U.S. Markets closed

Edited Transcript of TINY earnings conference call or presentation 15-Aug-19 1:00pm GMT

Q2 2019 180 Degree Capital Corp Earnings Call

NEW YORK Sep 4, 2019 (Thomson StreetEvents) -- Edited Transcript of 180 Degree Capital Corp earnings conference call or presentation Thursday, August 15, 2019 at 1:00:00pm GMT

TEXT version of Transcript

================================================================================

Corporate Participants

================================================================================

* Daniel B. Wolfe

180 Degree Capital Corp. - President, CFO, Chief Compliance Officer, Portfolio Manager & Director

* Kevin M. Rendino

180 Degree Capital Corp. - Chairman, CEO & Portfolio Manager

================================================================================

Conference Call Participants

================================================================================

* Adam Waldo

Lismore Partners, LLC - Chairman of Managing Members

================================================================================

Presentation

--------------------------------------------------------------------------------

Daniel B. Wolfe, 180 Degree Capital Corp. - President, CFO, Chief Compliance Officer, Portfolio Manager & Director [1]

--------------------------------------------------------------------------------

Good morning, and welcome to 180 Degree Capital Corp.'s Second Quarter 2019 Financial Results Call. This is Daniel Wolfe, President and Portfolio Manager of 180 Degree Capital. Kevin Rendino, our Chief Executive Officer and Portfolio Manager, and I would like to welcome you to our call this morning. (Operator Instructions) I would like to remind participants that this call is being recorded and that we'll be referring to a slide deck that we have posted on our Investor Relations website at ir. 180degreecapital.com under Financial Results. Please turn to Slide 2 that contains our safe harbor statement.

This presentation may contain statements of a forward-looking nature related to future events. Statements contained in this presentation that are forward-looking statements are intended to be made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to the inherent uncertainties in predicting future results and conditions. These statements reflect the company's current beliefs, and a number of important factors could cause actual results to differ materially from those expressed herein. Please see the company's filings with the SEC for a more detailed discussion of the risks and uncertainties associated with the company's business that could affect the company's actual results. Except as otherwise required by federal securities laws, 180 Degree Capital Corp undertakes no obligation to update or revise these forward-looking statements to reflect new events or uncertainties.

I would now like to turn the call over to Kevin.

--------------------------------------------------------------------------------

Kevin M. Rendino, 180 Degree Capital Corp. - Chairman, CEO & Portfolio Manager [2]

--------------------------------------------------------------------------------

Thank you, Daniel, and good morning, everyone. A lot to cover this morning. I want to spend our time on 2 separate topics: Obviously, the first topic will be the second quarter; second topic will be the significant events that have taken place in the third quarter that have resulted in a meaningful rise in our NAV through last night's close.

Let's start on the summary of Q2 2019 page. We saw an increase in our share price of 6%. We saw an increase in our NAV of 2%. Our stock price to our NAV advanced from 67% to 70%. Our cash and liquid securities advanced 6%. On the public side, all of the gains in our NAV came from our public holdings led by companies Adesto, TheStreet, Iteris and Airgain. We had decreases in value for Mersana and Emcore, and we had 2 materially new positions for us: one is named Quantum, the other is named the Maven. They were undisclosed positions at the time of the Q2 report, and we wanted to disclose them today.

Our private portfolio change was off a couple of pennies led by a PWA. We had an increase in AgBiome, we had a decrease in D-Wave. We'll get into all of this as the slide presentation moves on. It should be noted that the microcap index was up slightly for the quarter, less than our performance in the public holdings and our NAV gain. Of course, we all know this quarter, the index has now posted 10%. So it's been rough waters out there for sure.

Next slide please. Here -- this slide depicts our NAV from the inception of 180. You'll see a rather meaningful increase of $0.50 a share since our beginning, almost all of which came from our public holdings.

If you turn to our next slide, we show you this slide every quarter, it's the sources of change in our net asset value over the course of the quarter. Starting with a $2.76 NAV, we added $0.11 in the quarter from our public holdings. This was followed by a $0.02 reduction from our private portfolio. Normal expenses were $0.02 plus $0.01 accrual for a bonus pool based on performance led to an end-of-quarter $2.82 NAV.

On the next slide, you'll see our year-to-date change in our net asset value and it tells a very similar picture. The public holdings have risen $0.25 per share. The private portfolio is hurt by $0.02, and again, $0.05 of total expenses, $0.02 a quarter plus the $0.01 accrual for bonus, again, leading to the final NAV of $2.82. So a total increase through the 2 quarters of $0.18.

Next slide. Same slide, different period of time. This would be the inception of 180, and you'll see a starting NAV of $2.34 and ending NAV of $2.82. And 94% of the gains in our book value have come from our public holdings. I know you've heard me say this many, many times, the smartest thing our shareholders have ever done for our company is vote yes for the strategy change that Board approved a few years ago, and I think this slide depicts that.

