Navigating the SaaS Apocalypse: Why AI Disruption is Mispriced | Deiya Pernas | Pernas Research

for SaaS companies you're absolutely right. They've not shown at all the scares and fundamentals that reflect any sort of the perceived fears that you're talking about. What the market is overlooking is that most of these SaaS companies have the DNA to change and understand the agentic disruption is an existential threat and they are adjusting as we speak. And what I think is going to change the market perception is going to be these companies making credible adjustments in the agentic layer. It's priced for total bankruptcy to capitate sheet debt. It's priced as a carcass right now and it's also one of the reasons why it's so easy to be bullish on it and all that has to go right for it to be a double. Software stocks have been in freefall as AI's coding and agentic capabilities have expanded. It's clear that the potential for disruption is massive but the broad nature of the sell-off means valuations are at a level we haven't seen in years and there is an opportunity for investors who can find the software companies that will emerge from the other side of this unscathed or even stronger with product improvements made for this new age of AI. In today's episode I'll be speaking with Daya Pernas co-founder of Pernas Research about the opportunities that they are seeing in software and will highlight one software stock that they see over 100% upside in over the next 12 months. The last stock we discussed in that episode is up 49% since then but one stock doesn't make a great investor. Unlike most independent research providers Pernas manages an audited real-money portfolio and that portfolio has generated a 30% compounded return since their inception in 2017. Just like a fund Pernas publishes quarterly letters and audited performance tear sheet that you can view on their website. Today monetary matters listeners can get 20% off their first year subscription price where you'll get access to the full portfolio, their library of research and ongoing research and positioning updates as they scale in and out of new and old positions. Check out the link in the description for that offer. Let's get into it. Daya thanks for coming back on monetary matters. I want to dive right in. The last time we spoke in January we talked a lot about AI disruption and how that had been driving a sell-off in software and at the time you took the view that the sector was not yet cheap or really a screaming buy. A lot has happened in the last few months we've seen another leg down in software. How are you thinking about the software sector today as we sit in mid-e? When we talked that was really the first leg of the so-called SaaS Pocolibs and to us it was very very clear that all that really was the first leg of that was just a rationalization in what was previously very richly priced securities or stocks and the index that I'm talking about is really application SaaS. I'm talking about HubSpot, Salesforce, Adobe, ServiceNow, those types of application type companies. There's no reason that some of those should have been trading at 10, 20 times sales to begin with. So if now they're at 10 or 7 or 5 that's a lot more rational with me. When we talked it was from the perspective of oh okay this just seems like a fair pricing environment. Things are back down to normal. Since then however there's been another leg down because that first leg down if you remember was primarily around cloud code dropping and that wide proliferation of everybody using that code and being able to buy code you know amazing software tools. The second leg was really the agenda component which I think is a more real fear and that caused the second leg down in SaaS. And what you've seen since then is a disproportionate selling weighted towards smaller capitalization names. It seems that the only distinction the market is making when it comes to variation in returns for SaaS company is size. So larger companies have sold a lot less. Smaller companies have sold off a hell of a lot more. Some are even being priced for total decapitation. And we think that there should be a lot more nuance based on some. There is a rational element to try to use just a single factor to explain those variation returns. But there's a lot more nuance that goes into it. And I think that if you have that nuance there's outsized opportunity to generate alpha and some of the smaller cab SaaS names. What are some of the nuances that you're looking at to determine? Because obviously there are going to be some companies that do get completely disrupted. So the companies that get disrupted and I don't believe it's going to it's because the the cost of code or trying to produce production ready code has gone down to basically zero. It may be easier to build a SaaS tool right now, but it's even harder to build a SaaS company. First of all, nobody wants to fund a SaaS company. You still got to build our customer service sales. You have to make your SaaS product enterprise gray. There's also security workflow tools, integrations that go into that. Hosts of APIs that are always breaking. You got to bring that all together in a totally reliable product. So the the threat that just because code has gone the producing code has gone down tremendously that you're going to be able to build a SaaS tool and supplant and incumbent. I just don't think it's a serious argument. The better argument is that, oh, okay, look, you have all these agents now. They're getting better and better. They're going to be able to do the work, so to speak. So if you think of a normal application software, people are actually in that product doing work. So if the agent isn't there doing work, what is the need for SaaS is really what the market is thinking and afraid of. What the market is overlooking is that most of these SaaS companies have the DNA to change and understand the agentic disruption is an existential threat. And they are adjusting as we speak, or at least the ones that we are considering as candidates for inclusion or the ones that we already own in our portfolio. They're already making they're already making the adjustments. They have a DNA to change. A lot of these companies have had to make the ship to cloud. I had to make the ship to mobile. I have had to make the ship from different development platforms. So this is not an industry that is 100 years old that is ran by a bunch of people who have been doing the same things forever. This industry has always been in flux. Granted, this change is a seismic one compared to the past ones. But again, the market is underestimating the company's ability to change. In general, company's ability to change. So that's one of the first things we look for. If we're evaluating a candidate to be able to defend its advantages in this era, is this ability to adjust how is it responded to the agentic threat, the AI threat in general. Does it have any sort of proprietary data? Does it have any sort of privileged API access? Is it just a SaaS product that is being used to produce some digital output or does it actually have some connection to the real world? Is it a SaaS product that helps organize logistics or