Q4 2020 180 Degree Capital Corp Earnings Call

Your question. Please press star six the recording has started and meet financial results update call.

And this is Daniel Wolfe, President and portfolio manager of 180 of your capital.

Kevin of R&D, and our Chief Executive Officer, and portfolio manager and I would like to welcome you to the our call. This morning. All participants are currently in a listen only mode. Following our prepared remarks, we will open the line to questions if you'd like to ask the question. Please type of star six on your phone or click the ask a question of icon. If you are participating by computer.

I would like to remind participants of this call is being recorded and that we will be referring to a slide deck that we've posted on our Investor Relations website at IR day, one eatery capital Dot com under the financial results. Please turn to slide two of 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 here in D. C.

The company's filings with the security and Exchange Commission for a more detailed discussion.

One of the risks and uncertainties associated with the company's business like for the.

The company's actual results, except as otherwise required by federal Securities laws of 180, Recapitalize 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 three and.

And some really good news to share of this morning first on the quarter itself. We grew on a V by 7%, which was similar to Q3, although unlike Q3, when our public stock picking trounced the indices this quarter of 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 of $1 92 per share per share and cash and.

Illiquid Securities at year end, and that number was $59 7 million or $5 and 77 and because of our strong start to 2021 because of our strong start to 2021, our cash and liquid now stand at over 70 million of $7.02, which happens to be very similar to where our share price.

The trading that means there's always when we do our some of the parts of analysis of the market is valuing of our private portfolio at roughly zero and arm.

And that's certainly not the right price.

As for the public portfolio, we had strong performance this quarter from Quant them all of the group and potbelly with Maven and sort of lagging behind and we had a few intra quarter purchases and sales Kirkland group Perry on and Delta apparel on.

And the private side of the portfolio increased by two 6 million and led by hail and origin.

And you now know about the SMA that we're managing that we started mid year 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.

We did complete that one for a three stock split and that one relatively smoothly.

And as I said, we've gotten off to a great start this year and our 24% return for our public portfolio has added.

The $1 33 to her and a V from the $9.28, where we closed out so we're well into the tens in terms of where our current book value is of course, that's before any private market adjustments, you know up or down and obviously of your normal expenses.

At this time, we are announcing an agreement that we've reached to invest $2.3 million and the newly formed sponsor vehicle that plans to form of spec. We are part of the promoter of the spec.

I have worked with the founding management team and the prior investment and we'll be excited to share the details and Vince unfold over the next couple of months. While this is our first investment in the spec sponsored vehicle. It is not likely to be our last it really is gratifying to see our business evolved from one that had no future to wear it.

And is today, where we have significantly grown our LTV our share price and are able to take advantage of exciting investment opportunities like the spec investment opportunity that we've made we've come a long way.

On slide four we show of any V and the five years before we got started our NAV was and a steady decline Fortunately for us for the last four years of showing the opposite pattern.

And a V 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've 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 well. So far we have and as a result, we have grown our cash and liquid securities from a dollar of 92 per share of as I've said to over $7 today, which gives me great optimism that it's possible. We have only just begun just for my math perspective, it's certainly harder to grow your cash from 20 million for 73 million.

And it is to grow your cash from 73 million to say, let's let's say $150 million and.

$150 million, just alone our cash and liquid securities would equate to a share price of nearly $15 of share.

We have built some scale here and that theoretically should make the job easier to get to a much higher share price and where we sit today of course, we need to execute on our stock picking and the macro of matter, but I like where we sit today certainly versus where we were.

On slide six here's the discount to NAV chart that we show you every quarter at quarter and we trade for 70 cents on the dollar up for.

From the 55 cents on the dollar of show 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 seven.

We've talked a lot about how this has been and painful period for value investors given the economic disaster. The pandemic caused investors for the most part of shied away from any company with any economic sensitivity and focused on the very few companies are able to withstand the downdraft of economic activity for example of three stocks Amazon App.

And Google equal to half of the entire S&P 500 move for 2020.

You can see the underperformance of value to growth and the above chart well almost of the day that Pfizer announced its vaccines to combat COVID-19. The market finally began to widen out now that the vaccine is here and investors have begun the process of plain for the recovery and as a result since the Pfizer announcement value has actually outperformed growth has seen and.

And the below chart, which looks at the Russell valued 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 eight we show our normal sources of changes in the rent a V. Starting with a $8.70 book value. We added 51 cents of gains from our public holdings and twenty-five sense of gains from our private holdings. We had 18 sense of expenses, which was the normal eight cents per show of Opex plus of Tencent accrual for paying out the deferred porch.

