Q3 2021 180 Degree Capital Corp Earnings Call
<unk> has started to ask your question. Please press star six the recording his started financial results update call. This is Dan.
Annual Wolfe President and portfolio manager of 183 capital, Kevin <unk>, Our chairman Chief Executive Officer, and portfolio manager and I would like to welcome you to 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 would like to ask a question. Please type star six on your phone or quickly.
Ask the question icon, if you are participating via your computer.
I'd like to remind all participants that this call is being recorded and will be referring to a slide deck.
We have posted on our Investor Relations website.
They are down 180 degree capital Dot Com under financial results. Please turn to slide one that contains our safe Harbor statement. This presentation may contain statements that are 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 <unk>.
Securities Litigation Reform Act 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 is please see the company's filings with the Securities and Exchange Commission for a more detailed discussion of the risks in them.
Certainties associated with the company's business that could affect the companys actual results.
Except as otherwise required by federal Securities laws 180.
Great 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 two we had a bit of an opposite quarter. Most quarters. We've had since 180 came into existence showed great public performance and slug.
Wish private holdings performance this quarter, our public performance was down by $5 $2 million or six 6% return, while we had a mark up on our private holdings of $2 9 million on the public side, we had weakness in synchronous maven and quantum Armstrong flooring in potbelly good performance came from.
<unk> sponsored spec para bellum, PFS web and land products on the private side, we had markups in D wave analysis and decreases inhale and seaport all in all our NAV declined by 2.9% less than the drawdown in the Russell Microcap index, but not our best quarter.
By any stretch of imagination.
As I stare at a $7.15 a share price I wanted to point out that as of the close last night, we had nearly 80 million of cash and liquid securities given our strong start to the fourth quarter that equates to $7 63 per share. We also have carry from our SMA is that it.
This was the end of the year, we have close to $8 a share in cash and liquid securities at the end, we will show our some of the parts scenario later in the presentation, but we have now entered the theater of the observer of the absurd.
My opinion as our share price is now 50 cents less than our liquid portfolio not taking into consideration. The fact that we have over $3 a share and private marks and while we don't have a monetization to share with you today. We do remain optimistic that we are closer to news from our portfolio.
Any time this year that isn't a promise it's our best read on what is taking place with some of our holdings.
On the next slide we show the before and after of our N V over the period of time that Harris and Harris ceased to exist and 180 was born despite the slight decline this quarter, our focus on public market equities and the subsequent performance that we have generated from our micro caps have allowed us to grow our anti V.
After years and years of decay in our book value.
The next slide we highlight the trajectory we have seen from our cash and liquid securities. We saw a decline this quarter from $78 7 million to $70 million to $74 million, but as you can see given the start to this quarter. The number is now close to $80 million, which would be a record high.
Perhaps the chart on the next slide will never change until our private portfolio was gone completely but I would note that the discount to our current E. N. E. V is literally the same as it was when we arrived and when the port for private portfolio represented nearly 75% of our balance sheet assets I think most of you know unfair.
Lee realistic and honest in my evaluation of the prospects for the companies we own when we.
We start researching a company we start by saying whenever the company is trading at today is the world is determination of what that business is worth it as our job to research the business find information in catalysts that the market is not paying attention to and then have those catalysts play out.
That happens hopefully the price will change to the upside we always assume the market is right as a starting point of any of our work in the case of turn in my humble opinion I don't think the market could be any more wrong with value of our business as I said, we're now trading at nearly a 10% discount to our cash and liquid securities.
It seems ridiculous.
On the next page we show our normal sources of change in assets for Q3, starting with a book value of $10.68.
As I said, we had an opposite quarter, we actually showed a 20 eights and gains from our private holdings, but a 50% 50 cent decline from our public holdings, we had nine cents of expenses, which includes a bonus accrual for our persistent year to date performance for 2021, we ended the.
Quarter was $10 37.
And book value.
On the next slide shows our year to date sources of change in our N V. For 2021, we've generated $1.51 of gains from our public portfolio five cents of losses from our privates and after deducting expenses. We show a dollar nine increase in our book value from the start of the year on the <unk>.
Slide we show our performance since we started we've generated almost $6 a share and gains from our public market stock picking.
That's the result from the performance we've generated from our strategy of investing in public equities with a microcap activism focus the.
