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Operator
Good day, ladies and gentlemen, and thank you for standing by. Welcome to the Suro Capital's third quarter 2022 earnings conference call. During today's presentation, all parties will be in a listen-only mode. During the presentation, the conference will be open for questions. As a reminder, this call is being recorded today, Tuesday, November 9, 2022. I would like to turn the conference over to Mr. Evan Schlossman of Suro Capital. Please go ahead, sir.
Evan Schlossman
Thank you for joining us on today's call. I am 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. This call is the property of Suro Capital and the unauthorized reproduction of this call in any form is strictly prohibited. I would like to call your attention to our 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, including the impact of the 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.
Mark Klein
Thank you, Evan. Good afternoon, and thank you for joining us. We are pleased to share the results of Suro Capital's third quarter 2022. As Chrisley mentioned, the first nine months of 2022 were the worst for equity markets in the past two decades. As of the beginning of November, the S&P 500 index and the NASDAQ stock market composite were down more than 20% and over 30%, respectively, year-to-date. For comparison, according to Dealogic, roughly 87% of the companies that went public in the U.S. last year are trading below their offering prices. down almost 50% on average. At the same time, we have seen a continued dramatic slowdown in the IPO market, with S&P Global reporting under 40 IPOs in the U.S. this year and more than 60% of the IPOs year-to-date being withdrawn based on a recent PwC report. Over the first nine months of this year, S&P Global reports that there have been 126 U.S. IPOs totaling almost $18 billion, compared to 673 IPOs totaling in excess of $217 billion during the first three quarters of 2021. This represents an 81% decline in the number of IPOs, as well as a 92% decrease in capital raised. Additionally, the Federal Reserve has taken aggressive actions in the hopes of curbing elevated inflationary rates that have been hovering near 40-year highs. Each year to date, the Fed has by 375 basis points with an additional rate hike expected in the fourth quarter of this year and into 2023. As macroeconomic challenges persist, we expect continued acceleration in the repricing of private securities. We are beginning to see bid-ask spreads starting to narrow as increased discounts are reflected in the asking prices of private securities on the secondary markets. As a result, we believe continued pressure from declining macroeconomic conditions and the unfavorable IPO market will present compelling opportunities in the secondary market. While we are currently holding over 46% of our investable assets in cash and U.S. Treasuries, our portfolio investments continue to be impacted by broader market conditions, and we have experienced a challenging quarter. At the end of the third quarter, Searle Capital had a net asset value of $7.83 per share, or approximately $221.8 million, down from $9.24 per share, or $280 million at June 30, 2022. Despite what we believe are short-term declines in valuations, our considerable cash and U.S. Treasury positions of approximately $140 million continues to position us to be opportunistic in evaluating late stage high growth companies at increasingly compelling valuations. Soro Capital continues its commitment to shareholder value enhancing initiatives. Given the discount our stock has traded at compared to net asset value per share, our active share repurchase program coupled with our recent modified Dutch tender offer has been and continue to be efficient and accretive deployments of capital. Year to date, Cerro Capital has repurchased over 3 million shares representing approximately 10% of the previously outstanding shares. Alison will discuss the results of the tender offer in more detail later in the call. Please turn to slide four. Cerro Capital's top five positions as of September 30th were Course Hero, Blink Health, Orchard Technology, Architect Capital PayJoy, SP Stormwind. These positions accounted for approximately 62% of the investment portfolio at fair value. Additionally, as of September 30th, our top 10 positions accounted for approximately 80% of the investment portfolio. 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 position. positions trading. In line with this approach, we have continued to monetize several of our public unrestricted positions over the course of the quarter. During the third quarter, we fully exited our positions in both Enjoy and Palantir Lending Trust and continued to judiciously reduce our positions in New Lake Capital Partners, Rent the Runway, and Rover. In fact, subsequent to year end to quarter end, we closed out our remaining position in Rover. As always, it is our intent to be as transparent as possible with respect to our dividend distributions. As a BDC that is elected to be treated as a RIC, we are required to distribute our net realized long-term capital gains as dividends. At present, we anticipate a net realized long-term capital loss for 2022. Therefore, we do not anticipate distributing any additional this year. Given the continued volatility in both public and private markets, we believe being patient and staying true to our investment thesis gives us significant opportunities to leverage our significant cash positions to add new high growth companies to our portfolio and drive shareholder value. Thank you for your time. And with that, I will turn it over to our Chief Financial Officer, Alison Green.
