180 Degree Capital touts NAV growth, optimistic 2024 outlook By Investing.com

180 Diploma Capital Corp (TURN) reported a constructive near the 2023 fiscal yr with a 7% gross complete return and a rise in web asset worth (NAV) per share to $5.02. Of their Fourth Quarter 2023 Monetary Outcomes Replace Name, President Daniel Wolfe and CEO Kevin Rendino emphasised the corporate’s shift towards a small-cap activist mannequin aimed toward unlocking intrinsic worth in portfolio corporations. With a particular deal with corporations similar to Potbelly (NASDAQ:), Comscore, and Synchronoss, 180 Diploma Capital expects to leverage constructive activism to drive monetary efficiency and shareholder worth. The corporate additionally highlighted its Low cost Administration Program, which seeks to slim the hole between its NAV and inventory worth, aligning extra intently with shareholder pursuits. Wanting forward, 2024 is projected to be a pivotal yr with a number of catalysts poised to create materials worth.

Key Takeaways

• 180 Diploma Capital Corp ended 2023 with a 7% gross complete return and an elevated NAV per share of $5.02.
• The corporate is transitioning to a small-cap activist mannequin to reinforce worth in its portfolio.
• Investments in corporations like Potbelly, Comscore, and Synchronoss are key to their technique.
• A Low cost Administration Program has been applied to cut back the NAV to inventory worth low cost.
• No questions had been raised throughout the earnings name.

Firm Outlook

• TURN anticipates 2024 to be marked by constructive activism and vital worth creation.

Bearish Highlights

• There have been no bearish highlights mentioned throughout the name.

Bullish Highlights

• The corporate is optimistic in regards to the potential for worth appreciation in its portfolio.
• Progress in NAV is now extra intently aligned with public inventory efficiency.

Misses

• The decision didn’t point out any particular misses or underperformances.

Q&A Highlights

• The earnings name concluded with none questions from individuals.

Within the monetary outcomes replace, 180 Diploma Capital offered an outline of its strategic pivot and its efforts to reinforce the worth of its investments. The corporate’s confidence in its portfolio, significantly with corporations like Synchronoss, is underpinned by its energetic engagement and constructive activism. The alignment of NAV development with public inventory efficiency signifies a positive outlook for the corporate’s monetary well being.

Portfolio updates embrace Comscore’s new settlement with Nexstar, Brightcove’s new streaming deal in Brazil, CVG Tools’s divestment of noncore belongings, Mama’s Creations’ Analyst Day, and D-Wave Techniques’ announcement of recent partnerships and a quantum pc. These developments are anticipated to function development catalysts for TURN within the upcoming yr, with the corporate’s Low cost Administration Program taking part in a job in optimizing shareholder worth. The absence of questions throughout the name might counsel a consensus of understanding and confidence among the many individuals concerning the corporate’s strategic course and monetary standing.

InvestingPro Insights

180 Diploma Capital Corp (TURN) has demonstrated a proactive method to funding administration, as seen of their constructive year-end outcomes and strategic shift in direction of small-cap activism. The corporate’s deal with enhancing shareholder worth is obvious, nevertheless it’s necessary to think about numerous monetary metrics and InvestingPro Tricks to acquire a deeper understanding of the corporate’s present standing.

InvestingPro Knowledge highlights a Market Cap of 42.3M USD, indicating the dimensions of the corporate within the monetary market. The Income for the final twelve months as of This fall 2023 stands at 0.05M USD, with a Gross Revenue Margin for a similar interval at 100%, exhibiting the corporate’s means to generate revenue from its revenues. Nonetheless, the P/E Ratio is at present at -3.15, reflecting challenges in profitability over the latest interval.

Two InvestingPro Ideas present further perception:

1. 180 Diploma Capital’s liquid belongings exceed its short-term obligations, which is usually a signal of monetary stability and its means to cowl speedy liabilities.

2. The corporate has not been worthwhile during the last twelve months and doesn’t pay a dividend to shareholders, which might be a priority for income-focused buyers.

For readers searching for to delve additional into TURN’s financials and strategic evaluation, there are further InvestingPro Ideas out there at https://www.investing.com/professional/TURN. Utilizing the coupon code PRONEWS24, readers can get an additional 10% off a yearly or biyearly Professional and Professional+ subscription to entry these insights.

