New Constructs' Live Podcast: Intelligent Capital Allocation - 1 December 2023

All right, folks. Well, we're going to go ahead and get started. Thanks everybody for joining us. This is New Constructs Podcast, Intelligent Capital Allocation. We've got a great group for you today from New Constructs, and we also have a special guest returning, Andrew Miller. So we're excited to hear from him again and grateful that he's willing to join us for a follow-up. Here are our disclosures and disclaimers. And then our agenda. We will not be having the podcast the last 2 Fridays of the year, so December 22nd and 29th, there will not be a podcast. But you can watch replays on YouTube if you miss us. That's totally available at any time. And I also wanted to point out some research from last week that came out the NVIDIA overvaluation comparison. It's hilarious. And if you missed the podcast where we talked about NVIDIA's valuation, this is a great piece to read through. I really enjoyed it. From this week, Company Model Improvement. Our analyst today, Sam Moorhead, will be talking about that article and some of the background there, changes that have been made. A ton of S&P 500 and sectors work came out as well. You can see the list there. There is public versions of all of these works. These links happened to be to the members only, but you can get to free abridged versions of these reports as well if you're currently not a member at New Constructs.

Mm-hmm.

Dividend Growth Stocks Model portfolio was updated and 2 long idea pieces, the long focus list update, and also a particular long idea out this week on oil royalty, continuing the energy theme. I did want to let folks know that Stock Tracker 50 is still available. If this is something that you're thinking about, if you're thinking about trying out new constructs, This is a great way to get your foot in the door and get to know our ratings a little bit better. If this is something you want more information on, it's easily available on our website, and you can always email me at support@newconstructs.com, and, and we can chat about whether it might make sense for you or not. David, I will hand it over to you to introduce Andrew with his update.

Andrew was with us a couple weeks ago to talk about the SEC and its whistleblower program. And he had a ton of great information. And you all asked a lot of really good questions. And Andrew came back to me and said, you know, I'd like to have a chance to answer some of those questions and speak to some of the finer points we didn't really always get to in the last podcast. And so I said, heck yeah, we'd love to have you back. We think this is a really interesting topic. And we'd love to know more about it because I think it also fits into some of the bigger themes. that have been on in the society around fiduciary Hail Mary future thoughts on the nature of risk. There's a lot of risk in investing, and I think Wall Street does a really good job of trying to make you think there is no risk. Andrew's going to talk some more follow-up on the SEC stuff. Andrew, if you started off where we were around halfway through the last time you were on and just explain a little bit of the background about how the SEC whistleblower program works. And then go from there to talk about the updates and the changes of the results from the SEC's enforcement of 2023, and then a little bit on the, the George Jaquesi versus the SEC case.

Okay.

