180 Degree Capital Corp (TURN) 2020 Q4 法說會逐字稿

2020 Financial Results Update 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 will 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 has our safe harbor statement. This presentation may contain statements of a forward-looking nature relating 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 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.

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.

Thanks, Daniel, and good morning, everyone. Let's start on Slide 3. We got some really good news to share this morning. First, on the quarter itself, we grew our NAV by 7%, which was similar to Q3. Although, unlike Q3 when our public stock picking (inaudible) the indices, this quarter, our public stock picking underperformed the indices.

The most important part of where we stand today versus where we stood when we started back in early 2017 was back then, we had $20 million or $1.92 per share in cash and liquid securities. At year-end, that number was $59.7 million or $5.77. Because our strong start to 2021 -- because of our strong start to 2021, our cash and liquids now stand at over $70 million or $7.02, which happens to be very similar to where our share price is trading. That means, as always, when we do our sum of the parts analysis, the market is valuing our private portfolio at roughly 0. In our minds, that's certainly not the right price.

As for the public portfolio, we had strong performance this quarter from Quantum, Alta Group and Potbelly, with Maven and Sonim lagging behind. We had a few intra-quarter purchases in sales, Kirkland Group, Perion and Delta Apparel.

On the private side, the portfolio increased by $2.6 million, led by HALE and ORIG3N. You now know about the SMA that we were managing that we started midyear in 2020. The performance was good, and we were able to generate $2.4 million of carried interest, which has been wired back to us.

We did complete that 1-for-3 stock split, and that went relatively smoothly. And as I said, we've gone off to a great start this year, and our 24% return for our public portfolio has added $1.33 to our NAV from the $9.28 where we closed that. So we're well into the 10s in terms of where our current book value is. Of course, that's before any private market adjustments up or down and obviously, normal expenses.

At this time, we are announcing an agreement that we have reached to invest $2.3 million in a newly formed sponsored vehicle that plans to form a SPAC. We are part of the promote of the SPAC. We have worked with the founding management team in a prior investment, and we'll be excited to share the details as events unfold over the next couple of months.

While this is our first investment in a SPAC-sponsored vehicle, it is not likely to be our last. It really is gratifying to see our business evolve from one that had no future to where it is today, where we have significantly grown our NAV, our share price, and are able to take advantage of exciting investment opportunities like the SPAC investment opportunity that we've made. We have come a long way.

On Slide 4, we show our NAV. In the 5 years before we got started, our NAV was in a steady decline. Fortunately, for us, the last 4 years have shown the opposite pattern. Our NAV at year-end was higher than at any point since June of '15, and where we are as of last Friday, higher than any point we have been since 2014. It certainly has been a nice turnaround.

Next slide, please. I like this chart more than any other. When we first started, we had a specific plan for what we wanted to do. But in reality, you don't know if you're going to be able to execute on that plan. While so far we have, and as a result, we have grown our cash and liquid securities from $1.92 per share, as I've said, to over $7 today, which gives me great optimism that it's possible we have only just begun.

Just from a math perspective, it's certainly harder to grow your cash from $20 million to $73 million than it is to grow your cash from $73 million to say -- let's say, $150 million.

At $150 million just alone, our cash and liquid securities would equate to a share price of nearly $15 a share. We have built some scale here, and that theoretically should make the job easier to get to a much higher share price than where we sit today.

Of course, we need to execute on our stock picking and the macro will matter, but I like where we sit today, certainly versus where we were.

On Slide 6, here's the discount to NAV chart that we show you every quarter. At quarter end, we trade for $0.70 on the dollar, up from the $0.55 on the dollar or so that we traded when we first started. This is a function of us having more cash and liquid securities, taking up a bigger portion of our balance sheet. We'll have more on that later, but for now, please go to Slide 7.

We have talked a lot about how this has been a painful period for value investors. Given the economic disaster the pandemic caused, investors, for the most part, have shied away from any company with any economic sensitivity and focused on the very few companies that were able to withstand the downdraft of economic activity.

For example, 3 stocks: Amazon; Apple; and Google, equaled half of the entire S&P 500 move for 2020. You can see the underperformance of value to growth in the above chart. Well, almost to the day that Pfizer announced its vaccine to combat COVID-19, the market finally began to widen out.

Now that the vaccine is here, investors have begun the process of playing for the recovery, and as a result, since the Pfizer announcement, value has actually outperformed growth, as seen in the below chart, which looks at the Russell Value to the Russell Growth Index. As long as the recovery takes hold, and we think it will, we think this trend will continue.

On Slide 8, we show our normal sources of changes in our NAV. Starting with an $8.70 book value, we added $0.51 of gains from our public holdings and $0.25 of gains from our private holdings. We had $0.18 of expenses, which was the normal $0.08 per share of OpEx, plus a $0.10 accrual for paying out the deferred portion of prior bonuses as well as setting aside a pool for 2020.

