SuRo Capital Q1 2024 Earnings Call Transcript

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Provided by Quartr
May 8, 2024

There are 4 speakers on the call.

Operator

Bates.

Operator

Please go ahead.

Speaker 1

Thank you very much for joining us on today's call. I'm joined today by the Chairman and Chief Executive Officer of Suro Capital, Mark Klein and Chief Financial Officer, Alison Green. Please note that a slide presentation corresponding to today's prepared remarks by management is available on our website at www.surocap.com under Investor Relations, Events and Presentations. Today's call is being recorded and broadcast live on our website, www.surocap.com. Replay information is included in our press release issued today.

Speaker 1

This call is the property of Suro Capital 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 future performance or financial condition. These statements are not guarantees of our future performance or our future financial conditional results and involve a number of risks, estimates and uncertainties, including the impact of any market volatility that may be detrimental to our business, our portfolio companies, our industry and the global economy that could cause actual results to differ materially from the plans, intentions and expectations reflected in or suggested by the forward looking statements. 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.

Speaker 1

Management does not undertake to update such forward looking statements unless required to do so by law. To obtain copies of Suro Capital's latest SEC filings, please visit our website at www.servocap.com or the SEC's website atsec.gov. Now, I would like to turn the call over to Mark Klein.

Speaker 2

Thank you, Adam. Good afternoon and thank you for joining us. We would like to share the results of SORL Capital's Q1 2024. As most of you know, for over 13 years, SORO Capital has provided public equity investors access to late stage venture capital backed private companies such as Facebook, Twitter, Snap, Lyft, Dropbox, Spotify, Palantir and Coursera, just to name a few. We are excited to see the renewed and accelerating public investor interest in later stage venture capital as an asset class.

Speaker 2

We believe our current portfolio including recent investments year to date will continue to drive shareholder value. We are pleased to share that we have deployed more capital in the last 4 months than any period in the last 2 years. In addition to our previously announced $10,000,000 investment in Liquid Death, we are excited to share that subsequent to quarter end, we invested $10,000,000 in Canva, a leading productivity and design software company and invested $15,000,000 in CoreWeave through an SPP named CW Opportunity. CoreWeave is a cloud infrastructure provider for artificial intelligence and machine learning use cases. CoreWeave is our single largest investment since 2020.

Speaker 2

I will go into more detail on each company later in the call. As many of you know, from late 2020 through 2021, we liquidated a large portion of our portfolio and paid out approximately $9 per share in dividends. We consistently stated we would be patient in redeploying our capital and the belief that we would be able to deliver shareholders access to compelling opportunities. We began redeploying in the middle of last year with investments in ServiceTitan and 4Kites and continued into this year with Liquid Death, Canva and Correv. Over the last 4 months, we deployed half of our cash that was available at year end and we are actively engaged in potential additional investments.

Speaker 2

Given the strong performance in the public equity markets, coupled with the encouraging performance of recently minted IPOs such as Reddit, Rubik, Ibotta and Astera Labs, we believe these are indicators of a renewed investor enthusiasm for high growth technology companies. Turning to our Q1 results, we ended the quarter with a net asset value of $181,700,000 or $7.17 per share. This NAV compares to a net asset value of $7.99 a share at year end and $7.59 per share at the end of Q1 2023. Please turn to Slide 4. Turning to our top five positions, I first want to highlight our cash position.

Speaker 2

As of quarter end, our cash and short term U. S. Treasuries available for investment were approximately $80,400,000 representing 31% of our gross assets. CERO Capital's top five positions as of March 31 were Lernio, ServiceTitan, Link Health, Locust Robotics and Stormwind. These positions accounted for accounted for approximately 78% of the investment portfolio.

Speaker 2

Subsequent to quarter end, we made a $10,000,000 Canva on similar terms as the reported company tender. According to Bloomberg, the valuation of that tender came at a significant discount to Canva's last primary financing. Canva is an online productivity design software and collaboration platform with a mission to empower everyone in the world to design. Featuring a simple drag and drop user interface, the company provides a cloud first browser tool to create presentations, social media posts, videos and more. 2023 was a momentous year for Canva.

Speaker 2

The information reported Canva finished the year with $2,000,000,000 in annualized revenue. Additionally, according to its annual report, Canva surpassed 170,000,000 users monthly users in 190 different countries. Canva also surpassed 20,000,000,000 designs created and over 6,000,000,000 of these designs created in 2023 alone, equivalent to 1,000,000 designs per hour. Over the course of the year, Canva significantly scaled its enterprise segment. At the end of 2023, more than 90% of the Fortune 500 companies were using Canva and 135,000 teams and companies of more than 1,000 employees were designing on the platform.