The absence of questions throughout the earnings name may mirror investor confidence, but the InvestingPro Ideas counsel areas the place TURN could have to focus to enhance its monetary efficiency and investor attraction. With a number of catalysts projected for 2024, TURN’s journey in direction of worth creation is one to observe intently.

Full transcript – Harris & Harris G (TURN) This fall 2023:

Daniel Wolfe: [Call starts abruptly] And welcome to 180 Diploma Capital Corp’s Fourth Quarter 2023 Monetary Outcomes Replace Name. That is Daniel Wolfe, President and Portfolio Supervisor of 180 Diploma Capital. Kevin Rendino, our Chief Govt Officer and Portfolio Supervisor and I wish to welcome you to our name this morning. All individuals are at present in a listen-only mode. Following our ready remarks, we are going to open the road to questions. [Operator Instructions] I wish to remind individuals that this name is being recorded and that we’ll be referring to a slide deck that we have now posted on our Investor Relations web site at ir.180degreecapital.com below monetary outcomes. Please flip to our Secure Harbor assertion on Slide 2. This presentation could include statements of a forward-looking nature referring to future occasions. Statements contained on this presentation which can be forward-looking statements are supposed to be made pursuant to the Secure Harbor provisions of the Non-public Securities Litigation Reform Act of 1995. These forward-looking statements are topic to inherent uncertainties in predicting future outcomes and situations. These statements mirror the Firm’s present beliefs and various necessary components might trigger precise outcomes to vary materially from these expressed herein. Please see our filings with the Safety and Change Fee for a extra detailed dialogue of the dangers and uncertainties related to 180 Diploma Capital’s enterprise that would have an effect on our precise outcomes. Besides as in any other case required by Federal Securities Legal guidelines, 180 Capital Corp undertakes no obligation to replace or revise these forward-looking statements to mirror new occasions or uncertainties. I might now like to show the decision over to Kevin.