And of prior bonuses as well of setting aside of pool for 2020.

On slide nine it's the same chart, except for the whole year, you will see 88 cents of gains from the public portfolio and 40 cents of losses from the private portfolio.

And 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. The and this slide tells the story, we've been able to achieve a whopping $4.42 of gains and the public market. Since we started while at the same time, having 58 cents of losses and the privates.

On slide 11, and here's the performance of our public holdings for the past quarter. We've told you that we run of concentrated group of stocks or performance can be more episodic and others and less relying on the market itself. We've seen both sides of that and the last two quarters, whereas in Q3 were up over 20% versus single digit returns and for the engine.

<unk> this quarter was the opposite and we lagged the market melt up.

And the next slide we were helped by a few names this past quarters you can see.

Quantum increased by 33 per cent of 22 cents per share as Hyperscale 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 all of the group like most cyclical and started to perform well as investors began to look to the other side of the pandemic.

The stock was up 27% of 13 cents a share per.

Potbelly was up 16% of seven cents per share for us. The good news the stock was up as Q3 results showed improvement and store traffic and signs of a recovery was evident the bad news is it still of restaurants stock.

And the middle of the pandemic. So all of the long term is bright and we think the stock and trade into the double digits. The next few months may still show some weak top line growth until the pandemic is fully behind us.

Slide 13 shows our notable declines in the quarter.

Mostly maven, which had a 22% decline and the V. Wap calculation that we use the value of the position.

Company needed to raise capital in the past quarter to offset cash burn and the company is still late and getting its final numbers current.

That said, we do think the company will get current this quarter and uplifts next quarter, we remain very bullish on the business, which is run by Ross, 11th and especially since we think there'll be a advertising and recovery in 2021, which has already started.

Slide 14 is the performance of every stock we owned and 2020. The good news is we beat the Russell Microcap value index by over 1000 basis points, we underperformed the Russell Microcap of 200 basis points.

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

On slide 15, and this shows our performance for every stock we've owned since we've started we've generated a total return of 265% over the last for years, including the carry from the SMA, which equates to a 56% IRR and 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 winters to win and thus generating outside returns.

And a good job of ensuring that when we lose and investment and we will we minimize the losses, our batting average has been terrific and our slugging percentage, which waits for the wind percentage versus the loss percentage is even better.

On Slide 17. This is the total summary of all of that we've done on the public side and not so great quarter and okay year of Fabulous long term track record of public stock picking the end of the growth has been muted because we started with 75 per cent of our assets and a group of companies that have actually gone down and value over the last for years for.

And only four years later, we start with 70 per cent of our assets in our new strategy of cash and liquid securities and they agree and a V growth over the next four years will be more dictated by how we do and our public stock for picking rather than how we deal with are privates.

Just a few comments on the attribution and the benchmarks themselves and 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 the silly Conundrums, we're not running turned to beat and index. That's the.

General 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 on the company based on the weight of that company and the index look at the two tables on slide 18 on the left is the Russell micro.

Cap index and on the right is the value index and 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 and rule 12 day, three one investment companies like 180 or limited and the amount of any company, we can own of any company that generates 15.

Per cent or more of its revenues from security related activities, including as a broker dealer and underwriter or the investment adviser we are simply not going to have 33 per cent of our fun and financials at any point in time, which happens to be the weight and 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 move to slide 19, and focus on the Russell Microcap index on the health care side. There are a couple of things to point out first the health care sector represents 30 per cent of the assets and the Russell Microcap index and the 35 per cent returned for the health care sector in 2000, and 'twenty contributed 55 per cent of the total return of the index given the.

Graham and Dodd Dodd value investment focus we do not have a significant portion of our assets invested and health care related companies and the chart below on slide 19, I list. The top 10 health care performers and the Russell Microcap index and the corresponding valuations on an enterprise value to forward sales ratio I'm not dense.

Great and these companies and the investments, we're making bearish claims about them what I'm, saying is that they are part of an index that we were simply knock on the one from evaluating valuation perspective, it's not what we do again, please read our letter and how we think about benchmarking at the end of the day. If we do what we 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 trounce the indices like we have over the course of the last for years, but we're not trying to game them and in any given one quarter or even in a year.

