180 Degree Capital Corp.

Good morning, and welcome to 180-degree Capital Corp's second quarter 2024 financial results update call. This is Daniel Wolfe, President and Portfolio Manager of 180-degree Capital. Kevin Rendino, our Chief Executive Officer, Portfolio Manager, and I would like to welcome you to our call this morning. All participants are currently in a listen-only mode. Following our prepared remarks, we will open the line to questions. If you would like to ask a question, please type star six on your phone or click ask a question icon if you are participating via 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.oneagreecapital.com under financial results. Please turn to our presentation. This presentation may contain statements of a forward-looking nature related to future events. Statements contained in this presentation that are forward-looking events 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 affect the company's actual results. Except as otherwise required by federal securities laws, the 180-degree Capital Corp. undertakes no obligation to update or revise these forward-looking statements to reflect new events or uncertainties. It now gives me special pleasure to turn over the call to Kevin.

Thanks, Daniel, and good morning, everyone. First off, I want to thank everyone for your generous thoughts and well wishes following my unfortunate accident a few weeks ago. And, of course, Daniel and our board for navigating turned through that announcement. The bottom line is I'm better. I've been back working the last couple of weeks, and I'm very excited about that. While I'm not excited to have lived through this very difficult market for the asset class that we invest in, and despite this horrendous market for small caps versus the NVIDIAs of the world, working on behalf of our shareholders is truly my happy place, and I look forward to talking or seeing you all. In terms of the slides and in terms of the quarter itself, our stock price unfortunately declined 11.7 percent. Our NAV declined 12.8 percent. Our stock price as a percentage of our NAV was 83 to 84 percent, although, as you can see from our absurd current price of $3.37, it trades at a 25 percent discount of our June 30 end NAV. the widest value that it's – the widest margin it's traded at since we started this seven years ago. Our cash and public – related securities declined from 51.7 million to 45.5 million. Our public portfolio net value decreased by approximately 5.6 percent, 5.6 million from the prior quarter. Our largest decreases in value were Potbelly, D-Wave Quantum, Quantum Computer, and Comscore. Our largest increases in value were Synchronous, Brightcove, and Mama Creations. We had new positions in Aviat and Hudson, and we exited positions in Mama Creations and Ryan. Our private portfolio declined slightly from the prior quarter. although it's essentially gone and the entire future of our company resides in our ability to generate returns in our public portfolio. Everyone knows how brutal this period has been for small caps. They underperform when economic data has been weak, when everyone is convinced the recession is on the horizon and why would I want to own small caps in that environment? And then at the same time, the underperform when economic data is strong, convincing everyone that inflation will never recede and the Fed won't cut rates anytime soon. It's been a maddening period since really November of 2021. Since November of 2021, the S&P is up 22%, while the microcap index is literally down 25% over that same period, the widest margin you can see in history. But you all know that and we have talked about it almost every quarter for the last three years. So instead of continuing to talk about that, I'd like to talk to you about some of our positions and the constructive activism we have instituted for a number of our holdings. To say the obvious, it's become one of the most absurd stock markets that I've seen in the last 36 years, having been in the asset management business. And I only need to look at Potbelly this year as a testament to that. After a wonderful turnaround off the COVID lows, led by the new senior executive management team, Bob Wright and Steve Cerullos, the stock went from $1.50 near the COVID lows to almost $14 a share, against the backdrop of strong comps, robust EBITDA, and a new franchising strategy, which hopefully will get the company to have 2,000 stores over the next 7 to 10 years. This year, despite essentially beating comps, EBITDA, cost savings, and new franchise agreements, and most continued good news, the stock has been cut in half, as you can see on the chart in the slide deck. It's declined to 7 from 14 to a price that has allowed the company to trade at 6.5 times enterprise value to EBITDA when many of the competitors trade at 17 times or so. You would look at the stock price and assume the company is missing, losing share, and not being able to grow their franchising strategy. Hardly been the case. It's just an example of a small cap company performing like almost any other small cap stocks that doesn't have an AI business. that goes down despite what has been very, very good news in 2023. We still own it. It's one of our biggest holdings. We're constructive on their ability