180 Degree Capital - Q3 2022

Transcript

Speaker 1

Good morning, and welcome to 180 Degree Capital Corp.'s third quarter 2022 financial results update call. This is Daniel Wolfe, president and portfolio manager of 180 Degree Capital. Kevin Rendino, our Chief Executive Officer and portfolio manager, and I would like to welcome you to our call this morning. All participants are currently in a listen-only mode. Following our prepared remarks, we will open our line to questions. If you'd like to ask a question, please type star six on your phone or click the Ask a Question icon or if you are participating via your computer. I would like to remind participants that this call is being recorded and that we will be referring to a slide deck that we have posted on our investor relations website at ir.180degreecapital.com under Financial Results. Please turn to our Safe Harbor statement on slide two.

This presentation may contain statements of a forward-looking nature related to future events. Statements contained in this presentation that are forward-looking statements are intended to be made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to the inherent uncertainties in predicting future results and conditions. These statements reflect the company's current beliefs, and a number of important factors could cause actual results to differ materially from those expressed herein. Please see the company's filings with the Securities and Exchange Commission for a more detailed discussion of the risks and uncertainties associated with the company's business that could impact the company's actual results. Except as otherwise required by federal securities laws, 180 Degree Capital Corp. undertakes no obligation to update or revise these forward-looking statements to reflect new events or uncertainties.

I would now like to turn the call over to Kevin.

Speaker 2

Thanks, Daniel, and good morning, everyone. We'll start on slide three, where we note our NAV declined this quarter to $8.10 or 3% from Q2. Our cash and liquid securities increased in the quarter to $sixty-seven and a half million or $6.50 per share, with the balance of our book value represented by our private holdings. Our public performance return was a -2.9%, led by declines in Potbelly, comScore, Quantum, and Commercial Vehicle Group. The largest increases in value from our public companies came from Arena Group and Alta Equipment Group. On the private side, the main takeaways were down to four active companies left. That is a significant decline from the 24 we inherited five years ago.

While this year has been difficult, to say the least, the good news is we have completely transformed our business, made our balance sheet transparent and easy to value, and created a business that actually has a future and provides strategic options to create value that simply did not exist five years ago. On slide 4, we show our book value on a quarterly basis. No need for me to tell you how difficult 2022 has been for microcap companies, and that is reflected in our book value. The good news is 80% of our assets are now in our ongoing strategy, and given where some of our stock prices are for the companies we own, it is not hard to see a path for significant appreciation from here.

That's not a prediction for the next three minutes, but rather one that incorporates a longer-term time horizon. On slide five, you see our quarterly performance for every quarter since we started. Year to date, the classic United States portfolio of 60% stocks and 40% bonds is on pace for the worst year on record. We aren't speaking about the last five years. I'm talking about 1907, 1931, 1937, and 2008. In many ways, 2022 has resembled a 100-year flood. Back to the good news on slide six. This chart shows the incremental growth on the level of cash and public-related assets. The bar chart is the dollar amount reflected back to per share amounts. It's our share price trades at a significant discount just to our public-related assets.

Daniel will show you our sum of the parts chart near the end of this presentation. While it's difficult to find the good in 2022, the truth is we are in a far better position to succeed than we were five years ago when we had a bloated cost structure, a busted VC strategy, which resulted in years and years of decaying NAV. Despite the transformation of our balance sheet, our stock continues to trade at a significant discount to its book value. Today. If today's price is the right price, then the price investors were placing on our business well, when it was on its way to zero, it was absolutely the wrong valuation. The discount that we had when I arrived is still the same discount today, which is disappointing to say the least, given our transformation.

Either way, you've seen this management team dip into its pockets and buy stock in the open market with after-tax dollars. I suspect that won't change as long as the discount is this severe. Remember, it's far easier to do strategic things when our balance sheet gives you flexibility. We haven't had that up until now. We do today. Slide six shows our normal sources and changes in net assets. As you can see, we had a slight increase in the value of our privates, which was offset by normal operating expenses and $0.19 of losses in our public portfolio. Year to date tells a similar picture, although obviously the first half of the year put a big dent in our performance. What's interesting is the drumbeat of negativity and bearishness couldn't be any greater than it's been since mid-year.

