WEBVTT - Netflix Drops After Worse-Than-Expected Forecast; Hastings Exits 0:00:02.520 --> 0:00:13.440 Bloomberg Audio Studios, podcasts, radio news. Bloomberg Tech is alive 0:00:13.480 --> 0:00:17.280 from coast to coast with Caroline Hide in New York 0:00:17.560 --> 0:00:19.520 and ever Low in sentrances, go. 0:00:21.239 --> 0:00:24.720 This is Bloomberg Tech coming up. Netflix gives a lackluster 0:00:24.800 --> 0:00:28.000 forecast for the second quarter, while chairman and co founder 0:00:28.080 --> 0:00:31.720 Red Hastings steps down after twenty nine years at the company. 0:00:31.840 --> 0:00:34.080 Plus, the US government plans to make a version of 0:00:34.120 --> 0:00:38.160 anthropics Mythos model available to major federal agencies to tackle 0:00:38.200 --> 0:00:41.280 cyber risks, despite the ongoing legal feud with. 0:00:41.280 --> 0:00:42.479 The Pentagon and Sequoia. 0:00:42.560 --> 0:00:46.800 Capital raises seven billion for its latest expansion fund, targeting 0:00:47.000 --> 0:00:50.040 AI giants like Open Ai and Anthropic. We have details 0:00:50.120 --> 0:00:50.760 later in the hour. 0:00:51.040 --> 0:00:53.320 Such a great scoop ed that you've got. Meanwhile, let's 0:00:53.320 --> 0:00:57.040 forget what the markets are doing. Extraordinary moves and once 0:00:57.080 --> 0:00:59.760 again it's because we get an extraordinary barrage of news 0:01:00.040 --> 0:01:02.000 when it comes to the Middle Eastern conflict, the straight 0:01:02.040 --> 0:01:04.800 of war moves promised to be open for commercial vessels 0:01:04.800 --> 0:01:08.640 at least. Oil absolutely tumbles down some twelve percent as 0:01:08.760 --> 0:01:12.160 hopes that suddenly we'll get supply chain eases coming. We're 0:01:12.200 --> 0:01:14.480 off by twelve percent. Now at one point it was 0:01:14.520 --> 0:01:17.240 a record move for Brent. I'm looking at therefore still 0:01:17.280 --> 0:01:19.559 a record high for the NASDAK one hundred up one. 0:01:19.400 --> 0:01:20.279 Point three percent. 0:01:20.600 --> 0:01:23.880 This is another almost thirty we're seeing just trillions added 0:01:23.920 --> 0:01:25.720 over the course of the last few trading days. I 0:01:25.720 --> 0:01:28.040 want to look at what's happening in terms of the 0:01:28.160 --> 0:01:31.840 last thirteen days. This is the longest streak that we've 0:01:31.880 --> 0:01:35.360 seen in years. We're currently up some sixteen percent at 0:01:35.360 --> 0:01:37.680 the moment ed. It is notable the amount of games 0:01:37.680 --> 0:01:39.400 that we see in the Nasdaq, how long they have 0:01:39.520 --> 0:01:42.880 been for and even today despite one key drag on 0:01:42.920 --> 0:01:43.920 the market, that you're looking. 0:01:43.760 --> 0:01:46.920 At thirteen days for the first time since twenty thirteen. 0:01:47.120 --> 0:01:50.280 The technology story is in the markets. Microsoft is up 0:01:50.480 --> 0:01:52.760 two and a half percent this Friday, but on the week, 0:01:52.800 --> 0:01:56.200 it's heading for its best week since two thousand and seven. 0:01:56.480 --> 0:01:59.400 There's no one single story or catalyst out there, but 0:01:59.440 --> 0:02:02.960 there's just momentum generally. Intel Similarly, we've been talking about 0:02:02.960 --> 0:02:06.080 Intel being an outperformer even in spite of the war 0:02:06.360 --> 0:02:09.240 in Iran and how that's impacted chip supply chains. It's 0:02:09.240 --> 0:02:12.399 a stock trading at its highest level since two thousand. 0:02:12.720 --> 0:02:15.880 Where there is a story is in Netflix and Netflix's 0:02:15.919 --> 0:02:19.480 earnings essentially, the outlook for the current period. The second 0:02:19.560 --> 0:02:22.960 quarter not that good, and the stock is currently down 0:02:23.120 --> 0:02:25.440 eight and a half percent, its worst day as it 0:02:25.480 --> 0:02:27.880 stands since October. At one point in the session, we're 0:02:28.040 --> 0:02:31.200 even deeper declines. And then there's the overhang of the 0:02:32.240 --> 0:02:36.200 Warner Brothers Discovery deal that didn't happen. And then Read Hastings, 0:02:36.280 --> 0:02:39.120 the co founder and now chairman who's been with this 0:02:39.160 --> 0:02:42.760 company for twenty nine years, is stepping down. Let's summarize 0:02:42.800 --> 0:02:46.160 Bloomberg's Lucas Shaw, who leads the screen Time team, is 0:02:46.240 --> 0:02:46.760 with us. 0:02:47.080 --> 0:02:48.240 Let's start with that overhang. 