Q1 2020 Earnings Call
Good day, ladies and gentlemen, thank you for standing by.
<unk> capital first quarter 2020 earnings call.
During today's presentation, all parties are will be in listen only mode.
Following the presentation the conference will be open for questions.
The interest of time questions will be limited to one per person.
This call is being recorded today.
Well now turn the conference over to Claire Counsel. Please go ahead.
Thank you for joining us on today's call I'm joined today by the Chief Executive Officer, Cheddar like capital Michael.
Financial Officer, all Gingrey. Please note that aside tricky showed that correspond to todays prepared remarks like management is available on our website at www dot.
<unk> under Investor relations events and presentations.
It's costing recorded and broadcast live on our website www dot shudder off Dot com.
Plant to me shouldn't even clearer didn't know press release issued today, which caused the property et cetera capital.
Hi, guys reproduction of this call any form but you're correct.
I would also like to call your attention to customary disclosures in today's earnings press release regarding forward looking information statements made in today's conference call. You watch may constitute forward looking statements that relate to future events for.
For our future performance such a mutual condition you statements are not guarantees of our future performance or future financial condition or results involve a number of west estimates any certainty.
Actual results may differ materially from there was in the forward looking statements.
He is out of a number of doctors, including but not limited you don't get stretch im trying to chime in the company's filings with the FTC management does not undertake to update such forward looking statements unless required to do so.
King copies of shutter, Okay, that's needed Jackie filings teachers in our website at www Dot Dot dot com.
Okay I teach you got that now I'd like to join the call Digimarc line.
Thank you Claire we're pleased to announce results on sort of working capitals first quarter 2020.
These are obviously unprecedented times are living through and society is facing tremendous challenges.
We have children capital one good thing to frontline workers, and first responders, who will put themselves or risk throughout the course 19 pandemic to help others.
We are fortunate to report that are employees and their families are healthy and our companies continue to function remotely like many other firms.
Our portfolio was held up relatively well compared to the border market indices weeks, which experienced one of the worst quarters since the financial crisis.
Our portfolio company valuations were please.
March 31st 2020.
One week.
Oh.
In the bottom of the market so I.
And as you all know since that time, most of the major industries ever covered to pre halted levels.
I will discuss our portfolio stared during the onset of the cold in 19 pandemic and highly hello, fewer larger physicians have experienced degrees of business acceleration during this time.
To conclude I will hand, the call over Dallas ingredient for brief overview at the conclusion of our remarks, well open the call for questions.
Let's start with slide three.
As of March 31st 2020, net asset values $10, a 22 cents per share a decrease of $11.38 per share.
Number 31 2019.
Please turn to slides four and five for review of notable developments and our investment portfolio in the first quarter and today.
Sought a rock.
Sorry capitals top five positions as of March 31st work horse power.
Oh I'm to your course hero.
Next door and Ozzie media.
These positions accounted for approximately 69% of the investment portfolio at fair value.
As of March 31st or top 10 positions accounted for approximately 91% for portfolio.
I would now like to walk through notable developments in a few of our largest positions.
In particular, I would like to highlight our investments and online learning more physicians again, Coursera and course euro which represent about one third of our invested their invested portfolio.
Recent media and public company earnings reports it is.
And by team pandemic has sparked surges in demand for one line and distance learning as government and major institutions close.
We believe the effects of the Kobin 19 related school closures will sparkling fundamental shift in how education is and will be cancer.
A clear shift warm line and distance learning.
As previously announced our largest position Coursera last raised $103 million in April 2019 at a 1.56 billion dollar pre money valuation.
And in April Twond, 2020 interviewed Axios, Coursera CEO, Jeff, Jeff, Matt Young callable.
Highlighted how 1.6 billion students around the world have had their schools close to cover 90.
With 656 million workers globally partnerships with 165.
Worlds top universities and 4200 courses on disciplines like data science computer Science, Aartsen, Humanities, and social Science Coursera offers online courses that allow students to learn for free or it alone cost.
