00:00I've got to say, when you think about class of activism, you think about someone coming in, trying to change
00:04management, a new CEO.
00:06This feels a little bit more friendly, for lack of terms. Why CarMax? What is the strategy?
00:13Yeah, well, a couple of things there. So activism is about finding good businesses where we think they can perform
00:21better.
00:22And when we get involved in companies, there is the part that everybody focuses on, which is the early stage
00:28where you may be on the same page as the company or a different page,
00:31and you're pushing them to do more and you're pushing them to do it faster.
00:35But then you get to the middle stage where you're working with the company either on the outside or very
00:40frequently will be on the board and working with the company on the inside.
00:44And it becomes extremely friendly and collaborative where we're working together to try and create value.
00:49So in the CarMax situation so far, and I hope it stays that way, it has been collaborative and friendly,
00:56and we are enjoying the conversations we've had with them.
00:58There's a big opportunity, which we should talk about.
01:01Yeah, please, what is that opportunity?
01:03Well, CarMax is similar to a lot of businesses that we target, that we look for, which is a business
01:09that is a leader in its face, usually carved out a niche for itself.
01:14And then sometimes as it becomes more mature, it becomes a little more complacent and somebody else might come along
01:20and start eating at it.
01:22And I think as I'm describing that to you, you can understand that CarMax fits that.
01:27So CarMax kind of revolutionized used car sales and made it something that was a much better experience for consumers.
01:36And they still are the leader in used car sales, but then there's been some others that have been catching
01:41up, notably Carvana, especially with the digital experience.
01:47But from our standpoint, we actually think that CarMax is better positioned.
01:51So they have the benefit of the omni-channel footprint.
01:57They have over 250 locations, physical locations where you can go and test drive cars and touch and feel and
02:03see those cars, and they have the digital front end.
02:07So we think they have the best of both worlds, and you're effectively getting that asset base that's almost impossible
02:13to replicate for free because we're buying into CarMax at tangible book value.
02:20I don't know that you would build this business today with all of those assets, but we don't really have
02:24to pay for it as shareholders.
02:26They're there.
02:27You're paying tangible book value for a business with all of these assets.
02:32And now if you can make it sing, you have the best of both worlds.
02:36So they're working on that.
02:38They need to fix the digital experience for the consumer, which we can talk about.
02:43Yeah.
02:43How do you fix that?
02:44How do you fix a digital experience, especially when you have this big looming disruption of AI overhanging everything?
02:51Yeah, well, actually, we put CarMax into the bucket where it shouldn't really be affected much by AI.
02:57And it's interesting you bring up AI, and we can talk about that, too.
03:00But, you know, we kind of put it into three buckets.
03:02So there are companies that people think are going to be disrupted by AI, and then a bucket where companies
03:09shouldn't really be impacted too much by AI, and then other companies that are considered AI winners.
03:14We kind of put CarMax in the middle bucket where it shouldn't really be directly impacted by AI.
03:20There may be indirect positives and negatives.
03:22Actually, there's a big positive.
03:24But for the most part, people are looking to buy used cars and have a used car experience.
03:28As it relates to fixing the omni-channel experience, it's really just putting them side by side next to each
03:34other as a user.
03:35So pretend like you're going to buy a used car, or maybe you are going to buy a used car,
03:40or sell your car and go online, whether it's Carvana, CarMax, or any others, and put them up next to
03:47each other.
03:48What we found is the experience with CarMax is just clunkier.
03:52There's too many steps.
03:54There's too many choices.
03:55There's too many opportunities to drop.
03:56It's too complicated.
03:59But that's the good news, right?
04:00That sounds bad.
04:01But from an activist standpoint, that's the good news because you look at this business and you say, that's easily
04:07fixable.
04:07We have all the assets.
04:08We have consumers looking to transact with us.
04:12We can fix this without having to change the business all too much.
04:18It's actually fairly easy to fix.
04:20It takes some prioritization, but it's fairly easy to fix.
04:23And you get to buy into this business at a single-digit multiple and a tangible book value.
04:28And then we get very, very excited.
04:31By the way, looking at your recent campaigns that you've announced, talking about does it fall in the AI disruption
04:35bucket, does it not?
04:36You have on one side, Lamb Westin that makes French fries, so I can't think of anything less likely to
04:41be disrupted by AI.
04:43And then on the other side of things, you have TripAdvisor, where the market has been freaking out that things
04:47like TripAdvisor will be completely replaced by AI.
