Q4 2018 Alta Fox Opportunities Fund, L.P.

Quarterly Letter January 2019

Limited Partners,
In Q4 2018, the fund declined 11.52% on a net basis compared to declines of 13.52% and 20.20%
for the S&P 500 and Russell 2000, respectively. The average net exposure during the quarter was
77.23%. For the year (April inception to date), the fund was up 6.67% net compared to declines of
3.65% and 10.94% for the S&P 500 and Russell 2000, respectively. The average net exposure for
the year was 80.36%.
Our fund is a long-biased and small/micro-cap focused vehicle. 2018 was not a favorable
environment for this strategy as the Russell Microcap index lagged the Russell 2000 which lagged
the S&P 500. In the context of a market in which 90% of asset classes declined1 and our strategy
was out of favor, I consider the fund’s 6.67% net return a good result. A factor analysis of our
results (available to current LP’s by request) confirms that our small-cap bias along with currency
impact were meaningful headwinds to performance in 2018, while our “selection effect” was
significantly positive, enabling the fund to generate a positive return in an unfavorable
environment.
Most importantly, however, I believe the recent absolute and relative weakness of small and micro-
caps has likely created a favorable environment for our strategy moving forward. My watchlist has
never been longer and I have taken advantage of recent weakness to upgrade our portfolio from
both a business quality and valuation perspective. As always, I largely ignore short-term results to
instead focus on the intrinsic value growth in our portfolio holdings, which over the long-run
should converge with portfolio performance.
Current Market Environment and Recent Portfolio Changes
Despite the market’s recent rally, investors enter 2019 with a looming fear of “late-cycle” risk.
Comments from Howard Marks in a mid-2018 interview effectively summarize this view:
“You know, ever since the global crisis, which means ten years, people have been asking me what
inning are we in. And now I would say we're in the 8th inning… However, we have to notice that this
isn’t baseball, and we don’t know how many innings there will be… But, you know, when you're talking
about being in the 10th year or 11th year of recovery and the 10th year of a bull market, how much do
you want to push your chips out on the table? Or do you want to take a few off? That's really the key
question.”2
Even though the S&P 500 became significantly cheaper during Q4 on traditional forward valuation
metrics, it also ignited fear in market participants that the economic cycle was about to turn and
that forward estimates are far too high. Combine this late-cycle fear with a fixation on the Fed’s
policy towards interest rates and Trump’s latest trade tweets, and Q4 was a wild quarter by any
measure.

1 https://www.wsj.com/articles/no-refuge-for-investors-as-2018-rout-sends-stocks-bonds-oil-lower-
1543155033?mod=hp_lead_pos5
2 https://www.valuewalk.com/2018/07/oaktrees-howard-marks-stock-pricing/