Next slide please. As I've said, all the gains this quarter came from our public holdings so let's just talk about them briefly. Adesto increased $2.1 million or $0.07 a share, it was 35% in the quarter versus a 5% gain for the SOX Index. The Q1 earnings report came out, it was good. The nice 2019 outlook was viewed favorably on integration and cross-selling between the acquired assets. And as such, the stock has risen fairly sharply this quarter and this year. Iteris, which is a new position Danny will talk about in just a little -- a bit, it gave us $0.02 as our stock increased 24%. They also had a decent quarter and they announced an acquisition of a Florida traffic management company and so the stock rose as a result of that.

Interestingly enough, Airgain was up, even though the Q1 report missed estimates and guidance for Q2 was revised lower. Stock initially dropped 20% but then recovered partially as the quarter continued. We sold into that strength, and we also sold in -- and we -- our final position was sold in Q3. Airgain was a very good investment for us, and we'll report on that IRR when we report the next quarter.

Finally, TheStreet has been a highly successful investment for our shareholders, and our participation is now over, both in terms of our ownership but also our Board representation. On June 9, the Board of TheStreet, of which we were one, voted to sell its remaining consumer business to TheMaven. TheStreet is a significant investment for how we define what constructive activism is. In total, we generated $0.23 of gains in our NAV from TheStreet investment or an IRI of 75%, not all that bad.

On the next page, you will see the names that hurt us in the quarter. The largest decrease in value came from Emcore, $0.01 a share. This company has done almost everything wrong in the last year. They reported another Q1 that came in below expectations. They subsequently reduced their Q2 guidance due to the Huawei ban. Post Q2, the company preannounced a revenue shortfall from the revised guidance. It's been one sort of mistake after the other. They did make an acquisition of Systron Donner, which is a navigation product supplier, on June 10. We do think the company's actually remade itself, although the results haven't shown that. So while the stock was down, it's not something that we've sold because we still see a potential future from here.

At Synacor, the news on Synacor didn't really hurt or help us in Q2, it actually has hurt us in Q3. They announced the wind down of the AT&T portal on July 11. And they reduced guidance on the Q2 2019 earnings call for the balance of the year. As many of you know, we are on the Board so I'll be limited in what I can say other than to say my view is that the share price is worth significantly more -- or the assets are worth significantly more than the share price, and there's a real business underneath this AT&T portal business that will be -- that will go away, and it's going to be incumbent upon the management team to prove that. A business model, the software and services and recurring revenues that I've talked about with all of you.

Lantronix is slightly down -- I'm sorry, it's slightly up. The news there is, there's a new CEO Paul Pickle. He came from Microsemi. He was announced on March 25. We have had several conversations with them. We are, at least initially, big fans. That's a position that we have increased fairly substantially, and we'll look to do some more on weakness. We think there's a real good future there, and we're really bulled up on the new CEO.

Finally, Intermolecular. It didn't help us in the quarter because the stock had already appreciated towards a deal price. The company announced to sell the Merck KGaA for $2 -- for $1.20 in May. We actually thought the business was worth more. Sometimes, it's good to be lucky -- or rather be lucky than good. The company decided to sell it up for a $1.20. I think our initial target price was $1.80. But given the fact that we bought it in the fourth quarter and we sold it in the first quarter, and we had an IRR of 52%, we're quite happy with our holding and ownership of Intermolecular, I'll take that all day long.

Next page, you'll see our performance. On an individual stock basis for the quarter, in total, we generated a 9.3% gain from our public holdings. I'll show you how we have done against the relative indices in a little bit. For now, please turn to the next slide and you'll see our performance over the first half of this year.

You will see a total performance of 23% led by Adesto, TheStreet and Airgain. Again, this is our public market holdings only, our public holdings only. On the next slide, you'll see our 1 year year-over-year comparison. This will take into effect the brutal Q4 of 2018, so you'll see a muted, basically, 1% gain for the portfolio June of '18 to June of '19. But again, I'll show you the comparative indices shortly.

And then finally on the next slide, this is the scorecard for how we've done on an individual basis since 180 was born. 124% return from our public holdings since we started.

On the next slide, the aforementioned slide that shows the comparison. If you want to know how we're doing, you should take the first line, which is our total public portfolio gross total return, and compare it to the third or fourth lines, which is who we compare ourselves to, and you'll see a significant performance. I'll take it one step further. If you placed our returns in the comparable Lipper Index, we would be ranked the #1 fund in the Lipper Index over the course of our history. So I'm proud of this, not to pat ourselves on the back, I'm proud of this for our shareholders. And hopefully, if we can continue to achieve these types of returns, our share price will properly reflect the good work that we've done over the course of our history.