Well, again, thank you very much for having me back. It was a lot of fun the first time, so let's try to replicate things here. One of the things, real quick, if I may, think there was a question that was asked. I think it was by Farzana. I think that's who asked it. And it was a question about what book I would recommend to folks who wanted to get a better sense of whistleblowers and what they're all about, what their role is. I passed on the question and I feel bad because it was a really good question. And I have a— I have an answer for Farzana. The answer is Tom Mueller's Crisis of Consciousness: Whistleblowing in an Age of Fraud. And this is Just an absolute epic poem that really captures, I think, what Farzad was looking to address here. And from the title, you can see Mueller writes that we live in an age of fraud. And as David just said, a lot of risk out there. And so how do you get around that risk? Well, sometimes you play fast and loose with the rules. And I can't even tell you how true it is that this is an age of fraud. We've seen it in so many of our cases. These companies, they know they've got a scheme that's fraudulent, and they'll even have actual conversations at the highest levels of senior management discussing it, not about stopping the conduct, but about quantifying the risk of getting caught. And they'll actually perform a risk analysis that balances the profit to be made from the scheme versus the chances of getting caught and the subsequent fines they'd have to pay. And if the profit figure is larger than the fine figure, What we often see, sadly, is the company move forward with the fraudulent scheme, justifying it by saying it's just the cost of doing business. So in this age of fraud, it really highlights the critical role that whistleblowers play, which is what Mueller focuses on in this book, because whistleblowers are typically the most effective way to unearth corruption, because who better to root it out than someone who knows exactly where it is? So Farzana, hopefully that helps. Hopefully you find it enjoyable, and others who might be be interested in reading that book. Just as a refresher, the SEC whistleblower office, the way it works is if you have information that might lead to the recovery of at least $1 million or more in related to securities violations, then you are entitled to receive a whistleblower share of that if you bring that to the commission's attention. You don't need to be an insider. I think as Steve asked last week, You could be an outsider as long as your information leads to a recovery by the government. And then the Supreme Court just recently on Wednesday heard a case involving the SEC, a very, very important case. And it's called the SEC versus Gerkese. Now, people were kind of butchering the pronunciation of it, and even some people were calling it Gerkese, Gerkese. Even Chief Justice Roberts called it Jacuzzi. Until he was corrected during oral argument. It rhymes with messy. So if you want to sound smart in front of your friends when you're talking about SEC Supreme Court cases, it's Jarkesi. So in a nutshell, what it was is it was a challenge to the SEC's authority to use its own agency as a means of enforcing securities laws. And administrative agencies like the SEC They have their own regulations and then enforce and adjudicate those regulations all internally, not in a federal court, but in an internal agency setting with its own employees as judges. So you can imagine that when there are civil fines potentially at issue, that can make some folks very nervous about whether they're getting a fair shake. And that's what Gerkese argued, is that the SEC's home court advantage violated the Constitution's 7th Amendment, which gives all of us a right to a jury trial. And based on reading the tea leaves, you can never tell for sure based on the questions that are posed by these Supreme Court justices, but it looks like they were pretty hostile to the SEC's position on this. And I think they've seemed poised to hold that the enforcement scheme using their own internal agency adjudication methods is going to be knocked out and that folks will have an opportunity to have a civil trial rather than have it adjudicated by the agency itself. So it's pretty important.

Makes sense, right? I mean, you shouldn't be able to be judge, jury, and executioner like the SEC is. And I think, didn't Mark Cuban and Elon Musk already win cases specific to them against the SEC in this regard?

Within the agency setting? I don't know whether it was an agency setting or whether it was actually a civil action in federal court.

Okay.

This is not technically a pass, but I can come back and give you a full answer to that.

Yeah. I just think when I was reading about the article, or I'm sorry about this, this, this case that somebody in writing it up mentioned that, that, that Musk and, and Cuban had already sued and won the, against the SEC for like, hey, you can't violate my, my due process.

That's correct. Well, I mean, this, this was a case that the, the Fifth Circuit Court of Appeals, one level below the Supreme Court, had ruled that this was a violation of the Constitution and that folks have a right to a civil trial, um, in these instances.

Right.

Who's gonna pay for the SEC's defense when they're getting sued by giant corporations with gajillions of dollars and all sorts of time to Mount their own defenses.

Our federal agencies are funded by our taxpayers, so they're— I think that's going to be—

yes, that's another angle on this. Part of the reason the SEC wanted to do this is so they wouldn't have to be tied up in federal court.

And can you imagine? It's going to be—

in which case they don't— they can't afford it pretty much. And so they're, they're really therefore then hamstrung.

Well, they'll turn into the IRS where they're only investigating the small potatoes.

Yeah. Gosh, I didn't think about that. There's really two sides to this. So on the one hand, you do want them to have that power so they can actually exercise it. But do you trust them to do it judiciously? And I, yeah, I don't know. It's, that's, that's interesting. Andrew, what do you think about that?

I totally get the argument that it is a home court advantage, that if you, if you feel like you're the little guy and you're being judged by the agent, the commission itself with its own employees, you may not feel like you're getting a fair shake. The benefit of having this argued in federal court is there's a thing called precedent. You know what has been determined to be a violation of securities laws. You can look at other cases and judge, mine's similar to this one, or mine's distinguishable from this other case. So I will fight this. But with an agency adjudication, it may not be so clear. And so there's a little more structure to, I would argue, to the federal court proceedings. Is it more time-consuming and costly? Probably. But ultimately, if, if the goal is to get a fair adjudication, might that be what you would be willing to, to give up for that?

