AAOI

Just laughed out loud Otsog. Gotta hand it to you, that's pretty funny. A gross mischaracterization with no relation to reality but funny nonetheless.

Winjitsu/Tripleoptician - guys, appreciate the voice of reason here (much appreciated!), and apologies for not popping up sooner but it's been awhile since I've spent much time on these boards. Regardless, I think most of your commentary is spot on. With that said I'm going to spend some time reviewing all the misguided and uninformed bear arguments (even the mind mumbling tired ones on accounting), and hopefully circle back with a detailed response within the next few days. Besides needing to top of my position, it will take a fair amount of time to effectively slice through the nonsense. Moreover, I'll do my best to address the more reasonable questions and concerns, such as those related to growth and why I believe worries on that front are understandable yet ultimately overblown. In any case, looking forward to the discussion! There is no doubt it was a disappointing year in certain respects, but for what it's worth I continue to think Input is severely mispriced.

Omg, just read part one and two of my write-ups on the details so you don't get your face ripped off like you have with Avid. This will be more fun then when you were posting about shorting it at 6 while I was buying the shit out of it (Fyi, it's now at $15 and set to go higher). Short away!!

Yes, that's becoming clear to me now. To be clear, I totally empathize with the concerns as experience has taught me that these things can point to larger issues that can be easy to miss. Which is of course why it's always good to take a step back and carefully think through whether managements actions/comments downplaying the issue really hold up to careful scrutiny. As a commenter on my blog once put it, "all CEO's are lying whores" (lol). Regardless, while I'm not quite that sceptical as the commentator there is a lot of truth to his (and apparently your) point of view, incentives being what they are and all. At the same time, remaining skeptical in the face of overwhelming evidence that your initial concerns are off base is just as idiotic as the gullible analyst who gobbles up every word management speaks as gospel. Personally, I try to carefully weigh the evidence and derive a reasoned conclusion based on where the evidence shakes out. Anyhow, to paraphrase Keynes, when the facts as I understand them change, I change my mind. And the facts concerning this team speak for themselves. I mean it's ok to admit that you may have misjudged these guys - your concerns we're good ones - they just don't add up. In any case, speaking of evidence and more importantly, incentives with respect to Input's management and the whole stock promote/pump and dump charge, I thought the CFO's response pretty much says it all. In fact, if there is such a thing as a "check mate" in this regard this is it. "You’re right - it’d be pretty hard to actually look at the insider trading records for Input and think we are a bunch of pump & dumpers. The collective current value of the shareholdings of the three co-founders is just over $28 million. Plus another $5 million or so in vested, in-the-money options. The last of our shares and options came out of escrow in January of this year, and if we were pump & dumpers, we’d be bound to have sold something by now. Instead, we’ve all bought additional shares in every financing since we started the company – that means at $1.00, at $1.60 and at $2.30, plus we have a significant number of our family members who have bought shares with their own money, including my own mother. Plus I believe that every employee has been a buyer of shares over the last year or so. And the only options that have been exercised have been exercised with cash and without selling the resulting shares." Of course maybe I'm just a gullible fool getting bullshitted by some clever con artists ;). I'm sure members of this board can come to their own conclusion. Best of luck! AAOI

(emphasis mine) I suppose we strongly disagree on a lot of things. In any case, I wish you the best of luck. I have no position in this. Ha! Boom! Clearly you've found the smoking gun!! Check mate. (sarcasm mine) I have a big position in this.

