KeyStone’s Stock Talk Show Episode 247. 

It’s great to be back this week. We kick off the show with a review of our research conference trip to California – I hit the viewer mailbag to answer a question on Dye & Durham Limited (DND:TSX). A provider of practice management software, data solutions and payments technology to law firms and businesses.  The viewer asks if this potential turnaround story has value. Aaron answers a viewer question lululemon athletica inc. (LULU: NASDAQ), the athletic apparel, footwear and accessory company which saw its share price drop last week after a strong run. Aaron let’s you know the drop is an opportunity or a sign of things to come. Brett answers a viewer on RCM Technologies (RCMT:NASDAQ) which offers specialized staffing solutions for Specialty Health Care, Engineering, and Life Sciences and Information Technology. The viewer asks if the company is seeing catalysts for expanding into different regions like South America as well if it possesses a MOAT. Finally, Brennan has put together a segment on the VIX or the CBOE Volatility Index which was launched in 2003 and is known as the “Fear Index” – never fear, Brennan is here to demystify the VIX.

Let’s get to the show – we welcome my cohost, Mr. Aaron Dunn and the killer B’s, Brett and Brennan.


Dye & Durham Limited (DND:TSX)

Symbol DND:TSX
Stock Price $15.54
Market Cap $1.048 B
Yield nil


For some reason, DND pays a dividend which yields 0.004% annually – absolutely useless and inappropriate given the debt.

What does Dye & Durham do?

A provider of practice management software, data solutions and payments technology to law firms and businesses. The company has >60 thousand clients in Canada and international markets and is based in Toronto, Canada.

This slide should give you a snapshot of the business over the past 10 years.

Revenue growth looked great for 9-years from $1.9 million in 2011 to $478.8 million in 2022, before declining to $451.1 million in 2023.

Operating income shows a similar trend – strong 9 year growth before dropping off in 2023.

Debt shows a sharp increase through the period with a huge step up from 2021 to 2022.

And the interest expense keeps mounting with higher and higher debt and higher interest rates.

The debt was to fund a massive acquisition spree – many at elevated prices.

Second Quarter Fiscal 2024 Highlights 

  • Revenue of $110.2 million, up 17% from the same period in the prior year taking into consideration the divestiture of TM Group (“TMG”) on August 3, 2023. The comparative period revenue in fiscal 2023 included an additional $12.5 million of revenue from TMG. Revenue grew 3%, including the impact of TMG in the comparative period.
  • Net loss for the current quarter was $34.8 million, remaining relatively stable compared to the equivalent period in the prior year.
  • Adjusted EBITDA3 of $60.0 million, an increase of $2.4 million, or 4%, from the same period in the prior year, despite the loss of contributed Adjusted EBITDA from the TM Group in the prior year.


Jan. 17, 2024 /CNW/ – Dye & Durham Limited announced today that it has entered into an agreement with an underwriting syndicate led by Canaccord Genuity Corp. (the “Lead Underwriter” and collectively with the syndicate, the “Underwriters”) to complete a new issue, on a bought deal basis, of an aggregate of 10,400,000 common shares at a purchase price of C$12.10 per common share for aggregate gross proceeds of approximately C$126 million (the “Offering”).

The Company intends to use the net proceeds of the Offerings for the repayment of debt.

The Offering is consistent with the Company’s previously stated goal to delever the business. Following closing of the Offering, the Company will have made significant progress towards its target of reducing its leverage ratio to less than four times total net debt to adjusted EBITDA .

The company is issuing shares, not for growth purposes, but to “pay down debt” – shareholders continue to pay for a company that tried to expand far too fast and overleveraged. Dye & Durham is likely into a cycle of either asset sales shrinking the business and/or continued equity dilution to pay down debt.


Dye and Durham has some very useful and in some cases, we reviewed software servicing the Legal Industry. As a public entity, the company has been managed very poorly and its current debt situation leaves the business playing defense. We continue to MONITOR the business.