0:02:48.280 --> 0:02:51.160 I guess one of the reasons that the first quarter 0:02:51.200 --> 0:02:54.600 results look good is that they got to pay a 0:02:54.639 --> 0:02:57.679 breakup fee from Paramount, so factor that in, but I 0:02:57.760 --> 0:03:00.440 think that that is the story. There's just this hang 0:03:00.480 --> 0:03:03.120 of what life looked like after walking away from the 0:03:03.160 --> 0:03:04.480 Warner Brothers Discovery deal. 0:03:05.240 --> 0:03:07.280 Well, walking away from the deal has been the short 0:03:07.360 --> 0:03:09.480 term up until earning has been really good for the stock. 0:03:09.560 --> 0:03:12.440 Right the stock was up quite a bit over the 0:03:12.520 --> 0:03:15.480 last few weeks. Investors did not like the Warner Brothers deal. 0:03:15.520 --> 0:03:17.640 They were worried about how much Netflix was paying. They 0:03:17.680 --> 0:03:19.520 were worried about what it would mean for the company. 0:03:20.600 --> 0:03:24.360 But it also fed sort of, I think, expectations that 0:03:24.440 --> 0:03:28.000 the forecast this year would be revised in a positive way, 0:03:28.480 --> 0:03:31.200 and instead, even though Netflix had a better first quarter 0:03:31.280 --> 0:03:33.920 than they expected in terms of subscriber growth and revenue, 0:03:34.000 --> 0:03:37.040 they maintain the estimates, and they warned that actually profit 0:03:37.440 --> 0:03:39.480 and margin would be down a little bit in the 0:03:39.480 --> 0:03:42.000 second quarter because of increased spending on programming. 0:03:42.880 --> 0:03:46.880 So maybe the market got ahead of itself. Where did 0:03:46.880 --> 0:03:50.360 they get impacted by Read Hastings? How much is that 0:03:50.440 --> 0:03:54.480 a concern that this looming large figure co founder is 0:03:54.520 --> 0:03:56.680 going to be stepping and looking more at philanthropy. 0:03:57.480 --> 0:04:00.400 Yeah. Hard to quantify, of course, because it's not like 0:04:00.480 --> 0:04:03.240 the investors will saying, well, I sold for this reason 0:04:03.280 --> 0:04:05.720 and I sold for that reason. But look, it has 0:04:05.720 --> 0:04:07.520 to be a factor. On the one hand, Read Hastings 0:04:07.560 --> 0:04:10.280 has been telegraphing his departure for a long time. In 0:04:10.320 --> 0:04:12.760 twenty twenty he names ten surround Us as co CEO. 0:04:12.880 --> 0:04:15.200 In twenty twenty three, he steps down as CEO and 0:04:15.240 --> 0:04:17.960 becomes executive chairman. Then he becomes just chairman. He's been 0:04:18.040 --> 0:04:20.800 signaling that he's going to thraw from this business because 0:04:20.800 --> 0:04:23.520 he feels like he's done his job. At the same time, 0:04:23.800 --> 0:04:25.720 this is the guy who led the company for most 0:04:25.760 --> 0:04:28.760 of its existence, did a tremendous job, and so his 0:04:28.839 --> 0:04:30.400 departure is going to worry people. 0:04:31.120 --> 0:04:33.640 Just to point out that Read Hastings is also a 0:04:33.680 --> 0:04:37.400 board member of Bloomberg Inc. And Bloomberg LP, the parent 0:04:37.400 --> 0:04:41.839 company of Bloomberg Media, the parent company of this network, Lucas. 0:04:41.839 --> 0:04:43.960 There's a lot of choice right now. I watch Netflix. 0:04:43.960 --> 0:04:46.679 I'm watching The Night Agent. I think it's very good. 0:04:47.160 --> 0:04:51.279 You might watch HBO Max, you might be Disney Place 0:04:51.360 --> 0:04:55.720 or Hulu. Did we learn anything about Netflix's content slate strategy? 0:04:55.800 --> 0:04:58.400 You know, they've been pushing into live, pushing into games. 0:04:58.760 --> 0:05:00.520 It's not really clear to me, like what what happens 0:05:00.560 --> 0:05:01.440 next on that front. 