a company like ProCore that is a SaaS platform that is essentially the operating component for any sort of real estate projects? So it brings together engineers, architects, lawyers. It has a real world component. And companies like that, I think are going to handle threats very well. We haven't quite gotten into the full swing of earning season. So it's not like we've heard from a lot of CEOs or management teams in official earnings calls yet. But you are seeing things like all birds saying that they're an AI company now. How do you make sure that a pivot isn't something like that that is clearly sort of tying on to a trend and they're just putting sort of lipstick on a pig and that they're actually making the sorts of changes that you really want to see that are keeping up. Yeah, good question. I mean, executives are very good at telling investors what they want to hear. And for you to be a good analyst, you have to realize that basically these, you know, a lot of executives are incentivized to lie to you. I'm not saying they're exactly lying to you, but there's certainly incentivized to do so for what are obvious reasons. For us, really what it comes down to, we never take anybody's word for anything. We have to see it in numbers or in the product itself or in hiring decisions. You have to tie it back to some sort of KPIs, some sort of evidence or else you're just going to be drifting from narrative, un-substantiated narrative to unsubstantiated narrative. So for us, especially given the company that we're going to talk about today that we believe is a double in the next 12 months, it's gotten sold automatically. It's actually using the product is actually understanding, oh, they're implementing AI how, using the product always helps for yourself and just understanding the broader strategy and any sort of KPIs beyond that is how we would look at it. The last time we spoke, you talked about enterprise value to sales and that was the multiple you'd like to look at. You said we were still around five times. Where are we today? And you said you have an index that you're tracking. What does the composition look like? The software index that we're internally tracking has about 50 names and its application sass. And the reason why we're tracking that so carefully is that's really the segment that is being affected by these fears, the agentic fear and just the the cost of code going to zero fear. So that and we're invested where we're trying to look for misprice. So anytime it seems like there's a broad base sell off, potentially the babies being sold off with the bathwater and if you have a variant opinion, there's the opportunity to make alpha. So hence us following the syntax. Like you said, at the beginning at the beginning of the year, it was trading a little over five times sales and right now it's trading at three times sales. So median performance is down roughly 40% and we think We think a lot of the bigger names are rationally priced, but there's certainly some fewer names that are where the price and just makes no sense at all. And we think that if you are looking at them in the right way, there's the opportunity to make outsized alpha. There's just no reason they should be priced at the level they're priced at right now. Are you looking at all into larger cap names? We are pretty agnostic when it comes to market cap. We're just looking for like we know we've been big believers in own meta and 2000 way to 2023 because we could thought the market was completely wrong on it. So we're very happy to us about where the returns are. Generally speaking, there's just a lot more small cap names than larger cap names. So incidentally, we find ourselves looking more small cap positions, but it's not again, it's incidental. It's not like where we look first or anything. As far as the large cap names, yes, a lot some of those have sold off aggressively, but not as much as some of some of those small cap names. There's a clear correlation to size. The bigger you are, the less sell out the smaller you are the more your company is sold off. And ostensibly the market is thinking that well, this I mean, it's naive, but it's reasonable where the small you are, the easier you are to be replaced, the lesser come in advantages, the less complex your product is, the more easy somebody can just vibe code it, so on and so forth. So I understand what the market's thinking, but I still think there's a lot of nuances being missed. So if you think nuances being missed and that eventually the market is going to realize that it has thrown the baby out with the bath water, there is going to be a moment where people's minds change. I mean, do you think it's just going to be consistently showing that revenues are growing, earnings are growing? Is it going to be the financials or do you think there will be more of a vibe change moment? Because obviously when Anthropic put out these products, it's not like we had earnings right after and revenues started to drop. Like that, we really haven't seen that side of it yet. So clearly, the market has decided to price this in without seeing it in the fundamentals. Why would it change its mind if the fundamentals haven't mattered thus far? Again, that's a great point. And it's one of the challenges we have as investors is trying to understand the market perception, which is obviously going forward looking and gets ahead of the fundamentals and is the market writers, the market wrong. For SaaS companies, you're absolutely right. And what I think is going to change the market perception is going to be these companies making credible adjustments in the AgenteClayer. I've just read today that Salesforce had announced that it was essentially unveiling its AgenteC products and its ability to, for its customers to use these agents on all its different platforms. So I think as soon as the market is kind of wowed by SaaS ability to do that, it's going to, the narrative is going to ship what to wow. These companies can actually adjust and maybe we were wrong to think that they were totally stuck in the mud and you'll start to see a repricing. That being said, there's also the fundamental side. At the end of the day, fundamentals, especially when you're looking at top line, cannot continue to improve and perception is to say the same. It's just just as there's loss, there's laws of physics, there's some laws in finance too. And a fundamental, developed markets of fundamentals are one way, namely revenue growth. Eventually, that's going to dispel perception. I just don't know when. Maybe it's in a quarter, maybe it's in two years, maybe it's in three years, but it's guaranteed to happen at some point. So yeah, I think it's going to happen earlier because of the successful adjustments. Some of these companies are making the ejectic space, but yeah, there's I guess there's two ways to win there. Are you trying to get exposure to any subsectors within software? So we would like to have more exposure to real world SaaS. So companies that are actually, I had mentioned ProCore with real estate that are actually some sort of operating system, some sort of central depository or source of truth for real world activities like oil and