WEBVTT 1 00:00:08.160 --> 00:00:09.790 Hello and welcome to this VI cast, 2 00:00:09.790 --> 00:00:13.310 which is devoted to an outstanding company Snowflake. 3 00:00:13.820 --> 00:00:18.710 Snowflake is supposedly back to a normal situation between 4 00:00:18.730 --> 00:00:21.590 quotes, which I am going to elaborate now, 5 00:00:22.490 --> 00:00:26.590 the company is very well known in the data cloud business. 6 00:00:27.250 --> 00:00:31.070 It defines itself as data warehouse, as a service. 7 00:00:31.490 --> 00:00:33.590 You all know software as a service. 8 00:00:33.900 --> 00:00:38.590 It's about structuring data warehouses in which you can put all the data. 9 00:00:38.970 --> 00:00:41.510 You have a governance of the data base, 10 00:00:41.510 --> 00:00:44.430 which is absolutely perfect connection. 11 00:00:44.860 --> 00:00:48.990 It's programmable and you can build your own marketplace and make a lot of money 12 00:00:49.210 --> 00:00:50.043 out of that. 13 00:00:50.130 --> 00:00:55.030 The company has a great reputation in the industry and the ecosystem of 14 00:00:55.030 --> 00:00:58.630 the company consists in great names and partners. 15 00:00:59.360 --> 00:01:03.910 First in the cloud business you have Amazon Web services. Obviously Google, 16 00:01:04.090 --> 00:01:07.670 Google Cloud product, Microsoft Azure, 17 00:01:08.490 --> 00:01:13.470 Ali Cloud is not in the list probably for problems linked with the nationality 18 00:01:13.730 --> 00:01:18.110 of these companies. Now they have other partners in the ecosystem. For example, 19 00:01:18.120 --> 00:01:22.710 audit. The firms like Deloitte or ey, Accenture, 20 00:01:23.250 --> 00:01:27.670 the very well-known firm operating in consulting information systems and so on 21 00:01:27.670 --> 00:01:31.390 and so forth. IBM in focus, herbs, Bott, 22 00:01:31.390 --> 00:01:34.470 the challenger of Salesforce standard on pools. 23 00:01:34.690 --> 00:01:37.670 So the company is working with outstanding company. 24 00:01:37.810 --> 00:01:40.550 It was created in 2012, 25 00:01:41.040 --> 00:01:44.230 about 11 years ago and its mission statement, 26 00:01:44.250 --> 00:01:47.750 its purpose about cloud database structuring. 27 00:01:48.650 --> 00:01:51.830 The company did something great in 2020, 28 00:01:52.760 --> 00:01:56.030 going public and raising 3.4 billion. 29 00:01:57.210 --> 00:02:01.790 IT the largest ever I P O in the software industry. 30 00:02:02.370 --> 00:02:05.110 The company is still growing quite a lot. 31 00:02:05.610 --> 00:02:09.710 In 2021 the total revenues were 1.2 billion 32 00:02:10.650 --> 00:02:14.790 and in 2022 each 2.1 billion. So, 33 00:02:15.370 --> 00:02:19.750 so very quickly expanding and the company in the books is generating 34 00:02:20.050 --> 00:02:23.030 losses, but it says we are profitable. 35 00:02:23.660 --> 00:02:28.590 There's a kind of paradox in this statement and I will elaborate a little bit on 36 00:02:28.590 --> 00:02:33.510 that later. Now, the stock price is a bit flat, constant, 37 00:02:34.370 --> 00:02:38.270 not skyrocketing at all. The market capitalization still is very high, 38 00:02:38.800 --> 00:02:40.110 56 billion. 39 00:02:41.050 --> 00:02:45.710 The moment I recall this vidcast compared with sales of 2.1, 40 00:02:45.940 --> 00:02:47.510 this is really a high figure, 41 00:02:48.050 --> 00:02:51.270 but if we go back to the i p of the company, 42 00:02:52.170 --> 00:02:54.030 we have a very interesting story. 43 00:02:54.730 --> 00:02:59.070 It took place in September, 2020 at an offer price of 44 00:02:59.180 --> 00:03:04.160 $120 per share. The estimates a few months, 45 00:03:04.360 --> 00:03:07.960 a few weeks before were in the range, 75 to 80. 46 00:03:08.410 --> 00:03:13.000 There were even stock options given to key employees of the company 47 00:03:13.220 --> 00:03:17.640 at the beginning of the year with exercise prices of about 35 to 48 00:03:17.640 --> 00:03:18.473 $40. 