Q4 2019 Earnings Call
Good day, everyone. Thank you for your patience and holding please continue to remain holding on the line. This conference will begin momentarily again. Please continue to remain holding on the line at this conference will begin momentarily. Thank you.
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Good day and welcome to the Shutterfly Capital's fourth quarter 2019 earnings call. Today's conference is being recorded at this time I would like to turn the conference over to Jackson stem. Please go ahead.
Thank you for joining today's call.
Johnson anybody Chief Executive Officer, et cetera capital, Mark Klein, and Chief Financial Officer, Allison Greene. Please note that a slide presentation that corresponds to do they prepared remarks by management is available on our website at www Dot dot com under Investor relations events and presentations.
This call is being recorded in broadcast lot.
Www Dot com.
Replay information is included in our press release issued yesterday.
It's called the property or subtract out any unauthorized reproduction this call in any form of strictly Brad.
I would also like to call your attention to customary disclosures in Yesterdays earnings press release regarding forward looking information statements made in state College, calling what got May constitute forward looking statements, which relate to future events for future watch more fragile condition.
These statements are not guarantees of future watch your future financial condition results involve a number of risk estimates and uncertainties actual results may differ materially from that as the forward looking statements.
Including but not limited to though described.
The company's filings yeah.
Management does not undertake to update such forward looking statements unless required by law.
You obtain copies of Sunrise.
Finally, please visit our website at www dot dot com or the Fccs website <unk> dot com.
Now I'd like to turn the call over to Mark.
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Thank you Jackson.
We're pleased to share the results of cetera, Capital's fourth quarter 2019.
First I will I will review the recent quarter and provide an update on key initiatives, we are executing to enhance shareholder value.
Then I will present, an overview of key developments in the portfolio to conclude I will hand, the call over to house in Green for a brief financial overview.
Conclusion of our remarks, we will open the call up for questions.
Let's start with slide three.
At December 31st 2019, net asset value was $11.38 per share an increased from $11.24 per share at September Thirtyth 2019, and an increase from $9 an 89 cents per share at December 31st 2000.
18.
Net asset value totaled approximately $200 million, a year and inclusive of dividends totaling 32 cents krisher declared during the fourth quarter compared to $214 million at September Thirtyth.
As we've stated before we believe the strong growth of our portfolio companies.
I've been exhibiting will continue to drive and maybe as we continued to be optimistic about the future of our portfolio.
Please turn to slides four and five.
And our ongoing efforts to drive shareholder value our board of directors concluded that given the recent market wide sell off and the significant discount at which are stock is trading to authorize a 5 million dollar increase to our share repurchase program.
This brings the total dollar amount allocated to share repurchases to $40 million.
Inclusive of the $10 million modified Dutch tender offer that Shutterstock capital commenced in the fourth quarter.
We have continued to buy back stock in the recent market sell off and as of today, we have repurchased approximately 31 and a half million dollars of our common stock between the share repurchase program and the tender offer.
Later in the call Alison will provide additional details on the current status of the share repurchase program and the results of the Q4 tender offer.
Furthermore, as previously announced on November five 2019, Siderar Capitals Board of directors declared a 20 cents per share dividend followed by a 12 cents per share dividend declared on December 22019.
These dividends were driven by Monetizations and settle out capitals public and private securities.
These shareholder initiatives come in addition to our internalization at this time last year as announced during our call on March 14, 2019, cetera capital transition to an internally managed fund structure as we've now completed three quarters as an internally managed BDC the cost savings from our API.
Operations or flat are reflected in our income statement.
Please turn to just turn to slide six and seven for view of notable developments in our investment portfolio in the fourth quarter and subject subsequent to yearend.
So I don't watch capitals top five positions as of December 31st we're of course, Sarah Palin Tier course hero.
Media and next door.
Excluding sunrise now exited investment in parchment.
These positions accounted for approximately 61% of the investment portfolio at fair value.
As of December 31st our top 10 positions, excluding parchment accounted for approximately 83% of our portfolio.
As previously announced our largest position course, sephora raised $103 million in April 2019 at a 1.56 billion dollar pretty money valuation according to pitch book.
Coursera is learning platform currently serves 48 million learners 2200 businesses and over 150 top universities.
Our second largest position Pelletier is a leading data analytics company that continues to show positive momentum.
We currently hold our pound to your position and an implied equity value of approximately $12 billion.
