Yet Another Value Podcast - Samir Patel from Askeladden Capital on MIX Telematics $MIXT

Episode Date: November 14, 2022

Samir Patel, Portfolio Manager at Askeladden Capital, joins the podcast to discuss Mix Telematics (MIXT) and why he sent a letter to the company pushing for change.   Askeladden's letter to MIXT: https://www.accesswire.com/723191/Askeladden-Capital-Announces-Activist-Position-in-MiX-Telematics-NYSEMIXT  Chapters 0:00 Intro  2:50 MIXT Overview  5:45 MIXT's hardware to subscription switch  9:30 The economics of a MIXT subscription  12:30 What's the moat that prevents competitors entering the market?  18:30 MIXT retention and churn  21:00 MIXT high level valuation  24:20 Precedent comps for MIXT  27:30 Why did Askeladden send a letter to MIXT?  35:45 Digging into MIXT's lack of growth and margin expansion  39:15 MIXT's history of missing long term targets  43:45 Would a PE takeout make sense for MIXT?  46:00 MIXT's sales force  48:30 Tracking MIXT's progress in the near term  56:45 MIXT's recent chairman resignation and insider sales

This episode is sponsored by TIGIS. Understanding expert insights is table stakes for investors today, and there's no better option than TIGUS. I've been using them for years to get up to speed on companies, and they've helped me immensely as an investor. TIGS also recently acquired both BAM SEC and Canalus, adding a super fast way to access SEC filings and earning calls via BAM FCC, and offering access to more than 4,000 fully driveable financial models with Camelis. TIGIS is well on their way to building a full suite

of research products that can displace the legacy terminal providers like CAPIQ and FACSET. And I'd encourage you to check them out if you hadn't recently. They're moving incredibly quickly with many new features and datasets. As a bonus note, blog readers will know that I run a monthly, well actually buy monthly deep dive series sponsored by TECIS. In them, I go deep into industries and companies with fascinating questions using TIGIS expert calls. I'd encourage you to check that out if you're interested in seeing how expert interviews can help you learn more about a company and industry. All right, hello, welcome to the yet another value podcast. I'm your host, Andrew Walker. If you

like this podcast, it mean a lot of you could rate, subscribe, follow, review it wherever you're watching or listening. With me today, I'm happy to have Samir Patel. Samir is a portfolio manager at Aspladen Capital. Samir, how's it going? It's going pretty well. Thanks for having me on the podcast, Andrew, I really appreciate it. Hey, thanks for coming on. Very good reason to come on, but let me start this podcast the way I do every podcast. First, the disclaimers to remind everyone that nothing on this podcast is investing advice. That's always true, but kind of particularly true today, because we're going to be talking about a stock that it trades in the U.S., but it is foreign headquartered. Its market cap is just under 200 million. So we have very small,

we have a foreign company. That combination absolutely creates extra risks. So everyone should just remember that neither of us are financial advisors this isn't financial investing advice please do your own work and then second with the pitch for you my guest i was thinking back we've known each other almost 10 years at this point i remember we went to bills burger and got uh burgers back in the seeking alpha days but samir launched samir launched his own company back in i think he was 21 at the time and i remember you're like it's important to get this done before i'm 21 he's had absolutely outstanding results. He's a great fundamental analyst, and I think that's really going to shine through for the company we're talking about today. So all that out the way, let's go. We're going to

talk about the company we're going to talk about is Mix Telematics. The ticker is M-I-T, and I'll just turn it over to you. What is M-I-T, and why are we so interested in them? Sure. So mixed telematics is a leading global telematics company, and so for those who don't know what telematics is, at its simplest, it's like a find my iPhone type application, right? So it can just be a dot on a map saying, hey, where's my stuff, right? Whether that stuff is a rental car, a big truck, right? You know, and of course, all this goes all the way up to fully video AI-based solutions, which can tell like when a driver's sleepy, you know, can help reviews fuel consumption,

all those sorts of things. So summarily, you know, telematic solutions allow companies to track their assets, right? Increase the utilization, increase the efficiency. So there's a quantifiable ROI, you know, mixed telomatics in its deck actually says that they generate $442 million of annual efficiency savings on $123 million of annual recurring revenue as of Q1, FY23. And, you know, so that's a very quantifiable ROI and that doesn't take into account the intangible benefits, such as, you know, fewer collisions, fewer people dying in road accidents. So, so that's what they do. You know, they've been around since the 1990s. They've grown both organically and through acquisitions.

And we've been invested with them actually twice, first in 2017, and then second from 2019 present. So, you know, our strategy is generally high quality businesses and good valuations, right? And so recurring revenue, strongly profitable, cash flow. That was our investment thesis when we started. That's great. And just one number you mentioned, I'm just pulling this out in nowhere, but you mentioned they saved over like their product saved over $400 million per year, I think was the number.

That is the number they disclosed in an investor back. Yes, sir. Just compare that to their revenue because they'll give everyone essential for the financials. And do you know how that compares to kind of other competitors? And we can talk about other competitors in the space as well. Are you talking about the efficiency savings or their revenue? Yes, yeah, efficiency savings. Yeah, I'm not 100% sure how it compares to other competitors, you know,

because I don't necessarily, I don't think all the competitors disclose that kind of a figure, right? But, yeah, so, I mean, Mixed has 120 million of ARR annual recurring revenue. and so they state that it saves, that ARR saves their clients $442 million a year. You know, in terms of their scale, they are one of the larger players. They have large global blue chip clients like Heineken, Holsom, Total, you know, these kinds of big companies, right? So their technology is validated. They've got good technology, and they are, they're certainly not the largest player in the industry. There are some players that are larger, but it's also a very fragmented industry, and they are one of the larger players and they have global presence.

Yeah, no, that's all perfect. So just people can think that they're had roughly 120 million. They're saving their clients. And again, somebody else could come and say, oh, we saved 10 times the revenue. There's a little bit of mergers. But they're saving their clients three to four times what it costs. And there's all sorts of other benefits. And as you said, one of my next questions is that they are, this is not, oh, it's mom and

truck, mom and pop truckers who are doing this. They've got a real client list here. Chevron, DHS, Shell, a bunch of other people. So the technology is kind of validated by the customer list, I would say. yeah that's my perspective so they've undergone a hardware kind of a hardware to subscription switch and i know you've invested in a lot of hardware to subscription switches so i want to talk about both that and kind of use that to dive into the churn because i think it shows both the quality of the business maybe the opportunity it's kind of a little validating i think that's kind of important

to think about sure and so maybe maybe just to level set right we're talking in broad terms here i'm not going to be talking specific financials but they have kind of two parts of their business right technically there's three, but we'll just think about it as two. So one is this premium fleet business, right, where typically the contracts are multi-year, so they have recurring revenue that's locked in for multiple years at a time with these big global companies we're talking about. They very rarely lose a client there. You know, I think as you referenced, it's about 98% there for, you know, I was a figure they disclosed at one point in time. You know, they have another portion of their business where it's more consumer like, you know, particularly

in a market like South Africa where there's a lot of crime and vehicle theft, right? So for consumers to be able to track their vehicle, sort of more like a low jack type solution, if you think about, you know, a U.S. brand. And so obviously there, the churn is higher, right? But those are also the ARPU on those consumer solutions is much lower, obviously, than what you're going to be selling when you're selling a bunch of videos facing every different direction to a large, you know, large multinational. And so their business results in general, we think, are driven more by that higher end segment. But to your point about the hardware and software, right? So if you go back to the earlier part of the 2010s, you know,

The way their business model typically worked at the time was they would sell you the hardware up front, right? And then they'd collect their monthly piece of revenue for the software, right? What they found over time is that a lot of customers, for various reasons, you know, similar to the SaaS transition and software, a lot of customers just like having one monthly payment as opposed to kind of a big chunky payment up front. And so they transitioned to a model in which they finance the equipment for customers essentially, right? So they just give you one all in price. you know, it's like, okay, I'm paying $35 a month, right, but there's no hardware and software broken out. It's just for the term of the contract. It's $35. We give you the hardware. You don't pay for it. And then they obviously make the money back over the contract term. That's perfect.

