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spk15: Quarter 2024 Earnings Call. My name is Melissa, and I will be your coordinator for today's event. Please note, this conference is being recorded, and for the duration of the call, your lines will be in a listen-only mode. However, you will have the opportunity to ask questions at the end of the presentation. This can be done by pressing star 1 on your telephone keypad to register your question. If you require assistance at any point, please press star 0, and you will be connected to an operator. I'll now turn the call over to Evan Schlossman. Please go ahead.
spk13: Thank you for joining us on today's call. I am joined today by the Chairman and Chief Executive Officer of Cero 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.cerocap.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 condition or results and involve a number of risk 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 it. 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 Serocapital's latest SEC filings, please visit our website at www.serocap.com or the SEC's website at sec.gov. Now I would like to turn the call over to Mark Lyons.
spk08: Thank you, Evan. Good afternoon and thank you for joining us. We would like to share the results of Serocapital's second quarter 2024. The second quarter was a broadly positive quarter for the U.S. economy and equity markets as investors became increasingly confident in the prospect of rate cuts later in the year. But as of last week, the market has become volatile. with a VIX spiking to levels not seen since the onset of COVID in March of 2020. A confluence of domestic and global factors led to this sharp change in investor sentiment. Last Thursday's disappointing data on employment, manufacturing, and construction pushed 10-year Treasury yields below 4% for the first time since February. Investor fears were exacerbated on Friday when a weak jobs report showed decelerating U.S. job growth and rising unemployment. We also saw some large-cap technology companies issue weaker-than-expected forward guidance, driving investors' skepticism on monetization timelines for their investments in AI. Outside of the U.S., an unexpected rate hike from the Bank of Japan last week fueled investor uncertainty as the ongoing geopolitical conflict in the Middle East. With that said, in Q2, private technology companies saw increasing interest from investors. According to the pitch book NBCA Q2 2024 Venture Monitor, both venture deal count and value reached their highest quarterly levels since Q2 of 2022. With several multi-billion dollar capital raises, AI continued to see significant investor interest. In fact, according to the same source, XAI's $6 billion Series B financing, along with Coral Weave's $8.6 billion Series C and debt financing, made up over 26% of the second quarter's total dual value. As previously announced, we are pleased to have invested $15 million into the Coral Weave funding round via an SPV, in addition to a $10 million investment in Canva, which continues to integrate AI across its product suite. While volatility has increased, we are encouraged that despite the recent technology sector's struggling performance in the public markets, we have started to see the public markets broaden with a recent positive performance of mid and small cap companies and early indications of potential upcoming IPOs from companies such as Klarna, Sheen, Skims, and Shine, signaling investor increasing appetite for marquee names. For the last several quarters, we have deployed capital into late-stage technology companies such as Corweed, Canva, and Liquid Death at compelling entry prices. We believe that these investments strengthen our already well-positioned existing portfolio for the reopening of the IPO window. I would now like to discuss our note repurchase program approved yesterday by our Board of Directors. Under the program, we are authorized to repurchase in the open market up to $35 million in aggregate principal amount of our 6% notes due in 2026. Alison will discuss the note repurchase program during her prepared remarks. I would also like to announce that we have entered into a note purchase agreement with an institutional investor via a private placement, which allows us to issue up to $75 million an aggregate principal amount of 6.5% convertible notes due in 2029, with an initial issuance of up to $25 million. We believe the convertible notes position us well for a number of reasons. First, the notes are initially convertible at $7.75 per share, approximately 104% premium from today's closing price. signaling significant confidence in our portfolio from our investor. If converted, this would be a meaningfully accretive transaction to our shareholders. Second, the notes will extend the maturity of a portion of our debt by three years, strengthening our ability to deploy capital. Finally, given prevailing interest rates, we believe the interest rate of 6.5% is highly favorable. Allison will discuss the notes of purchase agreement during her fair remarks. Turning to our second quarter results, we ended the quarter with a net asset value of $162.3 million, or $6.94 per share. This net compares to a net asset value of $7.17 per share in Q1 and $7.35 per share in Q2 last year. Please turn to slide four. Turning to our top five positions, I will first want to highlight our cash position. As of core end, our cash available for investment was approximately $54.4 million, representing 22% of our gross assets. Cerro Capital's top five positions as of June 30th were Lernio, Blake Health, the CoreWeave SPV, Service Titan, and Locust Robotics. These positions accounted for approximately 49% of the investment portfolio at fair value. Additionally, as of June 30th, our top 10 positions accounted for approximately 75% of the investment portfolio. I would now like to discuss some of our larger investments in greater detail, starting with Blink Health. Blink Health's QuickSave and Blink's Rx product lines create a significant value proposition for the entire value chain. from pharma manufacturers looking to increase first fill rates all the way to consumers looking to find the best price on their medications. Blink Health continues to increase their customer base and sign additional partnerships with pharmaceutical manufacturers while maintaining relationships with pharmacies around the U.S. to distribute its quick-save product. We remain excited about Blink Health's