Recession talk, inflation chatter, rising rates, a tough-talking Fed. What's happened to our public holdings since June? They really have stopped going down. Much to do with our belief that many names are so washed out, so oversold, and have greatly discounted the negative environment, which, by the way, as it relates to a recession, may or may not happen, at least the one that everyone is talking about. As an aside, we think we're already in a recession, a different kind of a recession, but a recession nonetheless. Slide 10 shows you the success of our strategy over the long term. Needless to say, we can look at the big picture and tell ourselves that the 180 shareholder has been properly served by our stock picking in the public markets. I'd encourage everyone to read our shareholder letter.

We run a concentrated portfolio of stocks not correlated to the market. That is our intentional strategy. The world does not need another diversified small cap value fund that runs with low standard deviation. If it does, that will never be us. While we're disappointed with 2022, we aren't discouraged that somehow we forgot how to invest. After all, it's investing. There are periods when you lose, when you're out of favor, when you don't get everything right, when you get things wrong. Remember, we have permanent capital. Nobody can tap us on the shoulder and say, "Time's up." Nobody can redeem us. Nobody can take our capital away. In this environment, that is a big aid and so helpful when we invest in companies trading at all-time lows or not having to sell when we don't have to sell.

Slide 6 shows the performance of every stock we owned and its performance for the quarter. Slides 12 through 14 give a snapshot of each and what's transpired through the quarter. To some extent, the fundamentals of most of our holdings do not mirror the dramatic decline in their share prices. For instance, Potbelly reported strong results and suggested optimism for the second half of the year. They announced two franchise deals. What happened? The stock declined 20% in the quarter to a price that was a third of the value from 5 years ago when it was a broken story with declining comps and a completely ineffective management team. That was just one example of a holding that executed its business fairly well, whose stock price has been severely punished in this bear market.

The one name we own where management truly mismanaged this business, and which we've talked about, was Quantum. Even them, this quarter was okay. Reported okay numbers on the top line. EBITDA was fairly in line and certainly better than prior quarters, and yet the stock declined 24% this quarter. comScore had a fine quarter, landed a new CEO. What happened? The stock down 20%. I think you get the picture. Only Arena Group and Alta Equipment were the only holdings that helped our performance this quarter. It's just been that kind of market. On the next set of slides, we offer our performance by a stock-by-stock basis.

I wouldn't call it a pretty picture, year to date for 2022, but I would call it a real good indication of our skill set if you turn to slide 16 and focus on our performance since our inception. My hope is the next few years look a lot more like this table rather than 2022. If it does, this year will turn out to be a mirage, one that provided a great opportunity to buy a basket of microcap stocks whose share prices have 100% or more upside. On slide 21, we show you our performance over every time frame. You've often heard me talk about the random walk of investing, and needless to say, I've spent a lot of time thinking about it, maybe to irritate myself.

The random walk theory suggests that changes in stock prices have the same distribution and are independent of each other. Therefore, it assumes that the past movement or trend of a stock price or market cannot be used to predict its future movement. In short, random walk theory proclaims that stocks take a random and unpredictable path that makes all methods for predicting stock prices futile in the long run. That's the one part I agree with, is that most market participants think the future replicates exactly today. We've all seen this movie before. If I told you at the outset of the pandemic in March 2020 that the market and 180 Degree Capital would show five straight quarters of growth, that would have felt like a crazy statement at the time, but that's what happened.

For those experts that know exactly where the market is going to go over the next year, my guess is they spend most of their time annualizing the current environment that we're living in. You know that markets change, economics change, and at the end of the day, stock prices are a discounting measure. The random walk theory infers that the past movement of a or trend of a stock price or market cannot be used to predict its future movement. I agree with that, and it plays into our strength of being contrarian and ensuring that the price we pay for the business that we buy overly discounts the worst possible environment. The random walk theory believes it's impossible to outperform the market without assuming additional risk. I don't even know what that means.