On Slide 9, it's the same chart except for the whole year. You will see $0.88 of gains from the public portfolio and $0.40 of losses from the private portfolio.

On the next slide, if you wanted to see evidence for why we think our decision to refocus our business has accrued to the benefit of shareholders, then this slide tells the story. We've been able to achieve a whopping $4.42 of gains in the public market since we've started, while at the same time, having $0.58 of losses in the privates.

On Slide 11, here's the performance of our public holdings for the past quarter. We've told you that we run a concentrated group of stocks. Our performance can be more episodic than others and less reliant on the market itself. We've seen both sides of that in the last 2 quarters. Whereas in Q3, we were up over 20% versus single-digit returns in -- for the indices, this quarter was the opposite, and we lagged the market melt up.

On the next slide, we were helped by a few names this past quarter, as you can see. Quantum increased by 33% or $0.22 per share as hyperscaler customers began returning to purchasing and the company continued to make progress on its product development efforts, which will help the company transition to a SaaS model.

Alta Group, like most cyclicals, started to perform well as investors began to look to the other side of the pandemic. The stock was up 27% or $0.13 a share.

Potbelly was up 16% or $0.07 a share for us. The good news, the stock was up as Q3 results showed improvement in store traffic and signs of a recovery was evident. The bad news is it's still a restaurant stock in the middle of a pandemic. So while the long-term is bright, and we think the stock can trade into the double digits, the next few months may still show some weak topline growth until the pandemic is fully behind us.

Slide 13 shows our notable declines in the quarter, mostly Maven, which had a 22% decline in the VWAP calculation that we use to value the position.

Company needed to raise capital in the past quarter to offset cash burn, and the company is still late in getting its final numbers current. That said, we do think the company will get current this quarter and uplift next quarter. We remain very bullish on the business, which is run by Ross Levinsohn, especially since we think there'll be an advertising recovery in 2021, which has already started.

Slide 14 is the performance of every stock we owned in 2020. The good news is, we beat the Russell Microcap Value Index by over 1,000 basis points. We underperformed the Russell Microcap by 200 basis points.

I will say, if you told me in March of this past year when the Russell was down 30% that we would be up 18% for the year, I would have taken it.

On Slide 15, this shows our performance for every stock we've owned since we started. We've generated a total return of 265% over the last 4 years, including the carry from the SMA, which equates to a 56% IRR. I'm pretty proud of that.

Slide 16 is a different look at the prior slide. What this slide tells me is, we've done a very good job of allowing our winners to win and thus, generating outside returns, and a good job of ensuring that when we lose an investment, and we will, we minimize the losses.

Our batting average has been terrific and our slugging percentage, which weights the win percentage versus the loss percentage, is even better.

On Slide 17, this is the total summary of all that we have done on the public side: a not so great quarter; an okay year; a fabulous long-term track record of public stock picking. The NAV growth has been muted because we started with 75% of our assets in a group of companies that have actually gone down in value over the last 4 years.

Fortunately, 4 years later, we start with 70% of our assets in our new strategy, cash and liquid securities. NAV growth, over the next 4 years, will be more dictated by how we do in our public stock picking rather than how we do with our privates.

Just a few comments on attribution and the benchmarks themselves. I encourage you to read our shareholder letter, where we have a much larger conversation about benchmarking and what 180 thinks of it. The long and short of it is this: the relative benchmark game is riddled with silly conundrums. We are not running TURN to beat an index. That's the institutional, and becoming more and more of the retail mindset. We are focused on generating attractive absolute returns for shareholders. We look at each investment on its own merits, never once being driven to either own or not own a company based on the weight of that company in the index.

Look at the 2 tables on Slide 18. On the left is the Russell MicroCap Index and on the right is the Value Index. On the financial side, we have a structural issue that we need to deal with. Because of the 40 Act rule, subject to the safe harbor for such investments set forth in Rule 12d3-1, investment companies like 180 are limited in the amount of any company we can own, of any company that generates 15% or more of its revenues from security-related activities, including as a broker or a dealer or an underwriter or an investment adviser.

We are simply not going to have 33% of our fund in financials at any point in time, which happens to be the weight in the Russell Microcap Value Index. While that hurt us this past quarter, it helped us considerably for the year, given that the group was down.

Let's look to Slide 19 and focus on the Russell Microcap Index. On the healthcare side, there are a couple of things to point out. First, the healthcare sector represents 30% of the assets in the Russell Microcap Index. And the 35% return for the health care sector in 2020 contributed 55% of the total return of the index. Given our Graham and Dodd value investment focus, we do not have a significant portion of our assets invested in healthcare-related companies.

In the chart below, on Slide 19, I list the top 10 healthcare performers in the Russell Microcap Index and their corresponding valuations on an enterprise value to forward sales ratio. I'm not denigrating these companies as investments are making bearish claims about them. What I'm saying is that they are part of an index that we are simply not going to own from a valuation perspective. It's not what we do.