0:05:02.800 --> 0:05:04.640 They're staying the course for the time being. At least 0:05:04.640 --> 0:05:06.880 they're sort of reiterating we're confident in what we're doing. 0:05:07.240 --> 0:05:10.280 We're yes, they are. They're moving into some new areas 0:05:10.360 --> 0:05:13.400 video podcasting, live programming, and gaming. Where the three that 0:05:13.440 --> 0:05:16.560 they signaled both in their letter to shareholders and in 0:05:16.600 --> 0:05:20.320 the call I don't think those have immediate or dramatic 0:05:20.320 --> 0:05:23.479 impacts on the business. Podcasting is not registering in a 0:05:23.480 --> 0:05:26.359 big way yet. Live is probably the most significant, but 0:05:26.400 --> 0:05:29.240 they are being very selective about what live programming that 0:05:29.320 --> 0:05:32.240 they do. And video gaming they would acknowledge has has 0:05:32.279 --> 0:05:34.919 been amiss so far, but they feel like they're starting 0:05:34.960 --> 0:05:38.320 to develop a more comprehensive strategy for the most part. 0:05:38.360 --> 0:05:40.600 You look at the twenty billion dollars nineteen billion dollars 0:05:40.640 --> 0:05:42.159 they're going to spend this year, and it's on the 0:05:42.200 --> 0:05:44.520 same kind of scripted programming they've done for for a 0:05:44.520 --> 0:05:45.160 long time now. 0:05:45.760 --> 0:05:48.880 Lucas sure as always brilliant to have you leaders screen time. 0:05:48.960 --> 0:05:49.840 We appreciate it. 0:05:50.360 --> 0:05:53.560 Let's get more on Netflix with Alicia Reese when we're 0:05:53.640 --> 0:05:56.200 Security Senior vice president of equity Research. You've actually got 0:05:56.240 --> 0:05:58.160 an outperform rating on the stock one hundred and eighteen 0:05:58.200 --> 0:06:00.800 dollars twelve month price target actually raised a little bit 0:06:00.839 --> 0:06:03.800 from one hundred and fifteen, So the confidence. Alicia talked 0:06:03.800 --> 0:06:06.240 to us about where the confidence comes from. 0:06:07.000 --> 0:06:10.480 Yeah, I think the ads strategy is what is being 0:06:10.600 --> 0:06:14.359 underappreciated here domestically. I think they had to put a 0:06:14.360 --> 0:06:17.240 lot into content in the second quarter to offset or 0:06:17.480 --> 0:06:22.320 you know, just give the user reason to for resilience 0:06:22.360 --> 0:06:29.640 on the on the subscriber, subscriber the premium tiers, but 0:06:29.880 --> 0:06:32.479 those who are not convinced could easily go to the 0:06:32.520 --> 0:06:35.000 AD tier. And we've seen with our survey work over 0:06:35.040 --> 0:06:37.680 the years a lot of resilience around that since they 0:06:37.760 --> 0:06:40.080 introduced the AD tier. I think there's a lot of 0:06:40.120 --> 0:06:43.120 reason for people to stay when they give, when they 0:06:43.200 --> 0:06:47.560 post all of that content. And you know, to lucas 0:06:47.560 --> 0:06:50.480 this point, you know, podcasting hasn't been a huge mark 0:06:50.560 --> 0:06:53.640 so far, but you know, Netflix did point out that 0:06:53.680 --> 0:06:55.240 a lot of their users are coming on during the 0:06:55.279 --> 0:06:58.800 day when they wouldn't normally come on, and so that 0:06:58.920 --> 0:07:02.760 is incremental engagement. I think it's useful to have as 0:07:02.839 --> 0:07:06.360 much incremental engagement as they possibly can as they raise price. 0:07:07.120 --> 0:07:10.640 I do think it will be incremental here in with 0:07:10.720 --> 0:07:14.760 the price increases domestically, perhaps not in Europe. There is 0:07:14.760 --> 0:07:17.360 some legal pushback right now on the price increases in 0:07:17.400 --> 0:07:21.520 a few countries and could potentially be in the continent. 0:07:22.040 --> 0:07:24.280 I think, you know, the AD tier is really you 0:07:24.280 --> 0:07:27.320 know that the piece that is underappreciated here. There's so 0:07:27.560 --> 0:07:31.880 much opportunity for them to expand, and as they increase price, 0:07:32.280 --> 0:07:34.640 some people and quite a few people tend to get 0:07:34.640 --> 0:07:37.520 pushed over to the ad tier, and with Netflix's low 0:07:37.560 --> 0:07:42.320 ad load and higher CPMs and potentially growing CPMs, they 0:07:42.360 --> 0:07:45.040 can benefit pretty handsomely in the back half of the year, Ansia. 