49 00:03:19.100 --> 00:03:24.040 So 120 is really showing some interesting growth about the 50 00:03:24.330 --> 00:03:27.680 value of the company. But now before the opening of the market, 51 00:03:27.810 --> 00:03:31.800 there are some transactions at $230. 52 00:03:32.420 --> 00:03:36.760 The opening shows a first transaction at $245. 53 00:03:37.510 --> 00:03:42.320 It's going to go to a maximum during this first day of listing of 319. 54 00:03:42.940 --> 00:03:45.720 To get back a little bit to the closing price, 55 00:03:45.720 --> 00:03:48.400 which is 254. 56 00:03:48.670 --> 00:03:52.120 This is absolutely outstanding and a little bit abnormal. 57 00:03:53.180 --> 00:03:57.680 Now if you look at the evolution of the stock price of Snowflake after the I P O 58 00:03:58.020 --> 00:04:00.440 and you confront that with the NASDAQ evolution, 59 00:04:00.780 --> 00:04:04.920 you first observed that the NASDAQ was up and Snowflake was a little bit 60 00:04:04.920 --> 00:04:07.040 disappointing after the I P O, 61 00:04:07.310 --> 00:04:11.960 then Snowflake stock prices up and it's going to get to a kind of maximum 62 00:04:12.940 --> 00:04:16.760 one year after the listing at $350. 63 00:04:17.430 --> 00:04:19.120 Then there will be a stabilization, 64 00:04:19.740 --> 00:04:23.520 and then you remember that the NASDAQ went down by one third. 65 00:04:24.340 --> 00:04:27.920 Now Snowflake went down by more than 50%. 66 00:04:28.270 --> 00:04:33.160 Then Snowflake stock price s at the level of 150 and has 67 00:04:33.160 --> 00:04:36.080 been quite stable during the last year. 68 00:04:36.670 --> 00:04:39.720 This stability also shows in the calculation of the beta, 69 00:04:39.720 --> 00:04:42.400 you remembers a systematic risk coefficient, 70 00:04:42.690 --> 00:04:46.240 which is a consequence of the sensitivity of your stock price to what happened 71 00:04:46.260 --> 00:04:47.160 on the stock market. 72 00:04:48.100 --> 00:04:52.560 The beta was quite chaotic when calculated over 12 months. 73 00:04:52.710 --> 00:04:55.440 This is quite normal for a company in the tech business. 74 00:04:55.910 --> 00:04:57.440 Shortly after its I P O, 75 00:04:57.510 --> 00:05:01.480 then it went down and if you look at the 24 month beta, 76 00:05:01.480 --> 00:05:03.800 which is the one which is a little bit more relevant, 77 00:05:03.940 --> 00:05:08.440 it shows some stability a little bit more than 0.6, no change, 78 00:05:09.060 --> 00:05:13.760 no movement in the stock price in its financial communication. 79 00:05:14.100 --> 00:05:19.080 The company shows the evolution of its expenses. Profit cash. 80 00:05:19.940 --> 00:05:23.160 The company closes its accounts on the 31st of January. 81 00:05:23.540 --> 00:05:26.520 So when the company says full Euro 2023 for example, 82 00:05:26.660 --> 00:05:30.880 it means 11 months of 2022 and one months of 83 00:05:30.880 --> 00:05:35.360 2023. So it's a bit more 2022 than 2023. 84 00:05:35.630 --> 00:05:38.320 This is a technical point, no big deal about that. 85 00:05:38.780 --> 00:05:43.600 Now the company shows the evolution of its operating expenses as a percentage to 86 00:05:43.600 --> 00:05:45.640 revenues and it's down. Why? 87 00:05:45.880 --> 00:05:50.400 Because of an improved operating leverage. The company says, oh, 88 00:05:50.860 --> 00:05:52.480 non-AP operating expenses. 89 00:05:52.950 --> 00:05:57.880 Then the company shows that this improvement in the operating expenses is 90 00:05:57.880 --> 00:06:00.040 transforming to adjusted free cash flow, 91 00:06:00.040 --> 00:06:03.120 which is now positive as a percentage to revenues. 92 00:06:03.500 --> 00:06:05.040 Two years ago it was minus 12, 93 00:06:05.390 --> 00:06:10.040 then plus 12 and today plus 25% non gap. 94 00:06:10.410 --> 00:06:11.243 Again, 95 00:06:11.400 --> 00:06:15.840 I will elaborate on this non gap versus gap a little bit later in this 96 00:06:15.840 --> 00:06:20.800 presentation and the company says that the reason why it's improving its revenue 97 00:06:20.980 --> 00:06:25.000 growth, revenue growth generates economies of scale. 