Kevin Rendino: Thanks, Daniel and good morning, everybody. Let me begin with the conclusion earlier than diving into the small print of the quarter. I have been managing cash for over 30 years and have been an investor portfolio supervisor since 1988. By no means in my life I’ve been extra satisfied that we personal a set of corporations that I imagine have the potential to rise materially in worth as a lot because the portfolio TURN has put collectively as we begin 2024. We’re additionally at a degree the place I imagine our constructive activism will make a distinction on this worth creation. Whereas the final 2 years have been extremely irritating and disappointing, I am grateful it is over and we’re off to a flying begin in 2024. Simply take a look at what we personal on the finish of the quarter and take a look at the efficiency of these names, corporations like Synchronoss. Having had the 30-year expertise of realizing that difficult efficiency intervals occur, throughout these intervals it’s essential that you do not draw back from speaking about them, you do not change into over emotional about them and also you follow your knitting and course of regardless of how painful the interval could be. Someone despatched me a quote as soon as and it mentioned, “The one keen to look the stupidest the longest wins.” During the last 2 years, we really feel silly, on the one hand, but, on the opposite, we could not be extra optimistic about what we personal, that vital worth appreciation is feasible within the subsequent few years. The fourth quarter of 2023 we hope was a begin of what we imagine might be a return to danger asset lessons, together with the microcap shares by which we make investments. Our 7% gross complete return in our public portfolio was the first contributor to the expansion of our NAV per share from $4.91 to $5.02. Our belongings on our stability sheet at the moment are nearly 100% comprised of investments in public corporations and money. You may see these slides and we posted them on our web site for particulars of the sources of change in our portfolio throughout This fall 2023, the complete yr and inception up to now. On the macroeconomic entrance, the resilience of the U.S. economic system mixed with the obvious finish of the Fed’s tightening cycle and potential future reductions in rates of interest ought to be one tailwind for our investments usually in 2024. For 180, we imagine 2024 might be a yr outlined by our constructive activism and by lengthy awaited catalysts at sure of our portfolio corporations that collectively might result in materials worth creation for 180 Diploma Capital’s stockholders. On Slide 4 — this would be the final time we present you this chart. 7 years in the past, we launched into a program designed to recreate ourselves and we did simply that. Simply to remind everybody, once we began, 75% of our belongings had been in non-public corporations. Over the last 7 years, via good markets and unhealthy, we incurred losses from that personal portfolio of $25 million, whereas on the similar time producing $31 million in positive aspects from our public portfolio. As we begin 2024, that headwind is gone. Not do I’ve to take a seat on pins and needles on the finish of 1 / 4 hoping our VC investments and the marks we take would not offset good public inventory efficiency. We fear no extra. That chapter is shut. And in 2024, we’re off to a terrific begin. We’re a pure-play markets small-cap activist. When it comes to what helped and harm within the quarter, please flip to Slide 5. Potbelly had the most important constructive impact as the corporate delivered one more sturdy quarter of same-store gross sales development and file weekly gross sales per retailer. On the franchising aspect, the corporate has introduced almost 200 new store commitments up to now. Comscore went up by 36% within the quarter, as a result of though lacking the highest line, the corporate did exceed estimates for EBITDA. We have now continued our activism there and we’ll have extra on that in a couple of minutes. Regardless of promoting its noncore messaging and digital belongings, Synchronoss inventory declined within the quarter by 28%. We joined the Board late within the yr. And as you’ll be able to see, the efficiency of the inventory since that point via yesterday has been stupendous. We’re very excited in regards to the potential to work with the administration group and the board there and we’ll discuss that involvement shortly additionally. Enviornment reported weaker-than-expected outcomes resulting from softness within the promoting market and adjustments in search show data that decreased click-through charges. Subsequent to the report, B. Riley offered its stake in Enviornment to the proprietor of Bridge Media Networks, who beforehand introduced an settlement to purchase 65% of the corporate. There’s been a collection of administration adjustments, delays in completion of the S-4 and the potential finish of the partnership with ABG to license the Sports activities Illustrated model. This has change into a piece in progress once more however one with vital alternative to create worth. Take a look at this chart on Slide 6. This “recession” which has been one of many drivers of capital away from danger belongings to perceived safer belongings has been essentially the most enjoyable and superior one ever. Each recession ought to appear to be the one that everybody has known as for or mentioned we’re in. However sarcasm apart, persistent predictions of a return to arguably extra regular rates of interest have completely not led to an financial calamity. As an alternative, GDP rose 3.1% in 2023; wages and salaries grew 4.7% which is sweet for shopper spending; actual non-public fastened funding in manufacturing buildings reached all-time highs; and employment stays sturdy. I did not stay via the 1929 recession however I did expertise 1990, 1998, 2000 and the close to despair in 2008 in addition to 2020. And 2023 I am comfortably saying appears completely nothing like these recessions. Regardless of sturdy macroeconomic tendencies in 2023, one way or the other a basket of microcap corporations that comprise the Russell Microcap Index underperformed the Nasdaq-100 by over 4,600 foundation factors. In our final shareholder letter, we integrated a plethora of chart exhibiting that microcap corporations are traditionally cheap and undervalued relative to larger-sized corporations. Whereas considerably all of this knowledge and charts stay relevant as we speak, I am not going to regurgitate them. You may see them from my final letter and you may go to that on our web site. As an alternative, I am going to word commentary concerning This fall 2023 from Royce Funding Companions, who we maintain in very excessive regard. They talked in regards to the valuations for small-caps and the way extremely engaging they’re versus giant caps. We expect “it bears repeating that even with the terrific fourth quarter ’23 and a constructive return in 2023, the completed the yr nicely shy of its 11/8/21 peak, whereas giant caps proceed to determine new highs within the fourth quarter of ’23.” Actually, it has been 563 days for the reason that present cycle low for the Russell 2000, the third largest span with out recovering the prior peak on file. Fallout from the funding bubble — Web Bubble, noticed small-caps want 456 days from their trough to match their earlier peak, whereas it took 704 days for small-caps to recuperate their prior peak following their trough within the 2008, 2009 monetary disaster. Every of those intervals noticed dramatic developments: the implosion of high-flying expertise shares in 2000 and a worldwide monetary disaster in 2008. This present interval has seen ample uncertainty for certain however — and a file tempo of rate of interest will increase, but it lacks the existential threats that characterised the Web Bubble and much more so, the monetary disaster. The latter interval additionally noticed much less bifurcation between small and large-cap returns, but based mostly on our most popular index valuation metric of enterprise worth to earnings earlier than curiosity and taxes, or EV to EBIT, the Russell 2000 completed 2023 not removed from its 25-year low relative to the Russell 1000. On Slide 7; even with the will increase in small and microcap shares that we noticed in This fall, the IWM to SPY ratio stays at historic lows. We proceed to imagine that the ratio says nothing in regards to the fundamentals of the companies that comprise every index given these fundamentals have held up higher for a lot of microcap corporations than the index efficiency would counsel. We expect we’re on the finish of the Fed climbing cycle. We aren’t within the camp that the Fed might be reducing charges anytime quickly as a result of we imagine the economic system will proceed to indicate the resilience that it confirmed final yr. That in our view is a constructive, not a destructive. Our portfolio corporations don’t require decrease charges to execute and construct worth for shareholders. They profit from the kinds of constructive financial tendencies we noticed in 2023 and proceed to see at first elements of 2024. And in opposition to that backdrop, we count on lots of our