Again, please read our letter on how we think about benchmarking. At the end of the day, if we do what we've said we're going to do and focus on the Graham and Dodd philosophy that we espouse with our activism, hopefully, at the end of time, we will trans the indices like we have over the course of the last 4 years. But we're not trying to game them in any given one quarter or even in a year.

On Slide 20, our pie chart, which we show every quarter. We set out to turn this entire company's balance sheet into cash and liquid securities, and we've made great progress, as you can see here. I certainly won't be satisfied until this entire pie chart is green.

On Slide 21 is a current look at the quarter. Of course, you never know how it plays out, but we're off to a great start led by Quantum, Sonim and Synacor, which as most of you know, Synacor was taken over $2.20 a share 2 weeks ago.

While that may not have been how we thought the story would have first played out when we first invested in it, and in fact, it wasn't how we thought it was going to play out, we do take comfort that when we became Chairman of the company in March of 2020, the company was taken over at a 100% premium to that time. So our involvement mattered at the end of the day.

Also, our SMA is off to a great start, which can lead to carried interest coming back to the holding company if we can hold our gains throughout the course of 2021. Daniel?

Thank you, Kevin. Please turn to Slide 22. This slide lists our 10 largest legacy privately held holdings by value as of the end of the quarter. For the quarter, our private and portfolio increased in value by $2.6 million or $0.25 per share. The largest increases were ORIG3N, HALE, Black Silicon Holdings. We had slight decreases in value in AgBiome and EchoPixel.

In almost every shareholder letter, we state that while we desire to shepherd our existing private portfolio to exits or to explore opportunities to sell these positions at some point, either the companies or the portfolios as a whole, we have the luxury of being able to sell our private holdings when we believe it makes sense for shareholders rather than being forced to do so to survive. Because you haven't seen a monetization in any given quarter, it doesn't mean we haven't been active in attempting to monetize certain holdings or the portfolio.

The remaking of our business and the significant cash and securities of publicly traded companies that we have built means we don't have to sell anything unless we feel it is the right thing to do for shareholders. I can tell you that we have projected numerous bids for the private portfolio from "sharks" thinking that they can come in and steal the portfolio from us and you as shareholders. That will never happen under our watch. I can't emphasize enough the difference between having to sell and wanting to sell. We do not have to sell anything, given our success in remaking our balance sheet over the last 4 years, and we won't, unless the price makes sense.

Since the start of TURN, our private portfolio, as Kevin mentioned, has reduced NAV by $0.58, while our private -- public investing strategy has increased NAV by $4.42. And I will remind and it's important to note that future results may be materially different than prior results.

I'd also like to say, we continue -- we're actually a little tad more optimistic about the opportunities for liquidity in the private portfolio than in prior years, primarily as a result of the growing acceptance of SPAC as its path to public listing.

Public listings, prior to the late 1990s, were often conducted by early-stage companies looking for growth capital and to be able to use their stock as currency. I actually think Intel went public with a market capitalization of $40-some million.

From 1990s to 2019, public listings were seen primarily as exit events for early investors. The company needed to be at a late stage of evolution to command $1 billion market capitalizations required to garner the attention of Wall Street banks and investors. SPACs have brought the public market opportunities for private companies back to somewhere in the middle.

A lot of the reservations companies have with pursuing IPO listings do not apply to a merger with a SPAC. Pricing negotiations happen before the public announcement rather than after the filing of a registration statement and a significant expense has already been spent, and a roadshow then is conducted to develop investor interest.

The process can be consummated much more quickly than an IPO and for pretty substantial less upfront cost. In an IPO, company can only talk about prior results during marketing. With a SPAC, the prospective merger candidate can present future projections about the business.

All of these attributes combined present a compelling opportunity for private company that was not acceptable to many of their investors or management teams previously. Again, this is why we're a tad bit more optimistic about cash and liquidity for our private portfolio. Starting out in 2021, we continue to talk to each of our companies about them, and hopefully, there's some opportunities there, but we'll have to see how it develops.

Please turn to Slide 24. As we have noted in previous letters, we've dramatically reduced our cost structure under our new strategy. In 2016, before our funds changed in investment focus and management team, our operating expenses, excluding stock-based compensation and interest on outstanding debt, averaged approximately $1.3 million a quarter.

For Q4 2020, our operating expenses equaled approximately $645,000, which included an approximately $400,000 reduction in our medical benefit -- medical retirement benefit accrual. The increase in legal expenses, as you see on the slide, is related to our activist efforts during the quarter, particularly with Maven.

Given our persistent performance, the Compensation Committee approved approximately $638,000 deferred bonuses awarded in 2019, and that is accrued and included in our reported NAV for Q4 2020.