It should. Their methodology is very dubious because it underestimated volatility by a wide margin. Even before the stock started trading, it would have been reasonable to assume that the stock's volatility would be somewhere around 30-90%+. Maybe as low as 20% if you get generous. To guess that future volatility would be as low as 13.3% strikes me as unreasonable. In comparison, a stock index might be somewhere around 13-18% and you would expect Input to have more volatility than a diversified index. The bottom line is that they are greedy and not to be trusted. As for the business itself, I don't get how it makes sense from an agricultural standpoint. If insiders are trying to harvest investors, then what they're doing makes a lot of sense. But I don't see the value creation. I think the path to very high returns in agriculture is to do something like: A- Sell management services / offer contract farming services. Given that most people on the Input Capital staff don't have ag backgrounds, it is unlikely that they are doing this. B- Become an asset manager. C- Sell some type of technology like seeds (Monsanto), etc. etc. Agriculture has been around for a long time. Ag financing has also been around for a long time. I doubt that Input has come up with a game-changing piece of financial engineering. There are reasons why people don't want to trade canola futures contracts with a 6-year maturity. Glen, No, it shouldn't. I've known and interacted with a legion of management teams over the years, and I can count the number of teams on my right hand that have impressed me as much, in as many different ways, as these guys have over the last couple of years. They are about as candid and strait shooting as it gets. In fact, I have two close friends (both of which are highly respected investors) who where private investors in Input prior to the company going public, and they would tell you much the same thing. So the idea that all of us have been duped in our various interactions is just silly in my mind. I know an unusually talented executive when I see one. Furthermore, the idea that these guys are just a bunch of pump and dumpers backing some pie in the sky promote is truly preposterous. Regardless, who know's how successful Input will be in the end, but as businessmen they have earned my respect and then some. Their track record speak for itself. That, and how you can swing from Bill Erbey's balls and defend him and various members of the Ocwen family like you did with literally zero personal interaction with the man and yet crucify these guys based on a bevy of superficial charges just doesn't compute. One would think you'd be an equal opportunity skeptic. Better yet, you'd think your skepticism would be based less on superficial google searches, where the stock trades, etc etc. and more on hard facts, rock solid reason and plenty of personal interaction. Not trying to be a jerk, just offering some constructive criticism/food for thought. As far as your commentary on agriculture and the industry writ large, again, no disrespect here but you are wildly out of your depth. Input's value add has nothing to do with financial engineering and everything to do with pioneering something entirely different in a crop with huge yield upside if the agronomics are properly funded. This is a massive win/win for everyone involved and not a matter of getting over on a weaker party as you elude to in your comment about SND and the nature of streaming deals in general. Regardless, they'll be the first to tell you they're happy to have skeptics – it means they can get on board later when the stock is higher. As stated in my first 3 write-ups, small changes at the margins make a big difference in agricultural economics. A 5% increase in realized prices, a 5% increase in yields, and a 5% decrease in expenses increases profits by 310%. Which is a different way of illustrating that the return on capital for these farmers is massively in excess of the cost. http://www.agadvance.com/web-articles/business/blog-mar-2015/the-5-rule-%E2%80%93-a-little-tool-with-exponential-effects.aspx Input drives value much in the same way that Malone or Lampert go about using a multi pronged approach to drive sustained periods of exponential compounding in the equity of the company's they control - it's not any one lever or another that does it, but all of them in combination drive the intended result. The key for example with all Lampert controlled businesses, was his ability to rapidly shrink the share count while driving substantial improvements in net margin and healthy revenue growth (with the former objectives being much more important than the latter). At Autozone for example, revenues grew at almost 6% a year, but the real drivers were his ability to grow AZO’s net margin from 5.6% to 10.9% while shrinking the shares outstanding by a whopping 71%. You know as well as anyone how Malone works his magic. In any case, the blueprint for Lampert typically looks like this. Pillar number one aims to modestly grow revenues. Pillar number two looks to expand net profit margins. And Pillar number three aims to rapidly shrink the share count as the first and second pillars play out. Individually these tactics help create value, but in combination they are far more powerful than any one of them alone over an extended time frame. And so in that sense it's akin to the value that Input helps create - it's not any one individual thing that Input does that supercharges a farmers economics, but all of them together, over a period spanning a number of years, that changes the game for him and his individual financial situation. Sorry for the repetition above...I only mention it because its analogous in a way that might pique your interest (and break through your prejuidices) given all the great work you've done on Malone in the past. And remember, these guys spent nearly a decade running the first private equity fund in Canada focused on farming. You think owning and renting ~115,000 acres of Saskatchewan to farmers and working side by side with them, boots on the ground, might have given them some unique insights into how to run a small farm right? I mean there is no management team in Canada (or in the world for that matter) that has spent as much time or money focusing on how to optimize undermanaged/inefficient farming operations as these guys have. Which is why the idea that these guys are just financial engineers is truly laughable. Sure, there are plenty of financial engineers in investment banking land up north - but private equity guys with the relevant operating and domain expertise...not so much. AAOI

