SuRo Capital Corp.
Q2 2018 Earnings Call Transcript

Published: 9 Aug 2018

[Operator:]

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the GSV Capital Second Quarter 2018 Earnings Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. [Operator Instructions]. This call is being recorded today, Wednesday, August 8, 2018. I will now turn the conference over to Ben Fife of GSV Capital. Please go ahead.

[Ben Fife:]

Thank you for joining us on today's call. I'm joined today by the Chairman of GSV Capital’s Board of Directors, Michael Moe, and Senior Vice President and Controller, Allison Green. Please note that a slide presentation that corresponds to today’s prepared remarks by management is available on our website at www.gsvcap.com under “Investor Relations

[Michael Moe:]

Thank you, Ben. We are pleased to share the results of GSV Capital’s second quarter 2018. First, I will review the recent quarter, including key initiatives we are executing to enhance shareholder value. Then I will provide update on key developments in the portfolio. To conclude, I’ll hand the call over to Allison Green for brief financial overview and then we’ll open the call for questions. Let’s start with slides 3 – 8. At the end of the second quarter, Net assets totaled approximately $217 million, or $10.46 per share. This is up from approximately $210 million, or $9.99 per share, at the end of the first quarter, and $202 million, or $9.11 per share at the same time last year. As I’ve emphasized to varying degrees on previous earnings calls, we are focused on three core areas to drive GSV Capital performance and investor returns. First, we continue to increase the size per position and reduce the number of companies in our investment portfolio. At the end of the Second Quarter, GSV Capital had positions in 28 portfolio companies, compared to 38 a year ago. Our top five positions account for approximately 62% of the portfolio at fair value, excluding treasuries. For context, that’s about the same weighting as GSV Capital’s top 10 positions at the same time last year, which accounted for just 63% of the portfolio. To put the evolution of the GSV Capital portfolio into perspective, the combined fair value of our top five positions as of June 30, 2018 was $134 million. That’s almost equal to GSV Capital’s total market capitalization, which is approximately $145 million today. We believe this dynamic emphasizes a significant risk-reward opportunity for investors as our stock currently trades at a discount of about 35% to NAV. With recent public listings from Spotify and Dropbox – two of our top three positions – a second key area of focus is selectively adding new names to the portfolio. As a general rule, given the size of our portfolio, we are targeting $10 to $15 million positions in premier late stage growth companies with a line of sight to an IPO or significant liquidity event. At the same time, we will opportunistically make follow-on investments where we can underwrite equally compelling returns. As of June 30, 2018, GSV Capital had approximately $93.5 million of cash consisting of proceeds from the issuance of $40 million in Convertible Senior Notes due in 2023 during the first quarter 2018, as well as proceeds generated by the monetization of various portfolio positions from the fourth quarter of 2017 through the second quarter of 2018. We also had $65 million in marketable securities, $25.5 million of which is subject to sales restrictions. We intend to use approximately $50 million of our cash on hand to repurchase or pay at maturity GSV Capital’s $50 million of outstanding 5.25% Convertible Senior Notes, which mature on September 15, 2018. Beyond that, we are actively sourcing and evaluating investment opportunities in top VC-backed companies that demonstrate strong operating fundamentals. We are targeting businesses that have crossed the chasm of initial business risk and have the opportunity to generate scaled valuation growth before a potential IPO or strategic exit. To frame the opportunity, CB Insights identifies 355 IPO pipeline companies today, a group that has raised over $104 billion in aggregate and more than $75 billion since 2015. Importantly, we are agnostic in terms of whether we invest in secondary or primary shares. Our goal is simply to invest in the top growth companies in the world at a fair price. While primaries offer certain benefits, including broader information rights, our deep experience with secondaries creates unique advantages and opportunities in terms of access, diligence, timing, and pricing. Some of our portfolio’s most recognizable names, including Dropbox, Spotify, and Palantir, were secured almost entirely through secondary shares. Our third and final key area of focus is continuing to take proactive steps to enhance shareholder value

[Allison Green:]