Our third largest position course hero led by CEO, Andrew Grauer recently raised the series B financing round.
Turning to Ed search report in February of course, cereal raise a $10 million series B round led by new view capital at a 1.1 billion dollar valuation.
New view capital also contributed 30 billion <unk> million dollars to the company's employee tender program.
This financing round marks of course here was first financing since southern Iraq led its series a in 2014.
Of course here was turned a profit since 2012 and surpassed $100 million in revenue last year.
Of course hero continues to execute against its gross that strategy offerings 30 million horse specific resources for the 20 million plus student and educators on its platform.
Our fourth largest position Ozzie media is a media and entertainment business focusing focused on serving adult young adults as discussed on the November 2019, Q3 earnings call Ozzie media raise a $35 million series C around led by Mark Lazarus with.
Patient from investors, including Interlock partners Liontree at 10 am investment Axel Springer and Emerson collected.
As reported by Axios as these top line has grown approximately 50% year over year for the past four years and the company expects to be profitable in calendar year 2020.
Our fifth largest position at year end, excluding parchment was next door.
Next store is an outstanding platform that serves over 210000 neighborhoods across 11 countries. We believe next door has tremendous upside both within the ability to expand internationally and was an opportunity to further monetize its hyper localized user base.
As previously announced subject to year end, we successfully exited our parts that position for a sizable gain following the completion apartments merger with credentials solutions.
To put our investment portfolio into perspective, the combined fair value of our top five positions as of December 31st excluding parchment was $117 million or approximately 102% et cetera market capitalization at year end.
We believe this dynamic emphasizes significant risk reward opportunity for investors.
Segmented by six Gen investment themes, the top allocation of our investment portfolio is education technology, representing approximately 43% of the investment portfolio at fair value.
Data inside it was the second largest county category, representing approximately 70% of the portfolio.
Orphan financial technology and services category accounted for approximately 14% of our portfolio at fair value as did our social.
Social and mobile category, while marketplaces accounted for approximately 12% or investment portfolio at fair value.
I'd like to briefly touch on the Corona virus.
Outbreak has had a severe negative impact on many families as well as the financial markets, but we believe our portfolio is well positioned to manage the effects of the call virus.
As a corona virus has forced closings of schools and universities around the country. It is shed light on the value of online learning. We believe the online courses of course arrow, our largest position or particularly well positioned during this time as well as the long term as this trend of distance learning continue.
Yes.
Similarly, with less student access to teachers or study groups course hero, we'll be able to support students with online learning supplements.
Additionally, lime represents a viable transportation alternative with its spikes in scooters as individuals seek to avoid mass transportation and other ride sharing options.
We also believe Nexstar may benefit from an uptick in hyper local communication as news regarding the Corona virus, Robert Lee involves and can be delayed by hours or days through local news sources.
Mark one company in our portfolio they could experienced some level dislocation due to the Corona virus is ozzie media.
The company's flagship event Isaac this is a highly anticipated and well attended annual event in New York City.
Given other major festivals, such as south by southwest and co chela had been postponed due to the Corona virus, we would anticipate that Ozzie media management is also discussing whether to postpone Ozzy pes until later in the year.
Well, we don't believe postponing as he says would have long term negative implications for the company. It may have a short term impact on growth.
Please turn to slide eight.
As stated on our previous earning calls it is our intention to whole public securities do any required lockup period and the ensuing stabilization period.
Accordingly, we sold our entire position lift during the fourth quarter for a substantial gain.
As of yearend, we have sold all are public securities in our portfolio.
Given recent volatility in the public markets, we believe our complete exit of our public positions prior to the recent market sell off combined with our year end cash balance and proceeds from the recently close partnership merger.
Position us to Opportunistically opportunistically make investments at attractive levels.
On February February 20, Eightth, we announced the appointment of Terry Finley as a senior managing director and senior member of the investment Committee as we prepare to expand our strategy to include credit investments.
As a member of the investment Committee, Terry will help cetera find investment opportunities and explore partnerships with other managers by spearheading and investment focus in private credit.
Kerry Kerry is an industry veteran who brings expertise in lending.
In lending funds to leading venture backed businesses.
Terry was previously a partner and third point and investment advisor founded by download with approximately $15 billion of assets under management, where she focused on distressed investments, including distressed financial securities and mortgage securities.
Hi, just third point Terry was employed by de piece worn and earned a b S. An operations research from Columbia University.
