SuRo Capital Corp. Q1 2023 Earnings Call
Good day and welcome to the capital.
Trying to talk this way next call is being recorded I wouldn't.
Hungry over.
To begin today's conference. Thank you.
[noise]. Thank you for joining us on today's call I'm joined today by Chief of our Chairman and Chief Executive Officer of Sir Capital, Mark Klein, and Chief Financial Officer, Alison Green.
Note that a slide presentation corresponding states prepared remarks by management is available on our website at www Dot <unk> dot com under Investor relations events and presentations.
Today's call is being recorded and broadcast live on our website www Dot <unk> dot com.
Replay information and.
Included in our press release issued today.
This call is the property of Sarah capital, an unauthorized reproduction of this call in any form is strictly prohibited.
I would also like to call your attention customary disclosures and today's earnings press release.
Regarding forward looking information statements Man today's conference call and webcast may constitute forward looking statements, which relates to the future events or our future performance or financial condition.
Statements are not guaranteed of our future performance or future financial condition or results and involve a number of risks estimates on uncertainties, including the impact of any market volatility that may be detrimental to our business our portfolio companies are industry and the global economy.
That could cause actual results to differ materially from the plans intentions and expectations reflected in our 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 so those disk.
Bribes from time to time in the company's filings with the SEC.
Management does not undertake updates such forward looking statements unless required to do so.
To obtain copies of Sarah capitals wait a SEC filings visit our website at www Dot <unk> dot com or the <unk> website SEC dot Gov.
Now I would like to turn the call over to Mark Klein.
Thank you Willie.
Good afternoon, and thank you for joining us.
We'd like to share the results of Sarah Capitals first quarter of 2023.
The first quarter of 2023 saw continue until 80 and the public equity markets. As a result of continued inflation, coupled with decelerating GGP an extended distress in the banking sector.
Recently, however, the NASDAQ composite index and the technology stocks in particular appear to have shown signs of stabilization.
Despite the volatility the IPL markets have shown cautious signs of near term opening.
For example, last week Johnson and Johnson's consumer health spinoff can view debuted in the public markets raising $3.8 billion.
According to Bloomberg district issues listing since 2021. Additionally.
Additionally, according to the information in the wake of it's failed spec merger leaning online ticket platform seat Geek filed confidentially foreign IPL last month.
Further according to the Wall Street Journal.
Marketing automation company <unk> hired bankers in April for an upcoming IPO with sources, saying the listing could take place as early as September .
Finally, according to Bloomberg British computing firm arm filed for you S. IPO with plans to raise between eight and $10 billion the.
The list of our one of the largest youth as Ipos of the last decade.
These listings and headlines demonstrate cautious optimism for a rebound in the latter half of 2023.
We're also seeing positive trends emerge in the private secondary markets.
And it's April 2023, private markets update forge reported that the median bid as spread on new indications of interest compressed and March down from the platforms. All time high in Q3 of 2022.
Consistent with prior quarters for dishes also reported that in the first quarter secondary transactions.
We're close at in approximately 50% discount who companies last primary financing.
While still relatively expensive compared to public comparables. This discount coupled with increasing secondary trade volumes may indicate that the market is finding a level where investors will transact.
Given these conditions, we continue to see numerous opportunities in the private markets. In fact in 2023 to date, we evaluated more pretensions than any other prior period.
However, given public and private valuations are still converging converging, we are being cautious about deploying capital.
With over $120 million or investable capital at quarter, and we remained poised to continue investing in both primary and secondary opportunities for later stage high growth companies at well, we will believe will be compelling valuations.
Current market conditions presented us with opportunities to explore prospects as late stage businesses seek to go.
Public soon after market conditions improve we believe we will see increasingly promising opportunities to deploy capital. This year is pricing and the private and public markets gradually converge.
We ended the first quarter with a net asset value of $215 million or $7.59 per share.
This NAV per share to net asset value of $7.39 per share at year end and $12.22 a share in Q1 of 2022.
Allison will discuss our first quarter results, including investment activity during the quarter and the results of our modified Dutch auction tender offer that we began during the quarter and executed subsequent to quarter and.
Please turn to slide four.
Turning to our top five positions I first want to highlight our cash position as a quarter and our cash and short term U S treasury balance totalled over $124 million, representing 43% of our growth 43% of our gross assets.
As we have previously discussed we believe having cash in this environment advantageously positions us to continue to seek out new opportunities emerging from current market conditions.
<unk> capital's top five positions as of March 31, we're learning ill Columbia, a sponsor Blink health Locust robotics, an architect capital pay Joy SPV. These.
These positions accounted for approximately 59% of the investment portfolio at fair value.
Further as of March 31, our top 10 positions accounted for approximately 78% of the investment portfolio fair value.
As you May recall in December of 2022 course hero announced it's rebranding to learn you know.