Alta Fox Capital | connor@altafoxcapital.com | www.altafoxcapital.com

1
As usual, I try to filter out the market noise as much as possible in order to focus on my bottom-up
research process. Of course, economic cycles and trade deals are important fundamental data
points, but I do not pretend to have any advantage in predicting these events. Therefore, my
primary focus is to identify companies that I believe can outperform in any market environment. In
practice, this mostly market-agnostic approach means I generally avoid purchasing commodity-
based stocks, deep cyclical companies, etc. in favor of companies with more idiosyncratic
fundamental theses. While identifying these secular winners is easier said than done, I feel
confident about how the portfolio is positioned for 2019.
Portfolio Commentary
3Pea International, Inc. (“TPNL”) is still our top holding and is a good example of the type of secular
winner we attempt to identify. I believe it is an extremely high quality and recession-proof business
that can compound value at very high rates for the next several years. It was a significant
contributor to fund performance in 2018, and I have high expectations for 2019.
There are two other long positions that are new top five holdings. However, given I am still trading
them actively, I will wait to disclose the names until the Q1 letter is released. Both are leaders in
their respective industries, have excellent management teams, and have a long growth runway to
compound shareholder value at attractive rates. In addition, the company recently entered into a
long position in RumbleOn, Inc. (“RMBL”). While this is not a typical Alta Fox long position, I think
the risk/reward is compelling enough to warrant a small and somewhat speculative long position.
You can view the original TPNL idea and RMBL deck here:
https://www.altafoxcapital.com/research/.
The fund recently sold all of its shares in Hamilton Thorne (“HTL”). Given this is the first sale of a
company that I have previously profiled at length (in letters and on the Alta Fox website), it feels
appropriate to highlight the reasons for the sale.
1) While HTL’s revenue growth has been in-line with my expectations, the company’s gross margins
and operating margins have been a disappointment. Gross margins have continually declined as a
result of distributing more third-party products. Meanwhile, the company has not provided any
evidence they can leverage their existing SG&A costs. As a result, EBITDA has been flattish for the
last six quarters despite strong revenue growth. I think the company is in the unenviable position of
having to choose between accelerating revenue growth or showing EBITDA improvement. At the
time I made the investment, I believed the company could translate strong revenue growth into
equally or even stronger EBITDA growth. This has not materialized.
2) HTL has not made a major acquisition in a while. The company is constantly touting how many
conversations they are having with potential acquisition targets and the company recently did a
dilutive secondary offering in order to raise funds for potential deals. However, the company’s most
recent acquisition was in July for a business doing less than $500K in annual revenue. While I am
sure the deal will be accretive, it does not move the needle. It concerns me that the company was
even spending time on such a small target. My impression is that most of the larger potential
acquisitions are not available at attractive prices, which is a significant impediment to the roll-up
thesis.

Alta Fox Capital | connor@altafoxcapital.com | www.altafoxcapital.com

2
3) The stock was approaching my original fair value target while the fundamentals had become less
exciting, so we exited the position with an attractive IRR. We will continue to follow the business
closely, but are on the sidelines for now as I have found more exciting places to allocate capital.
Other Updates
As mentioned in the last quarterly letter, I sponsored a collegiate stock competition at Harvard in
October. There were over 30 high-quality entries. 10 finalists were picked to present at Harvard in
front of a panel of judges including myself. The winning pitch was SNFCA by a team from Wharton,
2nd place was CRHM by a team from Georgetown, and third place was PMD by a team from
Northeastern.
Conclusion
2018 was an up and down year, but overall a successful launch for Alta Fox. We significantly
outperformed the major indices in a year when our style was out of favor. We grew the number and
size of LP’s meaningfully. Most importantly, I think we have a great foundation of long-term focused
LP’s and an investment strategy that can produce attractive absolute and relative returns over a full
economic cycle.
I am humbled that you have elected to invest a portion of your assets with me and am excited about
the prospects of our portfolio companies. Our next capital opening will be March 1st.
Current investors can access returns and current capital balances at this link.
If you are not a current LP, but are interested in more information about the fund, please email:
info@altafoxcapital.com. We welcome referrals for long-term oriented investors interested in our
strategy. Investors can sign up for our email distribution list for all future updates and publicly
posted ideas here: https://www.altafoxcapital.com/contact/.

“You don’t have to be brilliant, only a little bit wiser than the other guys, on average, for a long, long
time.”
― Charlie Munger

