August 13, 2021 – On today’s podcast, we welcome special guests Scott McNeill and Jim Mutrie, Co-CEOs of Switchback II. The company recently announced a $2.3 billion business combination with Bird, a leader in shared short range environmentally friendly electric transportation.

On the show, Scott and Jim discuss:

  • Their background in oil & gas and subsequent pivot to an energy transition focus
  • The thesis behind Switchback series of SPACs and lessons learned from the ChargePoint deal
  • Why Bird was an ideal merger candidate for Switchback II
  • What differentiates Bird in the highly competitive micromobilty sector
  • And more

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Transcript:

Welcome investors to the Absolute Return Podcast. Your source for stock market analysis, global macro musings and hedge fund investment strategies. Your hosts Julian Klymochko and Michael Kesslering aim to bring you the knowledge and analysis you need to become a more intelligent and wealthier investor. This episode is brought to you by Accelerate Financial Technologies. Accelerate, because performance matters. Find out more at www.Accelerateshares.Com.

Julian Klymochko: All right, excited to have Scott in Jim from Switchback to another Switchback series of spacs. As many listeners may know, there the team behind the highly successful ChargePoint deal of last week, one of the big winners in the spec space, and they’re out with a second one, merging with Bird, the micro mobility scooter company that I’m sure most of us know. I tend to see a number of the Bird scooters on my daily walk into the office, and they do have a third spac filed, but not launched yet. So, we won’t touch on that one, but prior to getting into the deals that you guys have done and what you’re working on, Jim and Scott, if you don’t mind telling our listeners a bit about your backgrounds, I noticed one through your biographies. Spent a lot of time in the traditional conventional energy industries, specifically oil and gas. Now you’ve made a bit of a pivot to energy transition. Where seeing a lot on the private equity side, investing side. As you see this big macro shift into ESG, sustainability, more environmentally friendly modes of energy production and mobility. So, would you mind walking our listeners through your career history and your background expertise, et cetera?

Jim Mutrie: Yeah. Sure. Why don’t I jump in first and then Scott, if that’s all right? You can jump on or correct me on anything I mistake about our kind of collective background as well, but this is Jim. Julian and Mike, thanks very much for having us. We’re excited to be with you guys today. Just quickly on my background. How I got into the energy transition business, just by way of stepping back all the way to the beginning. I’m actually from the Northeast originally, went to school in upstate New York at Cornell. I met a girl from Texas and followed her down to Dallas in 1997. Wanted to get into the business world. But it took a somewhat unconventional route. Went to law school, worked in public company, mergers and acquisitions and securities for a few years, and then went to become a general counsel and in business development lead at a public company.

2014, I had the opportunity to partner with Scott, who I had known since, I think back to 2000 or 2001. And we partnered together at RSP Permian, which was a company that we were in the process of taking public and growing it from approximately a billion two market cap to about ten billion dollars 2018 when we sold that public company to another existing public company. After that we wanted to partner together again, we took a little bit of time off, and then we partnered in the first Switchback iteration, which we took public, I believe in the summer of 2019 of July of 2019. And then as you mentioned, we’ve done a second then filed a third Switchback after that. I can tell you a little bit about how we made the pivot that you mentioned from a kind of traditional oil and gas, which was the focus of RSP Permian into energy transition. And then I’ll let Scott chime in and obviously let him give you his background as well.  But RSP began with a thesis about disruptive technology. And I think that tenants at core have kind of flowed through all of the Switchbacks and the energy transition space that we’re in now. Now back at the time of RSP, that disruptive technology was horizontal drilling. And you could apply that technology to allow us to decrease our reliance on foreign energy kind of traditional energy providers. But by the time Scott and I were in the process of selling RSP in 2018. And, and frankly, probably even before that 16, 17, as we met with investors and started to see the ground shifts in that popular sentiment change, as we talked about that macro shift in the ESG sustainability, certainly by 2018, I think we had recognized that energy consumption had really reached that tipping point.

