Stock Talk Podcast Episode 339

Speaker A: Foreign.

Speaker B: You are listening to Keystone stock Talk show, episode 339. It's great to chat with you again this week. I begin with a look at one of Canada's public entries into the great space race. Mda. Space. Space symbol MDA on the tsx, which operates in three segments. Geospatial or, sorry, Geo Intelligence, robotics and space operations and satellite systems. The company made headlines last week with an acquisition and remains profitable in a segment which lacks earnings. We review the acquisition and the current valuations on mda. Brett revisits Roblox symbol RBLX on the New York Stock Exchange, which any parent with a tween or a 10 year old I guess will know. Operates a user generated online gaming platform where users can create, share and play games developed by a, uh, global community. Roblox, which had gone on a run the last time we reviewed it, is down 57% over the past year. And while revenue continues to grow, earnings remain negative. Brett will let you know if profits in this online gaming company are in the near future plans. All right, let's get to the show. I welcome my co host, the Killer Bees, Brett and Brennan. Our newest edition rail. I gotta stop saying that now. I think next week we may end that. Welcome, gentlemen, salutation. I feel like Ron Burgundy. I'm just reading off the script, right? And it's written on there, it could say our greatest edition. It could be the greatest. And I'd read it. So, Rahil, sneak in and write whatever you want and I'll read that I

Speaker C: accepted my permanent intern status in your eyes.

Speaker B: Uh, well, yeah. So myself and Brett are just back from the Planet Micro Cap conference in Las Vegas. Uh, where our biggest finding was. It was bloody hot. Uh, that's about the biggest finding there. It got up to 112 or 43, 45 degrees. So even crossing the road to the hotel was a, uh, challenge for us because we're from Canada and uh, we can't handle the heat. But it was good. We interviewed, I believe in the end around 19 companies, uh, some companies that are currently in coverage, um, uh, such as Girash and uh, bioscience, which we had, uh, good sit downs with management in, in those two companies. Uh, Girash is actually a stock that's just taken off over the past week after they came out with, uh, good earnings. And you know, obviously you've seen the potential for some stability in the Middle East.

Speaker D: I mean, that's.

Speaker B: Potential is the key word there. But yeah, good to sit down. Biosynth. They made an acquisition. We talked to them briefly after. But to sit down with them for 30 minutes and go over that acquisition, the rationale, um, and you know, where they will be in terms of their balance sheet, 16, uh, months from now. It was great to see, and our clients will be updated on that. But there was also, you know, some promising other firms that we looked at. A couple that actually may make it into coverage in the short term. So, uh, stay tuned for that. Uh, the conference may have been, uh, you know, productive from that degree. Uh, certainly we keep our eyes on a number of those businesses that were at the event. Um, I got to speak at the event, which was always good. It's, uh, a great crowd there. Um, and it was good to, uh, see everybody shake a few hands. And, uh, we talked to. There was a few clients there. There's, uh, people that listen to the podcast, which is crazy. So shout out to anybody who is at that conference and is now listening the podcast. Uh, it's great to have you aboard as listeners as well. Brad. Any takeaways that you had other than that you got fried?

Speaker A: Besides the fact I got fried? Yeah. That happen? Um, no, it was great. And especially for these types of conferences, we get companies from all over the space. Uh, it's not just one sector conference. Like, you'll see all the time. Like, uh, we talked to a bank, we talked a food processor, uh, geospatial, all over the place. So it's quite interesting because you'll sometimes get very different opinions about just the broad state of the economy, the market, because they're in wildly different industries and you can kind of build a picture, even just apart from the individual companies, to see how they're performing. And that's always one of these interest. Interesting aspects of going to one of these things. But no, uh, I don't think we had a single dud interview, which is amazing.

Speaker B: Yeah, I guess that would be like my second takeaway. Um, sometimes you're doing those and, uh, you know, there's. I mean, you're talking about 19 or 25 or, you know, 15 companies. Usually there is, you know, one where you're about two minutes in and you're like, oh, God, like, this is not going to be the greatest interview. Or you're like, why do we even need to continue this? But you do continue.

Speaker D: Right?

Speaker B: But, uh, I'm just putting that. It's just very blunt sometimes, you know, um, it wasn't like that. They were, you know, interesting companies. So, I mean, I'd say and shout out to the Organizers that are doing a good job, uh, both Planet Microcap and the Microcap Club who have come together, uh, and they're bringing some good companies for that space, the Small and Micro Cap space. So it was an enjoyable conference from that perspective. Uh, we got to actually talk and for the most part, like, enjoy the conversations. Uh, we were very much interested in those. So sometimes, um, the, you know, interviewing 10 companies a day back to back for half hours, half hour, half hour can be very. I mean, it is draining. We were pretty much exhausted in by the end, but it didn't seem like as long as some others have seemed like when you're interviewing like three companies in a row, they loosely fit your criteria, but you can immediately tell there's no, um, no chance of them being in coverage. And, you know, you kind of have to just go through the motions is what I guess we're trying to say.

Speaker D: Right.

Speaker B: And in this case, there was, you know, some good interviews, so it tended to go a little faster, which is always. It indicates you're enjoying yourself, you're engaged, you're interested in the conversation, which is a good sign. So that was good.

Speaker D: Was. Was it better in Caesars than, uh, than in Paris? Is like the previous years.

