Yet Another Value Podcast - Vince Martin on the "Game of Thrones" style proxy fight at $CUTR

Episode Date: April 19, 2023

Vince Martin, Lead Analyst and Writer at the Overlooked Alpha newsletter, discusses the "Game of Thrones" style proxy fight happening at $CUTR. For more information about the Overlooked Alpha newsletter, please visit: https://www.overlookedalpha.com/ Chapters: [0:00] Introduction + Episode sponsor: Stream by Alphasense [2:06] What is Cutera $CUTR - An Overview [3:33] Cutera's acne products [5:44] Sales strategy for acne products and how that panned out [8:35] Understanding to potential stickiness for AviClear and comparables [11:13] Proxy fight [15:21] Dynamics between CEO and Executive Chairman [21:40] Market response to board's decisions; specifically withdrawing 2023 guidance [25:00] Unique gamesmanship [27:44] More on withdrawing guidance; that could've been a tool for the board [30:50] How two biggest shareholders seem to not support the board's decision to fire the CEO and Executive Chairman [34:12] Executive Chairman's background; what's his angle and potential reasons for why he wants to become CEO [37:56] Board of Directors' potential paths to winning [42:50] How odd this proxy fight really is; as Andrew puts it, very "Game of Thrones" [46:27] Most likely outcome of the $CUTR proxy fight [48:03] Does every see a "golden goose" or value destruction? [51:37] Closing thoughts on $CUTR and valuation Today's episode is sponsored by: Stream by Alphasense Are traditional expert calls in the investment world becoming obsolete? According to Stream, they are, and you can access primary research easily and efficiently through their platform. With Stream, you'll have the right insights at your fingertips to make the best investment decisions. They offer a vast library of over 26,000 expert transcripts, powered by AI search technology. Plus, they provide competitive rates on expert call services, and you can even have an experienced buy-side analyst conduct the calls for you. But that's not all. Stream also provides the ability to engage with experts 1-on-1 and get your calls transcribed free-of-charge—all for 40% less than you would pay for 20 calls in a traditional expert network model. So, if you're looking to optimize your research process and increase ROI on investment research spend, Stream has the solution for you. Head over to their website at streamrg.com to learn more. Thanks for listening, and we'll catch you next time. For more information: https://www.streamrg.com/

Are traditional expert calls in the investment world becoming obsolete? According to Stream, they are, and you can access primary research easily and efficiently through their platform. With Stream, you'll have the right insights at your fingertips to make the best investment decisions. They offer a vast library of over 26,000 expert transcripts powered by AI search technology. Plus, they provide competitive rates on expert call services, and you can even have an experienced by side analysts conduct the calls for you. But that's not all. Stream also provides the ability

to engage with experts one-on-one and get your calls transcribed free of charge, all for 40% less than you would pay for 20 calls and a traditional expert network model. So if you're looking to optimize your research process and increase ROI on investment research spend, Stream has the solution for you. Head over to their website at streamrg.com to learn more. Thanks for listening and we'll catch you next time. All right. Hello and welcome to the yet another value podcast. I'm your host, Andrew Walker. And if you like this podcast, it would mean a lot. If you could follow, rate, subscribe, review it, all that jazz, wherever you're watching or listening to it. With me today, I'm happy to have Vince Martin. Vince is the head writer of Overlooked Alpha.

Vince, how's it going? Quite well. How are you? Thank you so much for having me on. Hey, really appreciate you coming on. We got this going on kind of quick notice because it's a really interesting situation, but I'll get to that in a second. Let's just start the podcast the way I do every podcast with a quick disclaimer. Remind everyone, nothing on this podcast is investing advice. That's always true, but you and I are going to be talking about about a 500 million market cap company. You know, it's a med tech company. There's all so smaller med tech, all sorts of risks there. And it is one of the wilder proxy situations I've ever seen.

And, you know, a wild situation means a lot more volatility, probably a little extra risk there. So everybody should just keep that in mind. This is an investing advice. Please do your own research. All that out the way, I'll turn it over to you. The company we're going to talk about is Q-T-R. The ticker is C-U-T-R. You and I both kind of be connected because you published on Friday.

on Monday. We were both looking at the same time. Some really wild stuff happened over the past week. But I'll stop there, stop rambling and turn over to you. What is Qatara and why are they so interesting? Kutera is what's known as an energy-based aesthetics company. Listeners may not know Kutera or even some of the other companies in the sector, but they're probably familiar with some of the brands. So you'll see billboards on interstates for cool sculpting,

which is a Zeltic. That's part now part of AbbVee. Ketara itself, they do acne care through a cooling. They do, that's known as body contouring. It's essentially used, it's a version of liposuction without surgery. You use, and these companies all use basically very concentrated energy. So, Zeltic does, they freeze the fat cells. Fetara, they use RF radio frequency technology to heat the cells and destroy them that way.

It's known as body contouring because, basically for regulatory reasons, they can't call it what it is, which what it's supposed to be, which is basically fat removal. And then there's vaginal health, there's tattoo removal, all different. They're all kind of broadly speaking the same idea, which is you use concentrated energy for aesthetic reasons, mostly related to dermatology. And Katera is certainly not the biggest player in their space, but they've been public for 20 years, which I think revenue this year should be close to 300 million if I remember off top of my head.

So a reasonably large player in the space. Yeah, no, that's perfect. You know, I guess the one thing is so they've got all these products, which you know we're intro seeing, but I don't want to say they're me too because this is regulated med tech, but you know, it's not like they're the only person providing the true sculpt and the body contouring. Like there's four or five players out there. There's nothing special. I guess the thing to get into before we can get to the real juicy proxy battle is to talk

about their acne solution that they kind of ruled out last year because that's the growth driver. That's the thing that differentiates them from. I had some messages when I said you were coming on the podcast. They were like, oh, I looked at this company four years ago. And I thought this was great. And these companies, they always kind of disappoint you. So why don't we talk about the acne product and then we can dive into the real juicy stuff? Yeah, because I think part of his acne products appears like it is a part of the juicy stuff or a catalyst for the juicy stuff. This is called Aviclear. It's a cooling, like I said, it's a cooling technology, so it's a little different.