And I think what drove that more than anything, or some technological advances in wind, solar, battery, storage, things like that, that made alternative energy more economic than it had been previously. Previously back 2014, we founded RSP. The economics were far more favorable for traditional energy consumption than they are for alternative energy. I think that playing field is much more even these days. And then the second big point was, as you said, that popular sentiment shifts by 2018, 2019, when we raised our first spac, that shifts toward ESG and sustainability environmentally friendly energy we had recognized that shift was well underway. So, our decision with Switchback to partner with a private equity firm, NGP, who had been investing in this alternative energy space for 15 years was pretty purposeful. So, I’d covered a lot of ground there. Want to give Scott obviously the opportunity to give you his background and chime in, but that was kind of, I think the logic for us on the shift is as well as our involvement in energy consumption back to the earlier days of our careers.

Scott McNeill: Thanks Jim, that was a great intro. And as Jim said, we’ve known each other for a while. In fact, I think the very first IPO Jim worked on as a baby lawyer, I guess the equivalent, on the banking side. And I spent 15 years as an investment banker in the energy sector, really covering a wide spectrum of companies and the energy value chain and transactions, but always primarily working with high growth companies on IPO’s attracting growth capital. Working and advising on M&A engagements and really identifying and helping companies that were ready for the public markets. And along the way, I had the opportunity to work alongside NGP, who is our current private equity sponsors, Jim Ted. I got a call from the managing partner there, who I’d known for some time, actually had been on a road show with a managing partner, helping them raise some capital.

And he said he had a startup company that they had backed and that they wanted to put me on the board of the company and on the management team to help grow that company and really position it for an attractive exit. Not really knowing it would be an IPO, but we grew that company from a private startup as actually the 20th employee, as Jim said, we built that company up to a billion, I think it was about a billion five enterprise value at the time of the IPO. And we were the management team that ran that public company. And then we ended up selling it for nine and a half billion dollars. So Jim and myself, we felt like we had the perfect skillset for running a spac because not only did we have the deal experience, both from an investment banking, from a legal background perspective, but we also had experience of taking a private company and getting all the systems in place, getting all the right people in place and being able to take it public and have the relationships existing with public company investors and being able to raise another public vehicle in a SPAC and having all that expertise and that experience, and really having that reputation because what Jim didn’t share with you is that, you know, in our industry space, we had not only a great track record, but one of the best track records of any public company in the sector from really start to finish.

So that helped us. And then I think one thing I’d just add onto that, you know, Jim talked about in terms of the underlying dynamics and the shift going on inside energy is that, you know, we realized that traditional energy is really more in a harvest mode and kind of a return of capital phase and energy transition is still in this huge growth phase. So, we felt like that was a spac, which were really doing is providing growth capital and the best sort of long-term growth potential we felt like was in the energy transition names. And then the other thing is that NGP are our sponsor here, and our sponsor private company, not only have they been investing in the traditional energy space, for the last decade and a half, they’ve also been investing in this energy transition phase. So, I think together, we just felt like we had a real powerful network and a real powerful set of skills to be able to find the right companies in this energy transition space.

Julian Klymochko: I wanted to get into the overarching thesis behind the Switchback series of specs. The first one of course did the ChargePoint merger, the second one announced a deal with Bird, not closed yet. You have a third one on file. Is there a playbook you guys follow? You mentioned a number of key themes, which is, you know, energy transition and sustainability and growth. You know, what’s the same between these and what’s the overarching thesis behind this spacs. What are you guys trying to accomplish?

Jim Mutrie: Yeah, you set me up very well with that question to how we thought about approaching ChargePoint, in taking that similar playbook and applying it to the Bird transaction. We really refined our investment criteria when we went into the Switchback one transaction, because we knew that there was going to be multiple, multiple opportunities out there, multiple targets, the problem isn’t finding a deal, it’s finding a good deal, finding the right deal, a deal our investors are going to benefit from in the near term as well for long-term and for us we laid out and very purposely addressed kind of an investment criteria of six key points that applied both to ChargePoint and then the same thing to Bird. And we think they check the boxes for both of those transitions. The first point was a disruptive technology with a large addressable market and for ChargePoint being an electric vehicle, that disruptive technology in the large Tam, obviously Bird micro mobility, which has 800 billion of opportunity and electrified micro mobility and something we didn’t realize, or I didn’t realize until we got smart on the space of how many trips are less than five miles, 60% of all trips.

