SuRo Capital Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 9, 2023

There are 4 speakers on the call.

Operator

Thank you for joining us. We are pleased to share the results of Suro Capital's Q2 2023. The last 4 months have been among the most active periods Curo has had in the last couple of years. We made 5 investments: 3 in new portfolio companies and 2 in follow on investments. Additionally, we have had 1 of our SPAC investments close its previously announced merger and 2 other SPACs announced agreements to merge.

Operator

Additionally, on the shareholder initiative front, We completed our $13,500,000 modified Dutch tender offer and today announced the extension and increase of our share repurchase program to $60,000,000 First of all, as to our new investments. In the private markets, we remain steadfast to our thesis that potential investments would become available in the secondary market. We believe this has begun to come to fruition in the second quarter and subsequent to quarter's end as we made investments in 3 new portfolio companies as well as follow on investments in 2 others. During the quarter, we executed a $10,000,000 investment in ServiceTitan, a software business only commercial trades through a secondary transaction. Subsequent to quarter's end, we invested $5,800,000 in 4kites, a supply chain visibility software company, again through secondary transactions.

Operator

Also subsequent to quarter's end, we invested $1,000,000 in Stake Trade, a sports betting exchange doing business as profit exchange through a primary transaction as part of the Soro Capital Sports portfolio. We believe our remaining investable capital of over $100,000,000 as of the quarter's end will enable us to continue to act on opportunities such as these. Please turn to Slide 4. I would like to I would now like to provide more detail on our investments, Starting with our $10,000,000 secondary investment in ServiceTitan. ServiceTitan's cloud based software platform is designed to empower trades Trade businesses in the residential and commercial HVAC, plumbing, electrical and other sectors.

Operator

ServiceTitan's comprehensive The end to end solution equips contractors with essential tools to efficiently manage and expand their businesses while delivering exceptional customer experiences. Currently serving over 11,800 businesses that have previously been reported to employ 100,000 contractors, ServiceTitan has established a strong presence in the market. Today, technology remains a vital tool for contractors Stay ahead. According to a recent study conducted by Thrive Analytics on behalf of ServiceTitan, 66% of contractors Digital transformation is a critical component of their operations and 59% of survey businesses reported using more than 4 distinct software solutions to manage their operations. As we look ahead, we believe ServiceTitan is well positioned to continue to provide value to the trades market.

Operator

Moving on to our $5,800,000 secondary investment in 4kites. 4kites is a leading real time Supply chain visibility solution. While the concept of supply chain visibility has been around for some time, the ability track freight trucks and shipments in real time has only been available more recently. 4 kites has been a pioneering force The idea that companies should know where their goods are at all time from the initial onset of being loaded on Tuitron and they reach a final delivery destination, Executing against the idea of real time visibility, 4 kites now tracks more than 3,000,000 shipments daily over 200 countries and territories. The impact of 4Kite's technology is evidenced in its impressive clientele, which includes recognized brands such as 9 of the top 10 consumer packaged good companies and 18 of the top 20 food and beverage companies.

Operator

Today, 4 Kites It helps over 1200 of the world's most recognized brands leverage real time visibility and unlock efficiencies that save them 1,000,000 of dollars a year. They also have been named a leader in the Gartner Magic Quadrant for real time transportation visibility platforms for 3 years in a row. Since 2021, FourKites has announced strategic investments from Qualcomm Ventures, Volvo Group Venture Capital, Zebra Technologies, FedEx and Mitsui. We believe these collaborations and Potential alliances help drive forward FourKite's position as a leader in automated, interconnected and collaborative global supply chains. We believe that FourKites is in a unique position to capture additional market share as they continue expanding their target customers with some of the most complex supply chain needs.

Operator

Moving on to our $1,000,000 investment in profit exchange Through a primary transaction as part of the Suro Capital Sports portfolio, Profit Exchange is a peer to payer Sports betting exchange focused on providing bettors the best pricing and seamless experience that is different from the incumbent operators. Bettors on the platform have the ability to request their own wagers or pick from outstanding options that are driven by other users and market makers. The company has gone through extensive licensing and regulatory steps and is now live in New Jersey with plans to expand to other legal betting states in the future. We are excited about the exchange wagering opportunity in the U. S.