I do know that this slide shows that it's possible to outperform the market and do so in a responsible way that doesn't incorporate massive risk-taking. The random walk theory considers fundamental analysis undependable due to the often poor quality of information collected and its ability to be misinterpreted. This is the part I shake my head at the most when what do you think we do all day? The market is efficient today. Everyone understands the fundamentals of today, but nobody knows the fundamentals of tomorrow. Buying a stock that offers limited risk if the current environment continues while offering great upside if the environment changes is exactly what we do. Plus, we have the added tool of activism to have a better say in the outcome of a business.

Finally, the random walk theory claims that investment advisors add little or no value to an investor's portfolio, to which I laugh at. There are good advisors and there's bad advisors. There's good PMs and there's bad PMs. Go find the good ones. I'd like to think that our performance over a long-term time period has proven that our process, if anything, has been a fun random walk. Slide 22, finally, is what I'm most proud of. Although you wouldn't know it from our share price or performance, we have turned a business that was well on its way to zero to have a stable balance sheet, a business model that has the opportunity to create significant value for its shareholder base.

There's been a lot of work from Daniel and others to rid this company of the mess that was created in the prior 10 years and to give the shareholders of TURN a chance to win. On the one hand, I think you know my personality by now. My mood revolves around how we're doing and our share price, and this has been a tough year. One, our belief is that our share price has overly discounted itself, unlike many of our, just like many of our holdings. Two, the amount of business transformation that has occurred has been critical in setting this company up for future success. With that, I'll turn it over to Daniel.

Speaker 1

Thanks, Kevin. Please turn to slide 23. As Kevin mentioned, we've transformed our business over the last 5 years away from the historical venture capital model and towards our public and public-related securities. The sale of our future milestone payments from the acquisition of Petra by Eli Lilly, the sale of TARA Biosystems to Valo Health, and the public listing of D-Wave Systems under the symbol QBTS in 2022 has supercharged that transformation. Following these monetizations, and as you can see on this slide, 180's remaining private portfolio really only has 1 material position, and that being AgBiome. Whereas the sale of Tara to Valo Health presented about $3 million worth of value that we hold on the balance sheet in terms of future payments from milestones and also contractual payments.

Those contractual payments represent approximately $2.6 million due to 180 over this next 1.5 years. We currently expect to receive approximately $275,000 in December, $1 million in April 2023, and the remaining $1.3 million in April 2024. Additionally, while not as material as those amounts, we do expect to receive approximately $100,000 by the end of 2022 from the partial liquidation of Magnolia Neurosciences, and there will be a small amount that comes in the first half of 2023 once the company is fully liquidated. It just shows you that there's value on that list in there that's not just being fair value, but that's actually cash that we expect to come back to 180 over the next 1.5 years.

With regard to remaining legacy private portfolio, as Kevin mentioned, it increased NAV by $0.02 per share, approximately $240,000, which includes the difference in value of D-Wave Systems from June 30 to the opening price of trading as under QBTS, inclusive of a discount for lack of marketability. The increase in value of D-Wave attributed to the legacy private portfolio portion is approximately $1.4 million or $0.13 a share, and that was offset by declines in the fair values of AgBiome, HALE.life, EchoPixel, and the remaining future payments from the potential payments from the acquisition of BioVex by Amgen. Please turn to slide 24. For Q3 2022, our regular operating expenses equaled approximately $927,000 versus approximately $805,000 a year ago, in the year-ago quarter.