Agreed, but that is only reflected on the Income Statement. The Cash Flow Statement or an adjusted cash flow metric is 100% useless for analyzing this company. Input could lose money on every single contract for their entire terms and still have positive operating cash flow and huge cash operating margins. Cash Flow metrics don't reflect the reality of their operations at all. The fact that cash flow metrics are a large part of management's presentations and disclosures is a huge red flag to me. These contracts are only 6 years long though, those upfront payments are deteriorating very quickly. Quickly enough for a metric that doesn't include their depletion is useless. Also, any reliance on this metric gives management a pretty easy way to dupe investors. Say all the low hanging fruit is gone and terms on contracts are getting tighter, management can easily manipulate this metric by increasing upfront payments so their cash flow metrics will say whatever management wants them to say. Any CAPEX business that touts operating cash flow without accounting for CAPEX raises an immediate red flag. It's not as obvious with Input because it's not CAPEX. Cash operating margin absolutely does not show the relation between buying and selling one tonne of canola. I think slide 14 of the presentation in the OP shows best my issue with Input. The upfront payments are not buying a "stream", all of managements points on slide 14 to show how "Ag streaming" is different from metals streaming actually just show how "Ag streaming" isn't actually streaming. The Base Tons in the contracts are just prepaid inventory or commodity loans and have nothing to do with streaming. The Bonus Tons are far more characteristically streaming. Input's use of the same accounting for Base Tons and Bonus Tons is flat out misleading. I think they are stretching pretty hard accounting-wise to justify FVTPL treatment on the entirety of the contracts. Their pushing of cash flow metrics probably helps hide the fact that even stripping out all administration and professional expenses they are still not profitable and dangerously leveraged to a singe commodity. 9mo Q3 2014 YE2014 YE2013 Total Gross Profit 2,267,573 1,357,315 0 3,624,888 MV adjustments -4,059,306 -2,056,671 -116,568 -6,232,545 ------------- -2,607,657 Otsog, Thanks a ton for the detailed response. I will definitely discern everything you've said some more. That said, you realize that Input has no control over how IFRS rules in terms of derivative accounting force them to account for their steams no? In other words, if the accounting strikes you as off base, your issue is with IFRS, not with Input. And as far as Input's non IFRS measures, all Input has done is basically copy Silver Wheaton's non IFRS measures because they're helpful in drawing attention to the actual cash economics of the business. For example, here is managements response to one of your earlier q's. "Q. "Just to be clear on what Input is doing now: 100% of cash outflowing for anything to do with these Canola streams is an outflow on the Investing section of the Cash Flow statement. 100% of cash inflowing for anything to do with these streams is an inflow on the Operating section of the Cash Flow statement. Not just the upfront payments are going out Investing and in Operating, but the actual crop purchases are as well, I'm not really sure how they are doing this. They must be making the actual purchases in an advance period as well, which doesn't make sense from everything they've said. The only cash outflows for Canola in the Operating section are from trading activities, absolutely $0.00 from Canola streams." A. This is a good observation. But nothing weird on purpose. It is a reality of the derivative accounting that we are forced into by IFRS. The accounting for these contracts way overcomplicates the business, which is actually quite simple. All payments to farmers are considered Investing Activities by IFRS because they add to our Canola Interests. That’s why there is no “cost” to the canola streams. And why we had to develop a bunch of non-IFRS stuff to show how the business really works. Much of the non-IFRS stuff is similar to Silver Wheaton non-IFRS measures so comparisons can be made." Furthermore, after forwarding on the rest here was their solid (as usual) response... "Ryan, Without trying to spend too much time appeasing a skeptic, I would answer all of these questions with a view towards our historic gross margins. Gross margins take into account both the realization of upfront payment and crop payment and show a true snapshot of contract metrics without taking into account time value. If we use the last financial statements: (See attachment for formatting purposes) If you then consider that realization of upfront is non-cash then it shows the true cash-generating power of the business. If you want to account for the fact that this is a “capital intensive” business (with very low overhead), then you can look at gross margins since each tonne sold is directly attributed to canola interests the balance sheet. Interesting to note, is that if canola prices went up, the realization of upfront payment would be greater since MTM of canola interests would be up, but we should make more revenue in that scenario too. At the end of the day, the business is cash flow positive. I understand the skepticism of a new business model, and the guy seems to have some technical financial background, but I’m at a bit of a loss for what he is trying to get at here. Our view is that IFRS does not reflect the reality of the business very well, so we’ve created some non-IFRS measures to help investors understand what we think is important. There’s no attempt on our part to stretch accounting – if he doesn’t like the non-IFRS measures, he is free to ignore them." So that's their take, one I happen to still agree with but thanks again for taking the time to articulate your point of view. As with all great devils advocacy, I've walked away with my understanding of things crystalized and will definitely keep an eye on it going forward. As always, time will tell in the end. Best, AAOI

