Value Creation Through Constructive Activism Investor Presentation - - PowerPoint PPT Presentation

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Value Creation Through Constructive Activism

Investor Presentation August 2017

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SLIDE 2

Certain Notices and Disclaimers

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This presentation (“Presentation”) contains certain forward-looking statements relating to the investment

• bjectives, strategy, and approach of 180 Degree Capital Corp. (“180”). Forward looking statements generally can

be identified by the use of forward-looking words or phrases such as “believe,” “expect,” “anticipate,” “may,” “could,” “intend,” “intent,” “belief,” “estimate,” “project,” “plan,” “likely,” “will,” “should” or similar words or phrases. Forward-looking statements are inherently subject to risks and uncertainties and actual results and outcomes may differ materially from the results and outcomes discussed in or anticipated by the forward-looking statements. 180 may not be successful in executing and implementing their investment strategies and reaching their investment

• bjectives. Prospective investors are urged not to place undue reliance on these forward-looking statements.

Prospective investors should carefully review and consider the risks and uncertainties. Any performance data set forth herein represents past performance. Past performance does not guarantee future results. This Presentation is provided for informational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any security. Any such offering will be made only by means of a registration statement, private placement memorandum, subscription agreement, or other documents as permitted by law. This Presentation does not purport to be complete and is for discussion purposes only. If and when an investment

• pportunity is offered to you, you must carefully read all of the distributed materials, including any included Risk

Factors (the “Disclosure Package”). All information provided in this Presentation is qualified in its entirety by the disclosure set forth in any Disclosure Package. This presentation on is intended solely for the party to whom it has been distributed. Any reproduction, distribution or dissemination of this Presentation or the information included herein is expressly prohibited.

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Firm Overview

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• Established 1981; IPO in 1983
• Structure: Business Development Company
• Investment Focus: Venture Capital

Prior Entity/Business

• Changes Effective in March 2017
• New Structure: Registered Closed-End Fund

§ Reduced operating costs and regulatory burden § Resources focused on value creation/investments

• New Investment Focus:

§ Public Microcap Companies § Deep Value § Constructive Activism

• New Leadership:

§ Kevin Rendino joined as CEO Current Entity/Business

SLIDE 4

180’s Philosophy and Core Beliefs

• The price we pay relative to the business we buy is the most important driver of investment returns.
• Markets overreact to near-term internal or environmental challenges creating attractive valuations.
• Out-of-favor companies and industries create opportunities to identify investments that offer

asymmetric return-to-risk potential.

• Companies with strong franchises, managements, and balance sheets are the best positioned to

turnaround, gain market share, and improve profitability in an industry recovery.

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A portfolio of strong business franchises, purchased at the right price,

• utperforms over a market cycle.

We are Graham and Dodd Investors

SLIDE 5

Firm Overview

• Differentiated Investment Strategy
• Rigorous, Analytical Investment Process
• Experienced Management Team
• Constructive Activism
• Managed Funds and Special Purpose Vehicles
• Active Risk Management

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SLIDE 6

Differentiated Investment Strategy

• We focus on investments in <$250 million market capitalization (microcap)

public companies where we:

• Believe many companies are deeply undervalued
• Understand the markets that these companies target
• Can purchase meaningful ownership and exact some measure of influence
• Believe we can add value through active, hands-on constructive activism
• Invest at valuations that provide significant margin of safety
• Identify catalysts/changes that we believe can unlock value
• Believe we can generate attractive risk-adjusted returns in 1-3 years

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Differentiated Investment Strategy

• Opportunity for value creation in US micro-capitalization publicly traded

stocks exists because management and boards often:

• Prioritize growth over cash flows
• Overvalue market perception of story versus certainty
• Favor status quo rather than change
• Lack intimate knowledge of desires of ”buy side” investors and the workings of the

public markets in general

• Mischaracterize “short-term viability” as detractor of “long-term growth”
• Manage for quarterly results
• Entrench themselves to protect their jobs and positions
• Few investors are willing/able to spend the time and energy identifying,

conducting diligence and actively engaging with such companies.

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Differentiated Investment Strategy

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Source: FactSet via Grant Wasylik, Uncommon Wisdom Daily.

• Minimal Analyst Coverage

2.2% 7.0% 12.0% 16.5% 22.5% <=$300M $300M-$3B $3B-$6B $6B-$12B >$12B 5 10 15 20 25

• Low correlations to other asset classes

Source: Furey Research Partners, March 2016 via Grant Wasylik, Uncommon Wisdom Daily. Source: Furey Research Partners, March 2016 via Grant Wasylik, Uncommon Wisdom Daily. Source: Ibbotson Classic Yearbook, 2015 via Grant Wasylik, Uncommon Wisdom Daily.