Speaker B: Yeah. Well. And it was kind of Valleys, which is horseshoe. I mean. Yeah, to me it smells like the inside of a cigar, but Ryan loses his voice. I know. I'm even just getting it back. Like, I'm, um, bothered by the, the smoke. So. Yeah, I mean, it was better from that perspective. It just. Okay, this is just. We usually go to that conference earlier in the year. It's usually in April, like, and. And it's not as hot. So it's enjoyable because we did the. You know, the. Usually, uh, the hospitality is under the Eiffel Tower there and it's outside. And you're not like, dying because you're outside. Right. So, uh, that, I mean, that's not their fault. It's just weather, right? I mean, it was well run. Um, Bellagio is nicer hotel and it smells better. I wasn't coughing as much. I still, like, we talk so much and I just end up, I don't know, I lose my voice or it just gets hoarse and I'm just like, yeah, yeah. I mean, then there's always just. I, uh, think because usually I'm always having a direct flight back, um, from Vancouver to Vegas. And I think because the World cup was on, we were coming back basically, and the flights are. So I went to Calgary and I, I spent a delayed Two to three hours in the lovely Calgary airport.

Speaker D: Welcome to my life. Trying to fly back to Saskatoon.

Speaker B: There was two flights that went out to Saskatoon and I was like, I can't get one to Vancouver, but there's two going out to Saskatoon. But they had to switch out the plane and we got it on another plane with WestJet. We got there, we got there. But yeah, it's, it's always. It honestly, it's gotten less, uh, a little less of an issue than it was like a year, two, three years ago, right after the pandemic. Baggage issues everywhere, all, you know, it's crap, but it's, uh, you know, there's, there's still always fun when you're flying. There's some kind of delays. Right. So it is, it's almost built in, I think. You know, I don't want to get it on a rant, but we have two airlines in this country. It would be nice to have a little more competition. I'm not going to go.

Speaker D: That's r.

Speaker B: That's for another time. Maybe we'll compare them as well. I mean.

Speaker D: Yeah, I mean, I did do Air Canada. Not too.

Speaker B: WestJet is part of Onyx. Uh, yes. Yeah. All right, so do we want to get to the poll question?

Speaker A: Yeah, yeah, we can get another poll question. So, simple poll question. Which of the mega IPOs this year will perform the best? SpaceX came in at 23%, open AI 14% and Anthropic the winner at 63, which we cannot. We've only obviously seen the financials of SpaceX. Both Open AI and Anthropic have filed confidential, um, S1s at this point, I believe. So we'll likely see those IPO in the next few months. We'll see some more financials coming out, but they're both unprofitable. It's wouldn't meet our criteria. You're much more, uh, focused obviously on AI for anthropic and OpenAI. SpaceX, big AI component, but you do have the launch services, you have starlink, so it's much more diversified as far as that goes. So. But the big thing with SpaceX, I would say, is the valuation is just absurd.

Speaker B: And you say this as we're watching, and I'm looking Right now, SpaceX is down $22, almost 12% today. So, um, yeah, I mean, Volatile jumped after the ipo, but has come down significantly from the highs. I mean, you know, it's, there's. The valuation metrics that are used aren't ones that, that I would Use are comfortable using to justify a higher price. But you know, we shall see that you can't value it on cash flow right now.

Speaker D: Yeah, like I wish I had the meme. I was just looking for it in my inbox but I can't find it. I think it was Brett that sent it to me, you know, or maybe even Ryan found it on uh, on Twitter or X Just you know, going through. I think it like attached a price uh, to sales multiple of something like you know, 20 times uh, to the, uh, to to SpaceX to try to get to the, the valuation. But they also uh, tacked on an additional. It was like you know a 10 times Musk multiple as well. So it's just we could not pull up that it could have been a hundred times.

Speaker B: Yeah, yeah.

Speaker D: Who knows? Um, um, you know when you look through it and all of a sudden

Speaker B: now they figured out how they got there, right?

Speaker D: Yeah, yeah, yeah. I thought it was pretty funny.

Speaker A: Yes. It's not connected to today's fundamentals. You have to go to 2035, then you have to ask the. Do the musk magic dust or something and then, then maybe you can get to the valuation. We saw like you were saying, it was 1:35 IPO price. It went as high as I think about 210, maybe 215. And now we're back at 160. Just so very volatile, very low float for the size of the company.

Speaker B: Um, but yeah, that's the shocking part too. The, the amount of the float versus the market cap is, is, is, you know, that's going to lead to significant volatility. No. And it'll be in the short term.

Speaker A: It'll be interesting as, because we talked about this before, the indexes are going to need to start to pick up billions of dollars of shares in the next couple weeks. The NASDAQ and I believe the footsie both changed their index inclusion so it will be included at a rapid rate compared to previous rules S and P500. So your spies and so on. The biggest index to track isn't changing that, but you also probably have insider selling in the next few months. So we'll see how that levels out. And are we going to actually have a proper price discovery here or not?

Speaker B: Yeah, it's going to be interesting.

Speaker A: Yeah, yeah.

Speaker D: Um, something as well that I know Brett had sent over is just that, you know, Open AI is uh, you know, looking to potentially cut its prices. You know, so we're kind of maybe going this AI price wars. Uh, you know, OpenAI versus like anthropic for example. So you know it is going to be interesting exactly to just see, you know, we're already kind of in this struggling, you know, how do we monetize and now we're already getting to a price war. You know, how is this going to play out? Uh, obviously, I mean I don't have the answers do you guys?

Speaker C: Especially from the competition we are seeing from Deep Seek. Um, I think I'm hearing the uh, 90% of the work which uh, Anthropic is doing right now can also be done by Deep sea can China is doing the same or building the same tool at one tenth of the cost of Anthropic. Uh so you, you would, you would see China being a big competition, ah, a low cost provider of AI models. Um, and uh, that might lead to price cuts for sure.