to generate significant shareholder return over the upcoming years and eventually sell themselves to either a private equity firm or a strategic at some point in the next couple of years. But again, it's gone from 14 to 7 for no reason. Lastly, as part of what we think are differentiated parts of our process is our constructive activism strategy. And we have ramped that up significantly on many of our holdings recently, and you can see that also in our slide deck after the Potbelly slide. Let me talk about two of them. Synchronous, we have actively worked with management to improve their investor relations and their balance sheet, as well as assisting with ongoing strategic alternatives evaluation. The company has returned to top-line revenue growth and generation of material free cash flow. The improvement of their balance sheet through the opportunistic refinancing, the leveraging this past quarter has helped the stock price as well, and they're for sure will get the receipt of a $28 million tax refund. We were asked to buy this board, to join this board in November of last year. We've been very busy since we've been on the board helping the management team run their business and also work on fixing their balance sheet and their investor relations. and the stock has gone from essentially 5 to 12 since we joined. This is a great example for us of our collegial collaborative activism that we do. We didn't demand to go on the board. Instead, we were asked to go on the board by the company as they saw that we had some skill sets that they could better use And it's been a great partnership since we joined the board in November, and you can see that from the stock price. The second one I wanted to talk to before I turn it over to Daniel is Comscore, which has been the complete opposite of synchronous. We've written a number of public letters, which you've seen. We continue to pressure the preferred stockholders to demonstrate alignment with all stakeholders. It's an awful board. with a bunch of masters of the universe people that have no idea how to make a decision for the benefit of shareholders, whether it's Charter, Cerberus, or Liberty, they've all failed. The independent directors like Bill Levick, who have been a part of this business for years and years and years with no strategic benefit, have no business being on the board anymore. We did nominate Matt McLaughlin as a board member, and the company did agree to put him on the board. We will continue to pressure the board to do the right thing, to align themselves with shareholders, and to fix the share price. They did recently announce that the pick of the annual dividends, which started last year, would actually have reduced interest rate from 9.5% to 7.5%, and it did remove one liquidity overhang. Instead of taking cash, they got it in dividends, preferred dividends. and more stock, which is better than the company spending out cash when they need the cash to grow the business. So we'll continue... are what I would consider to be slightly hostile activism that this company needs. We will stand for all common shareholders by calling this board out whether that's privately or publicly and you can continue to see us leading that pressure on the company as we go forward and we'll come up with hopefully a reason why this company will do the right thing for common shareholders with that pressure. Let me turn it over to Daniel, who wants to talk about some of our other holdings and our activism.

Thanks, Kevin. I'm going to continue running through a few more names on slides four through six before handing it back to Kevin to cover the discount management program update. We talked about Intivac a lot in the past. As a refresher, Intivac, or the symbol is IVAC, develops tools that are critical for the manufacturing of hard disk drives. And it has a new tool that is bringing the market called the TRIO that aims to more uniformly coat glass and plastic surfaces used in everyday electronic devices as well as other applications. IVAC reported a stronger-than-expected quarter for Q2 2024 from its hard disk drive business given a cyclical upswing of that industry led by adoption of its new HAMR platform that enables the manufacturing of a new class of high-density disk drives. IVAC also has approximately 72% of its market capitalization in cash, which it plans to maintain through at least 2024. Well, it pushes adoption of its new TRIO platform. This platform is in testing with a large glass coating company in Asia that works with the largest consumer electronic companies. So for IVAC, the market is currently valuing its $40 to $50 million annual recurring hard disk drive business at approximately 0.6x revenue, and its TRIO business at zero. Or you can swap within those numbers and apply any value to TRIO, but it will reduce the value of the hard disk drive business. Given its clean balance sheet, the protection of its cash on hand, and the sticky hard disk drive business that is in a cyclical upswing, we like our downside protection, and we believe there is material upside if TRIO starts to gain traction in the market. Aviat Networks, or AVNW, is a new position that we established in the quarter. AVNW designs and installs microwave routers, switches, antenna systems, and