Q2 2023 SuRo Capital Corp Earnings Call
Good day and welcome to the solar capital second quarter 'twenty to 'twenty three earnings call.
This call is being recorded your lines will be on listen only however, you will have the opportunity to ask questions. At the end. This can be done by pressing star one on your telephone keypad to register your questions. If you require assistance at any point. Please press star zero and you'd be connected to an operator I would now have.
Did you over to your host other abates to begin today's conference. Thank you.
Thank you for joining us on today's call I'm joined today by the Chairman and Chief Executive Officer Zero 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 events and presentation. Today's call is being recorded and broadcast live on our website www Dot zero cap 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'd 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 future performance or financial condition.
Statements are not guarantees of our future performance or future financial condition or results and involve a number of risks estimates and uncertainties, including the impact of any market volatility that may be detrimental to our business our portfolio of companies our industry and the global economy that could cause actual results to differ materially.
It really 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 company's 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 Sarah Capital's latest SEC filings. Please visit our website at www Dot Ferro cap dot com or the SEC's website at SEC Gov, now I would like to turn the call over to Mark quiet.
Thank you Adam.
Good afternoon, and thank you for joining us we're pleased to share the results of Cerro Capital's second quarter 2023.
The last four months have been among the most active periods Arrow has had in the last couple of years, we made five investments three in new portfolio companies and two in follow on investments. Additionally, we have had one of our spec investments closed its previously announced merger and two other respects announced agreements to.
Emerge.
Additionally, on the shareholder initiative front, we completed our 13 and a half million dollar modified Dutch tender offer and today announced the extension and increase of our share repurchase program to $60 million.
First of all as to our new investments.
In the private markets, we remain steadfast to our thesis that potential investments would become available in the secondary market. We believe just begun this has begun to come to fruition in the second quarter and two and subsequent to quarter's end as we made investments in three new portfolio companies as well as follow on.
So to others.
During the quarter, we executed a $10 million investment in service type.
Our software business for home and commercial trades through a secondary transaction.
Subsequent to quarter's end, we invested $5 $8 million and four kinds of supply chain visibility software company again through secondary transactions.
Also subsequent to quarter's end, we invested $1 million and steak trade sports betting exchange doing business as profit exchange through a primary transaction as part of the Cerro capital sports portfolio.
We believe our remaining investable capital of over $100 million as of the quarters and will enable us to continue to act on opportunities such as these.
Please turn to slide four.
I would like to and I would now like to provide more detail on our investments starting with our $10 million secondary investment in service time.
Service Titans cloud based software platform is designed to empower trades trade businesses and the residential and commercial HVAC plumbing electrical and other sectors.
Service Tightens comprehensive end to end solution equips contractors with essential tools to efficiently manage and expand their businesses, while delivering delivering exceptional customer experiences.
Currently serving over 11800 businesses that had previously been reported to employ more than 100000 contractors service tightened has established a strong presence in the market.
Today technology remains a vital tool for contractors to stay ahead. According to a recent study conducted by thrive analytics on behalf of service type of 66% of contractors see digital transformation is a critical component of their operations and 59% of survey businesses report.
We're using more than four distinct software solutions to manage their operations.
As we look ahead, we believe service Titan is well positioned to continue to provide value to the trade market.
Moving on to a $5 $8 million secondary investment and poor guidance.
<unk> is a leading real time supply chain visibility solution, while the concept of supply chain visibility has been around for some time the ability to track create trucks and shipments in real time has only been available more recently.
For kite has been a pioneering force behind the idea that companies should know where their goods are at all time.
From the initial onset of being loaded onto a truck to when they reach a final delivery destination.
Executing against the idea of real time visibility for Capes now attracts more than 3 million shipments daily over 200 countries and territories.
The impact of pork Heights technology is evidence and it's impressive clientele, which includes recognized brands such as nine of the top 10 consumer package good companies and 18 of the top 20 food and beverage companies.
Today for kite helps over 1200 of the world's most recognized brands leverage real time visibility and unlock efficiencies that save them millions of dollars a year.
They also have been named a leader in the Gartner Magic quadrant for real time transportation of visibility platforms for three years in a row.
Since 2021 for kite has announced strategic investments from Qualcomm ventures, well Volvo group venture Capitals, Zebra technologies, Fedex and Mitsui.
We believe these collaborate collaborations and potential alliances helped drive toward <unk> position as a leader in automated interconnected and collaborative global supply chains.
We believe the four cases in a unique position to capture additional market share as they continue expanding their business and target customers with some of the most complex supply chain needs.
Moving onto our $1 million investment and prosecute profit exchange to a primary transaction as part of the Cerro capital sports portfolio.
<unk> exchanges appeared to payers sports betting exchange focus of providing better is the best pricing and seamless experience that is different from the incumbent operators.