But this was supposed to be a big deal for the company. It really helped drive the stock up ahead of the launch. The launch was commercial launch was last year because they were the first ones. And that's a big deal in the space. Zeltic is a great example of that. They really won in the body content. touring thing and they wound up getting taken out for close to $3 billion. So you can, the idea with this was they were really ahead of the market.

There's now a second competitor, but they're private. They don't appear to be, I don't, if Kutera executes well, this other company really shouldn't be an issue. This really should be a market. Kutera has to itself for at least a couple of years while the other players in the space try and catch up. and then there'll probably be an IP lawsuit because that's also the way this industry seems to go.

But yeah, that was a big driver and it kind of doesn't seem like the Q4 results are a little disappointing and it doesn't seem like it's kind of quite where it's certainly not where investors expected to be. That's why the stocks plunged, kind of giving back most of the gains. But it seems like the company itself after Q4

was saying without saying that they were a little disappointed. pointed with the launch. Yeah, I think they were saying a little disappointed with the launch, and they were all saying, like, your sales force, like one of the, one of the advantage of these, right? You have a whole product of dermatological devices, right? So you can go and sell into a derm, the true sculpt and the aviclear and all this sort of stuff. And, you know, maybe each product isn't perfect, but you can sell multiple ones. And I think they were saying, hey, our sales, I know they were saying, our sales force, we might have incentivized them too hard to go after

Aviclear and they kind of stopped selling everything else. So we're restructuring, we're restructuring our Salesforce for restructuring our incentives, everything, taking another look at that, which, you know, sounds reasonable, but at the same time, it does blow back on the CEO, it blows back on everyone like, hey, you're not the first person to launch, you know, multiple products in a portfolio. The fact that you so misaligned incentives for the sales force and you have to go restructure it, like, that's not good. Not great, Bob. Not great, Bob. Yeah. And yeah, and at risk of jumping ahead, the board that was in the board letter. I think that was this morning. They actually made precisely that point.

And when I had the same thought you did, it was that they were writing, you know, that the strategy been to execute by the launch. And you're right. I mean, I think it was the CEO, Mary, who literally made that. I believe it was him who said, who admitted on the Q4 call in February that, yeah, we didn't have the Salesforce set up, right? And they were selling, they were selling Aviclear and didn't sell anything else. And this is really, I mean, we talk about that a little bit. this is a sales driven business. This is very rarely, like, these are not, these are not MedTech products where, you know,

a specialist understands from their training that they need X product and they, when they start an office or when they replace or when they expand, they go get them. These are because they're cash pay, one of the attractions to doctors offices, in particular, these are all cash pay transactions. You don't get insurance involved. so if you can if you can get something in your office you have it in a room they're they're increasingly designed for small training and kind of short visits like even out there's three i think it's three 30 minute visits right that's correct so you you have one assistant

handling this stuff the paperwork's pretty minimal minimal because you're just running or swiping a card there's no insurance um so they're attractive to doctors offices but at the same time they're not something that a dermatologist necessarily is going to run out and call you. So your Salesforce strategy in this business really needs to be on point. And if you look, like I said, I followed this for years and owned a couple of companies in the space. When they stumbled a lot of times, excuse me, that's the explanation or the excuse me, that's the explanation or the excuse or the cause.

The Salesforce had some issues. They don't perform. Another company's doing better. And once you fall behind, you get in trouble in a hurry. Yeah. look, you know, they're not one-to-one comparables, obviously, but the kind of comparable is Botox, right? Like, there is huge demand for an aesthetic, but you need to go out to the dermatologist, you need to pound the doors to get the Botox in there. You need to explain to them how to do it,

how to it quickly. And the doctor is going to want to do it because there's huge demand for it. And if they do it quickly, as you said, it's a cash pay product. They're going to make tons of money, right? This is why plastic surgeons have the boats and have the Vancey cards and stuff. But you need to go out and sell and, you know, it's boats, even Botox. It's a competitive space. and if your salesperson isn't out there knocking on the doors, especially for a startup product like this, like Aviclear, if they're not knocking on the doors, going to grab doctors selling them,

why to use your product over, you know, the competitor down the corner, you're not going to sell and you're not going to get all that. So it is, it should be a simpleish business, but it is execution driven and it's kind of high risk, high reward.

But as you said, you mentioned a couple competitors got them taken out, like if you get this going, it's an annuity stream, right? Once you get the Avicleer in the system, you get to the cut of every procedure that's going forward. Right. And if the doctor, if he's fully booked up on AvaClear, guess what?

He's not going to want to switch to the guy down the street because he's going to have to get the new thing in. He's going to have to learn. He's used to it. He's going to have to all his patients while he's switching. Like, it's a pretty nice annuity stream once you do get it in there. Yeah. And the doctor to replace is also going to have to pay up front, you know, mid-sixth, you know, 150, 250, depending on the product. You know, it's not cheap.

But, yeah, and I'd add one more point about, how you're talking about sales force. One of the big things that they have to do is teach doctors out of market because a lot of of doctors that's not there are some doctors who kind of build their practices that way but there are many who don't and so it's not a matter of you can put it in the room but if the only way your patient knows it's in the rooms you have a poster in the waiting room you're probably your utilization rate I think is probably not going to be like super high just so marketing we'll go to the proxy in a second there is also with marketing there's benefits to scale right like you have to teach the doctor how to market and that's one side of it but if you think

similar to either a McDonald's or something if you can get like if you're just marketing in the doctor's office, that's one thing. But once you have 100 or 500 doctors, you can start doing, you know, you see the advertisements for a Botox on TV or something. Like, you can start doing national advertising. And you can start kind of doing that whole advertising instead of only in the doctor's office. Or if you think of a local market, you know, I've done to work on the Botox competitors. You think of a local market. If you have one doctor who's doing Botox to the Botox competitor, you probably can't afford a billboard. But if you have 10 doctors, you can probably take all of their advertising, put the billboard for, hey, go get Botox,