98 00:06:25.260 --> 00:06:29.520 If you have the same fixed cost on larger revenue, the percentage of one, again, 99 00:06:29.540 --> 00:06:33.480 the other is down. We show also larger customer relationship. 100 00:06:33.480 --> 00:06:37.920 We have a customer base retention cost less than acquisition 101 00:06:38.420 --> 00:06:42.880 and this is why the company's profitability and performance is improving. 102 00:06:43.580 --> 00:06:43.860 Now, 103 00:06:43.860 --> 00:06:48.800 if you actually look quarter after quarter at the evolution of the operating 104 00:06:48.800 --> 00:06:50.240 expenses, what do you observe? 105 00:06:51.140 --> 00:06:54.920 The first line in a p and l as an expense is cost of sales. 106 00:06:55.030 --> 00:06:57.680 Cost of sales showed some reduction, 107 00:06:58.120 --> 00:07:01.440 decreases a percentage to revenues as a consequence of economies of scale, 108 00:07:01.860 --> 00:07:05.880 but it stabilized about four quarters ago, 109 00:07:06.060 --> 00:07:11.040 two years ago and now it's stable at something like 30% to 110 00:07:11.040 --> 00:07:14.720 sales. If you observe sales and marketing expenses, 111 00:07:14.910 --> 00:07:18.280 they were representing more than 100% of revenues today. 112 00:07:18.280 --> 00:07:20.360 The company was building its customer base. 113 00:07:20.820 --> 00:07:25.680 Now it showed some economies at scale and now it is stable again at the level 114 00:07:25.860 --> 00:07:30.560 of 40%. If you look at research and development, 115 00:07:30.560 --> 00:07:33.840 which is an expense in a p and l and an investment in real life, 116 00:07:34.500 --> 00:07:37.360 you observe a kind of economies of scale at the very beginning. 117 00:07:37.510 --> 00:07:41.040 Then there's a stabilization and during the last quarters, 118 00:07:41.590 --> 00:07:42.560 what did we observe? 119 00:07:42.780 --> 00:07:47.200 An increase of research and development expenses as a percentage to revenues, 120 00:07:47.500 --> 00:07:52.280 and it's a little bit compensated by really economies of scales on 121 00:07:52.280 --> 00:07:54.080 general and admin expenses. 122 00:07:54.700 --> 00:07:58.760 So these truly indirect costs show some economies of scale, 123 00:07:59.060 --> 00:08:01.480 not the rest of the p and l. Now, 124 00:08:01.480 --> 00:08:05.240 the companies providing a guidance for 2023, 125 00:08:05.490 --> 00:08:07.440 which they named 2024. 126 00:08:07.780 --> 00:08:12.520 Of course product revenue is going to go up to 2.7 billion, 127 00:08:13.020 --> 00:08:15.560 but if you take the year on year revenue growth, 128 00:08:15.830 --> 00:08:19.240 it's only 40% only is exaggerated, 129 00:08:19.620 --> 00:08:23.520 but a few years ago it was 120, then 106, 130 00:08:23.830 --> 00:08:28.760 then 70 than 40. So you understand that there is still significant growth, 131 00:08:28.980 --> 00:08:30.440 but the gross rate is lower. 132 00:08:31.260 --> 00:08:36.120 The gross profit is stabilizing at the level of 75, 70 6% non 133 00:08:36.140 --> 00:08:36.973 gap. 134 00:08:37.340 --> 00:08:41.480 The operating loss was 38% in 2020. 135 00:08:41.780 --> 00:08:45.720 Now it is an operating profit of 6% non gap, 136 00:08:46.460 --> 00:08:49.280 non gap adjusted free cash flow. You remember minus 12, 137 00:08:49.280 --> 00:08:51.800 plus 12 plus 25 and plus 25. 138 00:08:51.800 --> 00:08:54.960 There's a kind of stabilization of the free cash flow generation. 139 00:08:56.100 --> 00:08:58.960 Now let's have a look at the financial performance of the company, 140 00:08:59.260 --> 00:09:01.480 but it's accounting performance as well. 141 00:09:02.180 --> 00:09:05.000 If you look at the gap and not the non gap, 142 00:09:05.710 --> 00:09:08.160 this is a regulated information. 