The next slide shows our quarterly performance for each of our individual holdings as I said, we hit a rough patch this past quarter and had a decline of 6.6% on a gross basis in some cases like quantum and Armstrong flooring supply chain issues were clear headwinds and real causes for weak fundamentals in share price declines.
For others, namely synchronous and Potbelly, there was no real news, causing the share prices to decline as always is the case with us if our thesis remains intact. We will always look to add a weakness in the case of synchronous and potbelly, we've done just that.
To get more specific about our holdings some of our holdings were down for real reasons as I said, but others were simply just down so let's review.
On synchronous the stock declined 33% this quarter.
During this quarter and following a successful reshaping of its balance sheet that we helped the company guide towards in Q2. The company reported earnings that were better than expected and reiterated guidance for the full year.
85% of the revenues of synchronous or recurring cloud and digital revenues. We bought another 563000 shares in the quarter at $2.33 you will see the company just reported this week and at Q3, which showed another great quarter and the company raised their guidance.
For the year. This was an example in our opinion of a stock trading off for no. Good reason and we took advantage of that.
Maven declined in the quarter. The company is now current on its filings they arent uplifted yet and that has been a painful process to watch from the sidelines. It will happen. It's just a matter of time.
Jim Cramer Mirror, Jim Cramer, who has left the maven, while Jim's business used to be the majority of the Street's business Maven is roughly a $200 million to $220 million expected business in 2022 from a revenue perspective, and his revenues or just 10% of the mavens everyone is replaceable if you didn't want to be at the maven.
So be it the company always needed to diversify away from Cramer anyway, and we expect to see E. L. Ross Levinsohn will bring in talent from the outside to replace Jim. Despite Jim's departure, our hope is that the subscription decay from his business will be far less than the compensation high as it was.
Will be far less than the compensation paid to Jim.
And it's possible the income statement today is better off quantum was down 25% in the quarter. The company's Q2 results continued to reflect supply chain issues with tape drives and the company provided guidance below expectations management did indicate during the call that they expect the supply chain issue to abate coming out of.
Q3 and be back to normal levels by the end of 2021, well. This was a real short term headwind in our longer term thesis hasn't changed one bit we understand why the stock sold off but we view it as temporary we purchased 353000 shares at an average price of $5 47, you see last week the <unk>.
Reported better than expected earnings gave better guidance and the stock is now over $7 per share.
On the other hand, Armstrong flooring declined 49% like quantum they also have supply chain issues. However, unlike quantum we are less convinced this management team was prepared to manage through it and as a result, we sold half of our position last quarter at $5 50, The company just reported.
Last week, and I must say reported some of the worst results I have ever seen from a public company. They reported over $160 million in revenue and had an $18 million EBITDA loss, while we understand the environment. The company is facing they are grossly mismanaged their business attempting to navigate their way through.
Which is why we have not added to the named despite the steep drop we are currently trying to figure out if we want to ramp up our activism at this stage.
While some of our holdings.
Potbelly synchronous are greater than 10% of our assets. It should be noted that Armstrong flooring is just a 1.65% position, but what a terrible job that management team has done.
<unk> Valley Lastly declined 14% what happened this quarter. The reported Q2 results that showed continued improvement in the business and last week. They reported a Q3 that highlighted the same progress perhaps the delta Varian scared a scare caused the stock price to decline in Q3, but judging from Potbellies results.
It did absolutely nothing to hinder the business, we think over the over time, the stock will double again and show 10% EBITDA margins. We are 100% committed to remaining shareholders and believe the management team will continue to execute its a rock star management team again, we believe the stock is down for no reason and the result, we've been by.
<unk>.
On the positive side of the ledger para bellum as the stack, we anchored run by the former team at a desktop they completed an IPO in September raising $140 million. We owned 729000 shares of class a stock and $2 5 million warrants for the purchase of class B common stock a pair of Berlin at $11.
45 cents. This back has 18 months to complete an acquisition and as members of the board. We are actively engaged in the search process for a merger candidates.
PFS web increased 75% this quarter on the back of the sale of its alive area subsidiary for $250 million, which was well above the price.
That exceeded our estimated multiple of revenues of one eight to two five times, we did sell 368000 shares at an average prices of 12 close to sale.
We closed our position and sort them, sometimes you get them right and other times, you're wrong I've said this a million times, but if you're successful in the investment business, you'll be right two out of three times just make sure. The one time, you're wrong doesn't outweigh the two times that you write in Saddam's case. The long story are the long term story changed we completely loss.