0:07:45.040 --> 0:07:47.720 Can you go through geographically for US a little bit, 0:07:47.760 --> 0:07:51.160 because perhaps we're underwhelmed in terms of first or pushing 0:07:51.200 --> 0:07:54.080 forward first go to US. Canada was actually a slightly 0:07:54.120 --> 0:07:57.840 slower growth and anticipated, but Asia doing well, Europe doing well, 0:07:57.880 --> 0:07:58.960 that in America doing well. 0:07:59.000 --> 0:08:00.000 Is there's still the growth there. 0:08:01.640 --> 0:08:04.640 Yeah, I think it's really important to note that, you know, 0:08:04.720 --> 0:08:08.960 because of the geographic diversity, their results are you know, 0:08:09.440 --> 0:08:13.400 pretty steady overall. The World Baseball Classic was a huge 0:08:13.440 --> 0:08:16.080 hit in Japan, but it didn't seem like there is 0:08:16.160 --> 0:08:19.000 a lot of churn. Soon after, there was a lot 0:08:19.040 --> 0:08:23.600 of content that people in the region found really favorable 0:08:23.640 --> 0:08:26.440 and so they kept on the service. And Netflix noted 0:08:26.440 --> 0:08:29.120 their AD tier being, you know, having a little bit 0:08:29.160 --> 0:08:33.280 more heft in the region because of that increased subscriber growth. 0:08:33.440 --> 0:08:35.960 So that's something that we had not factored in. The 0:08:36.240 --> 0:08:39.600 average revenue per member is quite low in APAC, and 0:08:39.679 --> 0:08:42.760 I think advertising in Japan and elsewhere in the region 0:08:42.840 --> 0:08:46.840 could really boost results. You can wasn't as strong as 0:08:46.880 --> 0:08:50.079 we had expected it to be in the first quarter, 0:08:50.160 --> 0:08:51.960 but you know, there was a range, and it was 0:08:52.120 --> 0:08:55.400 really within the range. Our survey work, you know, just 0:08:55.440 --> 0:08:58.600 suggested that it was pretty standard part for the course. 0:08:58.760 --> 0:09:02.800 Nothing you know, huge, a miss or a beat, but 0:09:03.000 --> 0:09:05.959 you know, you do have some decent trends in Europe, 0:09:06.559 --> 0:09:09.400 you know, absent the price increases as well. So I think, 0:09:09.520 --> 0:09:12.959 you know, overall regionally they're quite healthy and they'll continue 0:09:13.000 --> 0:09:16.760 to be. But there is you know, nothing domestically that 0:09:17.120 --> 0:09:18.920 helped them hit it out of the park this quarter. 0:09:19.280 --> 0:09:22.040 There's a line in the Bloomberg story Alicia wall Street 0:09:22.080 --> 0:09:25.800 is looking for signs Netflix can keep subscribers engaged, and 0:09:25.840 --> 0:09:29.040 Netflix has not disclosed subscribers since the first quarter of 0:09:29.080 --> 0:09:34.679 twenty twenty five. It focuses on engagement time spent. And 0:09:34.720 --> 0:09:38.520 so you've gone over a number of interesting telltale signs 0:09:38.520 --> 0:09:41.880 of how you assess the health of the company going forward. 0:09:41.960 --> 0:09:46.640 What is the metric that proves definitively that Netflix is 0:09:46.720 --> 0:09:49.880 taking time and eyeballs in a world where you have 0:09:49.920 --> 0:09:52.120 a lot of choice, and it's not just about streaming 0:09:52.120 --> 0:09:53.760 platforms in that battle. 0:09:55.440 --> 0:09:58.240 Well, it doesn't matter whether they're on the premium tier 0:09:58.360 --> 0:10:01.560 or the ad tier, so long as you know, Netflix 0:10:01.640 --> 0:10:06.760 is extracting increasing revenue off of these users, and engagement 0:10:06.920 --> 0:10:10.480 is clearly an important sign. But so you're looking at 0:10:10.520 --> 0:10:13.480 a combination of revenue whether they're getting, you know, the 0:10:13.559 --> 0:10:16.800 highest subscription price, or whether they're on the ad tier 0:10:17.120 --> 0:10:20.840 and engaging significantly with the content and providing a lot 0:10:20.880 --> 0:10:25.520 more value to advertisers and therefore revenue to Netflix. And 0:10:25.559 --> 0:10:28.000 if they're able to do that at a reasonable cost 0:10:28.040 --> 0:10:31.200 of content, the profitability will continue to climb and free 0:10:31.200 --> 0:10:33.160 cash fow will continue to climb, and that's what we've 0:10:33.160 --> 0:10:35.720 been seeing, and so for us, that's a huge positive. 