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spk01: Good day, everyone, and welcome, excuse me, to the Suro Capital first quarter 2022 earnings conference call. 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, Wednesday, May 4th, 2022. I will now turn the conference over to Willie Lee of Suro Capital. Please go ahead, sir.
spk05: Thank you 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, Allison 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.serocap.com. Replay information is included in our press release issued today. This call is the property of Sero 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 our future performance or financial condition. These statements are not guarantees of our future performance or future financial conditions or results and involve a number of risks, estimates, and uncertainties, including the impact of COVID-19 pandemic and 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. 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.surocap.com or the SEC's website at sec.gov. Now, I would like to turn the call over to Mark Klein.
spk02: Thank you, Willie. Good afternoon, and thank you for joining us. We are pleased to share the results of Suro Capital's first quarter 2022. Volatile public markets coupled with a slowdown across the board and late stage venture capital and IPO activity have resulted in a quiet quarter for the firm. We did not make any new investments during the quarter. However, we continue to have a strong pipeline of opportunities available to us. Given current conditions, We believe that being judicious on price and conviction when assessing a potential investment opportunity is paramount in our mission to create shareholder value. As of yesterday, on a year-to-date basis, the NASDAQ is down roughly 20% and the S&P 500 approximately 13%. Roughly 45% of the companies in the NASDAQ are down 50% or more. and more than 22% of companies in the NASDAQ are down 75% or more. We believe there will be opportunities for the firm to capitalize on as valuations resettle across various industry groups, and we remain excited about the prospects of our existing portfolio companies. With over $170 million of investable capital on hand as of quarter end, we are prepared to take advantage of our robust pipeline and execute on opportunities throughout the late stage private venture environment. Despite significant declines and volatility in the public markets during the quarter, Cerro Capital achieved its highest dividend adjusted NAV per share. At the end of the quarter, Cerro Capital had a net asset value of approximately $381 million or $12.22 per share. The $12.22 per share net asset value is inclusive of an 11 cent per share dividend declared during the quarter and paid in April. This net asset value per share represents a 61 cent increase from the $11.61 dividend adjusted net asset value per share at the end of 2021. As we have consistently demonstrated, Cerro Capital is committed to initiatives that enhance shareholder value, and we believe the market is currently undervaluing our portfolio. Accordingly, in March, our Board of Directors authorized an additional $15 million for share repurchases, bringing the total authorized under the Share Repurchase Program to $55 million. Since that increase, we have repurchased over 580,000 shares for approximately $5 million. Given the significant discount at which our stock is trading compared to net asset value, coupled with the extreme market volatility, we determined the current continuation of the share repurchase program to be an efficient and a creative deployment of capital. Please turn to slide four. Serocapital's top five positions as of March 31st were Course Hero, Forge Global, Blink Health, Aspiration, and Stormwind. These positions accounted for approximately 63% of the investment portfolio at fair value. Additionally, as of March 31st, our top 10 positions accounted for approximately 80% of the portfolio. As previously discussed, Course Hero Our largest position announced on December 14 that they had raised $380 million at a $3.6 billion valuation in their Series C financing, one which we participated in. The company has used these funds to accelerate its goal of building a learning ecosystem that meets the evolving range of study needs for today's learners. We believe Course Hero's recent fundraise gives them a significant advantage as they now have an ability to acquire companies and assets at attractive valuations. In 2021 alone, the company completed acquisitions of LitCharts, Quillbot, CliffNotes, and Symbolab, which positions them to grow their subscriber base. In 2022, they've continued this strategy with the acquisition of the Netherlands-based company Scribbr. Given the inquisitive nature of the company, and the degradation of values in both the public and private markets for education technology companies, combined with a significant amount of capital to deploy, Course Hero has a great opportunity to grow and to thrive. In February, Forge Global released its full-year 2021 financial results, showcasing both record revenue and trading volumes. The company's net revenue grew 75% year over year in 2021 to $125 million. Forge's success was driven by its trading volume, which grew 71% in 2021 to $3.2 billion. In addition, the company continues to gain traction with Forge Intelligence, its private market data platform subscription service. On March 22nd, Forge Global was officially listed on the New York Stock Exchange under the symbol FRGE via a SPAC merger. The merger, completed with Motive Capital Corp., brought in gross proceeds of $215 million. Since Forge's public market debut, the stock has experienced extreme volatility, reaching a high of $47.50 and a low of $11.06. As we mentioned in our press release and presentation today, as of March 31st, we valued our position at $62.7 million. Given the significant declines in all major stock indices, we thought it would be prudent to provide shareholders with a high-level overview of how this volatility can potentially impact our future NAV per share. holding our private portfolio company valuation static as of quarter end, and using share prices of our public companies as of yesterday, May 3rd, inclusive of all applicable discount accounts for liquidity. We estimate the potential current impact of the volatility of the overall decline to be in the range of approximately 55% of 55% per share decrease. This decrease is primarily driven by the volatility of the forged global public share price. As always, it is our intent to be as transparent as possible in respect to our dividend distributions. Given our dividends are based on our net realized gains, present market conditions coupled with customary lockup restrictions on our public investments have generally impacted the opportunity to monetize our positions. Due to these constraints, we anticipate providing additional clarity on the timing and amount of any future distributions later this year. As we have previously stated, it is our intent to sell our public positions when lockups expire and there is relative stability in the marketplace. We have not strayed from this approach. As restrictions are lifted and markets stabilize, we will continue our active and methodical approach to liquidating these unrestricted public positions. Given the volatility occurring in both public and private markets, we believe being patient, remaining prudent on price, and staying true to our investment thesis gives us significant opportunities to make compelling new investments in high-growth companies and industries and to strategically liquidate our public positions in order to drive the most shareholder value. We will continue to focus on democratizing access to the venture capital ecosystem and, as always, will maintain our key philosophy of investing in great companies to deliver value for our shareholders. Thank you for your attention, and with that, I will hand it over to Alice.
