180 Degree Capital Corp (NASDAQ:TURN) Q2 2022 Earnings Conference Call August 9, 2022 9:00 AM ET

Company Participants

Kevin Rendino – Chief Executive Officer and Portfolio Manager
Daniel Wolfe – President and Portfolio Manager

Conference Call Participants

Adam Waldo – Lismore Partners

Daniel Wolfe

Good morning, and Welcome to 180 Degree Capital Corp.’s Second 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. [Operator Instructions] I would like to remind participants that this call is being recorded and I 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 1 or the first slide after the title slide. This presentation may contain statements of forward-looking nature relating to future events. Statements contained in this presentation that are forward-looking events are intended to be made pursuant to the safe harbor provision 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, 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.

Kevin Rendino

Thank you, Daniel and good morning everyone. Amidst what’s been a very difficult 2022, there is some underlying positives that we have to share with you this morning and Daniel will talk a little bit more about that in terms of our transformation from where we were, a business that was filled with private assets on our balance sheet to one where 80% of our balance sheet currently is in cash and public assets.

A summary of Q2 starts on Slide 2, where we show an NAV decline in the quarter of 14.9%, led by an in-line decline of our public holdings versus the Russell Microcap Index. The NAV decline while disappointing should come as no surprise given the backdrop of a very bearish environment for the equity markets. The decline was less than the decline for the Russell Microcap Index, given we still have some private assets that didn’t go down as much as the Russell. Plus we had a larger-than-expected cash position following the monetization from Petra Pharmaceutical, which you know, sold itself to Eli Lilly. It was an across-the-board selling type of quarter, indiscriminate selling, if I have to call it something, or almost every name we own as investors were trying to make sense of a world where high inflation, Fed determined to ratchet rates higher to equivalent inflation, continued supply chain issues, Russian war with Ukraine, very difficult backdrop for the market as all of you know.

I will have more on the individual names later in this presentation, but in total, our public holdings cost us $30 million or $1.27 of our NAV decline in the quarter. Our private decline was much more muted. Of note, given D-Wave Quantum is now a public company, we are, as I said, down to just 20% of our assets in private holdings with AgBiome representing two-third of that total. We have totally transformed ourselves, and because of that, our stock should trade much more closely to NAV than at any time since we arrived here in early 2017. Our SMAs totaled close to $30 million at the end of the quarter, including a new smaller SMA, which we opened up this past quarter. Clearly, smart timing for a new client is that client is up 11%.

On the next slide, we show our NAV through time. This speaks how difficult the environment has been in calendar 2022. Of note and as we alluded to in our press release, D-Wave Quantum, which is now public, is marked at $6.55, and we have also had a snapback in our public holdings in Q3. So our book value and our cash per share, at least for today, is meaningfully higher than the reported numbers that we are showing here for the June 30 close.

Slide 4 shows that we have not just had a meaningful correction, we’ve had a crash, albeit one that took a lot longer to unfold than, let’s say, the 1929 or the 1987 crashes. And while we continue to debate about whether or not where we will be headed to a recession, it is our conclusion we’re already in one. What’s left to debate is the severity of this downturn or how bad the downturn will be. Either way, I would argue that a market down 33% in 8 months is discounting a lot of bad news already. I’d encourage everyone to read our shareholder report where we talk a lot about the markets, how they perform in and out of recessions. It’s a little long, I must confess, but I had a lot to say, and you can find that letter on our website.

Slide 5 shows the trajectory of our cash and liquid securities. They would have been $6.04 at period end June, $6.62 if you include D-Wave at a mark of $6.55. I believe it closed yesterday closer to $12. And if you think about our public holdings being up double digit this quarter or more, the number is much greater than our June mark. That’s as of today. Obviously, the quarter has a long way to go. Either way, we have derisked this company as our balance sheet is now comprised predominantly of cash and public assets.