the 10 doctors, like you can get a little bit of scale and kind of get a little bit of local economies there. Yeah, absolutely, no doubt. Cool. So why don't we turn to, you know, I think that's a fine overview of the business and we can talk valuation. It's tough to value because as we said, Abby clears a startup and if they get 2,000 versus 4,000 versus 400, office is going to be hugely different. We don't really know the firm economics of it. But why don't we talk about the proxy fight? Because I think that's what's most interesting. I'll just, you know, everything launches about 10 days ago. I'll just let you talk about the everything that's going on however you want and all interject if necessary um yeah i mean

it's uh it's it as you said it's it's it's a fun one and um it kind of it kind of burst you know kind of came out of nowhere as far as we know it certainly seems like there's been stuff going on um but and you can actually correct me if i'm wrong here i mean i think the first public thing was the announcement that the CEO and the oh no that was the first public what was the first, I'm missing this. The first public thing is April 7th. The company, and anyone can correct me if I'm wrong. This is to my knowledge, but to my knowledge, the first public thing is April 7th. The company quietly files an 8K that says, hey, our executive chairman is seeking to hold a special meeting to replace the board. And, you know, they quietly file an 8K. And that is, that's not a quiet

8K. That's a pretty big news. So that's how everything starts and it just really escalates quickly from there. Right, right. So you have that. Yeah, you have that on the seventh. Yeah, and then there's letters going back and forth. The CEO, the chairman, they come out with their side of the case. There's two, I think it's on the 11th, right? There's two letters from major stockholders, which, both of which are basically publicly saying, come on, guys, don't do this. I think they both wanted the CEO replace they wanted a special meeting which is what the demand they wanted that which was what the chairman's CEO has basically said let everybody vote but put the CEO back and let's try and not not have this public thing and then on the 12th the company fires fires the chairman and that in

particular is pretty unusual yeah like it's one thing for you know a CEO or CFO but you don't really see a chairman get get fired too often they fired the chairman and the CEO and and then they announced the next day, right? The 13th, they say that they say, okay, we'll do a special meeting. Everyone can vote. We'll figure it out from there. And then you have a letter from the board this morning, kind of given their side of the case after the CEO and the chairman basically said the board is working undermine us. They alleged that the board was using Kutera's counsel for their own purposes, that more board members were micromanaging. And then the board basically came out and said, look, the chairman has been trying to get the CEO

fired for two years and we were going to fire the CEO anyways. And the point that we were saying about the letter this morning had the point about the public admission that the sales strategy behind Ava Claire had impacted the rest of the business. And I think that's about here where we are. The special meeting is in May 9th, I think early June, early June. June 90, right? Yeah, that's right. And now, a quick word from our sponsor. Are traditional expert calls in the investment world becoming obsolete?

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

optimize your research process and increase ROI on investment research spend, Stream has the solution for you. Head over to their website at streamrg.com to learn more. Thanks for listening, and we'll catch you next time. Let's pick up a little bit because there's a couple parties here, right? there's the executive chairman, there's the CEO, there's the rest of the board, there actually is one board member who's kind of on the exact chair and CEO, sorry, but I'll ignore them. So there's executive chairman's one party, CEO's another, the rest of the board, and then there's two major shareholders here, right? And every party, I think what's interesting is every party is pushing and pulling. And I guess the first thing that's interesting to me is, and this

is actually what caught my eye. The executive chairman and the CEO are the ones who kind of launched this fight, right? The board files that 8K we talked about that says, hey, our executive chairman is trying to call a special meeting, but basically the next day, the exact chairman and CEO come out and say, we're calling the special meeting together. And what caught my eye is the board's first response is, and you kind of alluded to it, hey, the executive chairman has been trying to get the CEO fired for several years. You know, the first letter they said it started back in 2021. And I believe the letter this morning, they said he might have even started trying in 2020.

Yeah, they said 2020 this morning. And not only has he been trying to get the CEO fired, but the executive chairman who, you know, runs an activist fund. The executive chairman has been trying to personally replace the, uh, replace the CEO as CEO. And what kind of caught my eye is it's really strange just for an executive chairman and CEO to partner and try and outs the rest of the board. But it seems really, really strange when the executive chairman tried to fire the CEO and now they're partnering together. And you know, part of the partnership is the CEO and chairman are saying, hey, our CEO, he's ready to retire. He was looking into succession planning. But,

it still strikes me as very strange that the CEO and chair would partner together after the chair tried to fire and replace the CEO. So I just want to ask you like, you know, all of these things are done for a reason. These guys are fighting over tens and hundreds of millions of what do you think is going on with the executive chairman and CEO's relationship here that they're partnering together now? I have no idea. That's a really good question. Part of the problem of this is really fun to read about and it's fun to talk about. But when you ask questions, why is this happening when you're an outsider, the answer a lot of times, I can't imagine. I don't disagree, but just not knowing.

I don't disagree. I do not know. But the speculation is interesting because all these parties should be trying to do what's rational in their head. And, you know, if you can figure out, if they don't say it, but you can figure out the reasoning, like, you know, maybe they're partnering because they see $500 billion value here. Or, you know, maybe they're partnering because the company's falling apart and they want to take over and, like, cover. up what cover up how bad they've run it or something like both are possible and if you can figure out one way or the other that's kind of where the alpha could lie oh let's say that's funny yeah i actually i kind of didn't think of it i i didn't think of it is that extreme my my thought i would think

was a little more along along your original i kind of thought two things one is i as he said the CEO as as it has said publicly that he was he i think in february he went to the board and said that he was thinking of retiring anyways um So, I mean, one of his very clear incentives is to not be fired for cause because there's a pretty, pretty substantial severance difference there. I think the other, I think the other likely explanation is that the enemy of my enemy is my friend. The CEO, Maori, is probably not real thrilled with the chairman plants, but he may be, he may have less animosity. based on what we're hearing, he may still have less animosity towards plants than he does to these, the entrenched board members, as they were called in the, as they were named in their