Yeah. I don't know enough about it all to be sure or, or not about what Tamara's saying there. I get the sense and limited experiences I, I do have that people can just outspend you to win, and that would be an unfortunate occurrence. But I think you're right though. At the end of the day, you got to go with what's most fair and then maybe work from there. It is most fair, I think, for there to be an open court.

Well, one of the options that's available based on the arguments that were presented to the court is that if you want to have it adjudicated by the agency, you can. But how about you give a right of removal to federal court if you want to exercise your right to a trial. It basically gives the defendant the opportunity to, to choose the forum. And so if you think that you're going to get a fair shake within the agency, then let's just do it that way. But if you want to go to federal court, then you have that option too. We'll see. The court— the Supreme Court might craft a decision that gives that option. We'll have to wait and see next year.

Interesting. I mean, I don't think there are too many defendants that are going to want to take, uh, the SEC. I mean, Unless they're just so sure they're going to win. I don't know. Even then, I would probably— it seems unlikely that any defendant would ever choose to say, let's just do it behind closed doors on your turf.

Well, another thing too is, and I think as Tamara's got up on her screen, the SEC announced its enforcement results for fiscal year 2023, and it breaks out all the different categories of enforcement actions. But going to what the Jarkesi decision and what we've been talking about, why does that even matter? Is this even a thing? Yeah, it is. Look at the column headed with civil actions and then right next to it, standalone administrative proceedings. So this is what we're talking about. If you go all the way down to the bottom, there were more administrative proceedings than there were civil actions. So if you are to eliminate those administrative proceedings by saying it violates your constitutional right to a jury trial, that really upends the way that these enforcement actions have been had by the SEC. And I look back at last year, fiscal year 2022, it was even Steven. It was 230 civil actions in federal court, 230 in administrative proceedings. So there's been an increase in the administrative proceedings. So it's maybe coming at a time when the SEC is relying on its own internal in-house court system that the Supreme Court then comes in and pulls the rug out from underneath. Again, we shall see when the decision is issued next year.

So they are doing a bunch of stuff in federal court. So what makes them choose between which goes to court or which goes to an administrative proceeding?

Those are the priorities based on what the SEC— I think it ultimately will depend on the type of action it is. If you're pursuing a delinquent filing versus— some securities violations are just different than others, and some are more— the federal laws make for a civil action, making that a better home for that type of enforcement proceeding. And so that's something that's at the discretion of the, of the SEC.

Right.

Stuff like an illegal securities offering, that probably has to do a lot with the independent coin offerings under civil actions. You see that's 123 to 41 in terms of standalone administrative proceedings. I'd imagine those are bigger deal. But when you look at issuer reporting, auditing, and accounting, it's more, way more administrative proceedings. That's probably because that's just a bunch of nitpicky, hey, you didn't disclose things right, you didn't quite get your filings right, and there's no need to go to federal court for something like that. So I think you're right, Andrew. The, the best case scenario here is that the Supreme Court outlines probably a better balance or better system for determining what merits the need for due process and what doesn't. I don't think we need due process for people who are disclosing things incorrectly or not following the right rules for how they report in their filings, unless it rises to the level of market manipulation and misinformation, insider trading, fraud, et cetera.

So from my, my perspective, that decision's going to be pretty critical in the way that we monitor how the SEC enforces Alleged violations of securities laws, and so this table next year may not reflect it quite yet because depends on when the decision comes out and when the new regime is instituted. But then certainly fiscal year 2025, these columns will look a lot different depending on what the Supreme Court says. And so that's it's gonna it'll be very very interesting, and it's for. law geeks like me, it's a pretty exciting time.