143 00:09:08.180 --> 00:09:11.960 You understand that the company's revenues are growing, which is good news, 144 00:09:12.180 --> 00:09:16.600 we all know that, but the company is not at breakeven and far from that. 145 00:09:17.060 --> 00:09:18.560 During the last quarters, 146 00:09:19.020 --> 00:09:23.440 the operating loss was representing something like 40% to 147 00:09:23.600 --> 00:09:28.120 revenues. It's not breakeven at all, but it is not gap figures. 148 00:09:28.620 --> 00:09:31.600 Now, what is the difference between gap and non gap? 149 00:09:32.460 --> 00:09:36.440 The fact that in non-AP calculations there are a few items which you don't take 150 00:09:36.440 --> 00:09:38.840 into account. So the company explains for example, 151 00:09:38.900 --> 00:09:43.440 for research and development that the gap figures has to be 152 00:09:43.590 --> 00:09:47.600 reduced, decreased by stock based compensation. 153 00:09:48.510 --> 00:09:53.440 When you give stock options, restricted stock units to key employees, 154 00:09:53.520 --> 00:09:57.400 managers, developers, R and d people, engineers and so on so forth, 155 00:09:57.980 --> 00:10:01.080 it should be treated and accrued as an expense. In the p and l, 156 00:10:01.310 --> 00:10:03.680 this is gap and then the company, 157 00:10:04.190 --> 00:10:06.960 like many companies in the tech business, 158 00:10:07.190 --> 00:10:10.320 they say it's absolutely not an expanse. 159 00:10:11.550 --> 00:10:12.560 Another expanse, 160 00:10:12.560 --> 00:10:16.760 which should not be traded as an expanse is amortization of acquired 161 00:10:16.830 --> 00:10:18.920 intangibles. When you make an acquisition, 162 00:10:19.220 --> 00:10:23.520 you acquire goodwill brands market share and some 163 00:10:23.830 --> 00:10:26.200 intangibles related. For example, with technology, 164 00:10:26.200 --> 00:10:29.400 you don't amortize the goodwill, you don't amortize a brand, 165 00:10:29.420 --> 00:10:34.240 but you amortize acquired r and d expenses capitalize in the balance sheet 166 00:10:34.700 --> 00:10:37.400 of their company. Now, as they say, 167 00:10:37.420 --> 00:10:41.400 it should not be amortized because we don't amortize something whose value is 168 00:10:41.400 --> 00:10:45.720 going up. This is why you deduct from the gap expense, the non gap expense, 169 00:10:46.050 --> 00:10:50.560 which are supposedly giving a better picture about the business reality. Now, 170 00:10:50.560 --> 00:10:51.393 is it a big figure? 171 00:10:51.940 --> 00:10:56.200 If you look at what happened in the company just before the company went public, 172 00:10:56.620 --> 00:11:00.520 it distributed plenty of stock options and restricted stock units. 173 00:11:01.220 --> 00:11:02.160 The value, 174 00:11:02.420 --> 00:11:06.240 the accounting figure is more than 300 million 175 00:11:07.340 --> 00:11:11.680 for the pre i p O and i P O year. If you take the year before, 176 00:11:11.680 --> 00:11:13.880 it was less than 80 million. 177 00:11:14.420 --> 00:11:16.880 So you understand that there is a dramatic increase. 178 00:11:17.500 --> 00:11:21.600 Now as should look at the evolution of stock-based compensation in dollars and 179 00:11:21.600 --> 00:11:23.040 in percentage to revenues. 180 00:11:23.660 --> 00:11:27.880 You understand that there is a moment before and a moment after I P O, 181 00:11:29.180 --> 00:11:31.080 the quarter of the company goes public. 182 00:11:31.340 --> 00:11:36.280 The figure is dramatically increasing and it's dramatically increasing in 183 00:11:36.800 --> 00:11:38.240 absolute and relative terms. 184 00:11:38.830 --> 00:11:43.760 It's going to go up to 150 per quarter the year the 185 00:11:43.760 --> 00:11:47.080 company is getting public and it's going to stabilize at 150 million. 186 00:11:47.820 --> 00:11:52.240 So the percentage to revenue is going to be down because the revenues are up 187 00:11:52.820 --> 00:11:57.240 and now the percentage is stable at 40% of revenues 188 00:11:57.620 --> 00:11:59.560 and in the meantime revenues are up. 189 00:11:59.620 --> 00:12:03.320 So the figure is in absolute terms skyrocketing. 