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Edited Transcript of TINY earnings conference call or presentation 8-Nov-19 2:00pm GMT

Q3 2019 180 Degree Capital Corp Earnings Call

NEW YORK Nov 17, 2019 (Thomson StreetEvents) -- Edited Transcript of 180 Degree Capital Corp earnings conference call or presentation Friday, November 8, 2019 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* 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

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Conference Call Participants

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* Adam Waldo

Lismore Partners, LLC - Chairman of Managing Members

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Presentation

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

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Good morning and welcome to 180 Degree Capital Corp.'s Third Quarter 2019 Financial Results Call. This is Daniel Wolfe, President, 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 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 relating to future events. Statements contained in this presentation that our forward-looking events 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 Securities and Exchange Commission for a more detailed discussion of the risks and uncertainties associated with the company's business that could affect the company's actual results. Expect -- except as otherwise required by federal securities laws, our 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.

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

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Thank you, Daniel, and good morning, everyone. On Slide 3, you'll see the summary of our Q3. We had a terrific quarter, resulting in an 8% increase in our NAV. This against the backdrop of the Russell Microcap Index actually declining by 6% in the quarter.

Our increase in NAV was highlighted by a 28% return of our public holdings. The public holdings that aided performance were led by Quantum, TheMaven, PCTEL and Adesto, while we had decreases coming from Mersana, Synacor and Airgain.

On the private side, we did have a $0.05 hit to NAV, driven primarily by declines in HALE and D-Wave.

Finally, we concluded our investment in TheStreet and resigned from the Board. In total, we turned a $5 million investment into $12.2 million.

Next slide, please. So for the first time in 4 years, our NAV has climbed above $3, rising to $3.05 at the end of the quarter. It should be noted that every last $0.01 of this increase, since we started, has come from our investments in the public markets.

On the next slide, you'll see a chart. We have consistently told you we have 2 primary goals. One is to grow our NAV, and two is to narrow the discount our stock trades at relative to our NAV. Our belief has always been that as we increase our cash and liquid securities as a percentage of our NAV, the discount should narrow. You can see the progress we have made now that half of our balance sheet is liquid. Remember, when we started, that number was only 27%. So we've made progress here in narrowing that discount.

As always, on the next slide, we show you our normal sources of change to our NAV for the quarter. What you see here is a -- is $0.34 of gains in the public portfolio, a $0.05 hit to our private portfolio and $0.06 of expenses, 2 of which were normal and 4 of which were from an accrual for our bonus pool for the employees of 180. Daniel will have more on that later.

I do want to mention one note on this. In the last 3 years, personally speaking, I've essentially spent 76% of every last dollar that we've -- I've earned from TURN, making open market purchases of TURN's stock. If you take into account after-tax money, that number would be greater than the 100%. So as always, we're aligned with our shareholders. When you do well, we do well.

Next slide is our sources of change in net assets from Q4 to -- of '18 to Q3 of this year. Here, you'll see $0.59 of gain from our public holdings, $0.07 of a hit to our private portfolio and $0.11 of expenses, including that accrual, which we just mentioned, leading to an end result of $3.05.

On the next slide, you'll see our sources of change in net assets for the entirety of 180's history. Almost a wash, rinse and repeat slide. I think that most people would agree that the Board and shareholders of 180 made a smart intelligent move with regards to refocusing our investing in the public markets. We've generated $1.05 or nearly $33 million worth of gains in our public holdings, followed by $0.06 of losses in our private portfolio over that time. Obviously, we have expenses, including we had the onetime expense in the first quarter of '17.

We have a 30% return versus a 6% return for the Russell Microcap despite having only access during the last 3 years of about 36% on average to be utilized as liquid. So we've done a pretty good job at increasing our NAV against -- who we compete against despite only having 1/3 of our balance sheet available to us.

On the next slide, you'll see the positions that helped us in the quarter. Quantum increased by $6.4 million or $0.21 a share. They successfully completed a restatement of their financials. They provided a solid financial forecast when they reported the last quarter. The next step for them is to uplift to a national exchange and hopefully closing some hyperscale customer wins.