The primary source of the difference relate to higher accrual for audit fees, the timing of certain expenses related to tax preparation, and public relations and marketing costs, as well as the addition of Matt Epstein to our team. As has been the case since the start of 180 in 2017, we have been consistent in saying that the management team will only participate in a bonus pool if our performance warrants it. Our performance thus far in 2022 doesn't warrant a bonus pool, and thus there are no performance-based bonuses accrued as of the end of this quarter. The final assessment of any bonus pool will be made by our board of directors, the compensation committee of our board of directors at the end of the year.

We'll be maintaining a lean cost structure outside of our fixed expenses from being a public company and focus our expenses on activities solely designed to enhance our investment performance or increase our revenue from outside managing outside capital. Please turn to slide 25. Part of these additional expenses in 2022 versus 2021 relate to increased marketing efforts to bring 180 to the attention of potential investors, as well as in identifying third-party capital to manage. In addition to launching a new website earlier this year, we've been working with Peaks Strategies to identify opportunities for interviews, articles, and other outlets to speak about what we are doing at 180 Degree Capital Corp. This slide shows a list of articles, podcasts, quotes, and other marketing efforts that we've since we started this process in March 2022.

You can find links to all of these on our website under the Insights tab. We will continue to seek out similar types of opportunities in our effort to bring attention and investors to 180. Please turn to slide 26 and 27. We provide these slides each quarter that enable our shareholders to look at the trend of our total expenses and compensation related to as a percentage of net assets. We continue to anticipate that reductions in our operating expenses as a percentage of net assets will be based on growth in our net assets rather than further reductions in our expenses. We remain committed to treating every dollar of shareholder money with the utmost care and consideration. As we continue to say, and we will always say, it's much easier for us to grow NAV where the expense hurdle rate is today rather than historically.

Please turn to slide 28. Here we present our scorecard through Q3 of 2022 based on certain metrics that we track throughout the year. While the first three quarters of 2022 were difficult, we believe we are well-positioned to grow value per our shareholders across all of these metrics over time, as we have done during the prior five years of 180's existence. Please turn to slide 29. This gets to some of the parts that Kevin mentioned earlier. As of the end of the quarter, TURN traded at 68% of NAV. Our securities of public and related companies, cash, and other assets net of liabilities were about $6.42 per share. Our stock price was $5.49.

If we receive 100% credit of the value of these assets, net of liabilities, the market is ascribing a negative value of approximately $0.93 per share or $9.6 million to our private portfolio. That is negative $9.6 million or $9.6 million. Put it another way, we would have to pay someone $9.6 million to take our private portfolio holdings off our balance sheet. I already told you earlier that for over about close to $3 million of that is cash coming to us over the next 1.5 years. At the end of the day, legacy private portfolio other than AgBiome is currently irrelevant to our future success.

Given how painful the market has been to 2022, we think the current construct of our balance sheet has provided a true floor to our stock price. While none of 2022 has been fun, had 2017 to 2021 not occurred, our share price, we believe our share price would be nowhere where it is trading today. Again, we certainly do not believe that our share price reflects the appropriate value of 180. As you've seen us do in prior quarters in similar situations, management looks forward to adding to their ownership of 180 in open windows for such purchases. I'll now turn back to Kevin for any other comments before we open for questions.

Speaker 2

Yeah, I think we can just open it up for questions. I do want folks to understand that what Daniel said is true. We've gone through the exercise of trying to monetize our private portfolio in ways that we haven't been able to share with the public because they're over-the-wall transactions. You have to be over the wall to understand what we're doing, NNPI stuff. We've gone through secondary markets. We've had individuals look at certain individual holdings, look at the whole portfolio. Never in our wildest imagination would I think that if we called up a secondary folk who spends their time, you know, transacting in portfolios like this, the fact of the matter is we would literally hand the portfolio over to someone and offer to pay them $10 million to take it.

That's what our share price represents as it relates to our book value. I'm sorry, but that doesn't make any sense to me. Go ahead, and off to Q&A.

Speaker 1

If you have a question, please type star six on your phone or click the Ask a Question icon if you are participating via computer. The first question comes from Adam Waldo. Hey, Adam.

