Exhibit 99.1
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INVESTOR PRESENTATION
July 8, 2019
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DISCLAIMER
This presentation may contain forward-looking statements intended to qualify for the safe harbor contained in Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements often include words such as may, will, should, anticipate, estimate, expect, project, intend, plan, believe, seek, would, could and similar words or expressions and are made in connection with discussions of future operating or financial performance.
Forward-looking statements reflect management’s expectations at the date of this presentation regarding future conditions, events or results. They are not guarantees of future performance. By their nature, forward-looking statements are subject to risks and uncertainties. Our actual results and financial condition may differ materially from what is anticipated by the forward-looking statements.
There are many factors that could cause actual conditions, events or results to differ from those anticipated by the forward-looking statements contained in this presentation. Readers are cautioned not to place undue reliance on forward-looking statements in this presentation. We do not undertake to update any forward-looking statements included in this presentation. The statements in this presentation are for the convenience of our shareholders, capital partners and other stakeholders and are qualified in their entirety by reports that we file with the SEC.
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OVERVIEW
Enterprise Diversified is an alternative asset manager with a focus on emerging managers. The company also has interests in several historical, non-core lines of business including an internet service provider, a royalty stream on a previously owned home services business, real estate, and other opportunistic investments.
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CORPORATE ORGANIZATION – PRIMARY ENTITIES
Enterprise Diversified Asset Management Real Estate Operations Non-Core
Willow Oak Asset Management Alluvial Fund – Strategic partner Bonhoeffer Fund – Internal Fund Fund Management Services
EDI Real Estate Passive stake in historical real estate holdings
Sitestar.net Royalty stream – home services business Opportunistic investments
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Leadership team
Enterprise Diversified
Board of Directors
Defines and approves the strategic vision of Enterprise Diversified
Advises and supports network growth of Willow Oak Asset Management
Steven Kiel
Executive chairman
Oversees the execution of the strategic vision for Enterprise Diversified and its subsidiaries
Strategically drives the growth of Willow Oak Asset Management
Alea Kleinhammer
Vice President & Chief Financial Officer
Monitors and reports on the financial strength of Enterprise Diversified and its subsidiaries
Oversees the activities and drives the strategic direction of each subsidiary
Jessica Greer
Vice President & Chief of Staff
Monitors and manages the operational strength of Enterprise Diversified and its subsidiaries
Manages the daily activities of the asset management division including investor relations and Fund Management Services
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First Quarter Results | March 31, 2019 | March 31, 2018 | | | |
Asset management (not including investment gains/losses in Alluvial Fund) | ($112,630) | ($11,148) | *Current estimated debt is $1.2 million after accounting for the two transactions that occurred in Q2 2019. Shares outstanding are 2,544,776 as of March 31, 2019 and December 31, 2018.December 31, 2018 |
Real estate | ($213,171) | ($138,482) | Debt and accrued interest* | $8,117,624 | $7,865,878 |
Other | $6,385 | ($360,355) | Book value | $16,289,420 | $15,915,651 |
Comprehensive income - total | ($319,416) | ($509,985) | Book value per share | $6.40 | $6.25 |
Investment gains/losses in Alluvial Fund | $693,185 | $279,055 | | | |
Net earnings - total | $373,769 | ($230,930) | | | |
Earnings (loss) per share | $0.15 | ($0.06) | | | |
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Financial Management
Enterprise Diversified is focused on creating long-term value for shareholders. Our interests are aligned with shareholders who have a long-term investment time horizon. Recent transactions have reduced debt and refocused the company on its asset management operations.
Aligned incentives
Significant insider ownership with more than 31% of shares owned by directors and senior executives
$5.3 mil of net operating loss carryforwards as of March 31, 2019, that do not begin to expire until 2032
Reduced debt
Recent transactions reduced debt to approximately $1.2 million
Approximately half of current debt is associated with properties owned through EDI Real Estate subsidiary
Recent transactions
Recent transactions involving the home services subsidiary and Mt Melrose subsidiary have significantly reduced debt and company risk
Company now completely focused on asset management operations
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ORGANIZATIONAL GOALS
Enterprise Diversified’s goal is to transition to an asset-light business model with lower overhead, reduced risk and debt, and a specific focus on our demonstrated strengths.