TheMaven increased $2.8 million or $0.09 a share in the quarter. They closed their acquisition of TheStreet's consumer business and also a 100-year license of the Sports Illustrated print and digital business. They raised additional capital at $0.70 at the end of Q3. We invested $1 million into the round.

Adesto increased by $1.1 million or $0.03 a share. They had a positive earnings report. This drove the stock to over $10 a share. We have sold 76% of our position in the last few months at an average sale price of $9.73. Subsequent to that, they announced a convertible debt offering. The stock sort of collapsed back to the $7.50. It should be noted, this is the smallest position size that we have had in Adesto since 180 started. It is now only -- or it's less than a 2% position. You'll recall that at times, it was a 10% position over the last 3 years. So Adesto has certainly been massively reduced by us here as the stock has appreciated.

Finally, PCTEL increased by $1 million or $0.04 a share. This was an undisclosed position at the end of Q2 as we were buying it at the time that we announced our second quarter. Subsequent to that, the company reported a better-than-expected quarter and gave -- raised guidance. The stock subsequently increased very quickly. And we were unsure of the -- whether the appreciation of the stock was warranted. And we had initially set our eyes on some potential activism. And we want -- we were planning on working with the company, except the stock moved so quickly and so fast in such a short period of time that we used its increase to actually sell it as it almost became -- it almost got to our price target in literally 2 months. So it was undisclosed last quarter, and we don't own it at the end of Q3.

On the next slide are notable decrease -- companies that hurt us. Mersana, which has been on this page multiple times. Unfortunately, long-awaited announcement of their dose expansion trial came with very little new data and an announcement that the company plans to continue dosing at higher levels. There's not a lot of near-term catalysts on the one hand. On the other hand, the company is now trading at a negative enterprise value. We understand they spend money and they bleed the balance sheet over time. But they've got a good solid 2-year runway now given the capital they raised, even though it was dilutive, at least they have it now. And so with the stock trading at -- basically at a negative enterprise value, we're not selling it.

Synacor was down $0.01 a share. The company wound down its AT&T agreement at the end of September. At the end of September, they reduced staff costs, and they continue their efforts to rightsize the business. The focus now is on the growth of the software business, both the e-mail and the CloudID business and remaking this company around the SaaS model. They're working much better to communicate its go for -- go-forward operating plan. As a matter of fact, they reported yesterday. And while the stock didn't go up, it was a very good solid transparent report of where they're going and what the financials look like without AT&T.

Airgain hurt us by $0.01. They announced a weaker-than-expected quarter. You'll remember, we have been dramatically reducing this position as well in the preceding quarters, up near the $14 or $15 stock price. The company recently promoted a new CEO, and the former CEO went back to the Board to continue his role as Chairman. They're not in a great spot right now with the China trade war tariffs and a slowdown in the home router network. We subsequently sold the remainder of our position this quarter.

Finally, on TheStreet, if you turn to the next page. Our history with TheStreet is emblematic and illustrative of the type of active, I can never say that word, sorry, of active engagement we seek when working with companies. As you know, we started with our initial investment in TheStreet in the summer of '17. We then did our big deal with them in September -- or I'm sorry, October of '17. We invested $5 million. We achieved a $7.2 million gain or $0.23 a share during the course of our involvement, $11 million -- $11.4 million of that came from straight equity, including equity grants from Board participation; $600,000 came from carried interest from the SPV that we set up at the time that we took out -- that we worked with the company to take out TCV; $100,000 in cash board fees; and another $100,000 in management fees from the SPV. So obviously, a worthwhile investment. It is now essentially closed.

On Slide 12, you'll see our performance for our public holdings by company, led by PCTEL, Adesto, TheMaven and Quantum. We were up 28.7% in the quarter.

The next slide, Slide 13, this is our year-to-date performance of our public holdings. We've generated a 38.8% return, led by the aforementioned names and also TheStreet, Iteris and Airgain.

On the next slide, this is our year-over-year change in performance, 24.6%. And what I love about this chart is our performance here comes during a time when the market had a 22% meltdown in the fourth quarter by the Russell Microcap Index. So you don't see that in these numbers. But this performance is pretty terrific considering what happened last fourth quarter.