gas. logistics or real estate or something like that where you need this tool to like get to fix stuff or get stuff done in the real world beyond just something like an adobe where you're publishing or a camp or where you're just doing more creatives or running marketing campaigns. That being said, there's still value there obviously, but the primary focus we think the low aim for it is is more on the real world side. That being said, those those companies tend to be a little bigger. They're trading at a little off your valuations. So yeah, one of the companies that were really focused on the sold off a tons we bought it in December and have added aggressively in the last couple of weeks is more on the social media side. What it and it's an area of enterprise that we think is growing increasingly important. So that obviously helps if you think that it's filling a need that's becoming even more and more critical. So with those real world companies, is there a degree of these the people who are the end buyers of the users of the software are less likely to do their own sort of vibe coding? It's funny. I saw something where it was a fund manager who wrote this letter about how great all the vibe coding was and he said, I replaced my CRM software with this and it's like he's a software investor. He is a person who's who is very, very deep. If you were to say you've got software engineers like the actual practitioners, this person is about as close as any non software developer is going to be to the the situation that's happening and they're proclaiming like, oh, well, everyone's just going to be able to vibe code their CRM software and implement it and maintain it just as easily as I am as the software investor and you kind of have to take it with a grain of salt when you see these things because these people have technical domain knowledge and expertise that somebody who is in the real estate business or the oil and gas business as you said might not have are you thinking about it at all through that lens. I see things very similarly as you. I think it's very unlikely to expect widespread vibe coding and upkeep of people's own personal or small small businesses own personal sass tools. Maybe you'll get some random thing in some area but is this going to be a widespread activity? No, because it still takes a certain amount of expertise people don't have. I mean, if you think about some of the industries you mentioned, they're not going to open up a clause or sort of coding clause. I mean, you still need to push that stuff to a server or you still need to make sure that it's going to what is there a bug or you can go back and fix it. Just to give you an example, we built some tools on our end and just the amount of iterations that are involved to try to create tools that's actually functional, but it's functioning despite, you know, opus getting better or whatever it is, is still a huge burden and you can't expect people who have been in some of these industries that still don't know how to use powerpoint are going to all of a sudden jump in there and vibe code. It's just I just don't think it's a serious perspective at all. I mean, I think if somebody has that position, they just don't understand human nature in my opinion. What are the types of tools that you have been making internally? What of them is charting software? That we weren't really happy with Excel. There's some other tools that we're using or that we're trying to pay for that were a bit exorbitant that we just didn't really see valuables. So we pretty start charting tool. We produced our own LinkedIn scraper. One of the things that's very valuable when you're doing an analysis on a company is understanding net hiring decisions like in the past six months, what have their net hiring decisions been along sales, engineering, data, and so on. That's been very valuable. Another tool has been 8K scraping in a few others. Are you seeing software companies continue to hire, continue to post on LinkedIn? Has this concern that the market has had factored into the decisions that management is making about growth and expansion? Especially given this SaaS pocket, it seems that hiring decisions are net zero. There's some turn. There's certainly not widespread, widespread, lag off of software engineers is here. Maybe in some isolated cases, we've also a lot of announcements, so on. But generally speaking, now it's been quite stable. Why don't we get into one of those software names that you have high conviction on. Before we do, I think this is a good place for us to talk a little bit about how you conduct research, how you construct a portfolio. We have a special offer going on for everybody who's listening. It's 20% off. Pairness research. If you go to the link in the description, it's pairnessresearch.com/monitarymatters. You'll be able to get that 20% off billing. It's a quarterly billing cycle, so you can try it for three months. As well, you have all of your quarterly letters, similar to the way a private fund operates. You have audited performance. You have tear sheets on your website and quarterly letters that everybody can go. Look over the researches behind a paywall, but you can see that. I think it would just be really helpful for everyone before we talk about a name to understand what your portfolio looks like, how it's concerned. How changes are made, what your typical holding periods are doing. Yeah, we have, so it's a constricted portfolio, long only, equities, roughly 60 to 70% US, XUS is developed, think Europe, Canada. We have three distinct sleeves in the portfolio. The first sleeve that has 50% generally 50% more of the weighting is our core positions. And these are generally positions we intend. There's an estimate that we're going to be holding for two years longer. Oftentimes it's a lot less, that's a lot more, but that's the expectation. And those are copies that we've done very deep dives in what we have. Very convicted beliefs in their forward looking financials. And one of the things that we focus on is, is we're value guys, but we're also a very focus on revenue growth. And we want to make sure that that revenue growth is value creating. There's a variety of ways you can grow revenue that actually, that actually impairs intrinsic value. So you got to make sure that's not happening. And then you can just be more convicted on that intrinsic value that's really driving the valuation. And you're looking for a dispersion between the market price and margin, safety and so on. The other half of the portfolio is in starters and speculative. Those are the two sleeves. Starters are usually companies that have the potential to graduate to poor position. But we have to get in the position quickly. It's more about speed and depth of analysis. But there's that potential there for those positions we graduated to core. And then we have speculative. I mean, we look at so many names that oftentimes they're just certain setups that we have to take a position in. And, you know, and there's, and there's a variety of different reasons or maybe it's a workout. Maybe it's, it's a company coming to an at-banker, there's a reason why we call that sleeve speculative. And those positions