On Slide 20, our Pie chart, which we show every quarter, we sit out to turn this entire company's balance sheet into cash and liquid securities and we 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 the 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 sentiments and the core which as most of you know sinacore was taken over at $2.20 a share two weeks ago, well that may not have been how we thought the story would of first played out where it played out when we first invested in it and fat.

That was and how we thought it was going to play out we do take comfort that when we became chairman of the company and March of 2020. The company was taken over it at 100% premium to that time, so our involvement matter at the end of the day.

Also our SMA is off to a great start which can lead to a carried interest coming back to the holding company. If we can hold our games throughout the course of 2021.

Daniel.

Thank you Kevin.

Please turn to slide 22 this slide.

With our 10 largest legacy privately held holdings by value.

Quarter.

For the quarter of private and portfolio.

Increasing.

$6 million of 25 cents per share the largest increases were Oregon Hale Black Silicon Holdings, we had slight decreases.

So.

And almost every shareholder letter, we state that while we desire to shepherd, our existing private portfolio and accidents and explore opportunities to sell these positions.

At some point neither of the companies where the portfolios of hole, 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 sort of survive because you haven't seen of monetization and any given quarter. It doesn't mean, we haven't been had been attempting to monetize certain holdings of the poor.

Folio and the.

The remaking of our business and the significant cash and securities of publicly traded company and so we have built.

And we don't have to sell anything unless and until it is the right thing to do for shareholders. I can tell you that we haven't projected numerous.

The big portfolio from quote Sharks.

They can come in and steel and the portfolio from us and you as shareholders.

That will never happen under our watch I can't emphasize enough of the difference between having the cell and wanting to sell.

And given our success and remaking our balance sheet over the last for years, and we won't unless the price makes sense.

The started turn of private portfolio as Kevin mentioned has reduced NAV by 58, and while our private and public.

He has increased $4.42.

And I will remind and its importance and future results may be for may be materially different and prior results.

And also like.

And we continue we're actually a little more optimistic about the opportunities for liquidity and the private portfolio than in prior years, primarily as a result for of the growing acceptance.

Half of the public listing.

Oh the listings prior to the late 19 nineties Roth and 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 the market capitalization of 40 some million dollars.

From the 19 92019 public listings were seen primarily as the accident events for early investors the company needed to be and of late stage of evolution, you me and billion dollar market capitalizations required to garner the attention of Wall Street banks and investors.

And brought the public market opportunities for private companies back to somewhere in the middle a.

A lot of the reservations companies have wished for.

Assuming the IPO listings do not apply to the merger with the spot pricing negotiations happen before the public announcements rather than after the.

Filing of a registration statement and the significant expense has already been spent and a road show then is the development of investor interest the.

And as can be consummated much more quickly than and IPO and for pretty substantial less upfront costs.

And an IPO of the company can only talk about prior results during marketing with the stack the perspective of merger candidate can present future projections about the business.

All of the combined present, a compelling opportunity for private company and that was not.

Festival to many of their investors and management teams previously.

Yeah, and this is why we're of CAD.

Nick.

For our private portfolio is starting out in 'twenty 'twenty. One we continue to talk to each of our companies about them and you know hopefully there's some opportunity there, but we'll have and see how it develops.

Turning to slide 24.

And as we've noted in previous letters and we've dramatically reduced our cost structure under our new strategy in 2016 before of funds change and investment focus and management team.

Our operating expenses, excluding stock based compensation and and interest on outstanding debt average of approximately $1 3 million of quarter for Q4, 'twenty and 'twenty or operating expense equaled approximately 645000, which included and approximately $400000 reduction of our medical benefit of medical retirement benefit accrual the.

The increase in legal expenses you see on the slide is related to our activist efforts during the quarter, particularly with me of it.

Given our per system performance the compensation Committee approved approximately 638000 for bonuses awarded in 2019 and that is of crude and included in our reported and a beat for Q4, it smoothed out in 'twenty the.

The compensation Committee also sort of aggregate 2020, and 849000 720000 of which is included in any of the as of December 30 of 2020, the remainder will be paid over the next two years of performance since you're on the 20th persistent at the discretion of the compensation Committee.

Please turn to slide 25 and 26.

We continue to anticipate and the reductions and our operating expenses as a percentage of net assets, we based on growth and our net assets rather than further reductions and our operating expenses.

The positive events in Q4, 'twenty and 'twenty and year to date and 'twenty 'twenty. One discussed previously if they hold throughout the year quarter and year. We will continue to help reduce these expense ratios further.