Speaker 0

Good day, Kevin and Daniel. Thanks for taking my questions. Three areas I'd like to explore with you today. The first being the situation with AgBiome, second being comments around comScore, and then thirdly, want to talk for a few minutes about the third-party capital raising environment and the addition of Matt Epstein to the team. With respect to AgBiome, obviously just about marked at the end of the quarter, just under 15% of total net assets. Kevin, you made a comment about, you know, third-party options for potentially monetizing remaining private portfolio. Obviously, that's basically AgBiome. You know, Temco is a shareholder there, T. Rowe Price, Fidelity Ventures, and so on.

Can you comment on whether you had any conversations about potentially selling that position to one of those large institutional holders, ventures and redeploying the proceeds into your public market strategy?

Speaker 1

Adam, thanks for the question. I think, what we can do is speak generally, right? We speak to all of the investors of all of our private portfolio companies. Kevin mentioned there's, you know, always lots of things that we're trying to do in the background that, you know, we can't go into detail on. I think you can assume that we have spoken with or, you know, worked to speak with anyone and everyone that we think might have an interest to purchase, you know, our private portfolio companies. It's a difficult exercise with those entities because venture capital firms are not designed to buy interests from other investors. They're designed to put money into directly those companies.

Even if, when you look historically, you can even publicly look at the historical transactions and any information that's out there, anytime there's usually secondary transactions where certain investors are selling their position, it's usually not those venture capital investors buying because that's just not what they do.

Speaker 2

The way it goes is if somebody wants to back our AgBiome, they know where we live. If they offer us $1 million, we go tell them to pound salt. If they offer us something that we think is fair value, then we'll have a conversation. We have no interest in selling something at a price that makes no sense, and we don't have to.

Speaker 0

Absolutely. Fair enough. Okay. Oh, I'm sorry.

Speaker 2

Yep, you can keep going. What was the second part?

Speaker 0

Okay. Sorry. Around-

Speaker 2

Comscore.

Speaker 0

Yeah, around comScore, obviously, you guys have been publicly activist there after having a series of private conversations with the board. Jon Carpenter's been named the CEO. They've bought some stock in the open market. Obviously, yesterday, the contract renegotiation with Charter was announced. Overall, what's your sense in terms of how the board is progressing with addressing a number of the governance issues that you highlighted in your public letters? How are you thinking about your activism going forward?

Speaker 2

This is emblematic of the market. Sometimes you get things wrong, and you can fundamentally blame yourself for picking the wrong stock because you got the fundamentals wrong. Quantum is an example of that. It's all on us. We blew it. They blew it. The stock deserves to be down. We were very disappointed in the comScore board and how they were conducting themselves earlier in the year to the point where we wrote our two letters. Since that time, what have they done? They have a new CEO, one who is focused on profitable growth, one who is re-remaking the management team. One who has very little interest in, you know, pontificating about the industry, but rather one that's interested in having double-digit, or I should say 15%-20% EBITDA margins. They're at 10% today, higher than 10% actually.

They were close to 10. Cerberus, we told them that you are not acting in the best interest of common shareholders, only yourselves. Cerberus went into the open market, bought $1 million worth of stock for $2, I think, and 24 cents, something like that. They not only did they replace the CEO, but they replaced the chairman of the board with a gentleman from Cerberus, appointed Cerberus board member who used to run McGraw Hill. I've had a number of conversations with him, and he's an effective chairman of the board and a breath of fresh air compared to what we were listening to before.

We asked them specifically about that Charter deal and basically wanted answers as it related to what kind of data were they actually getting from Charter. You know, is Charter just a board member so they can sell comScore data? Or is Charter giving comScore differentiated data, proprietary data? We asked them to perhaps provide some relief for those data costs, which is impacting comScore's ability to invest in itself. You saw yesterday we had relief for 2022 and 2023. While comScore is not gonna renegotiate the price, because that would probably look, you know, make every other customer that buys data from Charter come back to them and try and renegotiate, what they did was extend the deal from 7 to 10 years with no price increase.