Finally, our NAV growth. Now again, this takes into consideration everything, both the public holdings and the private portfolio and our expenses. Year-to-date through Q2 of '19, our NAV growth is up 6.8% behind the Russell Microcap Index of 14.1%, despite a 24% increase in our public holdings. Obviously, last year, against the backdrop of the Russell declining 13%, we grew our book value. You see what we've done for '17. And most importantly, since we've started, we've grown our book value 20% despite being -- only having an average of about 1/3 of our portfolio to manage in the public holdings, the Russell is up 12% over that time. So not only have we done well for our shareholders in the public markets, in total, our NAV growth has been faster than the Russell Microcap Index.

Next slide shows our normal pie charts, which show the mix of assets that we have public to private. The goal here is to have all green and no gray. We are making steady progress. We are approaching 50-50.

And now actually, for the fun part, I'm going to turn this back over to Daniel, who's going to talk about what we've been doing, and I'll come back and talk about the impact that it's had. So Daniel, why don't you take it from here?

--------------------------------------------------------------------------------

Daniel B. Wolfe, 180 Degree Capital Corp. - President, CFO, Chief Compliance Officer, Portfolio Manager & Director [3]

--------------------------------------------------------------------------------

Thank you, Kevin. Please turn to Slide 17. As Kevin mentioned earlier, we began drilling a position in Quantum Corporation in February 2019. This position was part of the undisclosed investments line item in our scheduled investments last quarter. We were introduced to the name by an investor we think extremely highly of, and while we were initially skeptical, we dug in and became similarly excited about the company as an investment opportunity. For those who are not familiar with Quantum or QMCO is its ticker, it is best known as a company that makes tape drives. But it also has a number of other data processing and storage solutions that enable high-speed data transfer and processing, particularly for video content.

QMCO is your classic case of a good company put into the proverbial penalty box by investors for misdeeds of a prior management team. This slide discusses a number of the issues the company had that led to its delisting from the NYSE in early 2019. Delisting has presented a number of issues for many institutional investors for mandates that prevent holding such companies to a lack of information from which to do due diligence on the company. We like these situations, so we dug in and did the work. What we found led us to purchase 2.1 million shares over a 4-month period at an average price per share of $2.62 for a total investment of approximately $5.5 million. Contrary to popular belief, tape is actually not dead. In fact, it's experienced a resurgence in cloud computing because it serves as a low-cost, low-energy way to store information for long periods of time and in a way that is completely impervious to hackers or other malicious intent when it's not in use. Because when the tape is actually not in use, it's off the grid. QMCO's other products also provide differentiated capabilities in the market and are gaining new customers.

We knew Quantum needed to file its fiscal year 2018 financial statements by August 31, 2019, and its fiscal 2019 financial statements by the end of 2019 to remain in compliance with its credit facility. Once it completed these filings, the company would be ready to regain efforts -- or began efforts to relist on the NYSE or NASDAQ. Our catalyst was the filing of the financials along with the hope that the business was performing better than investors would have anticipated.

Please turn to Slide 18. After the market closed on August 6, 2019, Quantum restated its financial statements and is now up-to-date with all of its SEC filings. Quantum also announced its estimates for its current fiscal year that included adjusted EBITDA north of $50 million, significantly better than TheStreet expected. The stock rallied 36% that day, having already risen 39% from its Q2 2019 close.

Please turn to Slide 19. Iteris, symbol ITI, was also a previously undisclosed position that we added to in this quarter, through open market purchases and participation in its underwritten secondary offering. ITI is a provider of systems and sensors that optimize traffic flow and enhance driver safety. Iteris announced an acquisition of a Florida-based traffic management company while reporting better-than-expected results. It also noted the abatement of some of the headwinds that were hurting its business in the past, including approval of a sales channel in Texas, its largest market, and the end of a year-over-year comparison issue from a contract with the Virginia Department of Transportation that resulted in reduced top line revenues for the company. That said, the company's AgTech business continues to be a drag on the overall financial performance of the company. Our and other investors' patience with this part of the business is wearing thin, and a decision to sell, spinoff, partner or other transaction that remove the overhang could be a catalyst for further appreciation of the stock in addition to continued performance of its core businesses.

Please turn to Slide 20. Maven, symbol MVEN, is a different situation and company. Maven was founded in 2016. It is a media coalition of professional content destinations, or mavens, operating exclusively on a shared digital publishing advertising and distribution platform. As Kevin mentioned, we were introduced to TheMaven during the process of looking for potential acquirers for the remaining consumer business of TheStreet. We got to know the team at TheMaven during the due diligence process and learned about the company's vision for its business and how TSE would fit. The Street’s Board of Directors agreed to a definitive merger agreement with Maven on June 9, 2019.