holdings that are buying and selling at traditionally low valuations, have a protracted runway to rise in worth and assist us enhance our web asset worth per share. Let us take a look at just a few of our present names. However earlier than that, I assumed I might do one thing a tad totally different this name and overview what we imagine is a definite a part of our funding course of, that’s our constructive activism. Flip to Slide 8. A number of buyers are keen to spend the time and vitality figuring out, conducting diligence on and actively partaking with corporations to unlock intrinsic worth. We imagine the chance for worth creation in U.S. microcapitalization [ph] publicly traded shares exists as a result of administration groups and boards typically prioritize income development over working income, favor the established order versus change, lack the understanding of buy-side buyers and the workings of the general public markets usually, don’t recognize the influence of flawed capital construction on shareholder returns and entrench themselves to guard their jobs and positions. To be clear, we’re not company raiders. Our final purpose is to have interaction constructively with present boards and administration groups to unlock worth via decision of capital construction or different overhangs that we imagine inhibit development or shareholder worth — of shareholder worth; the realignment of monetary efficiency to attain development of working income, not simply revenues; the advance in investor relations methods and outreach; the analysis of strategic choices, together with M&A, gross sales, divestitures; the identification of complementary expertise and experience; and the alignment of curiosity with and help from giant shareholders. There’s many ways in which we are able to add worth. We’re not antagonistic, nonetheless, to pursue adjustments via different routes, together with non-public and public shareholder communications, proxy solicitations and/or becoming a member of boards of administrators of our portfolio corporations. All efforts, nonetheless, might be grounded and based mostly on our elementary analysis and diligence. We have now totally different ranges of activism, as you’ll be able to see on Slide 9. Stage 1 would not require substantial time or involvement. Stage 2, our strategies begin to change into energetic. And Stage 3, we work straight with administration groups on particular outcomes, whether or not that is board seats or particular overhangs that exist which can be hurting the inventory worth of that firm. On the subsequent slide, you’ll be able to see the kinds of particular methods we have now utilized our activism. The businesses we personal and the kind of activism that we have now utilized are listed on this slide. Generally our activism is outward and obvious like Comscore. In different circumstances, it is quiet and behind the scenes. Under no circumstances, nonetheless, will we ever get entangled in an organization until we have now recognized methods by which we expect we may also help an organization and its share worth recuperate. That’s the alternative. It might be steered enhancements to displays and transparency; recommending numerous potential paths in direction of enhancing monetary efficiency; as I mentioned, creating buildings and offering financing that leads to simplifying capital buildings; or becoming a member of boards. And in lots of circumstances, we have run strategic different processes for corporations which have led to the sale of the corporate or sure of its belongings. My level in all of that is, by no means has the necessity been higher for the kind of help that we are able to present. And at last, on Slide 9, are 2 examples. Our involvement with Synchronoss has been one in all collaborations since our preliminary funding. Synchronoss supplies white-label expertise that permits giant companies to supply prospects cloud-based storage of private knowledge. Synchronoss’ platform powers the non-public cloud choices of various Tier 1 corporations like Verizon (NYSE:), SoftBank (TYO:), AT&T, Assurant (NYSE:), British Telecom and Tracfone below long-term contracts. We first invested in Synchronoss as a part of an underwritten financing in June of 2021 that allowed Synchronoss to repay its punitive most popular inventory and recapitalize the corporate with decreased curiosity expense, whereas additionally offering flexibility going ahead to execute on the strategic choices for the enterprise. The primary of those strategic options was accomplished in This fall of 2023 with the sale of Synchronoss’ noncore messaging and digital companies. Synchronoss is now a pure-play cloud-focused enterprise with excessive margins and is on the cusp of producing vital free money flows. Our bullish view for 2024 is centered round various catalysts that we imagine will enhance Synchronoss’ stability sheet and display the working leverage of the enterprise. First, Synchronoss has acknowledged that it expects to generate free money move and produce other money flows in 2024. That influx of capital will enable Synchronoss to delever. Second, Synchronoss is anticipating to return to high line income development after the runoff of its historic deferred income and its continued development in subscribers as largest buyer, Verizon and its latest buyer, SoftBank. Third, the top of nonrecurring expenses associated to restructuring and prior litigation and corresponding settlements, coupled with income development and a fabric discount in curiosity paid on its excellent debt ought to result in materials free money move technology in 2024 that we imagine will develop considerably in 2025. Lastly, we must always word that in December of ’23, we had been requested to hitch Synchronoss’ board of administrators to assist with the corporate’s execution on its subsequent section of development. We could not be extra excited. As we take a look at what which means for the inventory worth of Synchronoss, it ended final yr at $6.21 which equated to a a number of of enterprise worth to estimated 2024 EBITDA of roughly 5.6x. This a number of declines to roughly 5.2x if Synchronous receives the sorts of inflows it ought to obtain this yr from its tax refund. We don’t imagine a cloud targeted enterprise with 85% to 90% recurring income, 70% to 75% gross margins and 25%-plus EBITDA margin that additionally generates constructive free money flows ought to command such a low a number of. In our opinion, a extra applicable a number of can be within the double digits. And if that’s the case, the inventory has an opportunity to go to nicely north of $20 a share and method $30 a share simply based mostly on that valuation change. We imagine that is simply the beginning of Synchronoss and 2024 might be a turning level for Synchronoss, each by way of its enterprise and the way buyers worth the inventory. Whereas our funding with Comscore began out as a collaboration, the continued gridlock on the Comscore board in direction of resolving capital construction points and different governance points has led to a different stage for us of activism as we embark on a possible proxy contest that we’re 100% ready to launch this spring. Our preliminary funding in Comscore came about in 2021 following its recap by Constitution, Cerberus and Liberty. Our unique thesis for our funding was centered on a number of components, together with our perception that Comscore was an organization with uniquely aggressive media administration choices and proprietary knowledge; Comscore’s new investments would assist with improved execution, monetary efficiency and total development; and Comscore traded at a big low cost to its friends. Whereas Comscore’s enterprise has improved dramatically below new administration with 33% EBITDA development during the last 2 years, the inventory has declined precipitously. We imagine this is because of poor company governance and uncertainty round Comscore’s capital construction. Because of this, we have now ramped up our activism considerably via the nomination of Matt McLaughlin as a director nominee for consideration at Comscore’s upcoming Annual Assembly of Stockholders. Matt is a retired promoting expertise government and naval officer. Most lately, he served as chief working officer of DoubleVerify (NYSE:) Holdings, a software program and platform firm for digital media measurement and analytics. He served there from 2011 to 2022. As COO of DoubleVerify, Matt directed its product engineering and gross sales operations exercise, together with managing over half the corporate’s staff. Given Comscore’s struggles with and deal with enhancing its digital choices, we are able to consider no one extra helpful to this Comscore board and administration than Matt. He has been out there to talk with Comscore stockholders. Ones that want to converse with him can attain us straight. Whereas we actively are making ready to run a aggressive proxy marketing campaign to help his candidacy, we definitely hope that Comscore’s board will understand the complementary ability set that we imagine he can deliver to assist construct worth for all of Comscore’s stakeholders and {that a} aggressive proxy contest is not going to be required. Let me cease there and switch it over to Daniel.