Organizational goals
Focus on existing and future partnerships among emerging managers
Generate predictable cash flow from management fee shares, royalties, and other sources
Simplify operations and public financial reporting and improve internal capital allocation
Reduce ongoing expenses associated with accounting, legal, and corporate overhead
Strengthen and expand our current partnerships with fund managers and investors
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RECENT TRANSACTIONS
Enterprise Diversified recently completed two transactions to significantly reduce risks to the company.
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SALE OF HOME SERVICES SUBSIDIARY
Enterprise Diversified sold its former home services subsidiary on May 24, 2019 in exchange for a royalty stream over the next five years.
Enterprise Diversified had launched a home services subsidiary on June 14, 2016, by providing $2 million to an operating partner in Phoenix, Arizona. The relationship with the local operating partner was terminated in early 2018. Results were poor since inception and the decision was made to exit the business in 2019.
Transaction description:
As part of the sale, Enterprise Diversified will receive 7.5% of revenue generated by our customers in the first year and 5% of revenue for each of the next four years
The subsidiary generated total cumulative operating losses of $486,770 since launch through March 31, 2019
Future earnings from royalty stream cannot currently be estimated
Lessons learned:
Open-ended structure of the original transaction significantly increased risks to the corporate entity
Decentralized management approach was a poor fit for the size of the company
Skillset of the local operating partner did not translate into effective management of the subsidiary
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SALE OF MAJORITY STAKE IN MT MELROSE
Enterprise Diversified sold 65% of its Mt Melrose subsidiary to a third party on June 27, 2019. We plan to deconsolidate the Mt Melrose financial results as of June 30, 2019.
Enterprise Diversified had launched the Mt Melrose real estate subsidiary on January 10, 2018 with our former chairman as the operating partner. Results were poor since inception with debt and debt service increasing dramatically in the nine months after launching the subsidiary.
The unsustainability of this debt and Enterprise Diversified’s unwillingness to continue to financially support the debt payments associated with the property portfolio led to the recent transaction.
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SALE OF MAJORITY STAKE IN MT MELROSE (Cont.)
Transaction description:
Enterprise Diversified retains a 35% ownership stake and plans to deconsolidate financial results as of June 30, 2019
Third-party buyer provided $100,000 in cash and will assume all operating responsibilities
Enterprise Diversified overall reported debt as of March 31, 2019, is expected to decrease from $8.1 million to $1.2 million
Overall real estate monthly debt service is expected to decrease from approximately $58,700 to approximately $6,400
Public financial reporting results are being determined and will be provided in the company’s quarterly report as of June 30, 2019
The company’s other real estate subsidiary, EDI Real Estate, continues to be in operation with $644,623 in assets reported at their historical cost basis, approximately $520,000 in notes payable, and approximately $17,500 in quarterly revenue as of March 31, 2019
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SALE OF MAJORITY STAKE IN MT MELROSE (Cont.)
Conditions prior to sale:
The subsidiary generated total cumulative operating losses of $2,210,009 since launch through March 31, 2019
The subsidiary required $964, 743 in write-downs since inception through March 31, 2019. Additional write-downs are being determined and will be reported in the company’s quarterly report as of June 30, 2019
Prior to the transaction, Enterprise Diversified made substantial progress right-sizing the portfolio in the second quarter of 2019. Results from those decisions will be reported in the company’s quarterly report as of June 30, 2019
Significant debt principal payments at the subsidiary level were coming due in the next year that the company’s corporate entity was unwilling to pay
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SALE OF MAJORITY STAKE IN MT MELROSE (Cont.)