• High relative returns
• High frequency of takeovers

10% 20% 30% 40% 50% 60% 70% <=$300M $300M-$3B $3B-$6B $6B-$12B >$12B 0% 60.2% 30.4% 4.7% 2.4% 2.3%

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Differentiated Investment Strategy

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Traditional, Long-Only Micro-Capitalization Funds

(Passive Investing)

180 Degree Capital Corp

(Constructive Activism)1

Wait passively for identified catalysts to realize value Active engagement with management of investee companies to impact timing of catalysts Not often willing to run proxy campaigns Ability to run proxy campaigns, if required Generally not able to hold board seats

• n portfolio companies

Able to hold board seats at portfolio companies Concentrated portfolios available, but not often single-position focused funds Able to offer co-investment opportunities on a single- company basis through special purpose vehicles

(1) Subject to applicable laws and regulations.

SLIDE 10

Experienced Management Team

• Joined as Board Member in 2016 and Chief Executive Officer and Portfolio Manager in March 2017.
• 25+ year career in deep value investing at BlackRock / Merrill Lynch
• Value team leader managing $13B in assets over 11 funds.
• Member of BlackRock’s leadership committee.
• Frequent contributor to financial focused television and media outlets.
• Since 2012, served as Chief Executive Officer of RGJ Capital, LLC, a firm focused on deep value investing in micro-

capitalization publicly traded companies.

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Kevin M. Rendino Daniel B. Wolfe

• Joined 180’s predecessor company in 2004; now serves as President and Portfolio Manager.
• 13+ year career managing the investments and operations of a publicly traded investment company
• Sourced, executed and managed investments across multiple asset classes including private and public equities and debt.
• Actively led and participated in multiple capital formation efforts at 180 and its portfolio companies.
• Responsibility for day-to-day operations, finance, legal and compliance functions of the firm.
• Current and past member of the board of multiple privately held and publicly traded portfolio companies.

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Rigorous, Analytical Investment Process

Screening Plan Development Execution Exit

• Assemble components

for strategy to improve financial performance of the target company such as:

• Identify needed

changes in business with support

• Identify

director/management candidates

• Identify path to obtain

and maintain control

• Company visits
• Customer calls
• Establish initial position
• Attempt to work with

management/board to affect change

• Increase position and/or

purchase additional types

• f securities (e.g., debt)
• SPVs
• Go active (File 13D, public

letters, proxy, etc…)

• Actively monitor risks
• Sell liquid securities:
• at increased valuation

following successful execution of plan;

• if risk thresholds are

tripped;

• if investment thesis

ceases to hold;

• If alternative

investment

• pportunity presents

better return profile.

• Collect cash flows from

income-producing investments.

>250k Companies 30-40 Companies 10-15 Companies

• Fundamental value and

financial screens

• 1/2 market price to

book

• 2/3 market price to

earnings

• 2/3 market price to

cash flows/EBITDA

• Above average

dividend yield

• Initially <$250mm market

cap companies

• US-Based and Exchanged

Traded

~2800 Companies

Fundamental Research

300-600 Companies

• Secondary financial

screens/financial health

• Low inside ownership
• Quality of management
• Evaluate franchise within

industry

• Deep industry and

financial modeling

• Catalyst identification

and validation

• Management, board,

investor conversations

100-125 Companies

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Constructive Activism

• We are not corporate raiders. Our ultimate goal is to engage constructively with existing boards and

management teams to unlock value through:

• Realignment of financial performance to achieve growth of cash flows not just revenues
• Improving investor relations strategies and outreach
• Evaluation of strategic options including mergers, acquisitions, sales, and divestitures
• Identification of complementary talent and expertise
• Introductions to value-add resources and capabilities
• Alignment of interests with and support from large shareholders
• We are not adverse, however, to pursuing change through other routes including:
• Private and public shareholder communications
• Proxy solicitations
• All efforts will be grounded by and based on our fundamental research and diligence.

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Level 3 Engagement: Longer-term projects where we instigate/lead turnarounds of businesses Approach: Identify deeply undervalued companies in need of substantial changes. Constructive Activism (Levels 1 and 2+):

• Propose changes to management

and/or board.

• Propose fundamental changes to

business, including potential sale of company.

• If required, run competing proxy

campaigns.

• Take seat(s) on board
• Leverage ownership/control to drive

change.