are weighted a lot smaller. And those positions tend to have very little downside protection, but like, you know, very, very large up size as well. So that's kind of how we structure the portfolio. We tend we're generous. We invest in very different areas when you put it together. It looks a little weird, but we believe that's the whole point of diversification is you want to get different risk factors in there. Different corners of the market have them all working together to build a, you know, a portfolio that kind of that doesn't all go up and down together. It is what we're looking for. We might have buried the lead a little bit. That performance, the audit a tracker, you have stretches back to the beginning of 2017. And as of the end of 2025, the last time you audit that performance, you've annualized 30% since inception. Is that correct? That's exactly right. Tell me a little bit about this, this company that has been in the portfolio and that you've been adding to. So the company is called Sprout Social. It's a SaaS company. They provide a platform that is essentially the operating system for everything in enterprise would need is in social sphere. So and enterprises connect to many different social media networks. They have, you know, dozens of different accounts across all those networks and they need a central tool to kind of manage it. Provide them analytics. Provide them the ability to schedule publish. Provide them the ability to respond to certain customer queries. A lot of consumer experience is moving in social sphere. So this is a company we bought it in the December of last year. It was trading a little over one times beta sales and since then it's been kept half trading it. Remarkably point five e to sales. The enterprise values about 280 million or so. It used to be trading at an enterprise value about six seven billion. So here's a company that was knocking on the door to become a large gap is now is now microchip. That's how ruthlessly this company has been has been sold off. The cell I'm didn't start this year obviously. You know, there's a lot of demand pull forward in 21 to 22. They they're the growth for juice from 30 to 40% down all today down about 10 to 12%. And you know, obviously the position sold off dramatically since then. So I think investors just normally have a hard time buying something that looks like it just keeps going down and down and down and down. But that's also why there's an opportunity. Okay, so you have the growth slowdown and it's not a 2021 vintage like Dees back or anything like that. But certainly it if you look back at those those names we all know ripped in 2021. It has that telltale chart, right of it just hit a super high valuation in 21. It has basically been dropping down really ever since then a lot of these names do end up getting left for dead. So there's there's multiple aspects to why it's being sold off. But specifically in the context of AI and the concerns that people have about disruption. What is the bear thesis there? So the bear thesis is that look, this isn't really a SaaS company. It's a SaaS tool. It doesn't really do anything special. It's not able to replicate it rather fast. And when they do. The market will quickly quickly discover that there's absolutely no advantage at all on this tool be quickly supplanted. Essentially, that's a bear, that's a bear case as far as what the market is completely missing. It just one statement is privilege ABI access with social media networks. And it's an enormous amount of complexity, enormous amount of legal contracts that go into accessing some of these APIs for these for these social media networks. I mean, you know, TikTok, Instagram, Facebook, you, you know, YouTube, someone's worth. And to be able to have that access, it means you have a deeper data. You have on engagements. The company's ability to listen like social listening is kind of when a company wants to understand and spend more from social spear. So the example I use like let's say you run a coffee company and all. And the social listening tells you, oh, people are really hot on old milks, right? Or, or, you know, drinks with old milks in a hurry or something like that. Oh, maybe we think about a drink in that particular niche of that area. This again, this is becoming more and more important for companies to be present in the social spear in order to compete effectively in the marketplace. And sprout helps them do that by having this kind of level of access with these social media companies. So the reason why this, this API access is so it is a mode and so difficult to replicate is if you look at API access in general, you think about it is. And then you can see that you've been able to do that. Both are actually private equity owned. So we're the few that it's one of the reasons why they're kind of moving slower. And they haven't been able to outcompete Sprout and Sprouts taking the share in that area. You said it was at one point in time a $67 billion enterprise value company. It's it's come down quite a lot. How big is the market? That's a really good question. It's the market is still seems to be in its formative stages. When you look at Sprout, one of the reasons why it was able to grow so quickly it is the strides in penetration. It was making in a small and medium business space. So you had the self-self-serve product. It was growing very fast, but it hit penetration there roughly two years ago. And since then, it shifted very strongly towards enterprise. So you know, enterprise dollar attention bought higher. The opportunity of sells a lot. opportunity upsells. a lot of advantages to enterprise. And since then, it has about roughly 3000 enterprise customers on board. So the management still thinks they're in the, roughly the third inning of enterprise or so, if just if you look at the broader numbers. But it's still formative in the sense that enterprises still continue to allocate towards social. They're still growing that part of the pie is still growing. And that's one of the benefits is you have this tab that is just continuing to drift outwards because of the importance of social. - I think for anybody who, especially people in finance who maybe are off social media, if you're thinking, you know, you gave the example of oat milk drinks and that oat milk drinks are very popular. So you might think this is something that's very consumer, consumer forward at this point in time. I have been getting served Instagram ads for Ballyasni asset management and millennium, right? These are two massive hedge funds. You would think they're historically very, very secretive, very closed off. They are running Instagram ads. Now, I think this is Instagram ads targeting talent, trying to get young people to come and work there. So maybe not exactly looking for customers, like a consumer facing brand might be, but you know, this is, as you said, how important social media is. And I think it can just be a good reference for people to understand how much social is going to be involved in every single aspect of business, not just consumer facing products and services. - We are the convicted opinion that is a utility for enterprise. And it's no longer, it used