Conviction and we sold it.
Slides 13, and 14 show our performance for each and every name we have owned since we started on slide 13, you'll see despite a 6.6% decline this quarter, we were up 27% on a gross basis or 29.3%. If you include the carried interest from the our SMA as of last night our performance.
Was plus 35% and plus 38% given the close of prices last night slot.
Slide 14 shows a 370.
73% gross returns since we started or nearly a 45% IRR from our stock picking in the Microcap world.
The next two slides the pick not only our batting average for each and every name that we've owned but are slugging percentage. The first slide shows the percentage gain or loss in slide 16 shows the dollar amount as you can see we've had many more winners than losers and more importantly, the returns from our winters have been far greater than outsized versus the <unk>.
<unk> returns we've taken from our losers.
As an example, while San and felt like the worst decision that we've ever made we lost 1.3 million on an investment of $4 5 million that pales in comparison to the gains we have achieved in names like a desk, though quantum on the street and potbelly.
The next slide is a composite of our public market stock picking versus the industry's what you'll see here was a weak quarter in Q3, a pretty good year in grade three and five year returns.
Slide 18 shows the remaking of our business since we started whereas 73% of our balance sheet was in private when we started it's just 33% today. The goal as we've stated from day one is to take our privates from wherever weight. They are today to a zero wait and have 100% of our cash and liquid security.
These are coming from the publics.
And as I've always stated we will monetize any portion of our private portfolio. If the time is right and if the prices right. We've had people bid on the portfolio and we have simply told them to go away that their bids were simply insufficient simply put we do not have to sell a thing and we will not unless it makes economic sense for the 180.
Shareholders, but one day, we will have 100% of our balance sheet in cash and liquid securities Daniel Thanks, Kevin.
Turn to slide 19, I'll give you a little bit more detail on <unk> as we mentioned last quarter 180 was pursuing spec sponsorship opportunities with who believe we believe our value added partners are management teams that have demonstrated a core competency and sourcing merger candidates. The first of these efforts is parallel in acquisition Corp.
Trades under the symbol <unk>.
We are thrilled the company had a successful IPO this past quarter.
And raising $143 $75 million.
And he was the lead investor in the sponsor and I serve on the book P. Rpm's Board of.
Directors for 180.
We are excited to be working on this effort with the founders of P. R. P M.
Hey, Derek Cobian and Ron Shelton, the former CEO and CFO the desktop Technologies Corporation.
With the IPO behind US paradigm is now on the hunt for target companies that have unique technologies and business models enabled by or are actively engaged in the internet of things transformation.
One of these holdings a pair of Allen are currently only three the sponsor or a pair of alum acquisition Holdings LLC.
And the fair value of these holdings as of the end of the quarter was $36 3 million on a cost basis of $2 7 million. In addition to Paragon. We continue to work with another partner in connection with exploring a stack sponsor group investment opportunity. Although we cannot assure you when or is such investment will ultimately be.
Consummated, we look forward to being able to discuss these continuing efforts in more detail in the future. Please.
Please turn to slide 20.
For the quarter, our private portfolio led by D wave systems analysis increased in value by $2 9 million or 28 cents per share the largest decreases in value occurred and hail and seaport diagnostics, both due to financing risk.
The sale of the asset of asset held by Black Silicon Holdings yielded a distribution of 180 of approximately $1 1 million.
And that was received in the quarter.
It almost every shareholder letter as Kevin just mentioned, we state that while we desire to shepherd, our existing private portfolio to exits or explore opportunities to sell our positions. We have the luxury of not being forced to sell at any time.
Just because you haven't seen a monetization in the quarter doesn't mean, we haven't been actively working on it.
And also you know is Kevin said in remaking our balance sheet over the past four years, we don't have to sell anything.
And today, we only have 16 privately.
Probably all positions, but really only seven that matter and those seven private holdings comprised 91% of all the private assets.
Our hope is that the stock market has made the opportunities for further monetization is more likely than at any time since the start of 180 in 2017.
Please turn to slide 21.
As we've noted in previous letters, we have in previous calls we have dramatically reduced our cost structure and a new strategy just to refresh as we always do in 2016 before we changed our investment focused management team, our operating expenses, excluding stock based compensation and interest on outstanding debt.
Average of approximately $1 3 million for.
For Q3 2021, our operating expenses equaled approximately 800000.