In order to better reflect the company's evolution from it'll business model to a robust platform of education technology companies.
According to Pittsburgh Pitchbook.
Learning, who has raised approximately $500 million. Most recently the December 2021, 380 million dollar fund raise specifically targeted to fuel an acquisition strategy to broaden and diversify from the original course hero business and create a major leader in the <unk>.
Face.
For example, among learning those six recent acquisitions as Quill bought an artificial intelligence powered writing platform that paraphasia phrases summarize grammar checks and reviews large sums of text.
According to a press release at the time of the acquisition in August 2021, Quillback had 7 million active monthly users since the acquisition quillwort has shown tremendous growth surpassing $30 million monthly active users in March of 2023.
Additionally, in the same month quillback reached its highest web traffic to date of approximately 78.5 million website visits as reported on similar web.
According to similar web this is nearly equal to grammar lease approximately 79 8 million visits during the same month.
Another learning those acquisitions was symbol labs, and AI powered math solver business that helps students solve complex math problems I'll just.
By learning you in October 2021, the time of the acquisition symbol lab had already been used by over 50 million students to work through 1 billion questions and explanations in 2020 alone.
According to similar web symbol, Ed had approximately 21 million websites visits and <unk> March of 2023.
On April 5th learning you announce its most recent acquisition language tool.
German based language tool is a multilingual grammar style and spell checker powered by AI. The acquisition Bolsters learning AI, driven writing tools and supports learn yields international expansion given language tools broad reach of BTC and beat <unk>.
Customers around the world.
Learning those acquisitions of Quillback symbol lab language tools lit charged scribbler and Cliff notes has successfully created a robust and diversify platform education technology companies that we believe positioning the company well for the rise of AI and the Tech universe.
In addition to their successful acquisition strategy learning has remained profitable on a cash basis since tech Crunch originally reported on his profitability in 2020.
As of March 31, 2023, learning, who had more cash on its balance sheet than it did when it completed its last fundraiser.
In fiscal year 2022 learning it was considered to be a rule of 40 company a term used to describe companies, who some of revenue rate and.
Adjusted EBITDA margin exceed 40%.
Given learning those progress and path forward, we believe learning is well positioned to continue to make accretive acquisitions. Thus lamenting the company as a major player in the AI base at Tech Universe.
Despite significant slowdowns inspect transactions, we are pleased to share. The following recent update on one of our spec investments on April 7th Columbia accurate completed there S for filing in connection with the proposed merger with public square and E Commerce marketplace, if the merger between clump.
Acquisition in public square is completed several capital's position in the new company should be worth more than $20 million.
Transitioning to our public investments.
As previously stated is our objective to sell or public positions when lockups restrictions expire and there is relative stability given public position trading.
In line with this approach we continued to monetize several of our public unrestricted positions over the course of the quarter. During the first quarter, we fully exited our positions and cahoot and rent the runway and reduced our holdings in new Lake capital partners.
Finally, I would like to reiterate sorrows commitment to initiatives that enhance shareholder value.
Given the discounter stock is traded at compared to net asset value per share. We believe our recent modified Dutch auction tender offer was an efficient and accretive deployment of capital.
Allison will discuss the results of the tender offer and her prepared remarks.
Thank you for your attention and with that I'd like like to hand, it over to Al Green, Our Chief Financial Officer.
Thank you Mike I would like to follow my update with a more detailed review of our first quarter investment activity in financial results as of March 31st, including the results of my modified Dutch auction tender offer executed subsequent to corner and and our current liquidity position first I will review, our investment activity, not including investments and short term U S treasuries.
During the first quarter, we made it 2 million dollar follow on investment in a series one senior preferred shares of Orchard Technologies, Inc. Additionally, the remaining $1.3 million unfunded commitment to true global venture spar, plus withstand it'd be a net distribution capital call. Okay.
Over the course of the first quarter, we sold our remaining public common shares of rent the runway and go ahead and continue to monetize our public common shares of newly capital partners.
In addition to sales of unrestricted publicly traded embattlement during the first quarter. We received approximately $300000 in proceeds from second Avenue related to principal repayment on a 15% term loan to December 2020 dream as well as other investment dividend and interest in county.
Subsequent to quarter and we continue to receive proceeds from second Avenue related to the principal repayment in interest on the 15 per cent term loan to December of 2023, as well as other investment dividends and interest and counting please turn to five five segmented by sex in general investment themes, the top allocation of our investment portfolio at quarter end with the education technology My prayers.
Sitting approximately 38% at the investment portfolio at fair value financial technology and services with the second largest category representing approximately 30 per cent of the portfolio.
The market places category accounted for approximately 15% of our investment portfolio and approximately 9% of our portfolio is invested in cloud and big data companies.
Social and mobile accounted for approximately 8% of the fair value of our portfolio and sustainability accounted for less than 1% of the fair value of our portfolio as of March 31st.
