SuRo Capital Corp.
Q2 2016 Earnings Call Transcript

Published: 5 Aug 2016

[Operator:]

Good day, ladies and gentlemen and thank you for standing by. Welcome to the GSV Capital's Second Quarter 2016 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 Thursday, August 4th, 2016. I will now turn the conference over to Nicholas Franco, Vice President of GSV Capital. Please go ahead.

[Nicholas Franco:]

Thank you. And 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 Investors, Events & Presentations. Today's call is being recorded and broadcast live on our website, www.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 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. 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 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 second quarter 2016. We're also delighted to announce the Board of Directors has declared a dividend in the amount of $0.04 per share payable on August 24, 2016 to our stockholders of record as the close of business in August 16th, 2016. To learn more, you can refer to our press release filed as an exhibit to our Form 8-K. First, I'm going to review the macro dynamics or creating opportunities for GSV Capital, then I'll review our portfolio as of June 30th, 2016 and update you our notable investments. I will then turn the call over to our Chief Financial Officer Bill Tanona, who will provide a brief financial overview and lastly open up the call for questions. Let us start with Slide 3 and 4. Okay. Despite the news, noise and predictions of apocalypse, we're starting to see some bullish signs from the growth economy. Since 2016, since its 2016 trough on February 11th, the NASDAQ composites up over 20%. Following Brexit lows in late June, NASDAQ has risen nearly 12% and for the year NASDAQ is up approximately 3%. At the same time, the IPO market is opening up with clue as June 23rd IPO acting as a starting gun. Effectively telling private technology companies coming in the water is fine. Totals trade up approximately 150% since it's price at $15 per share, while have been a paltry 52 US IPO's to-date, there have been 12 since twelves, included notable listings from technology companies like Line, Callan, which both placed above the range in top 27% 42% respectively. And so, that you've seen the drum beat over the last three or four weeks with nice momentum which is quite encouraging. Even though, we're entering the lazy bit in summer, the recent trend points to broader opportunity for the best names to breakthrough in IPO backlog, that's been building not just over the past 12 months but really over the last 15 years. So, to put some data behind that, from 1990 to 2000, there was an average of 406 IPO's in United States per year. From 2001 to 2015, there is an average of a 111 IPO's per year. And 80% reduction. In the past 12 months, there's only been top 10 VC-backed technology company's book. Compared to 31 per year per average from 2011 to 2015, obviously the 31 per year is a low number. So, roughly a third of the already low number. And so, despite the weak IPO market, venture capital haven’t stopped investing. According to the National Venture Capital Association, we see this have invested in an average of 32,00 companies pre year since 2001. So, in 2015 alone, we invest in 3709 companies. So, again in contrast the past 5 years on average there's been 31 IPO's per year of the technology VC back up is around public. In the last 12 months, we're just been cant. So, GSV Capital is focused on the similar portfolio of the most dynamic VC backed private companies, including Palantir, Dropbox, Spotify, Coursera, and lift. And the second quarter, we added $4 million position in Snapchat which is quickly emerging as one of the most popular and engaging social media platforms in the world. As reported by Bloomberg technology, Snapchat as a 150 million plus users watch more than 10 billion videos per day up from 2 billion in May 2015 and upload more than 9000 photos per second. The GSV Capital management team has completed numerous studies of last 20 years that's consistently demonstrated that there is a high correlation between sustainable growth and increase in enterprise value. Accordingly, our philosophy confirmed by research is at fundamental growth plus returns. Accordingly, we continue to focus on investing business with a strongest growth fundamentals. GSV capital's portfolio companies required revenue growth of 105%, an average between 2014 and 2015 and we project a 2016 growth will be up over 100% once again. Let's turn to review of GSV capital's portfolio on Slides five through nine. And at June 30th 2016, our net assets were approximately $226,800,000 or $10.22 per share. Of the five key investment themes we've identified Cloud Computing and Big Data is our largest commitment representing 33% of the total portfolios at fair value. Education technology represents 30%, social mobile is 18%, marketplace represents 15% and sustainability is 4% of the total of the portfolio