Evan
Alison Green Thank you, Mark. I will now provide a more detailed review of our third quarter investment activity as of September 30th, including details on the completed modified Dutch auction tender offer and our Q3 financial results and liquidity position. I will also address our anticipated dividend distribution for the remainder of the year. First, I will review our investment activity. During the third quarter, we invested a total of $1.5 million in new and follow-on investments. Investments during the third quarter include a $1 million investment in the X Group Holdings 6% convertible note maturing in 12 months through Soro Capital Sports, and a $500,000 follow-on investment in Orchard Technologies' Simple Agreement for Future Equity or SAFE. Additionally, on an effective August 5, 2022, Soro Capital notified Forge Global that Of its intent to net exercise via cashless settlement, it's 230,144 common warrants in Forge Global into 53,283 shares of Forge public common stock pursuant to the net exercise formula and the warrant agreement. The exercise was effectuated on September 30th, 2022. During the third quarter, we continued to monetize our public common shares in New Lake Capital Partners, Rent the Runway, and Rover, and began to monetize and have fully exited our public common shares of Enjoy Technology. We sold 15,310 common shares of New Lake Capital Partners for approximately $265,000 in net proceeds, resulting in a net realized loss of approximately $40,000. As of September 30th, we have exited 48% of our NLCP position. We sold 60,000 common shares of Rent the Runway for approximately $300,000 of net proceeds, resulting in a net realized loss of approximately $600,000. As of September 30th, we have exited 32% of our rent position. We sold 257,192 common shares of Rover for approximately $1.1 million of net proceeds, resulting in a net realized gain of approximately $300,000. As of September 30th, we have exited 87% of our Rover position. Finally, we sold all 947,297 common shares of Enjoy for approximately $240,000 of net proceeds, resulting in a net realized loss of approximately $5.3 million. As of September 30th, we have fully exited our Enjoy position. Additionally, during the quarter, we received approximately $300,000 in proceeds from 2nd Avenue related to principal repayment and interest on the 15% term loan due December 2023. Finally, on July 14, 2022, a final payment was received for the remaining 512,290 Class A common shares of Palantir Technologies that comprise the beneficial equity interest in underlying shares. The realized gain from Serial Capital's investment in Palantir Lending Trust SPV is generated by the proceeds from the sale of shares collateralizing the repaid promissory note to Palantir Lending Trust SPV and attributable to the equity participation in underlying collateral. The total realized gain on the Palantir Lending Trust SPV is approximately $10.7 million since inception of the collateralized loan in 2020. Subsequent to quarter end through today, we have also monetized the following public positions. We continued monetizing our investment in Rover. As of October 11th, we sold our remaining 100,854 common public shares of Rover for approximately $420,000 in net proceeds, resulting in a net realized gain of approximately $100,000. We also sold all 61,367 currently unrestricted shares of Kahoot! common stock for approximately $130,000 in net proceeds, resulting in a net realized loss of approximately $152,000. We currently hold 38,305 remaining restricted shares of Kahoot! or 38% of our original position. Finally, subsequent to quarter end, we received approximately $100,000 in net proceeds from Second Avenue related to principal repayment and interest on the 15% term loan due December 2023. please turn to slide five. I will review our investment portfolio allocation by investment thing. Segmented by general investment themes, the top allocation of our investment portfolio at quarter end is education technology, accounting for approximately 43.4% of the investment portfolio at fair value. The second largest category was financial technology and services, representing approximately 24% of the portfolio. The marketplaces category represented approximately 17.7% of our investment portfolio, and social mobile companies comprised approximately 11% of our portfolio. Cloud big data contributed to approximately 3.3% of fair value of our portfolio, and sustainability accounted for less than 1% of the fair value of our portfolio as of September 30th. Please turn to slide six. As mentioned by Mark earlier, on August 8, 2022, Thoreau Capital commenced a modified Dutch auction tender