spk00: Thank you, Mark. I would like to follow Mark's update with a more detailed review of our portfolio and financial results as of March 31st, 2022. First, I will provide some additional detail on the Share or Purchase Program. Please turn to slide five. As Mark mentioned, on March 13th, our Board of Directors authorized a $15 million expansion to the Share or Purchase Program to $55 million. Under this expanded share repurchase program, since the expansion, as of March 30th, we repurchased 153,517 shares of our common stock for approximately $1.4 million. Subsequent to quarter end and pursuant to a 10 purchase plan, we repurchased an additional 431,134 shares of our common stock for approximately $3.7 million. Since the expansion on March 13th, we have repurchased a total of 584,651 shares of our common stock for a total of just over $5 million. Since the inception of the share repurchase program in August 2017, we have repurchased a total of 5,407,983 shares of our common stock for a total deployment of approximately $35.4 million of the $55 million authorized by the board. Approximately $19.6 million remains authorized under the Share Repurchase Program and is currently set to expire on October 31st, 2022. Please turn to slide six. I will review our investment portfolio allocation by investment theme. Segmented by six general investment themes, the top allocation of our investment portfolio at quarter end is to financial technology and services representing approximately 41% of the investment portfolio at fair value. Education technology was the second largest category, representing approximately 34% of the portfolio. The marketplaces category accounted for approximately 16% of our investment portfolio, and approximately 5% of our portfolio is invested in social mobile companies. Cloud big data accounted for approximately 4% of the fair value of our portfolio, and sustainability accounted for less than 1% of the fair value of our portfolio as of March 31st. Please turn to slide seven. We are pleased to report we ended the first quarter of 2022 with an NAV per share of $12.22, which is consistent with our financial reporting. A breakdown of NAV per share as of quarter end is shown. The increase in NAV per share from $11.72 year end to $12.22 per share as of March 31st was largely driven by 69 per share a $0.69 per share increase attributable to unrealized depreciation of our portfolio investments during the quarter. Also notably contributing to the increase was a $0.10 per share increase related to realized gains on investments. These increases in NAV per share were partially offset, most notably, by a $0.14 per share decrease attributable to net investment loss and an $0.11 per share decrease attributable to dividends declared during the quarter and paid subsequent to quarter ends among other smaller fluctuations. Finally, I would like to review thorough capital's liquidity as of March 31st. We ended the quarter with approximately $189.6 million of liquid assets, including $172.8 million in cash and approximately $16.8 million in unrestricted public securities. This does not include approximately $78.8 million in public securities subject to certain customary lockup provisions at quarter end. In total, Our cash and public positions, both restricted and unrestricted, totaled $268.4 million at quarter end. The approximately $16.8 million of unrestricted public securities held as of quarter end represent our shares in New Lake Capital Partners, Skillsoft, and Rover, valued at the March 31st, 2022 closing prices of $25, $6.04, and $5.77, respectively. The $78.8 million of public securities subject to lockup provisions or other sales restrictions as of quarter end include our positions in Enjoy, Forge, Global, Kahoot, Nextdoor, and Rent the Runway. Valued at March 31st, 2022 closing public share prices, less a discount for lack of marketability related to the lockup provision. Subsequent to quarter end, the aforementioned lockup restrictions expired for our public positions in Enjoy, Rent the Runway, and Nextdoor. As of March 31st, 2022, there were 31,164,443 shares of the company's common stock outstanding. That concludes my comments. We would like to thank you for your interest in support of Storo Capital. Now I will turn the call over to the operator to start the Q&A. Operator?
spk01: Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. In the interest of time, we ask that you please limit yourself to one question and to allow everyone an opportunity to signal. If you are using a speakerphone, please ensure your mute function is turned off to allow your signal to reach our equipment. Once again, that is star one if you would like to ask a question. And we'll go first to Kevin Foltz of JMP Securities.
spk06: Hi, thank you. This is actually Michael Falco filling in for Kevin. Thanks for taking my question. I believe you talked on last quarter's call about the significant opportunities that you're seeing in sports technology and Web3. You're clearly already active in sports technology through Suro Capital Sports and have some exposure to Web3 through your investments in True Global Ventures. Just curious if you're also currently evaluating direct investments in Web3 companies or what the opportunity might look like there for Suro in the future.