The Compensation Committee also set aggregate 2020 bonuses at $849,000, $720,000 of which is included in NAV as of December 30, 2020. The remainder will be paid over the next 2 years if performance in 2020 is persistent at the discretion of the Compensation Committee.

Please turn to Slide 25 and 26. We continue to anticipate the 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 operating expenses.

The positive events in Q4 2020 and year-to-date 2021, as discussed previously, if they hold throughout the year -- quarter and year, we'll continue to help reduce these expense ratios further. We remain committed to treating every dollar of shareholder money with the utmost care and consideration. As we have always said and continue to repeat, it is so much easier for us to grow NAV when the expense hurdle rate is where today -- where it is today rather than what it was historically.

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

Thanks, Daniel. Our normal sum of the parts chart is on Slide 26. The market is essentially paying us next to nothing for the $37 million worth of assets we have. We've talked about this at Nauseam. AgBiome, in itself, has a $13 million valuation. And we have royalty payments, which were infinitely more than the nothing that the market is paying for our private assets.

You've all heard me be quite cautious on the private side over the years. That's because we don't have controlling stakes, and because I don't -- we don't know. And we're always and have been uncertain of the timing of monetizations. But like Daniel said, I can sit here. Today, I'm more confident, we have a chance of monetizations this year than I would have said last year. And that's because of the progress many of our holdings have made in their businesses and because of the advent and the proliferation of SPACs.

This is not a promise. But as most of you know, we carefully choose our words when we're talking to you. I think there's a better chance of something happening this year than I would have said it was a possibility in 2020. Again, that's not a promise, but we're, for sure, more optimistic on the potential for monetizations of our private portfolio.

Outside of that, as I said earlier, when I first got here, we put a strategy in place, which we thought would be good for the public shareholders, but we didn't know how it was going to play out. And I'm really delighted that now, we've got some scale in our balance sheet, and we've got the ability to take our share price from where it is to levels much greater because we started at a higher price.

So as I said earlier, it's much harder to take $20 million in assets and turn them into $73 million than it is taking $70 million of assets and turning it into $150 million, just math. And that, as I said, can get us to a $15 stock. And if we can ever get ourselves to become a $300 million a year business, which is certainly possible over the next 5 or 7 years, and now you're pushing towards the $30 stock.

So when I first got here, I thought it was a turnaround. I didn't know if we could figure it out. We did. We have. We built the real business. We built some scale. And I'm more excited about the next 5 years than I have been about the last 5 years, that's for sure.

So we'll stop there. Daniel, maybe you want to open it up and we can take some questions?

Absolutely. (Operator Instructions) Our first question comes from Brandon Goyette. Brandon, please go ahead.

Well, obviously, I think you know my question, Kevin. It's going to be related to private companies and discussions with SPAC. Since you're not a controlling shareholder, can you at least confirm, if any, to your knowledge, are in discussions, either IPO or SPAC trying to -- obviously, not specific names, but a number or yes or no?

Yes. So we're not going to do that, as you know. But if you just listened to what I just said, you can make an inference. So this is a -- and we did our own SPAC. We're going to promote our own SPAC that we're really excited about, which we think is going to be a huge win for our shareholders.

But you can imagine that there is a lot of activity taking place with private companies and the proliferation of SPACs, and we own a bunch of private companies. So hopefully, many -- some of them are having those conversations, and how it plays out will remain to be seen.

But you certainly -- you would expect that, that would be the case, right, Brandon? So I think that's how I want to answer the question.

I was going to say, considering Nanosys filed for IPO back in 2001-2002, I think a 20-year wait is about time.

Tell me about it. Listen, I could tell you what we've told our companies. I mean, that's not providing any information that the companies wouldn't want us to tell you. But we've been very aggressive in pointing many of these companies into the direction that they should be going with all these SPACs being formed, and we'll continue to do so.

Unfortunately, sometimes, you don't have a controlling stake. And what you don't want to do in the private world is make enemies because when they raise capital, they can cram you down if they don't like you. And we're not putting new money into the private. So you have to sort of walk a fine line between trying to be collaborative and collegial and helpful and making outright demands, like we can do when we write a letter to the Board of Enzo. A few weeks ago, where we could be pretty direct and harsh, you can't really do that in the private world. But yes, we've -- of course, we've tried to point them in the right direction.

And Brandon, just adding to that, is the -- it's a lot about education, where the things that I said in my remarks. There is -- a lot of the -- even the venture capital world and especially these early stage companies, they just really don't know a lot about that path to market.

And so we've been spending a fair amount of time on education of opportunities to hopefully open up the possibility that some of those could go. But I think the other part that is crucial, and it goes to what Kevin just said is, we can't force them. We can't -- but at the end of the day, it has to be a path that is acceptable to the other investors. And up until recently, SPACs were never seen as a viable alternative path to market.