to be the sensual. Social is kind of a luxury or maybe it's highly discretionary and a price is rent spent. We think it's a utility. If you want to reach customers, if you want to be able to evolve as far as customer service goes, that's also moving in search spear. You're going to need to spend increase your wallet shared towards social. It's just, it's either that or take a hit on your job line. - Speaking of the top line, what is the revenue growth? Like you talked about that demand pull forward earlier, revenue growth has come down, but it's still growing. And you think that it's at a level right now that is steady. So what does revenue growth look like? And how far out are you projecting that it's going to be able to be maintained in this realm? - The adjustments they're making in AI and Agentec is going to continue to help them up sell an enterprise. They're going through a slight reorganization of smart contracts go. They're trying to extend the length and focus less on just charging people to the maximum. And it's more about duration as far as enterprises go. They've guided down to about eight to 10% revenue growth in 2006. We believe which puts them right around five million AR. We believe they're going to beat there. They have their next earnings, I think, is May 7. And yeah, that's going to be an interesting one. I mean, obviously we expect some noise as far as we don't, we're not going to predict what's going to happen. But we expect them to be able to beat that as a conservative guy that will be able to beat this year. So yes, Redhinger did come down for 30 to 40%. 2021 to 2022 to low double digits now. But that's also the nature of a high growth company. There's just going to be some organic volatility that are slowed out. So it doesn't mean that it's on the secular decline absolutely not, which is how it's priced. It's priced for total bankruptcy to capital city debt. It's priced as a carcass right now. And it's also one of the reasons why it's so easy to be bullish on. And all that has to go right for it to be a double. What about some of the awards, right? There are some aspects of the company that you don't love. I know that stock based compensation is elevated. And it is one of the problems you have with it. Let's talk a little bit about that. And why you think management is eventually going to realize that they need to reign this in. Stock based compensation is completely irrational right, given the slowdown in Redhinger. You can justify maybe 15%, 20%, stock based compensation is a percent of revenue when you're growing 30%, 30%, 40%. Well, once that grows, slows to low double digits. And the price of your stock is collapsed by 90% since it's highs. That it's impossible to justify that. So our estimation is that soon as some of these super voting rights expire, we think it's going to actually happen more than you're going to see some major restructuring to stock based comp. And that's going to flow through to GAAP and make the company at least screen a lot more profitable. Also, one of the reasons the opportunity-- this company doesn't screen well because right now, stock based comp is a neighborhood of 17%, 17% of revenues. Again, I understand everybody's take on this. It's outrageous. But what people don't understand is that you have to treat the correct way to view stock based compensation is just any other variable cost. Are you going to get economies of scale or are you not? If that's 70%, if you think that 70% is going to come down to 8% in a couple of years, that's a size of change in financials. And obviously, it would be who you'd get ahead of that. So we think it's all-- the economy of scale are only going one way. It's ludicrous right now, and that's definitely going to change. You said you've been adding to it. I want to talk about the mechanism for providing updates on that. How often are you making tactical moves when the market is moving like this? And then how is that communicated to your clients? It's often the case that if we own something in the portfolio, we clearly like it. And if the price moves against us violently for perception reasons that we think are not going to affect fundamentals or the perception is wrong and what have you, we're definitely going to add aggressively because we like it more low prices. Now, you clearly have to know what you're doing when you're adding to something that's a lot lower. You have to retest your thesis, read the KPIs, and be very careful that the market is not telling you you're wrong when you are wrong. So there's that component of it. But as soon as we add or take a portfolio action, we think like investors are not doing this daily or weekly, obviously, we inform our subscribers of our portfolio action, very objectively, clearly, why we're doing this. So yeah, at the end of the day, if we own something, we're taking action of something, we want our subscribers to know that our whole thing is accountability, track record, skin and skin, buy side equity research, not sell side coverage with the Lax conviction. So it's our whole thing. Is there anything else in the software space? Obviously, you said there's a lot that you're looking at right now. Any hints, tidbits you'd be willing to give about the type of stuff that you're looking at. So other stuff that we're looking at, we're looking at other small SaaS names. We were looking at defense, a defense name that we added. This year has at least the first few months of this year. So markets have just generally been stretched. We tend to be very price sensitive. So it's hard for us to buy Sandisk after it's gone out, but 1,000% of that's just not something we're going to do. We like to be in the early stages, the early earnings of things. So the additions to the portfolio, there hasn't been a plethora of names this year, just because of valuations. But there, obviously, there's been actions based on certain violent price moves that have happened in the SaaS space. So yeah, Sprout is one of them. I know we talked briefly about some of the remittance companies that we own, or remittance related, remittly and wise, those are both ones we own that we think are generational companies to own. Remittly trading in a much more attractive valuation wise, but wise has a larger market opportunity. The remittling is also just an amazing business. A lot of investors think those two businesses are a competition with each other, but when we don't think that's true at all, and that's kind of where the opportunities are. Both of them deal in differentiated segments and both of them have huge opportunities, mainly in the kind of debanky trend. We have another company that we own that is leveraged to one of these large trends called Zometry. It's really about digital manufacturing. What we talked previously about industries where things move very, very slow. Well, manufacturing is definitely one of them, especially non-contract manufacturing, manufacturing for custom parts and so on, that tends to be highly and localized, highly analog. And Zometry is a huge marketplace that is completely digitizing this entire experience and still very, very early innings. And yeah, again, a lever on this monster trend. It's not the cheapest