Q1 2022 SuRo Capital Corp Earnings Call

Please standby.

Good day, everyone and welcome.

Excuse me to the Soo ROE capital first quarter 2022 earnings conference call.

During todays presentation, all parties will be in a listen only mode. Following the presentation. The conference will be open for questions.

Call is being recorded today Wednesday may 4th 2022, I will now turn the conference over to William Li of Zero Capital. Please go ahead Sir.

Thank you for joining us on today's call I'm joined today by the Chairman and Chief Executive Officer of <unk> Capital, Mark Klein, and Chief Financial Officer, Alison Greene.

Please note that a slide presentation corresponding to todays prepared remarks by management is available on our website at www Dot zero cap dot com under Investor Relations.

And presentations.

Today's call is being recorded and broadcast live on our website www Dot <unk> dot com.

Replay information is included in our press release issued today.

This call is the property of <unk> capital and the unauthorized reproduction of this call in any form is strictly prohibited.

I would also like to call your attention to the customary disclosures in today's earnings press release regarding forward looking information.

Statements made in today's conference call and webcast may constitute forward looking statements, which relate to future events or our future performance or future financial condition. These statements are not guarantees of our future performance or future financial conditions or results and involve a number of risks.

Estimates and uncertainties, including the impact of COVID-19 pandemic.

Any market volatility that may be detrimental to our business our portfolio companies, our industry and the global economy that could cause actual results to differ materially from the plans intentions and expectations reflected in or suggested by the forward looking statements.

Actual results may differ materially from those in the forward looking statements as a result of a number of factors, including but not limited to those described from time to time in the Companys filings with the SEC.

Management does not undertake.

To update such forward looking statements unless required to do so by law to obtain copies of <unk> Capital's latest SEC filings. Please visit our website at www Dot <unk> dot com or the SEC's website at SEC Gov.

Now I would like to turn the call over to Mark Klein.

Thank you Willy good afternoon, and thank you for joining us.

We're pleased to share the results of serve capital's first quarter 2022.

Volatile public markets, coupled with a slowdown across the board in late stage venture capital and IPO activity have resulted in a quiet quarter for the firm.

We did not make any new investments during the quarter. However, we continue to have a strong pipeline of opportunities available to us.

Given current conditions, we believe that being judicious on pricing conviction when assessing a potential investment opportunity is paramount and our mission to create shareholder value.

As of yesterday on a year to date basis. The NASDAQ is down roughly 20% in the S&P 500, approximately 13% rough.

Roughly 45% of the companies in the NASDAQ are down, 50% or more and more than 22% of companies in the NASDAQ are down 75% or more.

We believe there will be opportunities for the firm to capitalize on as valuations resettled across various industry groups and we remain excited about the prospects of our existing portfolio companies.

With over $170 million of Investable capital on hand as of quarter end, we are prepared to take advantage of our robust pipeline and execute on opportunities throughout the late stage private venture.

Environment.

Despite significant declines in volatility in the public markets during the quarter Cerro capital achieved its highest dividend adjusted NAV per share at.

At the end of the quarter serve capital had a net asset value of approximately $381 million or $12 22 per share to $12 22 per share net asset value is inclusive of an <unk> 11 per share dividend declared during the quarter and paid in.

In April .

This net asset value per share represents a 61 increase from the $11.61 dividend adjusted net asset value per share at the end of 2021.

As we have consistently demonstrated zero capital is committed to initiatives that enhance shareholder value and we believe the market is currently undervalued in our portfolio.

Accordingly in March our board of directors authorized an additional $15 million for share repurchases, bringing the total authorized under the share repurchase program to $55 million.

Since that increase we have repurchased over 580000 shares for approximately $5 million.

Given the significant discount at which our stock is trading compared to net asset value couple.

Coupled with the extreme market volatility.

Determined the current continuation of the share repurchase program to be an efficient and accretive deployment of capital.

Please turn to slide four.

Cerro Capital's top five positions as of March 31.

<unk> hero.

<unk> Global link health.

Aspiration and storm wind these.

These positions accounted for approximately 63% of the investment portfolio at fair value. Additionally, as of March 31, our top 10 positions accounted for approximately 80% of the portfolio.