positioning with the pharmaceutical SaaS market I believe the company is well-positioned to expand significantly in the coming months and years. Next, I would like to discuss our investment in Whoop, one of our 10 largest positions. The Whoop band provides actual insights to users to optimize performance by offering metrics like heart rate variability and resting heart rate. The combination of Whoop's best-in-class software and wearable band allows a user to understand how specific lifestyle and training behaviors may affect their recovery and ability to perform on a given day. Whoop announced a global partnership with an investment from soccer star Cristiano Ronaldo, according to a press release in May. Ronaldo is one of several of Whoop's internationally recognized ambassador investors, including Patrick Holmes, Michael Phelps, Eli Manning, Rory McIlroy, Scotty Scheffler, and more. Whoop continues to cement itself as a leader in the health and wellness space, most recently announcing the launch of its body composition and weight trends feature in partnerships with Withings, another leader in connected health. These features create an even greater value proposition for Whoop as consumers continue to find more fitness and sleep wearables to choose from. We remain incredibly excited about Whoop's success and path to becoming the dominant wearable in the category. Please turn to slide five. As previously discussed during the second quarter, we made a $10 million investment in Canva on similar terms as the reporting company, Tender. According to Bloomberg, the valuation of the Tender came at a significant discount to Canva's last primary financing Canva is an online productivity design software collaboration platform with a mission to empower everyone in the world to design. Since our initial investment in Canva, the company has made significant strides to further integrate itself into the broader design ecosystem. For example, in May, the company announced a partnership with HP to expand its design-to-print services worldwide through localized printing options. In July, the company announced a partnership with Artlist, allowing creators to integrate royalty-free digital assets from Artlist's collection directly into the Canva platform. According to Bloomberg, Canva has surpassed $2.3 billion in annualized revenue, with sales growing at a rate of 50% year-over-year. According to PitchBook, Canva has raised over $581 billion in equity financing. from investors including Bessemer Venture Partners, General Catalyst, Iconic, and more. We are excited about Canva's traction and positioning in the market as it expands its enterprise footprint and further captures international markets. Please turn to slide six. Additionally, during the second quarter, we made a $15 million investment in CW Opportunity 2LP and SPV that is invested in CoreWeave's Series C 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. CoreWeave is a critical foundation for AI and machine learning use cases from the initial stages of training a model to ultimately providing a model's output for end users. To serve the training phase, CoreWeave offers distributed clusters for connected computers using NVIDIA's groundbreaking Quantum InfiniBand networking solution. Additionally, with spin-up times as short as five seconds, CoreWeave offers one of the most powerful inference solutions using NVIDIA GPUs. In fact, according to a company blog post, CoreWeave's inference service platform is eight to ten times faster than a major generalized cloud provider. Since our investment in early May, CoralWeave has continued its impressive momentum. Later that month, according to a company press release, CoralWeave announced an agreement for a $7.5 billion debt facility led by funds managed by Blackstone with participation from Magnetar and CodeTwo. This debt financing will be used to further grow CoralWeave's capacity to serve large enterprises at the forefront of AI, both in the U.S. and internationally. In early June, according to a company press release, CoreWeave announced its plans to invest $2.2 billion to expand and open three new data centers in Norway, Sweden, and Spain by the end of 2025. This EU expansion is in addition to their $1.3 billion UK expansion in May. According to PitchBook, CoralWeave has raised over $9 billion in debt and equity financing from investors such as Kotu, Fidelity, Magnetar, and others. With its best-in-class cloud inference, we believe CoralWeave will continue its exponential growth and capitalize on accelerated AI adoption. Please turn to page, slide seven. One additional portfolio company we'd like to highlight again is our investment in Alt-C Sponsor LLC, the sponsor of the SPAC led by Sam Altman. As previously discussed, during Q2, Alt-C acquisition shareholders approved the business combination with Oclo, a fast vision, clean power company. While we are always happy with our SPAC sponsors complete a business combination, this one is particularly exciting for a few reasons. Oclo 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. In late May, according to a company press release, Oklo announced its partnership with Wyoming Hyperscale to supply 100 megawatts of clean energy to a state-of-the-art data center campus as part of a 20-year power purchase agreement. Last month, according to a company press release, Oklo announced the successful demonstration of its advanced fuel recycling process marking a significant step forward in enhancing fuel cost effectiveness and sustainability. Our investment thesis around AI has been deliberate, first focusing specifically on the infrastructure of AI. Our new investment in Coral Weave through the CW Opportunity LP, plus the business combination between Altsea and Oklahoma, Now it gives us further exposure to the structural foundations of the AI universe. 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's positions trading. In line with this approach, we began to monetize our position in public square holding shares as their lockup restrictions expire subsequent to quarter's end. I would like to also further reiterate CERO's commitment to initiatives that enhance shareholder value. Given the discount our stock has 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. Given our recent investments and broader portfolio, we believe we are well-positioned to drive shareholder return. Thank you for your attention, and with that, I will hand it over to Allison, our Chief Financial Officer.
