room, right?

I'm guessing, is it the bank that's going to decide, hey, Andrew's private equity, Andrew's industrial firm is up for sale. He's going to load everything up to this data room because that's who we always work with, or is it someone else who's deciding? That's a good question. I don't know the answer to that. My gut is it's the bank in conjunction with the company, but I don't know. I don't want to tell you something that's wrong. I'm pretty sure, I'm pretty sure it's the bank because I was in private equity before and every, the banks would always, you know, if it was a Jeffrey's deal, it would always be on whoever Jeffrey is using it. So I'm pretty sure it's the bank, but I could be, it could be private equity firms. I'm not a hundred percent. I've heard that before like they wine and dine at the junior banker. Like so it's never the senior person's decision for something. Again, that's probably, it's tougher because if you do the bank and you know, the bank runs 200 process a year, the banks have, they've probably got a lot of pricing power there because there's only seven banks who kind of matter. But. But. But it's also probably extremely sticky because if you've won the bank and the bank wants

to shift, well, you're going to have an awful lot of angry bankers for six months who say, hey, we have to go recreate all of our models because you guys are trying to save $10,000 or something, you know? So that's interesting. So we've talked about a lot. I want to talk about the growth of the company this year. You mentioned 10% growth, but it's actually probably better than that, right? Because they've got the print decline and I tweeted out this slide in my prep.

tweets and people can go see them. I'll link them in the show notes. But they've got the print is going down while the software business is going up. So it's 10% consolidated, but the really valuable stuff is actually growing quicker. So let's talk valuation and how you look at the kind of Defe and even publishes in their investor deck a little sum of the parts like, how do you think about the some of the parts and the overall valuation here? This is a tough question. And I think this is why I went into the company in so much detail. I think they're all important to understand because unfortunately, it's not so simple. because, you know, we don't know how much of it's sticky and what's not.

Because, I mean, the bare case, you know, I think people at this point understand the software is gold and it's good, right? And at the print business, it's the decline, it's manageable because at this point, you know, they had 40% of our business with print in 2017, 20% now. That's not going down much more at this point, right? And then all that cash that they have going into the software, they're going to generate $800 million of free cash for over the next four years. years. I mean, four or five years, 800 million free cash for they have zero net debt. What are they going to do with that? Right? That's incredible. I think they're going to buy that choice. Let me tell you, sell side analysts don't talk about 800 million dollars of free cash or what are you going to do with it. That is extraordinary. I believe they'll do buybacks and invest in the business. But to answer

your question on the growth, this is really difficult because they say in their deck, right, that they believe one to two percent going forward and that it's that includes some print decline and then the the 15 to 25 percent software growth um which they believe that that's how they're modeling that's how they're running their business um but a lot of these de spec you it's just so hard because they don't break down how much is one time right and this year 2020 it's been It's been a record-breaking year. And, you know, just even on the traditional IPO side, we never seen anything like this. I mean, on the SPAC side, that people can talk about that.

But on the traditional IPO side, I mean, there are only so many private companies, right? And, you know, you can see that this continue for a few years. And if it does, I mean, things super undervalued, right? But what I think people don't understand. And this is why I gave the background again If you just revert to the mean Which I think is impossible to do Because it's a totally different company

But if you just revert to a transactional mean This company is still going to make You know, three to four bucks Like I don't think people understand that That's how it's run Because of the software business And it's becoming exponential It's growing exponentially

Like this is not You can't just model I mean this company was doing 15% EBIT on margins in 2017 they're doing over 30% now. And in a pullback, they're still going to be doing 25% margins. Just to add on to what you said, because as I was researching this, you know, the stock had run so much.

