Q2 2019 Earnings Call

Good day, ladies and gentlemen, and thank you for standing by.

Welcome to the shutter rock capital's second quarter.

2019 earnings conference call.

During todays presentation, all parties will be any listen only mode.

Following the presentation the conference will be open for questions.

This call is being recorded.

Hey, Wednesday August seven 2019, I will now turn the conference over to Mike Jackson Stone. Please go ahead Sir.

Thank you for joining us on today's call I'm joined today by the Chief Executive Officer upset or our capital Mark Klein and Chief Financial Officer Allison Green.

Please note that a slide presentation that corresponds to today's prepared remarks by management is available on our website at www Dot Sutter Aucs dot com under Investor Relations presentations.

Today's call is being recorded and broadcast live on our website Www Dot Shutterstock Dotcom replay information is included in our press release issued earlier today.

This call is the property of Siderar capital any unauthorized reproduction of this call in any form is strictly prohibited.

I would also like to call your attention to the customary disclosures in todays 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 financial condition.

These statements are not guarantees of our future performance or future financial condition or results and involve a number of risks estimates and uncertainties.

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 cetera capitals latest ATSI filing please visit our website at <unk> dot com or the Fccs website, the FCC dot Gov.

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

Thank you Jackson.

We are pleased to share the results of a set of products second quarter 2019.

First I will review the recent quarter, which reflects a previously discussed its expense reductions as a result of the internalization.

Then I will provide an update on key developments in the portfolio.

To conclude I will hand, the call over to Alison Green for a brief financial overview and then we will open up the call for questions.

As announced last week, we have changed our name from GSV capital to cetera capital and our ticker from GE as VC two S. S. S S.

Reflective of the internalization of the asset manager.

As an internally managed BDC with significant investable capital, we look forward to the ongoing management and construction of our portfolio to drive net asset value by executing on the strategy of making investments and leading institutionally backed private companies with a clear path to liquidity.

Additionally, our board of Directors has has approved an additional $5 million for a share repurchase program.

We believe that our portfolio is significantly undervalued and as such have increased the share repurchase program to $25 million.

Let's start with slide three.

At the end of the first quarter net asset value was $10.75 per share.

Unchanged from $10.75 per share in the first quarter.

Net asset value totaled approximately $211 million compared to $213 million in the first quarter.

As our existing and new investments or continue to perform we expect to see meaningful growth in our net asset value.

As announced during our call on March 14th we transition to an internally managed fund structure.

We are excited about this initiative and believe this will continue to create tangible near term and long term value for shareholders.

As we just completed our first full quarter first full quarter as an internally managed BDC the cost savings from operations are now reflected in our income statement.

Later in the call Allison Green will discuss other developments outside of the portfolio and explain the steps we are taking to increase overall shareholder return.

Please turn to slides five and six.

Our key area of focus continues to be selectively, adding new companies to our investment portfolio.

Accordingly, our team has expanded our sourcing network, which has allowed us to evaluate a wider range of deals in the marketplace.

Throughout the quarter, we have visited with a number of disruptive industry leading technologies.

A few other industries of focus include financial technology block chain consumer retail E Commerce health and wellness and logistics.

And then in addition to expanding our investment opportunity said, we've also enhanced our diligence process. We have developed an extensive investment funnel and perform in depth analysis at each stage of our process.

Presently of the opportunities we've been analyze we were pleased to announce that we've committed to one new investment.

After the second quarter ended we committed to invest $7.5 million in Greene acreage real estate core.

A real estate investment trust, which holds industrial and retail cannabis related facilities currently operated by acreage holdings.

Cannabis operators have a significant need for capital as they grow in commercial banks commercial banks and traditional lenders will not lend to the cannabis industry. We believe these unique dynamics paired with a tremendous tailwinds and institutional capital bucket behind the cannabis industry provide a unique opportunity for southern Iraq to enter.

As a real estate operator that does not touched the plan Greene acreage is well positioned to take advantage of this opportunity.

The organization is led by Gordon Dugan, who has significant experience running real estate investment Trust.

Gordon most recently served as the CEO of Gravity Park property Trust from 2012 until 2018, where he grew the company from approximately $300 million in total assets and ultimately sold it to Blackstone in 2018 for $7.6 billion.

Sophisticated institution or institution, there was recently, an investor and innovative industrial properties will be green acreages largest investor.

Innovative industrial properties is the first and only kind of discrete to listen the New York stock Exchange and has returned over 400% to investors since going public in December of 2016.

Green acreage has an exclusive partnership with acreage one of the largest vertically integrated multi state CAD of its operators.

Acreage has operating operating licenses or M. essays with license holders to assist in operations in 20 states serving a population of approximately 180 million Americans and an estimated addressable market in 2012, and 22 of $17 billion and legal kinda sales.

Acreage has also entered an agreement to be acquired by canopy growth a well established Canadian kind of is the operator that is listed on the New York and Toronto stock exchanges with a market capitalization of almost $15 billion.

They are viewed as the platinum standard for Tottenham as companies after receiving a $4 billion investment from Fortune 500 company constellation brands.