Subsequent to that announcement on June 14, 2019, Maven acquired the rights to manage the digital and print assets of Sports Illustrated. Almost overnight, the company dramatically increased its revenues, scale and reach through the combination of TheStreet and Sports Illustrated. Separate from, and subsequent to, TheStreet and Sports Illustrated announcements, on June 23, 2019, we were brought over the wall and learned that Maven was -- decided to raise capital through a PIPE or public investment in -- private investment in public equity offering that closed on June 28, 2019. We invested $7 million in the financing and purchased convertible preferred stock that will convert into common stock at $0.50 per share once the company amends its articles of incorporation to increase the number of authorized shares it can issue.

Maven is now focused on integrating its acquisitions, getting up to date with its financial statements and filings with the SEC and then listing on the NASDAQ or NYSE. We believe this is another undiscovered company for which updated financial information will soon be available to the public. It could be a similar story to Quantum in that, once Maven filed its financials, it will make it possible for the broad investment community to analyze the business that Maven's team has built. We are betting the results will be viewed favorably. Furthermore, an uplift to NASDAQ or the NYSE should expand the investor universe that can buy the stock.

I'll now turn the call back over to Kevin.

--------------------------------------------------------------------------------

Kevin M. Rendino, 180 Degree Capital Corp. - Chairman, CEO & Portfolio Manager [4]

--------------------------------------------------------------------------------

So on the next slide is the impact of not only the Maven and Quantum but a line-by-line report of our quarter-to-date performance in all of our public holdings. In our view, these numbers are too large, not to enumerate, and we all know that things can change between now and the end of the quarter, and this does not take into effect the fact that we have expenses, and we don't know what our private portfolio will do, whether it goes up or whether it goes down. But when we look at these numbers, we felt like it's something that we wanted to share with our investors. It's certainly -- you can do the math, but we've done it for you. And this is a staggering increase in NAV in a very short period of time against the backdrop of a fairly brutal down 8%-or-so Russell Microcap Index.

So I'm proud of this page. I think it's -- I hope it holds. You never know what we're going to do, whether we're going to add to these names, subtract these names. You can, for your own modeling purposes, you can calculate the numbers of shares we own as of August 14 and try and predict what our NAV is going to be at the end of the day. The only thing that you don't know is you don't know what we're doing on a daily basis. We rarely, or never actually, share intra-quarter moves like this before, but since nobody knew we owned Quantum or Maven until last night, we wanted to show the impact. It's significant, and if you turn to the next page, you'll see that this would be our NAV before any expenses or private portfolio adjustments as of the close of business last night. It's the first time our NAV has been above $3 since June of '16.

--------------------------------------------------------------------------------

Daniel B. Wolfe, 180 Degree Capital Corp. - President, CFO, Chief Compliance Officer, Portfolio Manager & Director [5]

--------------------------------------------------------------------------------

'15.

--------------------------------------------------------------------------------

Kevin M. Rendino, 180 Degree Capital Corp. - Chairman, CEO & Portfolio Manager [6]

--------------------------------------------------------------------------------

I'm sorry, June of '15. And so I would like to think that our stock should reflect a significant bounce in our NAV, not only for last quarter clearly but for what's been going on year-to-date. Again, a lot can take place between now and then. It's not a prediction on where we are going to end. The volatility that we were expecting at the end of the summer has already started. So you never know but we've certainly gotten off to, I wouldn't even call it a good or great start, I'd call it an unbelievable start to the quarter.

On the next page is that pie chart, again. If you reflect the moves that our private -- our public portfolio has had in Q3. And now we are truly at or near 50%. And coming from where we were, that's significant progress. We have nearly $50 million in cash and liquid securities. And just so you know, in the summer of 2016, we had about $17 million. So we've completely remade this company over the last 3 years, and again, I'm happy for our shareholders for that.

Daniel, why don't I turn it back to you for the private portfolio, and then I'll come back.

--------------------------------------------------------------------------------

Daniel B. Wolfe, 180 Degree Capital Corp. - President, CFO, Chief Compliance Officer, Portfolio Manager & Director [7]

--------------------------------------------------------------------------------

Certainly. Please turn to Slide 24. This slide lists our Top 10 legacy privately held holdings as -- by value as of the end of the quarter. While we continue to believe there are companies in the portfolio that hold promise to build value, the time line and potential to exit values of these companies remain highly uncertain. We have often talked about our desire to shepherd -- or to actively shepherd our existing private portfolio to exits or explore opportunities to sell our positions in those companies, what we believe are reasonable valuations. This effort is actively ongoing. Why is that? As Kevin mentioned earlier, since the beginning of 180 Degree Capital, we have added $0.71 of NAV due to our public portfolio companies while the private companies have increased by $0.05.