190 00:12:04.060 --> 00:12:08.440 So we understand that stock based compensation is really a very big item in the 191 00:12:08.440 --> 00:12:09.400 period of the company. Now, 192 00:12:09.400 --> 00:12:14.320 if you adjust the operating profit as suggested by the company and you 193 00:12:14.320 --> 00:12:18.400 calculate the operating profit, excluding the stock based compensation, 194 00:12:18.470 --> 00:12:21.840 your heart break even. So you make a profit, 195 00:12:21.850 --> 00:12:23.680 which is absolutely marginal, 196 00:12:23.680 --> 00:12:27.440 but at least your operating income is quite stable, close to zero. 197 00:12:27.460 --> 00:12:31.400 You don't generate huge losses. Why? Because of s bbc, 198 00:12:32.070 --> 00:12:35.720 it's even better for the EBIT da, the cash operating profit, 199 00:12:36.460 --> 00:12:39.640 the EBIDA is traditionally EBIT plus da, 200 00:12:40.340 --> 00:12:44.600 but you also add up stock based compensation because it is a non-cash item. 201 00:12:45.460 --> 00:12:49.480 Now, calculating the figure you get in 2022, 202 00:12:49.880 --> 00:12:52.600 a percentage of revenues, which is 4%. 203 00:12:53.100 --> 00:12:55.440 Now you start generating cash operating profit, 204 00:12:56.260 --> 00:13:01.080 and if you relate the enterprise value market cap minus cash market 205 00:13:01.260 --> 00:13:02.880 cap plus net financial debt, 206 00:13:03.500 --> 00:13:07.760 you get a figure which is 500 times the bda, 207 00:13:08.250 --> 00:13:13.240 which is quite high. But now if you relate the enterprise value to the revenues, 208 00:13:13.260 --> 00:13:15.120 it is 20 years of revenues, 209 00:13:15.170 --> 00:13:19.040 which is a kind of normal between situation. 210 00:13:20.140 --> 00:13:23.920 It was quite an abnormal situation when the company went public because at that 211 00:13:23.920 --> 00:13:28.800 time the enterprise value was 120 years of revenues. 212 00:13:29.740 --> 00:13:33.080 So it's back to more normal multiples. 213 00:13:33.220 --> 00:13:36.000 But what do we name normality? 214 00:13:37.300 --> 00:13:40.720 The investors are making investments in the company. 215 00:13:40.750 --> 00:13:43.760 When you make an investment, you anticipate uh, return. 216 00:13:44.540 --> 00:13:46.400 If you look at the books of the company, 217 00:13:46.400 --> 00:13:50.960 which kind of return are you going to generate an operating profit divided by 218 00:13:50.960 --> 00:13:54.560 capital employed, you can remember it gives you the return on capital employed. 219 00:13:54.860 --> 00:13:58.680 How do you improve the ebit? You reduce the operating expenses. 220 00:13:59.620 --> 00:14:02.120 Now if you look at quarter after quarter, 221 00:14:02.340 --> 00:14:04.160 the evolution of the operating expenses, 222 00:14:04.160 --> 00:14:08.960 you understand that all in all it was quite stable as a percentage to revenues. 223 00:14:09.340 --> 00:14:12.760 The company says we generated economies of scale, yes, 224 00:14:13.460 --> 00:14:18.440 on general and admin thanks to which you can fund the increase in r and d as 225 00:14:18.480 --> 00:14:19.880 a percentage to revenues. 226 00:14:20.470 --> 00:14:23.520 It's normal to increase r and D as a percentage to revenue. 227 00:14:23.580 --> 00:14:28.000 If you want to accelerate growth, which is slowing down, how do you fund that? 228 00:14:28.100 --> 00:14:32.320 How do you finance increase in r and d by economies of scale on G and A, 229 00:14:32.580 --> 00:14:35.400 but cost of sales and sales and marketing are quite constant. 230 00:14:36.270 --> 00:14:40.920 What are the hopes of actually increasing the operating income? 231 00:14:41.550 --> 00:14:45.720 This is a very difficult question. Now there are plenty of forecasts. 232 00:14:45.720 --> 00:14:46.600 You give guidance, 233 00:14:46.900 --> 00:14:51.040 you say that we are going to leverage our profitability and so on and so forth. 