It was on the platform has the ability to request their own wagers or pick from outstanding options that are driven by other users and market makers. The company has gone through extensive licensing and regulatory steps and is now live in New Jersey with plans to expand to other legal betting states in the future. We are excited about the.
Exchange wagering opportunity in the U S. Given the success of Betfair has had in the United Kingdom, and we believe profit exchange has both the team and the technology to execute on our large market opportunity.
Next I would like to speak to our follow on investments during.
During the quarter, we made a $500000 follow on investment in show gum Enterprise, which is doing business as heart Hart as a financial technology company that provides over 20000 home improvement professionals with the tools they need to win more jobs and provide excellent excellent customer experience. According to the company's website.
We're excited to continue to support hard skull of bringing the market of home improvement into the digital economy.
Additionally, during the quarter, we made a $500000 follow on investment in page <unk>.
Joy as a provider of smartphone locking technology that has raised over $213 million of equity and debt funding to date. According to Pittsburgh. We're pleased to continue to invest in Pedro is goal of expanding smartphone access to emerging markets through this technology technology.
Please turn to slide five.
Subsequent to quarter end, Columbia acquisition Corp, spectrum in which we own both stock and warrants successfully closed its business combination with PFS Q Holdings also known as public square public square is a leading marketplace patriotic businesses and consumers. According to the company's <unk>.
Closing announcement the company has seen quick quick adoption of its platform with more than 1 million users and 55000 business on signing up in less than a year.
Public square began trading on the New York stock exchange under the symbol <unk> on July 20th at.
At quarter end, we valued our investment at approximately $17 million, our cost basis in Colombia is approximately $2 $7 million.
As of the business combinations closing on July 19th or what warrants are subject to lockup period equal to the later with 30 days or the registered registration statements effective goodness. The registration statement was filed this afternoon.
Our common shares are subject to a one year lockup period with our pricing condition that would unlock our shares earlier.
Alison will provide additional details on our Colombian investment later in the call.
In addition on July 11, 2023, all see acquisition Corp, stack, Who's Chief Executive Officer, Sam Altman.
And in which we own share units announced it signed a definitive agreement to merge with <unk> and <unk>.
Advanced vision technology, and nuclear fuel recycling company.
According to the merger announcement press release, the company has achieved significant deployment and regulatory milestones, including securing a site use permit from the United States Department of energy and receiving a fuel award from the Idaho National Laboratory for commercial scale advanced sufficient power plant in Idaho Targa.
Good to go online and other 2026 or 27.
The combined company will be named Oklahoma and intends to list on the New York stock exchange with the ticker symbol. Okay. L. O. The merger is expected to provide <unk> with up to $500 million of gross capital from all six trusts account is.
Assuming no redemptions by all shareholders the transaction, which has been approved by the board of directors of Aqua and <unk> is expected to close in late 2023 or early 2024 subject to approval by <unk> shareholders. Aqua shareholders also you're having available cash or closing of at least $250 million in other.
Customary closing conditions.
And on August one 2023, Churchill capital seven and spec a stack of which we owned indirect shares of war units sponsored vehicle announced it signed a definitive agreement to merge with core pack a corporate compounds specializing in acquiring small and medium sized enterprises also known as <unk>.
As smbs in the United Kingdom. According to the merger announcement press release core paths gets delivered meaningful financial returns and sustained value over multiple economic cycles and has achieved a compound annual growth rate for revenue of 16% from 2018 to 2022 with average organic growth outpace.
<unk> the U K GDP growth during the same period.
<unk> portfolio consists of 41 businesses in various industries, providing diversification.
Contributing to the resilience through economic cycles.
Upon closing of the transaction the combined company will be named core pack and it tends to be listed on the New York stock exchange.
Transaction is expected to deliver up to $592 million in gross proceeds from Churchill said its trust account assuming no redemptions. The transaction has been approved by the board of directors of core pack and Churchill seven and is expected to close in late 2023 are early 'twenty four.
Subject to various approvals and at least $350 million of net trend.
Dollars delivered net of translation transaction fees at.
At quarter end the value of our investments in <unk> and Churchill seven were marked equal to our cost basis of approximately 250000 and $300000 respectively.
Turning to the second quarter, we ended the quarter with a net asset value of $186 7 million or $7 35 per share. This NAV compares to a net asset of $7 59 per share in Q1, 2023, and $9 24 in Q2 to.
Q2 2022.
Please turn to slide six.
Turning to our top five positions I first want to highlight our cash position as of quarter end, our cash and short term U S. Treasuries available for investment were approximately $100 million, representing 38% of gross of our gross assets.
As we have previously discussed we believe having cash in this environment.