fair value. For the second quarter, our Top 10 positions account for approximately 53.6% of our total portfolio of fair value. So, again for context we're investor in 46 companies. So, we have a really a barbell approach where we concentrate and make our sized commitments to enable us that we think have a strongest fundamentals. If you look at GSV three largest investments, Palantir, Dropbox and Spotify. They represent approximately 25$ of the total portfolio that prevailed. So, let's go through some of these cap positions. Palantir, the disruptive big data analyst and security comp remains the largest position our portfolio. Palantir's platform is changing the way organization's using the data and is deployed a critical government commercial none for profit institutions around the world. And reported by the US Department of Defense in the second quarter, Palantir was awarded a $222 million contract to provide software and services and expansive engagement with US special operations command. We continue to see strong momentum from Palantir and blew that company is transforming the landscape of smart data. The second largest position Dropbox is a leading call base file sharing storage and collaboration platform. Dropbox continues to be propelled by powerful network affects that's now surpassed 500 million registered users has 3.3 billion connections made. Dropbox COO Dennis Woodside recently announced that Dropbox is having 10 million new users per month. The company's coupling viral user growth with a dedicated enterprise strategy. It now has over 8 million paying individuals and 200,000 paying business customers including the majority of the fortune 500 companies. Significantly, in late June, Dropbox reported that it's become cash flow positive. Looking forward, Dropbox has recently formalized a partnership with IBM that will accelerate adoption of the platform by SAP in Oracle's business application users. Other major Dropbox partners include Dell, Microsoft and Salesforce. Our third largest position Spotify, the disruptive music steaming platform that now has over a 100 million users including 30 million subscribers paying approximately $10 per month. Just to make a note of that, very rarely do you see a framing model. We have more than 2% or 3% or 4% of the users actually paying for it. In Spotify's case, obviously it's 30% pay for the service. In 2016, CEO Daniel Ek revealed a more than 50% of Spotifiers are under the age of 27. Remarkably, given the sale demographic, 70% of Spotify's initial 2010 subscribers are still paying customers. In June Ek announced that Spotify now owns half of global streaming music spend with an expanding market share. This is despite the recent competitive offerings from Apple, YouTube and others. In the second quarter, Spotify also launched its much anticipated video service including proprietary content from partner since its Wise Media and Viacom. In June, Spotify hired Wall Street veteran and longtime tech baker 12 logo, and it's set of investor relations, which made the case that we want some initial public offering within the next year. Additionally, before that, Spotify hired former CFO from Netflix Barry McCarthy to be their CFO. Today, Spotify has raised about $1.6 billion from a Syndicate of investors includes Accel Partners, Founders Fund, Technology Crossover Ventures, and Goldman Sachs. GSV's fourth largest position is Coursera, which is the leading provider of what's called massive open online courses, or MOOCs. They reach over 20 million learners worldwide today. Coursera partners of a 140 of the world's leading universities including Stanford, Yale, Princeton, the University of Pennsylvania and Peking University to provide over 18, 00 online courses in a freemium model. Charging for certification on program completion. Beyond credential monetization, Coursera's once enterprise strategy targeting an estimated $325 billion in annual corporate training spending. Early customers include Yahoo, MasterCard and GE who use the platform to divide low cost high quality professional development and new higher on boarding. In the second quarter, Coursera announced the partnership with University of Illinois-Urbana-Champaign where the top five computer science graduate programs in the United States. To form the first nuke based Master's degree in data science, they run students for less than $20,000 to get that degree, which is approximately one quarter of the cost for physical class, for physical degree. This is very disruptive for the overall higher education industry. Coursera was found in 2012 by Stanford Professors, Daphne Koller and Andrew Ng, who serves as the company's Chairman, is also a Chief Scientist at Baidu. The company is led by CEO Rick Levin, the former President of the Yale University. Today the Coursera has raised a $146 million from the syndicate of investors that includes Kleiner Perkins, NEA, International Finance Corporation, the VC arm of the World Bank Next, pleased turn to slide 10 to 11 for