And we remain committed to treating every dollar of shareholder money and with the utmost care and consideration as we have always said and continue to repeat and it's so much easier for us to grow and E V. When the expense hurdle rate is where it's a day where it is today rather than was historically I'll now turn the call back over to Kevin.

Thanks Daniel.

Our normal some of the parts of charters on slide 26. The market is essentially paying is next to nothing for the $37 million worth of assets. We have we've talked about this ad nauseum.

And buy them in and of itself is of $13 million valuation and we have royalty payments, which were infinitely more than the nothing that the market is paying for our private assets, maybe 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 we don't know and were.

We're always and have been uncertain of the timing of monetization, but like Daniel said I can sit here today I'm more confident and we have a chance of monetization. This year than it would have said last year and that's because of the progress of many of our holdings of made in their businesses and because of the advent and the proliferation of Spacs. This is not of promise.

But as most of you know we carefully choose our words and when we're talking to you I think there's a better chance of something happening this year than I would've said was the possibility in 2020 again, that's not a promise, but we're for sure more optimistic on the potential for monetization of our private portfolio outside of that as I said earlier when I first got.

Here with.

We put a strategy in place, which we thought would be good for the public shareholders, but we didn't know how of what was going to play out and I'm really delighted that now we've got some scaling of our balance sheet and we've got the ability to take our share price from where it is.

<unk> to the level is much greater because we started the higher price. So as I said earlier, it's much harder to take $20 million and assets and turn them into 73, then it is taking $70 million of assets and turning it into a 150, just math and that as I said, you can get us to a 15 dollar stock and if we can ever get ourselves to become of 300 million dollar of it.

Your business, which is certainly possible over the next five or seven years and now you're pushing towards the $30 stock. So when I first got here I thought it was the turnaround and didn't know if we can figure. It out we did we have we built the real business. We built some scale and I'm more excited about the next five years that I have been about the last five years that's for sure. So we'll stop there.

Daniel many of you want to open it up and we can take some questions.

Absolutely. If you have a question. Please press star six out of your phone or asking the question on the computer. Our first question comes from brand and go ahead.

And please go ahead.

Well, obviously I think you know my question and Kevin is going to be related to private companies and discussions with Pac since you're not a controlling shareholder can you at least confirm it and each of your knowledge are and discussions either IPO or spec trying to.

Obviously, not specific names, but a number or yes or no.

Yeah. So a we're not going to do that as you know, but if you just listen to what I just said.

You can make and inference.

So this is a and we did our own stack and now we're gonna promoter owns backed and we're really excited about what you think is gonna be a.

The 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 specs and we own a bunch of private companies. So hopefully many many some of them are are having those conversations and 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 that the.

That's how I want to answer the question I was kind of say considering the analysis file for IPO back in 2001, 2002, I think a 20 year weighted it's about time.

Tell me about it I listen.

I could tell you what we've told our companies I mean, that's that's not Oh, you know you know providing any information that the companies wouldn't want us to tell you, but we've been very aggressive and pointing many of these companies and.

And to the direction that they should be going.

And with with with all the specs being formed and.

And we'll continue to do so unfortunately, sometimes you don't have a controlling stake and what you don't want to do and.

And the private world is make enemies because.

And when they raised capital.

They can cram you down if they don't like it and we're not putting new money into the private so you have the 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 you know a few weeks ago, where.

We can be a pretty direct and heart.

You can't really do that and the private world, but yes. We've of course, we've we've.

Tried to point them and the right direction.

And Brandon just out of use of that.

The it's a lot about education.

Well the the things that I said in the remarks.

There is a lot of the.

The even the venture capital World and especially in these early stage companies the.

And they just really don't know a lot of about that.

The market and so we've been spending a fair amount of time on education of opportunities.

And you hopefully open up the possibility that some of those could go.

But I think the other part debt is crucial and it goes to what Kevin Just said is we can't force now and we can't you know and they buy.

At the end of the day and has to be a path that is acceptable to the other investors and up until recently.

The facts were never seen as a viable alternative to.

And the market. It was historically you have to of J P. Morgan and if that bulge bracket firm the.

And the lead on your S. One.

And that's the only way you can go public and it.

Yeah, historically actually Harrison or some of how the company that was when it was being courted and the team back from there were a bunch of investors that were interested in the lead and Bachelor and the company said literally we do not like companies on the T. S ex.

And the company ended up going bankrupt.