Please turn to Slide 25. As we had discussed in prior calls, we've greatly reduced our operating expenses from prior to 180 Degree Capital's operations, which makes it far easier to grow at net asset value than in past years. For the second quarter of 2009 (sic) [2019], our operating expenses declined slightly from the prior quarter in 2018, about a 2% year-over-year decrease. I know that these figures do not include sublease income, which was approximately the same in the second quarter of last year versus this quarter nor the accrual of the deferred book for the bonus pool from 2017 that continues forward. And as Kevin mentioned, because of the results year-to-date, the Compensation Committee of our Board of Directors voted to accrue approximately $292,000 for potential bonuses in '19. This accrual could change materially depending on full year performance and also does not reflect the performance through August 14 of this year that Kevin discussed just now.

Please turn to Slides 26 and 27. As we discussed on last quarter's call, we currently anticipate the reductions in our operating expenses as a percentage of net assets we based on growth in our net assets rather than further reduction in our expenses. Last quarter, we also mentioned that we make investments in our business by adding to our investment staff, which could increase our OpEx.

While the current budget and the slight increase in our fourth -- in our projected operating expense as a percentage of assets reflects such a hire, we only pursue such a hire if we believe that investment will help us grow 180 Degree's net asset value. And also, none of these percentages reflect the increase in value in the portfolio through yesterday. We remain committed to treating every dollar of shareholder money with the utmost care and consideration. It is much easier for us to grow NAV when the expense hurdle rate is where it is today.

Please turn to Slide 28. As we do each quarter, this slide presents the scorecard of our performance during the first half of 2019 on multiple metrics compared to the end of 2018. We are encouraged by our performance through the second quarter and year-to-date and are focused on continuing to work to build shareholder value each and every day.

I'll now turn it back over to Kevin.

--------------------------------------------------------------------------------

Kevin M. Rendino, 180 Degree Capital Corp. - Chairman, CEO & Portfolio Manager [8]

--------------------------------------------------------------------------------

Thanks, Daniel. Some of the part is on the next slide. We do this for you every quarter. What we do is take our public holdings, cash and liquid securities less liabilities per share. At the quarter end, they were -- they enumerated to $1.20 a share. That means the remaining per share value ascribed to our portfolio -- private portfolio was $0.78 given the fact that our private portfolio per share NAV is $1.63. Essentially, the market was paying us 40 cents on the dollar for our private portfolio.

If you turn to the next page, this takes into consideration what's happened here since the end of the quarter. We have nearly $1.50 per share in cash and liquid securities. Thus, the effective market value per share to the value of the private portfolio per share is now 26 cents on the dollar. We know from history, whether it's ATO or Mersana, the 26 cents on the dollar does not properly reflect our private portfolio.

Finally, our goals for 180. We want to be known as a prominent and dominant leader in our world of public company constructive activism. We'd like to think we've made our way, and we're relevant in this space. We'll continue to strive for excellence in investment performance. I don't think anybody would suggest that we haven't achieved this goal. We want to be known as game changers in helping businesses generate positive shareholder returns. We were able to accomplish that as part of TheStreet Board. We hope to be able to do the same as part of the Synacor Board, and I'm sure there will be others.

And you know that the management is 100% aligned with shareholders. I've personally become the fourth-largest shareholder in our equity since I got here. I know that Daniel, myself and the rest of the Board have bought up to 400,000 shares in the last few months. We know we must increase the price of our stock to be truly successful.

If you turn to the next page, you will see all the insider buying that has taken place since we got here. There's not a red bar on that chart. So every -- at every point in time, we've been buyers, not sellers. We personally don't think our share price was right before the quarter -- this quarter started, and given what's happened in this quarter, we certainly don't think that's the case now. But the market will decide what it wants to decide, and then we'll make our decisions about what we want to do after. So we're aligned with the shareholders. We care very much about TURN stock. We've been frustrated as you that has it has inclined above $2 in a short period of time -- in a longer period of time, and our goal is to create value for all of you vis-à-vis the share price, and we'll work hard to do that. We think we've done what we've said we wanted to do, which is grow our book value and through our new strategy, and we'll figure out -- the share price will figure itself out over time.

So I'll stop there. We'll open it up to whatever questions you have. Daniel?

================================================================================

Questions and Answers

--------------------------------------------------------------------------------

Daniel B. Wolfe, 180 Degree Capital Corp. - President, CFO, Chief Compliance Officer, Portfolio Manager & Director [1]

--------------------------------------------------------------------------------

(Operator Instructions) Our first question.