Pages really positions us to continue seeking out new opportunities emerging from current market conditions.
So capital's top five positions as of June 30th we're learning now.
Columbia, now PSU Holdings, Blink Health storm win and Lucas Robotics. These positions accounted for approximately 51% of the investment portfolio at fair value. Additionally.
Additionally, as of June 30th our top 10 positions accounted for 78% of the.
Our investment portfolio.
Transitioning to our public investments as previously stated it is our objective to sell our public positions when lockup restrictions expire and theres relatively stability in a given public positions trading.
In line with this approach we've continued to monetize our public unrestricted positions during this quarter and throughout the last month, we monetize a sizeable portion of our position in next door and plan to continually continue optimistically monetizing our public position.
Physicians as market conditions improve.
As previously discussed we continue to focus on shareholder friendly initiatives to that end, we completed our modified Dutch tender auction.
With which resulted in the purchase of 3 million shares of common stock at $4 50 per share.
Alison will discuss the results of the tender offer in more detail shortly.
In addition to the tender offer on August seven our board of directors authorized an additional $5 million for share repurchases and an extension of the.
Share repurchase program through October 31, 2024, the expansion brings the total authorized under the share purchase program to $60 million.
Given the significant discount at which our stock is trading compared to net asset value. We determined to current continuation of the share repurchase program to be an efficient and accretive deployment of capital.
As public and private market volatility persist, we remain patient and selective as we evaluate new opportunities. We believe our considerable investable capital affords us an opportunity to continue to add high quality companies to our portfolio.
Thank you for your attention and with that I will hand, it over to Alison Greene, our Chief Financial Officer.
Thank you Mark I would like to follow Mark's update with a more detailed review of our recent shareholder initiatives.
Portfolio activity, our financial results as of June 32023, and our liquidity position as of quarter end.
First I will provide detail on the recent increase in extension of the share repurchase program. Please turn to slide seven.
Mark mentioned earlier, Cerro capital is committed to initiatives that enhance shareholder value.
On August seven our board of directors authorized a $5 million expansion to the share repurchase program to $60 million and an extension of the share repurchase program through October 31 2024.
Since the inception of the share repurchase program in August 2017, we have repurchased a total of $5 million 832008 shares of our common stock for a total of the appointment of approximately $38 $6 million of the $60 million authorized by the board.
Approximately $21 $4 million remain authorized under the share repurchase program. Currently if I took fire on October 31 2024.
In addition to the share repurchase program as previously reported on March 17, 2023, our board of directors approved a modified Dutch auction tender offer which commenced on March 21, 2023 to purchase up to 3 million shares of our common stock at a price per share not less than $3 and not greater than Florida, I think 50 cents per share.
Using available cash the tender offer expired on April 17, 2023 pursuant to the terms of the tender offer on April 21, 2023, we repurchased 3 million shares at a price per share of $4.50.
This represents 10 point I've been outstanding shares.
The per share purchase price it properly tendered shares represented 69% of net asset value per share as of December 31 2022.
The company used available cash to fund the purchase of shares of its common stock and a tender offer and to pay per hour related fees and expenses.
The purchase price of $4.50 per share represents a 39, 1% discount the December 31, 2022 and <unk> per share.
47% discount March 31, 2023, and a per share again the tender offer comes in addition to the previously discussed share repurchase program originally authorized by our board of directors in August 2017.
Lastly, I'd like to provide a more detailed update on our investment portfolio activity for the second quarter and subsequent to quarter end. This does not include investments in short term U S treasuries.
During the second quarter, we invested a total of $10 $5 million in new and follow on investments.
New investments during the second quarter and cleared.
A $10 million investment in service Titans common shares the secondary transaction.
$500000 follow on investment in page, a simple agreement for future equity or states.
Over the course of the second quarter, we began to monetize our next door common shares. We sold 90 950000 common shares next door for approximately $2 $9 million of net proceeds resulting in a net realized loss of approximately $2 4 million.
In addition to sell them next our public stock we received approximately $300000 in proceeds from second half related to principal repayments and interest on the 15% term loan due December 2023, as well as other investment dividend and interest income.
During the quarter, we received a distribution of approximately $253000 from our limited partner funded Beckman and true global ventures for flat.
Finally, as it May force the abandon our investment in Aussie media.
Next I would like to provide additional details on our investments in Colombia.
In connection with this investment as the business combination closing on July 19th we held 1 million 976030 to class a common shares and $2 7 million warrant.
Our class a common shares are not transferable until the earlier of one year. After the business combination of closing date or if the closing price of the class a common stock equals or exceeds $12 per share for any 20 trading days within any 30 trading day period commencing at least 150 days after the business combination of clothing.
Or why is the subject of a 30 day lockup period after the business combination of clothing.