spk16: Thank you, Mark. I would like to follow Mark's update with a more detailed review of our second quarter investment activity and financial results as of June 30th, including results of the modified Dutch auction tender offer announced during Q1 and executed during Q2. Additionally, I'll provide more detail on the 6 1⁄2 note repurchase agreement and board-approved note repurchase program and our current liquidity. Please turn to slide 8. As Mark mentioned, during the second quarter, we completed a $10 million investment in Canvas common shares through a secondary transaction and a $15 million investment in the Class A interest of CW Opportunity 2LP, an SPV that is invested in CoreWeave Series C preferred shares. During the second quarter, we redeemed our membership interest in Architect Capital Pageway STV, resulting in net proceeds of approximately $10 million. We also received a distribution of approximately $233,000 related to our limited partner fund investment in True Global Ventures 4+. Please turn to slide 9. Subsequent to quarter end, we began to sell our public common shares in Public Square following their lockup expiration on July 19th. To date, we have sold 220,000 shares of Public Square for approximately $632,000 in net proceeds, resulting in a realized gain of approximately $458,000. Please turn to slide 10. Segmented by six general investment themes, the top allocation of our investment portfolio at quarter end was to AI, cloud, and big data, representing approximately 34% of the investment portfolio at fair value. Marketplaces and education technology were the next largest categories with approximately 22% and 21% of our portfolio respectively. Approximately 13% of our portfolio was invested in social, mobile, and consumer companies, and the financial technology category accounted for approximately 9% of the fair value of our portfolio. Sustainability and alternative energy accounted for 1% of the fair value of our portfolio as of June 30th. Please turn to slide 11. We ended the second quarter of 2024 with an NAV per share of $6.94, which is consistent with our financial reporting. The decrease in NAV per share from $7.17 at Q1 to $6.94 as of June 30th was primarily driven by a $0.30 per share decrease resulting from unrealized depreciation of our portfolio investments during the quarter and a $0.16 per share decrease due to net investment loss. The decrease in NAV per share was partially offset by a $0.20 per share increase from the repurchase of common stock related to our recent tender offer, and a $0.03 per share increase from the impact of stock-based compensation during the quarter. As mentioned by Mark, Soro Capital is committed to initiatives that enhance shareholder value. Accordingly, on February 14th, our Board of Directors approved a modified Dutch auction tender offer, which commenced on February 20th, to purchase up to 2 million shares of our common stock at a price per share not less than $4 per share and not greater than $5 per share in 10-cent increments using available cash. Pursuant to the terms of the tender offer, following the expiration of the tender offer on April 1, 2024, we repurchased 2 million shares of our common stock at a price of $4.70 per share, representing 7.9% of outstanding shares. The per share purchase price of properly tendered shares represented 65.6% of the net asset value per share as of March 31st, 2024. We used available cash to fund the purchase of shares, common stock, and the tender offer, and to pay for all related fees and expenses. I would also like to note that the dollar value of shares that may yet be purchased by Soro Capital under the Share of Purchase Program is approximately $20.7 million. The Share of Purchase Program is authorized through October 31st, 2024. Next, I'd like to provide more detail on the executed no-purchase agreement for 6.5% convertible notes due 2029. On August 6, 2024, Serial Capital entered into a no-purchase agreement, pursuant to which we may issue up to a maximum of $75 million in aggregate principal amount of 6.5% convertible notes due 2029. Pursuant to the no-purchase agreement, we initially agreed to issue and sell, and the purchaser agreed to purchase, up to $25 million in aggregate principal amount of the convertible notes. Thereafter, upon mutual agreement between the purchaser and us, we may issue additional convertible notes for sale in subsequent offerings or issue additional notes with modified pricing terms in the aggregate for both the additional notes and the new notes up to a maximum of $50 million in one or more private offerings. The purchaser will acquire and we will issue up to $25 million of the initial notes on or about August 14, 2024, and thereafter at such time and date as the purchaser and we mutually agree to purchase and sell any additional notes. Interests on the convertible notes will be paid quarterly in arrears on March 30th, June 30th, September 30th, and December 30th at a rate of 6.5% per year beginning September 30th, 2024. The convertible notes will mature on August 14th, 2029 and may be redeemed in whole or in part at any time or from time to time at our option on or after August 6th, 2027 upon the fulfillment of certain conditions. The