It was, historically, you have to have JPMorgan, (inaudible) firm as the lead on your S1, and that's the only way you can go public. And historically, actually, (inaudible) had a company that was being corded to the TSX and there were a bunch of investors that were interested and the lead investor in the company said, "We do not put companies on the TSX," and the company ended up going bankrupt.

And so now, we have a situation where at least we're not the only ones evangelizing that this is an acceptable path to potential capital as well as liquidity for investors. And -- so we'll see where it goes. But we're glad that it is an alternative that's available for the points that you raised on a lot of these companies have been in the private and existence for a very long time.

Just to your point as well is that I think that once investors and the general investing public sees some upside, unrealized upside in that portfolio, you'll start to trade not only go from a discount to NAV to a premium, like in 2002 during the nanotech bubble, it went from a 40%, 30% -- 30%, 40% discount NAV to a 600% positive.

Well, I could tell you, there's a couple of private companies that if they were public, the market would be super excited about. And so -- and maybe that could happen here again. Like I said, we've been so used to losing here in the predecessor company that -- when you first take over a business that's failing, it takes a long time to reorient itself towards what winning feels like again.

And that's just the truth. I've seen this a thousand times in the investments that we make. And this was a failing enterprise where losing was just the norm. And now, you know what, now winning is becoming more prevalent. And that's why I'm just more optimistic.

We've really shaken the past and put ourselves in a position where we're able to promote us back. I mean, you couldn't do that 2 years ago. So I am more optimistic, given what we've been able to accomplish over the last 4 years than I have been. And now, the private portfolio, which was an anchor and a headwind is now an option, and it's ridiculous that it's -- literally, our share price is trading below cash and liquid securities. It's absurd.

It's a free option, and many of these businesses are really well well run. So as you know, the market doesn't figure it out in the next day or so, then I'll go marching back into the market buying back stock because I think over time, I'm not joking, my goal is to get the share price to $15 to $20. I mean, that's where we're at here. So we'll see where it goes. But if we can get back to those nano-cap days, that'd be fun, too.

Thanks, Brandon. Bob, go ahead.

Kevin, could you -- on Page 1 of the handout, value creation through constructive activism, could you talk a little bit about where you are on that effort? Are you seeing discernible changes on the part of companies? Are they more receptive?

And then, maybe elaborate on the types of things that you would obviously advise, control whatever in terms of the company and its needs, and trying to direct them in a positive direction.

So that is our -- I mean, that's who we are and that's what we do. That's our MO around here. We start with the fact that we're -- I'm a Graham and Dodd value manager. That's the way we do. We focus on companies that trade at 2/3 of the market on either price-to-earnings or price-to-cash flow, above average dividend yields, half the market on a price-to-book value ratio.

So price matters from the start. If a stock is not cheap, it's not going to get into the portfolio. But just because it is, it doesn't mean it is going to get into the portfolio. The activism is, many of the companies that we're focused on in the microcap world, don't know -- don't know how to be public.

There are either companies that came private -- that came public by their founders and Board of Directors that was in the founder's pockets. They don't do the right things for shareholders. They don't spend money properly. They don't know what ROIC is. And they need to know that if they're in the public markets, they're supposed to be taking care of all shareholders, not just themselves.

And so, for us, it's making sure that the company has proper corporate governance, which means it's diverse in both gender and race that, have the appropriate skill sets. So if it's an information technology company, you better be sure that many of the Board members have technology experience in the business that, that company is in. We want to make sure that the CEO is -- certainly is running the business for shareholders and not lining his own pockets.

So we always look at compensation and the rest, and make sure the compensation is aligned properly with how Glass Lewis or Steve would look at it and (inaudible) would look at it and the rest. So we certainly look at that.

And look, many of these companies may have -- let's say, they have 3 businesses, 2 of which are good and 1 of which is bad. And sometimes, they need the impetus of pressure for us to convince them to sell the bad business.

As we sit on boards, I don't know if you do, but it's amazing how stagnant boards become. Nobody wants to make a decision. Everyone who wants to go to a Board meeting, have the Board meeting be over. There just becomes just a lack of fluidity to a company's progress, especially ones that have been around, and even ones like ours, which we're failing. And sometimes, these companies don't know how to fix it. They are just stuck.

So every company is different. Activism is not the same for every single company. Sometime -- and by the way, we don't want to go on to Board, so it's not really our goal. We'll run a proxy contest at the end of the day, if we have to. And we won't invest in a company if we don't think we could successfully run a proxy comps test.

But going on Board is time-consuming. We actually don't want to do that. We just want to help companies understand how to get their businesses from point A to point B, just like we took TURN from where it was to where it is. And that's just providing sort of 30 years of experience that I have and the experience that Daniel has in helping these companies solve for that.

Sometimes, it's just -- you need to change your IR. Sometimes it's -- you got to fire your CFO and replace him. Sometimes it's the Board having to move on the CEO. It could be a lot of different things. It could be asset movements. So it could be stops spending 30% of your revenues on R&D because you're not getting a return on it.