letter. You know, still, it is strange to me, just, just harping on that, it's strange to me that he would have, he would be less, he would align himself with the executive chairman who tried to fire him versus the rest of the board. Because to me, like, if I just imagined a typical power struggle in my head, you would have an executive chairman who wanted to kind of take control the company and BCO. And then you would have the CEO. And it seems like the natural alignment would be executive chairman on one side and the rest of the board and the CEO on another side. And again, like the CEO is trying to retire. I don't know what

happened between kind of call it February when he announced he wanted to retire and today. But it seems like if he just stays with the independent board tries to retire, keeps going with the succession planning. He's not getting fired for cause. So all of his retirement stuff is investing. Like it just seems a weird alignment. Yeah, that's, that's, that's, that's quite a fair point. Yeah, that's, that's a, that's a very good point. Yeah, it is, I mean, it is strange. And I mean, I, I, there's just a lot of strange aspects to it. To your point, you said, you know, you didn't, you didn't know what it happened since February. Plants and Maui said that in their letter that, that, that, um, when Maori, the CEO went and said he wanted to retire, the board, like, just didn't do anything. Yeah. And you kind of get the sense,

like from the board's response that that's probably true because one of the things that you get you know it's kind of funny the board sitting there saying hey look you you know you guys botched the sales force thing that the you know you botched the launch of avicler and having the sales force in the right position and then they're writing a letter saying basically we we wanted to fire this guy for two and a half years but i get we were busy or so i don't know it's kind of like you kind of look at the board's letter like okay this was such a train wreck that you wanted a fire room. And then he comes to you and says, I want to retire.

Why is this another six weeks going by when you're in the middle of this critical launch? And you have what you're saying is a bad CEO. Why are six weeks going by with no interim, no plan? I mean, you would think if he comes to you in February and says, I want to retire, you'd be like, great, this is one less thing we have to do with. You would think that there would be the outline of succession plan if you were talking about considering firing him for again we don't know it was either 2020 or 2021 so it's two or two two and a half year something like that um you know so and then that kind of leads you back to the

side of the chairman the CEO like yeah maybe these guys aren't really do maybe these board members do need to go so of course it's because they didn't fire the CEO who's saying board members need to go so we're kind of going in circles there so i'm going to come back to the executive chairman and CEO in a second and i'm actually going to come back to all the parties a second But I do think one thing that jumps out is the stock sold off kind of hard last week as this goes on because, you know, the exact chair and CEO kind of filed the first shot where they call for the special meeting. They put out, they put out their PR calling for it. They publish a letter from like, I think 10 of the senior managers at Qtera saying, hey, we really support the executive chairman and CEO. And I'll come back to that in a second. But the stock really sells off hard Thursday, Thursday, Friday. I can't remember the exact day when the board does their response. And their response is we are firing the executive chairman. and CEO for cause where one of the board members is stepping up as interim CEO and they've been very clear this is interim. They're not trying to go full time or maybe they start changing that after, but they say

that. And then the thing that I think causes the stock to fall off really hard is they just say, and they don't really give any explanation. They just say, and we're withdrawing our 2023 guidance. And I think the market, the market's always going to shoot first and ask questions later, right? You just had the two top people at the company fired and it's a hypergrowth company. you know, again, we don't know where Avalclair tops out. It launched last year.

This is the year where it's supposed to be growing. They had sales first issues. And they just withdraw 20203 guidance without anything. And that's where the stock kind of falls off. And it's recovered since then. We'll talk about the other shareholders. But what do you think the board, what do you think the board is doing with the 2020 with guidance withdrawal?

Like, is this a continuation of the issues they see in Q4? Is this saying sales are weak? Or is this the board just trying to, you know, cause terror as they fire this thing? to get shareholders think, oh, we can't support this old management team? I think that there's absolutely, I should say absolutely. I would put a lot of money behind the speculation that there's some significant financial problems going on. And I think there's two reasons for that.

One is what you talked about with Q4 being soft and the sales force issues. Those generally kind of don't get fixed. This is a long, this is a long sales cycle business. Again, I mean, I don't know off the top of my head to have a clear price, but most of these devices are 150 grand up front and they can get financed and things like that. But these are, this is not something where you fix your Salesforce stuff and they go out and sell and then they're bringing in revenue a week later. So you have that issue. But you also have the issue that, excuse me, these businesses are really, really macro sensitive. And I think if you kind of look at some of the warning signs and consumer spending,

more generally. And I think without this board drama, if they had withdrawn guidance for the full year at this point, it wouldn't be the most stunning thing in the world. That's kind of what these businesses do. Kutera itself, I mean, if you look at their numbers, I can't, I'm probably, yeah, I'm roughly wrong. But if you, like, in 05, 06, they were doing, I think, like, 15, 16 million in operating profit.

And in 2009, 010, they were losing almost that. much. I mean, these businesses swing in a hurry. So I think there may be some gamesmanship involved, but I think, and I think certainly the market believes that there's an underlying financial issue to underlying financial logic behind them withdrawing guidance for the year. See, I think I would tend to agree with you, but the one, the two things that make it more interesting to me are the executive chairman and the CEO are fighting really hard to take control here, right? Which I, they're fighting really hard and they're fighting from a position like they think they have strength, which I don't know if they can do as clearly if like the Q1

and guide are just an absolute disaster, if that makes sense. And then the other thing is this senior management of the company, you have 10 of them come out in strong support of the CEO and chairman. And like, if I had run this in my mind, if you had told me everything else that happened here, my gut would have been that you had like the CFO or the top two commercial guys who had written a letter to the board like, hey, we've been working with the CEO and exec chair for six or nine months. We are way underperforming our potential, our commercial potential sales are falling off a cliff. And it's because of these guys and their strategy, we need someone new. You know, kind of like what happened with Disney, where the CFOs kind of

acts the old CEO by saying, hey, board, it's time. Like, we can't do this. Like, that would be my guess, but that's not what happened here, right? You had the executive committee coming out in support of the CEO. So that's just why it's so strange. And again, it's one of the reasons why I'm so interested in this situation? Yeah, I think that's true. Yeah, I mean, one of my kind of, maybe I'm getting too skeptical in my old age, but one of my thoughts with the, you know, with the executive letter that came out was also, I mean, they probably want one of those two guys, right? I mean, if you're the CFO or if you're a senior vice president of this company, you and you know those guys and you're probably, your job's probably,

a little safer with one of those two guys. And maybe it's a lot safer, particularly if, particularly if you're struggling, particularly if the narrative that you're telling yourselves and each other is, look, we'll be fine. We're still, we have our, it's a little slow, but, hey, it's the economy, but, you know, like, I think that, I think that there's a version of the story in which, in which sales are, like, you know, where results, if you could make them give guidance, they would kind of be like a little bit below the low end.