convertible notes will be convertible into shares of our common stock at a purchaser's sole discretion at an initial conversion price of $7.75 per share, equating to a conversion rate of 129.0323 shares of our common stock for 1,000 principal amount of the convertible notes, subject to adjustment as provided in the note purchase agreement. The net proceeds from the offering will be used to repay outstanding indebtedness, make investments in accordance with our investment objective and investment strategy, and for other general corporate purposes. The note purchase agreement includes customary representations, warranties, and covenants by the company. Additionally, I'd like to provide more detail on the note repurchase program. On August 6, 2024, Soho Capital's Board of Directors approved a discretionary note repurchase program, which allows us to repurchase up to 46.67% or $35 million in aggregate principal amount of our 6% notes due 2026 through open market transactions. including block purchases, in such manner as will comply with the provisions of the Investment Company Act of 1940 as amended and the Securities Exchange Act of 1934 as amended. As of August 7, 2024, we had not yet repurchased any of the 6% notes due 2026 under the note repurchase program. Finally, I would like to take a moment to review Cerro Capital's liquidity position as of June 30th. We ended the quarter with approximately $57.6 million of liquid assets, including approximately $54.4 million in cash, and approximately $3.2 million in unrestricted public securities. At June 30, 2024, and currently, there are 23,378,002 shares of the company's common stock outstanding. That concludes my comments. We would like to thank you for your interest and support of Serum Capital. Now I will turn the call over to the operator for the start of the Q&A session. Operator? Operator?
spk15: Thank you very much. As a reminder, if you'd like to ask a question on today's call, you may press star 1 on your telephone keypad to register your question. To withdraw your question for any reason, you may press star 2. We kindly request that you limit yourself to one question, and you will be advised when to ask your question. We have a question from Mac Sykes of Gabelli Fund. Please go ahead.
spk18: Oh, I just want to wish you congratulations on the team for rebuilding the portfolio. certainly some innovative companies in the mix.
spk17: Thanks, Max.
spk18: Go ahead. Actually, I know I'm limited to one question, but I wanted to just to, since it's been a while, I wanted to ask about the IPO cycle, and I had three sub-questions from that, so I'll just ask them. First, typically for an IPO, what is the percentage that you may typically realize kind of on the opening, and then how long is the lockup typical for the balance of that realization? And then assuming a $10 million gain on XYZ company, what is retained by the company and what is paid out to investors? And then typically, what's the timing of dividends following some realizations? And then my last question is around, is the company at this point carrying any tax shield to offset potential gains? Thanks. That's the best way to ask one question.
spk08: So, first of all, thanks for the kind words and thanks for being a supportive shareholder. I think it's kind of pretty well documented in the press right now. The IPO cycle, certainly before last week, was gearing up and the expectations as we entered, you know, sort of exited the summer into the early part of September, you would see the ramp up in the IPO market, which I still think we're going to see in the Q3 anyhow. I think that's consistent with broadly what's out there. Specifically, or what's typical, is in any traditional IPO, shares are typically locked up for an additional six months, so we don't have liquidity until six months after the IPO occurs, typically. On direct listings, that's waived, but on traditional IPOs, that would be As far as our distributions are concerned, generally speaking as a BDC, we're required to distribute on a capital gains basis functionally all of the gains. So those would be distributed. As far as the tax shields, I don't think we actually look at anything as a tax shield, but we carried into this year some amount of capital losses So the first application of capital gains would be against those capital losses. When those capital losses are exhausted, then we would be in a dividend position, and we would obviously pay out the dividends. We are very communicative about our dividend strategy. We have been in the past, and we will lay it out for our investors as we find ourselves in the position.
spk15: Thank you very much. As we have no further questions in the queue, I would like to turn it back over to Mark Klein for any closing remarks.
spk07: I want to thank everybody from the CERO team. Thank all of our investors. Thank you for joining the call today.
spk08: I know the markets have been a bit chaotic, so I appreciate that you took the time to listen to us today, hear our story, and be supportive.
spk07: Thank you very much.
spk15: Thank you very much. That concludes today's conference. You may now disconnect. Thank you. Thank you.
spk01: Thank you. Thank you. Thank you. you Thank you. Thank you.
