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Speaker 1: Welcome to the Bloomberg P and L Podcast. I'm Pim Fox.

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Speaker 1: Along with my co host Lisa Abramowitz. Each day we

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Speaker 1: bring you the most important, noteworthy, and useful interviews for

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Speaker 1: you and your money, whether you're at the grocery store

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Speaker 1: or the trading floor. Find the Bloomberg P and L

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Speaker 1: Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. We

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Speaker 1: are broadcasting live from Carbonites Investor Day at their international

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Speaker 1: headquarters in downtown Boston. And well we're joined really by

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Speaker 1: our host right now, Muhammad Ali. He is the president

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Speaker 1: and the chief executive of Carbonite. Thank you very much

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Speaker 1: for hosting us. Thank you for being here. Um, let's

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Speaker 1: begin by just maybe outlining for people a bit of

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Speaker 1: a strategy change on the part of Carbonite, because I

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Speaker 1: can remember when it was focused almost exclusively on the consumer.

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Speaker 1: Back up your data and don't worry about it, but

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Speaker 1: there's been a shift. You bought some assets from s Gay,

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Speaker 1: you purchased a company, I believe earlier in the year

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Speaker 1: of double Take software in order to kind of shift

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Speaker 1: your strategy to move more into the enterprise. Can you

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Speaker 1: tell us about that? Yeah, no, thank you for asking.

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Speaker 1: Today is actually a big day here at Carponite. We're

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Speaker 1: using our investor day as an opportunity to really showcase

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Speaker 1: the strategy that we've implemented over the last three years,

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Speaker 1: which is a huge transformation for the company. As you

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Speaker 1: pointed out, we used to be and we still are,

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Speaker 1: that reliable company of backs up your laptop, but today

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Speaker 1: we now actually have a portfolio that we have built

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Speaker 1: both organically and inorganically that does what we call complete

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Speaker 1: data protection. As you know, data is everywhere now, it's

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Speaker 1: the most important asset. It's in the cloud, it's in

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Speaker 1: a lot of different clouds, it's on prem it's on

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Speaker 1: a whole bunch of operating systems. We're one of the

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Speaker 1: very very few companies now that can protect all that data,

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Speaker 1: your whole I T system, regardless of where it is. Mohammed,

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Speaker 1: you previously were chief strategy officer at Heltt Packard, You've

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Speaker 1: been at IBM. This is a smaller company, and I'm wondering,

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Speaker 1: can you speak to the unique challenges UH being in

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Speaker 1: a scrappy organization and say one of these uh legacy

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Speaker 1: behemoth tech companies. Sure, Um, you know, I actually start

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Speaker 1: up my career at a small company was called Adobe

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Speaker 1: before became a big company, and then I did and

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Speaker 1: artificial intelligence startup. Today we call that a big data startup.

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Speaker 1: So I love the small company. I love the scrappiness. Um. Now,

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Speaker 1: you know, when I got to IBM and tow hb UM,

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Speaker 1: one of the one of the things that that that

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Speaker 1: scrappiness was able to allow me to do is to

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Speaker 1: help those companies transform because it was very difficult to

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Speaker 1: those companies transform from within. And so I, you know,

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Speaker 1: I helped IBM transform into a software services company again

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Speaker 1: through a large number of divestitures and acquisitions to build

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Speaker 1: a portfolio. Uh. And then at HP, I you know,

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Speaker 1: I led the project to split the company into various parts.

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Speaker 1: Again sort of that scrappy thinking, Uh, if the company

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Speaker 1: is too big to really be successful, can you make

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Speaker 1: the smaller parts successful? So this, you know, the scrappy thinking,

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Speaker 1: as regardless of whether it's big company or small company,

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Speaker 1: is really important. We have that scrappy thinking here at Carbonite,

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Speaker 1: and that's why I think we've been able to you know,

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Speaker 1: more than double the company in the last two and

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Speaker 1: a half years. Does that scrappy attitude apply also to

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Speaker 1: spending money on marketing? Because this has a competitive business,

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Speaker 1: and as Lisa said, you you are smaller than some

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Speaker 1: of your competitors. I'm just gonna preview maybe one of

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Speaker 1: the questions you're gonna get at your investor day, which is,

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Speaker 1: you know, how much you're gonna spend a lot of

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Speaker 1: money on this? How are you going to afford all this? Yeah?

