SuRo Capital Corp. (SSSS) on Q1 2021 Results - Earnings Call Transcript
Operator: Good day, ladies and gentlemen, and thank you for standing by. Welcome to SuRo Capital's First Quarter 2021 Earnings Call. During today's presentation all parties will be in listen-only mode. Following the presentation, the conference will be open for questions. This call is being recorded today, Wednesday, May 5, 2021. I will now turn the conference over to today's speaker, Adam Bates of SuRo Capital. Please go ahead.
Adam Bates: 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 that corresponds to today's prepared remarks by management is available on our website at www.surocap.com under Investor Relations, Events and Presentations.
Mark Klein: Thank you, Adam. We are pleased to share the results of SuRo Capital’s first quarter of 2021. These are obviously unprecedented times we’re living through. But, we are pleased to see indicators of a post-pandemic recovery throughout the economy. As a number of fully vaccinated individuals increase, we are hopeful that the end of the pandemic is in sight. Today, I will discuss how our portfolio has fared during the first four months of the year, highlighting how a few of our larger positions have continued to exhibit acceleration in their business. To conclude, I'll hand the call over to Allison Green for a brief financial overview. At the conclusion of our remarks, we will open the call for questions. Let's start with slide 3. This quarter, SuRo Capital reached, both our highest absolute and highest dividend-adjusted net asset value per share since inception. At March 31, 2021, net asset value was $18.01 per share, inclusive of dividends declared during the quarter totaling $0.50 per share. This is an increase from $15.14 per share at December 31, 2020. As of March 31, 2021, net assets totaled approximately $436 million compared to $302 million at year-end.
Allison Green: Thank you, Mark. I would like to follow Mark's update with a more detailed review of our first quarter investment activity and financial results as of March 31, including results of our redemption notice for the 4.75% convertible senior notes due March 2021, recently declared dividend, our current liquidity position and details of the upcoming Annual Shareholder Meeting. First, I will review our investment activity. During the first quarter, we invested a total of $9.5 million in new and follow-on investments. New investments during the quarter include a $200,000 investment in the share units and warrant of Churchill Capital Sponsor VI of the sponsor vehicle for Churchill Capital VI and a $300,000 investment in share units and warrant units of Churchill Sponsor VII of the sponsor vehicle for Churchill Capital VII. A $7 million investment in the Series B1 and Series B2 preferred shares of Shogun Enterprises, the funding of a $500,000 capital call related to our $10 million commitment to Architect Capital PayJoy SPV and a $1 million investment in a simple agreement for future equity or space in BettorView via our $10 million wholly-owned subsidiary SuRo Capital Sports. During the quarter, we also funded a follow-on investment of approximately $500,000 in the common shares of GreenAcreage Real Estate Corp., now known as NewLake Capital Partners. Please turn to Slide 11. During the first quarter, we sold our remaining unrestricted publicly traded Class A common shares of Palantir. On September 30, 2020, Palantir Technologies completed its IPO on the New York Stock Exchange under the ticker PLTR. Upon IPO, 80% of our shares remained restricted until the lockup period expired on February 18, 2021. After selling our initial 20% portion of unrestricted shares in 2020, and once the remaining 80% of our shares became unrestricted in mid-February of this year, we sold the remaining 4,618,952 shares as of March 4, 2021 for a net realized gain in the first quarter of $110.5 million. In total, since the IPO, we realized approximately $119 million in net gain from our Palantir investment, not including sales made in prior years. During the first quarter, we also received $1.6 million of proceeds related to our June 2020 investment in Palantir Lending Trust SPV. These additional proceeds are attributed directly to the equity participation in the underlying collateral. As of today, $10.3 million has been received from the Palantir Lending Trust SPV and 712,290 shares of underlying collateral through which we retain an equity interest remains to be sold. As of December 31, 2020, the balance of the loan and all guaranteed interest had been fully repaid. Please turn to Slide 12. Segmented by 6 general investment themes, the top allocation of our investment portfolio at quarter end is to education technology, representing approximately 62% of the investment portfolio at fair value. Marketplaces was the second largest category, representing approximately 14% of the portfolio. The financial technology and services category accounted for approximately 13% of our investment portfolio and approximately 11% of our portfolio is invested in social mobile companies. Big data, cloud and sustainability each accounted for less than 1% of the fair value of our portfolio as of March 31. We are pleased to report we ended the first quarter 2021 with an NAV per share of $18.01. A breakdown of NAV per share as of quarter end is shown on Slide 13 and is consistent with our financial reporting. In some, the increase in NAV per share during the first quarter was largely driven by the approximately $4.53 per share attributable to net realized gain on the sale of portfolio investment. This increase to NAV per share was offset by $1.10 per share attributable to the issuance of our common stock upon the conversion of our convertible senior notes in advance to the redemption. $0.50 per share in dividends declared during the quarter, approximately $0.11 per share attributable to net investment loss and approximately $0.05 per share of net unrealized depreciation of our investment portfolio at quarter end. On February 19, we caused notices to be issued to the holders of our 4.75% convertible senior notes due 2023 regarding the company's exercise of our option to redeem, in whole, the issued and outstanding notes, pursuant to the Indenture, dated as of March 28, 2018, between the company and U.S. Bank, as trustee, and Section 15.02 of the First Supplemental Indenture thereto, dated as of March 28, 2018. The company established March 29, 2021 as the date on which all of the notes would be redeemed at 100% of their principal amount or $1,000 per note, plus the accrued and unpaid interest thereon from September 30, 2020, through, but excluding, the redemption date. Holders of the notes have the option to surrender their notes for conversion into shares of the company's common stock, par value