The next slide is, I've looked at this slide many, many times. This is not fake news. We are actually up 180% on a gross total return basis since we started in January of 2017, 187.9%. You can see the list of companies that have performed the best. Obviously, TheStreet at the top of the list; USAK helped us immeasurably; Adesto, of course; and Turtle Beach. We forget that we owned Turtle Beach for 42 days, and it generated almost a 400% return for us over that period of time.

On the next slide is a summary of the preceding 4 slides on one page. As you can see, our performance against the Russell Microcap, and basically, every single one of these indices, whether it's the S&P 500 or the Dow, our performance of our public holdings has really been remarkable over the course of every single time frame, both good markets and bad markets. And this is the summary of all that we've been able to achieve here over the first -- almost 3 years now of our tenure.

On Page 17 is the source of -- is the NAV change, I should say. Obviously, I wish when we started, we had more capital to invest. This takes into consideration the fact that even despite our remarkable returns in the public markets, we've had no returns. As a matter of fact, negative returns on our private portfolio. And obviously, we have -- we also have expenses as well, given -- even given that fact, we're up 15.5% on our NAV this year, almost doubling the Russell Microcap. And again, this is against the backdrop of having higher than most expenses relative to our peer group and a private portfolio that was roughly 60% of our portfolio as we started the year actually being down for the year. So we are quite pleased with the NAV change for this year through the first 3 quarters of the year.

On Slide 18, we show this pie chart every quarter as well. Again, we are trying to turn this chart from being mostly gray to all green. It is not the easiest thing in the world to do given the fact that we can't make our private holdings monetize. They're going to monetize when they monetize. The good news is we've literally doubled the available capital to us to invest in our new holdings. And that has come simply from stock picking, I mean, good old fashioned, bottoms-up stock picking. And now the number is -- basically, 50% of our balance sheet is now in our public holdings. So that was always our goal is to have more green here in this chart. We've been able to do that over the course of the next 3 years. Obviously, the goal is that we don't want to have $1 of our assets in private holdings. It's not going to be something we can get to tomorrow, but we certainly have been making progress on this front over the course of the last 3 years.

Finally, in terms of where we are quarter-to-date. On the next slide, we're -- our public portfolio is up about 3%, $0.03 or $1 million. This is led by changes in Quantum, a new position in Potbelly, which Daniel is going to talk about, very excited about our new -- our last -- or our recent name that we just added to the portfolio. We've had declines in Iteris and LAM so far this quarter. And again, as of November 6, our cash and liquid securities totaled $49.1 million.

With that, let me turn it over to Daniel, and then I'll come back for concluding comments.

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

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Thank you, Kevin. Please turn to Slides 20 through 22. As Kevin mentioned, in Q4 2019, we started buying shares of Potbelly, and currently own approximately 3.4% of the company.

For those of you who are not familiar with Potbelly, it was founded in 1977 in Chicago, Illinois. Potbelly completed its IPO in October of 2013. Today, it has over 450 stores throughout the United States, with primary concentrations in Illinois, Texas, Michigan, Maryland, Washington D.C., and Virginia. And it generated collectively about $400 million in revenue. Approximately 90% of the stores are company-owned. Throughout its history, Potbelly has been known to provide its customers with high-quality sandwiches, salads, soups and other offerings. The stores are designed to offer a welcoming ambience and sometimes include live music.

The company completed its public offering during a time of interest from investors in higher-end fast casual dining options. This initial excitement about the company drove the stock from its IPO price of $14 to a high of $32.40 per share. This excitement was fleeting, however, as same-store comparable sales declined significantly shortly after its IPO. While the company had fits and starts to improve its sales -- comparable sales, the decline continued and actually accelerated in 2017. Around this time, Ancora Advisors and Privet Fund Management, 2 investors who we know well, engaged in activist campaigns against the company and its Board. Both investors obtained seats on the Board of Directors of the company as a result of these campaigns. Additionally, the company appointed a new CEO, Alan Johnson, in December of 2017. We continued to monitor the company following these changes. Fast forward to 2019, Potbelly's same-store sales continued to decline, reaching similar levels those as seen in 2017, and the stock declined to a historic low of $3.60 in August of this year.