04:51I'm guessing it's not a coincidence that you have these two companies that seemingly sit on the opposite ends of
04:56the spectrum.
04:57Yeah, look, Lamb Westin, one of the leaders in producing French fries, which is really a fairly small number of
05:05producers that can make French fries, and they are set up to succeed and had some issues, and they're fixing
05:12those.
05:12We've been watching Lamb Westin for a long time.
05:14They're already improving, and we get to buy into Lamb Westin at a lower price than we've been looking at
05:21it for the last year and a half.
05:22So we're very excited to be able to own it here as they're on their journey.
05:25They've announced that they can reduce their overhead by about $250 million.
05:31We think they should be able to do twice as much, and we think they should look at their international
05:36operations and rationalize those.
05:39But we get to buy into that business at a mid-single-digit multiple, and that's pretty exciting, but should
05:44not really have a, as you mentioned, should not really have a direct AI impact.
05:48On the other hand, as you're mentioning, TripAdvisor, love TripAdvisor.
05:52TripAdvisor is really three businesses.
05:54It's CoreTrip, Advisor, and then it's The Fork, and Viator.
05:59People look at TripAdvisor and really think about TripAdvisor.com, the legacy review business that still exists and produces a
06:07lot of cash flow, and think of it as a company that might get impacted by AI.
06:12But because of that, we get to own this whole thing at, like, three or four times EBITDA.
06:17If you can own something at three or four times EBITDA, and you can improve the cash flow and the
06:22good assets, the growing assets, they're all good assets, the growing assets of Viator and The Fork, which are actually
06:27marketplace businesses, are worth way more than three or four times.
06:31You can create Legacy Trip for free, or however you want to look at the sum of the parts, it
06:35is worth way more than three or four times EBITDA.
06:38So we've been talking to them about how they have to think through their business, how they have to transform
06:43the CoreTrip business and use AI to be an AI winner as opposed to be a potential AI-disrupted company,
06:51and then continue to accelerate the growth on The Fork and Viator, which are great marketplace, double-digit growing businesses.
06:59It's a great example about how AI is both an opportunity and a threat.
07:04Has today's chief executive fully grappled with and have the tools to realize the opportunity side and not just the
07:11threat side?
07:15It depends on the industry, but I would say not yet.
07:18I think if you talk about the software industry, you have management teams, CEOs and management teams, that are more
07:27at the leading edge of utilizing AI in their business and trying to get ahead of things.
07:31If you move past that and move into industries that are less tech-forward, I would say CEOs are trying
07:38to figure out how best to utilize AI for their benefit.
07:43The interesting thing across all sectors is that AI is going to be a benefit first for just about every
07:50company.
07:51AI is going to allow companies to reduce costs, improve margins to the extent they want to.
07:58AI is also going to be able to improve the user experience, the customer experience, if it's used well.
08:04So the beginning stages of AI, regardless of industry, should be very, very positive.
08:09The challenge that the market has in trying to assess many companies, which is why multiples have compressed, is trying
08:15to figure out when, if ever, companies might get disrupted by AI.
08:21And it depends on the industry.
08:22It depends on the company.
08:23But we have conversations with CEOs all the time in different industries.
08:27I just did the other day, or actually yesterday, and talked about it.
08:31And they're just at the beginning of utilizing AI, understanding that they need to take a look in particular at
08:39their G&A, and they need to make sure they're as efficient as they possibly can utilizing the tools that
08:43they have.
08:44It's not the first time companies have used technology to help them be more efficient.
08:47It's the first time, though, that they have this beast in this new technology.
08:50Jeff, I only got a minute here, but is there a deep enough talent pool and resource bench for these
08:57companies to turn to, to navigate this environment?
09:00Not yet.
09:01Not yet, no.
09:04So depending on which company you're working with, I would say that boards are working with CEOs.
09:09They're asking questions.
09:10They're saying to the CEO, what are we doing with AI?
09:13It's a very broad question.
09:16It's not a detailed one.
09:17I would say that many companies aren't fully able to utilize this yet.
09:22They're just now thinking about it.
09:24They don't, to your point, Danny.
09:26They don't have a place to go.
09:28They don't have many places to go to bring in help to consult and say, hey, this is the answer.
09:36This is what you do.
09:37This is where you go.
09:38This is how you implement AI to improve your user experience or to improve your margins and reduce costs.
09:45It's something they're figuring out as they go.
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