That's perfect. I want to dive into that, but I do just want to mention, you mentioned their South African business for the consumer. I think it's called Beam E. And it is pretty cool. Do you just want to talk about how the technology works and what's kind of, it is lowjack like, but what's kind of different about it? Yeah, you know, it's been a while since I've looked at it in detail, but they have it kind of if you go if you go into their investor days and things they talk about it and it's kind of like they have some neat technology or they talked about having some neat technology in terms of being able to basically network these devices together where you may not have a reliable cell signal or things right and so that also allows them to lower the cost right because then a lot of times maybe you're not paying off the cell tower things so they have some really neat technology that's allowed them to deliver quite a powerful product at a fairly low heart poo no that was it i just thought it was cool like because they've got so many devices out there they literally say like If there's no cell phone tower, like we can still ping where it is because we just use all of our other device or something. Yeah, it doesn't be technology. I thought that was cool, but it's not the needle mover here.

It's just. Sure, no, but it does demonstrate their technical prowess, right? It demonstrates that they have a great engineering organization. You know, they've had a lot of success over time. And we validated that through, you know, speaking to people in the industry and things like that through these, you know, Tegas and other sources and we've reviewed those transcripts. TIG is sponsor of this podcast. So thanks for mentioning. I mean, if you were going to get to.

That was organic. That was not planned. We're going to get to Samir's letter later, and you'll see there's lots of link to Tigis calls and everything. So I'm Chevron. I'm using them. I believe they use the Chevron uses them in Europe, if I remember correctly. I don't think globally, but some people do use them globally. But I'm Chevron.

I hire with Mixelomatics. Like, what am I going to, what am I kind of getting from them and what am I going to be paying for them? Sure. And so, you know, there are poos. It's a little bit hard to pin down a number, right? Because there's several factors that can implement it. You know, there are poos can range, like I said, from, you know, $5 or something on the really low end, right? All the way up to $80, $90 per vehicle per month.

It's also going to depend on whether mixed has the customer relationship directly or they're going through a dealer, right? So again, I don't want to necessarily talk about specific numbers in that sense because it's going to vary a lot. But generally speaking, the higher up you go, the more features you get, right? So, you know, as you would guess, right, just basic asset tracking, literally just having a dot on a map of where your asset is, that's going to be the lowest end. solution, right? As they go up market, they start to offer, you know, their highest end product really is what, what they call kind of video telematics. And that's comparable, we think management disagrees to a company called Lyttex or Litex. And so it's basically, you know, road facing video, driver facing video. And so, you know, that can enable them. They can literally track things like, okay, is the driver getting sleepy, right? Is the driver driving aggressively, right? You know, if they get accused of being involved in a collision, whose fault was it actually, right? They actually showed some videos of this their investor day a number of years ago and so all these things that's where your quantifiable ROI comes right your fuel saving you know you save money on fuel because the drivers drive better lower insurance costs because you have proof of kind of you know how the drivers

are driving they're driving well they're not the ones causing the collision you know obviously increased asset utilization right knowing where your assets are so all these all these factors you know save them money right to your point about global you know one of their calling cards is that they have a platform that works globally. And so obviously in different jurisdictions, there's different regulations. You know, like in the U.S. there's ELD and there's, you know, like, okay, you have to make sure the truckers are only driving for this many hours specifically, right? And each jurisdiction has their own, their own kind of nuances to that, right? And so they work really well. And they have, they have clients in South America. They have clients in Australia.

They have clients in, you know, Europe and then Africa and in North America. So they have a global platform that's really set up to handle that. So like you said, you know, not always do they work kind of globally with each client, but a lot of times when they're signing up new customers, sometimes it's another subsidiary of that same large global corporation where they're moving into a new geography with them and handling those vehicles as well. Just we'll talk about the stickiness and everything a second, but it does strike me, the dumbest version of this is, hey, it's literally just, I'm following my truck on a map, right? It was it was in Iowa yesterday. It's in Montana today. I don't know how far than

across so maybe that's feasible maybe it's not but that's the and it does more stuff but there's nothing in here that strikes me as like it's not rocket science right and it does strike me as something it's a subscription product you know GM has on star that's obviously on the consumer side but it's not and it seems there's so many different companies that might be interested in coming at this right like you can imagine if you're a truck manufacturer why not put this into your all of your trucks go sell to one company and say buy our trucks we'll do this we'll get some subscription revenue cut out kind of the mix, or an Apple or an Amazon coming out and saying, hey, everybody's got phones, we'll use this for tracking. So what's kind of the moat that's preventing, I know

nobody's hard attacking, but you could see a lot of different competitors. What's the moat that's preventing that? Sure. And I think that's been one of the questions, you know, for quite a while, right? And the companies in the industry have continued to grow and prosper. Let's, let's attack that OEM portion first, right? And so I actually personally, again, this is just my opinion, like everything I'm going to say here, but OEM telematics, I think, is actually more of an opportunity than a threat. The reason for that is one of the biggest bottlenecks to growth for mixed telematics or other companies is they actually have to go physically install a device on their customers' cars, right? And when you're not doing that on a factory, like, you know, the customers have to take that vehicle

off the road. Now it can't be used for making a delivery, making, you know, generating revenue, whatever it may be used for, obviously costs less to install it in a factory, right? So, you know, Mixed has engaged a number of partnerships with some OEMs, right? In some cases, they're basically taking data from the boxes OEMs put on and putting that into their software platform. And in other cases, the OEMs are actually using mixed boxes and installing those at the factory, right? And so, you know, that was one of my original concerns when I looked at it in 2017.

I've come to believe that the software layer and kind of what you do with the data and the analytics around it is more valuable, right? And so as far as why OEM specifically wouldn't compete, I think there's three reasons, right? The first and most important is that most global enterprises are not going to be using just one kind of vehicle, right? So think of, say, Shepard. They might have Ford F-150s as kind of the vehicles that their people are driving around, right? But then maybe they have Volvo trucks and Picard trucks, but maybe then because they're in energy, they have some specialty, you know, or Heineken that's transporting around, you know, liquids and things like that, right? Maybe they have

some kind of specialty vehicles from other manufacturers, right? And so obviously the customer, you know, Chevron, you don't want five different systems telling you, oh, here's one telling me where my four vehicles are. Here's one telling me where my Picard trucks are, right? You kind of want one source of truth that's kind of across your organization. The second reason for this is that OEM telematics historically, I think they're typically, you know, they're not software developers, right? OEMs are not really trying to help you manage your business, right? The truck manufacturer is more interested in, okay, we want to capture the maintenance revenues and help you do predictive maintenance around that, right? But so that it's, they're not kind of trying to develop, I think,

necessarily the same solution or use the data for the same purposes as a fleet management company, right? And, you know, you can look at analogies here where, for example, Trimble, right, in construction equipment or, you know, in agricultural equipment, they haven't been disintermediated by John Deere and Caterpillar, right, even though those companies have their own kind of digital agendas, right? Because Trimble is kind of looking at it from a different perspective. You know, as far as startups and things like that, right, you know, we haven't seen, so many of those. That's not to say there aren't those out there. I'm sure it's a large industry. It's hard to keep track of every single one. I think there's more interest in kind