234 00:14:51.430 --> 00:14:56.200 It's a forecast and this kind of normality is very much based on the 235 00:14:56.440 --> 00:15:01.000 forecast which you have to demonstrate now in real life. 236 00:15:01.310 --> 00:15:05.320 Even now the potential market is absolutely huge. 237 00:15:05.710 --> 00:15:07.080 They no doubt about that. 238 00:15:07.100 --> 00:15:11.920 But you have to transform revenues into profit and it's not guaranteed. 239 00:15:12.420 --> 00:15:16.200 Now, should you trade stock-based compensation as an operating expense? 240 00:15:16.840 --> 00:15:20.920 A number of people even outside the audit industry, 241 00:15:21.590 --> 00:15:24.760 they say yes because it replaces a remuneration. 242 00:15:24.790 --> 00:15:29.520 It's a substitution to remuneration. Instead of giving a salary to people, 243 00:15:29.660 --> 00:15:31.320 you give them a lower salary, 244 00:15:31.460 --> 00:15:35.960 but the compliment is stock options restrict stock units, et cetera, et cetera. 245 00:15:36.900 --> 00:15:41.040 But there are some people, and I'm part of them who say, well, 246 00:15:41.170 --> 00:15:45.000 there are some problems because it's not exactly a remuneration. 247 00:15:45.630 --> 00:15:50.560 It's an alignment of interest between management and key employees of 248 00:15:50.560 --> 00:15:52.160 the company and investors. 249 00:15:52.780 --> 00:15:56.000 You remember in economics within that the a c series, 250 00:15:56.290 --> 00:16:00.880 these people that don't show, uh, normal and obvious alignment of interest. 251 00:16:01.500 --> 00:16:04.120 Now, if you treat stock options as a remuneration, 252 00:16:04.780 --> 00:16:09.600 the remuneration is against the investors. If you increase the remuneration, 253 00:16:10.020 --> 00:16:11.520 you have less to give to investors. 254 00:16:11.700 --> 00:16:14.560 So a remuneration is not an alignment of interest, 255 00:16:15.540 --> 00:16:18.760 but SBC is an alignment of interest. So it's a kind of paradox. 256 00:16:19.500 --> 00:16:20.880 On a technical point of view, 257 00:16:21.350 --> 00:16:24.800 there's a prime of kind of double accounting for s, bbc, 258 00:16:25.160 --> 00:16:28.360 p and l and cash flow statement. Okay, this is technical, 259 00:16:28.660 --> 00:16:30.680 but there's another point which is quite important, 260 00:16:30.680 --> 00:16:32.440 which is the impact of vesting. 261 00:16:33.270 --> 00:16:36.800 When you say to somebody you are going to receive stock options over the next 262 00:16:36.830 --> 00:16:40.320 four years, if you reach these objectives, 263 00:16:40.330 --> 00:16:43.360 milestones or if you stay in a company, what's happening? 264 00:16:43.900 --> 00:16:48.360 You first give the contract to people and then you vest the options 265 00:16:48.900 --> 00:16:53.160 one year after the other for example. But when you vest the option, 266 00:16:53.220 --> 00:16:57.000 you vest the option at their current value of the stock, 267 00:16:57.650 --> 00:17:01.960 which means that if between the moment you sign the contract and the moment you 268 00:17:01.960 --> 00:17:06.920 are vested, the stock price has increased, the value of the stock option is up, 269 00:17:07.380 --> 00:17:11.920 and then the cost of the stock option is higher in a p and l in the company 270 00:17:12.340 --> 00:17:13.720 is increasing its losses. 271 00:17:13.900 --> 00:17:18.400 So you understand that there's a kind of paradox because the same feminine is on 272 00:17:18.400 --> 00:17:22.640 the one hand showing the confidence of the investors on the other hand is 273 00:17:22.750 --> 00:17:27.560 digging the hole and increasing the losses. This is a little bit ridiculous, 274 00:17:29.480 --> 00:17:33.920 a statement which I never heard or read and it's my firm conviction 275 00:17:34.740 --> 00:17:38.600 for me. When you give stock options or restricted stock units, 276 00:17:39.020 --> 00:17:42.440 you transform managers into investors. 