Further.
Response to current 19 Coursera has expanded access for its coursera for campus product.
Corsair for campus allows colleges universities and a high schools.
Online course center created educational content to their students.
As a result of the program 400000 students have enrolled and 1.4 million courses for free.
Finally, coursera is working with multiple state governments to offer of course, there's content catalog to unemployed individuals in those days.
Our third largest position course hero is led by CEO, Andrew Robert I recently raised the series B round in February 2020 answered important that course, your raised 10 million dollar series B around led by new view capital at a one point.
1 billion dollar valuation.
Capital also contributed $30 million to the company's employee tender program.
This financing round bark scores heroes first financing since Sutter on capital letters series, Hey in 2014.
As a result of Cowen back to relate in school closures students certain has less access to teachers and study groups and are increasingly turning to online learning supplements, including course heroes online document library for their studies in response to the increased reliance on distance learning at this time.
Horse here one is offered educators want its platform three months.
<unk> access to the course here with document library of more than 40 million teaching and learning resources. Additionally, horse here was facilitating parity between educators, who would like feedback on the remote teaching.
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Our fourth largest position next door as Jean noticeable traction during the corporate banking pandemic.
March 2020, CNBC interview with mix stores, you own Sarah Fryer indicated the neighborhood Bayes, social networking platform experience and 80% month over month, increasing daily active users since the global spread of cold and 19.
In response next door launch Nexstar groups, and Nexstar health map to provide healthy individuals opportunity to support neighbors in need.
Next door serves over 210000 neighborhoods across 11 countries.
It was extended mandates for social distancing, we believe nexstar will become an increasingly relied upon tool for the communities and neighborhoods. It serves.
Ultimately next door and tremendous upside as it expands internationally and is able to further monetize it hyper localized user base.
Our second largest position Palin tier is a leading data analytics company that continues to show positive momentum.
In April 2020, the Wall Street Journal.
The pound tears models and analysis surrounding the comment 19 outbreak.
Friday critical data and information to new numerous government entities, including those in the United States, the United Kingdom, Greece and others.
Also in April Bloomberg News CNBC reported Pelletier anticipate.
Generating $1 billion in 2020 revenue, allowing the company to breakeven for the first time in its history.
Recent media reports implied how to your is preparing for an IPO.
The timing will be subject to market conditions.
We currently hold our pallets your investment and an implied equity value of approximately $12 billion.
Within our current investment portfolio, we are continuing to see ongoing M&A activity and a few of our portfolio companies.
Yes. These transactions are consummated.
It would likely result in a meaningful increase or net asset value in the second quarter.
To put our investment portfolio interim report into perspective to combine value of our top five positions as of March 31st was $110 million or approximately 111%.
Materazzi Mark Mark capitalization at quarter's end.
We believe this dynamic emphasize is a significant risk reward opportunity for investors.
Please turn to slide six.
Segmented by six general investment teams the top allocation of our investment portfolio is to education technology, representing approximately 45% of investment portfolio at fair value.
Big data in cloud was the second largest category, representing approximately 19% of the portfolio.
Our financial technology and services category accounted for approximately 15% of our portfolio at fair value or social media category accounted for approximately 13% of our portfolio and marketplaces accounted for approximately 9% of our investment portfolio at fair value.
In February we announced an expansion of our investment strategy to private credit investments spearheaded by carried Finley and senior managing director and senior member of the investment Committee.
Since then our team has continued to expand or sourcing network in order to evaluate a rough wide array of equity and private credit investment opportunities in top VC institutionally backed companies that demonstrates strong operating fundamentals.
Due to ongoing market dislocation, we are seeing tremendous investment opportunities in high quality companies at significantly lower valuations as compared to just a month ago.
This dislocation is presenting attractive opportunities in both equity and private credit.
We continue to target businesses that have shown to prove scaled languishing road before a potential IPO or strategic eggs.