network management tools, as well as offers network optimization, lifecycle support, and managed network services. Its solutions are most often found enabling private networks and deployment of Internet connectivity to areas where it is cost-prohibitive to leave optical fiber optic cables. We've gotten to know its CEO over a number of quarters and have been impressed by his overall execution, turning around a historically broken company. In Q124, Aviat recorded a weaker-than-expected quarter due to under-foreseen issues with one large customer that was part of its acquisition of Pasolink that closed in Q423. This was the first time in a long time that the CEO and his team missed guidance, which resulted in a material decline in the stock to prices that were very attractive to us. particularly given the fact that the balance sheet has net cash, the company generates cash, and it continues to grow on all operating metrics. We also believe Aviat has a better handle on its acquisition and is set up to resume its trend of exceeding expectations. Turning to Lantronics, this is our latest example of where we believe constructive activism can lead to material appreciation and value. We have been investors in Lantronics for a long time, and we have traded around our position throughout this time. Recently, we've got to know Lantronics' new CEO, Sulil Aghwari, through multiple conversations discussing both his and our expectations for the business. Lantronics is a really good company with a solid foundation that experienced significant growth in fiscal 24, that is fiscal 24, that ended June 30th, 24, and is now set up to build on that foundation into the future. As we spend more time with Sulil, we believe that he could benefit from additional skill sets on his board of directors, particularly around how to build an IoT business as a microcapitalization public company. Our former portfolio company, Adesta Technologies, went through similar growing pains until its successful acquisition by Dialog Semiconductor. So we thought that former members of that business could be helpful to Salil. We made introductions of ADESO's former CEO, Narve Derakobian, and former board member Kevin Palatnik to Solil and Lantronics, and then entered into a cooperation agreement whereby Lantronics agreed to nominate Narve and Kevin to Lantronics' board of directors at this next annual meeting, which will take place likely in November of 24. This is a great example of how we work with management teams and boards collaboratively most of the time rather than combatively to achieve outcomes that we believe will be in the interest of all stakeholders of the company, including 183 Capital. Lastly, I would like to talk a little bit about Commercial Vehicle Group, or CVGI. CVGI makes components primarily for commercial vehicles, including wire harnesses, seats, plastics, and aftermarket parts. CVGI is another example of a company that we have traded around our position as it went through a successful turnaround led by its former CEO, where costs were rationalized, contracts renegotiated, and the overall approach to running the company was changed to be more proactive rather than reactive. After a comprehensive search, James Ray, a member of CVGI's board, was appointed CEO of the company. James brings a strong operational background and deep knowledge of the company to this leadership position. Shortly after his appointment, the cyclical industries in which CVGI serves began to experience weakness, particularly among its customers in agriculture and construction. While we initially believed this weakness was captured and was near bottom as of the end of Q1-24, it continued to decline in Q2-24, leading to further reduction in guidance and exposed some inefficiencies in CVGI's business that resulted in some unforeseen restructuring costs. The Q2-24 report results in a substantial decline in the stock to levels that we believe are both unwarranted, given the manageable debt-to-EBITDA ratio of approximately two times, even with the reduced EBITDA guide. The company continues to generate cash and pay down debt, along with using funds from pending non-core asset sales to further reduce debt. CBGI's business is based on long-term contracts and is therefore relatively sticky, even though there can be some delays due to overall in-market cyclicality. We believe the improvements in this business being implemented by James and his management team will set CVGI up to generate even higher than historical EBITDA margins in the future as its end markets recover, particularly agriculture and construction in the future years. We hope these summaries provide a window into how we think about our investments and the catalysts that we believe that can drive material value appreciation in the future should they occur. These slides provide our thoughts on all of our portfolio holdings at the end of Q24, and we'd be happy to dive into any of them with you at any time. Lastly, I would like to note we include additional detail on our trading during the quarter as well as operational metrics in appendix at the end of our slide deck on our website. We're not going to go through those slides right now. We would have to discuss them any time. I'll now turn the call back over to Kevin.