Like it's not, it's not like it's a disaster. It's not like everything's going wrong. But, you know, maybe revenue is going to be the target for revenue is 10 million below the low end of the original range. And maybe they're doing 60% of the Ava Clear installations they thought they were going to be. Like somewhere in there where you, it's, it's enough that the people running the business can tell themselves that they're still doing a good job against external headwinds. And yet, do you got?

that was being given in February is probably not worth. I like, and probably the management team says, hey, the sales are falling off in late March. And guess what? You know, a lot of germs were banked by Silicon Valley and First Republic. So a lot of the germs are having. A lot of doctors are banks, especially by First Republic, I believe. So that kind of you could tell yourself the story. Here's the other reason I'm curious on the guidance withdrawal and why.

Normally I'd be with you, but maybe I'm a little more skeptical that it's a disaster here. because QTERRA, in the press release that the board released this morning, they don't even address the guidance. And like, I kind of think, and we'll talk about the big shareholders in a second, but just to sum it up, two big shareholders basically came out against the board, plus the exact chairman and CEO, like, I kind of think the board, if you're waging a battle, you've got this special meeting coming up in six weeks, like your biggest bullet would be just put in, they do their first big response this morning. your biggest bullet and your ineffective and leadership and poor execution bullet for the CEO would be hey 2023 is off to an awful start we are missing everything

we need somebody to come in and write this ship and they don't really say that in the letter right they do say you tariff filed the form 10K late we couldn't develop a budget that was grounded on supportable assumptions but they don't say hey 2023 is off to an awful start

yeah that's a that's a good point yeah yeah that could be i i kind of i think i as when i read it the first time i there's the line there i'm pulling it up here that um uh the missteps in the rollout were quote were unforced errors that diminished our confidence in mr mary's ability to execute our attractive advocate clear strategy to me that to me there was a little i took a little bit of that as maybe that product is disappointing. And to be clear, I don't think, when I was saying, like, I think that there's financial logic to guidance, I don't necessarily think that 2023 actuals are going to be a disaster.

I'm just saying in the past, like when the economy has turned real bad in 2009, their results were a disaster. So in a situation where the economy, at least from the consumer standpoint, it may be weakening, it wouldn't surprise me at all that their results are going to be softer than they thought they would be even six weeks ago. Completely makes sense to me. I just, you know, again, if I'm the board and we'll talk to the big shareholders in a second, but if I feel a lot of things calcifying against me, like, my first shot is to come

out and be like, sales are just a disaster, you know, kitchen sink the thing. Right. You guys can't possibly support the CEO because forget how bad fall 2022 was, forget how bad Q4 2022 was. All that matters since the future. And the fact is we were way underperforming right now and we were going to keep way underperforming under the CEO, and they don't quite see that. And I wonder why they don't.

Yeah, that's a great point because, I mean, you have, I can't remember any off head, but you definitely have heard boards make that, you've heard boards or activists or other people, you know, people in these proxy fights make exactly that claim. And you're right that they did. And that's interesting. So let's go to the, there's two big showers. And the other reason, I'm just like, if you had told me you had an exact chairman and CEO versus board fight, And they seem ready to go to the mat here, right?

My instinct would have been that the board had reached out to, had had either inbounds or kind of softly reached out to a couple major shareholders and had major shareholders who were, who said, yeah, it's been too long. The CEO has underperformed and we need somebody to go. And again, it doesn't appear like the board does because last week, right after the CEO and exec chair fired, RTW and Pure Vita, those are two separate firms, both of them off the top of my head, they're into like 7 to 10% of the company range. So these are major shareholders. They switch from 13 Gs to 13Ds and they publish press releases that say,

hey, don't go this route. Don't fire the CEO and chairman. We support a special meeting because we want to replace the board based on we're really concerned about the board. So I look at the special committee and I say, hey, you just pissed off the exec chair and the CEO. Exec chair owns 7%. Your two other major shareholders who own about 7% each. They don't seem to support you. How does the board see a path to winning this? And again, this comes back to the, you didn't come and blast the 2003 results so far. Like, how does the board see a path to winning this? Yeah, I'm not sure. I think that they're trying, I think that they're just kind of trying make their, make their case. Yeah, it's hard to say. It's possible that they didn't really

quite gain this out. You know, they fire because, I mean, they announced the firing for cause on the 12th and then they're calling the special meeting on the 13th and that itself is kind of strange which is basically like why you know did did they get a whole bunch of phone calls on the evening of the 12th saying basically you guys better call a special meeting or else we'll do it for you yeah it's it's really hard to say and it it goes back to kind of the idea that it is that the complaints against these board members sort of seem valid because there's just there's not a lot of strategic, there doesn't seem to be a lot of strategic foresight or organization or, and when this, I mean, that's one of the points that the, the chairman and CEO made

is that these guys just don't do anything. They're asked for things. They're told things and they don't respond. And you kind of, in this fight, you're kind of getting really like, that point seems sort of more and more, it seems to getting more and more support from, because you're right. I don't, I can't answer that and it doesn't, I think their path is basically to say, you know, that the CEO is going to leave anyways. He should have left. He was a bad CEO. And then the chairman was doing this Machiavellian stuff. So you don't want a guy there who's trying to line his pockets. So, you know, and so if you vote for them, you're going to, you're going to wind up with this guy as CEO who's going to pay himself, you know, $15 million a year comp package.