Speaker B: That's got to be scary given all the capex it's being spent.

Speaker A: Yeah, tons of compute capex, tons of training capex. And the thing is which I've seen many places is your super AI boss will say training is done, that's your big cost. And then you have the inference which is like the ongoing. When you type into ChatGPT, render a picture of Ryan and Bikini, then that's inference training is up front. But the problem is Ryan, several of those without a I. We do have several of those but the problem is over time Ryan ages, I know sometimes doesn't look like it. Uh, but you need to add that new data, you need to train a new model so those training costs are quite continuous. So even for your open source models training costs are real and it's, that's the question is can you just rely on an older model for your specific application? Can you rely on those cheaper whether it's Deep Seek or any other model or do you need the cutting edge that uh, one that's up to date because it is expensive, it's just not supported by the current market. And you did see a push that, that token maxing push and then oh, Uber is saying we spent all our annual um, expected costs within four months. You do have these weird dynamics. Whereas spending more is good, but then it's not fundamentally supported by what people are getting out of it at the same time. So it's just going to be interesting to see how, where that lands especially once we've seen the actual financials come out of these companies because right now it's just what's leaked or what is leaked in quotations I should put because they do tend to do that. I would say these large companies make themselves look good.

Speaker B: Yeah, human beings. When there's excitement about any segment or any, uh, technology or, I mean, we tend to just go. The pendulum just swings so much one way. And I mean, with the build out in hyperscale, I mean, this is obviously a different, but, um, you know, somewhat comparable. The Canadian. When Canada legalized cannabis like this, the massive spend and the lack of anybody paying attention to valuations occurred there. Um, and it just went so far one way, it's gone back the other way. I mean, we were talking to a company at that conference in the cannabis space that ended up buying a facility for about 25 million that the company, uh, blew its brains out, that they bought it for to spend. Um, they spent about 275 million to build it, and they bought it like, basically out of receivership for 25 million. So a tenth of the cost. Um, yeah, we just tend to overspend. We tend to get overly optimistic about something, then it has to shift back. I mean, that's part of why maybe we're gonna finally look at cannabis again where we haven't been able to find value. I mean, Brennan's looking at it every day, but as a company, as an investment, really gonna look at it, uh, again. But anyways, it's interesting how the pendulum goes this way. And will it swing back? Is there an over investment? Does some of the investment come back? Because as Brett said, the cash flow being produced doesn't equate right now to what is being spent, uh, in compute power. All the capex is being spent.

Speaker A: Yeah, we, we'll spend our 30 bucks a month on, uh, our subscriptions, whether it's Claude OpenAI, whatever it happens to be. And then it might cost them if we're. You're using it as maximum capacity, $500,000 in cost. It just on a user basis. It just doesn't make sense right now for them.

Speaker B: As the kids say, the math doesn't matter.

Speaker A: The math does not. Math.

Speaker B: Yeah, that's true. The kids say that or Brandon.

Speaker D: Yeah. I am one of the kids.

Speaker B: What? You're kids? Yes. Oh, God. To me. Yeah. All right. Is there any other topics we want to get into or should we get into the show?

Speaker D: I mean, we could just quickly say, you know, Canada paused, uh, interest rates 2.25% in, uh, for June. Um, I don't know if we want to get into the inflation numbers. I mean, they were higher, but again, that's, that's primarily just because of, you know, fuel costs. From my understanding, which I mean fuel cost.

Speaker A: Yeah. So if you look at fuel costs, 3.2% for May, 2.2% ex gasoline. So that's really right where you want it over the long term. The 1 to 3% or 2% target. It makes sense. Um, and then you add, I think fresh fruit was the other call out by on the stats. Canada was fresh fruits and vegetables up 5.3%. So pay more in the grocery store.

Speaker D: Yeah. Good thing I planted my garden this weekend.

Speaker B: You're going to be self sustaining now.

Speaker D: Yeah, for the whole. For the whole three months that we have in.

Speaker A: Uh, you did say tomatoes was the big one, did you not that you have 20 tomato plants.

Speaker D: True, we do have about 20 tomato plants.

Speaker A: What, what do you think the price increase because they actually do have tomatoes as the line item here. What do you think it was increased year over year?

Speaker D: I have no idea.

Speaker A: I just throw it out. Come on. 110, 45%.

Speaker B: I just wanted to go big, which

Speaker A: is still pretty big, honestly.

Speaker B: Yes, it's crazy.

Speaker C: Yes.

Speaker B: Tomatoes are hard to grow. They're harder. They are.

Speaker D: They're not bad.

Speaker B: Oh yeah. Are you growing, uh, cherry or what are you doing?

Speaker D: Uh, no, I'd like the beef steak. Oh, what do you mean? We're farmers out here. What do you mean?

Speaker A: Just kidding. And then a couple more chickens.

Speaker B: When are you getting the chickens, Mr.

Speaker D: Uh, once, uh, Saskatoon passes the bylaw to allow chickens in, in town, then I'll. Then I'll do it.

Speaker B: So you have them, you're just not airing it?

Speaker D: Yeah, they're in the basement. Oh, no, no. Rahil was gonna actually say something actually preten. Pertaining to finance on inflation. Go ahead.

Speaker C: No, I was gonna say it's good to see rents are cooling off. So on. On the flip side, we're seeing some, um, uh, rents cooling off. Uh, I think vehicle, car parts are cooling off too. So, So I think core CPI is not growing as much as uh, uh, the, the total inflation.