valuation of the world, but given the market opportunity, it's impossible to not own this thing as far as markets are. Help me understand what you're talking about between the difference between contract manufacturing and non-contract manufacturing and what a marketplace for non-contract manufacturing, what does that even look like? - So contract manufacturing is essentially if you're some sort of equipment, manufacturing factor and you need tons of parts created, or whatever, plastic, metal, or so on, so forth. I need a million shares created. Well, you're gonna call up an injection. Somebody who specializes in injection molding, generally these companies will be in Asia. They're very, very efficient at it, very, very cheap at it. They'll inject the molds, they'll produce a million shares, and they'll send it all over you. And that's really what contract means. factoring is. It's a large scale manufacturing. But the other side of manufacturing, which is more chaotic, a lot more frictions, negotiations, there's a lot of back forth negotiations is around, you know, smaller runs where you're only producing maybe a few hundred parts or a thousand parts or you're a medical device company needs this. This creating sling and you know this piece of plastic created maybe it's a prototype, maybe it's not and then you might need a thousand of these things. That has been a heavily analog process where you actually have relationships with local manufacturers like a local C in C in C C shop or, you know, somebody who does cast iron molding or or some sheet metal group or something like that. And these manufacturers is about five and a thousand of them in North America and the capacity utilization tends to be very volatile. So a lot of times they have spare utilization. So really what Zomch is done is they they're the intermediate meteor they're the marketplace that connects a huge set of fragments or buyers with a huge set of fragments that suppliers, which is the ideal structure for a marketplace. So you want any fragmentation on both sides that if you have that kind of set up the market power crews to the marketplace. So yeah, Zometry is really just a play on that entire that entire upheaval that the traditionally analog space. And I'm thinking about a couple thousand parts, a couple hundred parts, you know, we've been hearing about manufacturing as being dying here. I'm guessing it's mostly in the US. The last time I checked 20% international revenues. So in that that's from the buyer's perspective. They're the one spending the dollars in the platform. They're they're definitely growing and this was like basically zero two years ago. So they're expanding very aggressively into the national segment. But the majority is still US as far as manufacturing. This is companies growing at 20 30% that has a line of sight to continue this growth for a decade. That's how lowly penetrated this market is. There's all sorts of estimates on what tam is whether it's 100 billion, whether it's trillion. It seems that it's hard to get a reliable figure, but the market's huge and Zometry has plenty of room to grow. But yeah, primarily US base as far as there's certain verticals like an aerospace and events that are seeing huge manufacturing resurances. And what's great about the Zometry platform is that it evolves to meet the needs of a changing manufacturing marketplace. If you have a lot of growth and some sort of semi semiconductor manufacturing, that's going to become a big part of the pie if it's aerospace and engineering that's going to become bigger size of eyes up. It's the verticals the share of verticals and a platform continues to evolve with the marketplace. Is it getting more buyers on the platform, getting more manufacturers on the platform, is it those buyers doing more and more in the digital space and less with their old school analog relationships. How are they growing. So it's really about plugging into enterprise ERP systems, which is their laser focused on it's how do we get involved with the procurement specialist with the buyers were actually part of the software that's being used to order all this stuff. That is the heart of it is actually becoming part of just that internal operating machine for enterprise and once you do that you you you're you're you're essentially shepherding the habit change the new software that the enterprise needs and get off this previously highly analog highly friction process. So it's all about just creating systems enterprise and that's one of the reasons you've seen it it's funny like going back when we initiated the position positions up for the inner percent since we initiate or more than 3% since we initiated in 2004. And we've trimmed along the way but we still hold a meaningful position and one of the reasons it was trading so low at the time was because a short report out of the company saying well you know they're not going to be a little break in enterprise at the end of the day. This is just a you know a marketplace tool and you know the bowings or the B&W world are never going to use this thing and not going to take seriously. Since then you see just one way massive spend by these companies on the soundtrack platform you have you have customers on the understanding $10 million more annually on their platform so. The short report had a wrong they clearly broke in and they're going to just continue to make headway in that area. The very management is laser focus incredibly efficient and yeah we just have a lot of faith and the durability of their growth profile. A lot of times when companies are in this stage of growth they're not turning a profit what is the profit will file look like at this point in time are they burning cash and if if not turning a profit when do you think that's going to come so close break even incremental margins or 20% the platform scales. If you just look at how the growth and what is needed for growth incremental growth drops the bottom line really easily and the company is really guiding for it it's really about a growth right now so as far as cash flow roughly break even but given the incremental margins. It really just depends on how much they want to push to growth lever the financials continue to scale and you'll see that adjust the barge and just continue to increase much like remitably or a minute ago at adjust the dog market 10% fast forward a year there are 20 they're able to. Ship from that growth level lever to the profit lever lever very quickly if you have the right economy scale and this let's transition to remitably and wise and finish with those it was it was one of the names we spent a lot of time on in our last conversation and as you said people really do. Compare the two businesses it was one of the more common comments that we got on YouTube was wise he so bullish on remitably has any heard of wise so what is it about remitably business that you think is is different than wise and and reminder to everybody you own them both. But remitably is the bigger position somewhat because it's had a great year so year to date it's I don't know what what is it at so far this year roughly 50% year to date it's our largest position started the years are large