And so.

Now we have a situation where at least we're not the only ones evangelizing and.

Is the and acceptable path to potential.

The capital as well as liquidity for investors and so.

So, we'll see where it goes but.

We're glad that it is an alternative and thats available for the points of you raised on a lot of these companies and then in the PA private and existence for a very long time.

Yeah.

I.

Just to your point as well is that I think that once.

Investors and the general investing public sees.

Some upside and unrealized upside and that portfolio, you'll start to trade not only go from a discount to NAV two of premium like in 2002 during the nano Tech bubble.

Bubble, you know and it went from a 40 30, 30, and 40% discount to NAV of two of 600 per cent.

Uh huh.

Positive.

And.

Well I can tell you there's a couple of private companies.

And if they were public the mark of it'd be Super excited about.

And so and and maybe that and maybe that could happen.

Here again like I said, we've been so used to losing here.

You know and and the predecessor company that it when you when you first takeover of business of 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 and the investments that we make.

And.

This was of failing enterprise where.

Losing was just the norm.

And now you know what now winning is becoming more prevalent and and that's why I'm just more optimistic we've really shaken.

For the past.

And put ourselves in a position where.

We know we're able to promote the spec I mean.

The couldn't do that two years ago, So I am more optimistic.

Given what we've been able to accomplish over the last for years.

And I have been and now the private portfolio, which was an anchor.

And.

And a headwind.

And is now an option and and and and it's ridiculous that it's the 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 and as you know for the market doesn't figure it out and the next day or so then I'll go marching back into the market and by buying back stock.

Because I think over time I'm not joking my goal is to get the share price of 15 to 20 I mean, that's that's where we're out here so well, we'll see where it goes but if we can get back to those nano cap days that'd be fun too.

Yeah.

Thanks Brendan.

Okay.

Hi, Bob go ahead.

Daniel how are you Kevin.

Hi.

On page one of the handout.

Creation through constructive activism.

Hum.

Talk a little bit about where you are on that effort.

And discernible.

Changes in the part of the companies are they more receptive.

And then maybe elaborate on the types of things that you would.

Obviously advise and.

And you know whatever.

In terms of the company and its needs and kind of direct and then.

And a positive direction.

So that is our I mean, that's who we are that's what we do that's our M.

M O around here, we start with the fact that we're.

Of Graham and Dodd value manager, that's the way, we do we focus on companies of trade it.

Two thirds of the market on either price the earnings of price the cash flow above average dividend yields you know half the market and our price to book value ratio.

So price matters from the from the start if it if of stocks not cheap, it's not going to get into the portfolio, but just because it is doesn't mean it is going to get into the.

Portfolio of the activism is many of the companies that were focused on and the Microcap World don't know what of that don't know how to be public.

They're either of companies that came private the came public by their founders and the board of directors that was and the founders pockets.

They don't do the right things for shareholders. They don't spend money properly. They don't know what the ROIC. She is.

And they need.

To know that if they are and the public markets there.

They're supposed to be taken care of all shareholders not just themselves.

And so for us, it's making sure that the company has proper corporate governance, which means its diverse and both gender and race the.

The the appropriate skill sets so of.

It's and information technology company, better and be sure that many of the board members.

Have you know technology experience and and the business that that company has and we want to make sure that the C. E O is the.

And certainly is running the business for shareholders and not lining its own pockets. So we always look of compensation and the rest and make sure of the compensation is aligned properly with.

You know how glass Lewis or Stiegel, we'd look at it.

You know and Eric.

The calpers and we look at it and and and the rest. So we certainly look at that and look many of these companies may have let's say the three businesses two of which are good and one of which is bad and sometimes they need the impetus of pressure for us to convince them to sell the bad business you know the.

And we sit on boards and I don't know if you do but it's amazing how stagnant boards become nobody wants to make a decision every one of them and when she wants to go to the board meeting of the board meeting be over there just becomes a just a lack of fluidity to company's progress, especially ones that had been around and you know even ones like ours.

Yeah.

We're failing and sometimes these companies don't know how to fix it and it just stuck so.

You know every company is different activism is not the same for every single company, sometimes and by the way we don't want to go onto board and so it's not really our goal will run of proxy contest at the end of the day, if we have to and we won't invest and the company. If we don't think we could kind of successful successfully.

Run of proxy contest, but going on boards 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 of Daniel House and.

