SuRo Capital Corp.
Q1 2017 Earnings Call Transcript

Published: 10 May 2017

[Operator:]

Good day, ladies and gentlemen, and thank you for standing by. Welcome to GSV Capital's First Quarter 2017 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. This call is being recorded today, Tuesday, May 9, 2017. I would now like to turn the conference over to Mr. Nicholas Franco, Vice President of GSV Capital. Please go ahead sir.

[Nicholas Franco:]

Thank you for joining us on today's call. I'm joined today by GSV Chairman and CEO, Michael Moe; and Chief Financial Officer, William Tanona. 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, Presentations. Today's call is being recorded and broadcast live on our website, gsvcap.com. Replay information is included in our press release issued earlier today. This call is the property of GSV Capital Corporation and the unauthorized reproduction of this call in any form is strictly prohibited. I'd also like to call your attention to customary disclosures and 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 financial condition. These statements are not guarantees of our future performance or future financial condition or results, 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 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 GSV Capital's latest SEC filings, please visit our website at gsvcap.com or the SEC's website at sec.gov. Now, I'd like to turn the call over to Michael Moe.

[Michael Moe:]

Thank you, Nick. We are pleased to share the results of GSV Capital's first quarter 2017. First I'll review the recent quarter and share an update on our top positions as well as notable developments in the portfolio. Then I'll comment briefly on the market fundamentals that defines GSV Capital's opportunity moving forward. I'll then turn the call over to Chief Financial Officer, Bill Tanona who'll provide a brief financial overview. At the end, we'll open up the call for questions. Let's start with Slides 3 through 5. Net assets totaled approximately $196 million or $8.83 per share as of March 31, 2017 as compared to approximately $192 million or $8.66 per share as of December 31, 2016. One of our key highlight themes, education technology is a large commitment representing 36.6% of the total portfolio at fair value excluding Treasuries and in fact, making the call today from Salt Lake City, where we're holding our Eighth Annual ASU GSV Education Technology Summit where all our portfolio companies are at and presenting and just 30 minutes ago, Secretary of Education, Betsy DeVos gave a keynote speech. Addition to the education technology, cloud computing and Big Data is 34.2% of the portfolio, social and mobile 17.6%, marketplaces represents 10.1% and sustainability is 1.5%. As of March 31, 2017 GSV's top 10 positions account for approximately 60% of our total portfolio fair value. Our three largest investments Palantir, Spotify and Dropbox represent approximately 28% of the total portfolio of fair value excluding treasuries. While there may be fluctuations from quarter-to-quarter, we expect that GSV Capital's portfolio continues to consolidate we're on top positions and leading [ph] names move forward and we're also very pleased at the overall performance and fundamentals of the companies within our portfolio. I'm going to start with some of our top holdings. Palantir, a disruptive Big Data analytics and security company remains largest position in our portfolio. Palantir's platform is transforming the way organizations use their data and it's deployed at leading government, commercial and not-for-profit institutions around the world. In January, Palantir announced they closed two major new corporate deals in Europe with German healthcare giant Merck and the France's aerospace leader Airbus. This adds a list of blue chip international clients includes AXA, BP, Credit Suisse, Deutsche Bank, GlaxoSmithKline, Standard Chartered and Zurich Insurance Group. In February, CEO Alex Karp indicated that the company will breakeven by end of 2017 knowing that Palantir's cash burn rate has decreased by approximately 60% versus 2016. Palantir's operations in UK are profitable today and Europe revenue has roughly tripled over the past three years. The combination of strong operating growth fundamentals are consistent with Palantir's IP opportunity which Karp previewed at the Wall Street Journal's Global Technology Conference in October, 2016. At the time, he stated the Palantir has positioned itself to go public, which will create liquidity opportunities for employees. This is significant milestone as previously Palantir had denied any interest in IPO. To-date Palantir has raised $1.9 billion of equity funding from a syndicate of investors that includes Founders Fund, In-Q-Tel and Tiger Global. Our second largest position is Spotify, a leading global music streaming platform that now reaches well over 100 million users with 30 million songs across 60 international markets. In early March 2017, Spotify announces and surpasses 50 million paying subscribers up from 40 million in September, 2016 and 30 million in March, 2016. Remarkably over 72% of its users are millennials according to Ad Week. It's hard not to think as Spotify is the future of music. Spotify has over twice as many paying subscribers as one of its key competitors Apple Music which reported 20 million as of December, 2016. In other words the company isn't just holding its own against Apple. It's actually building a wider league. Earlier this week, Spotify unveiled a social feature called Spotify Codes which allows users to quickly share tracks, artists, albums and playlist with their contacts and others on social media. Not only does this add another layer of engagement to the platform, but we believe that will open up new marketing revenue opportunities as brands will be able to share Spotify Codes on social media as a new way to engage their followers. In April, the Wall Street Journal reported that Spotify was considering a direct listing instead of traditional IPO. A process that foregoes underwriters, lockups and typical infusion capital associated with traditional public offering. We continue to monitor the development to optimize returns for GSV Capital stockholders. To-date Spotify has raised $1.6 billion from syndicate of investors Accel Partners, Founders Fund, Technology Crossover Ventures and Goldman Sachs. Our third largest position is Dropbox, a leading cloud based file sharing storage and collaboration platform. In January, Dropbox became the fastest software as a service business to reach a $1 billion in revenue run rate milestone according a report by IDC [ph]. It hit that mark in eight years leading SaaS leaders like Salesforce and Workday. Impressively [indiscernible] announced in April that the company had become profitable on EBITDA basis, this follows the June, 2016 announcement that Dropbox has achieved positive free cash flow. Today Dropbox accounts are over 500 million users and 200,000 business customers including majority of Fortune 500 companies. Rarely have we seen a business operate with this combination of growth, profitability and scale. In March, Bloomberg reported that Dropbox had opened $600 million credit facility from six banks led by JP Morgan Chase ahead of potential IPO that could come in 2017. Beyond our top three positions, the ride sharing platform Lyft announced in April that it had completed $500 million financing, valuing the company at $7.5 billion. To-date Lyft has raised over $2.6 million from investors including Andreessen Horowitz, General Motors, Founder Fund, KKR, Alibaba, AllianceBernstein, [indiscernible] and others. In January, Lyft announced they had delivered 163 million rides in 2016 more than tripling its 2015 total. It's launched in over 100 new cities in 2017 to-date and at March the company reported that the growth was accelerating every market across the country. Uber's recent series of public missteps has created a further opportunities for Lyft in a recent report published by Quartz. The number of US consumers who said they would consider taking Lyft jumped to 9.6% in the first quarter up from 5.6% in the fourth quarter. Uber in contrast feel to 14% from 18% in the same period. Please turn to Slide 6. Beyond GSV's portfolio we're encouraged by 2017 IPO market that continues to signal investor demand for premier VC-backed growth companies. According to Renaissance Capital just 102 US companies went public in 2016 and only 40 were venture backed. In fact, IPO proceeds from venture backed companies dropped 90% from 2014 to 2016 with a performance of NASDAQ and the receptivity of new IPOs we expect that this backlog is going to be starting to work through, which should be very beneficial for GSV Capital shareholders. In 2017, so far there have been 50 US IPOs representing 178% increase over the same period last year. IPO proceeds to-date have surpassed $15 billion which compares to $18.8 billion for the entire year 2016. 20 VC-backed IPOs have generated more than $4.6 billion of proceeds already exceed the 2016 total. GSV Capital portfolio company Snap, the parent company of Snapchat was a starting [indiscernible] in 2017pricing above the range and popping [ph] 44%. According to NASDAQ, its $3.4 billion IPO was largest public offering for a US technology company since Facebook's IPO in 2016. So our gain to-date is approximately 50% from our Snapchat investment. Historically, leading portfolio positions with runway to IPO been a positive accounts for start. GSV Capital has traded premium to innovative advance to highly anticipated IPOs Facebook and Twitter. With our common stock currently trading approximately 50% of NAV we think there continues to be great risk-reward opportunity for investors based on the strong momentum buying GSV's top gains and improving IPO market that is showing signs of acceleration. Before I turn it over to Bill Tanona our CFO, I also want to remind investors that we'll having our Investor Day June 7 at GSV Labs and we hope that you all can participate. Thanks for your attention and with that, I'll turn it over to our CFO, Bill Tanona.