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Speaker 1: I mean, you know, we've been around for twelve years.

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Speaker 1: We started out as one of the very first companies

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Speaker 1: that advertise in radio software companies, uh, the advertising radio.

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Speaker 1: And we have learned through tremendous amount of data and analytics,

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Speaker 1: how to best deploy that money. And so twelve years later,

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Speaker 1: we can you know, we have an extremely advanced business

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Speaker 1: intelligence team that uses some of those artificial intelligence techniques

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Speaker 1: that I've talked about, you know, just just a little

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Speaker 1: while ago, to determine how to best place that money

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Speaker 1: and make it return in the most efficient way. You know,

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Speaker 1: one thing that we hear again and again from a

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Speaker 1: variety of chief executive officers is how difficult it is

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Speaker 1: to hire talent right now. Uh, and that you know

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Speaker 1: that the job market is incredibly tight, particularly in certain areas,

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Speaker 1: and I'm wondering, uh, you know, clearly based on the

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Speaker 1: clear love of Star Wars in our offices. Um, you know,

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Speaker 1: there is a certain culture here. But I'm wondering on

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Speaker 1: a broader level, how concerned you are about um sort

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Speaker 1: of bigger U S policies like the H one B

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Speaker 1: visa policy. Uh, and whether you view that potentially affecting

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Speaker 1: your business. Oh, very concerned, and it certainly affects our business.

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Speaker 1: But you know, if you think about America, America was

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Speaker 1: really built on this, uh, you know, incredible combination of

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Speaker 1: domestic talent and immigrant talent. I mean not just for

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Speaker 1: the last few years, but for two hundred years. Um.

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Speaker 1: You know, I walked in the office this morning and

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Speaker 1: I got this beautiful card with this long letter inside

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Speaker 1: from one of our employees. And I'm just gonna read

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Speaker 1: one paragraph. And she came. She came from China. It

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Speaker 1: was four years ago that I decided to come to

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Speaker 1: the United States to pursue my MBA because I believe

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Speaker 1: that if I work hard towards a clear goal, anything

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Speaker 1: is possible. And I found that with the right attitude

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Speaker 1: and inspirational leadership, such dreams can come true. Now, we

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Speaker 1: didn't hire her because she's from China. We hired her

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Speaker 1: because she was globally the best candidate for the job.

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Speaker 1: That's what makes American company strong. We're able to hire

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Speaker 1: the best and we're able to innovate better than anyone else.

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Speaker 1: If somehow, all of a sudden that is curtail or

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Speaker 1: these people go elsewhere, we have we have a problem here.

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Speaker 1: And if you think about the fact that over fifty

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Speaker 1: percent uh fortune companies here in Massachusetts were started by

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Speaker 1: an immigrant or a child of an immigrant. If we

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Speaker 1: no longer have those people, it's going to affect our economy.

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Speaker 1: You know. Earlier we were speaking with your chief evangelist,

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Speaker 1: Norman Guardgayell and yes, and we were talking about the

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Speaker 1: cyber threats and cyber tests because of course these are

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Speaker 1: in the headlines in the worst Equifax. Indeed, I want

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Speaker 1: to get your thoughts on that and what do you

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Speaker 1: believe will happen as a result. Uh Well, so, unfortunately,

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Speaker 1: I think we live in an era where more and

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Speaker 1: more of these things are going to happen. And what

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Speaker 1: carbonite does is it allows it allows you to bring

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Speaker 1: your business back to life after you've been either attacked

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Speaker 1: by one of these you know, cyber crime situation, whether

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Speaker 1: it's ransomware. Whether you've been hit by Hurricane Arama, whatever

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Speaker 1: the situation, carbon I will bring your company back to life. Uh.