A few industries that focus including E commerce, and retail financial technology technology.
And transportation and logistics.
Please turn to page.
We have committed to this approximately $500000 in a follow on investments in line.
Yesterday over announce it is closed 670 million dollar financing round in line as part of the transaction.
Overall transfer job.
Oh Burns biking, scooter business to lie.
We have committed to best our pro rata share of approximately $500000 into this financing round.
Given the attractive valuation and.
Rich. This follow investment is being made we are confident a modest improvement of one business from president levels will generate profit on our total investment.
With the support of over we believe lines is financially and strategically position to further establish a stronghold in the micro mobility Mark.
Centrally after social distancing requirements are reduced or eliminated.
As a global ride sharing leader over is a natural fit for lunch business and we believe this partnership can accelerate the success line was experienced prior to the spread over 19.
Although it is impossible to determine the long term impact that opened 19 pandemic will have on the world that large looking ahead, we believe sunrise capital is well positioned to continue to deliver long term shareholder value as we execute against discipline.
Gross investment strategy with strong tailwinds and attractive investment opportunities ahead of us.
Thank you for your attention and with that I'll hand, it over to house.
Thank you Mike.
Mark update but the more.
View of our financial results as of March 30 for 2020 or share repurchase program.
This is when internally managed BDC and other ongoing expense reduction initiative and our current liquidity position.
Before I review the financial results for the quarter I do want that though our March 19th 2020 press release and confirmed not today and for the foreseeable future Sutter, while he's been working remotely and adherence to stay ordered social bits and thing and stay at home mandate.
Not experience and do not anticipate any operational disruptions during this time.
We ended the first quarter with an NPV per share at $10.22.
Got it and they'd be per share as the quarter and shown on slide eight and it's consistent with our financial reporting.
In sum did decrease and maybe it per share during the first quarter with BARDA largely driven by approximately $1.59 cents per share of net unrealized appreciation of our portfolio investment and a decrease of 17 cents per share of net investment line.
He agreed that the NPV per share were offset by 40 cents per share.
Yeah like gain on investment and a net 20 cents per share increase due to the Accretable <unk> common stock purchase during the quarter through the share repurchase program.
During the first quarter, we paid back into queue dividends declared in late 2018 on December 22019, our board of directors declared a dividend of 12 cents per share that was subsequently paid on January 15, 2020 shareholders of record as of December 31st 2000, they see the.
She doesn't making dividend 20 cents per share was declared on November 15, 2019 buyer board of directors and paid on December 12, 2018 to shareholders of record as of December 2nd 2000, and maintaining the dividend declared and paid had been categorize net realized capital gains for tax purposes.
Is that I'd gains are generally attributable to the monetization of shares held in our portfolio company that went public in other successful I said in 2019.
Please refer to slide nine as I review the current state of our share purchase program.
During the first quarter the company reported 689920 shares for approximately $3.7 million.
Now on our previous earnings call on March nine our board of directors authorized an additional $5 million allocations to the share repurchase program. They thought that total allocation by our board of directors to the share repurchase program to $30 million since the program's program's inception in August 2017.
Subsequent to quarter end pursuant to a tenbfive one plan through May eight 2020, you ever purchased an additional 594637 shares for approximately $3.6 million.
Since inception of the share repurchase program in August 2017, we have repurchased a total of 4 million 452049 shares of our common stock for approximately $27.3 million, including excluding seizing the modified Dutch auction tender offer effectuated in the fourth quarter 2018.
Considering share repurchases today. This is approximately $2.7 million for further repurchases under the program.
Including the Q4 2019 modified Dutch auction tender offer better about capital is repurchased 5.901 million 324 shares of common stock for approximately $37.3 million.
The inception of the share purchase program in August 2017, that's represents nearly 27%.
Outstanding at that time.
During the first quarter.