Lessons learned:
Open-ended structure of the original transaction significantly increased risks to the corporate entity
Decentralized management approach was a poor fit and public company requirements were too demanding on the local operator
The local operator took on a significant amount of high interest debt, including payment-in-kind debt, on properties that were not generating cash flow
The local operator changed his management strategy after the transaction, dramatically increasing overhead and bringing previously outsourced operations in-house at significant expense and with poor oversight
Return potential was significantly lower than originally anticipated
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ASSET MANAGEMENT
Willow Oak Asset Management partners with unique emerging investment managers.
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WILLOW OAK ASSET MANAGEMENT
Willow Oak Asset Management, LLC is the wholly owned asset management subsidiary of Enterprise Diversified (ENDI). Asset management is ENDI’s core competency, and Willow Oak is its primary growth vehicle.
Willow Oak Asset Management partners with talented fund managers who are passionate about long-term value creation. We offer a flexible platform of private investment partnerships that are independently run by unique internal and external fund managers. Our managers uncover uncommon opportunities and share a commitment to investing for the long term, utilizing a value-oriented investment framework.
Willow Oak, through its Fund Management Services (FMS), offers tailored services to boutique fund managers, providing investor relations, marketing, and operational infrastructure to help them scale.
The Willow Oak team is comprised of hedge fund managers, financial experts, operations specialists and accounting and administration professionals dedicated to providing premier alternative investment opportunities to investors and operational support to emerging hedge funds.
team
Steven Kiel (president)
Jessica Greer (vice president)
Elisa Sanchez (director)
Ashley Rule (accountant)
Keith Smith (advisor)
Red Oak Compliance Solutions, LLC (compliance)
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AFFILIATED FUNDS
Through direct ownership, seed investments, fee share agreements and outsourced services relationships, Willow Oak seeks to grow a network of emerging managers.
Alluvial Fund
Identifies and profits from deeply mispriced securities spanning industries and borders
Invests in market segments where mispricings are most likely to occur
Focus: small firms, thinly traded issues, undiscovered value
Bonhoeffer Fund
Identifies and invests in undervalued securities that are either undiscovered or misunderstood
Invests in overlooked companies in international and emerging markets
Focus: compound mispricings, miscategorized firms, and corporate actions
Fund Management Services
Manages administration and compliance, investor relations and marketing, and infrastructure and support to internal and external funds
Focused on providing support from the portfolio manager’s perspective
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GROWTH VEHICLE
Q1 2018 Q1 2019
ASSETS UNDER MANAGEMENT
$20.8M $53.5M
AFFILIATED FUNDS
2 4
Investors 41 177
Management Fees
$4,317 $14,795
Alluvial Fund
$9.1M Direct investment as of March 31, 2019
FMS Revenue $26,255 Launched October 1, 2018; revenue reflects Q1 2019
Willow Oak is also entitled to a fee share from the performance fees earned by each affiliated fund. No performance fee share was earned in 2018 or in the first quarter of 2019.
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WILLOW OAK FUND MANAGEMENT SERVICES
Willow Oak Fund Management Services offers tailored services to boutique fund managers, providing investor relations, marketing, and operational infrastructure to help them scale.
Experience
We are fund managers. Members of our parent company’s board and management team have founded and managed value-oriented hedge funds for the past 20 years. We bring this experience to bear, providing operational support that allows fund managers to focus on their portfolios.
Value
We believe in and are passionate about the value investing framework. We know the power behind the proper use of this framework and believe in growing our value investing network.
Network
We offer services beyond the traditional service providers. Willow Oak FMS services include: inclusion in the Willow Oak Network, strategic planning, value-add investor relations, single point coordination for traditional service providers, and operational infrastructure that promotes scalability.
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Focused on growth
Increasing assets under management
Adding funds to the Willow Oak Platform
Increasing visibility of Willow Oak and associated funds
Growing the Willow Oak network of emerging manager partners, investors and Fund Management Services clients
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Real Estate
Enterprise Diversified holds a 35% stake in Mt Melrose and operates a historical property portfolio located in Roanoke, Virginia.