The company has repeatedly shown up on our screens over the past year. And we've got -- as we've gotten to know it better, we believe that it has the potential for a 180-degree turn as it implements a variety of business changes to its businesses. For example, the company engaged a consulting firm to help refocus its customer engagement and marketing efforts to better compete with other sandwich offerings in what is generally seen as a crowded space. It is making changes to its menu to simplify the ordering experience as well as incorporating mobile ordering and delivery services that are increasingly important for today's customers. It is also working to improve its franchising opportunities by lowering the capital required to open a new store and exploring options to refranchise company-owned stores in certain geographies.

We think highly of Ancora and Privet and their respective representatives on Potbelly's Board of Directors. Also important and different than many companies in the space, Potbelly has a clean balance sheet with no bank debt.

Lastly, we believe that Potbelly has an endearing brand that is synonymous with quality food that customers enjoy, and that can be turned around with appropriate changes, many of which are already underway. Our position as of today stands at approximately 790,000 shares, or as I said, 3.4% of the company, with an average cost of $4.35 per share. As of yesterday, the stock closed just above $5 a share.

Please turn to Slide 23. This slide lists our top 10 legacy privately held holdings by value as of the end of the quarter. While we continue to believe there are companies in the portfolio -- private portfolio that hold promise to build value, the time lines and potential exit values for these companies are highly uncertain. We have often talked about our desire to shepherd our existing privately held portfolio to -- or explore -- or to exits -- or explore opportunities to sell our positions in these companies. As Kevin said, why is that? It's simple, it's just math. Since the beginning of 180 Capital, we've added $1.05 in NAV due to our public portfolio performance and 0 from the private portfolio. We are disappointed with the pace at which we are able to monetize our privately held investments. But to be clear, our ability to force liquidity events is very limited because we don't own controlling stakes in the majority of these businesses.

Please turn to Slide 24. As we have discussed in prior calls, we have greatly reduced our operating expenses from before 180 Degree Capital began its real operations, which make it far easier to grow NAV than in years past.

For Q3 2019, our operating expenses, net of sublease income equaled approximately $700,000, which is about $50,000 higher than our expenses for the same quarter a year ago, primarily due to timing of a software license payment and year-over-year increases in outside compliance and auditing costs. Because we have achieved positive results year-to-date in this quarter, the compensation committee of our Board of Directors voted to accrue $1.15 million of potential bonuses in 2019 in addition to the $292,000 accrued in the prior quarter. As a reminder, the bonus accrual includes the concept of deferring 1/3 of the full amount for payment in future years only as individual and corporate performance is persistent. This accrual could change materially depending on full year performance.

Please turn to Slides 25 and 26. As we discussed on last quarter's call, we currently anticipate reductions in our operating expenses as a percentage of net assets will be based on growth in our net assets rather than further reductions in our expenses. Last quarter, we also mentioned we may make investments in our business by adding to our investment staff, which would increase our operating expenses. Our current budget and slight increase in our projected operating expenses as a percentage of net assets primarily reflects our new analyst hired, Dillon Davis, who joined us this October. 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 27. As we do each quarter, this slide represents a scorecard of our performance during the first 3 quarters of 2019 on multiple metrics compared to the end of 2018. We are encouraged by our performance through the third quarter and year-to-date, and we are focused on continuing to work to build shareholder value each and every day.

I will now turn the call back over to Kevin.

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

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Thanks, Daniel. On Slide 28, you'll see the sum of the parts. As you can see, with the stock price of $2.14, I know it's debatable, but if you gave us 100% credit for all of our cash and our liquid securities, you'd have a total amount of $1.47 in cash and liquid securities, which means the rest -- the per share amount of $0.67 would be how the market was trading or private portfolio -- or looking at our private portfolio, and basically, the market is saying that the rest of the business is trading at $0.42 on the dollar taking into consideration the $1.47 per share that we have in cash and liquid securities. So a significant discount, obviously, to where our marks are for our private holdings.