spk02: Thank you very much. A great question. So broadly, as you discussed, in Serosport, we are seeing an awful lot of opportunities and evaluating an awful lot. Obviously, the tailwinds behind the legalization of sports gambling and the technology that is ensuing behind it is truly fascinating. And we get to spend a fair amount of time talking about it, and it's been fun. In respect to Web3, et cetera, you're right, we have a very small investment in TG, True Global. They've had very good success with companies like Animoca and the Sandbox and some others. And we have set up and have spent a great deal of time starting to look at those other companies in that space broadly. There is obviously... some pretty aggressive valuations that some of these companies are trying to attain. And we're spending our time to figure out the right areas that we wanted to deploy capital and weigh that against the stretch valuations that are out there at the present time. But thank you for the question.
spk01: And next we'll hear from Mark Palmer with BTIG. Please go ahead.
spk03: Yes, thank you, and thanks for taking my question. As you look across the landscape of investment opportunities right now, particularly in the public, I'm sorry, in the private space, what are you seeing in terms of the trend line on valuations, particularly in the private space, in the verticals that you focus on? You know, we all know what's been going on in the public space, as you mentioned. During your remarks, it's been carnage. But what are you seeing on the private side? And are there any indicators, levels, anything that you are watching for that would cause you to be more aggressive in deploying capital?
spk02: It's a great question, Mark. And, Mark, thanks, as always, for your support. And... and helping out the team in various different verticals. We really appreciate that. As we've discussed over the last few quarters, the public markets have tended to lead the private markets, and for a while there was a bit of a disconnect where public markets were coming in and private markets were, in some cases, actually achieving valuations higher than previous valuations. And for the most part, that is stalled. You're seeing a lot of primary rounds done as extensions of the last round or in some sort of convertible securities that will be priced at a discount against a future round. And all of those are indications that the upward trend broadly in pricing, there's obviously select companies that continue to have increasing valuations. But broadly, primary raises are coming in some sort of either structured security or flat. Where you're really seeing degradation now is in the secondary markets. I think there are a lot of early investors, or not necessarily so early investors, in private companies that anticipated that the IPO market and the stock markets would continue to be robust and were reticent to sell their securities in that environment because they thought they would be taken out at higher valuations. Given the virtual closing down of the IPO market and the significant decline in the public markets, the likelihood of a lot of those companies going public in the near future is much lower. and valuations that they could achieve may not be the levels that they initially thought. So we are seeing secondaries come to us at significant discounts to the last round. And even when we're not excited at that price point, those same sellers come back to us again at lower price points just trying to find a level. So we're now, at least it feels to us, that you're finally getting a break in sort of pricing that is starting to parallel or converge, if you will, with the public markets. We've all been around long enough. They don't ring a bell when you're at the bottom. So what we're trying to do is look at the public comps and see if the private comps come in line with those. And if they're in industries... that we like and companies that we like, then we're inclined to engage and to initiate into conversations. We're in those right now. There are now companies and opportunities that are coming at valuations that are getting into the realm of what we believe is attractive. Thank you, Mark.
spk01: Thank you. Next, we'll hear from John Hickman of Leidenberg.
spk04: Hi. I dialed in late, and I'm sorry if you talked about this on your main comments, but could you talk about your feelings of the SPAC market and, you know, what you think is going on there versus public and private valuations, opportunities, et cetera?
spk02: Okay. Sure. And, John, thanks again for your support and communications with the organization. We greatly appreciate it. The SPAC market, not unlike the IPO market, has quieted down dramatically, maybe for some of the same reasons and some of the different reasons. I think capital formation and public valuations are making it more challenging to take companies public either in a traditional way i.e. an IPO or a less traditional way through a SPAC. So I think the announcements of SPAC business combinations have slowed down dramatically from market conditions. I think secondarily, or secondly is better put, the SEC has come out with proposed guidance and regulations which has caused uncertainty in the marketplace from the sponsor side, from the potential merger targets, as well as from the legal community, the accounting community, and the banking community. So there's a bit of a pause as those proposals turn into some sort of rules that may cause people just have to understand it before deals can move forward. So I think it's a combination of what's going on in the public markets, degradation of value in the public markets, the IPO market quite slowing down, it's consistent with the SPAC market, performance of a lot of the post-SPAC names that have gone through a SPAC process as they fit right in the middle of that part of NASDAQ that is broadly have had, you know, got hit a bit harder than maybe the indices reflect and the regulatory environment. But thanks, John. Really appreciate the question.
spk01: And at this time, there are no further questions. We'll turn the conference back over to you, Mr. Klein, for any additional or closing remarks.
spk02: Well, the whole CERO team thanks all of you shareholders and On the call and those that are interested in our company, we appreciate taking the time out this afternoon to listen. And as always, we're available if you have any further questions you might ask. Thank you again for your support.
spk01: And that does conclude today's conference. We thank you for your participation. You may now disconnect.
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