Terry's experience in the private credit industry is unmatched. In addition, we'll be transformative to our fund by introducing a unique investment strategy that will be complementary to our current equity approach.
In addition to providing strategic guidance through our entire investment process from sourcing to acquisition to advising core current portfolio companies Cherry will help cetera capital initially allocate 20% of our gross assets into credit investments.
These loans support businesses near term capital needs, particularly for capital intensive businesses or businesses with meaningful deferred revenue.
As of asset backed loans in this space command attractive interest rates, all think colorful coupled with the ability to participate in equity upside through warrants assigned to the lender upon funding.
We believe this strategy represents a compelling opportunity to drive shareholder value as it will generate recurring investment interest income and overtime could drive a regular dividend stream for our shareholders.
Additionally, the strategy broadens our suite of capital solutions.
Beyond the appointment of carried into our investment Committee. Our team continues to expand our sourcing that were in order to evaluate a wide range of investment opportunities and tops VC and institutionally backed companies that demonstrates strong operating fundamentals. We are targeting businesses that have been shown to provide.
Scaled valuation growth before a potential IPO or strategic exit.
A few and industries are focused include E commerce and retail financial technology.
[music] technology and transportation and logistics.
Looking ahead, we believe that said Iraq is well positioned to deliver long term.
Shareholder value, we are executing against a disciplined strategy with Tailwinds and we believe.
[noise] fundamentals of our portfolio our strong thank you for your attention and with that I'll hand, it over towels.
Thank you Mike.
Okay.
You I've got my answer.
31st between 18 and updates regarding recent dividends declared and paid our share repurchase, Iran, and the modified Dutch auction tender offer our transition to an internally managed BDC and other ongoing expense reduction initiative and our current liquidity position.
Were pleased to report we ended the fourth quarter and 2018, but then NPV per share of $11 and 38.
I break down at 80 per share as of year and as shown on slide nine and it's consistent with our financial reporting and the increase in 80 per share during the fourth quarter, largely driven by approximately 43 cents per share and net realized gains running by me and in that position of 36 cents per share due to the accretive in fact common stock.
During the quarter due to share repurchase program and the modified Dutch auction or <unk>.
These increases the NPV per share were offset by 32 cents per share and dividend, resulting from net realized capital gains declared in the fourth quarter 17 cents per share of net unrealized appreciation of our portfolio investment and then that decrease a 15 cents per share back that lot NDP any effect.
Station on paid in capital during the fourth quarter.
Declared a total of 32 cents per Sharon dividend on November 2019, our board of directors declared a 20 cents per share dividend paid on December 12, 2019 to shareholders of record understand my second 2018. Additionally on December 22018, I Board of directors declared an additional dividend.
<unk> per share paid on January 15, 2022 shareholders of record on December 31st 2019 dividends declared it had been categorize it net realized capital gains for tax purposes that.
He is really again are generally attributable to the monetization of shares held in our portfolio companies that recently went public and others.
And our portfolio.
Please refer to slide five as I review the current got it share purchase program and if I always thought that the modified Dutch auction tender offer.
During the fourth quarter somebody repurchased 20000 shares for approximately $169000 subsequent to year end through March 11, 2020, we repurchased an additional 237612 shares approximately 1.5 million died [laughter].
Since inception of the share repurchase program in August 2017 to date, we have repurchased 3.405 million anything shares of our common stock for approximately $21.5 million, excluding the modified Dutch auction tender offer actually made it in the fourth quarter as Mark mentioned earlier, we are pleased to announce that our board of directors is authorized an additional.
$5 million allocation to the share repurchase program. It's brings the total allocated by our board of directors to the share repurchase program to $30 million.
Is there any share repurchases to date. This leaves approximately $8.5 million for further repurchases under the program.
In addition to the share repurchase program on October 21st 2019 data about capital commenced a modified Dutch auction tender offer to purchase up to $10 million are common stock at a price per share between six and $8.
The results of the tender offer upon expiration on November 22019, we repurchased 1 million 449275 shared at Textizen 90 cents per share excluding piece and expect that.
As of today between a share purchase program and acute Fortunately 19 modified Dutch auction tender offer better on capital has repurchased 1 million 864371 shares of common stock for approximately $31.5 million since the inception, if the share repurchase program in August 2017.
Thank you only 20% I've shared at any time.