0:10:36.200 --> 0:10:38.839 In the second quarter, surely there's going to be a 0:10:38.880 --> 0:10:41.680 lot of content memorization, a lot more content on the service, 0:10:42.280 --> 0:10:44.840 but in the back half that's going to even out 0:10:45.240 --> 0:10:47.040 and they'll be able to hit those full year targets 0:10:47.040 --> 0:10:48.160 and probably exceed them. 0:10:48.320 --> 0:10:51.600 Netflix ask Wall Street judge us on traditional financial metrics. 0:10:51.640 --> 0:10:54.240 The stocks down nine percent, on track for its bigges 0:10:54.240 --> 0:10:57.200 stroops since October, but at one point down twelve percent, 0:10:57.280 --> 0:11:00.199 biggest drop since twenty twenty two Wall Streets judging on 0:11:00.240 --> 0:11:03.480 the financial metrics. Alisha Reesa Webersh, thank you very much. 0:11:03.559 --> 0:11:06.600 Now coming up in the program, and thropics Mythos model 0:11:06.920 --> 0:11:09.920 was among the top concerns for global leaders at the 0:11:09.960 --> 0:11:12.600 IMF Spring meeting. We're going to get the latest on 0:11:12.679 --> 0:11:15.880 the cyber concerns buzzing around DC at s NEPs. This 0:11:16.000 --> 0:11:28.080 is bloombog Tech Andthropic CEO Dario m. O'Day is set 0:11:28.120 --> 0:11:31.120 to meet with White House Chief of Staff Susie Wilds today. 0:11:31.240 --> 0:11:32.480 That's according to reports. 0:11:32.520 --> 0:11:36.200 The meeting comes as the company's powerful AI model Mythos 0:11:36.480 --> 0:11:40.240 continues to raise concerns with public and private leaders over 0:11:40.240 --> 0:11:43.560 its cybersecurity capabilities. And let's not forget and Thropic is 0:11:43.600 --> 0:11:47.120 still feuding with the Pentagon over how the military uses 0:11:47.360 --> 0:11:50.679 its AI tools. Let's get the latest with Bloomberg's Mike Shephard, 0:11:50.800 --> 0:11:54.319 who's in Washington. I think we start with the reported meeting, 0:11:55.920 --> 0:12:01.040 but right now there is constant headlines about anthrop relationship 0:12:01.559 --> 0:12:03.040 with the federal government. 0:12:05.200 --> 0:12:05.320 Ed. 0:12:05.360 --> 0:12:07.480 This is a little bit of a twist in the 0:12:07.520 --> 0:12:09.840 whole saga. You know, since the beginning of the year, 0:12:09.880 --> 0:12:14.680 we've seen this increasing few between Anthropic, the developer of Claude, 0:12:14.720 --> 0:12:18.480 and now Mythos over what degree of safeguard should be 0:12:18.559 --> 0:12:21.840 included in its product, and it culminated in that Pentagon 0:12:21.880 --> 0:12:26.199 declaration of the company and its systems as a supply 0:12:26.320 --> 0:12:29.880 chain risk and prompting a company lawsuit to get that 0:12:30.000 --> 0:12:34.720 designation overturned. Really an extraordinary turn of events, and yet 0:12:34.760 --> 0:12:37.880 now the technology has forced another and this is the 0:12:37.960 --> 0:12:42.000 prospect that its newest product, Mythos, could be so powerful 0:12:42.080 --> 0:12:47.839 and so good at identifying cyber vulnerabilities that it can't 0:12:47.840 --> 0:12:52.720 be released widely beyond a handful of technology firms and 0:12:52.800 --> 0:12:55.760 Wall Street banks that really have that kind of trust 0:12:56.040 --> 0:12:58.559 and also would need to be able to vet their 0:12:58.559 --> 0:13:02.200 own systems. In a way, this really kind of brings 0:13:02.280 --> 0:13:05.280 us closer to the remote possibility that has been talked 0:13:05.320 --> 0:13:09.320 about by policy makers and others for years that there 0:13:09.360 --> 0:13:12.640 could be a devastating cyber attack that takes out critical 0:13:12.679 --> 0:13:15.360 infrastructure or disrupts the financial system. 0:13:15.800 --> 0:13:17.800 Mike, what have those in Washington? 