Our persistent and outsized performance for the full year of two for the year to date through to 'twenty 'twenty. One the compensation Committee approved an additional accrual of approximately 200000 for the expected bonus pool at the out year.
End of 2021 this pool will fluctuate based on the total performance that is determined at the end of the year, we will maintain a lean cost structure.
And focus our expenses on activities solely designed to enhance our investment performance or to increase our revenues from managing outside capital.
Please turn to slide 22, and 'twenty three weeks.
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 of our operating expenses. We remain committed to treating every dollar of shareholder money with the utmost care and consideration.
We always say and will continue to repeat it is much easier for us to grow NAV when the expense hurdle rate is where it is today.
I'll now turn the call back to Kevin.
Daniel Finally, we've done this chart for you since we started and for the first time since we started the market let alone recently ascribing, a woeful value to our private portfolio given the amount of capital we have in our liquid portfolio. We now have a situation where the private values actually being negative event valued at a negative 35 per share.
Chair or a negative 10% relative to our book value.
Anyone on this call thinks it makes any sense that given our results over the last few years, we should trade at a nearly 10% discount to our cash and liquid securities I encourage you to let US know so we can have that debate.
As you've seen this management team and board invest in term with after tax dollars and there's no reason to think that won't happen again, unless the valuation reflects what we think is a much better representation of our business.
Price of $7.20 with cash and liquid securities close to $8 with three plus dollars of book in privates with hopefully some good news soon in the private is a value that I will run to and and and I'll run through pretty quickly once this.
Quarter ends and we're freed up again so.
That's that I don't like to be overly promotional but as you know we're value investors and I can think of no better value than I'm staring at right. Now then turn stock.
Thanks, Let's open this up now for questions Daniel.
If you have a question. Please type star six on your phone or click the ask a question icon, if you're participating by your computer.
Okay.
Adam Please go ahead.
Good day, Daniel Good day, Kevin. Thank you very much for taking my questions.
Okay.
Thanks for joining us.
I Wonder if we could start at a high level. Obviously, you guys continue to be putting your money where your mouth is in terms of good share holder alignment purchasing stock in the open market the valuation discount is.
As wider wider than it's been at any point in time as you know since the liquid portion of the liquid securities portion of the AR and AP has gotten to this level other than maybe you know March April of 2020.
Are you guys contemplating with the pandemic effect on business. We're seeing are you contemplating a more proactive investor relations posture as we go into 2022 and if so are what components are are you considering there.
So we've recently signed an agreement with a third party.
Distributor.
That not only allows for a new a new party to help us raise capital but.
They've also been a consultant to us so the early parts of our relationship has been them trying to understand us learn about us and figuring out ways, where we can go to market with thought pieces.
White papers videos, a refreshed marketing presentations and decks. So those are Adam things that we are working on currently and we expect you'll see more from us.
Then less going forward, we don't look I I do this sum of the parts exercise for everybody every quarter I'm not a promotional person but.
But I like the state facts.
And I'm pretty transparent about our business and I don't I I'll never understand how our stock price trades below our cash and liquid securities now.
It makes no sense to me and I'm going to tell everyone that because I think our share price represents a wonderful value. So we're going to where we are working hard.
Rob Bigelow is engaged on this topic he's he's our head of funds.
You know he does all the marketing stuff for us and we're actively engaged towards making sure that we've got that were out there more than we've been but let's let's put it that way and again I'm not a promotional purpose a person nor as Daniel and we'd rather let our performance speak for itself and we think we've done that over.
The course of the last four and a half years, but I don't want to have our head in the sand and think that the stock price doesn't matter because it does.
So with us being out there and being more proactive and having more thought pieces. You know those are things that we will be doing you could you can count on us for doing that.
Well, what more proactively out there. Kevin also include virtual conferences virtual non deal road shows or either live conferences as those start to normalize more as.
We go through 2022.
Yeah, I mean, Adam the problem is is that you know the people that we talk to every single day.
Institutional buy side folks so they don't fidelity is not buying return institutions don't by closed end funds retail investors by closed end funds.
So it's very different but we can go to the B Riley conference.
And you know if you have somebody there from alliance.
Or janice, they're not gonna be buying turn with their with the with the funds it would be people that the portfolio managers might by term.
So it's a very different process and they're very different shareholder base.
Quite frankly, we've got to figure out how and you know and maybe part of the problem is our distribution we've talked about that endlessly on this call and our board is flexible.