Operator

Given the success of Betfair has had in the United Kingdom, And we believe profit exchange has both the team and the technology to execute on the large market opportunity. Next, I would like to speak to our follow on investments. During the quarter, we made a $500,000 follow on investment in Shogami Enterprise, which is doing business as hearth. Hearth is a financial technology company that provides over 20,000 home improvement professionals with the tools they need to win more jobs and provide excellent customer experience according to the company's website. We're excited to continue to support Hart's goal of bringing the market of home improvement into the dichotomy.

Operator

Additionally, during the quarter, we made a $500,000 follow on investment in Payjoy. Payjoy is a provider of smartphone locking technology that has raised over $213,000,000 of equity and debt funding to date according to PitchBook. We're pleased to continue to invest in PayJoy's goal of expanding smartphone access to emerging markets through this technology. Please turn to Slide 5. Subsequent to quarter end, Columbia Acquisition Corp, SPAC, in which we own both stock and warrants, successfully closed its business combination with PSQ Holdings, also known as Public Square.

Operator

Public Square is a leading marketplace of patriotic businesses and consumers. According to the company's merger closing announcement, The company has seen quick adoption of its platform with more than 1,000,000 users and 55,000 business signing up in less than a year. Public Square began trading on the New York Stock Exchange under the symbol PSQH on July 20. At quarter end, we valued our investment at approximately $17,000,000 Our cost basis in Columbia is approximately $2,700,000 As of the business combinations closing on July 19, our warrants are subject to a lockup period equal to the later 30 days or the registration statements effectiveness. The registration statement was filed this afternoon.

Operator

Our common shares are subject to a 1 year lockup period with a pricing condition that would unlock our shares earlier. Alison will provide additional details on our Columbia investment later in the call. In addition, on July 11, 2023, AltC Acquisition Corp, the SPAC, whose Chief Executive Officer is Sam Altman and in which we own share units, announced It signed a definitive agreement to merge with Oaklow, an advanced fission technology and nuclear fuel recycling company. According to the merger announcement press release, the company has achieved significant deployment and regulatory milestones, including securing a site use permit from the United's Department of Energy and receiving a fuel award from the Idaho National Laboratory for commercial scale advanced Vision Power Plant in Idaho targeted to go online in either 2026 or 2027. The combined company will Be named Oclo and intends to list on the New York Stock Exchange with the ticker symbol OKLO.

Operator

The merger is expected to Provide Oklo with up to $500,000,000 of gross capital from Altice Trust account. This assumes no redemptions by Altice shareholders. The transaction, which has been approved by the Board of Directors of Oklo and AltC is expected to close in late 2023 or early 2024. Subject to approval by Altice shareholders, Oklo shareholders, Altice having available cash at closing of at least $250,000,000 and other customary closing additions. And on August 1, 2023, Churchill Capital 7, a SPAC in which we own the direct Shares and warrant units for the sponsor vehicle announced it signed a definitive agreement to merge with CORPAK, a corporate compounder specializing in acquiring small and medium sized enterprises also known as SMEs in the United Kingdom.

Operator

According to the merger announcement press release, Corepath has delivered meaningful financial returns and sustained value over multiple economic cycles. It has achieved a compound annual growth rate for revenue of 16% from 2018 to 2022 with average organic growth outpacing the UK GDP's growth during the same period. Corpac's portfolio consists of 41 businesses in various industries providing diversification and contributing to the resilience through economic cycles. Upon closing of the transaction, the combined company will be named CORPAK and it tends to be listed on the New York Stock Exchange. The transaction is expected to deliver up to $592,000,000 in gross proceeds from Churchill 7's trusted account assuming no redemptions.