Speaker D: Agree.

Speaker C: But still the trickle impacts of uh, fuel and gasoline passing on to um, other sectors such as uh, air flights and, and shipping cost and grocery cost.

Speaker D: Yeah, this is just like anecdotal too, but like, you know, just for house housing. Um, my, my buddy Grady flew in, um, from Vancouver. He's in, In Vancouver. Uh, him and his wife just recently bought a house. And you know, it's just interesting hearing the different dynamics of, you know, it is such a buyer's market in Vancouver right now where, you know, you can bid significantly under, you know, list Price, um, and you know homes are being you know listed and they're sitting there for, for a long time. Just the contrast compared to you know, what's happening I think still in Calgary.

Speaker A: I mean you guys can, we've slowed down especially on the condo townhouse side. I know I think detached is holding up a bit better but it's not a booming market anymore like it was year and a half ago, two years ago.

Speaker D: Like I know it's regional but on this seller's market here, I wonder, like, I wonder how long you know that'll take. Um, you know, or if it does, you know, change in Saskatoon for example. I mean it's definitely not a good

Speaker B: comp but you guys are typically what, two, three years behind us so probably five. Yeah. Okay, well 10 years.

Speaker A: Yeah, five decades.

Speaker D: Britney Spears is um, you just got

Speaker B: off dial up, right? So yeah. All right.

Speaker D: Sound uh, effect for it.

Speaker A: Let's get into the show.

Speaker B: Let's get into the show. I'm gonna share my screen here and get into MDA. So MDA space uh symbol MDA on the TSX stock price trades around $56 8.2 uh billion market cap. Uh the company is a supplier to the global space Market. Operates in three business segments segments Geo Intelligence about 13% of 2025 revenues. Robotics and Space Operations was 19% of 2025 revenues and Satellite System 68% of 2025 revenues. The latter there satellite systems obviously two thirds of revenue. It's the primary growth engine. MDA here acts as a prime supplier or contractor for the massive low earth orbit or LEO constellations. Its software uh defined satellite product line. MDA Aurora anchors major contracts like Telesat Lightspeed and Global Star globestar. Um its robotics and space operations are home to the famous Canadarm legacy. This segment is currently building Canadarm3 for the NASA led Lunar Gateway and scaling MBA Skymaker for commercial space stations and on orbit servicing. Its geo intelligence, uh focuses on earth observation, marine time surveillance and data analytics. It's powered by Radastat2 and upcoming new next generation MDA Chorus constellation. So they are investing heavily significantly right now in their satellite facility and chip investments are expected to in 2026 capex of about 250 million before normalizing that capex by 2028 to the 150 to $200 million range. I would believe near term investments in Capex will limit free cash flow uh over the next several years. You can see the share price gains up about 76% over the past year. But the question is what is driving that growth? Well we can see here, unlike some of the speculative pre revenue space startups, MDA is a profitable business, has about a 55 plus year heritage as a prime space contractor. Uh, here's kind of a financial snapshot of the business. As we can see here, uh, there is growth, ah, particularly from 2024 to 2025 we saw strong uh, revenue growth of 51% and adjusted EBITDA growth was up nearly 50% over uh, from 2024 to 2025. Margins remained relatively stable and backlog climbed from 3 billion to 4 billion. However, growth expectations for fiscal year 2026 have slowed. Uh, the midpoint range of growth in terms of revenues is about 10%. Adjusted EBITDA expected to grow at just 7% and backlog has declined slightly to 3.7 billion from 4 billion now. Uh, a good deal of the optimism in MDA surrounds the positive investing environment around space and satellite related stocks and the significant pipeline of business many believe will come online over the next several decades. We can see here 40 billion, uh, or a five year pipeline. 10 billion of that pipeline consists of projects where MDA has already been down, selected or is positioned for follow on contracts. Now we'll touch on the valuations in the business in a second but uh, I'd like to look at some news that came out over the past week. MDA Space announced definitive agreement to acquire US based Blue Canyon Technologies. They bought that from Raytheon. Let's look at the acquisition details here. It's an all cash transaction. About 620 million US, 874 million Canadian again from RTX. Raytheon they bought it from BCT is a spacecraft and satellite component manufacturer and mission service provider. Uh, the company expects about 160 million of revenue in 2026 with margins that are in line with or slightly above MDA's 18% guidance margin for 2026. They generate approximately 76 or 75% of the revenues from the defense market. Now assuming a 20% EBITDA margin, uh, 32 million, we assume this transaction that would be EBITDA implies about just under 20 times EV to EBITDA multiple. So let's look at the Q1 highlights from MDA revenues. 464.1 million. That's up 32.2% year over year driven by higher volumes across all businesses Business areas in the quarter. Adjusted EBITDA was 90.6 million. Increased about 32% year over year driven by higher volumes of work. Adjusted ebitda margin was 19.6 Q1 in Q1 of 2026 that's consistent year over year. Uh, the company's full year guidance of course was for about 18 to 20% slightly below that. Net income was ah, down 10%. Uh, earnings per share were 22 cents, a decrease of 11.5% year over year driven by primarily by increased amortization of intangible expenses. Expenses related to the Satex Phi communications acquisition in Q3 2025. Adjusted net income however did increase 32% year over year driven by higher gross margin partially offset by Investments in SGA and uh, R D. Adjusted diluted earnings were about 38 cents up from 26.9 up uh 26.9% year over year. Now let's look at those. I'm gonna continue my highlights of the fiscal year 2027 or 2076 results. Operating cash flow was 60.9 million UH compared with 267 million. The decrease UH in operating cash flow was primarily due to working capital fluctuations. Free cash flow was negative compared to about 205 million in free cash flow. Again the year over year decrease was driven by reduced operating cash flow as a result of aforementioned lower working capital contributions as well as higher capex. We said there was higher capex. Going forward we expect that free cash flow to be uh, very limited over the next couple years given that capex cycle they're in now. Let's take a look at oh the next net cash position is still relatively strong here and net debt is uh, very manageable. Let's look at the valuations here. Uh in terms of just based on EPS the company trades at forward adjusted earnings about 71 times uh about 58 if you look at 2027. So those are elevated multiples relative to the market of course uh, next to sector they're actually below the average right now because there's not a lot of earnings in it. Uh EV to EBITDA uh is about 23 and a half uh based on fiscal year 2026 expected EBITDA or adjusted EBITDA. But the five year historical average EV to EBITDA multiple is 18.3 uh and the median is about 16.7. So again elevated off of the five year historical average numbers. Let's do a quick conclusion here. The positives. MDA space is profitable, it's growing in a high flying sector which lacks current profitability. So at least the company does have existing cash flow. Um, even though we're looking at free cash flow being negative, um the company is producing operating cash flow and is producing EPS right now we continue to see that uh, over the next several years, as opposed to some of the companies in this segment that either have negative earnings or are producing no revenues, uh, in some respect, in some cases now the pipeline of potential business is very large as we saw and expanding the negatives here. There's significant customer concentration. A significant portion of the current satellite backlog relies on anchor commercial contracts from Telesat, uh, such as the Telesat Lightspeed contract. And of course we said there's significantly elevated valuations here. Uh, that gives us uh, uh, just a monitor on the stock at present. If there was a pullback and we wanted to gain exposure, uh, this is a company that is a viable option in the segment.