Yeah, no, this is, it is an exciting time. And I love this book, the Tim Mueller book. I think that we do live in the age of fraud. And I think we see folks who make a lot of money on it and they flaunt it in the spirit of, or under the COVID of speaking power to authority or things like that. And we need organizations like the SEC Like regulators, and in particular folks like you who are going to make it their job to ensure that people follow the rules. I don't think we need to change rules as much as we just need to make sure we got better enforcement. So yeah, let's let's keep following this, Andrew. Thank you for bringing this to our attention. Thank you for your insights on the whistleblower stuff, and let's hope that the SEC moves the ball in the right direction with respect to. holding people accountable for unethical and illegal behavior.

Sounds good. Thanks, David.

Yeah, thank you.

Happy holidays, everybody.

Yeah, thanks, Andrew.

Thanks, Andrew.

All right, so next we got macro reports. Let me share those.

We do, we do. There is one question about using New Constructs technology to under— uncover evidence of fraud.

Yeah, we get this question a lot. Especially from hedge funds and investors, et cetera. And the hard thing about fraud is it's people lying. And so if they're just putting fake numbers on their financial statements, that's, it's just hard to know. I can't read that and know that there's no lie detector test for a piece of paper or a webpage. But one thing I do think is fair to say is that companies and people tend to bend the rules before they break the rules. We've got the best system in the world for seeing how much people are bending the rules with respect to how they report their profitability. So that's how I'd answer that question. People tend to bend the rules.

So watch the earnings distortion.

That's right. Earnings distortion is a good one. So let's talk about our fundamental macro research.

It's out.

We got new stuff, as Tamara said. I think this is some of the coolest stuff we do. And what's fascinating about this is, is not just how things are changing. And I'm going to just pull out one of the many reports. Sorry to switch around a bunch on us here, but we got it. We've got a lot of them. You can find them in the, the sector fundamental macro trends section. You see we've got economic earnings update, and you'll see there's a free version, which is a quick preview of what's in, in the full report. And then there's a full report every time. Currently, these reports are available to both Pro and Institutional. These are likely going to be available only to Institutional in the not too distant future. So if you're a Pro, get in there fast. But these are extremely valuable. We talk about how every quarter we're doing about $1 million worth of work to update all the filings. To do this and aggregate this data, look, in all my time on Wall Street, Next to no one has been able to do this. Not for earnings, not for free cash flow, not for return on invested capital, for GAAP earnings versus core earnings. I mean, this is just a really pretty amazing level of work. Here's just a good example of, of where we can see how GAAP and core earnings are bigger. They're bigger distances between these 2 numbers than we've seen in many times in the entire history. of the market, or at least going back to 2004. But the one I wanted to do a quick deep dive into today is our price-to-economic book value report. And this was interesting, not so much the trend, we're definitely getting more expensive, but what I found most interesting, and I'm going to the PDF because the PDF is where we're going to get the sector information. What's really interesting, and this is true across almost all of the metrics that we're looking at at an aggregate level is that while things at the overall S&P 500 level don't seem that volatile or changing that much, at the sector level we're seeing huge differences. So every one of these reports will go in and do work on the S&P 500 and then each individual sector. So we can see basic materials Going up pretty strongly. Consumer cyclicals going down pretty strongly. Non-cyclicals down. Energy flat. A lot of that's because there's been so much noise in the past because it's the, uh, the, the economic book value can change a lot. But financials quite flat. Again, there's a big aberrational event here in the Great Financial Crisis. Healthcare flat. Industrials Down. Real estate, flat. Utilities— I'm sorry, technology way up and utilities up a little bit. I'm sorry, that's telecom. I keep trying to jump to utilities. Apologies. Telecom, not very volatile, and then utilities way down. So going through and looking at this data just hits on a theme that's true to, to the New Constructs reason for being. Don't just trust the headlines. Don't just trust the superficial numbers. Go another level deeper, because when you do, you see wildly different information than what you might assume by looking at just the headline or the overall aggregate number for the S&P 500. And the same is true for individual companies. The, the farther and more granular you go, the more disparate the results. And this is just a great example of that. Utilities huge decrease, as you can see in the chart here, for their price-to-economic book value. And technology is on a huge run-up. Industrials, really huge run-down. Huge run-up for healthcare over time here. And we're seeing really a real top here for consumer non-cyclicals and cyclicals. So just—

There's actually— sorry to interrupt, David— there's actually a question about price increasing. Is it due to inflation? Or is the selling of the number of products really increasing? Is there a way to ferret that out?