In relationship with acreage.

Its relationship with acreage provides greene acreage with an extensive pipeline of assets from a credit worthy tenant. This will allow greene acreage to gain scale quickly, which should provide investors with an opportunity for liquidity in the near term.

In addition to the industry opportunity the management team and partnerships Southern Iraq is entering at a significant discount to where innovative industrial property is currently traded.

Based on a multiple of funds from operations.

We're extremely excited to be entering this growing space and to be investing alongside the green acreage team.

Presently our target is to invest $15 million.

Adam This real estate investment trust with $7.5 million in Greene acreage and an additional $7.5 million to be invested in <unk> and <unk> and identified different company, which we expect to announce at a later date.

We're also excited to announce an additional follow on investment in into aspiration partners through a convertible note aspiration is an online bank, whose objective is to offer a socially conscious and sustainable banking services and investment products.

Aspiration has attracted over 1 million customers and continues to add 100000, new clients each month.

Its product has demonstrated success by appealing to market. It typically has been under banked.

More than half of aspirations customers are under 35, and only 6% of its customers live in the New York City, Los Angeles, and San Francisco Bay area combined.

Since we initially invested aspiration has raised more than $100 million escalating valuations from leading investors like social impact pack finance, Alan accompany alpha Edison as well as celebrities such as Orlando Bloom, Leonardo Dicaprio, Doc rivers and Jeff Skol.

Beyond our new investments in green acres, and aspiration, we are utilizing or enhance investment process to systematically source and evaluate investment opportunities and top VC slas institutionally backed companies that we believe will be leaders in their respective industries.

As stated on our previous earnings call. It is now our intention to hold public securities through a lockup period and the ensuing stabilization period.

Accordingly, we sold our entire position in Spotify and the beginning of the second quarter for a sizable gain and have exited exited approximately 60% or our position and dropbox, we will continue to monitor or dropbox position and expect to monetize the remaining for the remainder of our position in the near term.

Beyond Dropbox and Spotify, we're pleased to report no worthy developments from next door and enjoy.

In May next door raised $123 million series C series F round led by River word capital with participation from existing investments investors benchmark Tiger and Kleiner Perkins.

This round was at a valuation of approximately $2.1 billion up from the 1.5 billion dollar valuation, we invested in less than a year ago.

As reported by Tech Crunch net stores revenues doubled again in 2019 and next door is planning to use the new capital towards growing internationally, having just launched in Sweden, Denmark.

Next our plans to grow three times faster across Europe in 2019 than it did last year.

We're excited and all that Sarah friar has accomplished his because since she's become the CEO and are confident in her ability to continue to execute on her stated growth plan.

Another position, we'd like to highlight his enjoy which is now one of the top 10 positions in our portfolio.

Enjoy is focus on reinventing the mobile retail store by sending an expert delivery person into customers homes to deliver and seamlessly set up technology products.

As as was disclosed in public filings enjoy raised $75 million and funding in May where we initially invested in enjoy in 2014, when CEO Ron Johnson, the X., Macy's CEO and ex head of retail at Apple was raising enjoy series a round.

Since we invested enjoy has formed partnerships with companies like Google 18, tea and Sonos and it is on its way to creating a nationally recognizable brand.

Please turn to slide seven and eight for a review of notable notable developments in our investment portfolio in the first quarter and subsequent to quarter 10.

Saddam Rock's top five positions as of June Thirtyth were pollen tier Coursera lift course hero and next door.

These positions accounted for approximately 60% of the investment portfolio at fair value.

As of June Thirtyth, our top 10 positions accounted for approximately 86% of the portfolio.

To put the evolution of our investment portfolio into perspective, the combined fair value of our top five positions as of June Thirtyth was $110 million or approximately 88% et cetera, It's 126 million total market capitalization at quarter's end.

We believe this dynamic emphasizes a significant risk reward opportunity for investment testers.

Segmented by six general investment themes, the top allocation of our investment portfolio is education technology, representing approximately 38% of the investment pool folio at fair value.

Marketplaces was the second largest category, representing approximately 25% of the portfolio.

Additionally, we are now breaking out financial technology as an investment theme as an as it accounted for approximately 8% of our portfolio at fair value.

As we evaluate new investments we were focused on investing in the themes. We have historically had success in and on identifying new trends, we believe represent compelling long term opportunities.

Looking ahead, we believe that said Iraq is well positioned to deliver long term shareholder value. We are executing against a disciplined growth investment strategy with strong Tailwinds. We believe the fundamentals of our portfolio are strong and the IPO environment continues to show signs of strength.

Which has historically been a catalyst for our stock.

Thank you for your attention and with that I'll hand, it over to Allison.

Thank you Mike.

I would like to follow my update within my detailed review of our financial results as of June Thirtyth 2018, and updates regarding our transition to an internally managed BDC our expense reduction initiatives share purchase program and our current liquidity position.

We ended the second quarter with an NPV per share in dollars and 35.

This is unchanged from Q1.