spk15: Hello and welcome to Cerro Capital's second quarter 2024 earnings call. My name is Melissa and I will be your coordinator for today's event. Please note this conference is being recorded and for the duration of the call, your lines will be in a listen-only mode. However, you will have the opportunity to ask questions at the end of the presentation. This can be done by pressing star 1 on your telephone keypad to register your questions. If you require assistance at any point, please press star zero and you will be connected to an operator. I'll now turn the call over to Evan Schlossman. Please go ahead.
spk13: Thank you for joining us on today's call. I am joined today by the Chairman and Chief Executive Officer of Cero 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.cerocap.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 condition or results and involve a number of risk 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 the 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 is not undertaken to update such forward-looking statements unless required to do so by law. To obtain copies of Serocapital's latest SEC filings, please visit our website at www.serocap.com or the SEC's website at sec.gov. Now I would like to turn the call over to Mark.
spk08: Thank you, Evan. Good afternoon and thank you for joining us. We would like to share the results of Serocapital's second quarter 2024. The second quarter was a broadly positive quarter for the U.S. economy and equity markets as investors became increasingly confident in the prospect of rate cuts later in the year. But as of last week, the market has become volatile. with a VIX spiking to levels not seen since the onset of COVID in March of 2020. A confluence of domestic and global factors led to this sharp change in investor sentiment. Last Thursday's disappointing data on employment, manufacturing, and construction pushed 10-year Treasury yields below 4% for the first time since February. Investor fears were exacerbated on Friday when a weak jobs report showed decelerating U.S. job growth and rising unemployment. We also saw some large-cap technology companies issue weaker-than-expected forward guidance, driving investors' skepticism on monetization timelines for their investments in AI. Outside of the U.S., an unexpected rate hike from the Bank of Japan last week fueled investor uncertainty as the ongoing geopolitical conflict in the Middle East. With that said, in Q2, private technology companies saw increasing interest from investors. According to the pitch book MVCA Q2 2024 Venture Monitor, both venture deal count and value reached their highest quarterly levels since Q2 of 2022. With several multi-billion dollar capital raises, AI continued to see significant investor interest. In fact, according to the same source, XAI's $6 billion Series B financing, along with Coral Weave's $8.6 billion Series C and debt financing, made up over 26% of the second quarter's total dual value. As previously announced, we are pleased to have invested $15 million into the Coral Weave funding round via an SPV, in addition to a $10 million investment in Canva, which continues to integrate AI across its product suite. While volatility has increased, we are encouraged that despite the recent technology sector's struggling performance in the public markets, we have started to see the public markets broaden with a recent positive performance of mid and small cap companies and early indications of potential upcoming IPOs from companies such as Klarna, Sheen, Skims, and Shine, signaling investor increasing appetite for marquee names. For the last several quarters, we have deployed capital into late-stage technology companies such as Corweed, Canva, and Liquid Death at compelling entry prices. We believe that these investments strengthen our already well-positioned existing portfolio for the reopening of the IPO window. I would now like to discuss our note repurchase program approved yesterday by our Board of Directors. Under the program, we are authorized to repurchase in the open market up to $35 million aggregate principal amount of our 6% notes due in 2026. Alison will discuss the note repurchase program during her prepared remarks. I would also like to announce that we have entered into a note purchase agreement with an institutional investor via a private placement, which allows us to issue up to $75 million an aggregate principal amount of 6.5% convertible notes due in 2029, with an initial issuance of up to $25 million. We believe the convertible notes position us well for a number of reasons. First, the notes are initially convertible at $7.75 per share, approximately 104% premium from today's closing price. signaling significant confidence in our portfolio from our investor. If converted, this would be a meaningfully accretive transaction to our shareholders. Second, the notes will extend the maturity of a portion of our debt by three years, strengthening our ability to deploy capital. Finally, given prevailing interest rates, we believe the interest rate of 6.5% is highly favorable. Allison will discuss the notes of purchase agreement during her fair remarks. Turning to our second quarter results, we ended the quarter with a net asset value of $162.3 million, or $6.94 per share. This net compares to a net asset value of $7.17 per share in Q1 and $7.35 per share in Q2 last year. Please turn to slide four. Turning to our top five positions, I will first want to highlight our cash position. As of core end, our cash available for investment was approximately $54.4 million, representing 22% of our gross assets. Cerro Capital's top five positions as of June 30th were Lernio, Blake Health, the CoreWeave SPV, Service Titan, and Locust Robotics. These positions accounted for approximately 49% of the investment portfolio at fair value. Additionally, as of June 30th, our top 10 positions accounted for approximately 75% of the investment portfolio. I would now like to discuss some of our larger investments in greater detail, starting with Blink Health. Blink Health's QuickSave and Blink's Rx product lines create a significant value proposition for the entire value chain. from pharma manufacturers looking to increase first fill rates all the way to consumers looking to find the best price on their medications. Blink Health continues to increase their customer base and sign additional partnerships with pharmaceutical manufacturers while maintaining relationships with pharmacies around the US to distribute its quick-save