Initial Focus

Constructive Activism

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Level 1 Engagement: Near-term potential winners that do not require substantial time/involvement Approach: Identify quality, deeply undervalued companies with strong management teams in the process of executing a turnaround. Constructive Activism:

• Introductions to our institutional

investors and/or individual investors that own or have owned our stock.

• Leverage our general knowledge of the

public markets gained over our collective 40+ years of experience for advice and value-add introductions. Level 2 Engagement: Near-term potential winners that may require a bit of time/involvement, but not substantial allocations of time. Approach: Identify quality, deeply undervalued companies with strong management teams but where we believe small changes can result in increased value and management is interested in engaging constructively. Constructive Activism (Level 1+):

• Actively suggest changes to IR strategy

and/or messaging.

• Actively suggest changes in business

related primarily to financial performance improvements.

Future Focus

SLIDE 14

Assets Allocated to Activist Funds are Growing

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While assets are flowing out of actively managed funds at record rates, assets allocated to activist strategies are growing.

Source: Eric Lefebvre, Ernst & Young, LLP

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Shareholder Activism in Small-to-Micro Capitalization Companies is Growing

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“... firms with a market capitalization of between $50 million and $1 billion have constituted the majority of U.S. activism targets for the second year in a row, and 2017 is expected to be on pace with that trend. Several factors could beat play in this development, such as the lower cost of building a significant position and the ease of employing M&A strategies (including more viable buyers), not to mention a broader array of potential targets across all sectors within this market cap range. ”

Source: Duncan Harrington, Raymond James in Activist Investing 2017 Year in Review, Published by Activist Insight and Schulte Roth & Zabel

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5 10 15 20 25 30 35

Level 1 Engagement Example: USA Truck, Inc. (USAK)

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Company Profile

• USA Truck provides a broad range of truckload and

logistics services to customers in a variety of industries.

• New CEO and management team joined in

Q4 2016-Q1 2017.

• Implementing turnaround plan to drive profitable

revenue growth and improve operational execution. 180 Investment and Level 1 Engagement

• Introduced in Q1 2017 through internal screen; began

diligence including meeting with management team.

• Invested $1.6 million @ avg. PPS of $6.59 in open

market purchases through June 30, 2017.

• Active ongoing dialogue with management and plan

efforts to raise awareness of the company.

• We believe there are upside opportunities for

improving operating efficiency by leveraging the diverse backgrounds of the new management team.

Valuation Analysis ($ million) 2016 (Actual) 2017 (Modeled)1 2018 (Modeled)1 2019 (Modeled)2 EBITDA $30.3 $25.9 $39.8 $50.5 Growth Rate (YoY) (55%) (14.5%) 53.7% 26.8% EBITDA/Rev. Multiple N/A 7.6x3 6.2x4 5.4x4 Stock Price @ EBITDA/Rev. Multiple5 N/A $8.663 $14.53 $17.59 Modeled Change from 180 Avg. Purchase Price N/A 31% 121% 167% Introduced to USAK 180 Invests $1.6m @

• avg. $6.59/share

H2 2017/2018 Catalysts: Improving Demand and Pricing Reduced Debt Increased Operating Efficiency ELD Mandate

1. Models based on analyst estimates as listed on Bloomberg. Actual results may be materially different than those modeled. 2. Estimated using half of 2017 to 2018 growth rate. Actual results may be materially different than those estimated. 3. Multiple and stock price as of June 30, 2017. 4. 2019 multiple is based on median EV/EBITDA multiple 2009-2016. 2018 multiple is average of June 30, 2017 and 2019 multiples. 5. Calculations based on cash of $0.1 million and outstanding debt of $129.3 million.

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Level 2 Engagement Example: Adesto Tech. Corp. (IOTS)

17 $0.00 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 $9.00 IOTS Stock Closing Price IPO @ $5.00/Share 13D/A Filed: Shift to Constructive Activism and Engagement

Company Profile

• Adesto sells low-power memory solutions that enable

broad classes of connected devices.

• Formed based on proprietary memory technology and

acquired flash-memory product lines from Atmel.

• Focused on growing Internet-of-Things (IoT) sector.
• Top-tier, diversified customer base.

180 Investment and Level 2 Engagement

• 180 owns 8.8% of Adesto (top five shareholder).
• Shifted to constructive activist engagement in early

January 2017 focused on improving: § investor communications; § presentation materials; § financial operating performance.

• Many of 180’s suggestions were implemented by

Adesto’s management.

