SuRo Capital Corp.
Q4 2017 Earnings Call Transcript

Published: 14 Mar 2018

[Operator:]

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the GSV Capital Fourth Quarter 2017 and Fiscal Year 2017 Earnings Conference. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be open for questions. This call is being recorded today, Tuesday, March 13, 2018. I would now like to turn the conference over to Nicholas Franco, Vice President at GSV Capital. Please go ahead, sir.

[Nicholas Franco:]

Thank you for joining us on today's call. I am joined today by GSV Capital Executive Chairman, Michael Moe; Chief Financial Officer and President, William Tanona; and CEO, Mark Klein. Please note that a slide presentation that corresponds to today's prepared remarks by management is available on our Web site at www.gsvcap.com under Investor Relations, Presentations. Today's call is being recorded and broadcast live on our Web site, 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 would also like to call your attention to 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 our future performance or our 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 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 Web site at gsvcap.com or the SEC's Web site at sec.gov. Now, I'd like to turn the call over to Michael Moe.

[Michael Moe:]

Thank you, Nick and good afternoon everybody. We're pleased to share the results of GSV Capital’s fourth quarter and fiscal year 2017. To start, I would like to review the key initiatives we undertook in 2017 and subsequent to fourth quarter end to systematically enhance shareholder value. We are pleased to report on the impact of these initiatives to-date, which is summarized on slide three. But more importantly, we believe that we represent -- that they represent a strong foundation for GSV Capital in 2018 and beyond. First, we announced comprehensive adjustments at GSV Capital’s fee structure to benefit shareholders. Key elements of the adjustments are as follows

[William Tanona:]

Thanks Michael. Today, I'm going to provide a financial overview of our result followed by an update on our share repurchase program, our expense reduction initiatives and our current liquidity position. We ended the quarter with the NAV per share of $9.64. A breakdown of the change in NAV during the quarter is shown in slide 10 that is consistent with our financial reporting. In sum, the $0.05 per share decrease in NAV during the fourth quarter was driven by $1.18 per share of net realized gains, $0.13 per share benefit from changes in taxes related to our investments and $0.07 per share accretion from our share repurchase program. All of which was offset by $1.26 per share of net changes unrealized depreciation of investments and $0.17 per share of net investment losses of operating expenses. There was a lot of portfolio activity in the fourth quarter. And as you look on slide eight, we highlight the fourth quarter sales and write offs during the quarter and the respective realized gains and losses for each of those transactions. As you will see, we had significant realized gains in both JAMF and Spotify in the quarter and we also had a significant realized loss in Handle Financial, which is formerly PayNearMe. The one thing I would note with PayNearMe is that if this was previously written off in a prior quarter and so the loss was just realized here in the fourth quarter. In the fourth quarter, the Company repurchased 360,549 shares of GSV common stock for approximately $2.1 million. After quarter end, the company repurchased an additional 179,807 shares of GSV Capital common stock for approximately $1.2 million leaving us with approximately $3.8 million remaining on our share repurchase program. As previously highlighted by Michael, the management team implemented several expense reduction initiatives that will benefit our shareholders, including adjustments to the management fee and incentive fee calculations. We expect the recently announced $5 million incentive fee waiver should have a positive impact on our net asset value per share in the first quarter. We've made meaningful progress in reducing our operating expenses and we will continue to manage our expenses diligently in the future. I'd like to move over to liquidity and convertible notes. As we ended the first quarter with about $60 million of cash on the balance sheet and as you'll see in our 10-K, which will be release later this week, we also had a few subsequent events that will result in net increases in our overall cash position in the first quarter. These transactions include the sale of our residual shares of Chegg, the sale of our entire position in Avenue Global's Holding and the maturity of one of our notes with GSV Lab. All which resulted in approximately $16 million in net proceeds and a realized net loss of approximately $800,000. As many of you are aware, our 5.25% convertible senior notes mature in September of this year. As Michael previously indicated, we announced the tender offer to purchase all of the outstanding notes. At expiration of the tender offer in January 17, 2018, $4.8 million of aggregate principle of the notes or 7% of the notes outstanding had been validly tendered. Since the company is currently carrying a larger cash balance than it typically would in the ordinary course of business, our adviser GSV Asset Management has agreed to waive its base management fee on any cash balances effective as of February 1, 2018 until the 2018 notes mature or the date that all the 2018 notes have been repurchased or redeemed, whichever as earlier. That concludes my comments. And we'd like to thank you for your interest in GSV Capital. Now we'll turn the call over to operator to start the Q&A session.

[Operator:]

[Operator Instructions] We'll hear first from Alex Parris with Barrington Research.

[Chris Howe:]

This is Chris Howe sitting in for Chris Howe. I had a question in regards to the cash balance. And I didn't see it in the press release. But what is the current segment mix or how would you divide that up in regard to the investments. And I guess looking into 2018 maybe some general overview on where you think that segment mix could shakeout. Perhaps what opportunities are you currently seeing in the first quarter and the how do you see it playing out for the remainder of 2018. Thanks.

