180 Degree Capital Corp. Price & Performance (TURN)

Please refer looking statements and information and future oriented financial information section of the company's public filings which include, without limitation, Tiny MG and A and its earnings press release, issued today for additional information. I'd like to now turn the call over to the executive team from Tiny for today's earnings call. Thank you very much. Appreciate it.

Good morning, everyone, and I'm excited to welcome you all to our 2nd earnings call as Tiny, the public company. This is also our 1st full quarter. Mike and myself, Mike is here with me in the room. Our first full quarter with us at the helm. We've been busy at work. We're excited to tell you about everything we've been to and I'll just jump right in here. So some highlights to go through. Adjusted EBITDA was up slightly from Q2. This is really a result of an ongoing cost rationalization initiative that we've been undertaking across the entire company. What we've been trying to do across the portfolio is looking for opportunity within finance, HR, vendor consolidation, really trying to understand where we can get smart across the portfolio and leverage our shared services. And just throughout the quarter, with rationalization alone, like we believe that we're going to save over 4,000,000 dollars on an annualized basis. So what you're seeing here in this quarter, the early results of that and you'll start to see the impact of that flow through pretty fulsomely or actually more. And Q4 'twenty 5 sorry, Q4 'twenty 4 and in 2025. We highlighted our strategic priority to repay debt and reduce our leverage ratios.

And you'll see we paid down debt to the tune of $4,900,000 in this quarter. [indiscernible] You'll continue to see that come down next quarter, Android 25. And we'll highlight that a bit more in the presentation. As I mentioned last last quarter, I just want to highlight some portfolio companies in each of these presentations and we picked 3 here. Creative Market actually established itself as the world's largest font marketplace. And to its evolving strategy or its continued focus on enterprise And as we continue to add more merchants, more digital assets, make improved site experience, improved search, This is really helping us achieve that strategy. Archetype, 1 of the premier developers of themes in the Shopify space launched a product called DevKit. And this really speaks to our focus on improving recurring revenue. So traditionally, the themes have been onetime purchases and Architect has been hard at work over the past year developing a subscription based developer toolkit aimed at more agency enterprise customers. And this is in the service of making Arctite the theme provider of choice through a high functioning source code availability which essentially means you can develop themes faster, you can open stores faster, you have access to all the tools that architect has.

And we get a subscription fee from that. And then finally, we wanted to highlight 1 of our acquisitions in the fund. It's been 1 year. Since we made a majority investment in Letterbox within the Tiny Fund. And we're excited to note that they've exceeded 15,000,000 members and they've grown active users by more than 62% since the acquisition. And we'll try to make a habit of highlighting some of the activities in our fund and telling you a bit more about that? So just speaking quickly about revenue. The revenue change from Q3 'twenty 3 to 20 4 was mainly driven by project timing and a big strategic shift and focus to more retainer work and longer term work in the digital services business. 1 of the big strategic priorities there has been making sure we're doing higher margin work, making sure we have visibility in revenue, So really a lot of that shift is in the service getting revenue that looks like that. Another change driven by the creative platform we've made executive changes at both Dribble and Creative Market in 2024. We've realigned strategic initiatives there. In dribble, we soft launched a designer marketplace, which now allows designers to transact and get project work on the site.

We're very excited about that. We're very excited to show you the results of it in the coming quarters. And in Creative Market, again, I mentioned on the previous slide, but we're really focused on improving site experience, improving search, adding merchants, treating them well and pursuing that enterprise strategy. The revenue decreased quarter over quarter compared to Q2 was mainly driven by that timing of that major enterprise deal in our creative platform. And as we look forward, we're busy at work on Black Friday Cyber Monday season in our software and apps portfolio. This is traditionally the busiest time of year for us. We have We have a bunch of offers underway and that's all in the service of adding merchants, selling themes and serving our customers very well. Wanted to speak a bit about recurring revenue and this is a big strategic focus for us, particularly in the software and app segment. As I mentioned, we're heading into BFCM. We recently merged stamped and repeat And this is all in the service moving customers into higher contract values and tying our revenue and tying our contracts more to GMV or ROI. So if you think about [indiscernible] pursuing more of a loyalty retention revenue driving strategy that's all in the service of getting more enterprise customers and capturing more of that.