Operator

The transaction has been approved by the Board of Directors of CORPAK and Churchill 7 and is expected to close in late 2023 or early 2024 subject to various approvals and at least $350,000,000 of net of dollars delivered net of transaction fees. At quarter end, the value of our investments in ALTSI and Churchill 7 were marked equal to our cost basis of approximately $250,000 $300,000 respectively. Turning to the 2nd quarter. We ended the quarter with a net asset value of $186,700,000 or $7.35 per share. This NAV compares to a net asset of $7.59 per share in Q1 $2,032.24 in Q2 2022.

Operator

Please turn to Slide 6. Turning to our top five positions. I first want to highlight our cash position. As of quarter end, our cash and short term U. S.

Operator

Treasuries available for the quarter were $100,000,000 representing 38% of our cash and short term U. S. Treasuries available for the quarter were $100,000,000 representing 38% of our cash and short term U. S. Treasuries available for the quarter.

Operator

As of quarter end, our cash and short term U. S. Treasuries available for the quarter were were approximately $100,000,000 representing 38% of our gross assets. As we have previously discussed, we believe having cash in this environment advantageously positions us to continue seeking out new opportunities emerging from current market conditions. Ciro Capital's top 5 positions as of June 30 were Lernio, Columbia, now PSQ Holdings, Blink Health, Stormwind and Locus Robotics, these positions accounted for approximately 51% of the investment portfolio at fair value.

Operator

Additionally, as of June 30, our top ten positions accounted for 78% of the investment portfolio. Transitioning to our public investments. As previously stated, it is our objective to sell our public positions when restrictions expire and there's relatively stability in a given public positions trading. In line with this approach, we've continued to monetize our public unrestricted positions. During this quarter and throughout the last month, we monetized a sizable portion of our position in Nextdoor and plan to continually continue optimistically monetizing our public positions as market conditions improve.

Operator

As previously discussed, we continue to focus on shareholder friendly initiatives. To that end, we completed our modified Dutch tender auction, which resulted in a purchase of 3,000,000 shares of common stock at $4.50 per share. Alison will discuss the results of the tender offer in more detail shortly. In addition to the tender offer, on August 7, our Board of Directors Authorized an additional $5,000,000 for share repurchases and an extension of the share repurchase program through October 31, 2024. The expansion brings the total authorized under the share repurchase program to $60,000,000 Given the significant discount at which our stock is trading compared to net asset value, we determine the current continuation of the share repurchase program to be an efficient and accretive deployment of capital.

Operator

As public and private market volatility persists, We remain patient and selective as we evaluate new opportunities. We believe our considerable investable capital affords us an opportunity to continue to add high quality companies to our portfolio. Thank you for your attention. And with that, I will hand it over to Allison Green, our Chief Financial Officer.

Speaker 1

Thank you, Mark. I would like to follow Mark's update with a more detailed review of our recent shareholder initiative, our investment portfolio activity, our financial results as of June 30, 2023 and our liquidity position as of quarter end. First, I will provide detail on the recent Increase and extension of the share repurchase program. Please turn to Slide 7. As Mark mentioned earlier, Suro Capital is committed to initiatives that enhance shareholder value.

Speaker 1

As such, on August 7, our Board of Directors authorized a $5,000,000 expansion to the share repurchase program to $60,000,000 and an extension of the share repurchase program through October 31, 2024. Since the inception of the share repurchase program in August 2017, We have repurchased a total of 5,830 2,008 shares of our common stock for a total deployment of approximately $38,600,000 Of the $60,000,000 authorized by the Board, approximately $21,400,000 remain authorized under the share repurchase program currently set to expire on October 31, 2024. In addition to the share repurchase program, as previously reported, On March 17, 2023, our Board of Directors approved a modified Dutch auction tender offer, which commenced on March 21, 2023, To purchase up to 3,000,000 shares of our common stock at a price per share not less than $3 and not greater than $4.50 per share Using available cash. The tender offer expired on April 17, 2023. Pursuant to the terms of the tender offer, on April 21, 2023, We repurchased 3,000,000 shares at a price per share of $4.50 This represents 10.6 of then outstanding shares.