The one year anniversary of the internalization of the management et cetera capital and we can you just need a cost saving effects from the internalization I previously discussed internally managed BDC, yeah, but significantly reduced cost structure upon termination of the investment Advisory agreement on March 12, 2018, we no longer opinions, but each.
Admittedly is now in play directly by the BDC and we no longer to an intensive phase.
Total operating expenses decreased over 23% from $4.3 million in the first quarter 2019 exclusive of the reversal, obviously 50, a cool to $3.3 million in the first quarter plenty plenty to.
The decrease was primarily due to the elimination of management fees and spent 50 and cost under the prior administration agreement and further supported by ongoing expense reduction initiatives separate from the inherent savings at the internalized management structure.
Overall cost savings continues our yearslong rigorous focus on expense reduction the add some perspective operating expenses for the first quarter 2020 were approximately 40% lower operating expenses for the first quarter of 2018 before waivers.
We had just didnt anticipate seeing a full cost savings if he gets fertilization and 2020 together, we believe our ongoing efforts to reduce operating expenses and the meaningful cost savings. We're realizing it internally managed BDC.
And your positive effects on anything remain diligent about managing our expense base going forward.
Finally, I would like you said about probably current liquidity.
We ended the quarter with approximately $51.3 million a cash cash equivalents did not hold any public securities during the quarter or at quarter right.
Our cash was a $46.1 million as at March 30 for 2020 consisted primarily of proceeds generated by the monetization various portfolio position from the fourth quarter of 2017, your quarter and and remaining proceeds from the issue like $40 million, a 4.75% convertible senior notes due and.
That was NIS 23 during the first quarter of 2018.
Our accident at approximately upon the January 31st 2020 clothing their merger with critical solutions resulted in net cash proceeds of approximately $10.8 million I realize stand at $6.9 million during the first quarters.
Major cash outflows during the quarter include continuation.
In allocation to the share repurchase program that semiannual interest payment on our 4.75% convertible senior notes due 2023 and final 10 minutes consulting in licensing agreement agreed to what parts elevation.
Includes my comments he would like to thank you for your interest and support if Iraq capital and most important at the time I'd like to wish you and your family's health and safety do work together globally to overcome called an 18 now I will turn the call oversee operator to start to Q and especially operator.
Thank you.
Ladies and gentlemen, if he would like to ask a question today. Please press star and then one on your Touchtone phone. If you are using a speaker phone it might be necessary for you to pick up the handset or depressed the mute function. So the signal can reach our equipment.
Again that is star and then one if you'd like to ask a question also as a reminder, in the interest of time, we won't be limiting every one to one question.
My first question, we'll go to Alex Paris.
Hi, a market else I hope you and your families are well congratulations on the quarter you had a decline and I know you'd be that's the decline was less than I think most people to your my question is related to your portfolio companies shot.
Are you in your prepared comments you bet should the talent here.
Is the subject.
IPO talk although that's going to require obviously, a bush difficult market environment I'm wondering what other companies in your portfolio are likely to for sure.
Good for Szuba, and IPO track and maybe comment on your deal with less but pipeline in your press release, you talked a bit about so.
You have some potential exciting a investments that you hope to close by the end of this second quarter.
Yes.
Oh, Thanks, and I hope you're on your family and the farm are doing well, it's it's obviously.
Difficult times for all but.
Thank you and again, thank you for your newly your firms ongoing support to the organization.
So and.
And no particular order a in respect to Palmateer Ah you got everybody's reading the same thing that we're reading there was a lot of information and in April around where the company's what the revenue line news.
The fact that even put that out and the implications of them going public and whether they go public this year or they go public next year. It does appear that they're preparing to do so.
So that that is one.
We did actually highlighted.
I know this is something that you focus on clearly or online education companies are doing extraordinarily well.
If you looked at some of the ones that are public.
Like your Chegg, you can see how the market's reacted to their extremely strong performances.
And then make has impacted a student learning one when we look at or or portfolio sort of what could go public it to size and scale.
Sort of size and scale, so from the size and scale perspective.