of private equity firms and people like that, buying existing platforms that have a good reputation with customers that already have the technology, right? Maybe combining some of them together with other companies to get more scale, get synergies, right? So, you know, for example, Vonteer, which is a spinoff, afforded, which is a spinoff of Danaher, right? They have a business called TelTrack Napman, and those were two Teltrack and Napman were two separate businesses and they bought it and they put it together, you know, to kind of try and achieve those synergies there, right? And I think we're going to see more of that going forward. Yeah, Vantir, I remember them and I was impressed. I think it was in your, the PR you put out that

you mentioned, because they're almost exclusively gas station, gas station supplies, if I remember that. Gil Barker Beter roots one of their big businesses. Yeah. Yeah. So I was impressed that you were just digging into these little small subsidiars in there. Let me commit the competition for one way angle. I think you've handled it perfectly, but, you know, the other place that I could see is an insurance company. And maybe this is silly. I'm thinking too much about myself on the personal side, but, you know, the GICO's or the progressives of the worlds, a lot of them have started giving their consumers actually like, hey, you plug this thing in and it tracks your safe

driving. And obviously, obviously any company with asset management is going to be concerned with that. But could you see like a competitor in some form, either it started up inside the insurance company or outside? Because obviously all these guys are insuring their vehicles. Could you see the insurance company like actually trying to attack that and saying, hey, you do this and we can we can take it off the insurance price, but or something along those lines. Sure. Yeah, insurance telematics is a specific vertical. And so, you know, not to get too deep into the weeds here, right, but there's a company called, I may butcher the name, ITRN, ITRN is the ticker. They play a little bit insurance telematics, or at least they did when I looked at them a few years ago. Again, similar to the OEM point, it's a little bit of a separate value proposition, right? Because if you're an insurer, you know, you only care about certain elements or certain data that's coming out of that, right? And if you're a, you know, company that's operating a fleet, you kind of have other concerns. You know, insurance is one of them, but then fuel usage is another, right? Safety is another. You have, you have kind of all these other concerns as well. And so I think historically, you know, the insurance telematics market,

it is growing, you know, but I think on the business to business side, not so much the consumer side, we've actually seen, or even I turn, you actually see a lot of these kind of broader telematics companies. Some of them choose to address that market. Some of them choose not to. But I don't think that, you know, Geico or progressive or these companies would inhouse it. And again, kind of for the same reason of, you know, maybe you even have different insurers for different parts of your fleet or maybe you have, you know, different insurers and different parts of your business, depending on who's cheaper. So. And honestly, I'm not even like Chevron. I said the insure, but I'm not even sure. Chevron might just self-insure all of these. Again, I don't, I'm not,

you know, I'm not 100% sure. I'm just, yeah, kind of hypothesizing. All right. So we've, I think we've covered like niche. We've covered why this is not mission critical, but, you know, the 440 and savings for 120 revenue like you're keeping your at your keep track your assets like actually it is increasingly mission critical we've covered why competitors can't come in let's just cover one more reason why uh the proof is kind of put into putting in the financials and especially the churn of why this is probably a pretty good pretty sticky business so why don't we just talk about retention and churn real quick yeah and again so one of mixed calling cards is that once they win a customer they tend not to lose them right and I don't know they don't disclose this figure

all the time and it's not like something they disclose on a quarterly basis like most SaaS companies but typically when they've talked about it, they've thrown out numbers that are in the 90s, right? They've said for their largest premium fleet customers that it can be as high as 95, 98, those types of numbers. You know, again, on the consumer side, it is going to be lower, but overall, this is a business where we think they have substantial, you know, customer retention and, you know, even the ability sometimes at renewal

to upsell these customers and, you know, maybe move them up the value ad chain, right? Like I said, you know, from a $20-dollar Arpoo product to maybe a $40, $80, $80 product. Of course, there's some negotiation either way, right? But, you know, we do think that in general, it's a business that should retain its customers, grow with those customers as they grow their fleets, sell them higher value added solutions, and then sign up new customers. And so, you know, kind of multi-prong growth algorithm. I mean, if you think of like a lowjack or something, a lowjack is a little box inside your car, right? And you're paying for that. And if you're ever going to churn, like basically you're going to shut it off. You're not going to churn because if you went to a competitor, you need to actually go uninstall the box in your car or at at at least install a new box into your car, right? sure this is so much more complicated right because if you're somebody who's got 500 trucks all across the country if you're going to switch to competitor you have to go out to each and every one of these trucks and like install something new like that is a really really sticky business

that's probably going to have some pricing power uh you know when you start talking mid 90s turn on the customer on the on the kind of retention not turn mid 90s turn we're talking about a scam. Mid-night knee's retention. You're basically talking, hey, we lose customers when they go out of business, right? So that's kind of where it's approaching. So I think that really just shows the stickiness of the product, how it's good. Okay, so I think we've covered a decent bit of the qualitative pieces of this company.

Is there anything on the qualitative side we should talk about because I want to talk valuation and then I want to talk about kind of why you sent this letter and everything. Yeah, no, I think I think we're good. Let's move on. Okay, so let's just talk valuation. You know, as you and I are talking, again, this is a foreign company. but the ADS is, I guess it's called now, trade on the trade in the U.S. It's about 825 per share.

We can use rough numbers or anything, but let's just talk, what's the market cap? What's the high level valuation of this thing? Yeah, so they have, you know, they have, I believe it's 22.5 million shares outstanding. Don't quote me on that. But like you said, you know, when you multiply that by the by the share price, you get an you get a market cap that's kind of in the high 100 million's close to 200 million type range. You know, historically they've had a lot of net cash. We'll get to this in more detail later, but over the last few years, they've put a lot of that cash into inventory, right?

Because, again, they have to buy these devices to install them on customer vehicles. And so, you know, with supply chain challenges and whatnot, they've kind of front-loaded a lot of that spend. You know, so currently they don't have quite it. They have maybe, you know, a little, you know, less than 10 million of net cash. But I think that that number is much higher, right? I don't know exactly what it is, but it's closer to 20, 30, 40, once you kind of get that inventory, excess inventory they're keeping and you get it into the customer vehicles and turn it. into cash flow. So that's the kind of valuation. You know, you're asking about the financials.

So that's where, you know, we're starting to get towards the activist angle. So free COVID, right, on a very similar ARR based to what they have today. They were posting about 30%, 31% EBITDA margins, right? And one thing you have to understand about this business is that our opinion, EBITDA is a little bit of a fake number. And the reason for that is DNA is a real expense, right? So most software businesses, you know, CAPX, DNA, not too material, right? In this case, because of that bundling we talked about earlier, because they buy the hardware, right? You know, we would tend to focus more on operating margins. And so it's a little hard to say, you know, their DNA bounces around a little bit,

depending on what hardware they put in vehicles, what the cycles are, you know, how much, you know, et cetera, et cetera, et cetera. But as a starting point, we'd say 10 to 11 percent of revenue is kind of at least what you should be thinking about as DNA. I was like, I'm going to get him on this. I knew you would know, but I was like, I'm going to get them because even as you're saying, there's a real capax number here because they're going and buying the equipment and that equipment obviously depreciates. I just thought I was going to get you on that one. But I'm glad yeah. So so pre-COVID, right, they were doing, you know, kind of low 30s, EBITDA margins with the target of getting to 35 plus. And then if you take the DNA number off that, you know,

whether it's 10, 12, whatever it may be, you kind of get to say 20-ish percent operating margins plus or minus a few, right? You know, as of today, right, the margins, you know, they're targeting low to mid-20s EBITDA for this year, but kind of given that DNA number hasn't gone anywhere like we talked about, right? So operating margins have essentially been cut in half. relative to where they were pre-COVID, and that's kind of part of where we start to get into the activist angle. Yep. So we'll go to the active single one more second, but let's just close the loop on valuation.