And the conversations are fluid at the board meeting you know should we have a dividend yield are we supposed to be buying back stock, which we've talked about in all of these things were getting some girth now in our balance sheet. You know, we started with what $12 million in cash and then we got 80.
So we will have some flexibility here over the next four years to potentially have.
Yeah.
Potentially put ourselves in a situation where we can have some distributions also so it's all been contemplated if you have any specific ideas of what you think we should be doing let us know maybe it will have a Twitter account and we can talk about the markets. The way other microcap investors do and do it in a in a more in.
The two shuttle a way than simply promoting what you're owning we're promoting your own stock I don't want to do that.
You guys know that's not that's not who we are as a management team. We just want to we got we want to go out and do our thing and have the results speak for themselves, but we will do more.
As I said.
No I appreciate that detail if you'll permit me a couple of quick questions on the private portfolio.
Sure.
So with respect to Petra, obviously, you're carrying at the end of the September quarter at more or less cost and the cost or the carrying value is about 10% ish of that potential nominal value of the payments you could receive over time.
So do you you know it is the underlying situations such that we might expect a markup in the carrying value here into the year end and what visibility do you have on it.
You know potential milestone payments to you all over the next six to 12 months.
So just to be clear so the way that the accounting works is that it shows cost, but that's just the value that was of the distribution on the date of when we receive the potential rights to those payments.
Upon the sale of Petra.
The the evaluation is derived looking through all of those milestone payments and assessing probabilities and potential time frames and things like that.
You know what I'll say is you know it's it's as is always the case with these potential future milestone payments be it Petra we still have some from biotech. Some buybacks was acquired back in 2011. The Timeframes are these are highly uncertain.
And in terms of when and if they occur there within big companies that you know we have very limited reasons visibility to it that said you know do we think that there is.
There's there's favorable potential for at least seeing something from that yeah timeframe that I think is uncertain. The first milestone the first milestone atom is.
Set up that they just have to get the drug to.
Phase one testing they don't have to even have it approved they just have to start the test start the trial is a phase one trial so.
We try.
Dealing with a big pharma company on a product that for them isn't.
You know a COVID-19 vaccine in terms of its size.
It's very hard getting information that I think that as these companies are really as we try our hardest but.
Some of them are some of these drugs are buried on their in their queues and case, because they're so small, but we would expect at the very least I don't know why they would've bought the business. If they didn't anticipate starting a phase one trial and there was a milestone payment attached to that.
And of itself so.
Sure.
Okay. Thanks, and then on AG bio obviously, you're sitting on based on the September quarter, I think market continue to sit on over four bagger there.
They've raised with series C round.
In the late summer I think it was 116 billion.
You know I.
Obviously, you're probably not going to comment on this but it really surprising theyre not pursuing the IPO or spec market at this point given the products that have been marketing the pipeline back up but do.
Do you have a sense for what the kind of growth plan looks like there for the next couple of years around which they raised the series C that you can comment on.
It's tough we really can't comment on specifics, but what I would say as you know they have their first product that's in the market howler, it's gaining traction.
And they have a number of other products that are that are there and are being you know in the pipeline for being commercialized I think that you know by them is a big story.
Being idea not just with the initial products is how these scale. It's how they work with partners you know, there's a big partnership with connective.
And you know a number of other ones that have been publicly announced and so it's it's a it's a big story.
But you know these things do take time to play out it's not you know a couple of year type of thing it's over a longer period of time, but they're making progress along that path. Yeah. So have we seen slide decks and investment decks and are aware of their growth. Yes are we allowed to discuss that.
But in a forum like this no I my goal here is not to go to jail. So.
And it's a growth business.
The other thing I'd say is in and Daniel's right first of all many of our companies have been around forever had been around for a long time. So many many of them are getting to the point, where they are at least mature and seasoned.
The stock market is the spec market.
And you've seen.
Specs like visit I N Q.
You know merge with artificial intelligence companies at staggering valuations.
And we know that their business is in the particular case of buying a kit.
Qs no business with some of the companies that we own from evaluation perspective, So just because AG by them isn't a billion dollar business Tomorrow does it mean that it can't be a $1 billion back tomorrow.
And and so you know there's a reason why.
You know I've been more adamant in saying that we think we're getting closer to some news.
In our private portfolio than at any time since I've been here and it's because of the amount of capital that's been raised and the spec market.