[Michael Moe:]

I'll let Bill handle the cash question and then I'll talk about the diversification of portfolio, as well as what we see on the road ahead.

[William Tanona:]

So Chris, as you know, we've got the notes that are coming due in September. And so our cash balance that we currently have is obviously earmarked for the retirement of that debt coming in September. And so right now our cash position, which is why we've decided to waive management fees on that cash position. I think that's what your question was. I wasn't sure exactly what you are asking as it related to our cash, but I thought that's what you had asked.

[Michael Moe:]

As it relates to the portfolio mix, and one of the things we did is give us fresh look this quarter, because we think that we captured something for example big data and cloud, but really more appropriate would security software. So we had a fresh look basically we still have significant representation in education, which remains the largest category of our investment, which includes our investment in Coursera, which is our third largest position. And by the way we are very, very encouraged by what we're saying there both in terms of the growth as well as the new degrees I mentioned in our commentary, also company Coursero, which is doing extremely well, growing really fast. So we've got a great mix there. The social mobile area has been an important category for us it remains that marketplaces we love marketplace businesses. So arguably, if you looked at that portfolio, we have a number that we categorize in different places but in effect marketplaces, which would include Coursera, Coursero, a number of other you could call Spotify a marketplace in terms of the network effects business model. And so what you’re going to see going forward and particularly as we continue to make progress with the portfolio is the themes and companies that we're -- I won't give the specific companies that we're focused on. But in terms of themes, clearly artificial intelligence is everywhere its ubiquitous, it's a game changer in terms of businesses that are affected by it, which is aside you look at what's going on in the cloud between Amazon and Google and Microsoft and artificial intelligence is going to be a major differentiator in that ferocious battle that's going on. Block chain is an area that we haven't invested in to-date and obviously the crypto currencies and so forth have got a lot of attention. But we think the real transformative aspects of block chain are going to be as it applies to effectively every industry from healthcare to real estate, to education and obviously financial services. And I guess the last theme that is bubbling up is something that we think is very, very important is the area of virtual reality and augmented reality. This has been an area that we've been focused on for some time. It hasn't come as fast as we would've hoped but you start to see very powerful technology being introduced and some really revolutionary concepts that we're quite excited about. And the pipeline that we've created for future investments is very robust. I'll just make a point, something that we've been doing and articulating for really the last three years and you’re starting to see it being very clear in the portfolio, as we are focused exclusively on later stage tech companies with a big concentration of the positions that we have and again fewer positions. So we’ve gone from over 50 portfolio holdings two years ago to 31 today. I think ultimately it will be 25 to 30 focused on these growth things that we’ve identified.

[Operator:]

[Operator Instructions] We will go back to Alex.

[Unidentified Analyst:]

I just had one quick follow up just in regard to your education comments and more specifically Coursera. I didn’t catch in the comments whether the expectation for 2018 whether an IPO is positioned for next year?

[Michael Moe:]

So I mean the company has reached a scale where I think it could go public if it chose to, but it’s not our anticipation that Coursera will be public in 2018. We do think that with number of other -- we obviously have Dropbox and Spotify going now. But given the environment that I discussed before and the position of a number of our companies, we actually think this is going to be a really challenging for our portfolio. But I would position Coursera to be unlikely in 2018.

[Operator:]

We’ll hear next from Jon Hickman with Ladenburg.

[Jon Hickman:]

Could you -- I don’t know if you want to take this. But could you go through the GSVlabs transaction again?

[Michael Moe:]

So GSVlabs, which is innovation center that we have in Silicon Valley, which GSV Capital call in for approximately 70% of. We have 200 start-ups at GSVlabs, many of which we have in equity position and we have 25 corporate partners there, which include 3M and Google and Cisco and Intuit and Times of India and JetBlue Airlines. To-date we took very little outside capital really has been funded by GSV Capital, but also as the model evolving as we have and the opportunities that we see beyond Silicon Valley. We just recently brought in $6.2 million financing at $25 million pre-money valuation and it was referenced in the call. As of December 31, 2017, we carry our position in GSVlabs at approximately less than half of that $25 million enterprise value of the $6 million that was raised. Now what GSVlabs is doing is basically expanding into new markets. We opened at Boston this month. We have GSVlabs in Bangalore and Delhi in partnership with Times of India. We’ve got a program for autonomous cars going in Pittsburgh. So we’re quite excited and we’re very bullish on GSVlabs and we think that that will be a great catalyst for GSV Capital stock, because we do think there’s tremendous potential that financing is really growth capital to put some gas on.

[Operator:]

[Operator Instructions]

[Michael Moe:]

Well, it sounds like there’s no more questions. So if that’s the case, again we’re very appreciative of the support that we’ve gotten from our shareholders. As I referenced in my comments, this is the most optimistic I’ve been since we started GSV Capital. We just think the portfolio is positioned extremely well. We think we have a very clear opportunity and our focus is how we execute against that opportunity every single day. So we appreciate the support and look forward follow up questions people may have and keep rolling. Thank you.

[Operator:]

And that will conclude today’s conference. Again, thank you all for joining us.