In investing within a sector or generally speaking the decision to buy or pass on a stock also takes into account the alternatives for your capital. In the case of DND – our current coverage of the Canadian Software industry includes 3-4 other names with net cash positions, higher organic growth in most cases and equivalent to lower multiples. Companies not overleveraged, with net cash have so many capital allocation avenues that are great for creating shareholder value – they can buy back shares, pay dividends, invest in their business, or buy other businesses to grow. We prefer to play in this pool, rather than the one where we speculate on deleveraging, selling off assets etc. to improve the current poor situation. The more you play in that net cash pool, the better chance of success.

Interpreting VIX

Slide #1

What is the VIX?

The VIX or CBOE Volatility Index was launched in 2003 and is known as the ”Fear Index” which projects the probable range of movement or “Volatility” in the U.S. equity markets (specifically the S&P 500) above/below its current level, in the immediate future.

How is the VIX Measured? The VIX measures the implied volatility of put & call options on the S&P 500 for the next 30 days. And to make sure that listeners understand the concept of implied volatility, it is the amount of “volatility” that is priced into option prices, as one of the underlying factors of option pricing models is volatility. So essentially by looking at the price of options over the next 30 days, we can directly calculate how much volatility investors are pricing in.

When implied volatility is high, the VIX level is high and the range of likely values is broad. When implied volatility is low, the VIX level is low and the range is narrow.

So, as you can see in the image on the screen directly from the S&P 500 website, it shows the ranges of the VIX index and generally how much volatility is being priced in.

Slide #2

So here is the VIX Index going back to 2008, and as you can see there were very large spikes in 2008/09 during the financial crisis and as well during 2020 during the beginning of the pandemic.

Right now, the index is sitting at about 13.2, so that indicates to us that there is low expected volatility being priced into the market.

But to take this one step further….

The VIX is reported as an annualized number. So, taking the current level of 13.2, this indicates to us that over the next year, based on the Implied Volatility of options over the next 30 days, over the next year the market is pricing in a +/-13% move in S&P 500, with a 68% confidence.

And just so you understand where the 68% confidence comes from, this is based on the Empirical Rule which states that 99.7% of normally distributed data falls within 3 standard deviations of the mean. If anyone has taken a Statistics class in university this will make sense. But essentially because the VIX is looking at the annualized magnitude of a 1 standard deviation move away from the mean. Essentially, we can say that there is 68% confidence that there will be a +/-13% deviation from the mean over the next year.

Slide #3

We could also de-annualize the VIX index level to get the expected monthly implied volatility by dividing the annualized index percentage term by the square root of 12 (since there are 12 months in a year).

As shown on the screen, S&P has this good table on their website showing the calculations which de-annualizes the expected implied volatility to monthly.

So if we stick to our current example with the index at 13.2, this means that over the next month, the monthly implied volatility for the S&P 500 is +/- 3.8%.

Slide #4

Hopefully after this discussion the next time you hear a talking head on BNN or CNBC references the level of VIX, you can make sense of what it actually means rather than just some number.

Some general use cases of the VIX include:

  1. Diversifying/Hedging a Portfolio – As the VIX has negative correlation with the S&P 500. So the more the S&P 500 falls, the more the VIX rises. Therefore, investors who have a long position in equities could use the VIX to hedge their position if they speculate that there will be some weakness in the market. They could do this by taking a long position on the VIX with options or futures or potentially use a VIX ETF.
  2. Trading/Speculating for Profits – Some investors… or realistically I should call them traders in this case – will bet on a change in the market cycle and a “reversion to the mean”. For example, following a period of weakness in the market, an investor will sell VIX linked products following a weak period in equity markets, and will purchase VIX linked products in anticipation of future periods of weakness.

And I included this image on the side which I thought was funny as it really shows how popular the “Short the VIX” trade has become. As this image is live from a 2018 College football game, and of course someone – probably a finance bro – decided to make a sign that says the other teams coach doesn’t short the VIX… which I assume he is thinking that’s a bad thing. Either way I thought it was comical.

So, the million dollar question is whether the VIX truly has predictive Power and what does it tell us about how we should manage money?

The answer is, yes, there is evidence that indicates that the VIX has predictive power and implied volatility is the best gauge to forecast volatility of equities.

But whether its should impact how we manage our money… realistically, it shouldn’t. If you’re a short-term trader, you care about the VIX a lot. But for long term investors, it really doesn’t provide much useful information. Month to month, even year to year volatility events are largely random. You want to focus on harvesting the long-term sources of expected returns that can drive your portfolio. How volatile the market happens to be over the next month or so doesn’t have any effect on what you should be doing.