--------------------------------------------------------------------------------

Adam Waldo, Lismore Partners, LLC - Chairman of Managing Members [2]

--------------------------------------------------------------------------------

Adam Waldo, Lismore Partners, LLC Chicago. You guys have had a phenomenal run, obviously, just overall and so far in the third quarter, it's unbelievable really. And you've been very busy. So I have 3 topics I'd like to touch on, I'd appreciate if you'd give me the chance to do so. The first is macro outlook. Obviously Kevin, you talked about this in your quarterly letter that you -- I think quite understandably fairly negative on the macro environment, although your digital stock picking remains phenomenal.

And I noticed on Slide 9 that, at least in my memory, for the first time, you engaged in options, I think, sort of directional bet on the Russell 2000 through the Put Spread Buy. Do you think that you'll be doing more of that in the future to try to hedge macro risk in the portfolio while generating alpha through the outstanding single stock picking?

--------------------------------------------------------------------------------

Kevin M. Rendino, 180 Degree Capital Corp. - Chairman, CEO & Portfolio Manager [3]

--------------------------------------------------------------------------------

You want to -- so we'll do one question at a time. Thanks, Adam, for calling. The macro -- I just think and look -- and it's hard to deal with what's going on, on a daily basis. Like we're -- it's a market by tweet. If fortunately, the tweet came out today that they were signing a deal with China, the market will be up 1,000 points. And then the next tweet would say something else and the market would be down 1,000 points. So it's very, very difficult to predict the daily movements. It's -- so that's number one. We expect volatility -- we expected volatility to pick up at the end of the summer. It's clearly already picked up. The election cycle has me completely discombobulated. I think it's going to be a very nasty campaign.

I don't think that plays well for the markets. And depending upon the swings of who's winning, the market is going to move around in any set of different directions. I think equities in general are -- while the market is up a ton, equities, in general, look better than bonds. I mean I've been wrong on the bond market forever, but I'm not buying the 30 year. I don't really care that the 10 year has inversed to -- I mean who cares that the 10 year -- that we have an inverted yield curve when the 10 year has got moving a 3 basis point change to the 2 year.

I don't really care about that. I think the -- and I think the place to still be is the equity market as long as we don't fall into a 2008-like recession. So I'm not necessarily bearish, I'm -- I just think -- I think there's going to be movements all over the place. And I don't know whether the movements are going to be straight line up or down. I'm just concerned. There's a lot of moving parts, and many of them are fairly negative. The -- Daniel, you want to just touch on the option thing that we did?

--------------------------------------------------------------------------------

Daniel B. Wolfe, 180 Degree Capital Corp. - President, CFO, Chief Compliance Officer, Portfolio Manager & Director [4]

--------------------------------------------------------------------------------

Yes. So as you've noted, and then we talked about in the slide, earlier in the summer, we did feel like there was going to be some increased volatility, but we also thought that there is a potential for earning shortfalls and that maybe the economy, and especially for small-cap names, wasn't as good as people were expecting. I think at the end of the day, those results became -- actually were better than expected. But the volatility that Kevin mentioned led to a sharp decrease in the Russell back in late May or early June, and we took the opportunity to take off -- to book a gain on that spread that we put in place. It's really hard.

To your point on hedging and potentially putting on additional of those, I mean, we always look at those -- the opportunity to do so and think about it. It's really hard as -- with the thing that Kevin is talking about, when you're betting on tweets, it's really hard to predict time lines, and we tend to try to look at more fundamental bases when we think about these types of hedging systems but...

--------------------------------------------------------------------------------

Kevin M. Rendino, 180 Degree Capital Corp. - Chairman, CEO & Portfolio Manager [5]

--------------------------------------------------------------------------------

We can't hedge what we own. It's not a perfect way to do it because many of these companies don't have options. The best way to do it is to buy puts in the S&P or the Russell, not Straddles or anything like that. You really want to buy portfolio insurance, you really want to do that, you can. Would we do that? We might. I don't know. I don't know the answer to that. I don't want to predict what we're going to do. We have the -- if we want to do it, we can. Let's put it that way. Go ahead.

--------------------------------------------------------------------------------

Daniel B. Wolfe, 180 Degree Capital Corp. - President, CFO, Chief Compliance Officer, Portfolio Manager & Director [6]

--------------------------------------------------------------------------------

What else, Adam?

--------------------------------------------------------------------------------

Adam Waldo, Lismore Partners, LLC - Chairman of Managing Members [7]

--------------------------------------------------------------------------------

Oh, no, no. Fair enough. I appreciate it. On the third-party money management business, I mean, obviously, the track record you have built is unbelievable, and it's fabulous. And arguably, given the positions you're taking, you obviously have the bandwidth to match quite a bit more capital. So what's kind of the latest on avenues to grow third-party capital under management, whether through open-end or private vehicles?