0:13:18.280 --> 0:13:21.200 What are those close to the administration made of this 0:13:21.800 --> 0:13:24.360 sort of contradictory relationship going on at the moment. The 0:13:24.400 --> 0:13:25.839 fact that they're trying to freeze them out from a 0:13:25.840 --> 0:13:28.600 supply chain headache risk in one sense, I mean an 0:13:28.640 --> 0:13:31.920 extraordinary step taken. And on the flip side, outside of 0:13:31.960 --> 0:13:34.480 the Pentagon, they seem to be working with a Treasury department, 0:13:34.520 --> 0:13:37.479 and we understand would eventually be working with other federal agencies. 0:13:38.559 --> 0:13:41.280 Well, this really is the question of the moment, and 0:13:41.320 --> 0:13:44.200 it seems to be that they are looking past the 0:13:44.280 --> 0:13:47.000 conflict that they're having between the company and the Pentagon 0:13:47.520 --> 0:13:50.040 for the moment, simply because they need to. 0:13:50.120 --> 0:13:52.200 The urgency of it. 0:13:51.760 --> 0:13:55.240 Requires that the Treasury Department not only engage and test 0:13:55.600 --> 0:13:59.120 the system on its own networks to make sure that 0:13:59.200 --> 0:14:02.920 there are no vulnerabilities. Ever, remember the Treasury handles all 0:14:02.960 --> 0:14:07.000 manner of payments to US citizens, social Security, you name it, 0:14:07.400 --> 0:14:11.480 and then also performs critical market functions that could be 0:14:11.559 --> 0:14:15.600 disrupted if hackers were able to penetrate those networks. So 0:14:15.640 --> 0:14:19.080 they really have an agenda, and so do many other agencies. 0:14:19.120 --> 0:14:22.720 So for the White House to line up access which 0:14:22.720 --> 0:14:25.960 it currently does not have to METHOS for all these 0:14:26.000 --> 0:14:30.320 agencies is something seen as important and it is putting 0:14:30.400 --> 0:14:34.119 in the backseat. This whole question of whether the Pentagon 0:14:34.200 --> 0:14:38.880 should be insisting their anthropic drop its demands for safeguards 0:14:38.920 --> 0:14:40.480 on its products and military use. 0:14:40.560 --> 0:14:42.880 Bloomberg's Mike Shepherd and DC with the reporting. Thank you. 0:14:42.920 --> 0:14:46.120 Carra just point out that over the last seven days 0:14:46.600 --> 0:14:49.960 a number of Anthropic executives have gone on stage or 0:14:49.960 --> 0:14:52.680 done interviews and they've basically explained that they want to 0:14:52.680 --> 0:14:57.200 have it both ways. They're saying, yeah, we are standing 0:14:57.320 --> 0:15:00.880 with these principles against the Pentagon because we believe in it, 0:15:00.920 --> 0:15:03.560 but we know that the government needs to have access 0:15:03.560 --> 0:15:06.520 to and understand the most powerful model. That's basically the 0:15:06.520 --> 0:15:10.200 lineally pragmatic. They're trying to be pragmatic, and at the 0:15:10.280 --> 0:15:13.720 end of the day they are now based on our reporting, 0:15:13.800 --> 0:15:16.400 taking action on that and saying to government, have had it. 0:15:16.400 --> 0:15:17.280 And isn't it interesting. 0:15:17.320 --> 0:15:19.280 At the same time, we've got the UK and Europe 0:15:19.400 --> 0:15:21.920 desperate to get their hands on this technology as well 0:15:21.960 --> 0:15:24.440 and calling for steps to be taking. We learned, of 0:15:24.440 --> 0:15:27.400 course in that interview with Tom McKenzie and the Anthropic 0:15:27.560 --> 0:15:30.160 UK lead or North of Europe lead, the UK will 0:15:30.200 --> 0:15:30.800 be getting it soon. 0:15:30.840 --> 0:15:33.000 Look, you've got to learn more. There's plenty to discuss. 0:15:33.240 --> 0:15:34.120 Let's talk about how. 0:15:34.080 --> 0:15:36.160 We've got a Bloomberg Live Q and a coming up 0:15:36.200 --> 0:15:39.840 a little bit later today on Anthropics Mythos coming up, 0:15:40.200 --> 0:15:42.560 We're now going to be speaking to the AVEX CEO, 0:15:42.760 --> 0:15:45.600 Roger Wells. So the company makes its public market debut. 