and that's no good. I mean, that seems to be the kind of the core of their strategy. But to your point, when the other side has already got, you know, 20-odd percent of shares in their pocket, you know, the math starts getting going against you pretty quick. Let me go back to the executive chairman real quick. So he wants to become, it seems pretty clear, he wants to become the CEO. And I do think that that is interesting because the executive chairman is a partner at, I believe it's vach. Vachy? It's not lost. Yeah, I'm not sure. I kind of assumed it was Vote or something

like that. V-O-C-E Capital. I don't personally know them. I've heard fine things, but he runs a kind of activist firm, right? He was the executive chairman here. Great. Yeah, I mean, my understanding, there was a profile of him I read that they're kind of activist-ish. The tagline and, like, there's a profile in an industry magazine, you know, was not, wasn't a hard. hitting piece with the tagline with something like always always engaged sometimes activist or something like that. So they're not kind of a pure, pure activist firm, but I think that's a strategy that they have used. I know they were in Argo, which was an insurance company that ran to that stumbled a lot and they eventually got that sold. He's been executive chairman here. Obviously he's been

involved here. But he's tried to come to the CEO. And I just think that's interesting, right? Like if your backgrounds in portfolio management and you're trying to become the CEO of a startup, not startup, but kind of growthy med tech sales focus company. That's interesting. What do you think kind of his angle with this is? Does he just think, hey, I can get in there, focus on capital allocation, hire the right guy in commercials or in commercial sales? Or does he mentions in one of his letters, I spend 20 hours plus a week at at CUTR? Like, does he think he can come in here and actually run a MedTech CEO, be a MedTech CEO?

I would imagine. I mean, I think, I mean, we've seen this story before a couple times, but yeah, it's, I mean, I think it's certainly possible that he's, he's in there enough that he thinks that there are material changes that he can make, that are really going to drive value and really drive growth and all those sorts of things. And who is the, who is the manager? It's, it's VATE now. Innovate. Innovate. Innovate. Yeah, oh, and I don't innovate well, yep. Yeah, I mean, that's what was one of my thoughts was like, you know, whatever side you take,

like I really don't want to own a company who CEO is a hedge fund manager with all due respect to any hedge fund managers listening. And I think particularly to your point about it being a med tech and being, if I had to have a hedge fund manager as CEO, I don't think this is a kind of business I would choose. But yeah, I think to your point and to your question, absolutely. he can do it. I don't, I don't think there's any doubt. He thinks that he could and should add value. And I think, I'm sure it's the kind of case where if you're there, he's probably there enough that he feels he knows the business well. And I'm sure that there are specific things that he sees that, you know, oh, if we could just get this fixed, it would really be a game changer.

And why hire and why hire someone else to do it to fix it if you can do it yourself? Yeah, it seems to me, and again, this is outside. We haven't even seen the, the CEO and exec chairman filed a lawsuit against the company, which I don't believe has been on sealed yet. There's still going to be more. But it seems to me the weakest point of the exec chair and CEO's point and the strongest point of the board's points is that the exact chair wanted to become the CEO himself and he doesn't have the background for it.

And, you know, if this was just me, I wouldn't have tried to be the CEO of a, if I was on the board, I wouldn't have tried to become the CEO. And the first thing I would put out was, no, these guys are crazy. I'm not trying to take the CEO for the job for myself. And since he hasn't done that, it seems like he is. And it's another thing in a very strange, in a very strange situation that strikes me as strange. Let me go back to the board. At this point, I think we've talked about, hey, three major shareholders,

including the former exec chairs against you, senior management seems to be against you, CEO seems to be against you, CEO is against you. The board has two paths to winning here, right? They can go and change major shareholders' minds, and they tried to do that with the release they did today. maybe they've got more stuff coming out. You know, they put a lot of stuff in there that I think is questionable on the exact chairman's comp demands and everything.

Maybe they can show, hey, support us. We really do have shareholders best interests at arts, even though the first, your knee-jerk reaction was the first shareholders was to go the other way. So they can do that. And I think they could do that in two ways. Number one, they could hire a rock star CEO, right? Somebody who grew Botox from zero to $10 billion or something, right? They could hire a rock star CEO.

I think that's difficult here, right? Because if you're the current board, if you're a CEO who's a rock star, you've probably got your choice of companies. And this board comes to you and says, hey, our former CEO and executive chairman are running a proxy fight. Every shareholder is against us. The executive chairman clearly wants to be a CEO. You're a rock star. Why don't you come in and here and we'll hire you? My first thought would be a better negotiate a pretty good firing package because I'm going to get fired the moment the new board comes in.

So I don't know how they could get a rock star CEO. on day one and five million my first day and five million my last day. I'll show up. Yeah, it'll be about 14 days of work. So I think the Rockstar CEO is really tough. Though, again, you know, we kind of, I laid out the math where if you think Avi Clear is this great acne product, you know, you could lay out the math to 250 million, 500 million, even more, an annual revenue. Maybe if you can convince a Rockstar CEO, that's the case, you could get them in on the, hey, look how big this thing could be. We're going to hire you in your reputation. procedures you and even if we get the even if we lose to the exact chair and all the other people

they're going to want to keep you because you're so you're so good like that's the only case I could kind of see yeah yeah I think you're right I think it's tough from I think their best I think the core of their strategy is basically going to be that the you know the devil you know to shareholder is going to be the devil you know is better than the devil you don't that brings I agree though again it seems like the board's already the decks already sacks against them so that brings me to the other thing I think if you're the board you're the board you're your only way out of this at this point is sell the company for a huge premium before the proxy fight, right? And again, even that might be tough because it seems like the exact share and the major shareholders are playing for a multi-billion dollar EV company.