So it's all different. It's all meant to be collaborative and collegial. And most of the time, it is. And some of the time, it's not.

One last thing on it. It is a -- and I know this because I worked at BlackRock and Merrill, it matters. So before, at BlackRock, we could quietly advise companies, but we can never write a public letter like we wrote, blasting the Board of Directors at Enzo. You just didn't do that.

And we were told, when I started, well, if you don't like the way a company is being run, then vote with your feet. Well, that's not what we do here because activism can improve returns and is a tool that we have, which can enhance the returns for our shareholders in any one investment.

It's a -- and it's a really good tool to use. If you use it properly, you use it professionally and you're efficient about how you use it. Thanks.

Thanks, Bob. Adam, go ahead.

I want to focus on 2 topics. One is AgBiome in the private portfolio, and the second is the new business pipeline as it relates to third-party assets, either through the SMA model or other vehicles.

On AgBiome, if we look at Slide 22 from the presentation this quarter, which is always very helpful, at the market close on Friday, on the public portfolio, it was just under 12% of your total assets. And the rest of the private portfolio, while some may be promising in a robust new issue environment, it's pretty small potatoes at an individual position level, especially because I think you have the Petra Milestone Rights carried at a very conservative carrying value.

So on AgBiome, there's been a new high-profile Chairman added, the former longtime CEO of Bayer in Germany. Based on what I can see publicly, and obviously, you see a lot more than I do, it seems like the company is progressing very well with its commercialization with its first couple of products. Obviously, the new issue market is very robust, both for traditional IPOs and, as you guys have emphasized, their SPACs. So is there anything you can tell us about what the path may look like this year for AgBiome, either in terms of kind of operational progress milestones and/or potential liquidity events? Then I'd like to follow-up on the third-party assets.

Go ahead, Daniel.

Yes. So I can't go into too many specifics. But what I can say is that the company did receive EPA authorization -- state-level EPA authorization for its first product throughout, I believe, it's all of the contiguous United States, which is the main market for the Howler products. And so that's really exciting, so we can start seeing that hopefully ramp into 2021 as their first product.

They've made continuously good progress with their partnerships as well. And I think, adding the former CEO of Bayer as the Chairman is just another piece of the puzzle that I think sets the company up for potentially good opportunities coming forward. And I think, look, as we said in our remarks and an answer to earlier question, there -- we'll talk until we're and speak till we're blue in the face to these companies about the opportunities that the public markets present, not just for liquidity for their shareholders, it really comes from more effective that it provides a new level -- a different level of currency for the company to be able to build its business.

And AgBiome is clearly getting to that point of where it's a growth capital opportunity. And so, we think there are opportunities that there could -- for the company in the public market. It's now up to the company to make that determination and decide what it wants to do. We're not on the Board and we're obviously not the largest shareholder. So we don't have that level of control.

But we -- you can definitely take the heart that we will -- we are -- we continue to talk to AgBiome as well as all of our other companies about opportunities that we see, and we're hopeful that some or more of them will take advantage of that.

No, that's fair. Like, they have a lot of larger late-stage venture blue-chip investors in that company, obviously, and they're very sophisticated as to -- from the delayed ventures to others. So presumably, those larger shareholders are having those fairly active conversations with management as well. Hopefully, it turns into a bit of a concavity according them.

Turning to the third-party assets and SMAs or other vehicles, can you just update us there? I mean, obviously, your first larger SMA has done great. How are things looking as we're getting a little bit more traction and getting past the pandemic in terms of pitching the excellent 3-year track record for new third-party assets?

So a couple of things on that front. I think, a couple of things we learned last year. One, I talk about investors being incredibly risk-averse in my shareholder letter. Well, fund-to-fund people are also. Especially if they don't know who you are, they literally need to be babysat and watched, and they need to watch you over time.

So whatever on that, you know the way that works. By the time they decide to make an investment in you, it's probably over. So there's some of that stagnation of while this is a new thing for us, and I'm just in the middle of a pandemic, I can't focus on anything new. I just want to focus on the fund managers that we're using.

So the other part of that is, a lot of these fund-to-fund companies, they need to -- the asset managers themselves, they need to actually check the box of coming to see you. And there isn't a lot of coming to see anybody last year.

So you can't go to your Chief Investment Officer and say, "I'm recommending this new name". And they're like, well, tell me about the facility and how many people. Well, they don't know. They haven't been here. So hopefully, that will loosen up to some extent, and it will.

I will say the following. We're going to go down a different road this year. It's a little soon to talk about it. Hopefully, it will be something that we can talk about in the next quarter or so. But getting on financial service companies platforms, like at Merrill, for example, I was on Morgan Stanley's platform. At BlackRock, you're on everybody's platform. That's hard to do.