0:15:45.640 --> 0:15:46.760 This is a Bloomberg Tech. 0:15:54.720 --> 0:15:57.520 Madison Air made a strong debut on the public market's 0:15:57.520 --> 0:16:01.680 pulling off the largest US industrial ip since nineteen ninety nine. 0:16:01.720 --> 0:16:05.120 I spoke with CEO Jill Wyant about the company's strategy 0:16:05.360 --> 0:16:07.400 and how is data center business took shape. 0:16:07.440 --> 0:16:07.920 Listen to this. 0:16:08.600 --> 0:16:09.880 So we've been at this for a while. 0:16:10.120 --> 0:16:12.040 You know, the data center business was born out of 0:16:12.040 --> 0:16:14.120 our customer handling business, which has done this for a 0:16:14.120 --> 0:16:16.560 combined three hundred and fifty years. So we did not 0:16:16.680 --> 0:16:19.200 start doing this last week or last quarter. We've had 0:16:19.480 --> 0:16:22.200 a triple source supply chain. We've had ninety nine to 0:16:22.200 --> 0:16:24.640 one hundred percent delivery rates for the hyperscalers and the 0:16:24.680 --> 0:16:27.280 co locators we've been serving for years, and we are 0:16:27.280 --> 0:16:30.000 there to care for and optimize and ensure those assets 0:16:30.040 --> 0:16:33.640 perform at their best. We are differentiated, we are winning, 0:16:33.720 --> 0:16:35.400 and I think the best part of that story and 0:16:35.440 --> 0:16:37.880 it's all within a very balanced set of end markets. 0:16:37.880 --> 0:16:40.040 We are not a data center peer play. We give 0:16:40.080 --> 0:16:43.880 investors great exposure to the obvious opportunity there while at 0:16:43.880 --> 0:16:47.520 the same time growing nicely in other advanced high performance 0:16:47.680 --> 0:16:52.240 environments in the macroeconomy where air impacts customer outcomes. 0:16:52.360 --> 0:16:53.760 Away from the stock market. 0:16:53.880 --> 0:16:56.240 You know, a focus of the Bloomberg Tech audience is 0:16:56.360 --> 0:16:59.600 the role of debt in all of these projects. Let's 0:16:59.600 --> 0:17:03.440 call it the reindustrialization of America. I think, correct me 0:17:03.480 --> 0:17:05.240 if I'm wrong. You know, coming out of this IPO, 0:17:05.920 --> 0:17:08.119 the debtloads, I think it looks like about three billion 0:17:08.160 --> 0:17:12.320 dollars for you. What's the strategy do you see with 0:17:12.520 --> 0:17:15.680 time paying that down? That coming down quickly? Or your 0:17:16.040 --> 0:17:18.600 sanguine on the load and how you work it? 0:17:20.040 --> 0:17:22.840 Well, about a one hundred one hundred percent of the 0:17:22.880 --> 0:17:25.800 IPO proceeds we were used to retire debt. So now 0:17:25.840 --> 0:17:28.439 I don't know the exact calculation. I've been talking to 0:17:28.480 --> 0:17:30.720 a lot of folks today about green shoe execution. But 0:17:30.800 --> 0:17:33.080 really we should come out of that IPO about three 0:17:33.119 --> 0:17:35.720 and a half times trailing on a leverage basis, and 0:17:35.760 --> 0:17:37.480 then we continue to do what we do, which is 0:17:37.520 --> 0:17:40.879 grow our business and generate cash flow and expand our EBITA, 0:17:40.920 --> 0:17:44.240 which should allow us to exit twenty twenty six below 0:17:44.280 --> 0:17:47.240 three times levered on a trailing basis. Again, we run 0:17:47.280 --> 0:17:50.439 that play into next year, and we should be south 0:17:50.480 --> 0:17:53.080 of two point five times levered, as I say, before 0:17:53.119 --> 0:17:55.240 New Year's eve, well before New Year's Eve in twenty 0:17:55.280 --> 0:17:57.800 twenty seven. And really then it just comes back to 0:17:58.200 --> 0:18:02.200 the same play we've always been running. Grade sales, higher 0:18:02.200 --> 0:18:05.439 margins are EBITDA margins enterprise wide at twenty six and 0:18:05.440 --> 0:18:07.560 a half percent or eight hundred to one thousand basis 0:18:07.560 --> 0:18:09.960 points better than the most of the competition we see 0:18:10.000 --> 0:18:13.120 out there. Our team is very focused and robust around 0:18:13.200 --> 0:18:15.719 converting that to free cash flow. We have an asset 0:18:15.760 --> 0:18:18.480 light model where we whereby we can make our growth 0:18:18.480 --> 0:18:21.560 investments while remaining at a low single digit capex, and 0:18:21.640 --> 0:18:23.880 we have an owner's mindset across the company, so good 0:18:23.920 --> 0:18:27.119 discipline use of cash. So we feel good about that, 0:18:27.640 --> 0:18:29.600 you know, getting that balance sheet to the point where 0:18:29.640 --> 0:18:32.800 investors consistently told us they wanted to be, and then 0:18:32.800 --> 0:18:35.680 that just opens up more optionality and flexibility. 