During the fourth quarter, we continue to see the cost any impact from the internalization I've been management, that's not a rock hill as previously discussed internally managed BDC, we have to significantly reduce cost structure. Upon termination of the investment Advisory agreement on March 12, 2019, we no longer be management fees. Each month as management is now inflate direct.
By the D. and we no longer queueing incentive fee.
Total operating expenses decreased approximately 28% from $15.1 million in 2018 before fee waivers to $10.9 million in 2019.
Decrease is primarily due to the elimination of management fees incentive fees and costs under the prior administration agreement and further supported by ongoing expense reduction initiative separate from the inherent savings the internalized management structure.
We anticipate operating expenses to further decreased in 2020 as it will be fully internalized for the entire instance costs related to the internalization have generally been absorbed in 2018.
Together, we believe our ongoing meticulous efforts to reduce operating expense. It and then meaningful cost savings. We are realizing as an internally managed BDC, let's continued positive impact on anything remain diligent about managing <unk> moving far away.
Yeah, I would attribute that are lot capitals current liquidity, we ended the year, but approximately $44.9 million. The cash we did not hold any public securities here and our cash down to $44.8 million.
31st lien 19 consisted primarily of proceeds generated by them.
I'm very portfolio condition from the fourth quarter 2017 [noise].
Meeting proceeds from the issuing a 40 million at 4.75% convertible senior notes due in 2023 during the first quarter 2018.
Subsequent to year end, our exit of parts building upon the January 31st 20 for any closing their merger with credential solution resulted in net cash proceeds of approximately $10.8 million I realized gain of 6.8 million diet.
Not including amounts coming that's crowd.
Good my comment he would like to thank you for your interest is a part of that around capital now I will turn the call over the operator I think you any action operator. Thank you at this time, we will open the floor for questions. If he would like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speakerphone. Please make sure that your mute function.
It's turned off to allow your signature Retry Clinton Act and again that is star one to ask a question.
<unk> for just amendment to allow everyone an opportunity to signal for questions.
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And again not a star one to ask a question.
Well take our first question from Mark.
Palmer with B T G.
Yes, thanks very much.
Just wanted to delve a little bit into the.
Initiatives with the guarding private credit.
If you can talk a little bit about what that portfolio or that but part of.
The overall portfolio could look like.
Is there going to be any particular a industry focus.
What are you thinking with regard to diversification position sizes things of that nature.
Sure Mark and thank you for the question. Thank you for being on the call.
Our general view broadly is to allocate approximately 20% of our gross assets to the strategy, which is about $50 million right now.
It is an asset based strategy typical off balance sheet lending secured by hard assets or contracts.
Done this for quite some time, a one of the things we did allude to in our and both our press release as well my comments.
Is the intent is to lead investments, but be able to do it with other large credit funds that have reached out that carries strong relationships with so that we have the opportunity to have a diversified portfolio of investments as opposed to having only a handful of them. So our.
Right size would probably be no more than 10 million any given investment, but more likely closer to five so that we could have as many as 10 investments in or portfolio in the under this strategy.
And with regard to the rest of the portfolio.
Are you, where you want to be right now in terms of the number of position that you have and how are you thinking about that part of the portfolio. As you say you got plenty of cash to go out and Opportunistically make investments, where do we see things going from there.
Sure Great question. So if you if you sort of do the math of what Weve put forth in the and the earnings call you'd see it is about 45 million of cash going into year end and obviously the cash that we got from parchment. So we do have a fair amount of cash we continue to actively look at.
Different portfolio opportunities.
We feel quite fortunate to have a fair amount of cash position at this time.
We've said for a while that plus or minus 20 names is about the rightsized for US We also said.
Any new positions on the equity side would be typically a 10 million dollar investment it would have to be extraordinary appeared to be a 15 million dollar investment.
Some competition of capital now that we are executing against the strategy would carry.
And that sort of where we like we are really pretty comfortable with our portfolios as you can see the top.
Tough I presume positions or about 60, some odd percent of the portfolio. The top 10 or 80, some some odd percent and and our top positions in our portfolio performing quite that way.
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At this time I'm showing no further questions and they can.
And if he would like to ask a question that istar wine.
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Ladies and gentlemen. This concludes today's call. Thank you for your participation and you may now connect disconnect your phone lines.
Thank you all very much we greatly appreciate your support thank you for taking the time today [laughter].
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