SSSS - NASDAQ

Good day, and welcome to the SuRo Capital Second Quarter 2023 Earnings Call. Today’s conference is being recorded. [Operator Instructions] I will now hand you over to you host, Adam Bates, to begin today's conference. Thank you.

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, 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 & Presentations. Today’s call is being recorded and broadcast live on our website at 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 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 risks, estimates, and uncertainties, including the impact of any market volatility that may be detrimental to our business, our portfolio companies, our industry, and the global economy that could cause actual results to differ materially from the plans, intentions, and expectations reflected in or suggested by the forward-looking statements. Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including, but not limited to those described from time-to-time in the company’s filings with the SEC. 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.

Thank you, Adam. Good afternoon and thank you for joining us. We are pleased to share the results of SuRo Capital's second quarter 2023. The last four months have been among the most active period SuRo has had in the last couple of years. We made five investments, three in new portfolio companies and two in follow-on investments. Additionally, we have had one of our SPAC investments close its previously announced merger and two other SPACs announced agreements to merge. Additionally, on the shareholder initiative front, we completed our $13.5 million modified Dutch tender offer and today announced the extension and increase of our share repurchase program to $60 million. First of all, as to our new investments. In the private markets, we remain steadfast to our thesis that potential investments would become available in the secondary market. We believe this has begun to come to fruition in the second quarter and subsequent to quarter's end as we made investments in three new portfolio companies, as well as follow-on investments of two others. During the quarter, we executed a $10 million investment in ServiceTitan, a software business for home and commercial trades through a secondary transaction. Subsequent to quarter's end, we invested $5.8 million in FourKites, a supply chain visibility software company, again through secondary transactions. Also subsequent to quarter's end, we invested $1 million in Stake Trade, a sports betting exchange doing business as Prophet Exchange through a primary transaction as part of the SuRo Capital Sports portfolio. We believe our remaining investable capital of over $100 million as of the quarter's end will enable us to continue act on opportunities such as these. Please turn to slide four. I would like to -- I would now like to provide more detail on our investments, starting with our $10 million secondary investment in ServiceTitan. ServiceTitan's cloud-based software platform is designed to empower trades, trade businesses in the residential and commercial HVAC, plumbing, electrical other sectors. ServiceTitan's comprehensive end-to-end solution equips contractors with essential tools to efficiently manage and expand their businesses while delivering exceptional customer experiences. Currently serving over 11,800 businesses that have previously been reported to employ more than 100,000 contractors, ServiceTitan has established a strong presence in the market. Today, technology remains a vital tool for contractors to stay ahead. According to a recent study conducted by Thrive Analytics on behalf of ServiceTitan, 66% of contractors see digital transformation as a critical component of their operations and 59% surveyed businesses reporting using more than four distinct software solutions to manage their operations. As we look ahead, we believe ServiceTitan is well-positioned to continue to provide to the trades market. Moving onto our $5.8 million secondary investment in FourKites. FourKites is a leading real-time supply chain visibility solution. While the concept of supply chain visibility has been around for some time, the ability to track freight trucks and shipments in real-time has only been available more recently. FourKites has been a pioneering force behind the idea that companies should know where their goods are at all time from the initial onset of being loaded on to a truck and when they reach a final delivery destination. Executing against the idea of real-time visibility, FourKites now tracks more than 3 million shipments daily over 200 countries and territories. The impact of FourKites' technology is evidenced in its impressive clientele, which includes recognized brands such as nine of the top 10 consumer packaged good companies and 18 of the top 20 food and beverage companies. Today, FourKites helps over 1,200 of the world's most recognized brands leverage real-time visibility and unlock efficiencies that save them millions of dollars a year. They also have been named a leader in the Gartner Magic Quadrant for real-time transportation and visibility platforms for three years in a row. Since 2021, FourKites has announced strategic investments from Qualcomm Ventures, Volvo Group Venture Capital,