Hi Ryan, I did not mean to offend you. To clarify about Sandstorm Metals and Energy: 1- Part of the game they were playing is (constantly) selling stock at inflated prices. 2- In my opinion, it's hard to create value out of financial engineering. If you make a lot of money on a streaming deal, that means your counterparty paid a lot for the financing that they received. Usually in the real world, the counterparties and rational and only take expensive financing if they are in big trouble. 3- It turns out that they invested in a lot of projects with really bad economics. Was it because of adverse selection or was it because they didn't do due diligence? It's unclear. Given that they didn't seem to have a lot of engineering staff, it could be a lack of due diligence. However, back in 2011 when equity prices were really high, anybody with a good project could get "cheap financing" by selling themselves to a senior miner at a very high valuation (because the senior could pay for the acquisition in stock). So even if they had done their due diligence like a senior miner would, it is unlikely that they could have funded anything at attractive terms. Or maybe they just got unlucky due to falling commodity prices (which would not explain why Sandstorm's investment in Donner went sour). Certainly I wouldn't blame them for falling commodity prices. But if commodity prices did not fall a lot, I think they would have had a lot of situations like Donner Metals. Anyways, there may be a few parallels between Sandstorm and Input given that: A- Both do financial engineering. (From my point of view.) B- They both trade(d) on the TSX Venture, which I regard as a stock exchange filled with garbage. ---------------- The more I dig, the more this looks dubious. 1- The CEO of Input currently runs two different companies. One is a private firm (Security Resource Group) that doesn't seem to have anything to do with finance or agriculture. He is/was also involved in Assiniboia Cap and the farmland fund it ran. He is kind of a part-time CEO who gets paid half a million for the job. 2- Input may or may not be a client of smallCapPower.com https://twitter.com/AssiniboiaCap/status/554453520787996673 Top Technical Breakout Stocks: @InputCapital (TSXV: INP) and Arena Pharmaceuticals (NASDAQ: ARNA) Break 200-DMA http://ow.ly/H918B 3- They issued a press release highlighting their shills. To me, this makes them a fairly obvious short. http://investor.inputcapital.com/news/Press-Release-Details/2013/Fundamental-Research-Initiates-Coverage-on-Input-Capital-with-a-Buy-Recommendation-Video-Research-Alert-on-InvestmentPitchcom/default.aspx 4- The directors pull in around $200k each. (The value of their options are disputable.) I guess we'll disagree. I wish you the best of luck on your position. I have no position. Glen, As far as Sandstorm, that's a topic for another day but what went down there was far more nuanced then the gross oversimplification laid out above. In fact, the Donner story is worthy of a post in and of itself given a) had it worked out as planned the SND saga would resulted in a very different outcome and b) it's failure was almost entirely due to nefarious actions by Glencore Xstrata, a fact you'd only know if you were as close to the situation as I was. In any case, in my opinion an intellectually honest post mortem tosses SND in the good process, bad outcome bucket. All that said, here are some more thoughts to your comments. Q. The CEO of Input currently runs two different companies. One is a private firm (Security Resource Group) that doesn't seem to have anything to do with finance or agriculture. A. Actually, he is the Chairman of SRG, a company he founded. I haven't looked into it much as he is not actively running the company, as you comment implies. Q. Input may or may not be a client of smallCapPower.com A. Input is not a client of SmallCapPower – management has never heard of them. Q. They issued a press release highlighting their shills. To me, this makes them a fairly obvious short. http://investor.inputcapital.com/news/Press-Release-Details/2013/Fundamental-Research-Initiates-Coverage-on-Input-Capital-with-a-Buy-Recommendation-Video-Research-Alert-on-InvestmentPitchcom/default.aspx A. Here is management's direct response - "That’s a strange one because it isn’t our press release. We only issue press releases via CNW. I think it got swept onto the website in the web redesign because it was in some feed of some kind. We did hire Fundamental to write an independent report on us back then because we didn’t expect to have any other coverage. Turned out we were wrong about that, and the Fundamental coverage period ends soon." Q. The directors pull in around $200k each. A. More false accusations casually tossed around as if you don't have a responsibility to actually verify them by doing real work before lobbing them out there. Anyhow, if you actually read the MIC and AIF you will see that the directors are paid $70,000 per year each, plus $8,000 extra if they chair a committee. All have elected to be paid in DSUs, which means that none of them has yet received a dime in cash. Kind of important details to get wrong don't ya think? In sum, every one of your bullet points is wrong upon further investigation. And like I said, I think you'll change your mind if you actually take the time to roll your sleeves up and dig into the company yourself.

Travis, Ahh, copy that. On the competitive advantage angle, stay tuned for part 4. That being said, I'll happily shave my head and post a picture to this board if 1) another major competitor arrives and 2) Input experiences margin pressure within the next 5 years. In other words, this isn't a conviction lightly held - rest assured me with a shaved head isn't a good look so to speak :) For sure on the unit economics, you'll have to give me a day or two as I've already spent way too much time today fielding these questions. Till then! AAOI

Hi Ryan, I did not mean to offend you. To clarify about Sandstorm Metals and Energy: 1- Part of the game they were playing is (constantly) selling stock at inflated prices. 2- In my opinion, it's hard to create value out of financial engineering. If you make a lot of money on a streaming deal, that means your counterparty paid a lot for the financing that they received. Usually in the real world, the counterparties and rational and only take expensive financing if they are in big trouble. 3- It turns out that they invested in a lot of projects with really bad economics. Was it because of adverse selection or was it because they didn't do due diligence? It's unclear. Given that they didn't seem to have a lot of engineering staff, it could be a lack of due diligence. However, back in 2011 when equity prices were really high, anybody with a good project could get "cheap financing" by selling themselves to a senior miner at a very high valuation (because the senior could pay for the acquisition in stock). So even if they had done their due diligence like a senior miner would, it is unlikely that they could have funded anything at attractive terms. Or maybe they just got unlucky due to falling commodity prices (which would not explain why Sandstorm's investment in Donner went sour). Certainly I wouldn't blame them for falling commodity prices. But if commodity prices did not fall a lot, I think they would have had a lot of situations like Donner Metals. Anyways, there may be a few parallels between Sandstorm and Input given that: A- Both do financial engineering. (From my point of view.) B- They both trade(d) on the TSX Venture, which I regard as a stock exchange filled with garbage. ---------------- The more I dig, the more this looks dubious. 1- The CEO of Input currently runs two different companies. One is a private firm (Security Resource Group) that doesn't seem to have anything to do with finance or agriculture. He is/was also involved in Assiniboia Cap and the farmland fund it ran. He is kind of a part-time CEO who gets paid half a million for the job. 2- Input may or may not be a client of smallCapPower.com https://twitter.com/AssiniboiaCap/status/554453520787996673 Top Technical Breakout Stocks: @InputCapital (TSXV: INP) and Arena Pharmaceuticals (NASDAQ: ARNA) Break 200-DMA http://ow.ly/H918B 3- They issued a press release highlighting their shills. To me, this makes them a fairly obvious short. http://investor.inputcapital.com/news/Press-Release-Details/2013/Fundamental-Research-Initiates-Coverage-on-Input-Capital-with-a-Buy-Recommendation-Video-Research-Alert-on-InvestmentPitchcom/default.aspx 4- The directors pull in around $200k each. (The value of their options are disputable.) I guess we'll disagree. I wish you the best of luck on your position. I have no position. Glen, Appreciate the response and clarification. I've run out of time today as far as fielding questions but I'll circle back with my thoughts on your points at some point within the next few days. That being said, I'll leave you by saying you should look at Input's ability to create value for its partners/shareholders much along the lines of what distinguishes a great private equity firm these days (3G comes to mind). Meaning, the real value is created not through financial engineering (so not through the ability to access low priced debt or by playing multiple arbitrage) but through post LBO operational improvement (except in this case their is no LBO so to speak...I'm sure you get my point though). In other words, the model's success will largely be about helping farmers optimize their hugely inefficient farming operations by implementing best practices (harvesting low hanging fruit if you will) and adding value around the edges with their trading ops etc. etc. Just something to keep in mind until I get around to addressing your questions. AAOI