And and helping these companies solve for that sometimes it's just the need to change your IR, sometimes it's you got its fire your CFO and replace them, sometimes its the board having to move on the C. E O. It could be a lot of different things it could be asset movements. So it could be stopped spending 30 per cent of your revenue is on R&D, because youre not getting a return on it so it's all different.

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

Okay.

Thank you Kevin.

And I won't say one last thing on it.

It is a and I know this because I worked at Blackrock and Merrell.

It matters.

You know before at Blackrock, we could quietly advised companies, but we can never right of public letter like we wrote.

Blasting the board of directors at Enzo and you just didn't do that and we were told when I started well if you don't like the way the company is being run and vote with your feet.

Well.

That's not what we do here because of activism and improve returns and and as and as a tool that we have which can enhance the returns for our shareholders and anyone investment it's a and it's a really good tool to use if you use of properly use it professionally and your efficient about how you use it.

<unk>.

Thanks, Bob.

And.

Yeah.

Hi, Adam go ahead.

Hi, Daniel Hi, Kevin and good day, Thanks for taking my questions I wanted to focus on two topics.

One is egg by them and 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.

AG bio you know if we look at slide 22 from the presentation. This quarter and she is always very helpful. You know of.

The at the market close on Friday, and the public portfolio was just under 12% of your total assets and you know the rest of the private portfolio, while some may be promising and a robust new issue environment, you know, it's pretty small potatoes, and individual physician level, especially because I think you have the Petro milestone rights carried you know at a very conservative carrying value.

And so on AG bio and.

And you know a new high profile chairman and added the former longtime CEO of buyer and 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 of its the first couple of products. Obviously, the new issue market is very robust both for traditional ipos and as you guys sort of emphasize the respect.

So is there anything you can tell us about you know what the pattern of it looked like this year for AG by them either in terms of you know.

Kind of operational progress milestones and or potential liquidity events and I'd like to follow up on the third party assets.

Go ahead do.

Yeah, So I can't go into too many specifics, but what I can say is that the company did receive.

And I E P. A authorization state level EPA authorization for its first products.

I believe it's all of the contiguous United States.

The main markets for the for the the howler products and so that's really exciting. So we can start seeing that hopefully ramp into 'twenty and 'twenty one of their first product.

And they've made the continuously good progress with their partnerships as well and you know and I think I'm, adding a the former CEO of Bayer as the chairman is is just another piece of the puzzle that I think sets the company up for you know potential.

Potential opportunities coming forward and.

And I think look and as we said and our remarks and and and answer to a earlier question.

There we have it.

Bill will talk until where entities, who are blue and the face of these companies about the opportunities that the public markets prevent present, not just for liquidity for their shareholders and it really comes from more of the fact of that and it provides a new level of different level of currency for the company to be able to build its business and and bomb is clearly.

Yeah and to that point of where it's a growth.

Capital opportunity.

And so we think there are opportunities debt there.

For the company and 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 and we're obviously not the largest shareholder. So we don't have that level of control, but we do you can you can definitely take the heart that we will we are continuing to talk to and violent as well as all of our other companies about.

The we see and we're hopeful that you know.

Some are more of them will take advantage of that.

No that's fair and like they have a lot of our larger late stage venture of Blue chip investors and that the company, obviously and and they're very sophisticated as to the deli ventures to others. So presumably you know those larger shareholders are having those fairly active conversations with management as well hopefully at the you know it turns into a bit of a cacophony of korlym.

Turning to the third party assets and and SMA or other vehicles can you just update us there I mean, obviously your first larger SMA has done great.

How how are things looking as we're getting a little bit more.

Traction and and getting hurt and I think in terms of pitching the excellent three track the three year track record for for New third party assets.

So a couple of things on that front and I think a couple of things we learned last year one.

I talk about our investors being incredibly risk averse and my shareholder letter, we will fund. The fund people are also especially if they don't know who you are they they literally need to be babysat and and watched and they need to watch you over time.

So whatever on that you know the way that works by the time, they decided to make an investment and it was probably over.

So there there's some of that.

Stagnation of well this is the new thing for us and I'm, just and the middle of the pandemic on and I can't focus on anything new I just want to focus on the.

The fund managers that we're using so the the other part of that and there's a lot of these fund of fund companies they need to.

You know the the asset managers themselves and 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 Oh, I'm recommending this new name and they're like well well tell me about the facility and how many people where they don't know and I haven't been here, so hopefully that will loosen up.

Up to some extent and and it will I will say the following.

