180 Degree Capital Corp. (TURN) Earnings Call Transcript & Summary

[Audio Gap] of 180 Degree Capital Corp., and I'll be chairing this meeting. I now call this meeting to order, and welcome our shareholders and guests to the 180 Degree Capital Corp. 2021 Annual Meeting of Shareholders. Before making introductions, I would like to review the program before the meeting. We will begin by covering the business of the meeting, as outlined in the proxy. We will end the meeting with an informal session, during which, we will entertain questions from shareholders and attendees of this meeting. I would like to thank our shareholders for observing the precautions we have established for COVID-19 and attending this meeting by webcast or by phone. In light of these circumstances, we will not be distributing or collecting paper ballots at this meeting. If you previously have voted by proxy, you do not need to vote again unless you wish to change your vote. If you would like to change -- if you would like to vote at this meeting or to change your vote, please e-mail our Inspector of Elections, Alicia Gift, at alicia.180degreecapital.com (sic) [[email protected]] to inform her of your desire to vote or change your vote at this meeting and the votes you would like to cast. We ask that you send any e-mails now so that we can be sure to address any questions ahead of the time the polls are closed. We would also like to ask that attendees hold all questions and comments to the designated question and comments period. During the formal portion of this meeting, please restrict questions and comments at that time to the 2 proposals submitted for vote of our shareholders in our proxy materials. Please hold all other questions to the informal portion of the meeting. We ask that all questions and comments be directed to me for response or referral to the appropriate officer or director, that you be brief as possible to allow everyone who wishes an opportunity to participate. Also, please identify yourself before speaking and tell us if you are a shareholder or a proxy for a shareholder. If you are a proxy for a shareholder, please identify the shareholder. I would like to introduce our officers who are present with me today: Daniel B. Wolfe, President and Chief Financial Officer and Chief Compliance Officer; and Alicia M. Gift, Secretary and Senior Controller. Alicia has been designated the Inspector of Election and is present today. The inspector has signed her oath, and the secretary has been instructed to file the oath with the records of this meeting. I'm informed that a quorum is present for the transaction of business. Proper notice of this meeting was duly mailed on or about March 2, 2021, to all holders of record on February 19, 2021, and the affidavit of the mailing agent confirm such mailing. The secretary will please file the affidavit with the records of the company and a copy with the minutes of this meeting. February 19, 2021, is the record date for the voting of shares at this meeting. As of the record date, the company had 10,373,820 shares of common stock outstanding. We will now proceed with the formal business of the meeting. At this meeting, the shareholders are voting to elect 6 directors to the Board of Directors to serve until the next annual meeting or until the respective successors are elected. The 6 persons nominated by the Board of Directors are: Stacy R. Brandom; Tonia L. Pankopf; Kevin M. Rendino; Richard P. Shanley; Parker A. Weil; and Daniel B. Wolfe. The Board of Directors recommends that the shareholders vote for the election of the Board's 6 nominees as directors of the company. The second item of business is the approval of the Audit Committee selection of PricewaterhouseCoopers LLP as the independent registered public accountant for the fiscal year ending December 31, 2021. The Board of Director recommends that the shareholders vote for this proposal. We will now take any questions or comments relating to the specific agenda items: Proposal #1, the election of directors; Proposal #2, the authorization for the Audit Committee selection of PricewaterhouseCoopers LLP as the independent registered public accountant for the fiscal year ending December 31, 2021. Although representatives of PricewaterhouseCoopers LLP are not present in person or by phone, they are available for questions via phone. I ask that you please hold any general questions or comments until the designated question and comment period later in the proceedings. When you are recognized, please address your comment or question to me, and either I or another officer of the company will respond. Also, when you are recognized, please state your name and whether you're a 180 Degree Capital Corp. shareholder or a proxy for a shareholder. The floor is now open for your questions on Proposals #1 or Proposal #2.

[Operator Instructions] Wait a moment to see if there are any questions related to the proposals. I am not seeing any questions related to the proposals.