They've been doing all the things that we've wanted them to do since we put all of our thoughts into those two letters. It's hard for us, for me, to pound on them when they're doing what we've asked. All that being said, when we started writing those letters, the stock was around $2.50. It went to $1.02 on Friday, literally $1.02. That's the definition of a bear market. No matter what this company is doing to effectively run itself better than at any time that it has in the last four or five years, nobody cares. That's the frustration with 2022, is that even when companies are doing the right things, they're not getting rewarded. Forget about not getting rewarded, the stock got punished.

I mean, when comScore was $250, it was trading at a quarter of the value of Nielsen, which sold itself, as you know, at 4x revenue. comScore is trading at 1x revenue with 10% EBITDA margins. It's not like the stock started this decline at some sort of lofty valuation which made no sense. It was literally trading at a quarter value of the company that has completely failed the industry that other companies are taking market share for. Anyway, that's my long-winded version of comScore. They report tonight. You know, we'll meet with them tomorrow, and we'll assess the quarter, and we'll listen to what they have to say. That's been emblematic of 2022. Even when you really haven't been wrong, you've been wrong.

It's one thing to be wrong and get punished. It's another thing to be right and be wrong. That's comScore. What was third party capital? On that, there's nothing to add on third party capital, Adam. I know you ask every quarter, and I appreciate that. We have a new account that we set up earlier in the middle of the year. We have another one that we're working on today. I wouldn't call it a $100 million account by any stretch of the imagination, but it's somebody that wanted us to manage money. You know, quite frankly, some of the capital that we have, there was a redemption this past quarter, mostly to do with rebalancing as most pension accounts are doing from equities into bonds because rates are up.

When that happens, we have to sell. When we sell, that's impacting the holdings of 180 Degree Capital. That takes us back, Adam, to our points in prior calls, where only when the economics make sense will we take on the capital. Because the nuisance of giving our money back to people when they want it is impacting permanent capital. I think you can understand that we adore permanent capital, but when you're managing other people's money and you don't have gates up and they want their money back, you're impacting return, potentially in a negative way. We did hire Matt Epstein, who came from Evermore, which is a very well-respected asset management company, actually nearby. I've known a bunch of folks over there for many years.

Matt is a NYU Columbia grad, so he's well-versed in Graham and Dodd. He's come with an energy and a focus and a real intellectual curiosity that is serving us well so far in his early days.

Speaker 0

Just quickly on that, how will that impact the idea generation going forward? If you can just quickly comment on that. Thank you.

Speaker 2

If it doesn't get better, I don't know why he's here. It should enhance it. It should increase it. That's why we brought him on board. We didn't bring him on board because if we wanted some 22-year-olds to do models for us, I could have hired a grad. We hired him because he's had years of experience in the industry. We weren't picking stocks. Look, I want people to pass or fail based on their own recommendations. That's our game, Adam, as you know. You know, I've gone home every day of my career and either won or lost. While that wears on you over time, especially this year, this is the business that we've chosen to be in because we like keeping score. Matt likes keeping score, too.

The hope is that it will enhance, you know, the idea generations flow, and hopefully there'll be more quantity, but most important there'll be better quality.

Speaker 0

Well, thank you, and good luck over the rest of the fourth quarter.

Speaker 2

Thanks, Adam. I'll find you in Chicago next time I'm there.

Speaker 0

Sounds good.

Speaker 1

Our next question. Hi. It's Matthew. Go ahead.

Speaker 3

Hi there. I wanna ask a little bit about Quantum. I know you guys have been saying it's been disappointing for numerous quarters now, and you've had issues with trust and management, but you're increasing your holdings like every, you know, every slide I see. I'm assuming there's something as far as, like, as far as you guys thinking about activism in that holding. Is there anything you can publicly disclose?