On Slide 6, we show you every quarter since we started, it makes little to no sense to me that the market thought our business was worth $0.65 on the dollar when we had 90% of our assets in private holdings and 65% – $0.65 on the dollar when we have 80% of our assets in public assets. Our management team will be more than happy to take advantage of that dislocation in our equity price once the window for insider purchases opens up tomorrow. And as you’ve seen every quarter, it seems like since we’ve gotten here, we’ll be active.

Skipping to Slide 8, you will see our normal sources of change in assets quarter-to-quarter, where we start with a book value of $9.80, a loss of $1.27 from our public holdings, $0.12 from our privates and $0.07 from our operating expenses to arrive at an $8.35 book value, obviously, disappointing for sure.

Slide 9 shows our year-to-date sources of change in assets, $0.20 in gains from our privates, $2.39 loss from our publics and $0.12 of operating expenses. We have shown exceptional performance from our stock picking, and you have seen the benefits of our concentrated style since we started back in 2017. 2022 has shown the risk of that concentrated nature of how we invest. It also doesn’t say anything about our ability to become a $200 million company. In fact, this period may make it – may make getting there easier, given the all-time low valuation levels for many names that we’re seeing across the board.

And finally, on Slide 10, which does show how 180’s strategy of investing in public companies has accrued to the benefit of our shareholders, I am proud of this slide. As it aside, we’ve been able to achieve these results during this period. We’ve had quarters where we were down 4.8%, 6.4%, 13.1%, 30.8%, 6.6%, 14.8% and 19%. Market to market, they go up, they go down. They go up a lot sometimes. They go down a lot other times.

What I’ve learned over the years is investors’ timelines go no further than today. Assumptions are usually that the market will continue to do in the future exactly what it’s doing today, and history says that the reality couldn’t be farther from the truth. So although this period has been challenging and difficult, it also creates opportunities that, hopefully, we will look back on 3 years and say, thankfully, we invested in this name and that name and this name, and they all doubled over the next 3 years. We will see.

Slide 11 is the synopsis of our stock performance for this past quarter. Other than Envela, which we had across the board selling in almost all of our names, unlike Q1, when companies like Quantum truly disappointed, and we suffered negative alpha from our stock picking. This quarter for me was mostly beta. We didn’t have one quarter miss a number, and it didn’t matter. Why do I think it was indiscriminate selling because Alta Group has nothing in common with Potbelly or Commercial Vehicle Group or comScore or Synalloy and yet, they all went down anywhere between 17% and 27% in tandem. It’s our view they were trading mostly as a group of Russell Microcap companies and not as individual companies.

If anybody has any questions on any of our names, I’d be more than happy to answer them in the Q&A. For now, I’ll talk about a couple of them. A comScore will be the first. By now, you’ve seen the public letters we spend – we have sent to the comScore Board, highlighting our criticism of how it is governing the company. In case you haven’t read them, there’s links on our website for those letters. The stock decreased 29.2% this quarter. We surmised that part of the decline resulted from two factors: first, comScore was removed from the Russell Indices due to decline of the market cap of the company; secondly, the company made little to no progress in the quarter with the hiring of a CEO. To our disappointment, comScore also refused to address many of the recommended steps that we had for them for creating value for all shareholders.

And while the announcement of a new CEO didn’t occur last quarter, on July 6, we were pleased to see the appointment of Jon Carpenter as CEO. We’ve been impressed with him ever since he joined the comScore management team as CFO late last fall, and believe he has the right focus and sense of urgency required to turn this company around. We’re also particularly pleased to see that Nana Banerjee has been appointed as Chair of the Board. A comScore’s Board has long suffered from ineffective leadership and change was indeed needed. Given comScore’s improving financial performance and clarity on management, we currently believe that comScore share price is well beyond absurd. Its biggest competitor, Nielsen, has stumbled from a fundamental perspective over the last 2 years, and yet it was still sold for 4x of revenue. comScore trades at less than 1x. It is incumbent upon comScore’s Board to create value for all stakeholders in this company, including the common shareholders and actually do the work that Board members are required to do under Delaware law.