Daniel Wolfe: Thanks, Kevin. Please flip to Slide 13. As we famous in our press launch on February 1 of ’24, the low cost of our NAV to inventory worth was roughly 26% as of the top of January ’24. This low cost equates to a NAV on the finish of January that was roughly 8% increased than on the finish of 2023. We established the Low cost Administration Program to make it clear that the administration and Board of 180 Diploma Capital are severe about our intentions to slim this low cost. On the finish of every measurement interval, our Board will take into account all out there choices, together with however not restricted to a bigger buyback than the 5 million present approved — at present approved, a money distribution that might be thought-about a return of capital or a young provide. The administration and Board are fully aligned with our stockholders and that we collectively personal about 12% of 180 Diploma Capital’s excellent shares. And this possession continues to develop solely via open market purchases, largely of after-tax {dollars}. We’re laser-focused on creating worth for all stockholders of 180 via development of our NAV and the narrowing of this low cost. Please flip to Slides 14 and 15. We offered related slides final quarter and thought it will be helpful to take action this quarter as nicely. Subsequent to the top of ’23, lots of our portfolio corporations issued press releases that offered updates on their respective companies. We summarized various these releases on these slides. Potbelly continued to report sturdy development that exceeded expectations and introduced a brand new credit score facility that gives significant curiosity financial savings and monetary flexibility to fund development initiatives. Synchronoss introduced completion of its price removing program on the higher finish of its preliminary goal vary together with sturdy efficiency for the fourth quarter of ’23. Manoj Bhargava is now the bulk proprietor of Enviornment Group via a $12 million funding at a considerable premium to the corporate’s buying and selling worth on the day of when that funding was made. Enviornment additionally filed the Type S-4 registration assertion for the merger with Mr. Bhargava’s Bridge Media. Comscore introduced a brand new settlement with Nexstar that we imagine will result in Nexstar being a high 10 buyer for Comscore. Ascent is now targeted on its chemical compounds enterprise via the appointment of that division’s president and CFO as the brand new CEO and CFO of the whole firm. Brightcove introduced a brand new streaming take care of the second largest TV community in Brazil. CVG Tools below its new CEO is rationalizing its enterprise via divesting noncore belongings. Mama’s Creations held an Analyst Day lately. When you cannot benefit from sampling the meals on the occasion in individual, you’ll be able to order its merchandise from Mama’s web site and revel in them at residence whereas listening to Adam Michaels and his group describe what they imagine might be substantial development forward. Even our legacy non-public holding that accomplished public itemizing, D-Wave Techniques, introduced new partnerships and the provision of a brand new quantum pc via its quantum cloud providing. These bulletins are only a sampling of what we imagine units up ’24 as a yr the place a number of value-creating catalysts might happen and in the event that they do, to drive significant development for TURN and its shareholders. Lastly, I wish to word that we included further slides that include metrics from the quarter, yr and inception up to now in an appendix on the finish of the slide deck on our web site. We’re not going to debate these slides within the ready remarks as we speak however we’d be glad to reply questions on them any time. We might now prefer to open the road for questions [Operator Instructions]