Speaker 2

According to Canva's end report, these companies include Starbucks, FedEx, Salesforce, Johnson and Johnson, PayPal and many more. Lastly, Canva greatly bolstered its AI powered product offerings in 2023. In October, Canva launched Magic Studio, a suite of AI design tools, including text to image and text to video generation, file reformatting, instant animation and more. According to Canva's annual report, these AI products have already been used more than 4,000,000,000 times. Canva has emerged as a leader in AI facilitated content creation, having been selected as Apple's number 2 generative AI app for 2023.

Speaker 2

According to PitchBook, Canvys raised over 580 $1,000,000 in equity financing from investors including Bessemer Venture Partners, General Catalyst, Iconic and more. We believe CAMBIA is uniquely positioned to dominate the amateur and prosumer design market as it makes graphic design more accessible. Additionally, subsequent to quarter's end, we made a $15,000,000 investment in CWOpportunity 2 and SPV that will invest in CoreWeave's preferred shares. CoreWeave is a specialized cloud provider delivering access to a suite of NVIDIA GPUs coupled with its fast and flexible cloud computing infrastructure. Horween is a critical foundation for AI and machine learning use cases from the initial stages of training a model to ultimately producing a model's output for end users.

Speaker 2

During the training phase, a model takes in large data sets to develop the ability to generate responses and insights. In other words, during the training phase, a model learns how to address its end users' needs. To serve the training phase, Correv offers distributed clusters for connected computers using NVIDIA's groundbreaking quantum Infinity Band Network solution. During the inference phase, a model creates predictions and insights based on a user's live input. The inference phase occurs when, for example, a large language model or LOM writes a response based on a user's input.

Speaker 2

With spin up times as short as 5 seconds, CorWeave offers one of the most powerful inference solutions using NVIDIA GPUs. In fact, according to a company blog post, CorWeave's inference service performs 8 to 10 times faster than a major generalized cloud provider. Over the last few months, CoreWeave has cemented itself as a leader in AI infrastructure. In March, NVIDIA unveiled its Blackwell GPU which according to a company press release will enable organizations to build and run generative AI at up to 25 times less cost and energy consumption than NVIDIA's predecessor. As a preferred cloud service provider of NVIDIA and as a company in which NVIDIA has made an investment, Coral Reef was named as one of the first companies expected to offer Blackwell powered instances to the public.

Speaker 2

With relationships with such companies as NVIDIA, Mistral AI and Datadog, Corweave is a major building block for advancements in generative AI. NVIDIA has seen monumental growth driven by generative AI development and adoption. According to its Q4 and fiscal 2024 results, its data center platform reached a record of approximately $18,400,000,000 in Q4 revenue, up over 400% year over year. In his prepared remarks, management described a tipping point of computing powered by data centers, stating that the data center infrastructure is rapidly transitioning from general purpose to accelerated computing. By offering distributed access to NVIDIA's GPUs, data centers are becoming a foundation element of generative AI.

Speaker 2

As an infrastructure provider, Coreweave is strongly positioned to continue to benefit from NVIDIA's acceleration and broader acceleration in AI. According to PitchBook, Correv has raised over $3,800,000,000 in debt and equity financing from investors such as Coatue, Fidelity, Magnator and others. With its best in class cloud infrastructure, we believe Correv will continue its exponential growth and capitalize on accelerated AI adoption. Please turn to Slide 7. One additional portfolio company we'd like to highlight is our investment in AltC sponsored LLC, a SPAG sponsored by Sam Altman.

Speaker 2

Yesterday, All Sea Acquisition Corp. Shareholders approved the business combination with Oglow, a fast vision, clean power company backed by Sam Altman. While we are always happy when our SPAC sponsor investments complete a business combination. This one is particularly exciting for a few reasons. Oaklow is on the cutting edge of nuclear fuel recycling, which has many uses, including the potential to add clean power to AI related data centers.

Speaker 2

With Sam Altman as Overland's Chairman, the company has been able to create significant partnerships to further its cleantech product suite, most recently through a non binding LOI with Diamondback Energy, the largest independent energy producer in the Permian Basin. Our investment thesis around AI has been delivered. 1st, focusing specifically on the infrastructure of AI. Oglo's product has many use cases. However, its ability to power the hyper growth of AI gives us another entry point into AI infrastructure.

Speaker 2

Our new investment in CoreWeave plus the business combination between Otzi and Oaklow now gives us significant exposure to the picks and shovels of the AI universe. Building this part of our portfolio was deliberate and required a patient deployment of capital, but we are now seeing the results of that strategy play out. We cannot be more excited to have created a portfolio that allows SORO Capital Investors access to the AI infrastructure landscape and industry with limited opportunities for public investors to participate in to date. Transitioning to our public investments. As previously stated, it is our objective to sell our public positions when lockup restrictions expire and there is relative stability in a given public positions trading.