It takes 3 years usually to get on someone's platform. And that was even for the largest funds that we used to run, but we had time back then, so we did it. I don't necessarily want to be on Smith Barney's platform or Morgan's platform. They're just never going to give us the assets that we desire, and it's going to be too painful and too time-consuming.

And just trust me on this one, I -- literally, I'll pull the rest of my hair out trying to chase a few dollars. But what we think we are trying to do is get on a smaller company's financial platform that actually wants us to be on the platform because they do what we do. And so, hopefully, we'll have some news on that.

In the meantime, we'll continue to do what we're doing on behalf of the SMA that we have. They're happy, we're thrilled. I'd love to have more capital on our own balance sheet. That would be job 1, if we can figure out how to do that, as you know.

And as Daniel said, we brought back $2.4 million worth of carry. And when you think about that, that basically offsets most of the normal operating expenses of our business before bonus pool is paid. We have roughly $3 million worth of -- you have to be public company expenses and. What the asset that we have almost brought back the entirety of that burn.

So we're happy with what we have, and we're not going to -- if people don't want to invest in us, I don't want them here. And I only want people that are like-minded to us in terms of their investment in us and really get to know them. But clearly, we think we've done a good job in and are deserving of some outside capital, and we'll see how that progresses this year.

Okay. Keep up the great work. And as far as 2021, off to a great start.

Keep shoveling out there in Chicago.

Please, go ahead.

Kevin, I got 2 questions for you guys. One is, what do you guys think about the current environment as far as the landscape in the microcap space? I know, you noted in your great letter. By the way, thank you for always writing great letters. The Microcap Index has obviously gone up. Obviously, that's not -- a lot of the constituents are not what you do, but how do you feel about it?

And number 2 was, you guys have a substantial equity positions now in cash and marketables. Do you guys ever lend your shares to get interest income or to food stack? Those are my questions.

Look, I'm not really -- big picture, the backdrop for a healthy market is here. We're in the middle of a recovery. We think the market will recover. We do think the vaccine was the -- is the primary focus in getting the company -- the economy from where we were to where we're going.

So I do think the backdrop is fairly healthy here over the next 2 to 3 years. And companies are not -- just the ones that we own are not super expensive. Now, I'm not -- that's not -- I'm not talking about GameStop here. I'm talking about the ones that we own. But who can be -- who can possibly be comfortable when the Russell Microcap was up 30% last quarter and it was up 20% this quarter?

I mean that's a huge move. So do I think we can have a pullback? Yes, 100%. Do I think the pullback is long in the tooth, it should have happened already? I do.

So on the margin, we've been selling some of our positions. We've been probably more net sellers than buyers for sure in 2021 as we've seen this melt up. The indiscriminate selling or the indiscriminate buying in any period creates the opportunities, and it certainly created the opportunities in March of last year to buy, and this one has created an opportunity to sell as well.

Now unfortunately, I don't own GameStop. So they have the opportunity to sell at $485 a share. But there are names that we own that have performed quite well, and we've been using this environment to sell them and wait for a rainy day and look for better entry prices.

But we don't -- look, I'm never going to perform properly in a market that's indiscriminate about what's working. And that's what the fourth quarter was, and that's what the early part of this quarter has been. That's not my market.

My market is rewarding companies that have actual real fundamental improvements in their business relative to everything else. And that's why I stuck that chart in there about the healthcare things. The top 10 healthcare names, they were up 700% and traded 100x revenue. Like if that's going to be the market that we live in, that's -- I'm going to be -- we're going to be left by the way -- by the doorstep here. We're just not going to keep up with the market, but I don't think that's sustainable because I -- and I -- because I do think it's ridiculous.

At the end of the day, the price that you pay for the business you're buying and the price that you sell a company for matter. I mean, I don't care what anybody tells you, valuation matters. It always matters. It may not marry -- matter today, but it will marry over a cycle, for sure.

The second part was -- what was the second part?

You guys lend your shares?

We would if somebody want to buy them and somebody wanted them. It's not like we have a -- we haven't. There's not a lot of shorting of the names that we own. They're real companies and -- but we would, for sure. I mean, that was a business that -- at Merrill and BlackRock that was a big business for us, actually.

We would lend out all our shares. But then, it was IBM, GE and the rest. And I mean, certainly, if somebody wants to borrow our shares of Sonim, or Plantronics or whatever, we'd be more than happy to clip a coupon by lending them out. There's no reason not to.

Please go ahead. I just -- your line is open.

Hello. Kevin?

Yes.

Yes. This is Ron Lazar calling.

How are you?

Okay, good. I wanted to compliment you on the great job you're doing with the company. You really allowed the company to live up to its name. It really has been 180 degree turn in the right direction, that's for sure.

So I'm very happy about things there. I did have a question regarding -- on December 21, you put out a press release that 180 Degree plans to begin a share repurchase under a $2.5 million buyback program. And then 2 days later, on the 23rd, you and several directors bought over 100,000 shares personally at about $1.90 a share.