--------------------------------------------------------------------------------

Kevin M. Rendino, 180 Degree Capital Corp. - Chairman, CEO & Portfolio Manager [8]

--------------------------------------------------------------------------------

So we'll always do SPVs around single IVS, that's number one, that's the easiest way to raise money. It's a very simple way to raise money. We've had a number of in-depth discussions with various third-party fund-to-fund folks. We ask ourselves every day, does managing third-party funds where you're getting 1 in 15, is it worth it. I mean clearly, you want to generate as much income for 180 as you can, but now you've got a whole set of new people you have to answer to, other shareholders, the fund-to-fund people themselves. So a lot of work. And is it worth 1 in 15?

You have to ask yourself that question. Then it's not really 1 in 15 because you're paying a third party for the opportunity to raise -- for them to raise money for you. So then the income gets grinded down even more. So that's not to say that we've declined trying to raise a fund but I would say the economics, I'm not sure if I -- if our Board is willing to pay the economics to take us away from what we've been doing with our own balance sheet. So a lot of conversations are ongoing with other distributors, other potential partners who do what we do. Obviously, we haven't arrived at a decision one way or the other. So that's what I'd say about that. We are ongoing conversations. It's not something that I just say. It's -- we've had a lot of conversations, there's nothing really to report on today, Adam.

--------------------------------------------------------------------------------

Adam Waldo, Lismore Partners, LLC - Chairman of Managing Members [9]

--------------------------------------------------------------------------------

Fair enough. I mean, just philosophically, is the Board's view that the ideal situation is to close the NAV gap relative to the share price and then at a future point ideally, you scale the existing vehicle through capital raises around NAV?

--------------------------------------------------------------------------------

Kevin M. Rendino, 180 Degree Capital Corp. - Chairman, CEO & Portfolio Manager [10]

--------------------------------------------------------------------------------

That's the best way to do it. In our -- look, we have to get approval to sell stock, and then the stock has to be at NAV. The fact that our stock is still less than $2 with an NAV north of $3 is comical. And slightly annoying. If you could tell from my voice.

--------------------------------------------------------------------------------

Adam Waldo, Lismore Partners, LLC - Chairman of Managing Members [11]

--------------------------------------------------------------------------------

I'm sure, you're annoyed but in the current circumstances, it's unbelievable.

--------------------------------------------------------------------------------

Daniel B. Wolfe, 180 Degree Capital Corp. - President, CFO, Chief Compliance Officer, Portfolio Manager & Director [12]

--------------------------------------------------------------------------------

Yes. Adam, obviously.

--------------------------------------------------------------------------------

Kevin M. Rendino, 180 Degree Capital Corp. - Chairman, CEO & Portfolio Manager [13]

--------------------------------------------------------------------------------

So I'd have rather have permanent capital rather than not-permanent capital. Because permanent capital allowed us to things that we did in the fourth quarter. When everyone was having redemptions, we didn't. We didn't have to sell. Other people did. We bought what people were selling. You look at our -- just look at what we have been doing over the course of the fourth quarter. So we would much rather have permanent capital. We have to figure out ways to get more of that. That would be #1 priority. What's your third question?

--------------------------------------------------------------------------------

Adam Waldo, Lismore Partners, LLC - Chairman of Managing Members [14]

--------------------------------------------------------------------------------

Nice. So just quickly on Synacor. You joined the Board obviously -- the management's track record here over promising and not delivering is pretty significant, obviously the AT&T situation is what it is, and the cost structure remains pretty high relative to peers. So how -- you make reference to being -- looking forward to working to engineer a 180 degree turn in the share price, which I think, we'd all welcome. But I mean realistically, what options are there that you see as you work with the existing management and the existing board?

--------------------------------------------------------------------------------

Kevin M. Rendino, 180 Degree Capital Corp. - Chairman, CEO & Portfolio Manager [15]

--------------------------------------------------------------------------------

So in terms of the business itself, to be very clear about the relationship with AT&T, it's an awful one. And while we may not wanted to have lost that business because it does cost us some EBITDA, the fact of the matter is, it's an overhang. Because it's always going to have a contract in 3 years that you had to renew. They are a bully, they are a terrible partner to deal with. They made promises, in my view, that weren't kept, from what I understand. And I think that at the end of the day, it's the best thing that we -- that they've chosen another Board of Partner. Because any time you wanted to talk to another party about your business, they would always say well, I don't really want to get involved, AT&T is an overhang, whether they were a poor customer or not.

And there's a lot of companies that don't want to deal with AT&T. So I actually think, in the same manner that I thought taking out the senior liquidation preference at TheStreet was a seminal moment, I actually think losing AT&T is a seminal moment for Synacore. Half its business is software and services, much of that is recurring with gross margins of 80% and operating margins in the 30s. The enterprise value of $40 million does not reflect that business. You'll be able to better see it because they've done segment reporting now for the first time ever. That was one of the things, we encouraged them to do and they've done it. So now you can look at the split of the businesses.