We wanted to highlight again, some of this growth is due to our acquisition of MediaNet And our focus does remain looking at opportunities in M and A that enhance this profile for the business.

I'll turn it over to Mike here who will [indiscernible] through adjusted EBITDA. Thank you, Jordan. So as you will see here, we are back to reporting adjusted EBITDA as a key metric This is important to us given feedback we've heard from the market our focus on deleveraging and the ongoing cost rationalization program that Jordan alluded to. This is a metric that we will continue to report Going forward, and have expectations for growth on. Both on an overall dollar value a quarter to quarter basis, and on a margin basis quarter to quarter, into 2025, [indiscernible] It did have some impact in the financials, in this quarter, we can largely see the impact of the program flowing through Q4 and Q1 of 2025 If you focus just for a minute on the right side of the page, you will see that the Q3 was our best quarter for adjusted EBITDA of the year so far. And we will continue to focus on margin improvement and improving this number into 2025, We've again provided detail on our adjusted free cash flow post debt servicing. Also a key metric as we continue to manage the leverage profile of the business.

All the work we're doing to improve operations will also have a positive impact on free cash flow as a metric going forward. Where we're focused. You can see where we're trying to drive the business and you can see an improvement in adjusted free cash flow in Q3 of 2024 against Q2 of 2024 and we expect this number to continue to increase going forward. So both what I talked about on adjusted EBITDA on the free cash flow, important as we continue to manage leverage profile. We made significant repayment of debt through the course of 2024 thus far. Gross debt levels have decreased by 14% through the 1st 3 quarters.

And you can expect an additional approximate 4,500,000 to be repaid in Q4. While on a ratio basis, the net debt to adjusted EBITDA is slightly up for the quarter. We do have some small negative impact on conversion of the gross debt levels that impact this number. Again, the overall debt repayment of $4,900,000 in the quarter is ultimately what we should be focusing on here and we'll continue to see our metrics levels increase or improve excuse me as adjusted EBITDA increases once we see the full impact of the cost rationalizations and our continued focus on operations and revenue, which should improve in Q4.

All right. I'm back. Something that we've been asked from investors and just through our our discussions with analysts is trying to get a look at investment performance and understanding what we look at and understanding how we execute [indiscernible] Clean Canvas was 1 of the top theme providers in the Shopify theme store. A space that we knew extremely well given our ownership of archetype and pixel Union. You'll see that the purchase price we paid and wanted to just kind of underline the thesis that we had at entry and tell you a bit about the results. [indiscernible] when we bought the business, it was performing very well, but we knew that we could implement best practices around license enforcement Essentially what happens in the Shopify space is a lot of these themes end up being pirated and put online, for people to use without paying for a license. And what we developed within archetype was a really novel way of finding these and acting on them and then recovering actually significant amount of pirated license. So along with that and along with price optimization, we were able to grow revenue in Clean Canvas by over 32% year over year.

We're still expecting Green Canvas to innovate. We're still expecting them to launch an additional theme towards the end of the year or early next year. And actually, part of the thesis is really learning about what they did well. So their support team and the way they've done support and utilizing AI for that, that's something that we've adopted across our theme portfolio and it's something that we've taken to our other businesses. And finally, I mean, the price we paid We thought it was quite fair at acquisition And given we haven't really added cost to that business, and we've grown revenue, we're really driving for the 1st year high ROIC on that acquisition. So again, I mean like this is the type of acquisition that we want to do going forward. It doesn't necessarily mean that we're going to pay prices like this every time, but we want to understand the space, understand the business, potentially have something in our back pocket around proprietary best practice or know how where we can use that lever to enhance revenue or reduce cost. And we'll continue to tell you great stories about the acquisitions we make. Finally, we outlined 4 strategic priorities on the last call and I just wanted to provide an update each of these and and tell you how everything is going.