I was like, oh, I missed it. It's probably trading that 30 times EBITR or something right now, right? And it's not. It's trading it seven times EBITR. So I was getting really excited, right? I was like, oh, software business is going quickly, masks that the overall, the overall business is growing, but software business going quickly. and the two things that were jumping out to me, and you address one of them, A, it just like,

they don't give great, they've started to get better, but they don't get perfect segment disclosure yet. And I was noticing there was lots of jumping around between, hey, like, there were stuff of is this recurring in nature versus reoccurring in nature? And then there would be lots of jump between 30% of our sales are print, but 20% of our sales are print. And it was just going in lots of different directions. And again, look, I prepped for this podcast this morning. It's not like I've spent, you've got 18 months following the company, but I was very much noticing, I know I'm not doing a great job of saying, but I was very much noticing that they were jumping between numbers and stuff. And you could tell that they were maybe trying to hide something

or maybe they didn't quite know how to explain it. Or maybe it's just complicated, but there was something there that was standing out to me. Now, I love that you said that because it's the truth. I mean, I did prep for this a little bit and try to address that problem. It is a problem. It is confusing. And then I think a lot of time... they say 60% of their business is recurring in nature. Because a lot of transactions, I mean, if you don't see it on the IPO side, you're going to see it in the M&A side. You're going to see it in other places.

So I think that's 60% number. They're very comfortable with that. And that's a lot of that's going to be on the software side. But on the transaction, it's not just IPOs. And we've seen not, we haven't seen bankrupt. We haven't seen a lot of these other things that usually are a sweet spot for them. And that's what's great about the business. I mean, it is, you know, they can prepare for the,

They can be, do well in different markets, right? And that allows them to be confident with their capital allocation. But I think they can't accurately predict what will happen, right? And like active disclosure, right? Like, that's growing. A lot of that growth, I mean, a lot of that's coming from internal investment and winning market share, but a lot of that's also coming from the IPO business growing so much. That's not one time, right?

Just getting new active disclosure clients because there's more IPOs. and they're getting the business just 100% probably 100% of the time. Yep. Right. That going forward, that will be recurring, but that, you know, the incremental growth from the IPO, that won't be growing, right? So I think it's just so hard from them to, it's so hard for them that at this point, I think they just stop trying to explain it all because they don't always, they don't

know. They cannot predict. They cannot predict what the capital markets will do. They only give cordonly guidance now. I don't think they will ever give yearly guidance again because they don't. the capital markets is so um it's so volatile i mean yeah i believe it makes yeah but it's hard to model right but you can model you can predict what they will do right and you you can with reasonable um confidence know that they're going to generate a ton of cash like when i say 800 million

i mean that that ranges can range from 500 to 800 but that's still 500 million dollars for like for a company at 1.6 billion dollars so you know 33 million shares out no debt 50 dollar stock price, you know, 1.65, I mean, it's not a big company, $500 million on a base case, a ton of free cash bill that they can do wonderful things with, include doing these little tuck-in acquisitions. They haven't done. I mean, a tuck-in for a platform company can be incredibly increative, which, what we've seen from Broadridge, right?

That actually really transitions nicely to my next question, right? So this is trading seven times EBITDA, probably less when you, probably less as of this year, right? Because they're growing very quickly still. They even said, hey, October trend on their Q4, on their Q3 call, they said October trends were great. We're still growing pretty rapidly, right? So, but even after a big run, stocks, stops up three X since the beginning of the year. This is trading it seven times EBIT. It's not like this is unknown, right? Like, I don't, I try not to read too much sell side research, but B Riley covers it. They have a blowout Q3 quarter. B Riley ups their price target from 40 to 52, six times EBITDA this year. Say again?

Yeah, the EBDA, their price target EBDA multiple. And they say our price are here is six times EBITO this year, five times EBIT on next year. Sell side can be wrong, right? Obviously, they can be wrong. They can be too conservative. They can be too aggressive. But I'm just saying it's not like this isn't known. The market is looking at the saying this is seven times EBITO business, despite the software

growth we've talked about, despite the good margins, all this. Analyst are looking at this and saying this. So what is the market missing here? It feels to me like the market's worried that earnings are really inflated by the SPAC and IPO boom, and that's going to fall off and they'll go to the clip. But is it something else or you can dive a little bit into why you're not too worried about that IPO class? Okay. So David Waters, again, I'll mention these, the David Waters and then Jeff Moore, because what I think everyone misses always, the sell side especially is capital allocation and what that can do for business.

If they're taking money, they're taking working capital. And a lot of companies do, they'll pay a dividend, right? they'll just buy back stock, which they're doing. But rarely they'll throw that money into a business that's extremely, extremely highly valued. And that's what they're doing. And that's predictable. And you know that's going to continue.