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Speaker 1: Now you still have to clean up afterwards, as Equifax

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Speaker 1: will have to do. But you know, unfortunately, they're just

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Speaker 1: so many of these cyber weapons out there now, developed

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Speaker 1: either by industry or by cy criminals or our governments,

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Speaker 1: and they're being leaked. So I think we are in

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Speaker 1: actually a very complicated time here. Well, I'd love to

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Speaker 1: wrap my head around what that means to bring the

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Speaker 1: business back. Does it mean restoring the data? Does it

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Speaker 1: mean uh, putting new encryptions in to prevent another attack?

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Speaker 1: What does that mean to you? Yeah? So, um so,

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Speaker 1: first and foremost, it's about resurrecting the business. So if

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Speaker 1: you get hit by a tornado or a hurricane, as

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Speaker 1: was the case just recently. We have a customer who

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Speaker 1: called us right before this hurricane was about to hit

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Speaker 1: the island the Caribbean and said, we need you to

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Speaker 1: back up our system so that if we no longer

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Speaker 1: have a hotel there, at least from home, we can

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Speaker 1: we have everything we can resurrect this, maybe not in

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Speaker 1: that computer environment, maybe in your cloud and that's something

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Speaker 1: we can do. We could spin up your entire I

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Speaker 1: T environment in our cloud and have you run as

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Speaker 1: long as you too in our cloth to keep going. Airlines,

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Speaker 1: for example, use us to ensure high availability, so if

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Speaker 1: their systems go down, they fail over to our systems

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Speaker 1: and they keep running. Now, in terms of preventive aspects, right, uh, like,

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Speaker 1: we also provide some level of security, but at the

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Speaker 1: end of the day, you're most likely going to get hit.

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Speaker 1: Mohamad Ali, thank you so much. Mohamed Ali, President, chief

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Speaker 1: executive officer of Carbonite, based in Boston. Part let's talk

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Speaker 1: about the future when it comes to small cap stocks,

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Speaker 1: and here to help us is Drew Bejia. He is

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Speaker 1: the vice president portfolio manager of the g I M

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Speaker 1: small Cap Focused Growth Strategy for Granaham Investment Management firm.

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Speaker 1: Why they manage over a billion dollars. The small Cap

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Speaker 1: Focused Growth fund has about a quarter of a billion

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Speaker 1: dollars and they are based in wolf M, mass Drew,

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Speaker 1: thank you very much for being with us and coming in.

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Speaker 1: Maybe just first of all, make the case for small

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Speaker 1: cap stocks for people that may not be familiar with

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Speaker 1: this particular asset class. Sure, so we're we're looking for

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Speaker 1: small cap growth companies. And you know, our our clients

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Speaker 1: tend to be pension plans and now months that need

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Speaker 1: returns to essentially pay pay pensioners their retirement. What characterizes

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Speaker 1: small cap for you? Right? So, small cap typically it's

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Speaker 1: under two billion dollars put the sweet spots around a

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Speaker 1: billion dollars in market cap. And the idea is that

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Speaker 1: these companies, because they're small, can grow faster and accumulate

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Speaker 1: um can appreciate over the long long haul. So, Drew,

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Speaker 1: I'm looking at the performance of this fund and it's

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Speaker 1: up more than timber cent year to day, which is

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Speaker 1: ahead of the Rustle tooth hoousand. And I'm wondering, you

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Speaker 1: know what, what were the main drivers? What were the

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Speaker 1: sort of wagers that you got? Did you got right? Uh? So?

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Speaker 1: In generally, as I mentioned, we're looking for companies that

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Speaker 1: can grow and uh stocks that have good risk reward

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Speaker 1: and we take fairly concentrated bets five six seven percent

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Speaker 1: of the portfolio at times, and this year I think

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Speaker 1: we're actually up about or so and and what's uh

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Speaker 1: we've been able to do is is the bigger bets

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Speaker 1: have worked out and for the most part, the smaller

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Speaker 1: bets um, the ones that haven't worked out or have

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Speaker 1: been smaller positions are some of the companies that have

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Speaker 1: been a big winners. So we recently exited a position

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Speaker 1: in Shopify, which is no longer small cap, but his

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Speaker 1: uh you know, an e commerce solutions provider for small

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Speaker 1: to medium size businesses that has done very well this

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Speaker 1: year and risk reward and market cap uh cause us

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Speaker 1: to exit the position. What what what kind of h

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Speaker 1: work do you have to do in order to get