product. We remain excited about Blink Health's positioning with the pharmaceutical SaaS market I believe the company is well-positioned to expand significantly in the coming months and years. Next, I would like to discuss our investment in Whoop, one of our 10 largest positions. The Whoop band provides actual insights to users to optimize performance by offering metrics like heart rate variability and resting heart rate. The combination of Whoop's best-in-class software and wearable bands allows a user to understand how specific lifestyle and training behaviors may affect their recovery and ability to perform on a given day. Whoop announced a global partnership with an investment from soccer star Cristiano Ronaldo, according to a press release in May. Ronaldo is one of several of Whoop's internationally recognized ambassador investors, including Patrick Holmes, Michael Phelps, Eli Manning, Rory McIlroy, Scotty Scheffler, and more. Whoop continues to cement itself as a leader in the health and wellness space, most recently announcing the launch of its body composition and weight trends feature in partnerships with Withings, another leader in connected health. These features create an even greater value proposition for Whoop as consumers continue to find more fitness and sleep wearables to choose from. We remain incredibly excited about Whoop's success and path to becoming the dominant wearable in the category. Please turn to slide five. As previously discussed during the second quarter, we made a $10 million investment in Canva on similar terms as the reporting company, Tender. According to Bloomberg, the valuation of the Tender came at a significant discount to Canva's last primary financing Canva is an online productivity design software collaboration platform with a mission to empower everyone in the world to design. Since our initial investment in Canva, the company has made significant strides to further integrate itself into the broader design ecosystem. For example, in May, the company announced a partnership with HP to expand its design-to-print services worldwide through localized printing options. In July, the company announced a partnership with Artlist, allowing creators to integrate royalty-free digital assets from Artlist's collection directly into the Canva platform. According to Bloomberg, Canva has surpassed $2.3 billion in annualized revenue, with sales growing at a rate of 50% year-over-year. According to PitchBook, Canva has raised over $581 billion in equity financing. from investors including Bessemer Venture Partners, General Catalyst, Iconic, and more. We are excited about Canva's traction in positioning the market as it expands its enterprise footprint and further captures international markets. Please turn to slide six. Additionally, during the second quarter, we made a $15 million investment in CW Opportunity 2LP and SPB, that is invested in CoreWeave's Series C 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. CoreWeave is a critical foundation for AI and machine learning use cases from the initial stages of training a model to ultimately providing a model's output for end users. To serve the training phase, CoreWeave offers distributed clusters for connected computers using NVIDIA's groundbreaking quantum infinity band networking solution. Additionally, with spin-up times as short as five seconds, CoreWeave offers one of the most powerful inference solutions using NVIDIA GPUs. In fact, according to a company blog post, CoreWeave's inference service platform is eight to ten times faster than a major generalized cloud provider. Since our investment in early May, CoralWeave has continued its impressive momentum. Later that month, according to a company press release, CoralWeave announced an agreement for a $7.5 billion debt facility led by funds managed by Blackstone with participation from Magnetar and CodeTwo. This debt financing will be used to further grow CoralWeave's capacity to serve large enterprises at the forefront of AI, both in the U.S. and internationally. In early June, according to a company press release, CoreWeave announced its plans to invest $2.2 billion to expand and open three new data centers in Norway, Sweden, and Spain by the end of 2025. This EU expansion is in addition to their $1.3 billion U.K. expansion in May. According to PitchBook, CoralWeave has raised over $9 billion in debt and equity financing from investors such as Kotu, Fidelity, Magnetar, and others. With its best-in-class cloud inference, we believe CoralWeave will continue its exponential growth and capitalize on accelerated AI adoption. Please turn to page, slide seven. One additional portfolio company we'd like to highlight again is our investment in Alt-C Sponsor LLC, the sponsor of the SPAC led by Sam Altman. As previously discussed during Q2, Alt-C Acquisition shareholders approved the business combination with Oklo, a fast vision, clean power company. While we are always happy with our SPAC sponsors complete a business combination, this one is particularly exciting for a few reasons. Oklo 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. In late May, according to a company press release, Oklo announced its partnership with Wyoming Hyperscale to supply 100 megawatts of clean energy to a state-of-the-art data center campus as part of a 20-year power purchase agreement. Last month, according to a company press release, Oklo announced the successful demonstration of its advanced fuel recycling process marking a significant step forward in enhancing fuel cost effectiveness and sustainability. Our investment thesis around AI has been deliberate, first focusing specifically on the infrastructure of AI. Our new investment in Coral Weave through the CW Opportunity LP, plus the business combination between Altsea and Oklahoma, Now it gives us further exposure to the structural foundations of the AI universe. 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's positions trading. In line with this approach, we began to monetize our position in public square holding shares as their lockup restrictions expire subsequent to quarter's end. I would like to also further reiterate the service commitment to initiatives that enhance shareholder value. Given the discount our stock has 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. Given our recent investments and broader portfolio, we believe we are well-positioned to drive shareholder return. Thank you for your attention, and with that, I will hand it over to Allison, our Chief Financial Officer.