Net/net, Although I disagree somewhat with your accounting, I do agree that they are over priced. I don't think that the accounting is fishy. This is from memory, and I'm not so interested in the name as to work back through my notes, but basically they properly have to account for streaming transactions through both operation and the investing CF statement. That is okay, it's just accounting rules. Furthermore, the assets are worth more in that they have created a stream that is a producing asset. You are absolutely right in that the market value of the company and therefore those assets is way to high. There is zero margin of safety and no particular barriers to entry that I can see. (Although farmers can be conservative and tend not to change.) An aggressive bank up there on the prairie could look at that market and decide to own it. At half the price, the name would be worth looking, but not where it is today. (They do get style points for creating a new market niche though.) It looks like we agree on the accounting but I think your wildly off base in terms of the valuation (fwiw, if memory serves, my entire position was accumulated between $1.59 and $2.10 - that said, I still thing the stock is cheap relative to its normalized earnings capacity based on the capital it's raised to date - said another way, purchasing Input at or around today's price should result in a low risk double over the next 18 to 24 months assuming the multiple expands to a level that amounts to a slight discount to other streamers, an assumption I view as conservative given I think Input's model is superior all things considered) as well it relates to barriers to entry. For what its worth, with every investment I make I typically insist on developing one or more original insights that the market hasn't caught on to yet. Usually of the qualitative variety. In any case, I spent ~4 months studying this issue w/r/t Input before buying a share. The result of all that digging surprised me in that my initial premise was that the market was so big relative to the dozen streams on the books (at the time), it would be a looong time before a couple of players operating in such a massive market would become an issue (read; the point where you would see downward pressure regarding the economics of new streaming contracts). Furthermore, given where the business was/is in terms of its long-term evolution/its incredibly small base of streams it would be building from, where talking about a business that would likely be 20x its current size before such worries would come to fruition. In other words, originally I viewed it as a rather good problem to have if you follow me. As the arrival of pricing pressure would mean the model was massively successful and thus, by that point an investment in Input would almost certainly have generated exponential returns on my invested capital. The thing is, the more I started to peel the onion, the more I realized how sizable the barriers to entry in this business actually were. In fact, a large part of the final write-up deals with exactly this issue (along with just how mind bogglingly inefficient Canadian farming is relative to the U.S. for example - the productivity gap is wide enough to drive a truck through and it will take a decade or more of consolidation - along with companies like Input helping these small farmers to optimize their farming operations - at least, for that gap to close to any meaningful degree). So if I were you I'd go back and reread part 3, then study part 4 when it comes out (plan is to do it once capital deployment season is complete), as I'll be outlining a myriad of very specific points that in combination create what I believe to be a relatively wide and durable competitive advantage. Of course if time proves me wrong and the barriers to entry are indeed as low as you seem to think, I believe, for good reason (hate to be that guy but I'm not going to elaborate until part 4 is posted) that it will take at least 3 to 4 years before another viable competitor could be created. And a heck of a lot of value could be created between now and then. Of course I should add that even with another competitor, it's not like it's a slam dunk to conclude that 2 ag streamers = worsening economics anyway, so I'd humbly propose you might want to take another look with an eye towards discerning the issue in greater detail. Hunch is you'll come away with a different point of view. In sum, If I'm write about the moat, I win...if I'm wrong, odds are still very good I'll win regardless. And head I win tails I don't lose setups are what its all about are they not? Anyway, appreciate the commentary. Look forward to digging into the specifics at some point soon! AAOI