Speaker D: Yeah, exactly. And we've had many clients reach out and ask, you know, our thoughts on it. And that's what we said. Especially when it did pull pullback, you know, when they lost uh, one of their, their contracts a little while ago. Um, you know, we thought, you know, it's a defensible long term holding, um, you know, well run I think, you know, going forward now, I think like, like last year about 30% of their revenue was in the U.S. i think that you know, might be getting them, I mean it's contract driven. It depends realistically. But you know I think that might be getting them closer to maybe 40%. They're doing 160 million U.S. uh with the new acquisition. Um, but yeah, it's just again, yeah,

Speaker B: the new acquisition does position them better in that market.

Speaker D: It does, um, but you know, valuations are elevated generally speaking. You know, probably is a good synergistic uh, acquisition but you know, um, they're probably paying up for it a little bit in the current market. Um, just with where things are generally uh, as well.

Speaker B: I mean like typically you're paying up in this market and we saw, we've seen that in other markets as well when you have elevated uh, valuations generally. I mean companies feel the pressure to, they feel the pressure to make these acquisitions. But um, is it always the right time? Um, you know, if you have the cash flow, if you have the cash sitting there, it's usually better time to do it when you know there's a less elevated. We see way more activity though. M and A activity in elevated times. Just. Yeah, it is.

Speaker D: That was something too M that I was going to say previously, just when we were talking about Space X as well is just, you know, I mean maybe the Space X acquisition is help or sorry not acquisition IPO is like helping Multiples in general, you know, and just like, you know, more interest in the space side. Um, but it is kind of a right place at the right time for, for that ipo, I would say just with all of a sudden, you know, defense budgets increasing and whatnot. Um, but sorry, Brett, I cut you off.

Speaker A: Go on. Uh, yeah, no, I was just going to say, um, just on your comment on when they're acquiring, they are using debt to acquire. Like if you're using shares, your capital can kind of, oh, did my shares increase more than yours? Type of scenario where even though you are buying at higher valuations, you're also at a higher valuation, but when you are using debt, that time to buy optimally is when they are just distinctly cheap. Where that's obviously not the case right now, like you're saying, it's. Everyone seems to be rushing to raise capital right now to all the big US players and effectively any of the sexier industries now on the back of SpaceX. So it'd be interesting to see, just like you were saying, an uptick in IPOs and as well as just financing in general, I think too.

Speaker D: Like, I mean this is, it's different, but it's also like similar. Just um, you know, behind the scenes where for like are your stock our. Take questions, for example, you know, uh, individuals watching the show, sending them in when sectors are hot. That is the time where you know, they're like, you know, individuals. Listeners are asking is, should I be buying XYZ company in this sector? Like when gold was taking off, when silver was taking off, you know, uh, 90% of the year stock or take questions during that time were probably on, you know, gold and silver and silver names again, you know, some came in that were decent companies and when it

Speaker B: pulls back, people look away.

Speaker D: Exactly. And when people look exactly. You know, we just see this so much. And even again with, you know, these larger, larger companies, um, you know, not

Speaker B: especially from retail investors, they. Yeah, they're tending.

Speaker D: Yeah.

Speaker B: Although to be honest, when we're at conferences, there's more questions, more talk about the hottest sectors. So it's not just retail. The industry just is very mild.

Speaker D: Exactly.

Speaker C: Focus.

Speaker D: And that's what I was trying to relate it to is, you know, even higher up management getting the pressure to go and buy something. You know, again, not saying that this is a bad acquisition. It, you know, is intriguing. They're getting more, uh, U.S. exposure. Probably a good thing. Um, but yeah, we just, you know, kind of see that over and over again.