The second point was the management team. Had to be a public company ready, experienced management team. We saw that with Pasquale Romano at ChargePoint, and certainly see that with Travis in [Inaudible 00:11:24] at Bird, Travis created the micro mobility space. The originator of it, and he focused in on the unit economics. That’ll talk about in a minute before really anybody else in his space that everybody else in the micro mobility space had been focused on growth, growth, growth, and Travis honed in on growth, but also with compelling unit economics. So that management team in a public company ready management team, was a key second point. Third point market leadership, ChargePoint was the largest CV charging company in the world. When we partnered with them similarly Bird is a market leader. They had raised a billion one to date prior to our deal being announced.

And as you said, we haven’t closed the deal yet, but it just puts a lot of space between, you know, our partner in the rest of the market. The fourth point was a business model, compelling business model. ChargePoint point had an asset like business model, or has an asset like business model that differentiates them and Bird has this a fleet manager model, which we can tell you more about, but it partners with individual entrepreneurs, and really reduces Bird capital, that cost of capital that would sit on their books. It’s a compelling, a novel business model that Bird as introduced. The last two points, and these are two of the most critical, is a returns-oriented company. There’s a lot of companies out there, especially in the energy transition space that the revenue is years in the future.

You know, if everything happens a certain way, they have a compelling growth profile, while that may work out for some companies as Scott and I like to say, we don’t like to fund science projects. We want to partner with somebody who’s actually already proven that they can do this. So, Bird, for example, had $150 million of revenue in their second year of existence. They’re going to have over $400 million of revenue next year. So, it’s not just an idea, it’s an actual company. And I think that’s incredibly important, particularly these days in the spac market to partner with a company with a strong cash flow position and an actual business, not just a good idea. The last point for both transactions was, you know, was ChargePoint or is Bird at an inflection point, are they ready to be a public company?

We thought the way the electric vehicle space was happening was, I guess, was shifting and moving and adoption rates at a public charging company was just, you know, there was the perfect time when we took out ChargePoint similarly for Bird, we think that micro mobility space is at an inflection point as well. There are some tailwinds coming out of COVID favorable regulatory changes and industry consolidation. And as I also mentioned earlier in a management team, that’s ready now to take the next step with Bird to be a public company. That investment criteria that we’ve laid out in advance of the ChargePoint deal, that it checked all the boxes for ChargePoint. We feel just as strongly about the Bird transaction that checks all the boxes as well.

Julian Klymochko: So, there are these constant investment criteria that you guys are sticking with throughout your various spac transactions. And obviously with the ChargePoint deal, starting things off on the right foot. I was wondering, did you glean any key insights from your ChargePoint deal when approaching your second spac?

Scott McNeill: Hey, this is Scott. I think Jim covered a lot of that in those key criteria points. I think the insights all hold into the second deal. I think what we take away from the ChargePoint transaction, other ones that have traded well is that, you know, the market is going to reward you if you back the right company and the right management team, we feel like there’s too many companies that are really just too early. And as Jim was saying, you know, don’t have a proven business model yet. And, or they’ve got products that have yet to be developed. And, so there’s, you know, kind of a theoretical sort of revenue model out in the future or service that has to be built. And so, you know, I think going back to this comment that we don’t fund science projects, I think finding the right company, that’s truly ready to be in the public market.

And there’s one more round of capital where they’re an inflection point. I think that’s really the key ingredient. And then I think another that we didn’t touch on, I think in this environment that you want to partner with an experienced spac team. Somebody that, you know, has already been through a successful transaction, like what we did in ChargePoint because we just have the expertise and experience and we’ve been through it from the very start to the finish. No to public market and having a reputation is important, but really understanding the spec process and the structure and all those things combined will ensure that a deal that can get done the right way. And there’s a lot of, I think, spac sponsor teams that are out there for the first time and, you know, we’ve gotten into a market that’s been very choppy and I think it’s very difficult if you haven’t been through it already. So, I would add those two things and hand it back over to Jim. He may have a couple other key insights.

Jim Mutrie: That answered it very well. I wouldn’t add anything else or substance on top of that.