I don't really understand the question. Is the price increasing? This is more— maybe you mean the price to economic book value increasing.

That's what I assume.

Yeah. Yeah.

I mean, we can actually break that down in this report as well, where we will go in and tell you for the S&P 500, here's the price or the market cap, and then here is the economic book value.

Okay.

So you can see Price going up, economic book value going down. In the very end here, we got a little bit of a, they're moving in the same direction.

Little tail.

Basic materials. The price turned over back in the beginning of the year, down, back up a little bit. Economic book value pretty steadily down here. Consumer cyclicals, economic book value down, maybe coming back a little bit. Price down a lot too, and maybe coming back a little bit. Non-cyclicals, economic book value way down. So we, in all these reports, I think we do a really good job honestly of breaking it down to its core components. We do the same thing for return on invested capital and NOPAT margin and invested capital turns. It's really at a sector level. If you're a hedge fund manager or a quantitative macro strategist, The arbitrage and hedging that you can do by having this information at the sector level is amazing, especially if you also engage in any individual security investing. So this is unique and super valuable and extremely expensive and difficult to put together work. And I really wanted to spend some time talking about it because it's awesome. All right, let's talk. Jim, Jump in real quick, and it's also informative on some of our long idea work where we can see that per the chart you just showed, technology looks a little expensive, but we can then go in and find technology companies that actually aren't looking expensive at the same time. And we had a recent long idea, VSH, that looks very cheap while you might say the whole technology sector is expensive at the time. So it gives you another insight into opportunities there as well. That's an awesome point. Let's take a look at technology. So, I mean, look, you're seeing the market cap skyrocket way above economic book value for a long time. Sure, economic book value got better, but not as much as market cap. And then it came back down, which was about right. That was a good thing. That was the end of last year. That's when we were, yes, market efficiency coming back. Head fake. We're right back to where we started, even though we're seeing economic book value go down. What does that mean? The number of opportunities for stocks in the tech sector, Very, very small. So to Kyle's point, if you're a pro member, you can go in and do screens and say, okay, well, help me find in the tech sector those stocks that get an attractive or very attractive rating. And let's just, to make it more fun, have a return on invested capital greater than 20%. Go. There's your list, right? That's maybe 10 or 11 companies. Again, a small number, small number. And we've done some research, as Kyle said, in this specific space because people have been saying, okay, yeah, you don't like Nvidia, but what do you like? And we came up with a couple really good names, really good names that are related to semiconductors and AI but aren't the popular ones. Why? Because they're the behind-the-scenes picks and shovel plays. But guess what? Those picks and shovel plays are as important as any of the other companies because you don't get any chips without the picks and shovels or the people doing that, the, the businesses doing the work in the background to actually produce the chip. So Kyle, extremely good point. Thanks for, for making that point. Um, screener is super powerful. Institutional clients get access to this dynamic data screener where you can go in and look at all kinds of criteria Not just valuation, operational. I mean, you can see you can do searches for all this kind of stuff. I've got some saved searches here where I can automatically load a bunch of data, and then you can get this data on a select sector, or you can do the entire market. And very quickly you've got a bunch of stats. So great, great call, Kyle, to do a quick commercial here on the screening capabilities, because the screening capabilities that we offer are amazing. You don't get screening in Stock Tracker 50.

Why?