Speaker B: I could also point out that uh, March 12, um, MDA Space did a dual listing IPO on, uh, the New York Stock Exchange. Uh, they raised, they issued shares, uh, raised about 300 million US as well. So, uh, they are now also you can purchase them on the New York Stock Exchange, same symbol mda, but they raised capital along with many companies, uh, you know, in that segment, uh, this year. Okay.

Speaker C: One thing I would like to add on Ryan. Sorry. Is, uh, you might have heard on the news that Canada is buying Australian radar system for $1.8 billion. Uh, so that's the, I think, largest ever defense export contract. Uh, we are, we are seeing it. So I think that tells me, you know, certain Canadian defense suppliers are in active M and A conversations aligning with international partners. So that could mean more Canadian domestic opportunities coming up, um, which could be a source of, uh, revenue coming from international, um, countries. Uh, so I think there's still some tail wheels. Ah, left. Um, TD had a note this morning that, uh, EBT beta multiples for defense companies have pulled back around 12%, uh, in last month. Uh, Canadian defense companies, EBT beta multiples have pulled back 4% in last couple of months. So how long this run is going to last or high valuations are going to last, we don't know. But there's still, uh, some opportunities or revenues, um, um, that companies are going

Speaker B: to capture still there. International companies like mda, Tsat, um, even Callien, they've been positioning themselves to, you know, bid on these and win these deals. So, yeah, they got to keep executing. What we'd love to see is that backlog keep rising on mda.

Speaker D: Yeah. And that's what I would add is like. Yeah, like, I mean, again, I'm speaking about high valuations. It's not like they're unjustified. Again, we're seeing like, massive growth in, in backlogs here, uh, as well. But like Rahil said, do we see that growth continue, you know, like, even when, um, when Carney got initially elected, I, I wrote an article teasing one of our defense names. I mean, at that time it was trading, I believe, at like 6 to 7 times, even lower EV to EBIT, uh, 10 times operating cash flow. Uh, you know, we were buying it at a reasonable valuation for, you know, the potential, as we say so many times time and time again, you know, worst thing, you're owning this business that's paying a dividend. It's a quality company. You know, worst thing, you're buying a good business at, you know, a lower or cheaper price. Um, you know, rather than chasing, you know, the growth right now. Because I agree. I think the tailwinds are going to, you know, there's still a nice tailwind behind them. Um, but, you know, how long does that last? I know.

Speaker A: Well, we've seen just such a shift in defense, just governments all around the world, the ah, NATO spending targets actually getting pushed to now and it's a very different world and then all like the shifts in to drones and more space tech. It's a very uh, interesting time.

Speaker D: Yeah, I still uh, there was one slide deck that we got from one at one company. I, I can't remember their name, I wouldn't say it anyways, but uh, I had a good chuckle because they uh, sent it over and it was just, you know, this, this uh, RPG on, on an unmanned vehicle. And uh, yeah, it's just, you know, I mean it's not a company that we would invest in. They're, they're very, very early. But uh, you know, the sector's popping off for sure. And uh, you know, there's going to be a lot of drone companies unmanned.

Speaker B: I think that was a pre IPO company.

Speaker D: It was, it was, um, yes. But uh, you know, again, look at the fundamentals, look at the financials. Don't just buy something because, you know, the sector's hot.

Speaker B: Yeah. And that's, I mean, that's why we're talking about MDA today at least there are earnings here and there's a history of uh, strong earnings. There's a backlog they're building on a pipeline. So if you want exposure, look more in this direction than like the company that is promising the next greatest thing in this segment because I mean, MDA may come up with the next greatest thing. They have a, probably a better chance than the company that has zero revenues, but they also have a core business and a backlog. So that's what we'd look for. It's just valuations are elevated right now. I mean it is a volatile sector. You could see a significant pullback and then, you know, this is a name you may want to add. That's, you know, that's what we look at now. You know, all things being equal, backlog increasing, you got to see that as well. But you may get an opportunity at some point to add in that company. Okay, uh, let us shift on to our next segment. We're going to go to an online gaming community. Brett's going to take a look at

Speaker A: uh, Roblox, which you're active in, I believe.

Speaker B: I play dress to impress all the time. Yeah, it's true. I almost threw an iPad at the window once when I was playing.

Speaker A: He gets competitive.

Speaker B: No, I just can't move around properly. I end up stuck in a corner. I'm just terrible. And then like my daughter's friends are just laughing. It's good. But yeah, no, I, I, I watch them play. It's fascinating.