Thank you, Mark. I would like to follow Mark's update with a more detailed review of our recent shareholder initiatives, our investment portfolio activity, our financial results as of June 30, 2023, and our liquidity position as of quarter end. First, I will provide detail on the recent increase and extension of the share repurchase program. Please turn to slide seven. As Mark mentioned earlier, SuRo Capital is committed to initiatives that enhance shareholder value. As such, on August 7, our Board of Directors authorized a $5 million expansion to the share repurchase program to $60 million and an extension of the share repurchase program through October 31, 2024. Since the inception of the share repurchase program in August 2017, we have repurchased a total of 5,832,008 shares of our common stock for a total deployment of approximately $38.6 million of the $60 million authorized by the Board. Approximately $21.4 million remain authorized under the share repurchase program currently set to expire on October 31, 2024. In addition to the share repurchase program, as previously reported, on March 17, 2023, our Board of Directors approved a modified Dutch auction tender offer, which commenced on March 21, 2023 to purchase up to 3 million shares of our common stock at a price per share not less than $3 and not greater than $4.50 per share using available cash. The tender offer expired on April 17, 2023. Pursuant to the terms of the tender offer, on April 21, 2023, we repurchased 3 million shares at a price per share of $4.50. This represents 10.6 of then-outstanding shares. The per purchase price of properly tendered shares represented 60.9% of net asset value per share as of December 31, 2022. The company used available cash to fund the purchase of shares of its common stock in the tender offer and to take all related fees and expenses. The price of $4.50 per share represents a 39.1% discount to December 31, 2022 NAV per share and a 40.7% discount from March 31, 2023 NAV per share. Again, the tender offer comes in addition to the previously discussed share repurchase program originally authorized by our Board of Directors in August 2017. Next, I'd like to provide a more detailed update on our investment portfolio activity for the second quarter and subsequent to quarter end. This does not include investments in short-term U.S. treasuries. During the second quarter, we invested a total of $10.5 million in new and follow-on investments. New investments during the second quarter include: a $10 million investment in ServiceTitan's common shares via a secondary transaction; a $500,000 follow-on investment in PayJoy's Simple Agreement for Future Equity or SAFE. Over the course of the second quarter, we began to monetize our Nextdoor common shares. We sold 950,000 common shares of Nextdoor for approximately $2.9 million of net proceeds, resulting in a net realized loss of approximately $2.4 million. In addition to sales of Nextdoor public stock, we received approximately $300,000 in proceeds from Second Avenue related to principal repayment and interest on the 15% term loan due December 2023, as well as other investment dividend and interest income. During the quarter, we received an addition of approximately $253,000 from our limited partner fund investment and True Global Ventures 4 Plus. Finally, as of May 4, we abandoned our investment in Ozy Media Inc. Next, I would like to provide additional details on our investments in Colombier. In connection with this investment, as of the business combination's closing on July 19, we held 1,976,032 Class A common shares and 2.7 million warrants. Our Class A common shares are not transferable until the earlier of one year after the business combination's closing date or if the closing price of the Class A common stock equals or exceeds $12 per share for any 20 trading days within any 30 trading day period, commencing at least 150 days after the business combination's closing. Our warrants are subject to a 30-day lockup period after the business combination's closing. Subsequent to quarter end, we invested a total of $7.3 million in new and follow-on investments. These include: a $5.8 million investment in FourKites common shares via secondary transactions; a $1 million new investment through SuRo Capital Sports LLC into Stake Trade Simple Agreement for Future Equity, again called the SAFE; and a $500,000 follow-on investment in Hearth's Series B for preferred shares. Subsequent to quarter end, we sold 589,996 shares of Nextdoor for approximately $1.8 million of net proceeds, resulting in a net realized loss of approximately $1.4 million. We also received approximately $100,000 in net proceeds from Second Avenue related to principal repayment and interest on the 15% term loan due December 2023, as well as other investment dividends. Please turn to slide eight. Segmented by six general investment themes, the top allocation of our investment portfolio at quarter end was to financial technology and services, representing approximately 35% of the investment portfolio at fair value. Education technology was the second largest category, representing approximately 28% of the portfolio. The marketplaces category accounted for approximately 15% of our investment portfolio and approximately 14% of our portfolio was invested in cloud and big data companies. Social and mobile accounted for approximately 7% of the fair value of our portfolio, and sustainability accounted for less than 1% of the fair value of our portfolio as of June 30. Please turn to slide nine. We are pleased to report we ended the second quarter of 2023 with an NAV per share of $7.35, which is consistent with our financial reporting. The decrease in NAV per share from $7.59 at the end of Q1, 2023 to $7.35 as of June 30 was primarily driven by a $0.52 per share resulting from net realized losses on investments during the quarter. Also contributing to the decrease was a $0.15 per share decrease due to net investment loss. The decrease in NAV per share was primarily and partially offset by a $0.34 per share increase related to the repurchase of common stock as a result of the tender offer and a $0.06 per share increase related to quarterly adjustments to unrealized investment value in our portfolio. Finally, I would like to take a moment to review SuRo Capital's liquidity position as of June 30. We ended the quarter with approximately $112 million of liquid assets, including approximately $24.5 million in cash, $75.9 million in short-term U.S. treasuries and approximately $11.6 million in unrestricted public securities. The approximately $11.6 million of unrestricted public securities held as of quarter end represent our remaining shares in Forge Global, Nextdoor, NewLake Capital Partners and Skillsoft. At June 30, 2023, there were 25,398,640 shares of the company's common stock outstanding. That concludes my comments. We would like to thank you for your interest and support of SuRo Capital. Now I will turn the call over to the operator to start the Q&A session. Operator?

Thank you. [Operator Instructions] We have our first question from Jon Hickman from Ladenburg. Please go ahead.

Hello?

Hey, Jon.

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

Slightly in excess of $21 million.

$21 million? And that's like totally up to whatever happens day-to-day with the stock price and whatever management wants to do?

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

Thank you. Our second question comes from Jason Monkpint [ph] from private investor. Please go ahead.

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

Thank you for your question. And we -- I think Allison did address it in her prepared remarks. But we own approximately slightly under 2 million common shares. We own 2.7 million warrants. The warrants are -- have a lockup period that ends 30 days after the deal closed, which was July 19, so approximately August 19, assuming that there's a valid registration statement. They did file the registration statement today. So, when that registration statement becomes effective or August 19, whatever is the latest, those warrants will become locked up. The stock is locked up for a year unless the stock trades above $12 for 20 out of 30 days from the middle of December on. So, at the present time, we own just 19 -- 1.9 some odd million shares of 2.7 million warrants. And again, the action did occur subsequent to quarter's end. So, thank you.

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