I don't argue at all that this has been an overpromised, underdelivered situation. It's why we went on the Board. Because we were -- sort of wanted to have a little more say in the things that were going on there, and we think we can help them. And they needed new IR firm, and we think they're going to get one, well, they have a new IR firm. We think that's a help. They used to be focused on just revenue growth, now they are focused on profitability. So if you look at the EBITDA over the course of last couple of years, it has gone from 0 to 6 to 12.

I mean they have done an okay job, if you just look at the numbers themselves. But the truth of the matter, it's been an unsuccessful investment from start to finish. I like the Board. I think the Board is very smart. I think the Board has -- wants to do the right thing, but you have to do the right thing. And I'm enjoying my time on the Board. There's a lot of work to be done, but there's an asset there and a management team that I think we can win with. And at $1.32 a share, if I can own more stock, I would. I'll just leave it at that.

--------------------------------------------------------------------------------

Daniel B. Wolfe, 180 Degree Capital Corp. - President, CFO, Chief Compliance Officer, Portfolio Manager & Director [16]

--------------------------------------------------------------------------------

(Operator Instructions) All right.

--------------------------------------------------------------------------------

Unidentified Analyst, [17]

--------------------------------------------------------------------------------

Am I coming through?

--------------------------------------------------------------------------------

Daniel B. Wolfe, 180 Degree Capital Corp. - President, CFO, Chief Compliance Officer, Portfolio Manager & Director [18]

--------------------------------------------------------------------------------

Yes. You are, [Wendy].

--------------------------------------------------------------------------------

Unidentified Analyst, [19]

--------------------------------------------------------------------------------

I just had one thing to say thank you so much. That's all I've got. I'm hanging up, have a great day.

--------------------------------------------------------------------------------

Kevin M. Rendino, 180 Degree Capital Corp. - Chairman, CEO & Portfolio Manager [20]

--------------------------------------------------------------------------------

That's the nicest caller statement that you can get. [Wendy], thank you very much for your comment and thank you for being a supporter since we started. It means a lot to us. Thanks.

--------------------------------------------------------------------------------

Daniel B. Wolfe, 180 Degree Capital Corp. - President, CFO, Chief Compliance Officer, Portfolio Manager & Director [21]

--------------------------------------------------------------------------------

Thanks, [Wendy].

--------------------------------------------------------------------------------

Unidentified Analyst, [22]

--------------------------------------------------------------------------------

Kevin and Daniel, I want to reiterate what -- Adam asked all the good questions and you've gotten wonderful answers and you're -- anybody couldn't do any better. Keep it up. Good luck. Thanks.

--------------------------------------------------------------------------------

Daniel B. Wolfe, 180 Degree Capital Corp. - President, CFO, Chief Compliance Officer, Portfolio Manager & Director [23]

--------------------------------------------------------------------------------

Thanks, [Sam].

--------------------------------------------------------------------------------

Kevin M. Rendino, 180 Degree Capital Corp. - Chairman, CEO & Portfolio Manager [24]

--------------------------------------------------------------------------------

Wow. Another. Thanks, [Sam]. Again, I love to hear your voice every quarter. So it's -- it means a lot. It's never going to mean anything until our stock works. And it's very, very, very frustrating. And this management team and this Board is going to have to figure that part out, and I think we're going to have to figure that part out sooner rather than later if this continues.

--------------------------------------------------------------------------------

Daniel B. Wolfe, 180 Degree Capital Corp. - President, CFO, Chief Compliance Officer, Portfolio Manager & Director [25]

--------------------------------------------------------------------------------

Great. I'm seeing no further questions in the queue.

--------------------------------------------------------------------------------

Kevin M. Rendino, 180 Degree Capital Corp. - Chairman, CEO & Portfolio Manager [26]

--------------------------------------------------------------------------------

Okay. With that, I hope that everyone is able to navigate the choppy waters. It's best that you can. Hope everyone has a great rest of the summer. Again, just to reiterate, while we have gotten off to a unbelievable start this quarter, you now know what we own. The quarter isn't over, a lot can change, for the better or for the worse. We wanted to just give you highlights of where we were given the fact that nobody knew we owned Maven and Quantum until last night. We look forward to either visiting with you on the phone or in person over the course of the next few months, and I wish everyone a great rest of the summer. Thank you.

--------------------------------------------------------------------------------

Daniel B. Wolfe, 180 Degree Capital Corp. - President, CFO, Chief Compliance Officer, Portfolio Manager & Director [27]

--------------------------------------------------------------------------------

Thank you, everyone. You can now disconnect.