And this is not speaking out of school that any animal, but when the size and scale perspective, a company like Coursera is a company that is would be one that we've opened and come to my more directly I.
I think are to kind of his companies have stated chemistry to stated publicly and on their new some capital raises the intended to go public at some point.
In 2020, I think the world and Scott.
Sure, Dan, but I think the goals for those companies or to be listed.
It's really dealing with business.
Or so or on the public you know the go public perspective, I think those two on the ER. So we didn't mention that there's a fair amount of M&A activity that is in and around or portfolio I'm I do anticipate that those come to fruition.
Shortly or not but there at that stage, where there's an anticipation that goes.
Those transactions close those do represent genes from a cost bases and markups from where we are right now so that's pretty exciting, especially given the backdrop of.
Back to everybody's virtually working remotely and.
Right. So I think that's great I would say again since we haven't closed or pipeline. It is and is should come as no surprise anybody there's a lot.
For sale right now both on the secondary side and on the primary side in names that we have been monitoring for the better part of 12 months or longer names that we've done a great deal of work on names that we has gone about investing in ER.
Earlier, but past cousin valuation I.
I do anticipate.
We will have.
A name that we will be able to close on extremely shortly.
In fact, we're simply in the world for period and one of the secondary transactions. We do have a couple of primary debt transactions that were looking at.
Okay and nodes or.
Stages as well. So this is you know we are fortunate in the sense. If you could be fortune in an environment says is that we've had a fair amount of capital to deploy and we're getting an awful lot of opportunity from both the secondary side primary.
Site and I'll close with although the lime and it was you know lime transaction, which got a lot of attention starting two days ago isn't loosely.
Tom.
Announcement, although significant reduction to the valuation that they achieved.
689 months ago, the construct of.
This transaction and the ability for us to participate on a pro rata basis truly gives us an opportunity to do quite well in line investment.
Devaluation moves.
From this level, but nowhere near the levels in which we met or new some investment. So again, we are we couldn't be busier from a corporate perspective and the opportunity set as you can imagine is extremely broad and and we were looking at everything and making.
Decisions judiciously is although we do have a fair amount of capital deployed it is limited and we want to.
Utilize it to go against the best opportunities that are presented to us.
So thank you Alex.
And we will take our next question from Andrew Heart.
Hi, James Thanks for the question it'd be nice to hear how did that dynamic has changed the environment and your outlook for probably get credit investments are you still targeting around 20% of assets.
And private credit and maybe what new opportunities could arise as a result dependable.
Thank you and.
While those who are focused on the credit market as opposed to the equity market.
Understand there.
Credit market is far more in disarray, then the equity markets, which is you know sort of hard to.
Given the equity market plummet through March and and then rebound since the.
Fourth weekend March on so broadly defined private credit market I think is.
Interesting situation, there's been billions and billions of dollars that are out there to be raised to deploy against that and it's really in a in a part of the credit market that we really had anticipated participating in I still don't take we will again, our view on the private credit side.
Is.
You look at venture venture backed companies that need financing on more of an asset based side that for lack of a better word we'd be off balance sheet. So not to your traditional BDC private credit side, but.
It's a bit of image is a niche that they carried and identify prior to joining the organization and it is one that we were executing against which we have an opportunity to lend begins in asset.
Well the company and then get some sort of equity participation of the venture backed companies.
So we were seeing or as you can imagine we're seeing an awful lot of that right now.
We're progressing or we actually progressing fairly deeply against a couple of them right now and as we suggested in art in or.
Paired remarks.
We anticipate I'm announcing.
Something certainly as we get into the end of two too.
Thank you.
I appreciate the color and supported me for.
There are no further questions in the queue at this time.
Ladies and gentlemen that does conclude today's conference. We appreciate your participation today.
And again, thank you everybody. Thank you all for attending our call I Hope this call fives, you and your family's healthy and that we all continue to remain say thank you all very much.
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