Gent's, See below for my thoughts on all your questions. Would have responded sooner but I had to wait for a response from management on the options question given how hectic the last few days have been (didn't have the time to pull up all their filings and go through each one by one). In any case, feel free to fire back if what's below doesn't satisfy your concerns - as always, happy to delve deeper if necessary. "The volatility assumptions in their options accounting seem too low." Response: The early volatility assumptions were based not on stock price volatility (because the company was private and/or there was extremely limited trading history), but on the historical price volatility of canola itself. Currently, the volatility of the stock is in the 40% to 50% range. The company uses the following tools to calculate this: http://www.stockvantage.com/solium/servlet/VolatilityCalculator.do. Regardless, after thinking it through their initial rationale doesn't bother me a bit. "Their financials sort of state how much the company spends on "investor relations" and travel expenses. It's high but I suppose it's not truly excessive like some of the other companies on the TSX Venture (e.g. Barkerville)." Response: Advertising and investor relations are lumped together in note 12. 2014 is indeed higher than 2013. This is because of Input's marketing program rather than due to a large increase in investor relations costs. As I was getting at in my initial response to Glen, Input’s investor relations costs will not necessarily increase at the same pace as the balance sheet; as it is essentially a fixed cost driven by the need to visit analysts and investors over the course of any given year. In other words, investor relations costs are stable and should continue to be. Advertising to farmers is what is ramping up, and that's as it should be given a TINY fraction of potential partners (farmers) in western Canada are even aware of the product at this point. And the sooner awareness spreads, the faster education driven market adoption kicks off. That said, eventually awareness will spread to the point where marketing spend will become unnecessary/normalize relative - its about maximizing "mind share" as Buffett would say. "Various comments re: “I never like stock promotion/hiring IR firms”" Response: Input's logic with respect to Streetwise is that they wanted to raise the profile of the business in some venues where they we're not well equipped to do so on their own. Generally, they are skeptical of sponsored IR stuff too, but they believe it can play a role where necessary. Again, management is in the testing stage in terms of deciphering the best/most capital efficient ways to educate both farmers and investors, so "optics" in this regard takes a back seat to results - the plan now is to try a variety of promising channels - test and measure - then refine as they get a feel for what works best. So to read into it some sort of shadiness on the part of management is wildly off base as I see it. "My Dad asked me to look at these guys ~a year ago after seeing them on BNN. I forget the actual numbers, but the market valuation on the Canola interests was nuts. Looking at it again it is still nuts. Very rough #s 48 canola interests + 61 cash & equiv - 7 ap = 102 net assets 215 market cap - 54 non-canola interests = 161 / 48 canola interests = 3.35 Are their canola interests really worth 3.35 what they paid for them? Within such a short time frame from acquisition?" Response: I get the logic as far as your 3.35x multiple relative to what Input paid for the stream. Your essentially doing a price to book value multiple here, the only difference being I see no problem with that at all. In other words, that's exactly how it should be as any capital efficient business with the ability to generate sustained ROIC/ROE's of 20%+ should trade at 3x to 4x book pretty much by definition (for example see Bill Ackman's commentary on the topic in relation to where his new permanent capital vehicle should trade). At any rate, here are a few thoughts on that: Because Input carries the canola interests at cost, there will be an inherent bump in the multiple since the streams should be worth more than cost else Input would not enter into a streaming contract in the first place. Input’s stock price, like most streamers and inherently capital light business models, are driven by cash flow multiples rather than a multiple of book value. For example, if you look at Silver Wheaton, their balance sheet has $4.3 billion of silver and gold interests and total assets of $4.6 billion. If you do the same math ($4.6 total assets less $1.0 billion of debt = $3.6 billion net assets, and divide through their $8.6 billion market cap I get a number that looks like 2.4x). Keep in mind SLW common is depressed from a recent disastrous financing. Nonetheless, if you look at their usual ~$10 billion market cap, that multiple looks like 2.8x, which makes sense. As an aside, the only analyst covering Input who uses book value as the key driver of the share price is Steven Salz of M Partners, who actually has the highest target price on the stock. Make what you might out of that. Point being, why you have a problem with the multiple expansion that occurs when cash is swapped out for a growing, high margin annuity like revenue stream eludes me. Again, that's exactly as it should be. "Also, their cash flow from operations smells fishy. Their Q3 operating cash flow of 6.8 has 5.5 added back from realization of canola interests. In notes 7 and 11 you can see this is 4.3 return of upfront payments and 1.2 return of crop payments. The problem is that the purchase of canola interests goes through investing cash flow. It would be like a retailer taking inventory purchases out of investing cash flow while adding back cogs to operating cash flow. Really take a good look at note 7 of their Q3 report and match it to their cash flow statement." Response: When Input enters into a streaming contract, it commits a defined amount of capital to the farmer, most of which is usually paid upfront. Both the upfront payment and the crop payment (the amount paid to farmer upon delivery), are therefore both treated as an acquisition of canola interests when the cash is paid. For example, if $100,000 is paid today as the upfront payment, it will hit investing cash flow as an acquisition of canola interests. When the farmer delivers the canola in year one, and Input makes another $15,000 payment (for example), that goes through the investing cash flow and hits