It's knowing that many of our companies hopefully will wanted to take advantage of that and we'll see how that plays out.
Australia for me.
To get a question like this Adam from you.
And not being able to answer your question just I can't do it and it pains me.
To to not being able to answer any questions and it's just the reality of the situation is that we just can't so no I don't.
Do I understand yeah, I know I know you're doing it I hope we get I don't want you guys going to jail. So yeah, we from time to time.
It's funny, because we'll be sitting at a desk and all of a sudden some secondary.
Affirm that buys private portfolios will reach out and call us.
And we're like well where did that one come from and then and then you realize the reason why there. This is what they do for a living and and they realize that maybe one of our holdings in the news for and they think there's going to be news on it or something like that and so they reach out and they're like maybe we could feel that business from from 180 or something like.
That so I just think if if if any of our holdings are not.
Not exploring the opportunities to I P O. It's back in this market than they're doing a terrible disservice to their shareholder base.
And and we would be really disappointed and I don't really think that's the case, so well, we'll see how it all plays out by them is a very large component of our private portfolio.
It's roughly 40% of the total.
And so we want that one to work out.
Obviously everybody knows.
Well look I mean, you have a you have a rockstar executive chairman their former CEO of buyer you have a blue chip a venture investors Fidelity ventures, you Tiptoe T Rowe what might be others in there and presumably those folks or are you now are getting this kind of advice.
You guys could participate alongside so thanks for taking my questions.
Thank you.
Please go ahead yeah.
Yeah, Kevin I think its may al Shams I'm think I'm up first of all I mean, I've got 45 years of experience in the investment business and I, just really believe the strategy and the approach that we're taking is dead on it is absolutely right.
It will produce results, we just have to be patient. So in fact it has produced results already number two you know when you talk about the valuation of the company. You know we should also emphasize there is no debt at the corporate level. So you know that's that's important to know my question is this.
What is our thinking with respect to maven, how do you how do you see the company getting out from under the stigma that it's been under Anne and attracting some real investor attention.
So first of all great to hear your voice thanks for checking in here and thanks for your support over the years.
Maven has got all of its financials finally current.
It took about two years longer than we would've liked.
We actually were the beneficiary of it taking two years too long because.
Dan It was a December they were supposed to have their numbers are done by December of 19, I think that's right and we think we were received penalties are 800 over $800000 worth of penalties that will either be paid in cash or shares.
Us for their.
Being delayed are having delayed financials, but now is that reflective Kevin is that reflected in our net asset value.
It is yeah, its a receivable on our balance sheet, but okay.
Yeah.
It'll be shares or cash.
Alright.
The point, so we have to do the receivables there we don't know if it's gastro stop the but their current so they have the opportunity right now top list. They are in the queue Daniels or anything you want to share on that before I get into the business.
I think that look it's there's yeah. There's a there's a lot of steps that you have to take I mean, if you look at quantum and what they had to do as well just to get up listed once they got their financials up to date. It does take some time, we're hopeful that it'll be sooner rather than later, but it will take time, so how the.
It's a real business so as I said in my earlier remarks it.
Hopefully as expected you know when we used to be board observer. So we we know the business intimately we no longer write observers to $200 million to $220 million revenue business next year.
Its probably got about that enterprise value currently.
Maybe a little higher.
It's a business that there its a license business.
They they basically will take the digital assets of some of these gigantic media companies and run the backend.
So they they've sports illustrated they they are sports illustrated they run the sports illustrated business for a BG group, which is a which is a licensing company obviously they own the street's assets they have other.
Assets like history and biography, they recently bought a company called the spun which is doing quite well.
It's run by Ross Levinsohn, who was you know a day away from becoming the CEO at Yahoo.
He said jobs at Fox in the L. A times and the rest.
He was put in place last summer.
And is doing a very effective job. So the question is are they actually report their earnings on Monday. They are doing their first earnings call on Monday.
<unk>, they're starting to do conferences.
Tell Ross all the time, just because you're not uplifts that doesn't mean you shouldn't you should start talking to people and act like you are public.
And so they're taking our advice there so the numbers will get out the news the news, we'll get out at some point.
Though there'll be there'll be uplifted and then we can all value the business based on how we want to value. It for the most part these kinds of businesses should have EBITDA margins north of 10% No reason to expect that this company can.
And you know it.
It's sort of it if at the end of the day, they're valued on revenue and one of the biggest competitors I think trade at four and five times revenue. So it's been Harry to say the least.