They've already raised their CAPEX guidance. That coupled with the buybacks that they're going to start doing, I believe in mass, which, as you know, buybacks, just don't get credit. I mean, you have your Liberty Bros and stuff. But at the end of the day, people don't care about buybacks. But when you have a business that could be growing revenues and EPS and is investing in a business in a big way that's transformative, plus the buybacks, like, you know, you have this compounding effect that I think only certain investors are going to be able to see, right? I mean, you can play the game. Oh, you know, the software business growing 20%.

It's, you know, 25% of the business going to 44. You can put a, you know, 10 revenue multiple on it, boom, boom, boom, $100 stock. You can do all that math. But at the end of the day, you can't control any of what happens. But you can't control that these guys are going to be investing in their business and buying back a ton of stock. And the next five years, even if the sales don't do anything, I mean, they could be making $8 to $9 in earnings and have a business that's 50% software, right, that it will be worth a lot more. So let me ask you, this actually segues nicely into maybe my last question, incentives here. share, right? Because I was a little surprised. There is a big semi-active shareholder, I believe

Simcoe, the guys at Timco are very sharp and they filed a 13D. So they're active. They're on the board. They own 10%. That's nice. But I was a little surprised, you know, like the CEO, his stock, he owns about 300,000 shares. That's worth, what am I doing the math in my head? $15 million at today's prices, right? So that's great. But it's, he makes $4 million a year. And he only has 15 millions of stock because the stock's 3x this year, right? Before that, he was kind of making 4 million and he owned about 5 million. And, you know, the board of directors, most of them own, you know, maybe a million dollars worth, but they make $250,000 a year for being on the board.

And I get it to spin off, which means it's not founder letter or anything. But I was just a little surprised, you know, you're not seeing insider buying. The insider ownership just feels pretty low. So I just wanted to talk about the incentives here for a second. Because that seemed the one worry to me. You have a business that just did this pivot and the management says, we're geniuses. Let's go buy another SaaS company. Let's lever up.

Let's issue equity. Let's go on an acquisition spree. We're genius here. And I was worried they might not be fully aligned if all that makes sense. I'll be completely honest with you. I think it is a risk when I started conversing with other smart people that like these types of stories in 2019. They all thought it was fascinating.

But they all had that one put that. that nobody questioned the print or the software nobody questioned that what the question was what you just hit the net you know what you just talked about was like i don't trust these guys like they were part of r d'n that which you saw what i was going to say yeah right which is why they don't own a ton of stock where they get spun it off and um all the stock they own for the most part i mean maybe 20% they bought on a dip but most of it was given to them right via options and and just being a spinoff company um so look i've i've i've talked to these guys a couple times I've more importantly I've talked to a lot of people that work with them what I do understand is they're incredibly sharp and know the business like I mean their their backbone is are Ardonnelly right and and what they did they don't have direct experience in this transformation but they've hired the right people and they're hiring a ton of people and then this is why I've mentioned Jeff Jacob which like five times on this call like and it's what it's really the one of the

biggest reasons I have bought is I know he will be in there he's got the playbook and they're just going out this playbook, right? They're going out of the playbook that's working. It's working very well. And that gives me more comfort that they won't do, they've said it multiple times. They will not do a big deal. They will do tuck-ins, you know, a $20, $50 million deal. They won't do a transformative deal where they take on debt. They've said that, but, you know, look, they don't have a prior case study, right? You know, their prior case study was they're all are Donnelly people. I do know another board member, Juliet Ellis, which was a big fun manager at Invesco

AIM, big time small cap growth. Like, I know she's on the board. I know she's good. Like, she will, I mean, the board is pretty good. And then the manager team, like, all I can say is everything they've said, they're executing, man. And from the first conference call, if you go back to their first conference call, the total mess. Like, they've really improved.

They've tried much better to communicate their story. and just I see the actions. Like, you know, the actions do speak louder than words at the end of the day. And you're seeing the execution. Speaking of actions, one of the things I like is, look, last year, they bought back shares and they were buying back shares low, right? When this market was low. And the only time, I believe, there's been insider purchases in this company's history

was at the end of March 2020, which is nice. But they were buying back shares when the stock was hammered and everything was hammered. And none of that, they were going and buying back their high-yield debt, as you mentioned earlier. And it's one of those things. I do think actions speak a little louder than words. You know, I know so many companies say, oh, we're going to be aggressive when the stock price goes down. We're going to hammer the bit.