highlights on our recent investment activity. As previously reported, GSV capital made $4 million, Snapchat in the second quarter. Snapchat closes more recent funding of $1.8 billion at May, which was disclosed in SEC regulatory filing. As reported by Bloomberg technology, the Snapchat accounts over 150 million daily active users with a highest engagement raise that we have ever seen across any social media platform. More than 60% of the 13 to 34 year old for our smartphones are Snapchat'rs. And recent month, Snapchat has secured media deals with NFL and Major League baseball for exclusive content and the platform will carry NBC highlights from a 2016 Olympics we are starting tomorrow. This was the first time, NBC was every distributed highlights I the platform other than NBC own property. Additionally in May, Snapchat lost a significant expansion of its advertising offerings, including Snapchat partners and advertising platform that will enable Snapchat as to be sold by third parties for the first time. With its investment, Snapchat GSV Capital joined the syndicate Investors that improves Benchmark Kleiner Perkins, Lightspeed Venture Partners, Coatue Management, General Catalyst Partners, IVP, Tencent and Alibaba. We are also pleased to announce $500,000 follow-on investment in GSVlabs. Founded in 2012, GSVlabs is a global innovation platform based in the heart of Silicon Valley that accelerates start-ups and connects corporations to exponential technologies, business models, and entrepreneurs. At the core of GSVlabs is a community of game changing entrepreneurs focused on key verticals including big data, sustainability, education technology, entertainment and mobile. GSVlabs is now home to over 170 start-ups which last year raised $200 million from Venture Capitalist. At the access point of the start-up ecosystem, major corporations like IBM, JetBlue, 3M the Times of India, Intel, Google Launchpad and AT&T have partnered with GSVlabs to launch new initiatives, to identify talent and to propel new business models. GSVlabs creates value through this virtuous circle catching equity and game changing start-ups will provide high value innovative services to entrepreneurs and corporation. GSVlabs sits with intersection of proven models. Co-working platforms like WeWork which recently was valued at $16 billion generates revenue from -- generates reoccurring revenue around shared space and basic services. Accelerators like Y-Combinator capture equity in potentially game-changing businesses, Y Combinator alumni include Dropbox and AirBnB, they added $10 billion and $26 billion respectively. Today and this I think this is a very compelling for GSV Capital shareholders. We own over 70% of GSVlabs. We envisioned having centers in key innovations GSVlabs centers and key innovation hubs around the world capturing equity of 100s of start-ups per year, effectively creating a global pipeline of lottery tickets and potentially game-changing businesses. In May, GSVlabs announced partnership with the Times of India, India's largest media company to launch accelerator in Bangalore and Delhi in conjunction with Times of India's $2 billion corporate VCRM Brand Capital. Times of India has already invested in AirBnB and Uber and is looking as this is the way to get access to the most dynamic entrepreneurs in India, these programs are currently running in Delhi and Bangalore. On September 14 or the 15, GSVlabs will be hosting its second annual Pioneer Summit as the event will focus on catalyzing exponential ideas and creating the dynamic ecosystem for entrepreneurs, investors and change agents. We think this does a number of positive things for both GSVlabs and GSV capital shareholders, it gives us the window to some of the most excited and promising new businesses as well as puts us in the forefront of this ecosystem given this more credibility and more access to businesses that have a tremendous potential. Featured speakers at the Pioneer Summit include Nikesh Arora, the former President of SoftBank., Joe Lonsdale Founding Partner of 8VC, Ron Johnson Founder and CEO of ENJOY which is the portfolio company of GSV Capital and John Donahoe the Chairman of PayPal. For more information please visit pioneersummit.com. In June, GSV Capital hosted its third annual Investor Day where we are very humbled to have over 900 attendees come to our event which we held the GSVlabs. We have presentations from many of our portfolio companies, CEOs including Jason Rosenthal from Lytro which by the way is extremely exciting in terms of what Lytro is doing selling effectively picks and several to the virtual reality minors. Carlos Watson from Ozy Media. Rick Levin from Coursera, Justin Kitch from curious.com, Danny Shader from PayNearMe and Dean Hager from JAMF. Please visit gsvcap.com to download our annual investment letter which covers many of the key themes I addressed in my keynote remarks at our investor day. Thanks for your attention. With that I will turn over to our CFO Bill Tanona. Bill?