I think it's become apparent throughout the presentation and throughout the quarter that we're really driving towards all of these. And Again, really focused on increasing cash flow This ongoing cost rationalization is definitely going to impact that. You're seeing it start to happen in Q3 and you'll see the results of that beyond. We have not let up on strategic or organic growth initiatives. I talked to a number of things we're doing at Creative Market, Archetypes, Stamped, [indiscernible] we're very excited about the work we're doing there and it's all in the service of of growing revenue and really growing recurring revenue. We have not let up on a valuing opportunities where we are very busy at work looking at stuff. Potentially Tiny software space or that has a great recurring revenue profile. And we're excited about that. It's It still remains a good market. We're in discussion with a number of other VC companies that are also looking for long term homes and remain very optimistic about that. You can see our commitment to reducing debt levels and increase sorry, improving our leverage profile and you'll continue to see that going forward. And finally, making sure our incentive plans are well in line with our employees and really focused on long term cash generation.

And something we're focused on internally is we've been developing a new LTIP program for our portfolio companies and we've been trying to find ways that align our portfolio companies, shareholders and point us all in the right direction. So we're really excited about that. I will open it up for questions and we'll do our best. To get you what you need.

Thank you. Our first question today comes from Max Ingram with Canaccord. Please go ahead. Your line is open. Hey guys, thanks for taking my questions.

First thing I'd say is nice to see you're adding even more disclosure around the adjusted EBITDA and free cash flow, so that's appreciated. The first question from me is on the the costs I know you guys have been focused on streamlining costs and you're expecting to realize $4,000,000 of cost savings. Wanted to get a sense of how much more runway you might have on this front I'm pretty optimistic. We're really, really conscious of Our focus to date has been on looking at overhead vendor consolidation, getting really smart about the way we operate these businesses, making sure we can scale them as we add acquisitions. So I would say We've been more largely focused on that and less operational. There has been some operational change. I'll give you an example that like we're looking at a big vendor consolidation with AWS where we think we can save upwards of 20% or 30% of that contract. And we spend around $4,000,000 or $5,000,000 a year. So do I think there's opportunity to save more over the coming year? Absolutely. Still too early to tell whether we'll get another $4,000,000 out of the business.

Okay.

That's helpful. Thanks, Jordan. My next 1 is on the debt. You continue to pay down debt And when you look at your existing debt, there's a couple of different pieces. And I wanted to get your thoughts on is there any or how are you thinking about potentially refinancing or is there any idea to maybe consolidate the debt? Just any color would be helpful.

Thanks, Max. Thanks for that question. It's Mike here. I'll take This 1 Right now, we're looking at a variety of alternatives. Timing wise, the first maturity is in April of 2026. So we do need to have something thought through by, obviously, April 2025 to ensure that the debt doesn't go current. There's opportunities to extend that 1st maturity date. Okay? So we won't come up against any accounting issues per se. But absolutely, as we think about this, there are a variety of ways that we could look at refinancing the debt Some of it will depend on maybe what our next strategic move is and what we do to potentially be added to the business and additive to the cash flow profile of the business. That might create more opportunities for a different type of piece of paper like you sort of mentioned on a consolidated basis. That could be something we look at down the road, probably not today. But the reality is we have time to look at all of our options here on this refinancing. We're well hedged on these pieces of paper. Our rates very reasonable at current interest rate levels. So we're monitoring that as well.

So we don't have specific time pressure because we can always extend that first maturity. But as we think about enhancing the overall cash profile of this business, then we would want to think about a refinancing that gives us an ability to extend out our principal repayments, extend out maturities, obviously, get take advantage of rates. Right? All those items are going to be important as we think through this and where we take it. So we're very focused on it. And we should have various options that we'll be working through.

Okay. Thanks for the color. Mike. And then maybe if I can squeeze just 1 last 1 Can I squeeze 1 last 1 in? Yes. Have you guys given any thought to the future of the fund I understand it's fully invested and closed, but sort of any thoughts on where you go from here and then I'll pass the line.