Finally, before we open it up to questions, our goal for 180, we'll say this every quarter, we want to be known as a prominent and dominant leader in our world of public company constructive activism. We think we're well on our way to have a brand name in this space. We will always continue to strive for excellence in investment performance. If you can't pick stocks, you're not going to be successful. Period, end of story, that's where it starts, and that's where it ends. And we really want to be known as game changers for helping businesses generate positive shareholder returns. Activism means a lot of things to a lot of people. We start with a collegial attitude around helping management teams. I think our -- the work we did at TheStreet was with the management team, the work we're doing with Synacor was with the management team, and we think at the end of the day, those have the potential for having the most benefit or the most upside rather than just destroying a business and running a proxy contest and firing everybody. Sometimes, companies -- we're going to do that from time to time, but that's not and never will be our starting point. We truly do want to help businesses, help management teams and help Boards.

And as always, we are 100% aligned with shareholders, the only way that we get compensated if we do well for our shareholders. We've said that from day 1, and we continue to be significant owners of our stock and will continue to be buyers in the marketplace as time goes on.

So thank you very much for your time. And Daniel and I will now open it up for questions.

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Questions and Answers

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

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(Operator Instructions) Our first question comes from Adam Waldo.

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

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Kevin, we've known each other for a very long time. I'm not prone to hyperbole, but your performance has been just breathtaking under the new strategy. I'm just thrilled, obviously, and I know your shareholders are more generally.

You've now gotten the discount to NAV down about 30%. It seems to be hanging in there in the 30% to 35% range. Even in softer markets, it only goes back to about 35%. The cash and liquid securities are around half of assets. Does that put you in a place where -- I know you're frustrated with the discount to NAV. You talked about that quite a lot on the last quarterly call, I know a lot of shareholders are as well, despite the wonderful job you guys are doing. So does your amount of liquid securities or the construction of your balance sheet now give you the option for the Board to consider modest amounts of leverage as a way of increasing the amount of liquid assets you can invest in the public strategy while you wait to monetize the private?

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

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Good question. By the way, I know you're in Chicago. I'd like to see you have lunch at a Potbelly today and give us a rundown of what you think of it.

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Adam Waldo, Lismore Partners, LLC - Chairman of Managing Members [4]

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I'll try to do that.

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

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Thanks. A really good question. And here's what I'd say. One, while -- I guess, I'm -- I'll just -- I'll always be frustrated with our share price, that's just kind of who I am. Even if we do well, I think we can do better. That's just how we're built here. I do want to say that since we've started, the stock has gone from $1.37 to roughly $2.25, that's a significant return for our shareholders. And I know that people have held it long before we got here and changed, but I will say, I have to be fair. Our share price has advanced far greater than any indices has advanced -- any index has advanced, I should say, over the last 3 years. So let's keep that in mind.

Your point, though, is incredibly valid. I mean the more cash and liquid securities we have, the more flexibility we have to do a bunch of things if we want. Do we want to buy back stock? We've talked about that in the past. Do we want to have a onetime dividend or a sustained dividend? You have a better chance of being able to do that. There are a high -- a greater chance of doing it when you've got more money in the bank. Do we want to think about other strategic things? Partnerships, you mentioned leverage. I just think we're in a place right now where -- when we started, we had to convince the world. We had to convince ourselves that we can do what we said we wanted to do. And I think we've done that. And now as we think about the next 3 to 5 years, I think there's more strategic things that we need to think about, obviously, in cooperation with our Board of Directors. So the long-winded answer there, Adam, is all things should be considered. We want -- we've talked about having more capital. We want more permanent capital. Our expense base, forget about the accrual for the bonus pool, is roughly 3.8%. That is greater than, for the most part, all comparable funds that we compete against. But one of the reasons why it's tolerable is because we have permanent capital. And permanent capital is the most precious capital and is a distinct advantage that we have over everybody that we compete against, that runs an open-end mutual funds. And look, we only have to go back and look at the fourth quarter of last year, when the Russell was down 22%, and there was a rash of withdrawals, redemptions, forced liquidations, and we sat there with the basket not having to sell anything, and actually looking at that dislocation as buying opportunities for many names. So if -- we need to figure out how to get more permanent capital in here. Does that mean we do a secondary? Does that mean we do a rights offering? Does that mean we take on leverage? I don't know, but we want more permanent capital. I can tell you that's one of our goals here over the course of the next 3 to 5 years.