position and now clearly a large position so what is it about remitably business that you think is not it's not at risk from wise which is growing very fast as well. I think that the primary misconception when market participants are analyzing both of them is to everybody is just so focused on take rate so wise has much lower if you look at remitably take rate it's basically 2% or so. So it's like oh my god well clearly they're both in the remit space well 50 is 50 is a lot lower 2% remitably has a business it's just kind of naive kind of simplistic analysis but if you look at average sends on remitably there are there roughly 20% of the average send amount on wise so you're having it's a lot lower send them so the people that are using their mainly the platform are completely. I mean just think about it was a simple company you have average send send amounts you're not going to have you know that diversion send amounts clearly there's something different there what is it and what is it is the customer segmentation remotely purely focus on librarians wise overwhelmingly focus on the developments over loneliness focus on businesses it's moving in a banking it's tam is way bigger than just remittances where. Remit these laser focus on remittances for migrates providing financial services to migrate the migration population that's who they market to that's who they provide services to that's that they spend all day thinking about there's plenty of ways of migrates like send money is different for people in. Develop markets spending habits are different and they're not easily uprooted so it's just completely different customer segmentation completely different app if you use the app obviously we use both apps intensively there's huge amounts of differences both apps like just how they're used how you can make the payment one is using is sitting on top of the visa network like remitably and the other is sitting on top of its own kind of infrastructure which. Limits the number of send countries and consent to so yeah all that says that they're yeah totally separate businesses for in in our view if you're so confident in remitably it's got to be because you think that this migrant trend is is going to continue there has been. There was some pressure on the name for a while largely you know as US policy really shifted on migrants and so many people came into the country under the Biden administration and now things have have changed quite a bit under the Trump administration and remitably came under pressure because of that but you know you believe that this migrant trend is is going to continue and I think this is a good opportunity also to talk about how. Long term thematic views work their way into individual security selection for you and for your portfolio. Look, anybody who does spends a lot of time in the quality of it, like we do. do has to understand the theme exceedingly well. I mean, that's the driver your company is sitting on. So the world is changing. How is it going to affect your business that you own your portfolio? And part of your job is an equity analyst is understand what the forward-lifting contours of the business you own will look like in a huge part of that is the Maddox. So number one, one of the reasons why Remilly has been at top of our portfolio is also because evaluation is trading it roughly two and a half times even sales despite it's growing despite it's your today gain. So hugely on a value hugely mark participants highly pessimistic for a number of reasons. For one of the ones who mentioned the migrant stuff was very scary for investors. Another scare that came up was stable coins which you know, donated that if there's absolutely no use to people using stable coins or in their local economies people use fiat and their local economies and as long as they use fiat they're going to want to receive fiat. So yeah, don't start on that. But as far as the migrant population, Remilly to bear in mind, Remilly is 100% as far as the Redgone platform generated from either citizens or migrants that are here legally. So it has nothing to do with immigration. If you remove all the immigration country, it doesn't affect Remilly's business at all. So as far as the reason why the migrant stuff is important is the forward looking financials. Well, our migrant is going to keep coming into our country and obviously there's none. There's less of a growth factor for Remilly. And our whole perspective on that is if you look at developed countries which are the drivers, which are the centers for Remilly app, the fertility rate in a lot of these countries is lower than the replacement rate. So you're going to need migrants to plug that gap. I don't care what the nationalism sentiment of the day is. If you don't want an upside down economy, you can't have your economy going great in the next 20 years. You need young people and that's migrants just in develop markets, people aren't having enough kids and that's just the nature of things. In the US we're a little bit fortunate. We're a little younger than the Italy's, the Germany's, the Japan's or the world's. But we still have the same problem or at least we still will have the same problem. There were some other scares. I know that it was a position that you had to sell out of at one point in time because of one scare. Can you talk to me a little bit about what happened with that first draft of the big, beautiful bill? Because I think it also showcases how you guys think about major risks and your willingness to move in and out of things as the facts change. That was just a bizarre situation where the first rendition of the big, beautiful bill, there was a 5% remittance tax in there for essentially for remitts players like Remittly. So they have to pay 5% of whatever the sending man is. It completely blew up their business model and made no sense constitutionally. We didn't think it was a risk just because it, you know, this could possibly be implemented because it's not constitutional, but there was and the big beautiful bill. So even though we talked to all lawyer about it, we were more confident that this could go and affect me on selling and the strategy was we'll reevaluate this changes within the bill, which it did. But the reason why it was so absurd because it was essentially charging two separate fees on the platform for remittly. Like if you were a citizen, you wouldn't have to pay it. But if you were a, if you were a, a migrant, if you weren't a citizen, a green card or a older or something, the fee would be a lot more. It'd be like going into a supermarket and charging different prices based on citizen class, which, you know, again, unconstitutional. But yeah, that was a reason where you had this bizarre policy change and kind of just had to react. It doesn't happen often, but it's, you know, a lesson's just always be mindful because we live in a rapidly changing, you know, whether it's at the policy level, whether it's at the technology level, you know, it's definitely a market that's in flux. So yeah, very bizarre situation that comes, comes long, very rarely. I mean, the bill can be passed and it takes a long time for it to go through a courts to be declared