This is a, you know, 500 billion company currently. It seems like they want, it seems like everybody's a believer and wants to see Aby Clear kind of play out and see if they can get a multi, multi-bagger. But, you know, if the board could go and find a strategic to put a number that starts with a four in front of shareholders or something, maybe that's, the only way for the board to escape? Yeah, and that's a narrow path. I mean, we're at 23 today. The stock came into the year at 43. So, I mean, if you, yeah, so you, I mean, I think it's really hard just as a general rule. It's really hard to sell a company for a price below your, your year-to-date high, like, except in really extreme. And maybe these are extreme circumstances, but I think it's going to be really, you know, those shareholders are not going to take, you know, a 40% premium to the current close, as he said.

And the other issue, too, I mentioned this a little bit. My article, the history of strategic acquisitions in this industry is pretty ugly. Probably maybe the most unknown, horrible acquisition of the century was a logic acquired sign ashore. In 2017, I think they paid $1.7 billion and less than three years later, they sold it to a private equity firm for $138 million in net cash. And then Zeltic, which we talked about, is now part of that was bought by Allergan, before it was bought by Avi. That was a pretty ugly deal. They got bought, as soon as they got bought their revenue tanked. So I think coming and going, trying to sell this company, would just be.

I think it'd be really hard to get the shareholders on board. And I think the flip side is trying to find a strategic who's going to do anything other than offer, talk to themselves in offering 27 and saying, hey, look, we'll give you a little premium, get you guys out of this, and you don't have to worry about the mess, and we'll take the risk of out of a clear disappointing. But I think trying to find, trying to thread the needle on both sides to something that gets done, boy, that just seems, you know, it's probably going to have. happened in two weeks now that I said this publicly, but to me, it just seems really like a pretty

narrow, very, very narrow path. No, I agree. And look, I'm thinking through this in real time, right? This started last week. I published on it this morning. All these are new, but it's just the thing that's jumping out to me as we talk, and I think we said earlier, like, I would think boards would be, I understand everyone isn't always hyper rational, but you would think a board before they fired the exec chairman and CEO and went down these past. You would think they had some path and it just it just doesn't seem like there's a path because i agree with you it seems an acquisition is unlikely but that seems the best way they did and if they had in their pocket like hey two strategics have reached out to us in the past six weeks and you know are offering 40

per share and we think shareholders would accept that like they could have done all this knowing that they could open up the strategic process but as you said like everybody came in here owning the stock at 40 earlier this year, if a strategic offered what's almost 100% premium and $40 per share, I'm not sure you could, this strategic could even be sure that they'd be guaranteed to shareholders would accept this and they could get this done. They'd be walking into a hairy process. They'd have to do due diligence. And as we talked about, we don't know what the current sales trends for Obie Clear look like. It could be a lot worse than the company thought at the beginning of the year. Like, my God, it's just a really weird situation.

Yeah, it is. That's, yeah. I mean, I'm glad you asked you to talk about because I've enjoyed talking about real time too. I enjoyed writing about it. It is it's like these proxy fights like this like at public don't happen that often. And even in that small group, it kind of stands out for being a little, it's a little extra nuts and as a little, a little, it has extra angles to kind of think through and all that stuff. And it is also kind of to the broad point, it is a proxy fight where really no one's covered themselves with glory yet. Like if you don't have a position, there's not. really anyone yet where you're really rooting for. I guess the, I guess the employees and

the kind of the management out below the C-suite. You hope it works out for them. But no one's really, from what I've seen, no one's really jumped out as somebody who, um, who's really got the right strategy and it really has been in the right, in the right place to this point. You know what put it over the top for me? I was kind of thinking, do I want to write about it? Like the CEO and chair, the chair trying to fire the CEO and then aligning with the CEO, that felt Game of Throne style to me, right? Like my enemy has become my friend. What really actually put it over the top for me last week, it wasn't the extra shareholders coming out.

It wasn't the, it was there's an independent board member who I believe has worked with the exec chairman's firm before. But it was the independent board member when the board came out and said, we're firing the CEO in the chair. And one of the independent board members put out a PR in his own personal capacity saying, hey guys i don't support any of this i'm just here to maximize value for shareholders i got your back it was just the independent shareholder coming off the top ropes you know if your game of thirons he's like little finger like you know the big guys are moving on he's just looking to find where to put the knife

that was what really put it over the top where i was like my god just i can't believe how many people are arguing with the with what's going on here yeah if you you know i laid out a bunch of things i think we both probably agree but might as well ask the the the you it seems like the special meeting is going to be called June 9th. There's infinite number of possibilities here, right? Company could get sold for a huge premium before then, as we discussed. Board could cave. We could see a settlement where half the board stays and half the board comes.

The exact chairman could become the CEO. We could see a new CEO. We could go all the way to the wire and see a vote goes, go down. If, you know, July comes around, what do we think we're looking back in hindsight, the results of the QTara game of, throwing solid proxy season came out to. I think the most likely outcome is that plants, the current chairman is the CEO,

how exactly that, how exactly you get there, whether it's a settlement or them or them losing the, or the board losing the proxy, losing the special meeting vote. I think to your point, I think the math is just against him. And I think that there's a little,

I think there's too much evidence just reading between the lines that the board has been ineffectual. So if you're kind of, if you're a shareholder and you're kind of on the fence, you know, I think you can believe what the board is saying, but still figure that it's just better to get those guys out of there and get someone new because if plants is a, you know, if plants does kind of follow the trajectory of some other hedge fund managers, maybe you just can just move on from him easier than you can move on from board members who have been there for so long.