Michael Kesslering: Something that you mentioned earlier was, what you’re looking for is return oriented companies. And I find that interesting, in the context of ESG. I think a lot of the perspective of an outsider’s perspective of the ESG is that it’s mission oriented companies, as opposed to returns oriented companies. Do you think that those different ways of viewing companies are kind of in conflict or do you think there is truly a lot of niche for returns oriented companies within the ESG space?

Jim Mutrie: Yeah, I don’t, what’s got to add onto this. I don’t think they’re in conflict at all. One of the things I had mentioned earlier on, and one of the thoughts that Scott had as we transitioned from traditional energy consumption to alternative energy is, I think that the technological advances in the last five or six years have made those two ideas, a compelling investment, as well as ESG, friendly goals, much more compatible, excuse me, than they’ve ever been before. The economics may not have made sense if you look back historically or 10 years ago, but you see this just rapid change in technology. And as I mentioned, solar, wind, batteries in general or energy storage that enabled this energy transition to be both economic as well as to continue to maintain its ESG friendly goals. So now at this day and age, I don’t see them as incompatible at all.

Now, again, it’s not as Scott highlighted, not every company in the ESG space is at that point. You know, our key point is figuring out which ones check both of those boxes, ESG friendly company without that mission and rooted in those values, but also offers compelling returns to investors. And we think we did it at ChargePoint and we feel confident we’re doing it again in Bird, that you can have the best of both worlds these days which may be a little bit different than what would have been ten years ago or even five years ago.

Julian Klymochko: I did want to get into the Bird transaction. Two point three billion enterprise value, one hundred- and sixty-million-dollar pipe being led by Fidelity. I was wondering with respect to the investment criteria that you mentioned, disruptive technology, large tam, unit economics, market leader, returns oriented management, what specifically made Bird the ideal merger partner for Switchback II

Jim Mutrie: Why Bird was the ideal partner as you mentioned in our investment criteria that we checked. And we found again, I think foremost is. Can you find partners who are compatible, share the same vision of both for the company, as well as a relationship with investors? Going forward, we found that with Travis [Inaudible 00:20:02] and the Bird team that results oriented company with, you know, massive revenue after just a relatively short history there, again after five years, they’re going to have over 400 million of revenue. When you stack that up against other public companies that are extremely successful, Google DoorDash, Uber, Tesla, it’s tracking well above those areas. You know, those things really jumped out to us that, you know, this may not be fully appreciated by the market of, you know, what a growth opportunity it is, but also what a track record for a relatively young company that it had established itself.

And I think also in addition to that, you know, Bird continues to innovate going forward and whether it was their technology, their hardware with a burglary. And we can talk about that if you’d like in a little bit, they’re constantly innovating. And every innovation, like I was mentioning earlier in energy transition in general. With each of these iterations in technological advances, the unit economics get more compelling and we see them driving better and better unit economics in the immediate future. And, you know, the growth in that kind of unit economic growth has been quite large over the last several years. And we see it happening in the near future as well. And I guess the last thing I’d say, we do also like, or I also like the timing of the transaction.

I think Bird with a capital, they had raised to date the position it had taken in the market that established itself as a market leader. And I’d saw it as somewhat of a reopening play as well. That there’d been some favorable regulatory changes to allow this kind of socially distance mode of transportation, as you move into a reopening phase in the U.S. and the world. People wanting to get out, wanting to see their city, commute to work again, that Bird was really positioned to kind of ride that upside from a reopening play as well. So, we thought the timing was right, both from on taking the company public, but also, you know, other factors flying into to how the macro economy and coming out of COVID set the company up.

Julian Klymochko: Yeah, that makes sense from a recovery place standpoint. Now this transaction also comes with a concurrent one hundred and sixty million pipe, plus you bringing some cash from the spec as well. What are the use of proceeds? Are you funding growth? What are some of the major initiatives?

Scott McNeill: Yeah, this is is Scott, I’ll jump in on that question is, the company, you know, they already had a couple hundred million on the balance sheet. They’re going to bring in one hundred- and sixty-million-dollar pipe and then the trust as well. So, they’re going to be, you know, very well capitalized as a company coming into the public markets and the use of proceeds, you know, first and foremost is just to further penetrate some of the existing regions that they’re in. So, they’re going to be expanding and existing cities, plus adding some new cities as well. They’re going to be expanding to some new regions. So, we’ll see the Bird brand going into areas that they’re not currently located and some different regional coverage. And then finally continued innovation. And, you know, we’re already saw the launch of the Bird bike, which is a new form factor. And so, there’ll be some additional innovations that happen along the way. So, they’re just going to be continuing on this growth phase and using this capital to really expand their growth and their profitability.