To-date, the comScore board has failed to create value and fail to represent common shareholders. The appointees of comScore’s preferred shareholders have failed to represent any shareholder other than themselves. If need be, we will pursue further action through the Delaware courts. We’ll continue to press the company until the rights of the common shareholders are properly reflected in the decision of the comScore Board. For the quarter, comScore reduced our NAV by $0.15 or $1.6 million.

The second thing I’ll talk about is Potbelly, which as most of you know, following consistently dreadful performance in its comparable same-store sales under the prior two management teams. Potbelly has seen a resurgence under its current leadership, Robert Wright, who is the former CEO of Wendy’s; and Steve Cirulis, who is the former SVP of Strategy at Panera. Potbelly reported continued strong results in Q1 2022, as its average unit volume continued to improve, particularly in its central business district stores that were particularly hard hit by COVID-related issues. Bob, Steve and their colleagues are executing on what we believe will be an exciting long-term plan to strategically grow Potbelly from 400 shops to 2,000 shops with improved operating metrics and overall financial performance.

Investors appear to be waiting for the company to complete a meaningful refranchise and/or franchise deal to prove that the management strategy is viable. And we believe once that happened, that will be a catalyst for the stock price to start moving higher. We do believe the stock can reach the mid- to high teens, if the company can post 10% EBITDA margins over the next 3 years. In the short-term, as people return back to the office, we think some of Potbelly’s urban locations like Chicago, New York City, Washington, DC, should catch up to the growth of its suburban locations. We are of course mindful of escalating food and labor costs, and we’ll monitor those as 2022 unfolds although they just reported earnings last quarter, and they were able to manage themselves right through that. This is our top holding by weight as of the end of Q2 ‘22, and we’re firm believers, we have a chance to triple our money from the current stock price. For the quarter, Potbelly reduced our NAV by $0.15 or $1.6 million.

If you skip ahead to Slide 19, you’ll see how – despite how difficult 2022 has been for us through June from a historical perspective, we have gotten more things right than wrong. Our winners when we’ve won have one big for our shareholders while we have limited the losses for our mistakes.

All of this shows itself on Slide 21, which is our track record for a myriad of timeframes. While the short term has been challenged, to say the least, the long term speaks to an investment process that has generated outside returns versus the benchmark and great absolute returns for our shareholders. And finally, on – we’ve been at this for 5 plus years. In my opinion, we took over a company that had a flawed business strategy, a flawed business model, one that if it wasn’t altered was leading its shareholders down the path of destruction and on the way to zero, in my opinion. And while this quarter and all of 2022 have proven to be a challenge, we have a balance sheet that can withstand the market dislocation, and our permanent capital gives us a chance to find interesting investment opportunities with what we consider to be high upside.

Slide 22 shows the massive transformation from what we are today to where we were years ago. This compensation – composition change to our balance sheet ultimately should lead to a re-rating of our equity price much closer to our NAV.

With that, I will turn the call over to Daniel. Daniel?

Daniel Wolfe

Thanks, Kevin. Please turn to Slide 23. This slide showing our top legacy private holdings continues the important theme from the prior slide Kevin was just discussing. In that the number of companies on this slide have declined substantially since 2017, and we really only have one material position remaining, and that is AgBiome. That is because, as Kevin mentioned earlier, on August 5, 2022, D-Wave Systems announced the successful completion of its merger with the SPAC DPCM Capital to form the newly public company, D-Wave Quantum Inc., that trades under the symbol QBTS.

180 holds approximately 900,000 shares of common stock of the merged company. That, as Kevin said, was valued at June 30 at approximately $6.55 per share. While this is clearly an important milestone for D-Wave and our efforts to monetize our legacy portfolio, I just want to make sure that it’s important to note that we can’t sell our – trade our shares of D-Wave Systems – D-Wave Quantum immediately. The shares of the new publicly traded D-Wave owned by 180 is subject to restrictions from trading until a registration statement is filed and deemed affected by the SEC as well as the expiration of a lockup period that will last 4 to 6 months from the date of the business combination, depending on trading of the stock post merger.