As previously discussed of course hero, our largest position announced on December 14th.

Had raised $380 million at a $3 6 billion dollar valuation in their series C financing, one which we participated in.

The company has used these funds to accelerate its goal of building a learning ecosystem that meets the evolving range of study needs for today's learners.

We believe of course hero's recent fund raise gives them a significant advantage as they now have an ability to acquire companies and assets at attractive valuations.

<unk> 2021 alone the company completed acquisitions of lit charts, Quillback Cliff's notes and symbol lab.

Which which positions them to grow their subscriber base.

In 2022, they've continued this strategy with the acquisition of the Netherlands base company's scrubber.

Given the acquisitive nature of the company and the degradation of values in both the public and private markets for education technology companies combined with a significant amount of capital to deploy course hero has a great opportunity to grow and to thrive.

In February forged global released its full year 2021 financial results showcasing both record revenue and trading volume.

The company's net revenue grew 75% year over year in 2000 $21 million to $125 million.

<unk> success was driven by a trading volume, which grew 71% in 2021 to $3 2 billion.

In addition, the company continues to gain traction with forge intelligence, it's private market data platform subscription service.

On March 22nd Fortune Global was officially listed on the New York Stock exchange under the symbol F. R. G E.

Stack merger.

The merger completed with motive capital Corp brought in gross proceeds of $215 million.

Since forges public market debut the stock as extreme as experienced extreme volatility.

Reaching a high of $47 50.

And a low of $11 six.

As we mentioned in our press release and presentation today as of March 31.

We valued our <unk>.

Position at $62 $7 million.

Given the significant declines in all major stock indices, we thought it would be prudent to provide shareholders with a high level overview.

This volatility can potentially impact our future NAV per share.

Holding our private portfolio company valuation static as of quarter end and using share prices of our public companies as of yesterday may 3rd.

Inclusive of all Apple applicable discount accounts for liquidity.

We estimate the potential current impact of the volatility of the overall decline to be in the range of approximately 55% of 55 cents per share decrease.

This decrease this this decrease is primarily driven by the volatility of the Forbes global public share price.

As always it is our intent to be as transparent as possible.

Aspect to our dividend distributions.

Our dividends are based on our net realized gains.

Present market conditions customer coupled with customary lockup restrictions on our public investments have generally impacted the opportunity to monetize our position our.

Our positions due to these constraints, we anticipate providing additional clarity on the timing and amount of any future distributions later this year.

As we have previously stated it is our intent to sell our public positions when lockups expire and there is relative stability in the marketplace.

We have not strayed from this approach.

As restrictions are lifted and markets stabilize we will continue our active and methodical approach to liquidating these unrestricted public positions.

Given the volatility occurring in both public and private markets, we believe being patient remaining prudent on price and shrink staying true to our investment thesis gives us significant opportunities to make compelling new investments in high growth companies and industries and to strategically liquidate.

Our public positions in order to drive the most shareholder value.

We will continue to focus on democratizing access to the venture capital ecosystem and as always we will maintain our key philosophy of investing in great companies to deliver value for our shareholders.

Thank you for your attention and with that I will hand, it over to al.

Thank you, Mike I would like to follow Mark's update with a more detailed review of our portfolio and financial result as of March 31st 2022.

First I will provide some additional detail on the share repurchase program. Please turn to slide five.

Mark mentioned on March 13th one of directors authorized a $15 million expansion to the share repurchase program to $55 million.

Under this expanded share repurchase program.

Expansion as of March 30, we repurchased 153517 shares of our common stock for approximately $1 $1 million.

Subsequent to quarter end and pursuant to a <unk> five one plan, we repurchased an additional 431134 shares of our common stock for approximately $3 7 million.

The expansion on March 13th we have repurchased a total of 584651 shares of our common stock for a total of just over $5 million.

The inception of the share repurchase program in August 2017, we have repurchased a total of 5.407 million 983 shares of our common stock for a total deployment of approximately $35 $4 million of just $55 million authorized by the board approximately $19 $6 million remains.

Otherwise under the share repurchase program and its currently just fire on October 31 2022. Please.

Please turn to slide <unk>.