[Bill Tanona:]

Thank you, Michael. Today, I will briefly provide a financial overview followed by an update on our current liquidity position. If you please, now turn to Slide 12 for the financials as of June 30th, 2016. We ended the quarter with an NAV per share of $10.22. As you can see in the Slide 12, a quarter-over-quarter breakdown on the change in NAV is shown that is consistent with our financial reporting. In sum, the $0.74 per share decline in NAV was driven by net investment loss of $0.06 per share, net realized gains of $0.05 per share and net changes and unrealized depreciation of $0.72 per share. Notable highlights from GSV’s portfolio activity include the monetization of a portion of our position in left at an average net price of $23.67 per share, recognizing approximately $1.1 million of net realized gains, resulting in a 48.2% IRR. Subsequent to quarter end, we fully exited our position in Twitter at an average price of $18.21 per share, recognizing approximately $300,000 of net realized gains. We also made another partial monetization of our position in left, at $24 per share, recognizing approximately $1.4 million of net realized gains $1.4 million of net realized gains resulting in IRR of 43.9%. Our liquid assets at the end of the quarter were approximately $36.4 million consisting of approximately $2.5 million of cash, $14.5 million of unused borrowings under our credit facility and $19.5 million of public securities not yet subject to lock-up agreements, none of which were subject to any periodic sales restrictions. Now turn to Slide 13 for an update on our dividend distribution plans. As Michael indicated, on August 3rd, 2016, our Board of Directors declared a cash dividend on the outstanding shares of our common stock in the amount of $0.04 per share payable on August 24, 2016 to our stockholders of record as of the close of the business on August 16, 2016. That concludes my comments. I would like to thank you for your interest and support in GSV capital. Now I will turn the call over to the operator and we will start the Q&A session.

[Operator:]

Thank you. [Operator Instructions] This time we will take a question from Jeff Houston with Northland Securities.

[Jeff Houston:]

Hey Michael and Bill, thanks for taking my questions. It's great to see the dividend announce for the quarter. Can you provide some detail on why you decided to have a dividend this quarter and should we expect dividends on a quarterly basis or what is the kind of framework as you think about dividends going forward? Thank you.

[Michael Moe:]

Bill, you answer that question.

[William Tanona:]

Yes, thanks Michael. So, Jeff I would say I wouldn't anticipate on us paying a quarterly dividend going forward. The dividend that the board announced was residual payment of distribution as a result of some of the realized gains that we had in 2015. And so, that residual we had to actually declare by September 15th of this year and so the board opted to declare that dividend on August 3rd and make that payable here on August 24th, so.

[Operator:]

[Operator Instructions]

[Michael Moe:]

It sounds like there is no more questions. Operator, is that correct?

[Operator:]

We do have some more questions that just queued up. We will now move to Myron Goldstein with equities.com.

[Michael Moe:]

Okay.

[Myron Goldstein:]

Yes hi, thank you for taking my question. When you said the fair values are, what are using as a basis for the survey as the last evaluation of the last offerings those companies have made or just give me some sense of where those are coming from?

[Michael Moe:]

Sure. It's a really important question because I think one of the things that has not well understood about GSV Capital is the process that we go through to value every security that in the quarter to that determines our net asset value or NAV. So, the process that we go through is every single security in the portfolio we adjust we capital go through every position and are using a process that looks at things like what's our financing that was done during the quarter when the terms are known. Was there a secondary transaction that was consummated during the quarter? As a company, revenues and business on track or not, if it's not that could mean it has an adjustment to NAV. The number of things that we have created in terms of the process to go through each security. That process is reviewed by Deloitte & Touche our auditor and so we do everything consistent with that. But in addition to that because it's obviously such a critical issue, our board our independent board hires, hired an evaluation firm called Andersen Tax, which is the largest evaluation firm in the world. They go through each position on a quarterly basis as well and they use similar techniques looking at financings, looking at the water fall analysis, looking at different things that give a reference point to what the fair value is for the quarter and where there is discrepancies between what we come up with the GSV Capital and what Andersen Tax comes up with. The independent board reviews that and makes the determination ultimately which they think is the correct the most appropriate value. And so and that's the process. So, we think it's a very rigorous process. It's private securities, so it's the information that's there sometimes is not as much as there would be obviously if it goes public but I think the process we go through is as I said it's an exhaustive process, it's a rigorous process and we think I believe that it's something that people would evaluate. They would be very pleased and comfortable with the way that we do things.

[Myron Goldstein:]

Thank you.

[Operator:]

[Operator Instructions] It appears that's all the time we have for questions. I will turn it back over to Michael Moe for any additional or closing remarks.

[Michael Moe:]

Yes. So, thank you very much again for having tuned into our call. We are very bullish on what we are doing at GSV capital, very bullish on the portfolio and the fundamentals of the portfolio. And we are working very hard to add to have that be recognized by the public marketplace and so again we appreciate your interest and we look forward to follow-up questions you might have after the call. And we look forward to having a very good quarter to talk about in three months. So, thank you very much and have a great rest of the day.

[Operator:]

Once again, this does concludes today's conference call. Thank you all for your participation.