the income statement as COGS. The realization of the upfront payment is also COGS. COGS is then broken out between realization of upfront payments and crop payments in note 11. Regarding adding back the realization of canola interests to operating cash flow: 1. The realization of upfront payments ($4.3 million for nine months) is the equivalent of adding back depreciation or amortization. This is a non-cash item that comes out of net income and therefore gets added back. 2. The realization of crop payments ($1.2 million for nine months) is taken from cash flow on page 22 of the MD&A to calculate adjusted cash flow. This is the cash flow figure that, in Input's (as well as my own) opinion, that is most representative of the actual cash generating power of the model, which is of course most analysts use it when applying a cash flow multiple to the business. All that said, here are the basic mechanics of a canola stream where Input is paying $1,000 upfront payment for 10 tonnes per year for 10 years with a $10 crop payment (split $5 in spring upon seeding, the other $5 upon delivery): (apologies on the formatting) 1) Upfront payment: a. Balance sheet -- Canola interest, current: $100 (the one tenth of the contract that is owed this year) Canola interest, long-term: $900 (the remaining portion of the contract) Total canola interests for this contract: $1,000 b. Cash flow -- Investing cash flow: $1,000 (amount of upfront payment) 2) Year 1 - Spring portion of crop payment ($5 per tonne x 10 tonnes owed = $50): a. Balance sheet -- Canola interest, current: $150 ($100 of the prior canola interest plus the $50 spring crop payment) Canola interest, long-term: $900 (unchanged) Total canola interests for this contract: $1,050 b. Cash flow -- Investing cash flow: $50 (amount of spring crop payment that is considered an investment to canola interests) 3) Year 1 - 10 tonnes of canola is received and sold for $450 per tonne, triggering final $50 delivery crop payment: a. Balance sheet -- Canola interest, current: $200 (at this point we will assume this is the instant that the canola has been delivered and the remaining $50 delivery crop payment is triggered. Therefore Input is looking at $100 of prior canola interests + $50 spring crop payment + $50 delivery crop payment) Canola interest, long-term: $900 (the remaining portion of the contract) Total canola interests for this contract: $1,100 Assuming the canola has now hit the bottom of the bin and Input is receiving its cash ticket for the canola delivery …. Canola interest, current: $0 (both the upfront portion and the crop payment portion have been realized due to the delivery; it has now been delivered, and will be “realized” or “amortized”) Canola interest, long-term: $900 (the remaining portion of the contract) Total canola interests for this contract: $900 Once Input moves into next year, the next $100 will be taken from the long-term portion to current portion and cycle will repeat b. Inc. statement -- Revenue: $4,500 (10 tonnes x $450) Realization of canola interests (upfront payment): $100 (again, this is just a “realization” or “amortization” of an asset) Realization of canola interests (crop payment): $100 ($10 per tonne * 10 tonnes, paid to farmer) c. Cash flow -- Investing cash flow: $50 (this is the delivery crop payment, which then gets immediately realized as it is fully realized, along with the other $150 current portion of the streaming contract) Make sense? I guess I just don't see the issue here. At the same time, its possible I could be missing (or not properly appreciating) something here. And I'm always paranoid about being wrong no matter how confident I am that I'm in fact right. Anyhow, this is a long winded way of asking you to be a little more specific vis a vis your reasoning here, if only so I know I fully understand the "rational walk" if you will behind why this accounting treatment bothers you. After all, purposefully seeking out and listening to thoughtful disagreement is a big reason I started my blog/posted my Input write-ups to it in the first place. Thanks in advance for taking the time! And last but not least... "Even if their accounting was above board, operating cash flow is a useless metric for this company taken by itself. Input uses it as a management benchmark and touts it in presentations. It would be like a capital intensive business using operating cash flows as a key metric and completely ignoring CAPEX. They also invented a non-IFRS metric 'cash operating margin' that is equally as useless." In all sincerity, why again do you feel their accounting is not "above board"? In other words, what am I missing and why in your opinion should I be more concerned about it? Capex is accounted for by amortizing the upfront payments as they are given over the life of the contract, which is of course non-cash. What's the problem. Again, I could be missing something but at this point I see nothing wrong with their use of "adjusted cash flow from operating activities" (non-IFRS) as it seems to me to be far and away the most effective way to look at Input's business performance. At a high level, it is comparable to EBITDA. However, because cash flow from operations inherently adds back all realization of canola interests (both the realization of the upfront payment and the crop payment), adjusted cash flow from operating activities then subtracts the crop payment portion of the realization of canola interests to provide a more accurate gauge of business performance and true cash flow generating ability. It's not like they don't take into account the fact that the crop payment portion of realization of canola interests is included in cash flow from operations by subtracting it in the calculation. That is the only adjustment, a downward adjustment, to the metric. That, and its not like a capital intensive company doesn't depreciate their assets as they are used. A million dollar piece of equipment with a ten year useful life will be depreciated over ten years. That depreciation will be taken out of EBITDA and operating cash flow as it is non-cash. Point being, cash operating margin compares Input’s realized selling price per tonne to Input’s crop payment per tonne, allowing management and investors to understand the direct cash flow of buying and selling one tonne of canola. This is commonly used across the streaming industry and it is a preferred metric with management. I guess I'm at a loss as to why it shouldn't be. Which is why I'd like you to school me on what I'm missing if I am in fact missing something.