I will review our investment portfolio allocation by investment theme.

I think general investment themes, the top allocation of our investment portfolio at quarter end, the financial technology and services, representing approximately 41% of the investment portfolio at fair value.

Vacation technology was the second largest category, representing approximately 34% of the portfolio.

Marketplaces category accounted for approximately 16% of our investment portfolio and approximately 5% of our portfolio is invested in social and mobile companies.

Cloud Big data accounted for approximately 4% of the fair value of our portfolio and sustainability accounted for less than 1% of the fair value of our portfolio as of March 31.

Please turn to slide seven.

We are pleased to report we ended the first quarter 2022 within any of the per share of $12 22, which is consistent with our financial reporting a breakdown of NAV per share as of quarter end has shown the.

The increase in NAV per share from $11 72.

By year end to $12 22 per share as of March 31st was largely driven by 69 per share 69 cents per share increase attributable to unrealized depreciation of our portfolio investments during the quarter.

Right.

Also notably contributing to the increase was I.

<unk> 10 per share increase related to realized gains on investments.

These increases in earnings per share were partially offset most notably by <unk> 14 per share decrease attributable to net investment loss.

And then 11 cents per share decrease attributable to dividend declared during the quarter and paid subsequent to quarter end among other smaller fluctuations.

Finally, I would like to review throw capital of liquidity as of March 31st.

We ended the quarter with approximately $189 $6 million of liquid assets, including $172 $8 million in cash and approximately $16 $8 million in unrestricted public securities.

Not include approximately $78 $8 million in public security subject to certain customary lockup provisions that quarter and in total our cash in public positions, both restricted and unrestricted totaled $268 4 million at quarter end.

Approximately $16 8 million of unrestricted public securities held as of quarter end represent our shares a new leg capital partners.

Bob and Robert valued at the March 31, 2022 closing prices of $25 $6 enforced and finalizing 77, respectively.

$78 $8 million of public securities subject to lock up provisions or other sensors as of quarter end include our positions and enjoy forge global Cahoot next door and rent the runway valued at March 31, 2022 closing public share prices less a discount for lack of marketability related to the lock up provision.

Subsequent to quarter end, the aforementioned lockup restrictions expired for our public positions and enjoy rent the runway and next door.

As of March 31, 2022, there were $31 million 164443 shares of the company's common stock outstanding that.

That concludes my comments, we would like to thank you for your interest and support of stereo capital now I will turn the call over to the operator to start the Q&A operator.

Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad in the interest of time, we ask that you. Please limit yourself to one question to allow everyone an opportunity to signal.

If you are using a speaker phone. Please ensure your mute function is turned off to allow your signal to reach our equipment.

Once again that is star one if you would like to ask a question.

And we'll go first to Kevin folds of JMP Securities.

Hi. Thank you this is actually Michael Falco filling in for Kevin. Thanks for taking my question.

I believe you talked on last quarter's call about the significant opportunities that youre seeing in sports technology and web three.

You are clearly already active in sports technology through two ROE capital sports and have some exposure to web three through your investments in true global ventures.

Just curious if you're also currently evaluating direct investments in web three companies or what the opportunity might look like theyre pursue Roe in the future.

Thank you very much.

A great question, so broadly as you discuss and cero sport, we are seeing an awful lot of opportunities and evaluating an awful lot of it obviously the tailwind behind the legalization of sports gambling and the technology that is ensuing behind it is as is true.

Really fascinating.

When we get to spend a fair amount of time talking about it and it's.

It's been fun.

Respect to web.

Web three et cetera, you're right, we have a very small investment and TG to growth through global they've had.

You know very good success with companies like and I'm, Okay in the sandbox and some others.

And we have set up and have spent a great deal of time starting to look at those.

Other companies in that space broadly.

There is obviously some pretty.

Yeah.

Aggressive valuations that some of these companies are trying to attain and we're spending our time to figure out.

The right areas that we wanted to deploy capital and weigh that against.

The stretch valuations that are out there at the present time.

Thank you for the question.

And next we'll hear from Mark Palmer with BTG. Please go ahead.

Yes, Thank you and thanks for taking my question.