So we've talked to 175 million to 200 million in EV, kind of matches up with the market cap. This is a, the subscription revenue is about 125 million. So you're paying a little bit more than one time to the subscription revenue. We can talk EBIT or we can talk EBIT, but you know, you're kind of looking at in the six and a half range on an EBIT. If you want to go hard EBIT, you're talking in the mid-teens. I don't know if you were talking about. Yeah, low double, low double digits maybe there. And, you know, obviously this is a business that's growing at, you know, double, you know, high single to

low double digits per year and should see operating margin expansion over time. If we just, you know, ignore that the, ignore capital allocation, ignorement. If we just zoomed out, though, you know, because normally we would look at a subscription business like this, probably on an EBITL multiple as we talked about the DNA here's a lot more real than some of the other so what do you think like kind of the right valuation here would look at yeah so that's that again it's hard to talk about this without getting into the activist angle right but if you look at where transactions have occurred in this industry so you know pointer telecation was taken out at two times revenue and that was what we viewed as a lower quality business than mixed of course that's a

subjective judgment but their revenue growth was lower their turn was higher because they did kind of more of verticals that we didn't think were quite as attractive. So they were taken out at two times revenue, 10 times EBITDA. You know, car track, which is traded as Carrou, which is another South African telematics company that management doesn't think is comparable. But again, we'll get there. I think they're comparable. That's my opinion. They currently trade at, you know, EVDA revenue multiple that's into the three times, right? Now, obviously, they're currently posting much better financial metrics than mixed. They're growing faster. They have 50% adjusted EBITDA margins, right? So there is a reason for that gap, but at the same time, you know, we think based on current multiples precedent transactions, you know, Lyttex, right, was valued.

I forget the exact number, but it's a very high multiple of revenue, right, even relative to what I'm talking about with Car Track, kind of in its previous investment round in 2019. Of course, tech valuations have declined, but that Car Track multiple I'm talking about is today. You know, so we think intrinsic value of this business, certainly in the private markets, would be a minimum of two times ARR, right? We have a hard time seeing this being worth less than that. based on the research that we've done. And two times ARR would get you into the low, the low teen share price. Yeah, two times ARR, and particularly if you add, we think it's fair to add back their net cash and then also that inventory that they've pre-purchased, right?

Because that represents something that is going to turn into cash. And it's not like, you know, a fashion item that's kind of going to go bad, hopefully overnight, right? So, you know, we think that if you add that up, yeah, we're thinking 13, 14, 15 a share is kind of a floor for what this would be worth in the private markets. So one more question, then we'll turn to the activist angle. This is just a pop quiz. Carew, the competitor we mentioned, it trades under K-A-R-O, if anybody wants to go look up.

But pop quiz for you, Samir. How many O's are in Carew? Five. I know this because in my press release, I just started calling them Car-Track, because I'm like, I'm just going to keep getting the number of O's wrong, and I'm just going to look like an idiot. So I'm just going to call them Car-Track because that's how everyone, like, Carrou's kind of a newer name, don't really know where it came from.

Everyone sort of knows him as Car-Track. You know, all the Teague's transcripts that's like former executive at Car-Track. right. So I just call him Car Track. I just laugh every time I see that. A mutual friend was, I was emailing back and forth and prep for this podcast. He was like, Carew,

and he said the exact same, sometimes you seven, three, I don't know how many is right now. Okay. So I think we've done a nice job on the fundamentals. We've covered a little bit of the business, why this is a generally good business,

why it's kind of sticky, a little bit moody. We've covered the valuation cheap, cheaper than pressing transactions of probably worse businesses. So let's turn to the meet kind of why we're hopping on the podcast. Last week, you send a letter to the board. Obviously, the letter will be including the show notes so anybody can go read the full letter, lays out a lot of the stuff we've already talked about.

But basically you're saying, look, this company is underperforming. And I think change is needed, right? You've laid out all sorts of different angles. You just want a response. And you're saying the opportunities here, we need a little urgency to act on these changes. So I'm talking on, I'm just going to let you talk about what you said in the letter, why you thought now was the time to release it all that. Yeah. And in answer to why now, right, I would respond. with a sense of urgency, right? And so, you know, we, this business, right, it struggled during COVID, and that's not really their fault because a lot of the verticals that they were in, you know, for example, they have a lot of business and bus and coach related to tourism. They

have a very high market share in South Africa of rental car companies, right? They have obviously the oil and gas exposure and we know that oil prices went to negative 37 or whatever, you know, they reached in April, May 2020, right, that time period. And so, They didn't lose customers, per se, but they lost a lot of vehicles because obviously an oil company that had 100 vehicles in its fleet, right? If oil is negative, they're probably going to be kind of getting rid of as many of those vehicles as possible in the short term. Same thing for a rental car company. So they did see, you know, kind of subscribers, revenues, all those metrics decline, right? You know, but of course, right, now COVID is largely over, right?

You know, other than China, Japan, a couple areas. Most of the world travel is really booming. Energy investment's booming, right? You can go look at those conference calls from those kinds of companies. And so we think that, you know, not necessarily all, but a lot of those headwinds should actually be gone and have reversed into tailwinds because we would think that an oil company and a rental car company in, you know, November 2022 would have a lot more vehicles in its fleet than they did in November 2021. Right. At the same time, the companies continue to sign a few subscribers and so on. What's happened. And, you know, the company has chosen to accelerate investments into sales and marketing and some other areas, you know, to try and drive higher revenue growth. but that revenue growth isn't really showing up, right? So their guidance for, you know, they talk about record subscribers, right? But I like to say I can't eat subscribers, right?

I can't go to the bank and use subscribers to pay my mortgage, right? And so, you know, when you actually look at their revenue guidance for this year, right? It's kind of the growth rate is in line with what they achieved last year, despite the fact that, again, our opinion, they should be seeing a tail win from some of these verticals that they're in that were hurt during COVID that now should be kind of on the recovery, right? on the upswing. And so they're making these, you know, investments. And there's a lot of, to us, there's a lot of questionable decision making. So margins, even though margins in the first half have gone from 30, 31% in 2019 to 17% in the first half of 2020. I may be getting the fiscal years wrong, but like basically FY 2020 calendar 2019 versus FY23 calendar 22, the current year

we're in. And of course, as we discussed with the DNA, it's even worse when you look at it from an operating margin standpoint, right? Because that DNA has not kind of gone down proportionally, right? And, you know, at the same time, so management when they, on the public calls, you can see their comments. So one I'd highlight, they talk about how they're getting price gouged from suppliers, right? And these suppliers, you know, all these components are really expensive. They're, you know, causing you to order years and years out. And so like at that same time when they say they're getting price gouged, they're also deciding to put the pedal to the metal with growth as opposed to maybe waiting for, you know, Powell to tamp down inflation. And

the prices of those components to return back to sort of a normal level. And, you know, so we look at the company and their margins have gone down, right? And then we look across, and their revenue growth, by the way, hasn't, you know, again, in USD terms, their organic ARR today is actually below what it was pre-COVID, right? It's about the same level nominally. That's because they did that little acquisition from Trimble that I know we're going to get to. Now, of course, currencies have birth them, right? In fairness, constant currency, their revenues probably would have grown. But we think that using constant currency figures is, you know, some good, some bad, right? Like, obviously the head wins to the euro and the pound this year, you know, maybe kind of unforeseen. But when you're

operating in countries like South Africa, the Rand has a very, you look at it going back decades, it has a very long history of depreciating against the U.S. dollar, right? And so, you know, saying like over the long term, right, I think it's a reasonable assumption to believe that it will continue to do so because it's an emerging market. That's just how it goes. And so, of course, shareholders can spend dollars, right? Not, not emerging markets currencies. The other thing, you know, you look at the competitors and some of these other, you know, and again, management says they're not competitors, but we find it a little bit concerning that the management team doesn't seem to have a lot of interest in comparing their results

to say, car track, to Lytics, to all these other companies. And, you know, we think it's kind of a bad argument either way, right? Their argument is that they're not competitors, right? So obviously, if they were competitors and they were doing so much better than Mix, that'd be really bad. If they're not competitors, we also don't think, you know, if they're not playing the exact same segments, we still don't think that's a compelling way to think about things because, you know, so for example, Lytics, if you go to their website and look at the marketing for their video