Speaker 2

Well, the main thing that we did this year is increase our holdings vis-à-vis the rights offering. Anything else that we've done is negligible. We did so with the notion that it is our expectation that this business will be cleaned up vis-à-vis they will increase their EBITDA margins, they will cease to have supply chain issues with the one product they basically get from IBM. They haven't told the staff, but we think it's from IBM. That is important for their tape products. They will sell this company and end this nonsense. That is our expectation of the board, that this is a cleanup and a sale. We don't wanna sell anything today. You know, you're in the middle of a supply chain depression with regards to the whole semiconductor storage, you know, industry.

Selling today is completely a useless exercise. Can't get anybody's attention, and your stock's at all-time lows. I'd say the activism that we've done there has been done behind the scenes. We've written letters to the board that we have not made public. But I would not think by any stretch of the imagination that we're not ready and able to become a little more active in our disappointment with almost everything that's gone on there in the last year, including parts of management, which we expect to be changed out. Again, you're gonna get things wrong. We got it wrong. You know, I thought the rights offering clearly was the bottom. It wasn't. I don't know why it wasn't the bottom.

Nothing really has transpired to the negative from that point other than the market's been a mess. This is not the kind of company maybe that you wanna own in this market. It's, you know, it's obviously traded down with the rest of the tech names. That's where we are. I don't expect to own this company in a year, maybe a year and a half. I think this will be hopefully a dead and buried situation for us. Disappointment is, it was one of our biggest winners twice. We bought it at this price, essentially a little higher when they were delisted in 2017?

Speaker 1

2000

Speaker 2

Eighteen.

Speaker 1

18, I think it was.

Speaker 2

Went from 1 to 8, sold a bunch of it, half of it. Went back to 2 or so in COVID. Bought a bunch back then, sold a bunch when it ran again to 8, we got caught this time. Anything else?

Speaker 3

How do you feel about I mean, the current environment with activism generally? I mean, I'm sure. Well, you talked about it, its holdings are depressed across the board. There's probably value to extract somewhere across any, you know, any which way of some of the holdings here. And do you feel like it's time for you guys to get more vocal, or do you think it's more of a sit and wait thing as things sort itself out? Just curious on your thoughts.

Speaker 2

Let's talk about comScore, for example. Do I want them to sell the business? I do. Do I want them to sell the business now? I don't. I mean, do I want Potbelly to sell itself? I do. Is today the right time to sell it? It's not. I mean, these are really. For the most part, every company we own is well-run, good people, good businesses, brands, franchises, whose stocks have been slaughtered. So many of them, I don't want to be public anymore. We're not gonna call on the board to sell the company when the stock, you know, of comScore, when the stock's at $1.20. I mean, it was just at $2.50, like two months ago.

I watched it go down, like 27 out of 29 trading days it was down.

Speaker 1

On no news.

Speaker 2

On no news. I mean, we talk to our companies all the time. I just don't know what to tell them right now because we just want them to run their businesses and get to the other side of this, have the shares appreciate, and then be put in a position where they can make a better decision at a better time. We will push them to do that. I just don't think the time for being vocally active. I mean, I'm an intellectually honest person. What am I telling Quantum? To go sell yourself for $1.50? I don't want that. I really don't. It's a stupid time. They're not gonna be able to get anything done.

We can push behind the scenes to get the kinds of activity, the kinds of announcements that we're getting out of comScore, which are actually impactful to the business. Then we can deal with the whole enterprise, you know, at a time where, you know, we're not hiding under our desks on a day-to-day basis. Does that answer your question?

Speaker 1

As far as D-Wave is concerned, I guess the D-Wave SPAC has kind of been underwhelming, at least the price-wise. Any color or anything you can add to that?