277 00:17:43.390 --> 00:17:48.320 Imagine that you receive a salary which is 100 per week and imagine that 278 00:17:48.540 --> 00:17:51.600 you receive only 80. What does it mean? 279 00:17:51.940 --> 00:17:56.400 It means that you have accepted to work five days for the company 280 00:17:57.220 --> 00:18:01.840 and you have accepted to receive only four days of salaries because with the 281 00:18:01.840 --> 00:18:06.480 fifth day of your work, you become an investor and you buy stock options. 282 00:18:07.260 --> 00:18:12.160 That's quite an important point because it's an investment for the managers, 283 00:18:12.190 --> 00:18:14.320 it's an investment for the key employees. 284 00:18:14.830 --> 00:18:19.280 Imagine the company issuing warrants options to investors. 285 00:18:19.990 --> 00:18:22.240 What happens as a consequence of this issue, 286 00:18:22.260 --> 00:18:26.200 you will have more cash on the asset side of the balance sheet and the warrants 287 00:18:26.400 --> 00:18:31.040 are going to show in the equity of the balance sheet. It's not an expense, 288 00:18:31.540 --> 00:18:33.640 it is an investment. Now, 289 00:18:33.750 --> 00:18:36.800 it's not a matter of so much of an alignment of interest. 290 00:18:37.100 --> 00:18:42.040 You transform your key people in the company into investors and the buy 291 00:18:42.050 --> 00:18:46.000 stock options giving one day of their time free. 292 00:18:46.940 --> 00:18:51.840 So my perception of that is managers are not aligned with 293 00:18:51.840 --> 00:18:54.720 investors, managers are investors, 294 00:18:55.660 --> 00:18:59.680 and then you don't treat an investment as a cost in a p and l. 295 00:18:59.860 --> 00:19:02.520 It should not be in my modest opinion, 296 00:19:02.900 --> 00:19:07.400 in a PN L treated as an opex. Last but not least, 297 00:19:07.420 --> 00:19:11.280 if you want to show the dilution which is going to be generated by 298 00:19:11.870 --> 00:19:14.800 attributing these stock options and restricted stock units, 299 00:19:15.300 --> 00:19:19.440 it shows as a speculative dilution in a diluted nan income. 300 00:19:20.100 --> 00:19:20.933 You remember, 301 00:19:21.060 --> 00:19:25.840 you communicate your earnings per share based on the actual number of 302 00:19:25.940 --> 00:19:30.080 shares outstanding and you communicate on a diluted net income 303 00:19:30.400 --> 00:19:35.320 dividing earnings attributable to the group divided by the number of shares, 304 00:19:35.670 --> 00:19:40.320 including exercise of options, convertible bonds or whatsoever. 305 00:19:41.460 --> 00:19:45.480 As a consequence of this dilemma operating versus non-op operating, 306 00:19:45.940 --> 00:19:50.000 the companies are communicating on adjusted ibida 307 00:19:51.070 --> 00:19:53.000 free cash flow and so on and so forth. 308 00:19:53.620 --> 00:19:58.560 The reason why they communicate on these adjusted and non gap items 309 00:19:59.470 --> 00:20:04.440 that it shows the economic reality of the company. So you have the gap items, 310 00:20:04.530 --> 00:20:08.880 which is about regulated information and you have to create a kind of double 311 00:20:09.250 --> 00:20:11.160 accounting parallel accounting, 312 00:20:11.530 --> 00:20:15.920 which is showing the economic reality of the business and it's about non gap. 313 00:20:17.030 --> 00:20:21.410 You understand the conclusion which derives from these statements. 314 00:20:22.470 --> 00:20:27.010 Are you really sure that the concept of general accounting gap 315 00:20:27.200 --> 00:20:30.250 generally accepted accounting principles? 316 00:20:30.870 --> 00:20:32.570 Do you think that they are really adapted? 317 00:20:32.590 --> 00:20:37.410 Do you think that they are really relevant to the entrepreneur's context and 318 00:20:37.410 --> 00:20:39.290 with the statement I propose you, 319 00:20:39.350 --> 00:20:43.490 you understand that my opinion is that there should be a little bit of deep dive 320 00:20:43.640 --> 00:20:48.090 into the relevance of the rules. Thank you very much.