AI product, it's very similar to the kind of marketing that Mix uses for its video AI product, right? You know, Car Track, you have former executives who've worked at both companies. You go on LinkedIn, there's lots of employees in similar roles, right, who've worked for both companies, which suggests that those skills and experiences are transferable. And so even if they're participating in, say, slightly different market segments, if these other companies are doing so much better, they continue to report strong, growth, strong profitability while mixed is kind of reporting the same growth and, you know, less profitability, right? Maybe, maybe one of their priorities should be to kind of, you know,

get some executives from those businesses and go after those segments of the market that are more attractive, right? And so, you know, we just got frustrated because, you know, typically, you know, when a business would have seen its operating profit margins decline so substantially, right, on a fairly similar revenue base, we think they should have said, okay, you know what, we're going to draw a line in the sand here. We're going to do a restructuring. We're going to look at all of our costs. We're going to, you know, do this. We're going to do that. And the response that we got when we spoke to management prior to the press release, it seemed to be, you know, just kind of business as usual. And then, you know, when we did

get a letter from the board after our press release and it said things like, you know, we think the management team ably steered the business through COVID, right? And, you know, we're confident in the track, right, we're confident that the strategy is the right one to create long-term shareholder value. And Andrew, if you look at the stock price over the past one year, three years, five years, and going all the way back to the IPO, you know, shareholders have not done well, right? They've not done well in absolute terms, and they've certainly not done well relative to the performance of, you know, the Russell 2000, S&P, NASDAQ, whatever benchmark you want to look at. And so we're kind of sitting here being like, why is there not a sense of

urgency, right? You know, we're all for long-termism and, you know, creating long-term value, but shareholders haven't benefited over sort of any long-term period, right, from the company's action. So why is there not more of a sense of urgency to take action today, right, for shareholders who are sitting here with substantial losses after three years of investments, right? And margins kind of going the wrong way. And, you know, so we do think results will improve organically. We just don't think there's enough sense of urgency to kind of get them where they need to be, right, kind of in a short time frame. And so our perspective was, okay, either management should engage in significant cost cutting, right, pull back on the growth investments because we're not seeing a clear ROI because the growth hasn't, you know, the subscriber growth may have accelerated, but if it's lower end subscribers who aren't contributing as much,

profitability and revenue, that's not really a win, right? So, you know, ultimately, you know, and then, of course, the free cash flow has been actually negative because they're investing so much in these devices while they're operating cash flows are down because their margins are down and so on and so forth. So we really just want to see the company. And of course, you know, we're also in a market where the market is currently rewarding cash flow and profitability today, right? And we're not saying that you should optimize necessarily for the next quarter or the next year. But again, when shareholders have suffered so much over long term periods, you know, promises of kind of long-term shareholder value ring hollow because you don't have a track record

of long-term shareholder value creation, right? This isn't a stock that was at an all-time high and they just dip 20 or 30 percent because of the market, right? This is a stock that is very much down from levels it historically traded at. So we think that management should either, you know, engage in cost cutting and sort of lower the growth target and focus first on getting margins right and then on making targeted investments, right? Or they should sell the company because as we discussed, we believe that private market valuations would be substantially higher than the prices shareholders have been able to monetize that over any time in the past three years.

That was absolutely fantastic. You covered a lot in there. And I just want to poke into different pieces and kind of expand on them a little bit. I guess the first thing I want to poke on is you mentioned the management team said, oh, we're growing, but we're seeing lower margins because everybody's familiar with semiconductor inflation commodity. Everyone's familiar with that. To me, that's right.

And I just want to add a disclaimer. that was all just my opinion, right? That's, you know, my interpretation of the numbers they put out there and the things they've said and, you know, they're going to have a different interpretation. Absolutely, though, the margin question is, the margin and the, we'll talk revenue growth, like these questions, they're really just number. We, we, everyone can interpret it differently, but the numbers are the numbers. But to me, I look at this company and say, okay, we'll talk about the, the, the lack of revenue acceleration in a second, but I look and say, okay, your revenue growth is kind of staying similar in the high single digits and you're saying,

oh pricing inflation in commodity semiconductors all this sort of stuff we're having to pay up to get equipment i look at that and i say you've got a serious pricing problem on your hands like either the business isn't as good as we thought it was because you're basically having to cut into your margins to sell this equipment or management you're just not adjusting fast enough because clearly people were willing to pay $10 last year for this $20 whatever they're probably willing to pay $23 if you go to them and say hey our costs have inflated 15 percent either they're willing to pay that and the business is as good as we thought, or they're not, and the business isn't as good as to thought, or you're not, it seems to me, you're not asking and you're really having a

pricing and margin problem that's self-created because you're not adjusting your pricing in real time. Correct. And, you know, some of that, so they've attributed some of that to the multi-year contracts where they can't go back and renegotiate during the term, right? So maybe that's part of it. You know, but when we look at it more broadly, right, this again is where we look at the comparable. And we don't, you know, we haven't heard a clear explanation of why car track is not a good comparable, right? The explanation we've gotten is that they play in a different segment of the market may be true, you know, and that's fine. But at the same time, their margins, you know, you look at that slide that I put in the press release and CarTracks margins have done very well. You know, they haven't seen the same kind of margin degradation over the past several years, right? They're adjusted EBITDA margins today or in the, you know, depending how you look at it at 40, 50 percent type range. And conceivably, Andrew, right? You can you can tell me if I'm really crazy here, but just as a lay person, you would assume, that the components that go into a telematics box and the telematics service, whether it be labor, the cost of cell service, whether it be the fuses, whether it be, you know, the various GPS tracking, you know, whatever widgets that do that, right? You would assume that car track and mix, you know, it's not like car track would see an inflation of 5% and Mix should see an inflation of 100% on kind of that same type of component, right?

So when there's other telematics companies out there that continue to report strong margins and Mix is seeing like this huge degradation, that's what kind of makes us wonder, like, you know, is there, do they need to bring in another executive who has a better kind of history with cost control margin, you know, the DBS, Danher business system type of executive who can really kind of get that margin structure back on track? Because we, you know, again, our first question would be, okay, is this an industry-wide problem? But then when you see other companies that don't face that same problem, your, your, your interpretation as an analyst is maybe it's a company-specific problem. And I think that brings us nicely to the next question. I think this is maybe, to me,

This was the key point of your letter. You might disagree and feel free so many for them. But the company, if you, anyone can go and look at their investor deck. It's on their website. They've got a July, 2022 investor deck. And they say, look, right now our annual recurring revenue growth, as Samir and I talked about, is just under, it's in the high single digits. Our gross margins right now are 63.8 percent. Our adjusted EBITDA margin is 22%.