• Adesto’s stock up ~140% since 180’s 13D/A filing.*

H2 2017 and 2018 Catalysts:

• 1. Profitability
• 2. New Products

(EcoXip, Mavriq)

• 3. IoT Growth

~140% Increase Valuation Analysis ($ million) 2016 (Actual) 2017 (Modeled)1 2018 (Modeled)1 2019 (Modeled)2 Revenues $44.0 $54.5 $67.0 $82.4 Growth Rate (YoY) 1.6% 23.9% 22.9% 22.9% Modeled Stock Price 2x EV/Revenue Multiple3 N/A $6.07 $7.28 $8.76 Modeled change from PPS

• n June 30, 2017: $4.55

N/A 34% 60% 93%

1. Models based on analyst estimates as listed on Bloomberg. Actual results may be materially different than those estimated. 2. Model based on same year-over-year growth as that modeled for 2017 to 2018. Actual results may be materially different than those estimated. Actual trading multiple may be materially different than that used in the model above. 3. Calculations based on cash of $31.9M and debt of $15.0M. Comp. median EV/rev mult. is 2.8x. See appendix for list of comps.

* Based on stock price as of June 30, 2017

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Level 3 Engagement Example: Xplore Tech. Corp. (XPLR)

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Company Profile

• Xplore is the second largest supplier of industrial-grade

rugged tablet computers.

• Acquired product line of competitor, Motion, in 2015.
• Clean balance sheet and capital structure.

Example of Level 3 Engagement

• Began Level 2 constructive activist engagement through

private communications early 2016 focused on improving: § investor communications; § presentation materials; § corporate governance; § financial operating performance.

• Some, but not all, recommended changes implemented.
• Transitioned to Level 3 with public activism in June 2017

seeking changes in the composition of the board.

• Preparing for proxy campaign, if required.

Valuation Analysis ($ million) FY2017 (Actual)1 FY2018 (Modeled)1,2 FY2019 (Modeled)1,2 FY2019 (Modeled)1,2 Revenues $77.9 $80.6 $88.4 $97.0 Growth Rate (YoY) (22.5%) 3.5% 9.7% 9.7%3 Modeled PPS @ 0.5x EV/Revenue Multiple4 N/A $3.44 $3.80 $4.18 Modeled change from PPS on June 30, 2017: $1.95 N/A 76% 95% 115%

1. Xplore’s fiscal year runs from April 1 to March 31. 2. Models based on analyst estimates. Actual results may be materially different than those estimated. 3. Model based on same year-over-year growth as that modeled for 2017 to 2018. Actual results may be materially different than those estimated. 4. Calculations based on cash of $0.65 million and outstanding debt of $3.1. XPLR historically traded at a median and average EV/Rev. of 0.5 and 0.7, respectively. Actual trading multiple may be materially different.

$0.00 $1.00 $2.00 $3.00 $4.00 $5.00 $6.00 $7.00 $8.00 $9.00 12/31/13 3/31/14 6/30/14 9/30/14 12/31/14 3/31/15 6/30/15 9/30/15 12/31/15 3/31/16 6/30/16 9/30/16 12/31/16 3/31/17 6/30/17 9/30/17 12/31/17 3/31/18 6/30/18 9/30/18 12/31/18 XPLR Stock Closing Price

Note: XPLR is a personal holding of Kevin Rendino through RGJ Capital, LLC, acquired prior to joining 180. Information provide as example of steps 180 would take in Level 3 Engagement.

Press Release Issued Letters Sent to Board Position Acquired H2 2017 and 2018 Catalysts:

• 1. Restructuring of board
• 2. Revenue growth
• 3. Potential sale of

company

SLIDE 19

Managed Funds and Special Purpose Vehicles

• Our structure affords a high-level of flexibility in structuring investments and

managing third-party capital.

• Our historical experience of investing in privately held companies enable us

to develop unique financial solutions to unlock value.

• We are actively working on a number of special situations/special purpose

vehicles.

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SLIDE 20

Risk Management Within a Concentrated Portfolio

• Graham and Dodd value investing philosophy offers a margin of safety.
• Consistent quantitative and qualitative monitoring and evaluation of individual

and aggregate positions.

• Opportunistic trading around liquid positions and hedging to lock in returns /

limit losses.

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Summary

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• Differentiated Investment Strategy
• Rigorous, Analytical Investment Process
• Experienced Management Team
• Constructive Activism
• Managed Funds and Special Purpose Vehicles
• Active Risk Management

We are actively seeking opportunities to partner with others seeking similar strategies and to manage capital alongside our permanent capital.