Travis, I'm having a hard time understanding where your coming from and making heads or tails of your math. For example, why do you say a ton of growth is priced in? Are you assuming the excess cash (both internally and on the balance sheet) won't get put to work at 20%+ IRR's? At any rate, the price relative to Inputs normalized earnings power (based on its existing asset base) is cheap no matter which way you slice it. Just trying to get a better feel for where your coming from. In terms of your example, your unit economics arent making sense to me. If I'm I reading you right your using the capital deployed in December - a month mind you that has historically fallen outside capital deployment season altogether - as if that will be the only capital deployed this year? Perhaps I'm just being dense but I'm totally lost. You mind laying out your reasoning so I'm sure I'm understanding you correctly? Thanks! AAOI

Will make my rounds responding to the rest of these comments a little later when I have more time but for now I want to make the following points and circle back later with the rest. Unfortunately I didn't see this post until earlier this afternoon. That in mind then: 1. While I'd agree that most companies sponsored by Streetwise make good shorts (a topic for another day), the implication your making with respect to Input is comically off base. I'll elaborate in detail if you prefer but before I do, you might want to pick up the phone and give the CFO a call. I'm sure he'll be happy to dive into each and every concern of yours in detail. Should you do so, odds seem pretty good you'll find management to be extraordinarily sharp in regards to not only strategy, but with respect to operations, and capital allocation as well - not to mention above board in terms of ethics and integrity in every way. In fact, overused terms that are largely cliches these days like "pioneering" and "visionary" are actually applicable here. If the above strikes you as hyperbole, again, study their paper trail first (in detail), then given them a call with an eye towards holding their feet to the fire and getting to know them. I'd happily bet you a beer you'll change your tune if/when you do. 2. You can't be serious. The idea that these guys would fiddle with the IV of their options to massage GAAP earnings is even more ludicrous than the insinuation you made above. Again, glad to elaborate here for anyone that takes this charge seriously when I have more time. 3. Huh? Again, I don't even know what to make of this. I guess I'm just confused as to why you believe INP's expense base is excessive? Compared to what? I'll grant you overhead expenses will remain somewhat elevated as a % of revenue relative to where things will ultimately balance out at maturity. I mean what else would you expect from a rapidly growing business thats still in the first inning of its long-term evolution? For example, there is almost always a clear correlation between a company's growth rate and how efficiently it utilizes its overhead. And this is exactly as it should be given INP's needs with respect to spreading the word vis a vi both farmers and investors, not to mention the expenses related to building out a world class sales team, as well as all the other up front costs associated with creating a rapidly scalable platform capable of delivering exponential growth in the years ahead. Point being, corporate op ex should be somewhat elevated. Otherwise they'll never find themselves in a position to fully exploit the opportunity before as without a proper platform and targeted marketing spend, the education driven market adoption that's starting to take hold would never hit exit velocity. This is all common sense. Keep in mind too that the capital efficiency of said spend should naturally improve over time as they experiment and learn what works and what doesn't. Last but not least, remember the "all in" fixed costs of Input's low cost operating model (at its current size) should balance out somewhere between $2 and $3M a year in total! If that's strikes you as worrisome I just don't know what to say. 4. Fair enough. I'll be the first to admit I got my ass handed to me with SND. I mean what can I say? LITERALLY everything that could have gone wrong, did go wrong and I lost money because of it. Sh*t happens. Regardless, is it fair in your mind to insinuate that because I had high conviction in SND there's a good chance I'll be wrong with Input? You realize how specious of a comparison that is right?

Lots of optimistic / erroneous projections in there: 1) A tripling of the store base in 10 years? That's 250 new stores a year for a decade. They are on pace for 30 new units in 2014. A 12% CAGR for new units is very unrealistic. A 5% CAGR (double the current rate of openings) would get you 60% more stores in 10 years, not 200% more. 2) Gross margin expansion in the current retail environment (getting more and more promotional and unlikely to subside) is not an easy task. Getting to the high 20's does not seem to be conservative. Assuming flat GM as a base case would be a far more conservative estimate. 3) Flat SG&A when the store base goes from ~1250 to ~3750 makes no sense. Commissions paid to franchisees are counted in SG&A costs. As the store base grows, commissions will rise in concert. 4) 12x operating income is an awfully high multiple. Not impossible, but at the high end of fair. Certainly not conservative. 5) Going from 1250 units to 3750 units is more likely to trigger some cannibalization of sales than increasing revenue per store over time. FD: Long SHOS, just more realistic than that. Peridotcapital, Figured I'd chime in as I wrote the above. To be clear, the exercise above was a "blue sky" scenario that was written last minute before I published it to illustrate the potential for exponential compounding in per share value over time given all the various levers at Lampert's disposal - so apologies for the sloppy errors re the SGA (can't believe that one got past my edits) - my intention was simply to lay out a thought experiment towards that end. At any rate, on unit growth, agreed 3000 is aggressive but I didn't pull it out of thin air. For what its worth, the only reason I used the number in the first place was because of comments made by management prior to the SHOS spin. That said, Merkhet is correct to point out that management backed off that number, and again, agree that it's aggressive. Then again, 3000 units across all segments at maturity doesn't strike me as pie in the sky looking out 15 years nor do I think growth of that nature would necessarily cannabilize sales. Reasonable people can obviously disagree here. On gross margins, agree that it will likely be 2-3 years before gm's normalize around those levels but I continue to believe 27.5% is probable given the growth at outlets, the ongoing mix shift and other factors. Time will tell of course. Regardless, SHOS is fantastically cheap at these levels. Just figured I'd clarify. Best, AAOI