Second, the value of our potential future payments from the sale of TARA Biosystems to Valo Health is comprised of $2.6 million in cash that’s due to be paid over the next year to 18 months and the potential to receive an additional $3.3 million upon achievement of certain milestones. We received our upfront payment in early April 2022, and the next payment of approximately $275,000 is expected in early December 2022. The remaining payments will be over the next period of time up through April of 2024. So what does that leave us with? One large legacy private holding in AgBiome and the rest are only 3.5% of our net assets. This progress greatly simplifies our balance sheet and our story. When combined with the progress in our public and related portfolio quarter-to-date, we continue to make strong progress towards having 100% of our assets in cash and public and related securities.

Please turn to Slide 24. For Q2 2022, our regular operating expenses equaled approximately $741,000. Based on the performance during the quarter, this amount includes the reversal of an accrued – accrual for certain deferred bonus amounts from 2020 in the amount of approximately $80,000. This amount or a portion of it could be reinstated in future quarters depending on performance and at the discretion of the Compensation Committee of our Board. We will continue to maintain a lean cost structure outside of our fixed expenses for being a public company, focusing our expenses on activities solely designed to enhance our investment performance or to increase our revenues from managing outside capital. As it has been the case since Kevin and I took over 180, the management team will only participate in a bonus pool if our performance warrants it. Our performance through Q2 2022 doesn’t warrant it, and therefore, the reversal of the accrual that we had from the prior years and no accrual for this year thus far.

Please turn to Slide 25 and 26. We provide these slides each quarter that enable our shareholders to look at the trend of our total expenses and compensation-related expenses as a percentage of net assets. We continue to anticipate the reductions in our operating expenses as a percentage of net assets we based on our growth in net assets rather than further reductions in expenses. We remain committed to treating every dollar of shareholder money with the utmost care and consideration. As we always say, it’s much easier for us to grow NAV where the expense sort of where it is today.

Please turn to Slide 27 and 28. Here, we present our scorecard through Q2 ‘22 based on certain metrics that we track throughout the year. While the first half of 2022 is difficult, we believe we are well positioned to grow value for our shareholders across all these metrics over time as we have during the prior 5 years of 180’s existence. Our performance during the first part of Q3 2022 will help along this line, but it does remain too early to know where we will be at the end of this quarter or for the year in full.

Please turn to Slide 29. As of the end of Q2 ‘22, TURN traded at 73% of NAV. Our securities publicly traded and related companies, cash and other assets, net of liabilities were $5.98 per share. Our stock price was $6.13. If we receive 100% credit of the value of these assets net of liabilities, the market is ascribing a value of approximately $0.15 per share or $1.6 million to our legacy private portfolio. Given our private – legacy private assets within that number, we’re valued at $224.6 million. The market is discounting the value of our legacy private portfolio by approximately 94% as of the end of Q2 ‘22, but that actually includes the D-Wave amount in the legacy private portfolio. If you take the D-Wave value – carrying value of D-Wave as of June 30 out of the legacy private portfolio and put it into the public and related portfolio holdings, our remaining legacy private portfolio holdings had negative implied value. And this negative implied value includes approximately $2.6 million that we are contractually do over the ensuing 1.75 years from the sale of TARA Biosystems and Valo.

Now take that fact, as we mentioned earlier, our public and repos materially increased in value in Q3 to date and think about our stock price. We certainly do not believe it reflects the appropriate value of 180. And as Kevin said, as you see us – even prior quarters, similar situations. We look forward to adding to our ownership – management looks forward to adding to their ownership of 180 when the window is open for such purposes.

I’ll now hand the call back to Kevin.