SLIDE 22

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Kevin M. Rendino kevin@180degreecapital.com Daniel B. Wolfe daniel@180degreecapital.com

SLIDE 23

Adesto Comparable Company List

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Name Ticker EV/Sales LATTICE SEMICONDUCTOR CORP LSCC US Equity 2.3 POWER INTEGRATIONS INC POWI US Equity 4.3 MAXLINEAR INC MXL US Equity 3.9 RAMBUS INC RMBS US Equity 3.5 IXYS CORPORATION IXYS US Equity 1.3 AMBARELLA INC AMBA US Equity 3.9 INPHI CORP IPHI US Equity 3.9 DSP GROUP INC DSPG US Equity 1.2 MAXWELL TECHNOLOGIES INC MXWL US Equity 1.3 QORVO INC QRVO US Equity 2.8 MICRON TECHNOLOGY INC MU US Equity 1.9 Median 2.8

Source: Bloomberg as of June 30, 2017

SLIDE 24

Level 1 Engagement Example: Synacor, Inc. (SYNC)

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Company Profile

• Synacor delivers modern, multiscreen experiences and

multiplatform services to partners that require scale, actionable data and sophisticated implementation.

• New CEO and management team joined in August 2014.
• Executing on plan to reach $300 million in revenues and

$30 million in EBITDA in 2019.

• Won AT&T portal in 2016; launched in Q2 2017;

material contribution to revenues expected in 2018. 180 Investment and Level 1 Engagement

• Introduced in Q1 2017 by analyst; began diligence

including meeting with management team.

• Invested $2.25 million in registered offering in Q2 2017.
• Active ongoing dialogue with management and

investors to raise awareness of the company.

• We believe there are upside opportunities for increased

value from recurring businesses (email/CloudID).

Valuation Analysis ($ million) 2016 (Actual) 2017 (Modeled)1 2018 (Modeled)1 2019 (Modeled)1 Revenues $127.4 $145.0 $230.8 $296.5 Growth Rate (YoY) 8.6% 13.8% 59.2% 28.5% Modeled Stock Price 0.95x EV/Revenue Multiple2 N/A $4.10 $6.25 $7.89 Modeled Change from 180 Avg. Purchase Price N/A 17% 78% 125% $3.00 $3.20 $3.40 $3.60 $3.80 $4.00 $4.20 $4.40

SYNC Stock Closing Price

Introduced to SYNC 180 Invests $2.25m @ $3.50/share

2018 Catalysts: AT&T Portal Revenues Projected to Begin Meaningful Contribution to Business Growth in Recurring Businesses

1. 2017 models based on midpoint of guidance from SYNC management as of 8/9/17. 2018 and 2019 models are based on analyst estimates listed on Bloomberg as of 8/8/17. Actual results may be materially different than those estimated. 2. Calculations based on cash of $23 million and outstanding debt of $4.8 million. Multiple is based on SYNC EV/Rev on June 30,

• 2017. Actual trading multiple may be materially different than that used in the model above.

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$0.00 $0.50 $1.00 $1.50 $2.00 $2.50 $3.00 $3.50

Introduced to TST 180 Invests $890k @

• avg. $0.89/share

Level 1 Engagement Example: TheStreet, Inc. (TST)

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Company Profile

• TheStreet is is a financial news and information

provider to consumers and businesses.

• New CEO and management team joined in 2016.
• Senior management and executive chairman

historically built and sold MarketWatch and completed a successful turnaround of USA Today. 180 Investment and Level 1 Engagement

• Introduced in Q2 2017 by analyst; began diligence

including meeting with management team.

• Invested $890,000 in open market purchases.
• Active ongoing dialogue with management about

potential ways to unlock value for shareholders.

Valuation Analysis ($ million) 2016 (Actual) 2017 (Modeled)1 2018 (Modeled)1 2019 (Modeled)2 Recurring Revenues (Modeled 2x EV/Rev.)3 $49.5 $49.7 $52.0 $54.5 Non-Recurring Revenues (Modeled 1x EV/Rev.)3 $14.0 $14.0 $14.7 $15.4 Modeled Stock Price @ Combined Modeled EV/Rev. for Recurring and Non-Recurring Revs. N/A $1.98 $2.11 $2.24 Modeled Change from 180 Avg. Purchase Price N/A 123% 137% 152%

1. Models based on analyst estimates as listed on Bloomberg and same distribution of revenues as in 2016. Actual results may be materially different than those modeled. 2. Estimate based on same growth rate from 2017 to 2018. Actual results may be materially different than those estimated. 3. Calculations based on cash of $24.9 million, $55 million in preferred stock and no other debt. Multiple is based on financial data subscription companies (recurring revenues) and advertising-based media companies (non-recurring revenues), respectively.

H2 2017/2018 Catalysts: Return to profitability Revenue growth Resolution of expiring agreement with Jim Cramer Solution to preferred overhang