And they say, look, our long-term girls, we're going to accelerate recurring revenue growth to over 20%. Gross margins are going over 70. Adjusted EBITon margins are going over 30. You say, that's great. And Samir and I talked about why maybe it should be better right now. But go back, you can go back to their 2019 investor deck. And Samir's the one who did this. I followed this for a while, mainly because Samir has, I followed Samir for a while. Go back to their 2019 investor deck. They say, hey, our long-term goals, get recurring revenue growth over 20%. Get gross profit margins over 70%. Get adjusted EBIT on margins over 35%. And guess what?

They've actually gone in reverse on every single one of those metrics over the past three years. And yes, the manager might come out and say COVID and inflation, but going that far in reverse when I think you should, as you said, you should have the tailwinds of every rental car company is desperately trying to get rental cars. Energy is back, baby. Like, they should have some tail wins and we should, it seems like we should have at least seen some movement on it. So I'll let you comment on that. Yeah. And that's, and that's exactly our point, Andrew. And so, you know, look, I mean, you said, you said everything. It's difficult to factually argue with what you just said, right? There's going to be subjective interpretation about how many headwinds versus tailwinds they're facing. Again, I just. and clarify everything here's just our opinion, right? You know, that being said, their competitors, or sorry, not their competitors, but other telematics companies that they state are not their competitors, you know, Sam Saar is reporting great growth, right? Lyttex is reporting great growth. Carru is reporting great growth, right? Mixed is kind of the odd one out here. And so my hypothesis, my working hypothesis, is that sometimes what you have

with these, you know, entrepreneur-led companies is that, you know, the right strategy, the right team to take a company, you know, from being a scrappy startup to being a company with 100, 150 million in revenue, right? Sometimes when an organization gets too large, you know, they don't have the right strategy or the right team in place to be the same approach to take it from 150 to 300 or 500 or a billion, right? You know, as small cap investors, we've actually seen this quite a lot where sometimes there's these, you know, companies that were historically family run that kind of were in a niche, but then to take it to the next step, they have to bring in an executive with experience in a larger organization because it just changes, right?

Managing a business with 30 million revenues, not the same as managing a business with $130 million in ARR, right? So the weird part to us is that historically, you know, pre-1919, they'd executed fairly well. They hadn't necessarily met those targets, but they did consistently grow, right? They did consistently drive, you know, operating leverage over time. And just ever since, you know, we invested in 2019, just like you said, you know, there's kind of not, you know, they can point to subscribers. but again, we can't, we can't spend a subscriber, right?

I can't go to my, you know, clients and say, well, here, here's a subscriber to fund your, you know, your financial needs, right? Whether that be, you know, whatever. I think that might be a human trafficking issue. Right. Yeah. So, so, you know, we can't, we can't spend a subscriber. We can spend, there's two things we can spend.

We can spend free cash flow dollars that they distribute as dividends, right? Or we can spend, you know, stock price dollars that they get from, you know, that we can monetize in the public market or that they sell to a private company. And, you know, I think, I think that if they want to pursue a strategy that's not going to get the stock price up, then they should partner with a private equity firm. They should take minority shareholders, you know, public shareholders out at a, you know, a reasonable valuation, right? Return that capital. And then they in the private equity firm can kind of figure out what they want to do, right? But I just think there needs to be some sense of urgency when, you know, like you said, not only have they underperformed these other companies in the telematics industry, but they've underperformed their internal targets. and that's not an opinion. That's a fact, right? They keep putting out these targets. And, you know,

years later, they, like you said, it's not, it's not kind of reasonable or plausible to say, oh, because of COVID, you know, it's like, yeah, if you're a little below because of COVID and disruptions, that's one thing. But when your USD denominated revenue is, you know, the same as it was then, and that's with an acquisition, right? It's hard to attribute that all the currency or all the COVID, right? When you were supposed to, what businesses that grow 15 to 20 percent of or should be able to overcome a lot of headwinds, right? So, you know. No, 100. And look, a lot of the headwinds, the COVID, they were temporary headwinds,

like, and they do have tailwinds. And as you said, 15 to 20 percent and tracking, like, that actually did have a lot of tailwinds. You mentioned private equity, and I'll say it not you, so it's not words in your mouth. But this does strike me as the perfect private equity situation where you have a small company that's maybe having a little bit of pricing problems, maybe having a little bit of keeping the metrics problems. It strikes, throws off a lot of cash.

perfect private equity company and a private equity comes, they install, you know, a private equity company is going to be religiously focused on KPIs. And forget, we only get information every quarter, right? And because of subscription, today's decisions might not matter for nine or 12 months. A private equity firm is going to have up to the minute information. If there's a problem within a month, they're going to be laser focused on it. And if the problem eventually turns out to be the management team, the Salesforce, like you can bet they're going to make changes and they're going to be tracking everything. It does. strike me as a situation. I know private equity can get a bad word, but where a private equity

firm actually could add a lot of value from just religious tracking and monitoring and really holding people's feet to the fire on this. I'll let you comment on that if you want to say anything there. You know, I completely agree, Andrew, right? And that's, it goes back to that term I keep using, which is a sense of urgency, right? And again, I'm all for long term investments. You know, one thing we did not do, we have never stated in that letter or in subsequent communications. We don't think they need to cut R&D spent, right? Because that's what keeps them competitive, right? We're all for them continuing to develop new platforms, new technologies, right? You know, but some of these other investments, you know, we question the prioritization

of those. We talked a little about Mix Now. I don't know if we're going to have time here, but, you know, they have launched some products that just haven't panned out the way that they thought, right? But yeah, we really think that there just needs to be more focus and more of a sense of urgency around like, you know, okay, shareholders have not done well over the past three years. All of our business metrics are not, you know, we're supposed to be seeing this accelerating revenue growth, but guidance for this year is kind of the same as it was the previous year, right, and still well below that long-term target, you know, and there's just not really any metric I see that gives me confidence as a shareholder that they have that, you know, like,

okay, we need to do well and we need to do well, like you said, we need to be kind of on top of this on an on-the-minute basis, not just like, oh, yeah, in 12 months, and 18 months, things will improve. And I'm sure things will improve in 12 or 18 months. It's just as someone who's owned the stock for three years and is down substantially on that investment, despite it being a multi-eight-year ARR contracted business at a good valuation, right? You know, it's very frustrating that they're kind of still talking about the long term when I think they need to draw a line in the sand and say, hey, you know, we need to get back on track here and then we can start thinking about, you know, three to five-year plan.

Let me ask for a quick, when I was talking to other shareholders or people who've been involved in the name before, and I think one of the thing you say in your PR is there's some, there's some concern about the Salesforce here, maybe not being as aggressive enough, maybe a lot of turn to the Salesforce. So I just want to toss that over to you as well. Yeah, and look, you know, we're just trying to, we're trying to piece together puzzle pieces as best we can as outsiders, right? Maybe we're way off base. But they're, you know, when you, again, when you see an industry where you can look at all these companies in the industry, whether they be public or private, and they're all growing at very high rates, right? And then you look at one company that's not, right? You know, my first question or my first worry is, is their technology inferior, right? Are they getting out competed on the basis of technology? And, you know, again, I'm not, I would consider myself an expert. I'm not going to say they have the best technology in the industry. They probably don't. But we haven't seen any indications in our research that their technology is not good enough. You know, as we were talking about earlier, the fact that they have these global blue chip clients, right, who renew that would suggest that it's not like they're seeing something out there that's so compelling that they feel the need to switch away.