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Speaker 1: the information necessary to make these kinds of investments because

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Speaker 1: many small cap stocks are not covered by any analysts

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Speaker 1: and it doesn't seem to be a large following. Sure,

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Speaker 1: So at Grana hand we're a pretty small shop. We

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Speaker 1: have about twenty people, but uh seven of us are

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Speaker 1: very experienced in small caps. So we're very experienced team

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Speaker 1: that is looking for these small cap growth companies. I

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Speaker 1: call them desert island companies because if you sent me

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Speaker 1: to a desert island and come back five, six, seven,

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Speaker 1: ten years from now, they'd be uh much much more valuable,

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Speaker 1: they much bigger. So part of what we do is

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Speaker 1: exclusively look for those companies, and it's easier to find

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Speaker 1: diamonds in the rough if if you're if you're expresing,

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Speaker 1: But where do you go to? Where do you go

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Speaker 1: to find these? I mean, is it someone that comes

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Speaker 1: in with an idea, says, oh, my family just bought something,

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Speaker 1: or you went to an investor presentation, because a lot

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Speaker 1: of companies have trouble getting getting any kind of following

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Speaker 1: or anybody to wat you know, watch over them. Sure. Well,

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Speaker 1: as I mentioned, we have seven people looking for these

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Speaker 1: desert islands, secular growers and uh UM in that we

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Speaker 1: cover a pretty wide net and can quickly reject most companies.

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Speaker 1: So industry UM contacts suppliers, customers of companies we already know, etcetera. So, Drew,

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Speaker 1: you know, it's it's sort of this popular belief right

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Speaker 1: now that there's money flowing toward anything and everything that

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Speaker 1: asks for money right now, just given the current backdrop,

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Speaker 1: backdrop of central bank liquidity. Uh do you think that

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Speaker 1: that is an inaccurate characterization of this current market. I'd

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Speaker 1: have to say that there is capitals not scarce. UM

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Speaker 1: growth is scarce, and so I think you're seeing um

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Speaker 1: and and rates are low. So that combination is leading

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Speaker 1: toward investors to look for anything where they can have uh,

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Speaker 1: prospects for growth. Well, but I guess that's what I'm

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Speaker 1: getting at is, you know, how do you sort of

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Speaker 1: adjust your models to understand what value is at a

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Speaker 1: time when there is so much capital that's pushing up valuations,

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Speaker 1: and how do you adjust your your expectations for growth

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Speaker 1: going forward? Uh, you know, based on the idea that

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Speaker 1: this might this might end. Yeah, so that you separate

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Speaker 1: the asset from the price of the asset. So the

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Speaker 1: asset has in our case, little to do with the

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Speaker 1: access to capital. There's there's plenty of capital, so that

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Speaker 1: asset and our growth expectations, we're only looking for these

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Speaker 1: companies that are pretty rare that can sustain growth in

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Speaker 1: terms of pricing of the asset. You're right, there's been

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Speaker 1: a flood of capital. And what we do is a

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Speaker 1: probability weighted expected return, which has good scenarios and bad scenarios,

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Speaker 1: and we probably wait them so it tries to capture both.

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Speaker 1: So real quick, thirty seconds, what's your best idea right

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Speaker 1: now that you're looking at our company that you've recently bought. Uh, well,

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Speaker 1: not the best idea, because we have a fairly concentrate

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Speaker 1: concentrated UH portfolio. But for example, there's a company here

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Speaker 1: in Boston called ub spot UH. It's a platform for

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Speaker 1: small to medium sized businesses. They're basically created a category

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Speaker 1: called inbound marketing. We use it high value, add open

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Speaker 1: ended opportunity. Very interesting Desert Island company. The stock we

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Speaker 1: also think has good risk, reward and probability way to

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Speaker 1: expect the return. Drew Bejia, thank you so much for

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Speaker 1: joining us. Drew Bejia as vice president portfolio manager of

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Speaker 1: the g i M small cap focused growth strategy for

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Speaker 1: Grinahan Investment Management, which manages UH about a billion dollars

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Speaker 1: and is based in Waltham, Massachusetts. Let's bring in Margaret

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Speaker 1: Tollive right now. Our White House corresponded. Margaret is in Washington,

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Speaker 1: and Margaret, I'm wondering if you could just sort of

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Speaker 1: unpack a little bit of what the President was describing,

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Speaker 1: because it seems as though he was making a very

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Speaker 1: great distinction between the people of the various countries and

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Speaker 1: the responsibilities of the world leaders in order to fulfill

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Speaker 1: this promises he describes it of freedom, justice and peace. UH.