Michael Kesslering: So, there’s a few other big names in the micro mobility space. Do you see this as a winner take all market, that Bird is going to be able to be the most successful player or how is it going to be successful?

Scott McNeill: Yeah, so it’s a great question. And I think we’ve heard, obviously a lot of people talk about, you know, the competitive framework that, you know, Bird is in. And I think there’s definitely room for, you know, more than one player. And actually what you’re seeing happen is that there is not only a competitive advantage just from the standpoint that Bird was out there, you know, first in this micro mobility space, but there’s several barriers of entry that is in this sort of micro mobility ecosystem that we’re seeing, and you know, I think getting out to a first mover advantage and being the creator is, you know, create the ability for them to have a tremendous learning curve of knowing, you know, how to run the business, but also just the experience and the institutional knowledge that they’re bringing in.

And also, just the scale, I think being a leading player in their main markets, you know, creates this economies of scale, both, you know, on a global basis, as well as down on a local basis. But I think what’s really interesting when you’re talking about winner take all is from just a regulatory framework perspective and that, you know, Bird not only has significant experience, you know, collaborating with these municipalities and regulators. They’ve got the highest permit win rate in the industry. And what you’re seeing is that within these different cities, they’re not just opening it up to anybody to come in and have e-scooters, or e-bikes, they’re really limiting it to two, maybe three. And so, you have to proactively develop the partnership with the cities. And, you know, there is this opening sort of regulatory environment for micro mobility and for e-bikes and e-scooters that’s going on right now.

And I think being a major player has a significant advantage. And then I think one of the interesting aspects is just the fleet manager model and the business model that Bird has adopted. They’ve really lowered their fixed cost base. And by relying on these fleet managers to provide the infrastructure, the garages, and then taking care of the vehicles that really enables, you know, Bird to move into these smaller markets and these long tail cities. And they they’ve built a strong base of fleet managers. And of course, they’re providing all the support and the tools along that line to make that fleet manager model really profitable and expands the opportunity set for them. And then, I think also on the technology side. When you take a look at a Bird scooter, or now the e-bike, you can see they’re just well ahead of the peers.

You can just take a look at the half-life of these vehicles and you can see that not only have they advanced the technology, but the safety is better. They’ve got a better battery life. It’s just a more robust product offering than what the competitors have. And they’ve also, you know, lowered the ability for anybody to steal the scooters. You can’t really take them anymore, I think early on, they had a pretty high loss rate associated with that, so you don’t see that. So that all points back to what Jim was saying on, you know, really focusing on the economics of the business. So, they’re just very, you know, they’re ahead of the game. They’ve created just a world-class organization, and they’ve got the scale and the ability to continue to grow and to really lead this this whole sector. And so, we’re excited to partner with them

Julian Klymochko: Now, before wrapping things up today, Jim and Scott, I wanted to give you the chance to just state the case for the stock for investors. There’s a lot of spacs out there, and there’s a lot of, you know, disruptive technology companies and you’re seeing more and more competition in the mobility space. Why should investors pay attention to Switchback II an Bird?

Jim Mutrie: Sure, I think we’ll tag team this one. Why don’t I start? I mean, I think overall we feel very good about where the company’s position right now. We think the market is moving toward us, frankly. The model, first of all, I think the model works from a unit economic standpoint and that’s something its competitors and a lot of companies in the energy transition space can’t say that, you know, the revenue profile that we talked about earlier with four hundred million dollars of revenue next year, one hundred and fifty million of revenue, in its second year, or if you compare it to some other of companies in disruptive technology space, like Google, DoorDash, Uber, Tesla, the revenue profile of Bird being nearly 2X any of those, in some cases more after four to five years of existence shows that they’re doing something right, and that they have the unit economics figured out and that they’re honed in on those unit economics so that, you know, that also then ties into, if you look at our valuation, we think it’s, quite conservative.