You know, on the other hand, right, while they're very good at keeping their existing customers, certainly from their revenue growth numbers, it doesn't seem like they've been signing up new customers enough, right, or at least new customers that are willing to pay them at a high enough level to make their time. worthwhile, right? And again, you look at the kind of margins that car track generates, right? And it's hard for me to believe that there aren't customers out there because they're growing at a double digit rate, right, with adjusted EBITDA margins that are in the 40 to 50 percent range. So it's hard for me, you know, again, maybe they play in a different segment than mixed, but then maybe mixed number one priority should be, okay, our segment of the market isn't as attractive as car tracks, right? We have good technology. Let's figure out the right mix of product and Salesforce to go after that segment of the market, right? And kind of try and achieve those results

or Lidex, right? Because there's all these other companies, Samsara, right? The reason we didn't talk as much about Samsara is they're more kind of, I believe the numbers are like 50% revenue growth, but negative 20% margins. So like that's not the kind of strategy that mixed is looking to pursue, right? Not the kind of strategy we'd want them to pursue. You know, but that also, that does demonstrate, they have good gross margins, right? So that does demonstrate that there is opportunity out there, right? And I don't think Samsara is structurally unprofitable. It's clearly they're just investing a lot through sales and marketing, but at 50% growth rates, they're getting a payoff on that investment.

So I've got a couple of other questions, but I just want to fast for the end. So you sent a letter to the company, he's listing out everything, all these issues that we talked down. And one solution to that could be the company, as we said, I think this would be a perfect private equity firm. They sell themselves to a private equity firm or I think there's several strategics, but they sell themselves, right? That's one solution they could take.

But there's another solution where they could say, you know what, Samir's right. We should be doing better. we should be growing faster, we should, our margins should expand. I wonder if they say that, how are we going to track that, right? Four years from now, we'll know if the revenue accelerated and the margins accelerated, right? But if they say that two months or four months from now, like, how are we going to see that? Because it does take time in subscription businesses, and there is the chance they just say that. And then we've got a history of multiple years of them kind of not having their eyes on the ball.

They say that and they don't execute or how are we going to track them and kind of hold their feet to the fire there? Yeah, sure. So I would say that that's why my number one, my number one focus is the margins and the cash flow, right? And I think the two are correlated because, again, the cash flow is mainly a challenge because they've been trying to buy out all this inventory so that they can, you know, go grow at this high rate, right? And then they're making the investments through the P&L as well that, again, at least in the near term, I'm not seeing it pay off in accelerated, you know, guidance for, you know, for the amount of investments they're making and the amount their margins have gone. down, you'd expect they're going to say, oh, we're going to hit 15, 20 percent, you know, growth and ARR heading out of the year. Instead, they're still giving this guidance for kind of high single digit, you know, to low double digit, right? So even if they reach 12, 13 percent, I'd argue that's not a good tradeoff on like their margins being, you know, 17 instead of like 20 something, right? So like you said, you know, I think that I think that the right path here is to sort of start by pulling back on some of those investments, right? Get margins back to at least a high 20s type

level, get free cash flow to be positive, right? Burn off that inventory you have and stop kind of trying to place orders going out way in the future and focus sort of on the nearer term, right? And then once you're in that position of strength, right, then evaluate what are our highest return opportunities, right? Maybe in the meanwhile, right, take the opportunity to bring in an executive who can kind of retool that sales organization, right, maybe do some strategic work around, okay, there are these other companies out there that are seeing really good results. We haven't seen as good results. How are they able to switch? achieve that, which are the, you know, segments of the market that kind of match up best with

our, you know, our targets, right? And then maybe even, by the way, accelerate investments in some targeted areas. So one of the areas I'm very bullish on is that OEM telematics solution, right, where I think it's great if they could get an OEM to put their boxes or someone else's boxes on vehicles and they don't have that bottleneck. And then all they have to do is kind of just provide a software layer on top of that, right? To me, that seems like a much more scalable economic model, right? They recently partnered with Ford Europe on this, and people say, oh, the OEM's doing it. Like, this is what Sirius XM does. It's great if you can have, you're going to give up some margin if you partner, but it's great because you're going to

be in every single one. You use all your, basically all your customer, like that's, that's the holy grail of all these things. So, so I think, you know, I, again, I'm not, I'm not inside the company, right? I'm just trying to piece the puzzle together as best I can as an outsider. Maybe I'm totally way off base, like the company says. And, you know, at the same time, even if, even if, even if my interpretation of what's happened is really wrong, you can't question, you know, the fact that margins and cash flows are down, right? Those are facts. You can't, you can't question the fact that the stock price is, you know, way down from

where it was three years ago, five years ago, right? That's not, these are not subjective opinions. They're quantifiable facts. And, you know, I just don't feel that the company is taking enough immediate steps to address them. So if I was an investor holding their feet to the fire, I think based on what you're saying, the three things I'd be looking for, working capital to come down as they work through that working capital, margins to go off. And this is a highly subscription business. The company could even come out

and start giving, hey, we know we've got a margin issue. Like, here's our incremental margin on the new deals we're doing. Or they could get quarter by quarter margin if they really wanted to, right? They don't have to say it's going to be 34.7% of every group, but they can give a couple quarters of four margins so they, that again, shareholders could look and hold their feet to the fire. Yeah. So one thing, one thing that a few other, you know, people have talk to investors, analysts, whoever, an interesting potential thing to do, right? They've never really disclosed very clearly, at least not to my knowledge, figures around, say, LTP and KAC and, you know, exactly what their sort of steady state margins would be, right? Because as you know,

with any business like this, right, if you were running it in runoff mode, you can see very high margins. You can actually prove that during COVID, because obviously when they weren't buying inventory, they generated a tremendous amount of free cash flow, right, from that existing subscription business at the time they clearly weren't investing in trying to, you know, sign up a bunch of people during a global pandemic, right? And so, you know, it's never really been, I don't think there's a lot of, you know, I don't think shareholders have clarity on the ROI they're getting on the investments, right, and exactly when they expect them to pay off, how they expect them pay off. So I think it would be very helpful if they would kind of put together some figures to

disclose, like, okay, if we stopped growing today, here's what our financials would look like, right, on the income statement, on the cash flow statement, right? Now, here's exactly how much we're investing in sales and marketing, right? Here's how many customers at what our Poo we expect to be able to sign up using that. And, you know, based on our retention figures and whatnot, you know, in the incremental margins, like you said, what the long-term value of that customer is, right? You know, because as of right now, all we see is costs going up, revenue is not really going up, right? And if there is a long-term value proposition there, I just think they need to do a clearer version, a clearer way of articulating it so that we as shareholders and the market

writ large can understand it, right? And another point I'd make, Andrew, you know, is that one of the things, you know, so I'm looking at this letter that the board sent me and they say that we find many of your assumptions and assertions off base and misleading, you know, and I've heard some other shareholders who've spoken to them who said that, you know, they don't think that I understand their business, right? And, you know, my perspective is, look, I've tried, I've followed this company for five years, you know, I do detailed research. I've made my best good faith effort to understand this business. One of our other large positions has a very similar business model, right, when it comes to SaaS and LTV, like I understand. these things, right? And so I am totally willing to accept that maybe I'm all wrong here, right? That's a possibility. But if that's the case, right, I would say that's the company's fault and not mine, because I've just been trying to do the best I can with the information they put out with the dozens of PECIS research calls like all of these things. Yeah. Exactly. Right. So if I'm way wrong, then that means that they need to do a better job of explaining themselves because if I'm so off base, right, then like, and by the way, I'm not the only one. I've spoken to many other shareholders who

look at these numbers and have the same concerns that I do. So, you know, it's, it's a bit, confusing why they won't kind of provide, you know, some clarity around these investments they're making and when they expect them to pay off. And, you know, so I know, I look at Harry's situation sometimes and sometimes I'll call and the managers to be like, oh, our investors don't get it. I'll be like, that's your fault, man. Like, you should be beating people. If you've got a good story to tell and you want it to be told, you need to beat people over the head with it and make it as easy as possible. you know if you're consolidating a subsidiary and it makes you look way over levered and it's actually not recourse that like you just need first page of your IR deck you need to call out hey this isn't recourse for these guys I don't see a a net dollar retention number for their I don't see uh I don't see lifetime LTV to CAC like I don't see any of these so if the business is so great dollar retention is going through the roof they're they're doing tons of investment but it's going to be at such great margins like why isn't it on page one of the deck so that you're not sending this letter and you're not sending this letter and and I'm not wondering on a podcast about it.