unconstitutional. And so despite what your lawyer might tell you, it's a risk you have to take seriously. I'm guessing exactly. We tend to be quite paranoid. Um, of risks until we get a pretty clear signal that it's not something that we have to concern ourselves with any longer, so especially the onset of things like the Iran, uh, Iran US war prince, that was another reason this year. We were pretty paranoid that, oh my god, maybe this could escalate despite whether it's a block on Trump's part or not. There's more than several actors here in this situation, get away with itself and continue to escalate. So usually when there's uncertainty like that, we, it's, we love risk, we hate uncertainty. And yeah, that was one of those moments. All right. Well, what has been happening with the portfolio through, through the, uh, Iran war, our portfolio, you can think of it as like lopsided beta. We have, uh, we tend to have similar downside captures in the market. We were down roughly, uh, six percent, in Q one. And we're up close to eight percent, cumulatively, uh, since the rebound Q year to date, all that is to say, year to date, up eight percent, I don't know why I made that work, I'm thinking that these two, uh, but as far as, um, we, but as far as the market relative to the market, we tend to have similar downside capture now, outside, outside capture. It's really, uh, if you look at the, uh, the, the chair sheet over my nation's going back time, that, uh, that's what the historical data very clearly shows. And, and we kind of, uh, we're not about like absolute returns. It's, for us, it's not like, oh, trying to be, you know, trying to be positive every single year. It's about trying to beat the S&P 500. And if you could do that, your absolute returns are going to look amazing over any sort of timeline. So it's, it's not about absolute returns. It's all about relis for returns for us. So does that desire to beat the S&P 500 and being comfortable, being down when the market is down? How does that affect, uh, the way you're adding to positions, you're trading, what makes your portfolio management different as a relative performance focused, investor. It just makes us more comfortable with volatility and it's just the nature of what we do. It's why there's potential to make returns is because you can deal with the volatility. And not only that, you are able to take advantage of the volatility where it's warranted. So we're big believers in being able to add positions in having, uh, sizeable cash positions than portfolio with which to add from. We view, uh, our cash position as a return enhancer, not as broader market participants believe as a cash drag component. If we have cash in portfolio, we can take advantage of opportunities. We don't have cash in portfolio. It's very difficult to get banjo to job opportunities. You might need to sell something you've robbed Peter Paypal, some weird situation like that. But, uh, yeah, it's been a huge enhancer to our portfolio of trends, uh, just to be able to, uh, you know, to be dynamic to add positions with their down. If you're a levered investor, you're long short. There's a lot of ways you can blow up, but it's one of the few ways that you can, you can really blow up as a, as a long-only investor is in averaging down into losers. How do you make sure that you're, you're taking that risk series? Yes, it is the primary source of, uh, converse risk taking in the portfolio. So, uh, if they, meaning all that is to say is that things continue to get worse, the more things get away from you. You continue to add, it gets worse, you can do to add more, it gets worse, and then you're wrong about the position and you've, uh, completely destroyed your performance. So you, look, you just have to, uh, have the right self-awareness, the ability to say you're wrongly or wrong, the ability to, uh, look stupid. And, you know, we've made those mistakes for where we've added and then we realize that we're wrong. It's just part of the game and you have to, you have to be able to kind of stand up and tell everybody with a clear voice when you're wrong. It's just, uh, it's going to happen. It's the nature of the game. And if you can't do that, uh, you're setting yourself up for catastrophic failures. So, uh, yeah, just having self-awareness, uh, being able to retest your thesis, not being married to, uh, the, the thoughts that you've had yesterday, you know, it's a dynamic game. It's certainly as a sad one. You have to be able to update your beliefs. Obviously, people have had to update things quite a bit in these last few weeks. We went from, uh, a very, very fearful environment to one where the Nasdaq has had record consecutive updates. You know, you were kind of looking around at all of this and saying, you know, there's a lot of opportunities to buy. As that window closed, are there still good buying opportunities in this market given we just hit all the time highs? Uh, a few days ago when it wasn't looking like that two weeks back. Buy and large things are overvalued. Like we, we talked about SaaS earlier. There's definitely areas of SaaS that are overvalued. There's areas of the remittance space that are still very undervalued. Um, you know, defense has gotten away from most people. Um, just, yeah, buy and large, um, things are pretty, trading pretty richly, you could be selected there are attorneys, but it's certainly not what it was, you know, two years ago or so. Okay. Does that richness and valuation reflect self-using your cash balance? Is that have more to do with your portfolio or more to do with the market environment when you're having a lot of cash? So it's less about when we think things are valued, it usually comes from a bottom-up perspective. I mean, we look at, you know, like every each week we'll look at it a dozen or so companies and rolling up our bottom-up beliefs or our bottom-up work if it's like, oh, wow, we just passed on the last 40 companies because they were a value. I mean, that's a signal less than generally speaking. Things are quite overvalued in a marketplace, regardless of what multiples on the S&P are showing us. So yeah, it's less about just the overall index and more about just our bottom-up work. You know, there's still some bargains in small cap space, but yeah, if you're looking at some large cap names, it's hard to find value there. All right. Well, I want to close just remind everybody that we do have a special offer. You can go to that link in the description, parenusresearch.com/monitarymatters, get 20% off your first year. And again, they have a ton of great materials in the quarterly letters, in that tear sheet where you can see the performance. I look forward to getting your stock zone or reports and reading about the names in the portfolio as well as you said, the work that you're doing, you don't do continuing coverage. Like if something doesn't make it into the portfolio, but it's always interesting to see what you guys are looking at and why you choose to invest or pass on things. So recommend everybody go check it out. Jay, thank you so much for joining us in monetary matters looking forward to doing it again soon. Awesome. Have a lot of fun. As always, thanks, Bax.