And guess what they do? You know, they pull the Peloton this morning and they issue shares when their stocks down 70% or something or they sit on their hands or they go and do deals instead of it. And in this case, I mean, it's not to say that they won't, but you've got an active shareholder who's a board member who owns 10%. And the history of the capital allocation recently has been, we give it back to shareholders or we retire a really high cost debt at attractive prices. So I think their actions speak to how they're looking at.

And, you know, again, words don't mean a lot, but go look at their deck and everything they say, shareholder focus, laser focus on shareholder returns. Like, it seems like they're running the right playbook here. I think so. And I mean, look, the same with P10 and David Waters. They don't give any forward guidance at all. They don't, there's no hype. Like, it's all backward looking to give you everything.

And then the actions you see, it's just creating value slowly but surely. And I mean, look, they have had a much more success with prior companies. But at defense, it's just, I mean, it's been five years of the exact same thing over and over and over again. And that's why I had to give that story because you cannot invest in this company without knowing that. Because your pushback there, it's exactly what all the right investors think. I mean, but it's been five years of not doing that. And at some point, you have to give them the benefit of the doubt that they're doing the right things. And then they're actually just doing what they said they're going to do.

What do you think the end game for a defense here is? I would think the end game comes in one of four categories. They could just keep running the business as is, grow. Eventually, I wouldn't be surprised if you saw a levered buyback model. Again, Simco is on the board. You can go look at their 13F. They're in Altis as well. Altis hasn't been running the levered buyback model properly recently.

but clearly Simco knows the levered buyback model, right? So that would be one. Number two, they could sell it to private equity or strategic buyers. You mentioned Simco with stamps.com. Obviously, strategic buyers, private equity there. Or number three would be they could go do a transformational deal, hopefully one that creates a lot of shareholder value. Or I guess number four would be they could do some mismatch of it

where they do some levered buybacks and they do strategic vaults on the stuff. But if you had to guess, what's the end game for the company here? Oh. so I just predict the future for me right here right now predict the future I'm going to predict the future I don't want to this is just my thoughts I don't think they'll do a transformational deal I would not be super excited for them doing a transformational deal I don't have the multiple and and I think there's not investment opportunities within their business but look the reason why I want to talk about I mean that that free cash flow they never had

this problem right because they had a ton of debt and they were forced let's see forced to buy back. They were forced to pay it down because of the terms were ridiculous and they had this window last month, which was for me at another inflection point. They could pay it all back with the revolver and they did. So now they have essentially, as of the end of the year, they're going to have no net debt zero. So they can do whatever they want. They can do a level recap, which will be a creative, right? They could raise a ton of money. I mean, they could do a $300 million debt deal and buy back a ton of stock. man and then look I do believe my heart of heart this was always set up to to sell to a Broadridge but let me tell you the time for Broadridge to make a deal it's slowly it's going away and I want to say this on this call they don't make an offer for defense they're not going to be able to buy it I mean at this rate they're going to keep on invest in their business and growing and as soon as that revenue number is able to turn consistently positive I mean, this stock is going to have a massive re-rating because it is ultimately, and they're working on it, it is a pretty simple business to understand if really, I mean, they do a little bit of everything, they have software, they generate a ton of cash, they have a nice mode, it's nice business, and it's super cheap. Right now, I mean, that it's the value is, the valuation is so low that they can be wrong and things can turn in such a big way, and it's still cheap. And then you've got all this cash flow to buyback stock. I mean, you have this amazing things happening. I believe, I think they will,

one, I think they're done with their buyback. I think they just finished it, honestly. They're going to announce like a $100 million buyback, right? I believe, though, over the next few months, they're going to announce, like, replace their $50 million. I think they're going to complete and do $100 million, you know, buyback, which it's not a lot at the end of the day, right? They're going to invest more in their business.

And I don't know. I, you know, a stay-out could happen. I would be happy with it, honestly. But, you know, we are seeing a turn in the investor base. I love seeing the 930 holders. I mean, we saw Wasatch, which is a really smart investor, come in. And Rice Hall James is a huge investor. These are big, you know, SaaS conversion holders, right?