I break down in any need for the second quarter as shown on slide nine is consistent with our financial reporting.

And then I didn't change any need during the second quarter was largely the result of a 69 cents per share increase related to net realized gain on investment during the quarter anytime there's share increase you adjusted the fishing offset by 63 cents per share decrease net unrealized depreciation of I, probably I'm back then and a 14 cents per share decreased Uh huh.

[laughter] Hersha increased due to net realized gain on him back in the second quarter was attributable to the gain realized on the sale of our remaining but if I shared it was the sale of nearly 50% of our publicly traded dropbox shares during the quarter.

Please refer to slide 10 for an update on our share repurchase program.

During the second quarter, we began to see that cost savings effect from the internalization of our management if that Iraq I think that's not what I'm an internally managed BDC, we expect to have a significantly reduced cost structure. Upon termination of the investment advisory agreement unmatched about 2018, we no longer pay management fees. Each month as management is now play directly by the DTC and we no longer accruing in Kentucky.

Total operating expenses decreased by approximately 50% in the same quarter last year total of 3.3 million in the second quarter of 2019. The decrease was primarily due to the elimination of management fees incentive fee income or the pirates patient Goodnight.

From an operational perspective in addition to the name change better rocket often moves to a new permanent office in downtown San Francisco and New office space, we provide direct savings compared to a person they say they captured under the prior administration at night.

Together, we believe our ongoing efforts to reduce operating expenses and the meaningful cost savings we have already begun to realize as an internally managed BDC, let's continued positive impact on anything we remain diligent about managing our expense base moving far right.

Now on slide 10 during the second quarter, we repurchased 115801 chairs et cetera capital common stock for approximately $700000.

Back on my earlier comments, we are pleased to announce that our board of directors had authorized a 5 million dollar expansion at the current share repurchase program to an aggregate of $25 million, which leaves approximately $9.1 million the repurchases under the program that commitment and the share repurchase program in August 2017, better life has repurchased over 11% of its then outstanding shares.

Finally, I would like to use that Iraq current liquidity.

We ended the second quarter with approximately $84.4 million of liquid assets, including $54.4 million at times 30 million died of marketable securities Nathan neither of which is restricted due to lack of fishing.

Our cash balance increased during the quarter to $54.4 million as of June Thirtyth 2018, primarily due to proceeds generated by the monetization I'd like to try to find a physician.

The $30 million in marketable securities represent English in holdings and drop out of $11 million at June Thirtyth and are currently restricted 19 million dollar position and less subject to certain certain lock up agreement.

Subsequent to quarter end, we sold an additional 55000 shares of got hot for $1.4 million in total postpaid realizing an additional gain of approximately $500000.

That concludes my comments, we would like to thank you for your interest in before I thought about capital now I will turn the call over to the operator to start the queuing <unk> operator.

Thank you.

Ladies and gentlemen, if you would like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is turned off to your signal to reach our equipment.

Again press Star one to ask a question.

And ladies and gentlemen, just a quick reminder, please limit your questions to one at a time.

Thank you well take our first question from Jon Hickman of Ladenburg.

Hi, Mark Thanks for taking my call.

Could you tell me what your.

What percentage of the portfolio is in education now.

Thank you 38 patients.

38.6.

And then I'm sorry.

Hi, I was trying to catch up with everything you were saying about this cannabis company can you walk through who owns who again.

Sure.

The company that we're investing in is green acreage.

Yes, Greene acreage is as it relates relationship with acreage, it's an exclusive partnership with them. So they have the right of first refusal of their properties.

Acreage is into an agreement to be bought by cannot be growth, which has a $4 billion.

Constellation brands.

Yeah, so canopies kind of buy acreage.

But the route that shouldn't change the relationship between green acreage in.

And the value.

So thats, helping I guess it will be a subsidiary now.

Okay, what green acres, okay, except for a couple.

Yeah, but it creates the <unk>.

Okay.

Okay I get that now thank you.

So I'll get back in queue, I guess I was too quick thanks, Don really appreciate it.

Thank you once again, ladies and gentlemen, if he would like to ask a question. Please press star one now.

Well take our next question from Ted Helen.

Private investor.

Hi, I'm just a question on your what's your due diligence process as compared to the previous management.

So.

I <unk>.

I would say the following we spend an awful lot of time with.

The management of our portfolio companies prospective portfolio companies, Onsites and channel checks et cetera.

So we do what you would expect us to do is very.

Depth typical due diligence.

But didn't they do that as well.

I believe that the team the way we continue to.

Spend a great deal of time and effort in our diligence process.

Okay.

I'm going to get another one in.

I think we have others waiting, but thanks, a lot I really appreciate it.

Thank you once again, ladies and gentlemen, if you would like to ask a question. Please press star one now.

At this time there are no further questions in the queue I would like to turn the call back over to Mark Klein for closing remarks.

Thank you all very much for attending our conference call. We greatly appreciate your support and feel free to contact us directly with any further questions. Thanks again.

Thank you ladies and gentlemen. This concludes today's teleconference. You may now disconnect.

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