Speaker 1

The per share purchase price of properly tendered shares represented 60.9% of net asset value per share as of December 31, 2022. The company used available cash to fund the purchase of shares of its common stock and the tender offer and to pay for all related fees and expenses. The purchase price of $4.50 per share represents a 39.1 percent discount to December 31, 2022 NAV per share And a 40.7% discount from March 31, 2023 NAV per share. Again, the tender offer comes in addition to the previously discussed share repurchase program originally authorized by our Board of Directors in August 2017. Next, I'd like to provide a more detailed update on our investment portfolio activity for the second quarter and subsequent to quarter end.

Speaker 1

This does not include investment in short term U. S. Treasuries. During the Q2, we invested a total of $10,500,000 in new and follow on investments. New investments during the Q2 include: a $10,000,000 investment in Service common shares via secondary transaction.

Speaker 1

A $500,000 fall on investment in Pageway's simple agreement for future equity or SAFE. Over the course of the Q2, we began to monetize our Nextdoor common shares. We sold 950,000 common shares $2,900,000 of net proceeds, resulting in a net realized loss of approximately $2,400,000 In addition to sales of Nextdoor public stock, we received approximately $300,000 in proceeds from Second Avenue related to principal interest on the 15% term loan due December 2023 as well as other investment dividend and interest income. During the quarter, we received a dividend of approximately $253,000 from our limited partner fund investment and True Global Ventures 4 Plus. Finally, as of May 4, we abandoned our investment in Aussie Media Inc.

Speaker 1

Next, I would like to provide additional details on our investments in Columbia. In connection with this investment, as of the business combinations closing on July 19, we held 1,976,032 Class A common shares And 2,700,000 warrants. Our Class A common shares are not transferable until the earlier of 1 year after the business combination's closing date Or if the closing price of the Class A common stock equals or exceeds $12 per share for any 20 trading days within any 30 trading day period, convincing at least 150 days after the business combinations closing. Our warrants are subject to a 30 day lockup period after the business combinations closing. Subsequent to quarter end, we invested a total of $7,300,000 in new and follow on investments.

Speaker 1

These include a $5,800,000 And for Kite's common shares via secondary transactions, a $1,000,000 new investment through Suro Capital Sports LLC into Stake Trade Simple Agreement future equity, again, called a safe and a $500,000 follow on investment in Hart's Series B4 preferred shares. Subsequent to quarter end, we sold 589,996 shares of Nextdoor for approximately $1,800,000 of net proceeds, resulting in a net realized loss of approximately $1,400,000 We also received approximately $100,000 in net proceeds from Second Avenue Related to principal repayment and interest on the 15% term loan due December 2023 as well as other investment dividends. Please turn to Slide 8. Segmented by 6 general investment names, the top allocation of our investment portfolio at quarter end was to Financial Technology and Services, representing approximately 35% of the investment portfolio at fair value. Education Technology was the 2nd largest category, representing Approximately 28% of the portfolio.

Speaker 1

The marketplaces category accounted for approximately 16% of our investment portfolio and approximately 14% of our portfolio was invested in cloud and big data companies. Social and mobile accounted for approximately 7% of the fair value of our portfolio and sustainability accounted for less than 1% of the fair value of our portfolio as of June 30. Please turn to Slide 9. We are pleased to report we ended the 2nd quarter 2023 with an NAV per share of $7.35 which is consistent with our financial reporting. The decrease in NAV per share from 7.59 At the end of Q1 2023 to $7.35 as of June 30 was primarily driven by a $0.52 per share decrease resulting from net realized losses on investments during the quarter.

Speaker 1

Also contributing to the decrease was a $0.15 per share decrease due to net investment loss. The decrease in NAV per share was primarily and partially offset by a $0.34 per share increase related to the repurchase of common stock as a result of the tender offer And a $0.06 per share increase related to quarterly adjustments to unrealized investment value in our portfolio. Finally, I would like to take a moment to review SORO Capital's liquidity position as of June 30. We ended the quarter with approximately $112,000,000 of liquid assets, including approximately $24,500,000 in cash, $75,900,000 in short term U. S.