[Bill Tanona:]

Thanks Michael. Today I'll have a very brief comments providing a financial overview of our results followed by an update on our current liquidity position. Please turn to Slide 7, we ended the quarter with an NAV per share $8.83, a breakdown in the change of NAV during the quarter shown on Slide 7 that is consistent with our financial reporting. In sum, the $0.17 per share increased in NAV during the first quarter was driven by $1.50 per share of net changes in unrealized appreciations of investments followed by partially offset by $1.11 of net realized losses and $0.22 per share of net investment losses. Our liquid assets ended the quarter at approximately $17.2 million consisting of approximately $1.4 million of cash, $10 million of public securities not subject to lockup agreement and $5.9 million of public securities subject to a lockup agreement. Our shares in Snap Incorporated become freely tradable on July, 31, 2017. That's it for my comments. We appreciate our stockholders support at GSV Capital and we will continue to strive to add value for our stockholders. That concludes my comments and we'd like to thank you for your interest. Now I will turn it over to the operator to start the Q&A session.

[Operator:]

[Operator Instructions] From Wells Fargo, we'll hear from Cynthia Boyle.

[Cynthia Boyle:]

Hi, thanks for taking my call. Specifically at one point your board had approved stock buyback. There's actually two questions, this is part of the same question. I noticed you have filing that would allow you to potentially issue additional shares below NAV with the express approval of the majority of shareholders. Can you address this issue please?

[Michael Moe:]

Two different, but thanks from Cynthia. So as it relates to the stock buyback. We're looking at ways to enhance shareholder value clearly with the stock showing at a persistent significant discount to NAV. We're finding, one of things where we have more liquidity than we currently have would love to be doing that, it's obviously immediately accretive and a smart thing for us to do. But we have to get some liquidity before that tend [ph] to be achieved realistically. On the filing, I think again we're trying to create maximum flexibility for things that allow us to take advantage of opportunities for GSV shareholders. Issuing stock at NAV is technically something that we, it's something we can't do it without approval and so and just I don't think that's something that we anticipate doing, certainly not something that we're contemplating today. But just in terms of just things that we want to have maximum flexibility and multiple options as we continue to evolve the business. What I will say just from that standpoint, we're very, very encouraged first of all by those, by the companies that are in our portfolio today, if you look at our top positions they're doing extremely well and we're also encouraged as mentioned by the fact that, a number of them look like they can go public in the environment that we're in and where they're with their own business. So we think that can be helpful from a liquidity standpoint. We also think that's going to be helpful from a stock standpoint, but the filing is something that is there to again provide optionality for us, but there is no intent today to ask shareholders for - to get the majority to [indiscernible] we're just good housekeeping.

[Operator:]

[Operator Instructions] ladies and gentlemen that does conclude today's presentation. We do appreciate everyone for your participation.

[Michael Moe:]

Thank you.