Subsequent to quarter end, we invested a total of $7 $3 million in new and follow on investments. These include a $5 $8 million investment in four type commentary be a secondary transactions.
A $1 million, new investments yourself capital sports LLC and to stake trade simple agreement for future equity again called the state.
And a $500000 follow on investment in hearth series B preferred shares.
Subsequent to quarter end, we sold 589996 shares of next door after approximately one $8 million of net proceeds.
I'll be in a net realized loss of approximately $1 $4 million.
We also received approximately $100000 in net proceeds from second Avenue related to principal repayment and interest on the 15% term loan due December 2023, as well as the other investment dividends.
Please turn to slide eight.
Segmented by six general investment themes, the top allocation of our investment portfolio at quarter end with to financial technology and services, representing approximately 35% of the investment portfolio at fair value.
Education technology was the second largest category, representing approximately 28% of the portfolio.
The marketplaces category accounted for approximately 15% of our investment portfolio and approximately 14% of our portfolio was invested in cloud and big data companies.
So in mobile accounted for approximately 7% of the fair value of our portfolio and sustainability accounted for less than 1% of the fair value of our portfolio as of June 30th.
Please turn to slide nine we are pleased to report we ended the second quarter 2023, with an NAV per share of $7 35, which.
Which is consistent with our financial reporting.
The decrease in NAV per share from $7.59 at the end of Q1 2023 to $7.35 as of June 30 was primarily driven by I think did you said per share decrease resulting from net realized losses on investments during the quarter also contributing to the decrease was <unk> 15 per share decrease due to net investment loss.
The decrease in NAV per share was primarily and partially offset by a 34 cents per share increase related to the repurchase of common stock as a result of the tender offer and a <unk> <unk> per share increase related to a quarterly adjustments to unrealized investment value in our portfolio.
Finally, I would like to take a moment to review so capital liquidity position as of June 30.
Ended the quarter with approximately $112 million of liquid assets, including approximately $24 $5 million in cash $75 $9 million in short term U S treasuries and approximately $11 $6 million in unrestricted public securities.
The approximately $11 million of unrestricted public securities held as of quarter end represent our remaining shares in forged level next door, if you like capital partners and scale.
At June 32023, there were 25 million 398640 shares of the company's common stock outstanding.
That concludes my comments and I'd 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 session operator.
Thank you.
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad. Please limit your questions here only one thank you.
Okay.
We have our first question from Jon Hickman from Ladenburg. Please go ahead.
Hello.
Hey, John .
Yeah, Hi.
Can you just clarify for me I I I'm sure Alison mentioned this but I think if I missed it and all the other numbers.
So apart from the tender offer how much is remaining how many dollars is remaining on the.
The authorized share buyback program.
Slightly in excess of 20.
$21 million.
$21 million and that's like.
Totally up to.
Whatever happens day to day with the stock price.
Whatever management wants to yeah.
Yeah, So John as you know and we've discussed and we've discussed on these calls many times before we're highly focused on shareholder initiatives.
Whether it's cost reductions or some accretive purchases of our own securities. We've been doing it for years and we've done two Dutch tender offers within within almost 12 months period of time. So we recognize the discount that the stock is trading at and.
The board authorized more to have at our disposal to deploy.
When we see that that's the most efficient use of our capital and thanks again for your support really appreciate it. Thank you.
Okay.
Thank you.
Yes.
Our second question comes from Jason Zhang.
From private Investor.
Go ahead.
Hi, Thanks for taking my question.
I was hoping you could elaborate a little bit further on the Colombia.
Columbia Holdings in the fund if I'm looking at the 10-Q, obviously.
So on class B units and class B units, but a lot of.
The accident happened subsequent to quarter end and just just curious if you could guide.
Guide us a little bit on how to think about those holding going forward or if they were marked today.
Thank you.
And thank you for your question and we.
We I think Allison.
Address it in our prepared remarks, but we own approximately slightly under 2 million common shares we own $2 7 million warrants. The warrants are have a lockup period debt and 30 days after the deal closed.
Which was July 19th so approximately August 19th.
Assuming that there's a valid registration statement. They did filed a registration statement today. So when that registration statement becomes effective August 19th Whatever's latest those warrants will become unlocked up the stock is locked up for a year.
Unless the stock trades above $12 for 20 out of 30 days from the middle of December on so at the present time, we own just 19, $1 9 million shares of $2 7 million warrants and again the action did occur subsequent to quarters' orders then.
So thank you.
Thank you there are no further questions I would like to hand, the call over to your host Mark Glenn to conclude today's conference. Thank you.
Thank you everybody for attending our call. Thank you for your support.
Do you have any other further questions. Please reach out to us directly thank you very much.
Thank you for joining today's call. Thank you for your participation you may now disconnect.
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