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Speaker 1: You know, it's really interesting because when we hear the

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Speaker 1: two messages of the president's speech. One was sort of UH,

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Speaker 1: uniting the world around action, UH, particularly towards North Korea

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Speaker 1: and also UM on Ivan. But the second was to

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Speaker 1: kind of drill home on this point that's been central

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Speaker 1: to his, you know, still relatively new political career, the

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Speaker 1: idea of of the primacy of nation states, of sovereignty

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Speaker 1: and such, and so the way he treated the needle

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Speaker 1: was again to say that you can be UM looking

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Speaker 1: out for number one. In effect, every country can have

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Speaker 1: its own version of an America First policy, and they

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Speaker 1: can still UM interact through the United Nations on issues

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Speaker 1: that rise above individual national interests. At these are the

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Speaker 1: two themes. Uh. They did sort of at sometimes bump

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Speaker 1: into one another. But his mission again was to try

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Speaker 1: to thread the needle between someone who's been himself skeptical

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Speaker 1: in the past of the utility of organizations like the

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Speaker 1: United Nations, but in this case saying, UH on North

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Speaker 1: Korea and Iran, I really think the world needs to

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Speaker 1: come together around what the US wants an act. Well, Margaret,

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Speaker 1: you know, I'd love to just get your big picture

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Speaker 1: sense of how this speech was likely received. He did

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Speaker 1: stay on script. He did quote historical figures in American history.

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Speaker 1: What was your first impression. Uh. We were very much

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Speaker 1: interested in looking around the room, not just to hear

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Speaker 1: what he was saying, but to watch how people were reacting.

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Speaker 1: And I was interested in seeing the notes from my

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Speaker 1: colleagues who were on the floor and sending color. UM,

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Speaker 1: some key US allies holding onto every word. Be at

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Speaker 1: Israel or be a Japan Uh, some other countries. Ministers

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Speaker 1: at times go ahead checking their their phones for notes,

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Speaker 1: kind of in and out of the stream of of

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Speaker 1: what he was saying. Uh. And then of course, UM

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Speaker 1: looking for where a couple of the countries who were

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Speaker 1: targets of these discussions stood in the room earlier before

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Speaker 1: he began to speak. UM. North Korea as foreign minister

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Speaker 1: appeared to be in the room later on, UM not

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Speaker 1: as visible. So well, I think we're going to see

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Speaker 1: the reaction from the world begin to trickle in. There

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Speaker 1: were a couple of lines that were important for domestic audience,

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Speaker 1: such as the president's UH talk about Venezuela and how

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Speaker 1: the problem was in fact the ideology of socialism that

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Speaker 1: did not go over a real big and at the

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Speaker 1: same time, some of the discussions about the need to

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Speaker 1: act the score of Iran or the problems in North Korea.

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Speaker 1: There seemed to be a lot of agreement in the room,

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Speaker 1: so um different messages for different people. And this is

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Speaker 1: always true for US President. He's talking at once to

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Speaker 1: the world and to his own uh based not so

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Speaker 1: well all of the American voters, but particularly his base.

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Speaker 1: And again his base is the basi that is inherently

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Speaker 1: skeptical of the value and the utility of the United Nations.

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Speaker 1: Margaret Taller, thank you so much for joining us. Thanks

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Speaker 1: for listening to the Bloomberg P and L podcast. You

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Speaker 1: can subscribe and listen to interviews at Apple Podcasts, SoundCloud,

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Speaker 1: or whatever podcast platform you prefer. I'm pim Fox. I'm

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Speaker 1: on Twitter at pim Fox. I'm on Twitter at Lisa

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Speaker 1: Abramo wits one. Before the podcast, you can always catch

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Speaker 1: us worldwide on Bloomberg Radio.