Intrepid Capital Fund Insti Class Shares · NASDAQ:ICMVX
Intrepid Capital Fund Insti Class Shares — Intrepid Capital Management — What Lies Beneath – Portfolio Manager Update (August 2017 webinar)
41 slides from Intrepid Capital Fund Insti Class Shares's conference presentation, Aug 31, 2017
Slide 1: What Lies Beneath: Portfolio Manager Update
PO WHAT Capel LIES BENEATH R TFOLIO MANAGER UPDAT AUGUST 31, 2017
Slide 2: Disclosures
Intrepid DISCLOSURES Capital & MANAGEMENT INC. The Fund's investment objectives, risks, charges and expenses must be considered carefully before investing. The statutory and summary prospectuses contain this and other important information about the investment company, and may be obtained by calling
Slide 3: Definitions: Market Indices
Intrepid DEFINITIONS Capital 4 MANAGEMENT INC. Market Indices S&P 500 Index: A widely recognized, unmanaged index of 500 stocks chosen for market size, liquidity and industry grouping, among other factors. Russell 3000 Index: Measures the performance of the largest 3,000 US companies representing ap
Slide 4: Definitions
Intrepid DEFINITIONS Capital 4 MANAGEMENT INC. Earnings Per Share (EPS): The portion of a company’s profit allocated to each outstanding share of common stock. EBIT: Acompany’s Earnings Before Interest and Taxes, also commonly referred to as operating income. EV/EBITDA: Ratio of a company’s Enterpri
Slide 5: Performance: Intrepid Capital Fund
PERFORMANCE Intrepid Capital & MANAGEMENT INC. Intrepid Capital Fund Total Return Average Annual Return Expense Ratios Inception Date 3 Month 3 Year 5 Year 10 Year Since Inception Gross Net ital Fund = Inv 1/3/2005, 3.19% 7.21% 6.81% 1.45% 1.40% Capital Fund- Inst, 4/30/2010 3.449 TAT% 1.20% 1.15% n
Slide 6: Performance
Intrepid PERFORMANCE Capital Expense Ratios Total Return. Average Annual Return Inception Date 3 Month. 3 Year 5 Year Since Inception |__ Gross Net Intrepid Disciplined Value Fund - Inv. 10/31/2007 1.21% 5.02% 8.49% 1.34% 1.30% S&P 500 Index 3.09% 9.61% 14.63% Russell 3000 Index 3.02% 9.10% 14.58% e
Slide 7: Performance: International and Select Funds
Intrepid PERFORMANCE Capital & MANAGEMENT INC. Intrepid International Fund Total Return Average Annual Return Expense Ratios Inception Date 3 Month YTD. 3 Year 5 Year Since Inception | Gross Net Intrepid International Fund = Inv 12/30/2014 0.41% 0.72% 5.00% |_ 2.50% 1.40% MSCIEAFE Net Index 6.12% 13
Slide 8: Top Ten Holdings
Intrepid TOP TEN HOLDINGS Capital & MANAGEMENT INC. INTREPID CAPITAL FU INTREPID ENDURANCE FUND INTREPID DISCIPLINED VALUE FU Berkshire Hath: n 3. Corus Entertainment, Inc. - Class B 99 Oaktree Capital Group LLC Patterson-UTI En 3.4% Syntel, Inc. 3.4% Corus Entertainment, Inc. - Class B 3.3% Amdocs
Slide 9: Agenda
AGENDA () INTRODUCTION MARK TRAVIS alol] © THE FANGAMS & EQUITY VALUATION JAYME WIGGINS, CFA | MIND THE GAAP— THE MAGIC OF EARNINGS ADJUSTMENTS MATT PARKER, CPA Ss STATE OF THE HIGH YIELD MARKET JASON LAZARUS, CFA | QUESTIONS & ANSWERS
Slide 10: FANGAM Style
FANGAM STYLE“ ‘ooh eee | Ewe ~~. lim Microsoft
Slide 11: Are a Handful of Stocks Driving the Market?
ARE A HANDFUL OF STOCKS DRIVING THE MARKET? DOW JONES ca SGP 500 (price-weighted) “Woe (capitalization-weighted) BOLING Loe — y) ~ (Y\ < F Share of Share of 38% YTD return o YTD return : (12% of starting market cap)
Slide 12: Yes, But This Behavior Is Not Unusual
YES, BUT THIS BEHAVIOR IS NOT UNUSUAL Investment firm AQR debunked the idea that recent gains are ITIS TRUE... unusually concentrated the biggest companies by market cap are often main index return contributors If the top N contributors are removed, S&P performance drops by... Impact on Average St.
Slide 13: FANGAM vs S&P ex-FANGAM
2,500 2,000 1,500 1,000 500 FANGAM S&P ex-FANGAM
Slide 14: NASDAQ Ex-FAGAM
NASDAQ Ex-FAGAM 1.9 1.8 1.8 1.7 1.7 1.6 1.6 1.5 1.5 1.4
Slide 15: Most Expensive Market of All Time
IN XPENSIVE MARKET OF ALL TIME => Cie “ SHILLER P/E a 40 (CYCLICALLY-ADJUSTED S&P 500 EPS) 1881 1891 1901 1911 1921 1931 1941 1951 1961 1971 1981 1991 2001 2011 Source: Bloomberg
Slide 16: Earnings and Median P/E
$60 34 $50 30 $40 26 $30 22 $20 18 $10 14 $0 Earnings (RHS) Median P/E
Slide 17: Do You Have the Means to Reach the Median?