Speaker A: Yeah, all right. You love it. Uh. Roblox Corporation symbol RBLX on the New York Stock Exchange operates a user generated online gaming platform where users can create, share and play games. Developed by a global community. The company generates revenue primarily through with the sale of its virtual currency Robux as well as advertising partnerships and premium subscription services. Last time we covered the stock in April 2025 it was going on around the shares were doing great. But now sentiment has completely changed. Roblox is down 57 over the past year to $47 a share. A $33.7 billion mark cap. There was a big share pullback after Q3 2025 results and more recently after the Q1 2026 results. But there's been just a overall general decline. If we look at just a longer term chart, the stock really has had its post IPO run up, fell back down and then it ran up in early UH 2025. The shares are however currently really in that trading range that similar to the post IPO correction in from early 2022 through late 2024 before the last runoff. So just interesting that we're back to where we were despite the company has actually grown in size on revenue and user count and so on in bookings. But we'll look at the financials to see why that is the case. Why the shares aren't really any higher than what they were prior previously. So revenue for Q1 2026 was up 39% to 1.44 billion. A strong top line result driven by user growth improving monetization across regions. Share of developer expenses have shifted higher however as a of a share of revenue to 29% from 27% over the past year. They are down sequentially from 34%. But we have seen this trend of shifting higher and higher for these developer expenses m as they need to pay developers to entice because they are third parties to create new games update their existing games on the Roblox platform and it's almost which obviously like a kind of a royalty or a commission to type of system because it is variable to the how many row bucks are spent on the game which is very different than A traditional game studio which this structure can actually create more of a dragon scale as the cost is variable versus fixed. Normally you pay your developer, your game designer a uh, fixed salary, maybe some bonuses but it relatively fixed versus this they're completely on a variable rate. Bookings were up as well 43% to 1.73 billion. Normally US and Canada bookings are falling as a share of revenue or of uh bookings. However at now 52% in the last quarter compared to 60% in the last quarter year. This is key as US and Canada it really dwarfs on a bookings on a per user basis. So it is at $38.93 compared to $14.33 in Europe, uh 547 in APAC and $5.12 for the rest of the world. So over seven times compared to APAC in the rest of the world. So while it is good to see having user growth, the high valued region is just growing at a slower rate compared to the rest of the world. Some of that is likely due to some age check friction which they've rolled out to verify ages. And it's been more aggressive in US and Canada but it's been a longer term trend as well shifting to these lower uh, bookings per user regions from the US and Canada which is just much higher value per user. You still do need the infrastructure and the fixed cost is about support these user bases. So when you have a lower monetizable group it is more difficult to scale and get that economist to scale on the gap side it's still a loss. The consolidated net loss was 248 million compared to a net loss of 216 million last year. So further into loss with an EPS of a loss of 35 cents compared to 32 cents just that's not where you want to see that trend going. Adjusted EBITDA came in at 99 million up meaningfully from 58 million in the past year. The primary reconciling item however, which I'm going to really focus on this because it's something which we've mentioned time and time again remains to be stock based compensation which it was 275 million in the last quarter. That is a substantial end. It's been a recurring charge that continues to obscure really these operating progress at a gap level uh, which we would prefer. So stock based compensation really has been a theme and a recurring is spent since the company's IPO on adjusting cash flow metrics where they're not impacted by stock based compensation and on cash Flows actually makes it look better. It looks much better than the gap figures as well here I do have highlighted a 57 million dollar legal settlement which was due to uh, age issues. And we'll get into that in a minute. And moving into some key uh, performance operation indicators. They were generally strong, though there are some nuances. Daily active users wrote 35 to 132 million hours, engaged roll 43 to 31 billion and average monthly unique players increased 52 to 30.7 million. In an average bookings per daily active user came in at UH 13.12. So there's your average figure compared to the much higher figure for the US and Canada section and that's up 6% year over year. But that figure has maintained relatively flat. It's just some quarterly volatility around that $13 range, plus or minus a few cents or a few quarters. On the user cohort side, management has had this deliberate aging up program getting higher, older, uh, an older audience. And it's starting to show. The 18 and over segment hour represents 26% of daily active users who have done the age check. This is what the figures they're citing. But it is still the smallest segment. But the core hole has grown 50% year over year faster than any other age group. Notably the over 18 users in the US monetize more than 50% higher than the under 18 users. So that's an important long term driver. If management can considering you to scale in the older demographic, you get higher spend, you have more dollars in your wallet to spend or dollars in Ryan's wallet to spend. However, it should be noted that child safety has been a really a persistent issue with the company and it's been a concern. Obviously when you have kids even as young as under eight, it's a very key uh issue and you have parents obviously rightfully concerned and it's a difficult and fine line to walk when you are looking to age up the audience. As I said before, just in the prior quarter the company settled $57 million uh with various states in the US so aging up uh, is a deliberate aspect for Roblox for years now and it likely will be going for it. I can't see any reason for it to change and it is becoming just a generally older game. It's been around for nearing 20 years now. I think it was 2007 or 2008 when the original Roblox did launch. So despite the continuously updating games and contents, the audience that has been playing in some cases over a decade or so needs to be retained they need to be monetized because this audience is very key to Roblox going forward. However, daily active user growth did decelerate from the roughly 70% rate seen in the prior two quarters and management has been very transparent about this. About uh, the global rollout of age check. So that's your. Are you actually the age you say you are to access chat and other features? Various games has created more fit friction than previously anticipated. And this is not just for users who have an A check but the second order effects of communication density and organic apps or sign ups. So if it's a friction for one client or user uh, then it might not. They might not have a word of mouth to their friends, their family and so on. So it's a self uh inflicted headwind more than anything and it's a deliberate safety strategy which we'll see if that is successful going forward. Do we start to see less of a concern around the platform around safety? Especially when you are looking at this aging demographic shifting to the balance sheet. The picture here it's a clear strength. Total cash, cash equivalents and investments which are just treasury bonds and bills with uh, net cash and subtracting roughly after subtracting roughly 1.6 million in long term debt and leases comes out to 4.5 billion. That's a very well catalyzed position. No concerns there. On the deferred revenue side I do always want to highlight it. This is as the liability does now stand at $6.8 billion across current and long term as uh, this reflects Robux purchases where the revenue hasn't yet been recognized but they do receive the cash for a front. So Ryan goes and spends $30 in Robux until he spends on his favorite hat or dress. It's not recognized as revenue so it does create a bit of a leg on the gap revenue but you do see it in the cash flows. But it has been services that haven't been rendered. They haven't that 30% or so developer cut depending on the exact program. But we'll say 30% hasn't been paid out yet to them. So you can really see 30% of that cash should disappear. So you're looking at a bit over 2 billion once it was uh, or to be actually paid out to the developers for their portion of the fees. And now moving on to guidance which has been revised lower as of Q1 with bookings growth being slashed from a range of 22 to 26% to the current 8 to 12% growth which obviously big factor when you are looking at a growing company when the valuations are reliant on growth, that shift is a very big negative. So the update of full year 2026 guys now uh, a midpoint of $6 billion in revenue representing 20 to 25 growth. Bookings of 7.33 to 7.6 billion. Representing that 8 to 12 growth. A consolidated net loss still of 1.035 billion to 1.175 billion. So just over a billion to 1.2 billion loss. Adjusted EBITDA of 185 to 325 million. That's significant year growth of 48 to 160 but it's because it's near that break even portion and as well free cash flow of 1.05 to 1.275 billion which is actually now a decline of 22% on the low end to a decline of 6% on the high end. That's not great. Even though they are still receiving their cash out front and that's been actually a really big focus on the more bowls of Ro Roblox is you can look at the free cash flow they're receiving up front. Up front clear benefit. But now you're not seeing the growth on that line item um, as well. Management expects daily active users to continue to decline sequentially into Q2, then return to a sequential growth in Q3. The Q3 recovery assumption is based on the seasonal tailwinds plan product enhancements and communications. And they expected that the AIDS check friction normalizes the bookings God cut management stages largely an issue at uh, the top, top end of the funnel. Existing user engagement and monetization have actually held up and we do see that throughout the financials. The per user metrics are fine but the issue is the reduced new user signups. You don't have a gago of 20 new Ryan signing up this quarter. You only have one or two which management traces to the communication restrictions, dampening organic word of mouth growth and impacting app store ratings on valuations. It's still not cheap. Using the Ford uh, management guidance, price to sale 5.6 times. Price to free cash flow of 29 times which when you are looking the ballpark range of 90 plus percent of the free cash flow being from share compensation, that's still not inherently cheap. 29 times. If it was didn't have that metric I'd um, be okay. That's a bit more interesting. But once you are considering that their free cash flow is really being powered by share compensation not as appealing and you can See that in the uh, EV, but of 150 times, why there's that big separation gap, all very expensive. Still no gap earnings or expectations that are this time by us for gap earnings. So Roblox's boat case has always really been this growth story where you can grow, you can scale and then you get a free cash flow after that. So a slowdown in growth is why the stock price gets hammered and it has rightfully so. So we've covered Roblox now a few times before and continue to really see that same profile. We're not seeing that inflection point to like this organic, not share based compensation cash flow or no GAAP earnings, same inability to profit, but they do have an ever increasing uh, user count, but you also have an ever increasing share count. The company is facing growth slowdown now, which is an added concern which is why when we are looking at these growth companies, we want to see a clear path to profitability, not just an EBITDA story. The free cash flow has always looked better than other metrics due to cash upfront nature and the heavy share compensation. But now even management's own guidance is expecting a decline, which is a real concern and moving in the opposite direction of what is desired. The platform uh, does have a real poll and a unique opportunity with that aging audience with more cash in the wallet to spend. But that is coupled with child safety risks which I don't think are over at least yet. I think we are going to see whether it's in the US and Canada and Europe. Uh, it is a fine line to lock. We're seeing more and more around social media roadblocks can sometimes be coupled into that. So whether or not it is over or not or whether it's just changes, we'll have to wait and see. Overall we will still continue to monorail blocks, but we need to see per share profitability, not just ebitda. Uh, not just free cash flow that's really being powered by shareholder dilution and financial metrics that only really look good if you ignore real expenses. That's what we want to see going forward is profitability at the end of the day. And for disclosure, we do not have a positional relationship with the company.