Kevin Rendino: Whereas we’re ready for questions, one final remark from me. Now that primarily 100% of our belongings are in public corporations and most of you understand that we’re buyers and never merchants, it is best to be capable to do the maths and determine what our NAV is at any given cut-off date throughout the quarter by what our holdings had been on the finish of final quarter. Now, that is not going to be an actual science as a result of generally we clearly commerce out and in of quarters. After which, after all, you need to subtract bills as nicely. However it is best to have a a lot clearer image of the place we stand and the way we’re doing throughout the course of 1 / 4. And that is one thing that we could not have mentioned at any time within the final 7 years. We’re now — our NAV development is now nearly 100% aligned in direction of our public inventory efficiency. And as you understand or can see, given what’s occurred year-to-date, if we proceed to personal the shares that we owned on the finish of final quarter, our NAV is materially increased than it was on the finish of final quarter and approaching 6 and much away from 5. So I am going to cease there, Daniel and see if we have now any questions.

A – Daniel Wolfe:

Kevin Rendino: Glorious, no questions. I imply, we both gave an entire efficiency evaluation and no one had something to ask, or no one was on the telephone. Both manner, I want all people day, a significantly better 2024. As I mentioned, we’re off to an excellent begin. We’re enthusiastic about that. We’re excited in regards to the quantity of inventory that we personal in TURN given the potential for us to extend our NAV and slim that low cost going ahead. Have 2024. Thanks.

Daniel Wolfe: And if anybody has any questions, be at liberty to achieve out to us at any time. Thanks very a lot and now you can disconnect.

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