DO YOU HAVE THE MEANS TO REACH THE MEDIAN? INTREPID'S VIEW Means can be distorted by outliers Be skeptical about claims that the tech bubble was the biggest bubble in stock market history Shiller CAPE P/E is a usefulmetric, but understand its weaknesses Today’s market overvaluation is much broader t
Slide 18: Mind the GAAP
Slide 19: P/E ex Non-GAAP vs GAAP P/E
P/E ex Non-GAAP GAAP P/E unprofitable P/E
Slide 20: Mind the GAAP: Common Adjustments
MIND THE GAAP Common Adjustments oe Stock Impairments/ iar Compensation write-downs coe ule ; serarnet Changes in Pension Assumptions M&A Costs Others ARE THESE REALLY UNUSUAL OR NON-RECURRING?
Slide 21: Transforming Losses to Income
TRANSFORMING LOSSES TO INCOME Example: Golf Course Operator Drive Shack (Ticker: DS) Non-GAAP Reconciliation (Divisional) 1H17 Non-GAAP Reconciliation (consolidated) 1H17 Reported EBITDA GAAP Loss Other Loss Loss on Investments Tax Adjustment Other Loss u Acquisition, Transaction, Restructuring Acqu
Slide 22: Common Adjustment: Stock-Based Compensation
COMMON ADJUSTMENT: STOCK-BASED COMPENSATION MEASUREMENT Complicated accounting based on various assumptions (Black Scholes model) RATIONALE FOR EXCLUSION FROM "ADJUSTED" EARNINGS Non-cash items No effect on free cash flow Effect captured in diluted EPS
Slide 23: GAAP Earnings vs Stock-Based Comp
GAAP Earnings Stock-based Comp
Slide 24: Twitter Share Count Up 29% Since 2013
cwitter SHARE COUNT UP 29% SINCE 2013 SHARES OUTSTANDING (MILLION) apture in Diluted EPS? -s 736 " ; é 694 642 te 570 Welle EE Adjusted Diluted EPS makes 3013 3014 4615 3016 HIT Twitter seem far more profitable Source: Bloomberg ' _ Always include stock compensation in INTREPID'S VIEW: earnings calc
Slide 25: Most Egregious Example
is the most egregious example. The very — name says it all: ‘compensation. — don’t belo away Shareholder Letter
Slide 26: Does Earnings Growth Justify Valuations?
DOES EARNINGS GROWTH JUSTIFY VALUATIONS?
Slide 27: 1900 1700 1500 1300 1100
1900 1700 1500 1300 1100 900 700
Slide 28: The Problem with Earnings Growth
THE PROBLEM WITH EARNINGS GROWTH Factors influencing headline earnings growth Generally Non-GAAP Earnings from Manipulated by acquired businesses share repurchases INTREPID'S VIEW Focus on the quality of earnings growth
Slide 29: S&P Companies Have Been on a Buying Spree
S&P 767? S&P 500 companies have been on a buying spree over the last year Source: Bloomberg (as of 8/17/17) INTREPID'S VIEW Focus on Evaluate price paid Look out for rosy organic growth for acquisitions projections of “synergies”
Slide 30: Buying Back Stock Also Provides Earnings Growth Windfall
BUYING BACK STOCK ALSO PROVIDES EARNINGS GROWTH WINDFALL Sales Operating Expense Outstanding Share Price Mkt Cap § 100.0 85.0 15.0 15.0 § 100.0 85.0 EXAMPLE Financial Engineering Co. decides to issue debt and buy back stock WHY? » (2) When tax-effected interest rate is lower than earnings yield, buy
Slide 31: Buying Back Stock Also Provides Earnings Growth Windfall
BUYING BACK STOCK ALSO PROVIDES EARNINGS GROWTH WINDFALL INTREPID'S VIEW Compare price paid to our estimate of intrinsic value Evaluate changes in balance sheet & capital structure Use enterprise value multiples
Slide 32: Historical Share Repurchases
HISTORICAL SHARE REPURCHASES Significant use of capital Buybacks positively during bull market correlated with prices Quarterly Share Repurchases ($M) and Number of Companies Repurchasing Shares $180,000 | $ $140,000 $120,000 $80,000 0,000 $20,000 Source: FactSet
Slide 33: The State of High Yield
Slide 34: High Yield Spreads Still Well Above Mid-2000s Levels
HIGH YIELD SPREADS ARE STILL WELL ABOVE MID-20008 LEVELS OPTION-ADJUSTED SPREAD — ML HIGH YIELD OVER TREASURY (BPS)
Slide 35: 1000 1200 2002 2003 2004 2005 2006 2007 08 2009 2010 2011 2012 2013
200 400 600 800 1000 1200 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Slide 36: Covenant Quality Is Nearly the Weakest on Record
COVENANT QUALITY IS NEARLY THE WEAKEST ON RECORD “June had the highest concentration of high- yield-lite bonds we have ever seen” Moobpy’s Moobpy’s JUNE 2017 1 2 3 4 i) STRONGEST INVESTOR I 1 1 1 WEAKEST INVESTOR PROTECTIONS PROTECTIONS “June's bonds provide [the] worst protection of any single mont
Slide 37: Leverage Is Higher Than Ever
Of all large debt issuers in 2Q17... 80% 50% more than 4x levered more than 5x levered AND LEVERAGE IS HIGHER THAN EVER! ket Intelligence
Slide 38: 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
10 12 14 4 6 8 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Slide 39: But 5% Doesn't Sound So Bad...
BUT 5% DOESN'T SOUND SO BAD... High yield 4 Investment grade 2.7% y 60% Potential ios 0.42% ) Hypothetical ) 2008 - highest 4.5 N Mews 4S 0 N rate since 1981 Historical Last 5 years default ct 130 BPS default rate Default-adjusted spread over Treasuries including estimated default losses, | Estimate
Slide 40: Intrepid's View
Slide 41: Thank you for your interest in Intrepid Capital
Intrepid Capital #% MANAGEMENT INC. Thank you for your interest in Intrepid Capital