Because it's worth millions, if not hundreds of millions of dollars, to be able to go through and screen thousands of companies on the most sophisticated criteria. That's a dream for anyone who cares to be that rigorous. It's absolutely unbelievable deal that we offer this product, institutional product for A little over $3,000 a month and, or $3,600 a month. And then the pro for $1,000 a month. I mean, to have access to any kind of screening capability, even these simple screens, is, is really amazing in my opinion for these prices. And we can also screen on ETFs and mutual funds, which I think is super cool. The other thing I wanted to talk about in society is a couple really good posts. Let's hit the Elon Musk interview real fast. Panaki, I love your comments. Thank you. Yeah, great comment. You, you, you took the words right outta my mouth with respect to Mr. Musk. And I'm not gonna spend a lot of time on this. I wanna really make one key point and that, and that's in the kinds, the kind of leadership that are available or out there in the world. And, and I'm gonna oversimplify here, but I think there's 2 kinds. One is the legacy, you almost call it the Old Testament. Old school Bobby Knight. Hey, I'm the boss. You do as I say or else. And that works for some people. I think over time we found that it's maybe not as effective, right? I like to joke with folks on the sports arena. Well, the Bobby Knight era is over. It's now the John Calipari era. I'm not going to beat you up and make you run wind sprints. I'm going to take you on a ride on the private jet. And I think we've seen, and God rest his soul, Bobby Knight was a great coach and a great man. I'm sorry to hear he's passed away, but the Calipari era. is what's winning. That's real.

That works.

Where we're engaging and we are supportive of those around us. And I think that's just proven to work pretty well for the same reason that liberal democratic societies have succeeded way better than the communist monarchical societies. So that's one kind of leadership. The other kind of leadership I would call it, for lack of a better word, servant leadership. That's where, as a leader, you, you're in it because you realize you're successful when your people are successful, when the relationships with the folks around you are good. And think about it like an ecosystem. What ecosystem survives if any one member of the ecosystem is exploiting the other? Doesn't. The ecosystem breaks because you exploit someone for so long, they die. The ecosystem breaks down. So Servant leadership versus tyrannical leadership, which is better? I think over time, as society has evolved, we know that servant leadership is what works. If you're going to be a jerk leader, people don't accept that anymore. And yet I think what we're seeing with Mr. Musk is people are so into wanting to believe that he is some sort of great genius that they're going to give him a pass on being exactly the kind of leader that we spent the last several decades and centuries Recognizing is not working, as recognizing as leading to acts of hate that we're seeing manifest now. That's what that kind of leadership gets you. And you got to look no further than just history. Look at the societies that have done well and the kind of governments they have versus the ones that have suffered the most and whose economies have suffered the most. Look at the tyrants in other countries and the standard of living in general. How does it look? Compared to free, the free world. It's not even close. And, and I think that's really the right way to, if you wanna think about what Elon is doing in the way he's acting, it's understanding the difference between leadership that works and what doesn't. It might be sexy, it might be funny. It was funny when we watched Donald Trump have that show. Oh, you're fired. Was it funny when he did that stuff as a president? Yeah, not really. Wasn't funny. Wasn't good at all. I don't think it's funny what Musk is doing either. I don't think it's good. And I think the problem, the real issue is that people are so maniacally believing in Musk that it's become a cult and they can't turn back now. So the more extreme his behavior, the more extreme their, their dedication because they can't turn back. And I, I just hope more people will, will wake up. Let's talk about—

yes. And we just got a couple more minutes here, David, and then we'll head over to Sam.

Okay.

Yes.

Thank you for reminding me. Thoughts on the nature of risk and the fiduciary Hail Mary. Thoughts on the nature of risk from Joseph, and then the fiduciary Hail Mary from Ryan Mitt. Look, it was awesome. I mean, both of these are really speaking to the heart of what New Constructs is trying to help people with. We want you to know the truth about risk and profitability and valuation. Wall Street doesn't really want you to know the truth because as long as you believe there's no risk in investing in a guy like Musk, You just keep piling more money in. And same to the stock market, all these IPOs. Let's just do it. There's no downside. There is downside. There's always downside. And we help people understand that downside. We think that's the right thing because in the long term, if you're not discerning about where you allocate your resources, capital or otherwise, you put them into bad things, everyone loses. You put them into good things, people win. And that's what we want to help people do. All right, time to pass the baton.