So last night, I read your shareholder letter, which was a great letter. But in the letter, I didn't see any mention of the company buying back stock. So could you explain that?

So two things. One, when -- if you remember the letter I sent about why we were doing the 1-for-3 stock split, it was -- we were doing it because many shareholders, including our largest, had told us that the stock below $5 is almost uninvestable for their clients and they don't -- they won't buy stocks. Some of them won't buy stocks less than $3, some won't buy stocks for less than $5. And let's make it more investable to the broad universe, and you should think about a reverse split solely for that reason.

The second reason also is because for a company with $60 million market cap, we had 30 million shares outstanding. And as we looked at the landscape, that was just too many relative to our competition.

So when we did the 1-for-3 reverse, as you know, when you do a 3-for-1, everyone thinks that's great. When you do a 1-for-3, everyone thinks that's stupid.

They think it's -- 1-for-3 -- reverse stock splits are done from unhealthy companies, companies that maybe are going to get delisted. And so they have to get the share price higher. And so, they do the fake -- reverse split to get their share price above a certain number so that they can stay listed on the exchanges.

Well, that's not why we were doing it. But I also know how companies that have had reverse stock splits trade, and they trade poorly many times because of this notion that lousy companies are doing them. So we wanted to make sure that if we were doing the 1-for-3 for the right reasons, if investors were going to treat us poorly because they were misinterpreting why we were doing that, and we're going to sell our stock at any price because, I mean, I know this sounds stupid, but oh, my God, TURN is $6, it was just $2, I'm going to sell it, like literally, that happens all the time.

And if there was any level of dislocation in our shares, we want to be there to buy them. And so we put in a plan because we were going into our quiet period because we were ending the quarter to buy our stock prices, and we gave them limits. At this price, buy x amount. At that price, buy this amount. At a lower price, buy this amount.

Our stock price traded better than we would have thought before the -- after the reverse split and never got to any of our prices. And so, no, we did not buy it. We certainly have a program in place to buy it, but the share price never got to the levels that we set. Does that answer your question?

Yes. And I just want to make the point, like always -- Warren Buffett always says, you would buy back stock when it's 120% of book value. And here, we had a stock that was 30% below book value. And even today, I think, it's 25% below book value.

So I always thought buying stock below book value because it could be used later at higher prices as a currency for acquisitions or for fundraising and a secondary offering, there's a lot of good reasons to do a buyback. So I just hope that it's being considered. That's all.

Well, so here's the thing on that, and I agree with that. And I told you, I'm a Graham and Dodd value manager. So I'm aligned with Warren on share repurchase at the right price. But, Ron, we -- this is permanent capital that we're managing. This is permanent capital. And we were able to achieve a 265% return for our investors on the capital that we started with back 4 years ago.

People kill for permanent capital. If I give -- we give it away, what's the -- so what's going to happen? First of all, you can't buy enough for it to be materially accretive. I'd have to buy back 20% to 30% of the float, which I can do, by the way, if that's what everyone wants me to do.

But when you're doing that, you're also signing away your future because my future is taking the capital that we have and turning the $70 million into $150 million. And that's how we're going to get the stock from $7 to $15, not from buying back $1 million or $2 million worth of equity. It's not going to matter, really isn't.

It's certainly there to provide stability, but it's not going to provide long-term value for our shareholders. And if you're going to give back permanent capital, you better be doing it for a reason because that's capital you never get back ever again.

And if you remember, a couple of years ago, it was like this in March of last year, when everyone was selling, we get to sit here and buy whatever it is that we want to buy because nobody can take our cash. And that creates the opportunities that we're able to achieve during periods of dislocation, like we said.

So March of 2020, some people were selling because they had to. They were getting redemptions. We were able to buy. The same at the end of 2018 in the fourth quarter, it was a disaster quarter. Or was it '19? I forgot. '18. Everyone was redeeming and we were sitting there with a basket buying X, Y and Z, and it led to a great year of performance the following year.

So I'm with you on share repurchase. But for a closed end fund that this is what our business is, it's a little different.

But that has not stopped the management team from buying it, and that's after-tax dollars with our own money. That's not a stock that's given to us. We can't pay people in stock around here. So any purchases that Daniel makes or I make or Rob Bigelow makes or our Board makes is with money out of our pockets, not money that were gifted.

And the queue is now -- is empty. I think we're ready to end the call.

Well, thanks, everyone. I appreciate your consideration of TURN as an investment, and we really have enjoyed talking to all of you. You know where to find us. We're here because you own the company. And if you want to talk about TURN at any given point in time, email us and we'll be more than happy to get on the phone with you.

I wish you the best of luck in 2021, and hopefully, this pandemic will be behind us at some point this year. And we can get back to a normal environment, and boy, that would feel great for all of us.

Thank you so much for your time today, and happy investing.

Thank you, everyone. You can now disconnect.