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Real Estate
Mt Melrose, LLC (MM)
Enterprise Diversified holds a 35% ownership stake in Mt Melrose and is in partnership with a third-party operator. We plan to deconsolidate the Mt Melrose financial results as of June 30, 2019.
Results reported in the following slides are historical in nature and do not reflect the effect of the recent transaction. Future reported results will differ significantly.
EDI Real Estate, LLC (EDI)
Consists of a portfolio of 12 properties located in Roanoke, Virginia. These properties are legacy properties that were purchased prior to 2016 as part of a reinvestment strategy for the internet segment’s excess cash flows.
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Historical Real Estate Results
*Mt Melrose information is provided for illustrative purposes only. Future reported results will differ significantly due to the recent transaction.
For the quarter ended March 31, 2019 | MM* | EDI | TOTAL |
Revenue | $165,082 | $17,424 | $182,506 |
COGS | $145,478 | $17,665 | $163,143 |
Operating Expenses | $103,334 | $1,074 | $104,408 |
Other I/E | $117,511 | $10,615 | $128,126 |
Net Income | [$201,241] | [$11,930] | [$213,171] |
Non-Cash Add Backs | $77,298 | $5,481 | $82,779 |
Net Cash | [$123,943] | [$6,449] | [$130,392] |
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Real Estate by the Numbers As of March 31, 2019 MM EDI
Units occupied or available for rent | 98 | 6 | Debt on real estate held for investment | $5,001,501 | $519,169 | | | | | | | |
Vacant units being prepared for rent | 15 | 3 | Debt on real estate held for sale | $2,152,976 | $0 | Total real estate held for investment | $9,209,666 | $717,456 | |
Total units held for investment | 113 | 9 | Total debt held on real estate | $7,154,477 | $519,169 | Accumulated depreciation | [$211,141] | [$112,880] | |
Residential & commercial units | 43 | | | | | Real estate held for investment, net | $8,998,525 | $604,576 |
Vacant lots | 5 | 3 | | | | Real estate held for resale | $2,047,927 | $40,047 |
Total units held for resale | 48 | 3 | | | | | | | | | | | | |
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Non-Core
Enterprise Diversified carries out several non-core activities consisting of legacy businesses and opportunistic investments.
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INTERNET
Sitestar.net offers consumer and business-grade internet access, wholesale managed modem services, web hosting, third-party software as a reseller, and various ancillary services to customers in the United States and Canada.
OPPORTUNISTIC INVESTMENT
Enterprise Diversified owns warrants giving it the right to acquire approximately 2.7% of Triad Guaranty, Inc., a post-bankruptcy shell company with approximately $500 million in Net Operating Loss carryforwards that begin to expire in 2028.
Enterprise Diversified had originally participated in a group that provided a Debtor-in-Possession loan to Triad. In addition to the ownership interest, Enterprise Diversified holds a note payable in the amount of $155,000 earning 10% annually.
| | 3-31-2017 | 3-31-2018 | 3-31-2019 |
Revenue | $335,086 | $301,736 | $274,902 |
Other Income* | $54,309 | $29,796 | $392 |
Net Income | $215,562 | $190,607 | $124,412 |
*Other income consists of one-time items such as the sale of IP addresses and domains.
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Non-Core
OPPORTUNISTIC INVESTMENT
Enterprise Diversified recently received the final proceeds from a $750,000 investment in a private real estate fund managed by Huckleberry Capital Management. We received an overall gain of $212,631 during the investment time period of approximately 26 months.
HOME SERVICES
Enterprise Diversified sold its former home services subsidiary on May 24, 2019 in exchange for a royalty stream over the next five years. We receive 7.5% of revenue generated by our customers in the first year and 5% of revenue for each of the next four years.
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www.enterprisediversified.com