Kevin Rendino

Yes. So two points before we open it up for Q&A, one, on our Parabellum, which is the SPAC that we invested money in. The one thing I’ll say about that is, we are – as we’ve been deep into due diligence on trying to find the target company for that SPAC, we’re neither – we’re not dissuaded from our abilities to find a company, one that the market is going to want to own, despite the fact that the markets had its challenges for 2022. So we feel good about where we are there as about as much as we can say without taking the entire call over the wall. And secondly, I’m asked all the time kind of where are you now? Where are you in the middle of the quarter? Unfortunately, we are not an open-end mutual funds, so we don’t price everyday. But what we’ve tried to do in this call is help you bridge, trying to figure out where our NAV or book value is at any given point in time versus where it was 40 days or so ago.

The two things I’d say, number one, you know where our cash and public assets were at the end of the quarter, $6.04. We said, we’re up double digit this quarter or something like that so you can figure that piece out. And the second part is, we own 900,000-some-odd shares of D-Wave Quantum. The mark that we have for that is $6.55. It’s publicly traded as of Monday, and you can figure that out. Obviously, you don’t know what we’re doing in and out of the quarter in terms of buying and selling, but that’s my best way of helping investors on the call, trying to figure out where we are at any given point in time during the quarter. And if you do that work, you’ll know that we are – as I said in our – that I said and Daniel said, we’re meaningfully higher from both a cash and public assets perspective and an NAV perspective than where we were at the June 30 quarter.

With that, Daniel, I’ll turn it back over to you, and we can take some questions, if there are any.

Question-and-Answer Session

A – Daniel Wolfe

Thanks. [Operator Instructions] Our first question is from Adam Waldo. Please go ahead.

Adam Waldo

Good morning, Kevin and Daniel. I hope you can hear me okay and thanks for taking my question.

Daniel Wolfe

We can.

Adam Waldo

First of all, thanks for all of your continued hard work and progress given the market backdrop. You’ve got a lot of good things going on, especially with the private side and with comScore, so continued success there. Three topics I’d like to explore. First, dig a little deeper on an aspect of D-Wave. Second, see if we can get anything further on AgBiome beyond what’s available on press releases or just your general sense of liquidity timeframe there and third, your thoughts on macro hedging at this point in the current market cycle. So with respect to D-Wave, I think this morning in the pre-market, it’s around $10.50 a share, closed over $10 yesterday. Obviously, you have a nice markup coming there from where you were carrying at the end of the June quarter. Have you given – what are your thoughts on potentially calling some or all of that position given the lag period of time over which you could diversify the holding?

Daniel Wolfe

Yes. Unfortunately, we’re not allowed to do any hedging, selling or anything else respected to the position that we hold currently according to the lockup agreement that all prior investors of D-Wave are subject to.

Adam Waldo

Okay. Fair enough. With respect to AgBiome, obviously, difficult market environment, great fundamental story and war in Ukraine obviously adds to that, given what’s going on and agricultural input prices. Is there anything else you can say beyond what you put in your public communications or what we can see at the company’s website as to what do you think the timeline might look like there for an IPO or liquidity event over the next couple of years? Is it 15% of your NAV at the end of the June quarter?

Kevin Rendino

It is what it is. So we’re part of that is because it’s grown because it’s been a successful private the holding as opposed to some of the other ones over the years. The right idea at the right time, especially with what food prices are doing, it’s well run. Management team is exceptional. It’s got a Board that is interested, we think, in – and we’re not on the Board, but it’s a board that we think is interested in getting this thing public at some point. This wasn’t the right time for them to do that, and so they have chosen and elected not to do that. They are not ready, not even ready from an accounting perspective. So there is really not more we can say, Adam, other than – because we don’t own a controlling stake, we would like this company to be public. Once it is, that will complete our transformation from where we were to where we are. We’ve already – we’re 80% of the way there. We got another essentially 20% to go, and this is two-thirds of that 20%. So we would love to see it public, but we want to see it public at the right time with the right valuation and with the right macro economic background so that the market can appreciate the assets of this business. So if you’re giving me a timeline of 2 years, do I think it will be public in 2 years? Personally, I think the answer to that is yes. But I mean, that’s just my opinion. That’s with no knowledge, no facts, no nothing. I do think if you’re giving me 2 years, it will be public in 2 years. That’s my guess.