As you look across the landscape of investment opportunities right now.

Particularly in the public I'm, sorry in the private space.

What are you seeing in terms of.

The trend line on valuations, particularly in the private space in the verticals that you're focused on we all know what's been going on in the public space as you mentioned.

During your remarks, it's been carnage.

But what are you seeing in the private side and are there any indicators levels.

Anything that you're watching for that would cause you to be more aggressive in deploying capital.

It's a great question, Mark and Mark Thanks, as always for your support and and.

In helping out the team in various different.

Verticals, we really appreciate that.

As we've discussed over the last few quarters.

The public markets have tended to lead the private markets and for a while there was.

A bit of a disconnect where public markets were coming in in private markets, where in some cases actually.

Achieving valuations higher than previous valuations and for the most part that has stalled.

Youre seeing a lot of primary rounds done as extensions of the last round or in some sort of convertible securities that will be priced at a discount against future round and all of those are indications that the upward trend broadly in pricing news.

Obviously select companies that continue to have.

<unk> valuations, but broadly.

Primary raises are coming in some sort of either structured security or flat.

Where you're really seeing degradation now is in the secondary markets.

I think there are a lot of our early investors in or not necessarily so early investors in private companies that anticipated that the IPO market in the stock markets would continue to be robust and we are reticent to sell their securities in that environment.

<unk> because they thought they would be taken out at higher valuations given the the virtual closing down of the IPO market and the significant decline in the public markets. The likelihood of a lot of those companies going public in the near future is is much lower and valuation.

That they could achieve may not be the levels of the initially thought so we are seeing.

Secondaries come to us at significant discounts to the last round.

And even even we're not excited at that price point that those same sellers come back to US again at lower price points, just trying to find a level. So we're now at least it feels to US that you are finally, getting a break in sort of pricing.

That is starting to parallel or converge if you will with the.

With the public markets.

We've all been around long enough they don't ring, a bell when youre at the bottom.

So what we what we're trying to do is look at the public comps and see as a private comps come in line with those and if they are in industries that we like and companies that we like then we're inclined to.

To engage into and to initiate.

Into conversations and we're in those right now I mean, there are now there are now companies and.

And in opportunities that are coming at valuations that are getting into the realm of.

We believe is attractive.

Thank you Mark.

Thank you next we'll hear from Jon Hickman of Ladenburg.

Yeah.

Hi.

<unk>.

I dialed in late and I am sorry, if you talked about this on your main comments, but could you talk about your feelings of the snack market.

And where do you think going on there versus public and private valuations.

Opportunities et cetera.

Sure.

John Thanks, again for your support and in communications with the organization we greatly appreciate it.

<unk>.

The spec market not unlike the IPO market.

Has quieted down dramatically maybe for some of the same reasons and some of the different reasons I think I think capital formation and public valuations are making it more challenging to take companies public either in a traditional way.

An IPO or a less traditional way to respect so I think the the announcements of spec business combinations has slowed down dramatically from market conditions, I think I think secondarily, yes.

Secondly, as better put the SEC has come out with proposed.

<unk> into regulations.

Which which has caused uncertainty in the marketplace.

The sponsor side from the potential.

Merger targets as well as from the legal community of the accounting community in the banking community, so theres a bit of a pause.

As.

His proposals turn into some sort of rules that may make it.

May may cause people just have to understand that before people before deals can move forward. So I think it's a combination of what's going on in the public markets degradation.

Degradation of value in the public markets.

The IPO market quite slowing down consistent with the stock market.

<unk> of some of the a lot of the posts spec names that have gone to a spec process as they fit right in the middle of that part of NASDAQ that is broadly.

I've had.

Got hit a bit harder than maybe the indices reflect in the regulatory environment.

Thanks, John really appreciate the question.

Yeah.

And at this time there are no further questions I will turn the conference back over to you Mr. Cohen for any additional or closing remarks.

Well the whole Cerro team. Thanks, all of you shareholders on.

On the call and those that are interested in our company. We appreciate you taking the time out this afternoon to listen and as always we're available. If you have any further questions you might ask thank you again for your support.

And that does conclude today's conference. We thank you for your participation you may now disconnect.

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