Speaker D: We must protect the children.

Speaker B: It's true. I mean, yeah, it needs hyper growth, it needs high end growth. And that is the fear, I think that's like of the market right now. Growth slows, uh, if it reignites again.

Speaker D: Yeah, you'd be kind of making a contrarian bet right now that you know, they can kind of, you know, get through the safety rules and, you know, continue to monetize. But like, I, I don't know, I think this is going to be a headwind for, for a bit, for sure. Uh, at least in my opinion. Um, I mean, we'll, we'll see.

Speaker A: Yeah. Panda's rolling out some social media restrictions. Australia's done it. I think it was the UK was the other country that I was seeing headlines on. So it's a very real risk and I don't think it can be overlooked.

Speaker D: I think, like, the thing too is like, I've, uh, heard kind of stories in the past where parents don't even really, or didn't even really understand that, you know, their children might be speaking to somebody, you know, through Roblox.

Speaker B: Um, I mean, some, some that, some do and they, they limit it. I mean, you can do things to prevent, but a lot have it open, right?

Speaker D: Yeah.

Speaker B: And that's like, you know, eight year olds.

Speaker D: Yeah.

Speaker A: Yeah. And that's where that age check comes in. Is, is it actually an 8 year old? But then it creates that friction and that's what we're seeing here. And is, yeah. Is that going to keep going forward? Are you just going to see people just not want to sign up because they just don't want to deal with it?

Speaker B: Yeah. All right, I think that's going to close off our show for this week. Keep your questions coming into our, your stock or take segment and we'll endeavor to answer those on a weekly business. If you are watching this, viewing this right now on YouTube, smash that subscribe button. If you're listening to this, wherever you consume your podcast, rate and review us. Uh, and as always, I'd like to wish you profitable investing. Thank you.

Speaker D: Thanks everyone.

Speaker A: Thank you. Thank you, Sam.