Speaker 2

Well, Dan, I don't know what you want to add. Other than it's like not a company, it's a SPAC. It's trading like a SPAC. Like every other SPAC, it seems like that's come out here in the last year and a half. Dan, I don't know if there's

Speaker 1

Yeah. I mean, look, there's gonna be price discovery that happens. It doesn't help when they, you know, come out on their first call and lower revenue guidance and, you know. I think the business, it's got a lot of promise. I think that's what everybody looks at quantum computing in general. They've got to show that they can deliver. Now they're a public company, they've got to do that under the watchful eyes of all investors. That'll be what determines how the company kind of progresses. I mean, it's analogous to a biotech. It's, you know, a lot of substantial promise and potential, and the question is, can they show that they're making progress to get to that point?

Speaker 2

We, we've owned D-Wave since what year?

Speaker 1

2006.

Speaker 2

2006. The company has been around since 1999, I believe. It is an idea stock still. I mean, the technology they have there is off the charts. Whether it's gating or annealing, I don't know how familiar you are with the industry. They're in a position right now where they actually have a commercial business, albeit it's not a billion-dollar revenue business. But I have no idea. I mean, you know how I'm a Graham and Dodd value guy. I just got in 5 years ago. Like, I'm so tired of talking or looking at that we can't even sell it. You know, we're restricted. Whether it's $12, $1, $10, $5, $6, I mean, none of it makes any sense to me.

In this environment, I don't think you really wanna own idea stocks. In a better environment, you may wanna own idea stocks. We're gonna have to figure out what we wanna do with this thing when the time comes. We're restricted it in, as you know. You know, to some extent, you know, unless the thing goes to 20 or 30, which I'm not saying it can't, this has been a gigantic waste of time and emblematic of the prior company that existed before one eighty. There wasn't just one D-Wave, there was, like, 15 D-Waves. They all provided a gigantic headache to the shareholder. I'm grateful that it's out, it's public. They do have interesting technology, and we'll see what happens here over the next 2-3 years or 2-3 months or whatever.

By the way, if their technology is as good as either they think it is or we think it is or the industry thinks it is, then Google can just write a check for $1 billion and take them out, or Amazon could or IBM could, if they believe that these guys have distinctive technology. I'm not saying it's gonna happen, but it's a possibility. Thanks for the call.

Speaker 3

I appreciate the insight, guys. Thank you.

Speaker 2

Yeah, thank you.

Speaker 1

There are no further questions in the queue.

Speaker 2

Well, thanks, everyone. I've long made fun of folks that spend a lot of time talking about the long term, because usually when investors are talking about the long term, it means the short term is has not been a pleasant experience. We've spent a little bit of time talking about the long term. We've been as transparent with you from day one through good times and bad times, and there clearly have been infinitely more good times than in years like 2022. But we'll use this environment to sift through the market and really try and find those companies that we think can have 100% returns. They exist.

As I mentioned earlier, if comScore just gets back to where it was two months ago, it's a 100% return. There's many like that. The good news for us is out of the $8.10 worth of book value, $6.50 are in our cash and public related assets. When we first got here, if our book value was close to $6.50 or $7, there was only $2 a share in our new strategy, making it very difficult to grow our book value if the majority of it was either gonna go sideways or down, which it ended up doing in the last five years.

When we start this next leg of the cycle, and I don't know if we're in the end of this bear market or the middle of the bear market or whatever, but let's assume we are near the end, and we'd like to think we are because many of these stocks are trading at valuations they haven't been at ever. When we start this bear market cycle with $8.10 of book value and $6.50 worth of cash and liquid securities. It's very clear to me how if we get things right, how the path to create significant value from here exists.

We hope to look back on this period in three years and say, "Thank God it was terrible to go through it, but thank God we have it because look what we've done as a result." We will circle back in three years and look back in 2022 and see if the things that we're buying today were the right things to buy. We only have the vision of hindsight to figure out if that's the case. We think we're doing the right things, and we'll look back in three years, and hopefully, we have. With that, good luck the rest of the year. We'll be with you back in February or early March to review Q4.

If you need to find us, we're around vis-a-vis email and/or text, if you want any follow-up. Thank you very much for your time today, and have a great day.

Speaker 1

Thank you very much, and you can now disconnect.