0:18:35.080 --> 0:18:35.919 For us going forward. 0:18:36.240 --> 0:18:40.760 Madisoneo to Yan sticking with IPOs Shares, a military drone 0:18:40.800 --> 0:18:43.399 maker AVEX. I'll have to begin trading today. The companies 0:18:43.480 --> 0:18:45.520 raised three hundred and twenty million dollars. The shares pricing 0:18:45.720 --> 0:18:48.439 twenty dollars each, near the top of its projected range, 0:18:48.760 --> 0:18:52.040 has beat now with Roger Wells, he's AVEX CEO, and 0:18:52.400 --> 0:18:55.639 a big day for the business. What's interesting is what 0:18:55.760 --> 0:18:58.000 you use the money for. Therefore, what will three hundred 0:18:58.000 --> 0:18:59.159 and twenty million dollars by. 0:19:00.080 --> 0:19:03.639 Yeah, so our primary use of proceeds is going to 0:19:03.640 --> 0:19:06.760 be to buy down debt and create networking capital that 0:19:06.840 --> 0:19:10.280 we can really use to scale the business and accelerate growth. 0:19:11.320 --> 0:19:14.800 Just so you know, Roger Bloomberg's reporting that these shares 0:19:14.800 --> 0:19:17.320 are indicated to open somewhere twenty three to twenty five 0:19:17.359 --> 0:19:21.159 dollars apiece. You priced at twenty it was twelve times 0:19:21.200 --> 0:19:23.119 over subscribed. So I don't know how that makes you 0:19:23.320 --> 0:19:26.040 makes you feel. But the basics of it are, you're 0:19:26.040 --> 0:19:28.720 a drone company, and you're a company that, in line 0:19:28.720 --> 0:19:31.680 with the rest of industry, is looking at the battlefield 0:19:32.160 --> 0:19:35.200 you might move deeper into warfare. 0:19:35.600 --> 0:19:36.800 Explain the strategy. 0:19:37.520 --> 0:19:40.000 Yeah, So, first off, we couldn't be more excited with 0:19:40.359 --> 0:19:43.800 where we landed. A lot of investor excitement and interest 0:19:44.160 --> 0:19:47.480 in the products, technologies, and solutions that AVX is moving 0:19:47.520 --> 0:19:51.280 into the market. We are a company that builds autonomous, 0:19:51.359 --> 0:19:54.880 multi mission, multi domain systems that are battlefield proven. By 0:19:54.920 --> 0:19:56.560 the time we get to the end of fiscal year 0:19:56.600 --> 0:20:00.160 twenty six, we will have delivered over nine thousand system 0:20:00.480 --> 0:20:04.560 to Ukraine and really proven the capabilities that we bring. 0:20:04.880 --> 0:20:09.159 We will continue to focus in on bringing kinetic solutions 0:20:09.160 --> 0:20:11.680 that are designed to meet the needs of our customers 0:20:11.840 --> 0:20:15.880 long range precision strike voider ammunitions and launched effects. 0:20:17.200 --> 0:20:19.840 More broadly, when you say that these are being used, 0:20:20.640 --> 0:20:23.680 how do we see the scale rampop and how dependent 0:20:23.720 --> 0:20:26.639 do you remain on government contracts from the United States. 0:20:27.440 --> 0:20:28.600 Yeah. Look, I think the. 0:20:30.280 --> 0:20:33.840 Activities we've seen in Ukraine and more recently in Oran 0:20:34.160 --> 0:20:37.679 just validate the fact that autonomous unmanned systems are going 0:20:37.720 --> 0:20:40.840 to be a part of modern warfare now and long 0:20:40.880 --> 0:20:44.040 into the future. We feel like we're well positioned with 0:20:44.200 --> 0:20:47.879 significant backlog over eight billion dollars as it stands today, 0:20:48.119 --> 0:20:51.359 and really also validated by the fact that the fiscal 0:20:51.440 --> 0:20:54.840 year twenty seven budget request came in over fifty billion 0:20:54.880 --> 0:20:57.760 dollars for exactly the same types of systems that we 0:20:57.800 --> 0:21:00.520