So you're getting the institutional interest. The stock is going up. And when the stock price goes up, you know, things happen. It's just, it's interesting you mentioned the multiple it trades out because one of the things you would hear at the height of the SPAC boom when they were announcing deals, Public companies would be like, oh, well, if we were getting taken over by a SPAC, you know, we trade at 10 and a SPAC would take us out at 30. And it's just funny because DeFIN is benefiting from the SPAC boom and they trade it seven times EBDA. And when you just saw the numbers, especially if you could just X out this print number, you know, just bring it all to zero right now. Obviously, you'd actually lose money there. But if you just looked at the software business side of this and a SPAC was taken in private, I think it would be a 40 or 50x EBITA business or it would trade at some revenue multiple or something. And right now it trades at seven times EBIT. And it's just surprising. And I think you're kind of right. It's a rotation to Cheryl Robes from, hey, we were here for the low multiple.

We were here for the spin dynamics to eventually, especially as print continues to lose those headwinds, I think it goes to, hey, this is a compoundy set, maybe not perfectly SaaS, but SaaS like business that forget seven times EBITDA, seven times sales might be the right number or something. That is what I believe, that's why Simcoe invested in this. I believe that's why Rice Hall, James, and Washington, I believe that's their primary drivers. Like this, this is not a short-term thing. If they get bought out, they get bought out, whatever. But if their software continues to grow at what you saw in the third quarter, which, I mean, the stock price up 25% in 15 days, if that continues, that's what every investor coming in is going to care about.

Their software grow, that's all they're going to care. They're not going to compare about the capital markets, volatility. They're going to compare it. They're going to look at the software and be like, you know, in bad markets, that's still growing, and good markets is growing a lot. And it's becoming more and more of the business. It's going to be, you know, 50% soon. I mean, in a couple of years, that that's ultimately what anyone's going, I think

that'll be the story. And that's why I say, look, if someone wants to buy, they better do it now at the top of the market where they have to have a fiduciary duty to say, okay, we have to sell, you know, because, you know, you know what happens when the deals happen. I mean, because once that turns, you know, you don't know what's going to happen. So I'm excited. I think that's, it's so hard with the end game, because you don't know. We don't know, right?

I do know there seem to be marketing less, which is a little bit odd, but I don't like to. I am a little surprised. You know, I think they do one conference a year, but I subscribe to BAMSCC and I look through the transcripts and there's no conference transcripts where they're laying the story out or anything. They do have an investor presentation. I was a little surprised by that, but I'm cool with that. I'd rather my companies manage the business instead of a good conference. But it's a capital markets business. I kind of thought maybe they go to these conferences, pitch investors for half and maybe pitch bankers for half, but it makes sense.

Hey, it's been over an hour, but I always want to give you. I always want to give the guest last word. Anything we didn't talk about that you think we should have talked about? Anything we kind of glanced over that you wish we had hit it a little harder or anything? No, it's good. And look, what I did want to, education is a very important as investor. We did talk a lot about the risk. And those risks are very, maybe we should have started with them.

This is a capital market driven business. And there's always risks in the capital markets. These guys do print a lot and there's risks in the print business. With any stock, there's always things that can go wrong. And, you know, just if anyone looks at this, there's, it's a good story. They, you know, they have a lot of positive tailwinds. And, but I do think we covered, I mean, we covered everything. They have a good presentation on their website.

New presentation came out today. This morning, they were prepping for our podcast. Exactly. They had a new presentation today. There's good investors involved. There's, you know, the float seems pretty small. Like, the stock has run. And that's, that's always hard.

When the stock runs, I mean, if you look at the chart, it's, it's been volatile. It can be, for some reason, it hasn't been volatile, but there's been some moments of extreme volatility. It's an under two, it's an under two billion company with a 10% owner. Those are generally right for volatility, right? Because 10% owner wants to get out, boom, stocks going down a lot as it kind of digest that. Or, you know, just bad day in the market or bad day with one seller.

But yeah, cool. Richard, this has been great. Richard hosts the Riches and Nitches podcast. You guys, all listeners should absolutely check that out. I think I've badgered Richard enough where he's going to let me on at some point. Hopefully I'll have an appearance on there at some point in the near future. But Richard, this was great. Thanks so much for coming on and looking forward to either having you on at some point in near future

or coming on to yours at some point. Thank you very much, Andrew.