Like, it should have been like that. I suspect the answer is because it's not as good. And you can kind of see it in the margin starting to deteriorate and everything. Anything else here? I did want to ask one last question, but I just want to make sure we did fundamentals. We did evaluation. We did almost everything you covered in your letter. It can't be everything because it's a long letter.

It's a good letter. Again, listeners, it'll be in the show notes. Please go check it about. But anything else you want to cover here? I want to cover one more thing. Sure. Go ahead, Andrew. Yeah.

So last thing, right, you send the letter end of October. And on November 2nd, so a couple days. after you send the letter. M-I-T's chairman sends one of the weirdest resignations letters I've ever seen. It's in the SEC filing so people can go look it up. But he basically says, hey, I'm resigning because I own 15% of this company and I need to sell some shares and the Israeli exchange won't let me sell shares. South African.

As an South African, sorry. They won't let me sell shares as an insider. So I'm resigning so I can sell shares. And then hopefully you'll appoint me to the board after I'm done with my sales share program, which it's just a bonkers. letter on a ton of different ways. I wanted to ask your thoughts on it. And, you know, the timing, you sending the letter and then him resigning three days later doesn't strike me as maybe completely coincidental. And we might even talk about the chairman, but this is the chairman in the largest

shareholder. And he does this two days after. Like, it's crazy. I think, I think it was my, my personal view, I think it was just a coincidence, right? You know, from I don't have any more information than you do, but from what's been put out there, it just seems like the exchange wouldn't let him kind of run a 10B5 one plan while he was still the chairman. You know, I think So in that sense, I'm on the company side, like if he wants to be the chairman and, you know, just wanted to sell a few of his shares, then I don't really see why the exchange would have a problem with that. But, you know, the one thing I will point out, right, is that if he's a large shareholder, like you say, and he needs to sell some shares for whatever the reason might be, it is very confusing to me why they wouldn't do more to get the stock price up, right? Like when he's a very large shareholder and he's selling, you know, what amounts to, you know, over a percent of the company, right? That's what we're talking about. millions, you know, to tens of millions of dollars, depending on the valuation you get for those shares. So why would you want to sell them at $8, which, you know, everyone, including the management team and the board agrees is undervalued, as opposed to like trying to, you know, making more

of a concerted effort to, you know, in the public markets, get the stock price to a more acceptable level or just find a buyer who's willing to pay $13, $14, $15 a share. And then the chairman gets to sell as many shares as he wants, roll over, you know, whatever equity he wants to keep into kind of that deal, right? And then public shareholders like me get, you know, liquidity for an investment that hasn't gone well for, you know, the past several years, right? So that's, that's my perspective on that. And I don't understand, like, it doesn't make sense to me, kind of the lack of urgency to get the stock price up for, you know, not only people who are big shareholders, but specifically people who are big shareholders who are trying to sell shares. So I'm with you. And like,

there are other things they could do to the, A, they could just deliver great financials and send the stock up. Or this is a, the company, it doesn't pay a huge. but it's like 3% per year. It's not like he's not getting any income on this thing. So he could have just held and taken the income. Like that's a pretty meaningful amount. Or it strikes me the company, especially after they do that working capital drawdown that we've talked about. They'll have a lot of cash. They think the shares are undervalued. They could have just tendered for a bunch of shares at $10 per share and said, hey, our chairman's going to tender, you know, equivalent with everyone else. So he'll get a premium price that way and we'll retire shares. Like there's just a lot of other

things they can do though I will say one person emailed me and said Ian Jacobs the guy who's going to take his place as chairman I think he's pretty highly regarded he was at Berkshire for a while I believe he was like Warren Buffett's like first kind of investing in press apprentice back in the mid 2000 Berkshire so I don't know if you have thoughts of the chairman if you've had any reactions with him or anything um I have I have not I did reach out you know and um they've they've replied to me in the form of a letter and you know we'll see hopefully they hopefully they engage with me constructively right so you know we'll see we'll see what happens um i would say that you know i tend to judge as an investor i tend to and judge things by results right and you know

over the over the period um that he's been on the board right and you know now that he's going to be chairman you know what have the company's results been right so that's how i'd evaluate you know it has nothing to do with him personally and whether he worked for warren buff or not is not not really relevant right i mean you know to you know maybe maybe working for buffett as an analyst right is a very different skill set from being a public markets company chairman, right, or board member. So, you know, we're just, we're just focused on, on, you know, intrinsic value and shareholder value. And, you know, right now the company's metrics don't look great. And so hopefully, hopefully he can get them moving in the right direction. I just love how you put that because it's so

easy to fall prey to, oh, he's got a good track record. He's got a good pedigree. It's like, what have you done for me at this company specifically? That's really all I care about. If you've got a good track record and you're not doing something good, like either I'm wrong and the company is really in trouble or maybe your tracker or a result. Maybe you're not as good. Maybe you just don't care, but all of those things. I really love what you said. I want to remind everyone, we've been generous their time. I want to wrap this up, but I just want to remind everyone, hey, nothing on this podcast was investing advice. We're not looking to form a group or anything, but I think Samir makes a lot of really compelling points. I'll include a link to his letter

in the show notes. But Samir, how can people reach out to you if they want to discuss this a little bit further or anything. Yeah, so my email address is smear at ask gladden capital.com. You can put, you can put, I'm not going to bother trying to spell it on the show. You can just put the, you can just put, it's also on the press release at the bottom. So, you know, email's best. I'm also happy to talk to people. So I'm always interested in connecting with other people who, you know, may have, may have, I mean, some people may disagree with me, right? But even that's about, I mean, if you're an open-minded person, right, you should take feedback, whether it's positive or negative or somewhere in between. And I would just say, look, again, the stock, I think I followed these types of companies for a while.

I remember the pointer deal. I remember Verizon getting into a couple of these things. Fleet Maddox, I think, if I remember correctly, was another one. These are strategic assets. This stock is down about 33% over the last three years, if I remember correctly. Like, if you are a shareholder, you should reach out, I'm going to say it's a smear. You should reach out to the company, reach out to Samir, understand both sides. And at least, if you really agree with the company, that's fine.

but understand both sides because this is the potential to be a very valuable asset, and it's a very strategic asset, and you want to make sure that it's taken care of. So I would just encourage anyone who's listening or interested with that. Samir, anything else? We should be talking about anything else? No, I think that's, I think that's good. I really appreciate your time, Andrew, and, you know. I appreciate you coming on. I appreciate you coming on for your first activist investment. I'd love to have you on again, but next time, let's not do it on an activist investment. Let's just do it on a normal undervalued investment. Cool. Samir, thanks so much for coming on, and we will chat soon.

appreciate it thank you sir 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