Okay. Thank you. The question and comment period is concluded, and the polls are now open. Remember, if you previously have voted by proxy, you do not need to vote again until -- unless you wish to change your vote. Submission of a proxy at this meeting revokes any prior proxies you may have submitted. Can the Inspector of Elections confirm if there were any request to vote at this meeting received via e-mail?

And I've confirmed with Alicia that there are no -- there have been no e-mails received regarding changes of votes.

Thank you, Daniel, and thank you, Alicia. If there are no further proxies, I declare the polls closed for the vote -- matters voted on. With the agenda items now having been voted on, I will adjourn the formal portion of this meeting. I now have received the preliminary voting report. The results of which will be confirmed later by the inspector. The preliminary report indicates that all Board's 6 nominees have been elected as directors and the company has authorization to retain PricewaterhouseCoopers LLP as the independent registered public accountant for the fiscal year ending December 31, 2021. The floor is now open for general questions or any comments that you may have. After I recognize you, please state your name and identify yourself as a shareholder or a proxy for a shareholder.

[Operator Instructions] Hi, Adam. Please go ahead.

Yes. This is Adam Waldo from Lismore Partners LLC. I'm a shareholder. Just 2, if I may. When we last talked after the fourth quarter results release, you were cautiously optimistic around private portfolio liquidity events, and in particular, we're discussing AgBiome. I wonder if there's any update that you might have on AgBiome's progress overall or towards a potential liquidity event this year.

Well, I didn't - you tied 2 things together there. I didn't -- I said we're cautiously optimistic about monetization events in the portfolio, but that did not necessarily mean that we expect AgBiome to be one of those. It may or may not, but don't tie those 2 together. We're bullish on AgBiome business. What's that?

Fair enough. I'm sorry.

Yes. So we remain cautiously optimistic on the first. I recognize we got a 12-month year, and it's -- we're in month 4. And what's today's date? The 20th, so we've got -- we're 1/3 of the way through. And we still don't have an announcement, but we are cautiously optimistic that we will. As you know, when you're doing SPACs, if that's one of the roads that some of these companies may go down, it takes a little while. We know that because we're doing one of our own. So really sponsoring one of our -- we're sponsoring a SPAC, as you know. So yes, we remain cautiously optimistic on the monetization events for some of our holdings this year, which will be great. And the second part is, we think AgBiome is a wonderfully run company that's in the right area of the world, feed the world. And we remain very bullish on the prospects for that company. And obviously, it's our biggest private holdings by a fairly substantial amount. So we certainly feel good about that one. And we recognize also that, as you know, Adam, we're very deliberate about what we say in terms of where our cash and liquid securities are. And our stock price now is trading at our cash and liquid securities, not at a discount, well, not at a premium, but at it. And therefore, the entire private portfolio is being valued at 0. And we don't share the same views of every single one of our private holdings. But AgBiome's value is $1.30 per share, and it's worth $1.30 per share in my mind, at least, as we look out the next few years. So we're certainly not getting paid for any value for our private holdings, and we hope that, that will continue to change. In the meantime, not a lot of downside in our share price if we're basically trading at cash and liquid securities. So we feel good about the private portfolio's opportunity for monetization, and we certainly feel good about AgBiome.

And the other thing I might add to that just shortly -- no, that's good. The other thing I might add to that just [ clear ] is that, from an AgBiome perspective, one of the nice things is when these companies actually do make announcements. And you can never exactly tie what that means in terms of value, but you can look at progress, right? And so AgBiome did announce 3 collaborations and [ partners ] in the first quarter: One with Mosaic, one with BASF and one with FarmHannong. So as Kevin said, we remain positive on the company, and clearly, they are making progress as they build out their business.

What was the second question, Adam?

Sorry, Adam. You're breaking up there.

Can you hear me now?

Yes.

Yes.

Okay. My apologies. Other than the continued great performance of the public portfolio in the first quarter as a value driver, separately managed accounts business is probably the third key value driver here, right, for the overall TURN story. So is there anything else that you can update us on at this time with respect to the pipeline or progress there?