We're gonna go down and we're Gonna go down the different road. This year its a little soon to talk about it hopefully it'll be something that we can talk about.

And the next quarter or so, but getting on financial service companies platforms like and Merrell for example, and I was on the Morgan Stanley's platform.

And at Blackrock, you on everybody's platform.

That's hard to do it takes three years, usually to get on someone's plot for them 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 platform of Morgans platform. The just never going to give us the assets that we desire and it's gonna be too painful and too time consuming and just trust me on this one and I I literally I'll pull the rest of my hair out I'm trying to chase a few dollars, but what we think we are trying to do is get on of a smaller come.

And he is 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 estimate that we have they're happy we're thrilled.

Love to have more capital on our own balance sheet that would be you know job. One if we can figure out how to do that as you know you know and and you know as Daniel said.

Brought back to $4 million worth of Cary and.

And when do you think about that that basically offset and most of the normal operating expenses of our business.

You know before bonus pool is paid and now we have roughly $3 million worth of you have to be public company expenses and the what the asset that we have almost brought back the entirety of that of that burn. So we're happy with what we have and we're not gonna if people don't want to invest and that's I don't want them here and I only want people that are like minded.

US in terms of their investment and us and really get to know and but clearly we think we've done a good job and and are deserving of some outside capital and we'll see how that progresses. This year.

Okay. Thanks keep up the great work in 'twenty and 'twenty, one off for a great start.

Take care of yourself keep shoveling the name there.

Uh huh.

Thanks.

Yeah.

Hi, Please go ahead.

Hi, Kevin.

I've got two questions for you guys.

One is what do you guys think about the current environment as far as the.

And the micro cap space and I know you'd noted and your great letter by the way.

Thank you for always writing great letters.

You know the Microcap index has obviously gone up obviously, that's not a.

A lot of the instruments are not what you do but how do you feel about it and number two was you.

You know you guys have a substantial equity positions now.

Cash and marketable and you guys never lend your shares to get interest income or you know what I'm, saying to.

Do you know whose debt.

Most of my questions. Thank you very much.

And I look I'm not really.

Big picture.

The backdrop for a healthy market is here and we're in the middle of the recovery, we think the market will recover and we do think the vaccine.

Does the the.

Is the primary focus and getting the company the the economy from where we were to where we're going so I do think the backdrop is fairly healthy here over the next two to three years companies or not.

The ones that we own and not super expensive now I'm not that's not I'm not talking about gamestop here.

And I'm talking about the ones that we own, but who can pick who who can possibly be.

Comfortable when the Russell Microcap was up 30% of last quarter and is up 20%. This quarter I mean, that's sold for huge move so do I think we can have a a pullback yes.

100% do I think the pull back is long and the tooth and should have happened already I do.

So.

You know on the margin.

We've been selling some of our positions.

Been probably more net sellers and buyers for sure in 'twenty and 'twenty one.

As as we've seen this melt up the indiscriminate.

Selling or the indiscriminate buying.

And any period creates the opportunities and it certainly created the opportunity as of March of last year to buy.

And and this one has created an opportunity to the cell as well now I. Unfortunately, I don't own the Gamestop and so I didn't have the opportunity to sell at $485 of share, but there are names that we own that of that of the other performed quite well and and we've been using this environment to sell them and you know what.

Wait for a rainy day in and and look for better entry prices, but we don't look I'm never going to perform properly and 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 and my market is rewarding.

Companies that have actual real.

You know fundamental.

Improvements and their business relative to everything else.

And that's why I stuck that chart and they're about the health care things and the top 10 health care of names and other were up 700 per cent and trade. It 100 times revenue like if that's going to be the market that we live in and that's I'm going to and it'll be we're gonna be left by the way by the door stop 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 you you sell of company for matter I mean, and I don't care, what anybody tells you valuation matters. It always matters and it may not married married matter today, but it'll Mary over a cycle for sure.

The second part was what was the second part.

Yeah.

You guys lend your shares.

We would if somebody wanted to buy them if somebody wanted somebody one of them, but it's not like we have a we.

We haven't.

And if there's not a lot of shorting of of of of the names that we own.

The real companies.

And Ah, but we would for sure I mean that was a business the admiral and Blackrock, that's always the big business for US actually we would let that all of our shares but that it was I b M and GE and the rest and you know the I mean the.

Certainly if somebody wants to borrow a shares of Sona Morris plantronics or whatever would be we'd be more than happy to clip the coupon by lending them out and there's no reason not to.