And it really is a compelling evaluation and offers a lot of upside for the stock, like a second thing. And we had mentioned it earlier, is the tailwinds coming out of COVID. During COVID, there has been some consolidation in the industry. And I think coming out of COVID, then the socially distance idea way of transportation, as opposed to piling back onto subways or buses, you know, that’s appealing, there’s a reopening element to that as people want to get out around. They’re more and more doing this on e-bikes and e-scooters, supplying right into the Bird business there. Scott had mentioned that favorable regulatory changes we’re cities are becoming more amenable to e-bikes and east scooters. If you look at New York City for example, where Bird won the permit in New York City, you know, they’ve introduced now additional Bike lanes and e-scooter lanes.

So, cities are just more open to, hey, let’s lower the carbon footprint, let’s lower the idea of cars, single passenger cars, congesting the city and offer environmentally friendly ways to transport around the city, frankly, in a more efficient manner. And that, I think maybe the third thing about the stock is that there are a number of catalysts coming up. Scott mentioned that the e-bike and the third-generation e-scooter being introduced now. So, catalyst there, the city adoption, it’s kind of funny. When we started talking to Bird and actually when we were in the pipe process and we announced the transaction. Bird was in slightly under, just right around 200 cities. And as we’re talking today, they’re in over 250 cities. So, the adoption rate for Bird is very high right now.

They just have a close connections to a lot of municipalities in a really refined approach to introducing themselves to municipalities and working hand in hand with those cities. As I’ve mentioned before, being a catalyst come record summer travel and people coming out just a real reopening play as well. And then the last thing, which again, maybe could lump under the catalyst banner, it would be, just being the first public micro mobility player of scale, and really gives them an advantage position go forward to take to take a lion’s share of this market doesn’t mean that has to be a winner take all, but it puts them in a great position.

Scott McNeill: Yeah, I couldn’t really add very much onto that. I think he covered all the points. I think that if you take a look at the first quarter numbers that they put out and filed, you can see that there’s some strong momentum that’s already coming into the summer. I think what we’re seeing and what we’re all witnessing is that people are ready to get out doors. Their rediscovering their cities. I think that getting on an e-scooter and a e-bike is a really good way to do that. And so, all the things that Jim said about, you know, getting the increased penetration inside each of these cities and into new cities is going to be a really nice catalyst as we, you know, come out of the de-spac process and you know, they charge ahead as a public company. I think you’re going to see that momentum continuing, again, even though they’ve got a substantial revenue base underneath them, it’s still really early in the in the evolution of their business plan. So, it’s a nice time to take a look the stock and take a look at the addressable market and all the strong points that Bird has and will have as a public company

Julian Klymochko: And Switchback II trading under the ticker symbol SWBK. Bird deal expected to close in the third quarter, I believe. And then up in trading as a newly minted public company, so exciting stuff. Thanks, gents, for coming on the show today, explaining the thesis behind Switchback and some of the key insights and details behind the Bird merger. So, we wish you the best of luck, and we’ll be monitoring your progress as you guys complete this Bird merger.

Scott McNeill: Thank you guys.

Jim Mutrie: Thank you very much Julian and Mike. We really, really enjoyed it.

Julian Klymochko: Alright, thanks so much guys. Bye everybody.

Scott McNeill: Okay, bye-bye.

Jim Mutrie: Okay.

Thanks for tuning in to the Absolute Return Podcast. This episode was brought to you by Accelerate Financial Technologies. Accelerate, because performance matters. Find out more at www.AccelerateShares.com. The views expressed in this podcast to the personal views of the participants and do not reflect the views of Accelerate. No aspect of this podcast constitutes investment legal or tax advice. Opinions expressed in this podcast should not be viewed as a recommendation or solicitation of an offer to buy or sell any securities or investment strategies. The information and opinions in this podcast are based on current market conditions and may fluctuate and change in the future. No representation or warranty expressed or implied is made on behalf of Accelerate as to the accuracy or completeness of the information contained in this podcast. Accelerate does not accept any liability for any direct indirect or consequential loss or damage suffered by any person as a result relying on all or any part of this podcast and any liability is expressly disclaimed.

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