Sincerely,

Connor Haley

Alta Fox Capital | connor@altafoxcapital.com | www.altafoxcapital.com

3
Appendix

Monthly and Quarterly Fund Returns

Alta Fox Gross Alta Fox Net Alta Fox Net Exposure S&P 500 Russell 2000 Russell Microcap
Apr-18 2.63% 2.03% 48.91% 0.38% 0.86% 1.25%
May-18 3.56% 2.80% 95.06% 2.41% 6.07% 7.22%
Jun-18 1.45% 1.11% 91.32% 0.62% 0.72% 1.30%
Q2-2018 7.82% 6.05% 78.43% 3.43% 7.75% 9.97%
Jul-18 7.36% 5.91% 80.92% 3.72% 1.74% -0.07%
Aug-18 9.53% 7.77% 81.12% 3.26% 4.31% 4.30%
Sep-18 -0.41% -0.40% 94.28% 0.57% -2.41% -3.26%
Q3-2018 17.12% 13.68% 85.44% 7.71% 3.58% 0.83%
Oct-18 -10.16% -8.55% 83.02% -6.84% -10.86% -10.90%
Nov-18 -0.22% -0.25% 71.47% 2.04% 1.59% -0.64%
Dec-18 -3.59% -3.01% 77.20% -9.03% -11.88% -12.05%
Q4-2018 -13.57% -11.52% 77.23% -13.52% -20.20% -22.14%
YTD 9.13% 6.67% 80.36% -3.65% -10.94% -13.67%

Alta Fox Capital | connor@altafoxcapital.com | www.altafoxcapital.com

4
Disclaimer
Alta Fox Capital Management, LLC (“Alta Fox”) is an investment adviser to funds that are in the business of buying and
selling securities and other financial instruments. This information is provided for informational purposes only and does
not constitute investment advice or an offer or solicitation to buy or sell an interest in a private fund or any other security.
An offer or solicitation of an investment in a private fund will only be made to accredited investors pursuant to a private
placement memorandum and associated documents.

Alta Fox may change its views about or its investment positions in any of the securities mentioned in this document at any
time, for any reason or no reason. Alta Fox may buy, sell, or otherwise change the form or substance of any of its
investments. Alta Fox disclaims any obligation to notify the market of any such changes.

Performance returns are estimated pending the year-end audit. Past performance is not indicative of future results. Actual
returns may differ from the returns presented. Each partner will receive individual statements showing returns from the
Partnerships’ administrator. Reference to an index does not imply that the funds will achieve returns, volatility, or other
results similar to the index. The total returns for the index do not reflect the deduction of any fees or expenses which
would reduce returns. References to net exposure are calculated on a delta-adjusted basis using Bloomberg, which could
be subject to errors.

An investment in the fund/partnership is speculative and involves a high degree of risk. Opportunities for
withdrawal/redemption and transferability of interests are restricted, so investors may not have access to capital when it
is needed. There is no secondary market for the interests and none is expected to develop. The portfolio is under the sole
trading authority of the general partner. A portion of the trades executed may take place on non-U.S. exchanges. Leverage
may be employed in the portfolio, which can make investment performance volatile. An investor should not make an
investment, unless it is prepared to lose all or a substantial portion of its investment. The fees and expenses charged in
connection with this investment may be higher than the fees and expenses of other investment alternatives and may
offset profits.

The enclosed material is confidential and not to be reproduced or redistributed in whole or in part without the prior
written consent of Alta Fox Capital Management, LLC. The information in this material is only current as of the date
indicated, and may be superseded by subsequent market events or for other reasons. Statements concerning financial
market trends are based on current market conditions, which will fluctuate. Any statements of opinion constitute only
current opinions of Alta Fox Capital Management, LLC which are subject to change and which Alta Fox Capital
Management, LLC does not undertake to update. Due to, among other things, the volatile nature of the markets, and an
investment in the fund/partnership may only be suitable for certain investors. Parties should independently investigate
any investment strategy or manager, and should consult with qualified investment, legal and tax professionals before
making any investment.

The fund/partnership is not registered under the investment company act of 1940, as amended, in reliance on an
exemption thereunder. Interests in the fund/partnership have not been registered under the securities act of 1933, as
amended, or the securities laws of any state and are being offered and sold in reliance on exemptions from the
registration requirements of said act and laws.

The S&P 500, Russell 2000, and Russell Microcap are U.S. equity indices. They are included for informational purposes
only and may not be representative of the type of investments made by the fund. References made to these indices are for
comparative purposes only, with the S&P 500 Index utilized as a proxy for the equity markets. The fund’s portfolios are
less diversified than these indices. Returns for the indices are stated as a total return amount which includes dividends.

Alta Fox Capital | connor@altafoxcapital.com | www.altafoxcapital.com