So, yeah, I think that's the most likely, I think that's the most likely outcome. And I think by the end of the year, I think by the end of the year, this is what we're looking at it. Like, I think I would, if I had a bet, I bet stock price actually probably a little lower. And I think we're probably checking back on this going, oh, you know, it's an interesting turnaround play. Maybe if five a clear gets going in 24, there's a chance here. Let me ask you one question on that. that that's one of the other reasons I came here, right? So you've got this company, it's got this growthy product, Abby Clear, and everyone on all sides is arguing for it. And originally, before I was

kind of convinced that the independent board probably didn't want to become full-time CEO, one of my thoughts was, oh, maybe the board, because the CEO does have the interim CEO from the board does have the background where she could become full-time CEO if they wanted to. One of my thoughts was, oh, maybe Avi Clear is, you know, people think this could be such a home run that everybody's of fighting to take control of the golden goose before it's like completely gold, if that makes sense. And, you know, I was attracted to that not only because you've got the exact chairman who comes from an investing background, who wants to make himself CEO and seems to want to get a lot of upside tied to that. You've got RTW and Pura, who I believe both have great

reputations. You know, RTW was the, I'm looking right now, third or fourth largest shareholder of Prometheus, that company that just got sold for a massive, massive premium to Merck, you know, multi-billion dollar deal just this morning. RTW, they're big, they've got a lot. And they, you know, they filed a 13D. They clearly are willing to get involved here. I was just kind of wondering, does this, the thing, one of the things that attracts me other than the game of terms was everybody arguing over this, is this, everyone sees a golden goose that the stock market, you know, because it, you make all the investment up front and it takes a year or two for the recurring revenue to rick again. Is there a golden goose here? Do they see that? Or is it kind of what you said where everybody's fighting. But if you look at the history of these things, it's up down, up down. But the kind of overall results is a lot of value destruction. Yeah, and I think it's, I think, I think, I think to possible answers, it certainly could be both. Because what happened, the numbers do change so dramatically, as you said, once you, once you start getting revenue, you know, these things are, these launches are such a drag on profits that it's, and when that, when that starts to reverse, when the drag goes

away and they're actually becoming impritive, the earnings really, really springboard. So I think it certainly could be both. Yeah, I mean, I think the interim, the one thing with the interim CEO, she in her bio, I mean, she retired, I think like from a, not a, you know, I think an SVP level job. Like in 2015, I think she's 67 years old. So I'm a little, my sense with her, I would be surprised if she's really trying. I think when they say that she's going to be interim, you know, that they actually do mean interim there, that they bought someone else.

They had basically committed to that. Yeah. Yeah. President Global Vision Care and EVP at B&L. Yeah. Okay, cool. And now a quick word from our sponsor. Are traditional expert calls in the investment world becoming obsolete?

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I mean, this is one of the more interesting and exciting situations I've seen. And I put up two posts over the weekend, you know, between this one and Canoe is a little buzzier and it's got some bigger personalities. But I think this one actually is a little bit more Machiavellian, but between these two, it's going to be fun processes. Anything else you want to say on QTura? No, I think we covered kind of most of the, most of the, We covered the fund angle, certainly, you know, the financial, I think, you know,

you kind of alluded to that, you know, valuation is down here. Historically, relative to them, it is kind of attractive if you look at a price to revenue basis, which is not a great metric, but it has look, has some value. And I mean, the one thing I think, which makes it interesting and beyond sort of the grabbing your popcorn nature of the proxy fight is, and I think you've kind of come to this point a few times is if this gets resolved in the right way and if they deliver like this is a stock this is a stock that can triple in two years there's i mean that's that's one thing that is really you know well it's fun to to game the scenarios and stuff but that is something that makes

it intriguing just as an investment is that if they can somehow get through this and they can get this out of clear going i mean this is um it's speculative as you said in your disclaimer up front look the stock dropped 28% last week it's there's in a single deck there are risks there's huge risk but it is um certainly down here there's absolutely a world where this proxy fight gets resolved one way or another and and people are looking back at this going oh my god that that was such a dumb like the proxy fight who really like that was so dumb all people took their eye off to how good the business was and everybody missed this opportunity because the stock's at 60 or 65 75 whatever number you want to throw out there. That's absolutely in the realm of possibility. I do think

that's kind of worth toward the end here trying to call out a little bit. I did some dumb, dumb math in the post, but again, this is a startup product, right? It launches March or April 2022. As we kind of talked about, it takes a while to get these things fully, to get these things fully scaled up. The doctors have to learn how to sell it. Even if I put it in the doctor's office in January, like it's not going to be fully ramped up by the end of January. It takes a while to get the patients for the doctors to get used to selling it for it to get kind of the name brand recognition. But I don't think it's crazy to say if this is a success, if this is a very big if.

I don't think it's crazy to say this could be doing 250, 300, even 500 million in annual revenue. And you slap a multiple on a med tech multiple on like 250 of annual revenue, probably 65% gross margins. Like it's not crazy to think Avi Clear alone could be a billion, a billion. billion five, two billion plus valuation, that would get you, as you said, to the three, four, five X on the stock you're talking about ignoring, completely ignoring the rest of the business. Now, there is, you know, the devil's in the detail and the execution. There was a very

big if there, but that's why I kept saying, that's kind of why I kept thinking there could be kind of like the golden goose at the end of this rainbow. Right. Yeah. I think that's, I think that's definitely definitely possibility. I'm also aware this is one of those industries where if you follow it for too long, you get a little too jaded. Every, everyone, the lunches, I think, like, I've seen that before. It'll be, it'll be gone in 18 months. A hundred percent. And like, there are a few golden goose in this industry. But as you said, for the most part, you think you're buying a golden goose and then you take it home and it's just, it's laying normal eggs or even worse, it might be laying rotten eggs. And you just invested a hundred

million into, uh, into Salesforce and rolling this product out and you're not even getting a hundred million back. Yeah, that's exactly right. Well, hey, Vince, I really enjoyed this. I'm going to include for anybody who listened to this and interested in more, I'm going to include a link to Vince's write-up that he did on Friday. So that was before the original, the most recent board response that actually came out this morning. We're taking me this Monday. Is it April 17th or 18th? I can't remember Monday, April 17th. But so people should go read that for a background. I did another write-up. People can go find that. But Vince, I really appreciate you coming on and I'm looking for it's the next one. Yeah, absolutely. Thank you so much for having me. It was fun.

A quick disclaimer. Nothing on this podcast should be considered an investment advice. Guests or the host may have positions in any of the stocks mentioned during this podcast. Please do your own work and consult a financial advisor. Thanks.