offer, or the tender offer, to purchase up to 2 million shares of its common stock from shareholders, which expired on September 2, 2022. In accordance with the terms of the tender offer, we selected the lowest price per share of not less than $6 per share and not greater than $7 per share. Pursuant to the tender offer, on September 12th, we repurchased 2 million shares at a price of $6.60 per share on a pro-rata basis and representing 6.6% of then outstanding shares. Available cash of $13.2 million before expenses was used to fund the tender offer purchase of shares of common stock and additional cash was used to pay for all additional related fees and expenses. The per share purchase price of properly tendered shares represents 71.4% of net asset value per share or an approximate 28.6% discount to NAV per share as of June 30, 2022. The proration factor for the tender offer was determined to be approximately 75%. The tender offer comes in addition to the previously discussed Share or Purchase Program originally authorized by our Board of Directors in August 2017. As previously mentioned, on March 13, the Board of Directors authorized a $15 million expansion of the Share or Purchase Program to $55 million. On October 19th, the Board of Directors approved an extension of the share purchase program until October 31st, 2023. Approximately $16.4 million remains authorized under the program. Year to date, we have repurchased a total of 1,008,676 shares of our common stock for approximately $8.3 million under the share purchase program. In combination with the recent tender offer, year to date, we have repurchased over 3 million shares of our common stock or approximately 10% of previous outstanding shares for approximately $21.5 million. Under the Share Repurchase Program in combination with the 2019 and 2022 tender offers, Cerro Capital has repurchased approximately 9.3 million shares of its common stock for an aggregate purchase price of approximately $61.8 million. Please turn to slide 7. We ended the third quarter of 2022 with an NAV per share of $7.83, which is consistent with our financial reporting. A breakdown of NAV per share as of quarter end is shown. The decrease in NAV per share from $9.24 at the end of the second quarter to $7.83 per share as of September 30th was primarily driven by a $1.30 per share decrease resulting from unrealized depreciation of our portfolio investments during the quarter. Additionally, an $0.18 per share decrease due to net realized loss on investments and a $0.13 per share decrease due to net investment loss also contributed to the decline. These decreases in NAV per share were partially offset by an aggregate $0.20 per share increase due to capital transactions, including a $0.17 per share increase attributable to the repurchase of common stock via the tender offer and stock-based compensation. The use of cash in connection with the tender offer-related share repurchases decreased net asset value as of quarter end. However, the reduction in shares outstanding as of quarter end resulted in an increase in the net asset value per share. Next, I will review Serocapital's liquidity position as of September 30th. We ended the quarter with approximately $154.2 million of liquid assets, including approximately $39.7 million in cash, $99.2 million in short-term U.S. Treasuries, and approximately $15.3 million in unrestricted public securities. This does not include approximately $70,000 in public securities subject to certain customary lockup provisions at quarter end. In total, our cash, short-term U.S. Treasuries, and public positions, both restricted and unrestricted, totaled $154.3 million at quarter end. The approximately $15.3 million of unrestricted public securities, held as of quarter end, represent our shares in Forge, Nextdoor, New Lake Capital, Partners, Rent the Runway, Rover, and Skillsoft, valued at the September 30, 2022 closing price. The $70,000 of public securities subject to lockup provisions or other sales restrictions as of quarter end is comprised of our position in Kahoot, valued at September 30, 2022 closing public share price, less a discount for lack of marketability related to the lockup provision. As of September 30, 2022 and currently, there are 28,333,661 shares of the company's common stock outstanding. Finally, I'd like to follow up Mark's commentary regarding our tax treatment as a BDC RIC and currently anticipated dividends for the remainder of 2022. As previously mentioned, Cerro Capital has elected to be treated as a RIC under Subchapter M of the Internal Revenue Code beginning in 2014 and has qualified to be treated as a RIC for subsequent taxable