Speaker 2

In line with this approach, we continue to monetize several of our public unrestricted positions over the course of the quarter. During the Q1, we fully exited our remaining position in next door and reduced our position in public square warrants. I would also like to further reiterate CERO Capital's commitment initiatives that enhance shareholders value. Given the discount our stock is traded at compared to net asset value per share, we believe our recent modified Dutch auction tender offer was an efficient and accretive deployment of capital. Alison will discuss the results of the tender offer in her prepared remarks.

Speaker 2

Given these recent investments coupled with our strong portfolio and the positive performances of high profile technology IPOs, we believe our portfolio is well positioned to drive shareholder return. Thank you for your attention. And with that, I would like to hand it over to Alison Green, our Chief Financial Officer.

Speaker 3

Thank you, Mark. I would like to follow Mark's update with a more detailed review of our Q1 investment activity and financial results as of March 31, including investment activity subsequent to quarter end, results of the modified Dutch auction tender offer announced during Q1 and executed subsequent to quarter end and our current liquidity. First, I will review our investment activity. During the Q1, we made a $10,000,000 investment in liquid debt Series S1 preferred shares. Over the course of the Q1, we sold our remaining public common shares in Nextdoor and continue to monetize our warrants in Public Square.

Speaker 3

Notably, we sold 100,000 warrants in Public Square for approximately $103,000 in net proceeds, resulting in a realized gain of approximately $60,000 As Mark mentioned, subsequent to quarter end through today, we completed a $10,000,000 investment in Canva's common shares and a $15,000,000 investment in the Class A interest of EW Opportunity 2 LP, an SPV that will invest in Correv's preferred shares. Please turn to Slide 8. Segmented by 6 general investment themes, the top allocation of our investment portfolio at quarter end was the education technology, representing approximately 31% of the investment portfolio at fair value. The cloud and big data and marketplaces categories both accounted for approximately 19% of our portfolio. Approximately 17% of our portfolio was invested in financial technology and services companies.

Speaker 3

The social, mobile and consumer category accounted for approximately 13% of the fair value of our portfolio and sustainability accounted for less than 1% of the fair value of our portfolio as of March 31. Please turn to Slide 9. We ended the Q1 of 2024 with an NAV per share of $7.17 which is consistent with our financial reporting. The decrease in NAV per share from $7.99 at 2023 year end to $7.17 as of March 31st was primarily driven by a $0.73 per share decrease resulting from unrealized appreciation of our portfolio investments during the quarter, in addition to a $0.13 share decrease due to net investment loss and a $0.02 per share decrease due to net realized losses on our investments. The decrease in NAV per share was partially offset by $0.06 per share increase due to stock based compensation during the quarter.

Speaker 3

As Mark mentioned earlier, Suro Capital is committed to initiatives that enhance shareholder value. Accordingly, on February 14, our Board of Directors approved a modified Dutch auction tender offer, which commenced on February 20, purchase up to 2,000,000 shares of our common stock at a price per share not less than $4 per share and not greater than $5 per share and $0.10 increments using available cash. The tender offer expired on April 1. Pursuant to the terms of the tender offer and following its expiration, we repurchased 2,000,000 shares at a price of $4.70 per share, representing 7.9 percent of outstanding shares. The per share purchase price of properly tendered shares represented 65.6% 58.8 percent of net asset value per share as of March 31, 2024 and December 31, 2023 respectively.

Speaker 3

We used available cash to fund the purchase of shares of common stock in the tender offer and to pay for all related fees and expenses. Because the tender offer expires subsequent to quarter end, is not reflected in our financial statements for the 3 months ended March 31 and will be reflected in next quarter's financials. I would also like to note that the dollar value of shares that may yet be purchased by SORO Capital under the share repurchase program is approximately $20,700,000 The share repurchase program is authorized through October 31, 2024. Finally, I would like to take a moment to review SORO Capital's liquidity position as of March 31. We ended the quarter with approximately 84 point $1,000,000 of liquid assets, including $50,800,000 in cash, dollars 29,600,000 in short term U.

Speaker 3

S. Treasuries and approximately $4,100,000 in unrestricted public securities. At March 31, 2024, there were 25,353,284 shares of the company's common stock outstanding. Presently, following the execution of the tender offer subsequent to quarter end, there are 23,353,284 shares of the company's common stock outstanding. That concludes my comments.

Speaker 3

We would like to thank you for your interest and support of Sderot Capital. Now I will turn the call over to the operator to start the Q and A. Operator?

Operator

Thank And as we have no questions coming through, I'd like to turn it back over to Mark Klein for any closing remarks.

Speaker 2

Thank you all very much for joining us this afternoon. We are truly excited of how we have positioned the portfolio and our ongoing access to really great opportunities. Thank you again very much.

Operator

Thank you very much. That concludes today's conference. You may now disconnect.

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Earnings Conference Call
SuRo Capital Q1 2024
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