Sam, if you would like to jump in for the analyst update today, that would be great.

So I'm here today to talk about required cash and excess cash, as well as a couple updates we made regarding those. So to start out, I have some definitions here. And required cash, that's just the amount of cash a company needs to operate the business. And we include that in invested capital. Then the other part is excess cash, and that's any cash left over after required cash, and that's added to the shareholder value in the DCF. It's also excluded from invested capital. And we determine required cash a couple ways, but it's— put it simply, it's based off of NOPAT margins, or net operating profit after tax margins, and then we calculate that as a percentage of sales. If you don't mind, go to the next slide here, Tim. And we have 4 thresholds for that, for cash required as a percent of sales. The first one's 2%, and that's your highest profit margin companies, so the Apples, Microsofts of the world. And then we have 5%, which is our most common threshold, and that's your positive profit margins or slightly negative profit margin companies. We also have 25%, Which is negative profit companies, and then 100% is your lowest profit companies. And then next slide is a couple examples here. The first one's Apple. I think everyone's familiar with Apple. But in recent years, starting in 2019, they have a required cash as a percent of revenue of 2%. And this makes sense when you look at the bottom screenshot here of our— the NOPAT margin over the years. They're a very profitable company. And to get that required cash number that's in bold in the first screenshot, that's just the 2% times your total revenue, which is on the bottom, the bottom screenshot there. And then everything left over is excess cash, which is right above required cash in the first screenshot. And then another example on the next slide is DraftKings, unprofitable company. And we can see their required cash as a percent of revenue has always been 100%. And looking at their NOPAT margins over the years, this makes sense. They lose a lot of money, very negative NOPAT margins. And the other part of this is since everything— or since we have 100% required cash as a percent of revenue, they'll have no excess cash. And you can see that in that first screenshot right above. Required cash. We have 2 updates to talk about here. The first one's just an analyst note update. And every time we require— or every time we update a required cash assumption, there'll be an analyst note on the website. And this is just a screenshot of Expedia. So the last time we received an annual filing for them, we updated our required cash assumption, and now you'll be able to see that in an analyst note. And then the second update is it's an analyst note plus suspending their ratings. So if we change our required cash assumption and that change causes a large change in required cash, we'll alert everyone with an analyst note as well as suspending the rating. So this is an example of Airbnb. And this update went live this week, and as a result, I believe 29 companies' ratings have been suspended. Suspended based off of this.

When do they stop being suspended?

And the next time we get an annual filing, and if their cash required stays the same year over year, that suspension will be removed. Okay.

I think this is a great example of the really deep rigor. I know I love to brag about how hard, how much work we do, but I mean, look, I mean, excess cash is an extremely important concept to understanding return on invested capital. And it's easy to think about excess cash. And I know when a lot of our competitors do this kind of work, even at McKinsey, they'll do a bunch of work and they'll, and, and they will have simplifying assumptions that work across all companies because they don't get down to the granular level. What I'm getting at is that as much as this concept makes a perfect total sense on its surface, it's very difficult to implement across thousands of companies because you get so many weird disclosure scenarios and actual underlying company operational scenarios where the rules that you think should work don't work because crazy things happen in business. And we are— the sophistication, new constructs to deal with all these one-offs, these really odd situations and do so in an intelligent way, if only to say, by the way, the numbers are so messed up that we just need to raise a red flag and say, you You need to think a little bit differently about free cash flow and required cash for this business. It's amazing. Most firms would never tell you that they didn't get it right or that the numbers are odd. They don't even know they didn't get it right because they don't pay that much attention. So this is some great work by our analyst team here. Thank you, Sam.

The work does pay off. Absolutely. Well, we're going to wrap it up here today, folks. Thank you, Sam, for joining us and going through the analyst update. I'd also like to thank Andrew Miller, uh, for joining us again with the whistleblower update, and I hope you guys have a great start to your December, and we will see you out on Society very soon. Bye, folks.

Bye.