spk16: Thank you, Mark. I would like to follow Mark's update with a more detailed review of our second quarter investment activity and financial results as of June 30th, including results of the modified Dutch auction tender offer announced during Q1 and executed during Q2, Additionally, I'll provide more detail on the 6 1⁄2 note repurchase agreement and board-approved note repurchase program and our current liquidity. Please turn to slide 8. As Mark mentioned, during the second quarter, we completed a $10 million investment in Canvas common shares through a secondary transaction and a $15 million investment in the Class A interest of CW Opportunity 2LP, an SPV that is invested in CoreWeave Series C preferred shares. During the second quarter, we redeemed our membership interest in Architect Capital PageRite SPV, resulting in net proceeds of approximately $10 million. We also received a distribution of approximately $233,000 related to our limited partner fund investment in True Global Ventures 4+. Please turn to slide 9. Subsequent to quarter end, we began to sell our public common shares in Public Square following their lockup expiration on July 19th. To date, we have sold 220,000 shares of Public Square for approximately $632,000 in net proceeds, resulting in a realized gain of approximately $458,000. Please turn to slide 10. Segmented by six general investment themes, the top allocation of our investment portfolio at quarter end was to AI, cloud, and big data, representing approximately 34% of the investment portfolio at fair value. Marketplaces and education technology were the next largest categories with approximately 22% and 21% of our portfolio respectively. Approximately 13% of our portfolio was invested in social, mobile, and consumer companies, and the financial technology category accounted for approximately 9% of the fair value of our portfolio. Sustainability and alternative energy accounted for 1% of the fair value of our portfolio as of June 30th. Please turn to slide 11. We ended the second quarter of 2024 with an NAV per share of $6.94, which is consistent with our financial reporting. The decrease in NAV per share from $7.17 at Q1 to $6.94 as of June 30th was primarily driven by a $0.30 per share decrease resulting from unrealized depreciation of our portfolio investments during the quarter and a $0.16 per share decrease due to net investment loss. The decrease in NAV per share was partially offset by a $0.20 per share increase from the repurchase of common stock related to our recent tender offer and a $0.03 per share increase from the impact of stock-based compensation during the quarter. As mentioned by Mark, Seminole Capital is committed to initiatives that enhance shareholder value. Accordingly, on February 14th, our Board of Directors approved a modified Dutch auction tender offer, which commenced on February 20th. to purchase up to 2 million shares of our common stock at a price per share not less than $4 per share and not greater than $5 per share in 10-cent increments, using available cash. Pursuant to the terms of the tender offer, following the expiration of the tender offer on April 1, 2024, we repurchased 2 million shares of our common stock at a price of $4.70 per share, representing 7.9% of outstanding shares. The per share purchase price of properly tendered shares represented 65.6% of the net asset value per share as of March 31st, 2024. We used available cash to fund the purchase of shares, common stock, and the tender offer, and to pay for all related fees and expenses. I would also like to note that the dollar value of shares that may yet be purchased by Soro Capital under the Share of Purchase Program is approximately $20.7 million. The Share of Purchase Program is authorized through October 31st, 2024. Next, I'd like to provide more detail on the executed no-purchase agreement for 6.5% convertible notes due 2029. On August 6, 2024, Serial Capital entered into a no-purchase agreement, pursuant to which we may issue up to a maximum of $75 million in aggregate principal amount of 6.5% convertible notes due 2029. Pursuant to the no-purchase agreement, we initially agreed to issue and sell, and the purchaser agreed to purchase, up to $25 million in aggregate principal amount of the convertible notes. Thereafter, upon mutual agreement between the purchaser and us, we may issue additional convertible notes for sale in subsequent offerings or issue additional notes with modified pricing terms in the aggregate for both the additional notes and the new notes, up to a maximum of $50 million in one or more private offerings. The purchaser will acquire and we will issue up to $25 million of the initial notes on or about August 14, 2024, and thereafter at such time and date as the purchaser and we mutually agree to purchase and sell any additional notes. Interest on the convertible notes will be paid quarterly in arrears on March 30th, June 30th, September 30th, and December 30th at a rate of 6.5% per year beginning September 30th, 2024. The convertible notes will mature on August 14th, 2029 and may be redeemed in whole or in part at any time or from time to time at our option on or after August 6th, 2027 upon the fulfillment of certain