Daniel Wolfe

I think the only thing I’d add to that is – and I share those opinions. So we’re not on the Board. We don’t have control. But we – when it’s public – well, everybody knows that they raised a large amount of capital last year, so they are well funded, which is crucially important. And they can use that to be in a strong situation when they go into the public markets and take advantage of that. I think that we want them to and then they are getting to a scale now where they could be a public company, and that’s important. And so we will see where that goes, but we do think that it’s trending in the right direction. As Kevin said, they are in the right space at the right time with a good management team.

Adam Waldo

So if I could just…

Kevin Rendino

As I said, we look down to one name in our private portfolio that matters, one. When I got here, there was 24 names in this private portfolio. Some of them monetize, some of them went away because they went out of business, and we’ve whittled them down to 20 – from 24 to – and you can see on that slide, what was it? 6 or 7 on there, Daniel. And really, analyze – the ones to analyze are one.

Daniel Wolfe

One that matters.

Kevin Rendino

And the one that matters is a very well-run business that we’re not all that concerned about right now.

Adam Waldo

No, I agree. Kevin, you said something about the accounting. Again, the accounting and the right state to be a public company and that has some work to be done. They have made a number of, obviously, management hires that you can see on their press release and on their website late last year that you would typically hire, if you were getting ready for an IPO. Obviously, the market conditions probably haven’t shelving that. Now as you said that, how long do you think it takes them to get the accounting where they need to be so that they could go out as market conditions improve and be ready to go out into the public market?

Daniel Wolfe

I think the way to just think about it is, going – getting to being IPO ready is a multi-pronged process and accounting is one of those. And you need to have PCA or be a compliant financial statement. And it can take 3 to 6 months for that piece to just get done. But it’s – I think the key is – and you saw it, right? They are appointing new members to their Board of Directors with a lot of relevant experience. They are increasing the diversity of the Board of Directors. There – they are taking all of the steps that I think all of us would believe would be appropriate for the evolution of the business and the accounting is just one piece of it.

Adam Waldo

No, that’s fair. Very helpful color. And then on overall portfolio hedging, what is your current thinking given your portfolio construction bottoms up and your macro view given the interest rate and inflation environment.

Kevin Rendino

I don’t know, it changes every day, Adam. To be honest, if you read my shareholder letter, we went through a typical day in the life of us in Q2, and it’s a very confusing environment. On the one hand, inflation is high. On the other hand, we think it’s peaked. On the other – on the one hand, interest rates are going up. On the other hand, the 10-year is at 2 70, which is historically low for rates. So are bonds more of a competition for equities? Yes. But I remember when utility bonds yielded 16% or 17%. We’re not in that environment right now. So multiples should compress, but do they need to be halved from where they were? I don’t think so. Everyone tells me the world ending and yet we posted 500,000 jobs last month and close to 300,000 the month before, which we can argue was inflationary, and means the Fed’s going to continue to raise. Well, my point is, I don’t believe everything that I’m told. I believe in what my companies tell me when they report their earnings. And I – and while I – we underperformed the Russell in Q1 because Quantum missed. It was fundamentally deserve to be down. In Q2, every single one of our companies hit numbers. And they didn’t hit reduced numbers, they hit the numbers that existed when we started the year.

So I’m not seeing an end-of-the-world scenario. And if we are in an end-of-the-world scenario already, we just lived through it, a 33% contraction in the Russell from November. So I’m not of the mindset right now where I want to hedge. I don’t want to hedge when Potbelly is at 5 on its way to 15. What do I want to hedge? Do I want to hedge NVIDIA? Do I want to hedge Amazon? Am I hedging Google? Am I hedging the Russell Microcap Index? Many of our companies don’t even trade let alone have options. So I can’t – there is not a lot of hedging I could do around a number of our names. Do I want to hedge Quantum after we just participate in the rights offering? So it’s a complicated question. It’s a good question. If I feel that valuations get extended for the names that we own, we sell them. We’ve owned Russell before. I’m not going to tell you what we’re going to do in the middle of the quarter, I can’t do that from a legality perspective. But I don’t think it’s just cut and dry as, my God, the world is ending hedge. Well, the world is not ending, in my – in our estimation. To some extent, it already ended, and I think we are in a recession. I believe the nominal growth being down two quarters in a row, consumers having less money in their pockets now than they did in the start of the year is the definition of a recession. Embedded in the word recession is recede. We’ve receded.