We got involved at a low price because the company needed capital.
It's been a shaky couple of years for the company you know an advertising business going through a business that relies on advertising going through a pandemic. So as you know stay tuned to Monday that'll be the first earnings call and they're there now graduating to the big leagues and you'll start to hear more and more from them.
Okay, just one other thought Kevin.
So let's say some of the so you've mentioned you've had.
You know offers on some of the positions in the private portfolio I mean, if we could get lets say 80, 85% of what you think that position is worth and then turn around and reinvest that money in the public market, where things are selling at a 40 50, 60% discount.
What you think the business is worth maybe that's a good trade maybe we don't maximize the value on the private side, but we can pick up great opportunities on the public side have you given that some thought where yeah.
Yeah.
In fact came in over the transom today.
We would we would hit the bid, but so yes, where we are and were in line with your thinking secondary buyers just to put in perspective.
Venture portfolios.
Typically bad and come in at sort of the 20 to 30 cents on the dollar Wow.
Our high bid is usually maybe 50 cents on the dollar.
And so that those are the issues that we've been facing in those discussions. So this is what happens somebody will come in the law for US 40 cents on the dollar will say, we don't we have no interest in talking to your there'd be like well. That's all it's worth will be like well, we're not selling it to you. So that's the end of the conversation and then they'll still try and convince you and I'll ask that.
They will say to them what part don't you understand like we have to find the what we what would I think is easier to happen is if you can get some of these companies to almost back themselves and and and the privates know that where they're valued on our business given the O. P. M. We would trade them at a slight discount to <unk>.
The reality of the stock price, let's say for example, and so if you can find one of these guys to see the news I'm. One of them. Then maybe you can you can sell an individual position at a price that makes sense al for for you and I and every one of the other shareholders, but and so 85 cents on the dollar yeah go find that they'll find the secondary.
And will that.
Instead of a set them right our way we can make that happen. Okay. Now finally para bellum I mean that looks like a very small capitalization company, what 35 million or so I mean is that does that really have enough capital in muscle to to do any good.
Yeah, Parovarium raised 143.75 trillion.
Okay.
And so you know it's targeting business that will have call. It an enterprise value somewhere between 300 and 600 million.
And or.
Our one businesses that are either generating EBIT out a day or have visibility close visibility generating positive EBITDA.
Times, even positive cash flows and and and and earnings and so these are not these are going to be more like you know what we invest in and 180 not the.
They have $5 million in revenue today, and supposedly growing to $600 million in revenue in 2026.
That's not what we do that's not what pair of element focused on but they have they have a they have a really nice slug of capital that I.
Yeah, I think brings a real interesting opportunities to some are good companies that are looking to access the public markets. Okay. Well just one last comment you know I was in a Harris and Harris group back in 1990 798, when I was selling for our book and have $2 a share.
And nothing was happening with the stock and then along came the Internet bubble nothing traded up to 36 Bucks a share so.
At some point in the cycle, we're doing the right thing we know that the strategy is great. We're gonna get recognized we've got the cash no debt, we can survive pretty much anything.
Our de will come we just don't know when it's going to be.
So we're.
Glad to be a part of the team.
I appreciate that the good news is we've since we started this.
Share price is up close to a 100%, but we wanted as I've said this many times there are.
No reason to think that in the next four years, we can't get to a 200 million dollar balance sheet and close to a 20 dollar stock I mean, that's.
I'm not here for any other reason other than to grow the stock price.
Otherwise I mean.
We all have other things to do and.
That's my goal and so I've I've I've laid it out there for people.
Yes at the end of a 22, three or 425 or.
Beginning of 'twenty six 'twenty.
$20, a share and $200 million balance sheet, that's the goal.
Okay, great. Good good good go thank.
Thank you Joe.
Thanks Al.
I am not seeing any other questions in the queue well. Thank you everyone as I said at the beginning it was a challenging quarter for our public stock.
Picking you could read all about that in our shareholder letter having said that.
It's against the backdrop of actually being up 36% and 35% to 36% as of the close of last night, So a weak quarter in the midst of a fairly good year for US we look forward to sharing with you. Our Q4 results sometime in the beginning part of 2022 and hope everyone has a great.
Holiday season, and a happy Thanksgiving. Thank you. So much. Thank you everyone. You can now disconnect Q&A session is over.
Yeah.
Goodbye.