years. To qualify and be subject to taxes or risk, the company is required to meet certain requirements in addition to the distribution requirements of an amount generally at least equal to 90% of its investment company taxable income as defined by the code. The amount to be paid out as a distribution is determined by the board of directors each quarter and is based upon the annual earnings estimated by the management of the company. The date and declaration and amount of any dividends, including any future dividends, are subject to the sole discussion of Suro Capital's board of directors. The aggregate amount of the dividends declared and paid by Cerro Capital will be fully taxable to stockholders. The tax character of Cerro Capital's dividends cannot be finally determined until the close of Cerro Capital's taxable year, which is December 31st. Cerro Capital will report the actual tax characteristics of each year's dividends annually to stockholders and the IRS on form 1099-DIV subsequent to year end. Given our current year net investment loss of approximately $11.8 million and the net realized loss on investments of $4 million, we do not currently anticipate paying any additional dividends for the remainder of 2022. That concludes my comments. We would like to thank you for your interest and support of Stero Capital. Now I will turn the call over to the operator to start the Q&A session. Operator?
Operator
Thank you, ma'am. If you'd like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure that your mute function is turned off to allow your signal to reach our equipment. In the interest of time, please limit yourself to one question. Once again, that's star one to enter the queue. We will take the first question from Mark Palmer. Your line is open. Please go ahead.
Mark Palmer
Yes, thank you, and thanks for taking my question. What is a sense of what you are seeing out in the private markets and and how that situation has evolved since the end of the last quarter. And what I'm talking about in particular, the extent to which funding has become unavailable, the extent to which we're seeing other players in the market that are looking to potentially dispose of some of their positions, things of that nature.
Mark Klein
Sure. Mark, thanks again for all your efforts and support. We really appreciate it. As we mentioned in our prepared remarks, we started to see this in Q2, that there is a realization for folks that are trying to liquidate positions that there's a different price point between buying and selling. At the beginning of the year, they were pretty wide apart. In Q2, we started seeing sellers realize what was going on in the public markets, and there was some easing in pricing in the second quarter. Right now, we're seeing significant discounts, not only to prior rounds, but where trades can be effectuated. And that is a change. I think that as we move into year end, the IPO market really hasn't gotten much better. The markets are pretty volatile. there is more of a sense of urgency from sellers and more of a desire or willingness to take lower valuations. So clearly in the secondary market, the spread between bid and ask is much less than it had been earlier in the year. I think as far as primary financing, I think it's really challenging right now. There are certainly companies that are doing extraordinarily well, and you read about that there are financings that are done at or above prior rounds. But the vast majority that we are seeing are extension of last rounds, some sort of unpriced round that will be discounted to the next round, or companies that ultimately are going to need financing that are just deciding to pause and hoping that next Q1 or Q2 will be a better financing environment for them. And therein lies the challenge for us as we look at where we should be participating in the secondary markets, what is going to happen to those companies as they're looking to raise money and what valuations, if at all, are going to be available to those companies where they're trying to raise capital in the future. Thank you.
Operator
Thank you. And that does conclude today's question and answer session. I'd like to turn the conference back over to management for additional or closing remarks.
Mark Klein
Thank you. Thank you all for participating. We appreciate your interest in our company, and as always, we're available to answer questions that you may have either by going through and reaching us directly. Thank you very much.
Operator
Thank you. That does conclude today's conference. We thank you for your participation, and you may now disconnect.
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