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Adam Waldo, Lismore Partners, LLC - Chairman of Managing Members [6]

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Well, for whatever, it's worth. It seems to me that sort of the most painless way is to take moderate leverage, give yourselves more dry powder in the near-term and not have to go through some of the other more challenging and dilutive of management attention and focus options that I know are on the table. And that's why I brought it up. Just quickly on Potbelly, interesting situation, obviously. And you know a lot of the activists here, they've certainly been involved for a while. Why now given the comp store sales declines continue you really feel that the sort of myriad initiatives they have underway are going to turn the comps here in the not-too-distant future? And how do you as the sort of new incremental potential activist here add value with some very accomplished other activists already on the Board?

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Kevin M. Rendino, 180 Degree Capital Corp. - Chairman, CEO & Portfolio Manager [7]

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So we love when smart people do the work for us. And clearly, Ancora and Privet have been at this now for a couple of years. There's been a sweeping change at the Board level. There's been sweeping changes in the management level. There's been sweeping changes in strategic decisions. So this company would never have talked about refranchising or has never talked about refranchising until Monday, when they reported their earnings and actually talked about wanting to refranchise. That was one of our things that this company should be doing, is they need to start refranchising. They also need to continue to close underperforming stores, and they also need to franchise, not just refranchise, but actually franchise because that is a higher multiple business, if you can have a franchise model versus having company-owned store model. So they also announced in the last month or 2, a package of franchise opportunities in 3 markets: Tampa, Las Vegas and Charlotte. And that is a -- I mean, they only have 10% of their storefront right now is in the franchise model, that would double once those franchises are up and running. That will take time. But at least, it's a step in the right direction. We -- and then in terms of the comps, look, the stock is not -- it was not at $3.80, down from $30 or even $12 from 2 years ago because they were knocking the cover off the ball. That's not the way the stuff works. So we invest in businesses when the news is bad. But we invest in businesses when we think the news is going to get better or at least the company has put in place a set of strategic decisions, operational decisions, new changes like their agreement with DoorDash and Grubhub or reducing the size of their box from $675,000 to $450,000. It's a new management team that has sort of been at this now for 1.5 years. It's -- they're on the clock. So a lot of the changes they've made to the store experience, simplifying the menu, making it easier when you go into a Potbelly store to actually know what you're doing, it was very convoluted and pretty confusing in the past. And then, look, I'm not really a fan of consultants in general. I don't think you need consultants if you're a -- if you have operational -- if you're a great operator of a business. You don't need someone to come in, in there and tell you what you're supposed to be doing. It should be -- you should know what you're supposed to be doing to begin with. But they did hire a consultant, a reputable one. They spent a lot of money on that consultant. They said how much they spent in the fourth quarter. I think they're very -- that got them a lot of customer data that they never had before. They just never analyzed their business the way they're analyzing their business today. And I think when you have -- it's like anything else, the more data you have, the more you know about your customers and the more you know about your competition, the better off you'll be in operating your business. So they've got a lot more information at their disposal. And I think at some point, the labor cost increase, which has hurt them in the past year, that will comp. That will -- they'll get to a year-over-year place where the comparables are a lot easier than they are now. Their SG&A will be reduced. Their advertising can be reduced, not increased. So this whole game is about comps and traffic. And we'll see. We'll see if they're able to turn their business. And if they're not, we're not going to sit around here and keep our mouth shut, you know that. So we're optimistic around all the things they're doing, and we'll see over time, whether it -- whether their operational changes come to fruition with regards to the income statement.

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Adam Waldo, Lismore Partners, LLC - Chairman of Managing Members [8]

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Well, obviously, a phenomenal job and intriguing new investment, good luck with it.

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Daniel B. Wolfe, 180 Degree Capital Corp. - President, CFO, Chief Compliance Officer, Portfolio Manager & Director [9]

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(Operator Instructions) And that's it.

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

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Okay. Well, thank you, everybody. As you can see, we're pretty excited about our most recent investment. We're excited to have our new analyst, Dillon Davis, onboard. And we're halfway through the fourth quarter. We look forward to reporting on the fourth quarter and the full year results some time early next year. And we hope that everyone has a good day, good weekend and happy investing. Thank you.

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Daniel B. Wolfe, 180 Degree Capital Corp. - President, CFO, Chief Compliance Officer, Portfolio Manager & Director [11]

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You can all now disconnect.