As mentioned earlier by my several capital is committed to initiatives that enhance shareholder value. Accordingly on March 17th 2000, twenty-three our board of directors approved and modified Dutch auction tender offer or at the tender offer which commenced on March 21st 2000 twenty-three to purchase up to 3 million shares of our common stock at a price per share not less than $3 per share.
And not greater than $4.50 per share using available cash <unk>.
The tender offer expired on April 17th 2023 pursuant to the terms of the tender offer on April 21st 2023, we repurchased 3 million shares at the price of $4.50 per share representing 10 six at outstanding shares.
The parish Arab purchase price properly tendered shares represented 69% of net asset value per share as of December 31st 2022.
Company used to fund the purchase of its shares of common stock in the tender offer and to pay for all related fees and expenses because the tender offer was executed subsequent a quarter and it is not reflected in our financial statements for the three months ended March 31st 2023.
The purchase price of $4.50 per share represents a 39.1% discount the December 31st 2022 any of the fresh air and a 47% discount to the March 31st $2023 per share accretion on an 80 per share based on these same metrics is in excess of 30 cents per share. Please turn to slide six.
We are pleased to report we ended the first quarter of 2023 with an avi per share of $7.59, which is consistent with our financial reporting.
The increase in any of the parish area from $7.39 at your end to $7.59 as of March 31st It's primarily driven by a 31 cents per share increase there's nothing from the unrealized depreciation of our portfolio investments during the quarter.
Also contributing to the increase was a one cent per share increase related to realise games on investments and a three cent per share increase related to the impact of stock based compensation.
The increase in the Navy for sure was partially offset by a 15 per share decreased student at investment law.
Finally, I would like to take a moment to review throat capital liquidity position as of March 31st we ended the quarter with approximately $135.6 million of liquid assets, including approximately 48 $1.1 million in cash $76 million in short term U S treasuries and approximately $11.5 million an unrestricted public.
Securities given the recent volatility in the banking sector, we continue to hyperfocus on the location of our cash balances to ensure our cash balances will not be in danger or inaccessible at March 31st 2023. There were 28.338 million 580 shares of the company is common stock outstanding presently following the execution of the tender.
Offer a subsequent to corner and there are 25.338 million 580 shares of the company is common stock outstanding 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 fashion operator.
Q as a reminder, if you'd like to ask a question. Please press star one on your telephone keypad. Please limit your questions you only one thank you.
We have our first question from camping falls from J M. P. Koichi. Please go ahead.
<unk>. Thank you for taking my question.
First question relates to learn you know.
You've seen the headlines around the impact the AI at G. P. T is having on that can be online education space. You know some publicly traded education platforms are down more than 60% year to date.
Mark I was curious you can share your thoughts on the impact the AI is having on learning his business model. If they are experiencing the same degree of disruption that other education platforms are facing I'm, just trying to get a better understanding around how your value of your investment and what the elegance of the company.
Thanks, Kevin I appreciate it.
As you can tell we focus a lot of our prepared remarks around learning.
To address that issue head on so what I would say is that learning those management has been at the forefront of understanding the need to.
Diversify their business model and they raised a bunch of money in the end of December of 2021 to do that.
As we discussed in the prepared remarks.
Several of their investments are with AI based tool.
Tools as part of them and have experienced significant growth.
Their business.
They do have the of course hero based business, which is similar to check in.
And they have been discussing how to utilize.
Utilize AI in connection with all of their tools in.
Course hero to address and be successful with it as well.
Okay I appreciate the comments and I'll leave it there.
Thank you.
Thank you we have a second question from John Hickman Lundberg somehow.
Please go ahead.
Hi, So you've made the comment mark that you looked at or reviewed more opportunities in the months than in any other period is that what you said.
Yeah, well, it's about five months, but sure we we yeah.
Yeah. So it's John it's there is an awful lot that is going on specifically in the secondary markets is early investors or employees or ex employees or looking to monetize.
Their holdings, because they don't know when the IPO market is opening so we are getting a lot of opportunities in that area. We are seeing some smaller primary around that are being done as well and as we said he also in our prepared remarks, although we are seeing a lot. There's still has a bit of a dislocation between.
Where the public company comparable companies are trading versus where the secondary prices of these private companies are but we are looking at a lot we're evaluating a lot and.
We continue to move forward on that.
So are these organized secondaries.
Like the companies or.
Fired.
Like bankers or whatever.
For the <unk> <unk> large part no. Some some are organized secondary summary company tender offers summer source, either through our network or through brokers or through exchanges.
Okay.
Besides a I.
There are no further questions. So I was kind of cool.
Miss them all kinds of conscience today's conference.
Thank you all very much for taking the time this afternoon to participate in our earnings call as always we have management are available to have further conversations.
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You are now back into private.
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