Thank you very much.

Thanks, Thank you.

Hi, Please go ahead.

Yeah.

Yeah.

I Oh.

Your line is open.

Hello, Kevin Yes.

Yes, Yeah, Hi, this is Robert.

Rolling.

Hey, how are you.

Good.

And I compliment you on the 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 100 and return and the right direction that's for sure.

So very happy about things there.

Did have a question.

And on December 21st you put out a press release that 180 degree plans to begin the share repurchase under a two and a half million dollars buyback program.

And the two days later on the 23rd you and several directors bought over 100000 shares personally and.

About $1 90 of share.

So last night I read your shareholder letter, which was of great letter.

But in the and the letter I didn't see any mention of the company buying back stock. So could you explain that.

So two things one when and if you if you remember the letter I sent about why we were doing the one for three stock split it was due and we were doing it because many shareholders, including our largest.

And told us that the the stock below $5 is almost uninvested will for their clients and they don't they won't buy stock some of them won't buy stocks loss of $3, some won't buy stocks of less than $5.

And let's make it more investable to the tip of the broad universe and you should think about you should think about a reverse split solely for that reason the.

The second reason also is because for a company with the 70 60 million market cap, we have 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 one for three reverse.

As you know.

When you do of three for one everyone thinks that's great and when you do a one for three everyone thinks that stupid. They think it's you know one for three reverse stock splits are done from unhealthy companies companies that maybe are going to get the listed and so they have to get the share price higher and so they do you know the fake reverse split to get their share price of bubble.

Light above a certain number so that they can stay listed on the exchange as 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 one for three for the right reasons.

If investors, we're 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 the 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.

The dislocation and our shares we wanted to be there to buy them and so we put in our 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 by X amount and at that price by this amount of the lower priced by this amount our stock price traded better than we would've thought before.

For 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 wanted to make the point you know like always Warren Buffett always says you would buy back stock when its the 120% of book value and here, we had of stock that was 30% below book value and even today I think it's 25% below book value. So you know I always thought the buying stock below book value.

Because it could be used later and higher prices.

Currency for acquisitions of off more of fund raising and the secondary offering and there's a lot of good reasons to do a buyback so.

Just hope that it's being considered and well so here here's the thing on that and I agree with that and a number of as I told you of of Graham and Dodd value manager, So and I am a law.

Line with warrant an.

And share repurchase at the right price, but where are we this is permanent capital that we're managing this.

This is permanent capital and we were able to achieve of 265% return for.

For our investors on the capital that we started with back you know for years ago.

People kill for permanent capital, if I give we give it away.

What what's the so what's gonna happen first of all you can't buy enough for it to be materially accretive I'd have to buy back 20 to 30 per cent 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 seven to 15, not from buying back of a million or $2 million worth of equity, it's not going to matter of really isn't it's it's certainly there to provide stability, but its not going to provide.

Long term value for our shareholders and if you're gonna give back permanent capital you better be doing it for a reason.

Because that's capital you'd never get back ever again, and if you remember a couple of years ago and I was like this and March of last year. When everyone was selling we get the 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 that we're able to achieve you know.

During periods of 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 and the fourth quarter was the disaster quarter was at the 19 I forget 18, you know everyone was redeeming and we were sitting there with the basket buying X y and Z and it.

And led to a great year of performance of the following year. So I am with you on the share repurchase but for of closed end fund that this is what our business is it's a little different.

Right Okay.

But that hasn't stopped the management team from buying it.

And that's after tax dollars with their own money, that's not stocked that's given to US we can't pay people and stock around here. So any purchases that Daniel makes her I make are Rob Bigelow mix of our board makes is with money out of our pockets of not money that we're gifted.

Right.

Okay.

Thank you.

Paul Thanks, Thanks, Ron.

And the queue is now is empty.

Ready to end the call.

Well thanks, everyone.

Hum appreciate you your.

The consideration of of turn as an investment and we really are I've enjoyed talking to our to all of you you know where to find US were here because do you own and the company and if you want to talk about turn at any given point in time email us and well be more than happy to get on the phone with you.

I wish you the best of luck and 'twenty 'twenty, one and hopefully this pandemic will be behind us and.

At some point this year and we can get back to a normal environment and and boy that would feel great for all of US. Thank you. So much for your time today and and happy investing.

Thank you everyone and you can now disconnect.

Goodbye.