- Stock Price Decline: 11.7% decrease in stock price.
- NAV Decline: 12.8% decrease in NAV.
- Stock Price as Percentage of NAV: 83% to 84%, trading at a 25% discount to June 30 NAV.
- Cash and Public Related Securities: Declined from $51.7 million to $45.5 million.
- Public Portfolio Net Value: Decreased by approximately $5.6 million from the prior quarter.
- Largest Decreases in Value: Potbelly, D-Wave Quantum, Quantum Computer, and comScore.
- Largest Increases in Value: Synchronoss, Graycove, and Mama Creations.
- New Positions: Aviat and Hudson.
- Exited Positions: Mama’s Creations and Rhyme.
- Private Portfolio: Declined slightly from the prior quarter.
- Synchronoss: Returned to top-line revenue growth and generation of material free cash flow.
- Synchronoss Stock Price: Increased from 5% to 12% since joining the Board.
- comScore: Reduced interest rate from 9.5% to 7.5% on annual dividends.
- Intevac (IVAC): Reported stronger-than-expected Q2 2024 from its hard disk drive business.
- IVAC Market Capitalization in Cash: Approximately 72%.
- Aviat Networks (AVNW): Recorded a weaker-than-expected Q1 2024 due to issues with a large customer.
- Lantronix: Significant growth in fiscal 2024, ended June 30, 2024.
- Commercial Vehicle Group (CVGI): Manageable debt-to-EBITDA ratio of approximately 2 times.
- Discount Management Program: Average daily discount approximately 19% through July 21, 2024.
Release Date: August 20, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- 180 Degree Capital Corp (TURN, Financial) has shown resilience despite a challenging market, with a focus on constructive activism to drive value in their holdings.
- The company has successfully implemented strategic changes in several portfolio companies, such as Synchronoss, which has seen significant stock price improvement.
- New positions in Aviat Networks and Hudson have been established, indicating proactive portfolio management and potential for future growth.
- The company has a strong cash position and a clean balance sheet, providing downside protection and flexibility for future investments.
- 180 Degree Capital Corp (TURN) is committed to shareholder value, as evidenced by their discount management program and potential stock buyback initiatives.
Negative Points
- The stock price declined by 11.7% and NAV decreased by 12.8% during the quarter, reflecting a challenging market environment for small caps.
- Several key holdings, including Potbelly, D-Wave Quantum, Quantum Computer, and comScore, experienced significant decreases in value.
- The private portfolio has declined slightly and is essentially gone, putting pressure on the public portfolio to generate returns.
- The company faces a wide discount to NAV, with the stock trading at a 25% discount to the end of June NAV, the widest margin since inception.
- Economic uncertainties and market volatility have negatively impacted small-cap performance, creating a difficult environment for 180 Degree Capital Corp (TURN) to navigate.
Q & A Highlights
Q: Kevin, can you provide an update on the value capture and exit trajectory options for comScore?
A: Kevin Rendino, CEO: comScore has been a challenging investment for us. Despite some positive steps, the preferred holders have not aligned with common shareholders' interests. The business should trade at 1x revenue, implying a valuation significantly higher than the current market cap. We will continue to push for changes to unlock this value.
Q: How are you ensuring Intevac tells its story more effectively, especially given the potential for a secular upswing in HDD markets?
A: Daniel Wolfe, CFO: We spend a lot of time with Intevac's management. The key for Intevac is the adoption of their TRIO tool, which has significant upside potential. We are pushing them to be more proactive in investor relations, and they recently hired a new CFO to help with this.
Q: What are your thoughts on Hudson Technologies' governance and potential for value appreciation?
A: Daniel Wolfe, CFO: We have had positive conversations with Hudson's management and see no governance issues. The new CFO appears to be an upgrade. The company is well-positioned to benefit from pricing dynamics in their market, and we believe they will be more profitable even if market conditions remain unchanged.
Q: How are you balancing the pipeline of new investment ideas with your current holdings?
A: Kevin Rendino, CEO: We have a lot of good ideas but limited capital. We have made some portfolio adjustments, like selling Mama’s Creations to invest in Aviat and Hudson. We are focused on maintaining our core holdings while selectively adding new positions.
Q: Can you elaborate on the constructive activism strategy you mentioned for some of your holdings?
A: Kevin Rendino, CEO: We have ramped up our constructive activism significantly. For example, with Synchronoss, we have worked on improving their investor relations and balance sheet, leading to a stock price increase. In contrast, with comScore, we are taking a more aggressive approach to push for necessary changes.
Q: What are your thoughts on the current market environment for small caps and TURN's performance?
A: Kevin Rendino, CEO: The market for small caps has been brutal, underperforming significantly since November 2021. Despite this, we believe our holdings are fundamentally strong and will eventually be rewarded. We are determined to navigate through this challenging period and deliver value to our shareholders.
Q: How do you view the potential for TRIO's adoption in Intevac's market?
A: Daniel Wolfe, CFO: TRIO has the potential to be a game-changer for Intevac, addressing a market with a TAM of $500 million to $1 billion. We believe they are on the right trajectory for adoption, which will significantly enhance their market position and valuation.
Q: What steps are you taking to address the discount in TURN's share price relative to NAV?
A: Kevin Rendino, CEO: We have a discount management program in place. If the discount remains above 12%, the Board will consider options like expanding the stock buyback program, cash distributions, or a tender offer. Given the current discount, we may act sooner rather than later.
Q: Can you provide more details on your new position in Aviat Networks?
A: Daniel Wolfe, CFO: Aviat Networks designs and installs microwave routers and other network solutions. Despite a recent weaker-than-expected quarter, we believe the company is well-positioned for growth. The CEO has a strong track record, and the company has a solid balance sheet with net cash.
Q: What are your thoughts on the future of CVGI given the recent challenges in their end markets?
A: Daniel Wolfe, CFO: CVGI has faced cyclical weakness in its end markets, but we believe the new CEO is implementing improvements that will set the company up for higher EBITDA margins in the future. The company continues to generate cash and pay down debt, providing a solid foundation for future growth.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