Yes, no, totally. I think we've we've really been engaged with the LPs they like the tiny story. They're kind of were we're open to discussing certain options around liquidity. It's about that. Like nothing has really progressed on that front. But like I will say we're focused on doing the work, providing more disclosure. It's 1 of our strategic priorities. So at the very least, you guys will get more information There is a path to potentially consolidating that entity or getting it into Tiny, but again, something we're working on in the background.

Great. Thanks guys.

Thank you. And as a kind reminder, Our next question comes from Daniel Chan with TD Cowen. Please go ahead. Your line is open.

Hi, good morning. Shopify is doing really well in international markets. Just wondering if you're seeing the same success in these markets Or is there some sort of R and D that needs to happen to make your products applicable in those markets?

No. We're getting some of that benefit and like I know actually just recently Shopify has had a lot of success in Japan and they've been pushing on that market quite a bit and I actually asked 1 of our portfolio companies, sort of seeing the same thing in wholesale club business is seeing a lot of that in Japan. So I mean, we're getting some of it. Think some of the stuff we need to do is potentially enhance our languages and get into those markets. But yes, I mean, we're seeing some of it Are we seeing the same impact in terms of GMV and things like that? Not quite yet. But it's something that's on our it's on our strategic priorities like trying to tie our contract to revenue and trying to tie our contract to GMV growth. So We're seeing some of it. The answer.

That's helpful. Thank you. And then maybe flipping over to the digital services side, continue to see some weakness there. I think you talked about the timing of certain contracts. But can you talk more broadly about whether you're seeing an improvement in the overall market? We've seen some signs of improving market conditions from some IT vendors, but just wondering if you're seeing the same I would say yes.

We are definitely seeing signs of improvement, margins coming up, pipeline has improved drastically at this time last year versus versus right now. I don't want to speak too soon about the quarter, but we're happy with the way things are looking and we've definitely seen demand come back.

Yes. Maybe Dan, just from a sort of quarter to quarter basis, The Q3 [indiscernible] certainly sort of back end loaded and we've seen some of that roll forward into Q4. I think so your question about seeing some some others see some growth. I think we're starting to see that too. We just want to be mindful that It's sort of 2 to 3 months, let's hope that carries into 2025.

And as you see some of this growth, how do you think about that relative to some of the restructuring that you're doing? How are you positioning the business for this potential resurgence in growth? While you're trying to save costs?

Yes. So in digital services, we are just being extremely cautious on the hiring front. I think our strategy is really okay, use what we, you know, it's like number 1, use what we have. Number 2, can we get flexible contractors or can we be flexible in adding while still doing revenue? And then if we have a high degree of confidence in our retainer and long term contract work, it's time to now start hiring up and actually adding more to the business so that we can support that work. And like I said, because we've shifted more to that retainer long term contract work, it's something that we can actually do right now. So that that's the plan.

Yes. And I think the other thing too, Dan, just on where this Where the majority of these cost savings came from, it wasn't necessarily [indiscernible] Developers or operational It was certainly more efficiencies around the broader finance department broader HR area, legal, that type of stuff, IT is as Jordan mentioned. So that's really been where the focus has been. So we still, I think, got the people, right, positioned in the right place to to supplement the growth. That makes sense. Thank you. And then you're talking about evaluating more investment opportunities Can you talk about how much capital you may be able to deploy over 2025? And how would you go about funding that just considering that your leverage is above 3 Yes. I think listen, we're evaluating some potentially strategic stuff that would be more on the small side and again stuff that we could Tiny potentially with cash or some of our some of our [indiscernible] facilities that we have available. I'd rather not use the facilities right now. So again, so we've got some cash available or some ways that we can get creative. And again, for the right large acquisition, think we're open to looking at the equity market and raising and all of the service of reducing our leverage profile, adding free cash flow, improving our recurring revenue base.

So I think we're looking at acquisitions like that and we're open to doing that.

Thank you. We have no further questions. So I'll turn the call back over to the management team.

Well, thank you guys for joining us early on a Friday morning and yes, just really look forward to doing this again next quarter. And have a great weekend.

This concludes our call. Thank you for joining. You may now disconnect your line.