conditions. The convertible notes will be convertible into shares of our common stock at a purchaser's sole discretion at an initial conversion price of $7.75 per share, equating to a conversion rate of 129.0323 shares of our common stock for 1,000 principal amount of the convertible notes, subject to adjustment as provided in the note purchase agreement. The net proceeds from the offering will be used to repay outstanding indebtedness, make investments in accordance with our investment objective and investment strategy, and for other general corporate purposes. The note purchase agreement includes customary representations, warranties, and covenants by the company. Additionally, I'd like to provide more detail on the note repurchase program. On August 6, 2024, Soho Capital's Board of Directors approved a discretionary note repurchase program, which allows us to repurchase up to 46.67% or $35 million in aggregate principal amount of our 6% notes due 2026 through open market transactions. including block purchases, in such manner as will comply with the provisions of the Investment Company Act of 1940 as amended and the Securities Exchange Act of 1934 as amended. As of August 7, 2024, we had not yet repurchased any of the 6% notes due 2026 under the note repurchase program. Finally, I would like to take a moment to review Cerro Capital's liquidity position as of June 30th. We ended the quarter with approximately $57.6 million of liquid assets, including approximately $54.4 million in cash, and approximately $3.2 million in unrestricted public securities. At June 30, 2024, and currently, there are 23,378,002 shares of the company's common stock outstanding. That concludes my comments. We would like to thank you for your interest and support of Sterile Capital. Now I will turn the call over to the operator for the start of the Q&A session. Operator?
spk15: Thank you very much. As a reminder, if you'd like to ask a question on today's call, you may press star 1 on your telephone keypad to register your question. To withdraw your question for any reason, you may press star 2. We kindly request that you limit yourself to one question, and you will be advised when to ask your question. We have a question from Mac Sykes of Gabelli Funds. Please go ahead.
spk18: Oh, I just want to wish you congratulations on the team for rebuilding the portfolio. certainly some innovative companies in the mix.
spk17: Thanks, Max.
spk18: Go ahead. Actually, I know I'm limited to one question, but I wanted to just to, since it's been a while, I wanted to ask about the IPO cycle, and I had three sub-questions from that, so I'll just ask them. First, typically for an IPO, what is the percentage that you may typically realize kind of on the opening, and then how long is the lockup typical for the balance of that realization? And then assuming a $10 million gain on XYZ company, what is retained by the company and what is paid out to investors? And then typically, what's the timing of dividends following some realizations? And then my last question is around, is the company at this point carrying any tax shield to offset potential gains?
spk08: Thanks. That's the best way to ask one question. So, first of all, thanks for the kind words and thanks for being a supportive shareholder. I think it's kind of pretty well documented in the press right now. The IPO cycle, certainly before last week, was gearing up and the expectations as we entered, you know, sort of exited the summer into the early part of September, you would see the ramp up in the IPO market, which I still think we're going to see in the end of Q3 anyhow. I think that's consistent with broadly what's out there. Specifically, or what's typical, is in any traditional IPO, shares are typically locked up for an additional six months. So we don't have liquidity until six months after the IPO occurs, typically. On direct listings, that's waived, but on traditional IPOs, that would be waived. As far as our distributions are concerned, generally speaking as a BDC, we're required to distribute on a capital gains basis functionally all of the gains. So those would be distributed. As far as the tax shields, I don't think we actually look at anything as a tax shield, but we carried into this year some amount of capital losses So the first application of capital gains would be against those capital losses. When those capital losses are exhausted, then we would be in a dividend position, and we would obviously pay out the dividends. We are very communicative about our dividend strategy. We have been in the past, and we will lay it out for our investors as we find ourselves in the position to pay dividends.
spk15: Thank you very much. As we have no further questions in the queue, I would like to turn it back over to Mark Klein for any closing remarks.
spk07: I want to thank everybody from the CERO team. Thank all of our investors. Thank you for joining the call today.
spk08: I know the markets have been a bit chaotic, so appreciate that you took the time to listen to us today, hear our story, and be supportive. Thank you very much.
spk15: Thank you very much. That concludes today's conference. You may now
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