Thank you, Michael. I'd like to follow Michael's update with a more detailed financial overview of our results as well as an update on our Share Repurchase Program, our expense reduction initiatives and our current liquidity position. We are pleased to report that we ended the quarter with an N.A.V. per share of $10.46. A breakdown of the change in N.A.V. during the quarter is shown on Slide 9, which is consistent with our financial reporting. In sum, the $0.47 per share increase in N.A.V. during the second quarter was driven by $0.52 per share of net unrealized appreciation of investments inclusive of related tax benefit, $0.16 per share of net realized gain on investment and $0.05 per share of net accretion from our Share Repurchase Program. These increases are partially offset by $0.26 per share of net investment or operating loss. Our management team continues to be focused on optimizing the company's current expense base, and we have implemented a number of key expense reduction initiatives that we believe will benefit our shareholders, including the previously announced permanent reduction in the management fee to 1.75%, and GSV Asset Management’s waiver in February 2018 of $5 million in accrued, but unpaid, incentive fees. Due to the upcoming maturity of our 5.25% Convertible Debt, GSV Capital is currently carrying a larger cash balance than it would in the ordinary course of business. GSV Asset Management will continue to waive its base management fee on any cash balances until the convertible senior notes due on September 15, 2018 mature. In addition to the management fee and incentive fee waivers. We continue to be focused on reducing our expenses. Our expenses related to costs under the Administration Agreement declined about 12% compared to the second quarter in 2017. This follows a 26% reduction for the year in 2017 and a 5% reduction for the year in 2016. We will remain diligent about managing our expense base moving forward. In the second quarter, the company repurchased 315,625 shares of GSV Capital common stock under the Share Repurchase Program for approximately $2.2 million or a net average share price of $6.87. Subsequent to quarter end, through today, an additional 230,623 shares were repurchased for approximately $1.6 million or a net average share price of $7.00. Recent share repurchase activity leaves us with approximately $5 million authorized for future share repurchases under the program. Finally, a brief comment on liquidity and our convertible notes. We ended the second quarter with about $158.6 million of liquid assets, including $93.5 million of cash on the balance sheet and $65.1 million of marketable securities, $25.5 million of which is subject to sales restrictions. In addition to the cash and marketable securities, we also have $12 million available to us under the undrawn credit facility. As a reminder, we have approximately $50 million of our convertible notes maturing on September 15 of this year for which cash will be used to satisfy those obligations. Despite the pending maturity of these notes, we believe we have ample cash to make opportunistic investments in the next generation of leading VC-backed growth companies. That concludes my comments. We would like to thank you for your interest and support of GSV Capital. Now I'll turn the call over to the operator to start the Q&A session. Operator?

[Operator:]

Thank you [Operator Instructions] Our first question comes from Robert Bloom who is a Private Investor.

[Robert Bloom:]

Yes, thank you for taking my call. Good quarter. I am wondering if it’s possible for shares to be distributed to shareholders of GSVC, if they would opt to receive shares instead of having them sold outright?

[Michael Moe:]

Hi, Robert. I am not sure if I completely understand the question. Is the question, if and when we have a dividend that you receive shares as opposed to cash? Is that the question?

[Operator:]

[Operator Instructions]

[Robert Bloom:]

And also if you decide to, for example, liquidate your remaining Spotify shares if shareholders of GSV Capital could opt to receive the shares themselves.

[Michael Moe:]

Okay, so thanks for the question Robert. As it relates to the kind of the specific distribution in companies that we monetize such as Spotify, we monetize that position. No, we can’t distribute shares in Spotify [specifically] [ph]. But when we have a distribution for the gains that we have we can have done it in cash and in GSV Capital shares and the mechanics of that are something that – we worked through and historically what we did is give people options. I don’t know if there’s any – Allison or [indiscernible] if you are on the phone, if you have anything to add to add to that.

[Allison Green:]

I do not.

[Michael Moe:]

Great thank you.

[Operator:]

[Operator Instructions] There are currently no questions in the queue.

[Michael Moe:]

Okay great, well listen, we’re obviously very pleased with the quarter’s results. We’re very confident in terms of the strategies that we’ve articulated and what we are executing against. And we look forward to having an opportunity between now and the next quarter to talk to anybody that would like to engage with questions that we have or suggestions. But again we’re very bullish on what’s going on at GSV Capital. So, thank you very much for tuning in for this quarter. And we look forward to talking to you in the future. Thank you.

[Ben Fife:]

Bye.

[Operator:]

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