We received a question on RCM Technologies symbol RCMT on the NASDAQ. The company offers specialized staffing solutions for Specialty Health Care, Engineering, and Life Sciences and Information Technology. The company offers staffing and expertise for short-term or per-project solutions as well as long-term multi-contract placements. The company is primarily in the US with some operations in Canada and Europe.

The question asks if the company is seeing catalysts for expanding into different regions like South America as well as if the company has a MOAT.

The stock is up 110% over the past year trading at $22.30 a share with a market cap of $177 million.


Looking at the financials for the year starting with the income statement.

Revenue decreased 7.5% to $263 million from $285 million. This is still an increase compared to 2021 of 29.1% as the company did see a substantial increase between 2021 and 2022 and is now coming slightly off that surge.

Gross margin remained the same at 29.1%, which is good to see as you can see margin compression once sales peak, however, there were some shifts within the individual segments.

Operating income fell 17.7% to $23.7 million due to the lower gross profit slightly offset by lower SG&A.

Net Income fell 19.4% to $16.8 million or $1.96 per diluted share due the previous reasons as well as higher interest expense. When you see a jump in interest expense like this from $0.4 million to $1.4 million.  The net margin was 6.3% for 2023 and 7.3% for 2022.


RCM holds cash of $6.3 million with a line of credit of $30.8 million and a net debt position of $24.5 million. As well we can see the line of credit increased from $8.8 million. So the line of credit is where the increased interest expense is from, partially due to the size but also the increased interest rate as the debt is floating. The effective interest rate for 2023 was 6.5% compared to 2.2% in 2022. The size of the outstanding line of credit does fluctuate a fair amount and since the balance sheet is a snapshot in time the ending balance being 3.5 times does not mean interest payments will be 3.5x higher as the interest payments depend on how long the borrowing lasts. So the increase here is primarily due to the increased interest rates, and not as much the size even though initially looking at the balance sheet may lead you to that.

Part of the reason for the increased line of credit is a higher account receivable. As the company has had slower collections, but did note that collections have increased in Q1. This is something to watch out for as companies that have issues collecting can quickly have issues as they need to borrow to cover shortfalls like here. While short-term collection delays are not the end of the world if the problem becomes ongoing quarter after quarter it can be a higher concern as well if you see write-downs of receivables as it means collection is less likely. Additionally, the company did return capital through the repurchase a substantial amount of shares, 1.8 million for $25.8 million which also puts pressure on cash reserves.


So on the questions about expansion. At this time the company doesn’t have a presence in South America they did mention in the Q3 conference call that it was of interest to expand there but that will be down the line if ever. However, in 2023 RCM Energy Services opened an office in Germany, so as far as regional expansion is concerned Europe may be the place to watch. But I would also watch what specialty areas the company moves into not just geographically.

A comment on the economic moat of the company. The staffing industry as a whole is competitive and fragmented which is also why you’ll see tuck-in or bolt-on acquisitions. So, just because of the nature of staffing solutions the moat is low but can be reinforced by having more specialized services RCM does have some but for example, the company does nursing solutions and there are a large number of nursing placements companies which means a weaker moat for that service.

6) Moving to the valuations

The company trades a trailing PE of 11.4 times, an EV/EBITDA of 8.1 times, and a trailing Price to free cash flow of 17.8 times.

The valuation is reasonable or a touch high as the company has had good results over the last couple of years, but growth was effectively non-existent prior. So, the question is are we going to see the reversion to no or low growth again or has the company shifted enough to see prolonged growth? The company is guiding low double-digit adjusted EBITDA growth, so that is the figure you would want to track.



The company came off a great 2022, and 2023 is still higher but is showing some weakness. The company does have interest rate sensitivity and just as a natural part of the business net margins are low and interest expense can quickly strip away any profit, so watch out for that cash collection of the receivables and general cash flows not just the GAAP earnings as like I said before cash crunches can harm an otherwise good business. The valuation is reasonable maybe a bit high given the risk but the concern would be if you see a continued contraction of earnings back closer to historic levels. For now, I would just monitor RCM.


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