The question is one of severity. So it’s complicated. I’m sure you have your own views and maybe you’re more embarrassed than we are, and you want us to hedge. And maybe there is somebody else who’s wildly bullish and would kill us if we hedged. So we’re just going to try and do what we always do, Adam, which is be disciplined, be agnostic, be unemotional, try and do the best job we can for our shareholders, try and maneuver ourselves to what has been a challenging period, and we will see. I mean, if the market is up another 20% in 2 weeks as we head into September, October, might I take money off the table? Yes, I might. But we weren’t thinking about hedging at any point wrongly, by the way. I mean, I wish I hedged in November. I wish I never – I wish I didn’t own any stocks in November, but that’s not what we do for a living. So we weren’t thinking about hedging as we exited the June 20 quarter – the June 30 timeframe, and we will think about it as we think about everything. And to hedge, by the way, it takes an enormous amount of capital also. And I go back to what I said – and this is longwinded, but what exactly am I hedging?

Adam Waldo

No, that’s terrifically helpful, gentlemen. Thanks very much and continued success over the rest of the quarter and the rest of the year.

Kevin Rendino

Adam, as always, we are happy to hear from you and we will talk to you again soon.

Daniel Wolfe

Thanks, Adam. [Operator Instructions] We did have one question that came over the chat, which is, the price – on Slide 15, where we had list the price of Parabellum, $6.69. What you’re seeing in that slide and in any of those slides is the basis on which we determine value for – at 180.

And so the reason that it is less than will the current trading price for Parabellum in the open market is because we have discounts built in because the shares that we own through the sponsored vehicle that we invested in are not the exact same as the ones that are traded publicly in that. They don’t have rights for redemption and from the trust. Upon a business combination, they would convert into exactly the same securities, and that’s why you’re seeing we carry them at a discount, which reflects the differences in those terms and the fact that if a business combination did not occur, there is a risk as those shares would be actually worthless. And so that’s the difference. So I appreciate the question.

Kevin Rendino

D-Wave is also similar in that. If you look at where it was versus where it was trading as a SPAC, there was a discount on that as well. And that’s why the market is $6.55, I think, at the end of June 30. And obviously, right now, it’s public and trading. So that will change at the end of Q3.

Daniel Wolfe

Yes, it will still – going forward, it will still have some level of a discount for lack of marketability related to the fact that the shares – until the shares are actually registered and available to be traded from an SEC perspective. The lockup, you’re not allowed to actually take a discount on – probably more information than anybody wanted. But if you have any other questions on any of those valuations, obviously, feel free to reach out.

I’m seeing no other questions in the queue.

Kevin Rendino

Okay. Thank you, everyone, for listening. It’s been a challenging 6 months. It’s been a better 40 days. We’re happy D-Wave is public, and we have completely – not completely. We’ve meaningfully transformed our business from where we were to where we are today and made a massive step forward in our desire to have 100% of our assets in cash and public assets with the events of TARA, Petra and D-Wave this year. So we look forward to reviewing our results for Q3 when we chat with you sometime in late October, early November. And we hope everyone has a great rest of the summer, and we will speak to you then. Of course, if anybody has any follow-up questions, feel free to e-mail or call us, and we will be happy to get on the phone or respond to you over e-mail whatever your questions are. So thank you very much. Have a great summer, and we will talk to you soon.

Daniel Wolfe

Take care. You can now disconnect.