No. We continue to have conversations. As you know, our separately managed account which we won last year with an initial seed of $25 million is now up to $40 million due to performance. Close to $40 million, I think it's $38.9 million, due to performance. The good news around that relationship is it's one in which we don't take a management fee intentionally, but we have a higher carry than you would otherwise think you would get. Because the goal here is to make money for people, it's not to clip a coupon. And so when the carry was paid at the end of the year, the client is so happy with us that they took the money from other funds. They didn't take it from the actual account, because they wanted us to have as much money to manage as we could have, and they didn't want us -- they didn't want to take it out of the fund itself. So that was humbling and very nice that they did that. And that obviously showed they had confidence in us. The one thing you have to remember about separately managed accounts are, because we don't own 100% of the business, the question we always ask ourselves is, is it worth it? Is it worth raising $50 million at 1 in 10 for 180. I'm not sure the answer to that question is yes, because it's a big distraction. It's a different -- your time is sucked up on that -- on those relationships, whether it's meetings or presentations or shareholder letters or LPs. And if you can't get the right economics, then it's not worth your time. So let's say, it was 1 in 10, and let's say you raised $100 million and you're up 10% in a given year, you're basically bringing back to 180 $1 million of management fees and $1 million of performance fees. And quite frankly, for $100 million which probably entails having 4, 5, 6, 7, 8, who knows how many different LPs? That may not be worth our time. So we have to balance that. You know, Adam, that I wouldn't want to manage $1 of outside capital if you could put all the money into the permanent capital vehicle at 180 Degree Capital because we get paid 100% on our performance there. We actually now have -- when we started this exercise -- remember, back in 2016, we had like $12 million in cash at liquid securities, and now we have close to $75 million. So when you start those exercises of seeking outside capital is because you don't really have anything to do at the holding company. And now we've actually built some scale at the holding company. We've got $75 million. So it's going to be, as I said in my shareholder letter, it's going to be a lot easier turning $75 million into $200 million than it was turning $12 million into $75 million. I hope. You obviously have to have a decent market at your tailwind or at least you have to have the same level of stock picking you've had over the last 4 years, and that's not a guarantee. But at least in terms of the math, it's easier to double your money from $75 million to $150 million than it is to quadruple your money from $12 million to $75 million or quintuple your money. So we continue to have those conversations. It's not as if -- sometimes, the clients' know for whatever reason. It's a pandemic. It's COVID. I can't come see you. I want to see you perform for the 9 years. All the excuses that they make. And sometimes, it's us saying, no, thank you. That's not the right economics for us. And we kind of don't want to move on with this conversation because it's not worth it to us. So we'll just continue along as we've been continuing. And the good news is we've got a great separate account that has the opportunity for us to make a lot of money because of the economics of that deal, so we're focused on that one.

And if I could just quickly follow up. In the fourth quarter call, you alluded to discussions about a potential sort of small or midsized broker-dealer kind of relationship or presumably opened that kind of account money. I mean, philosophically, is that something you're still pursuing? And then just overall, do you view a value driver for the stock price here as being the ability to continue to sort of grow the third-party assets, the earnings on those assets, and have those capitalized by the public market at some sort of asset manager multiple?

Yes on the first part. Conversation last week, another conversation this week. We'll see where that goes. And yes, so I still see the opportunity for -- look, we're a holding company. We've gotten some scale now. We're a little bigger than we were. Yes, the opportunity still exists, and we obviously still see it as a value driver only if the economics make sense. Just getting outside capital for the sake of getting it, as like I said, 1 in 10 or a regular mutual fund fee is uninteresting to us. If we can find capital at attractive carry economics, then we're going to continue to go after that, and we continue to care about that. The priority #1 is the holding company, priority -- the public companies as a whole, the company priority. #2 is the private holdings and trying to get them monetized. And 3 is, as you mentioned, outside capital.

Thanks, Adam. I am not seeing any other questions in the queue.

So thanks, Adam, for your questions, and thank you for everybody for being with us today. These proceedings are now concluded. Thank you. We appreciate your interest and support of 180 Degree Capital. And we look forward to having our normal first quarter conference call sometime in May. And we look forward to seeing you live at some point in our non-pandemic lives as 2021 unfolds. Thank you so much.

Thank you, everyone. Now you can disconnect.