Speaker 1

Treasuries and approximately $11,600,000 in unrestricted public securities. The approximately $11,600,000 of unrestricted public securities held as of quarter end represent our remaining shares in Forge Global, Nextdoor, Dulac Capital Partners and Skillsoft. At June 30, 2023, there were 25,398,640 shares of That concludes my comments. We would like to thank you for your interest and support of Suro Capital. Now I will turn the call over to the operator to start the Q and A Operator?

Speaker 2

Thank We have our first question from Jon Hickman from Ladenburg. Please go ahead.

Speaker 3

Hello?

Operator

Hey, John.

Speaker 3

Yes. Hi. Can you just clarify for me, I'm sure Allison mentioned this, but I think I missed it in all the other numbers. So apart from the tender offer, How much is remaining? How many dollars is remaining on the authorized share buyback program?

Operator

Slightly in excess of $21,000,000

Speaker 3

$21,000,000 And that's like Totally up to whatever happens day to day with the stock price and whatever management wants to.

Operator

Yes. So John, as you know and we've discussed and we've discussed on these calls many times before, we're highly focused on shareholder initiatives, whether it's cost reductions or it's accretive purchases of our own securities. We've been doing it for years And we've done 2 Dutch tender offers within almost a 12 month period of time. So we recognize the discount that the stock is trading at. And we the Board authorized more to have at our disposal to deploy when we see that that's most efficient use of our capital.

Operator

And thanks again for your support. Really appreciate it. Thank you.

Speaker 2

Thank you. Our second question comes from Jason Mukbang from Private Investor. Please go ahead.

Speaker 3

Hi, thanks for taking my question. I was hoping you could elaborate a little bit further on the Columbia Holdings in the fund. If I'm looking at the 10 Q, obviously, Yes, so in Class B units and Class W units, but a lot of the actions happened subsequent to quarter end. And Just curious if you could guide us a little bit on how to think about those holdings going forward or if they were marked today?

Operator

Thank you. And for your question. And we I think Allison did address it in her prepared remarks, but We own approximately slightly under 2,000,000 common shares. We own 2,700,000 warrants. The warrants are have a lockup period that ends 30 days after the deal closed, which was July 19, so approximately August 19, assuming that there's a valid registration statement.

Operator

They did file the registration statement today. So when that registration statement becomes effective or August 19, whatever is the latest, those warrants will become unlocked up. The stock is locked up for a year unless the stock trades above $12 for 20 out of 30 days from the middle of December on. At the present time, we own just 19 1.9 some odd 1000000 shares of 2,700,000 warrants. And again, the action did occur subsequent to quarter's end.

Operator

So thank you.

Speaker 2

Thank you. There are no further questions. I would like to hand the call over to your host, Mark Klen, to conclude today's conference. Thank you.

Operator

Thank you everybody for attending our call. Thank you for your support. If you have any other further questions, please reach out to us directly. Thank you very much.

Speaker 2

Thank you for joining today's call. Thank you for your participation. You may now

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Key Takeaways

  • During Q2 and subsequent periods, Suro Capital deployed approximately $17.8 million across five private market investments, including $10 million in ServiceTitan, $5.8 million in 4kites and $1 million in Profit Exchange, plus follow-ons in Hearth and Payjoy.
  • One SPAC investment closed as Columbia Acquisition merged into Public Square (PSQH), valuing Suro’s stake at about $17 million, while AltC Acquisition agreed to merge with nuclear tech firm Oklo and Churchill Capital 7 with CORPAK.
  • Suro completed a $13.5 million modified Dutch tender offer buying 3 million shares at $4.50 and boosted its share repurchase authorization to $60 million, with $21.4 million remaining under the program.
  • Net asset value (NAV) per share declined to $7.35 at quarter end from $7.59 in Q1, driven by realized losses on investments, partly offset by accretive share repurchases and unrealized value gains.
  • At June 30, Suro held ~38% of its assets (~$100 million) in cash and short-term U.S. Treasuries, providing significant liquidity to pursue new opportunities.
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Earnings Conference Call
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