of $0.01 per share, at the then existing conversion rate, in lieu of receiving cash, at any time prior to the close of business on the business day immediately preceding the redemption date. As of the redemption date, the company redeemed $0.3 million or $290,000 in aggregate principal amount of the notes at a redemption price equal to 100% of their principal amount, plus accrued and unpaid interest, which amounted to approximately $800,000. As a result of the election of certain holders to surrender their notes for conversion into shares of common stock prior to the redemption date, the company has issued a total of 4,272,696 shares of common stock since the notes were issued. As of March 31, 2021, there are 24,205,216 shares of the company's common stock outstanding. During the first quarter, SuRo Capital declared 2 dividends for a total of $0.50 per share. On January 26, our Board of Directors declared a dividend of $0.25 per share paid on February 19 to shareholders of record on February 5 and on March 8, our Board of Directors declared a dividend of $0.25 per share paid on April 15 to shareholders of record on March 30. All of 2021 dividends declared to-date are expected to be categorized as net long-term capital gains for tax purposes. The related realized gains are attributable to the monetization upon sale or exit of the investments in our portfolio. As Mark mentioned, yesterday, SuRo Capital's Board of Directors declared a dividend of $2.50 per share payable on June 30, 2021 to the company's common stockholders of record as of the close of business on May 18, 2021. The dividend will be paid in half stock and half cash. As described more fully in today's press release, the dividend will be paid in cash or shares of the company's common stock at the election of shareholders. Although the total amount of cash to be distributed to all shareholders will be limited to no more than 50% of the total dividend to be paid to all shareholders. This dividend is being made in accordance with certain applicable treasury regulation and guidance issued by the IRS to allow a publicly-traded regulated investment company to satisfy distribution requirement from a distribution paid partly in common stock, provided certain other requirements are satisfied. Each shareholder will have the opportunity to elect to receive the dividend in cash or in shares of the company's common stock. Shareholders electing to receive the dividend in shares of the company's common stock will receive their entire dividends in the form of shares of the company's common stock, regardless of the elections made by any other shareholders. However, the amount of cash to be distributed to all shareholders electing to receive their dividend in cash will be limited to no more than 50% of the total amount to be distributed to all shareholders. In the event that the amount of cash to be distributed to all shareholders electing to receive the dividend in cash would exceed 50% of the total dividend, each shareholder electing to receive cash will receive a pro rata portion of the total cash to be distributed based on the number of shares held by each such shareholder. The remainder of the dividend in excess of the shareholders' pro rata share of the total amount of cash to be distributed will be paid in the form of shares of the company's common stock. The number of shares of our common stock to be issued to shareholders receiving all or a portion of the dividend in shares of our common stock will be based on the volume-weighted average price per share of our common stock on the NASDAQ Capital Market on May 12, May 13 and May 14, 2021 to reflect the declared dividend. The Company will cause to be mailed an election form to receive cash or common stock only to registered shareholders promptly after the May 18, 2021 record date. Registered shareholders are those shareholders who own their stock directly and not through a bank, broker or nominee. The completed election form must be received by SuRo Capital's transfer agent, American Stock Transfer, prior to 5:00 p.m. Eastern on June 16, 2021. Registered shareholders with questions regarding the dividend may call American Stock Transfer at 800-937-5449. Registered shareholders who do not make an election will be deemed to have elected to receive 100% of their dividend in shares of the company's common stock. Participants in the company's dividend reinvestment plan will also receive an election form. The investment feature of the dividend reinvestment plan will be suspended for this distribution and will be reinstated after this distribution has been completed. Shareholders who hold their shares through a bank, broker or nominee will not receive an election form from the company and should contact their bank, broker or nominee for instructions on how to make an election. Regardless of whether a shareholder receives the dividend in cash, stock or some combination of cash and stock, the entire amount of this dividend will be fully taxable to shareholders and SuRo Capital Corp. will report the actual tax characteristics of each year's dividends annually to shareholders and the IRS on Form 1099. The date of declaration and amount of any dividends, including any future dividends, are subject to the sole discretion of SuRo Capital's Board of Directors. The aggregate amount of dividends declared and paid by SuRo Capital will be fully taxable to shareholders. The tax character of SuRo Capital's dividends cannot be finally determined until the close of SuRo Capital's taxable year. SuRo Capital will report the actual tax characteristics of each year's dividends annually to stockholders and the IRS, subsequent to year end. Again, registered stockholders with questions regarding declared dividends may call American Stock Transfer at 800-937-5449. Finally, I would like to review SuRo Capital's current liquidity. We ended the quarter with approximately $292.4 million of liquid assets, including $155.7 million in cash and $126.7 million in public securities subject to certain lockup restrictions as of quarter end. Our cash balance of $165.7 million as of March 31, 2021 consisted primarily of the monetization of various portfolio positions throughout the 2020 and 2021 to-date, in addition to proceeds generated during the third quarter of 2020 via ATM offering. The $126.7 million of public securities subject to lockup restrictions as of March 31, represent our shares in Coursera, valued at a closing price on March 31 of $45, plus the discount for mark of -- for lack of marketability related to the current lockup provision. Before I turn the call back to the operator, I wanted to note that our 2021 Annual Shareholder Meeting will be held on Wednesday, July 7 in New York City, tending COVID-related guidelines. The record date for the Annual Shareholder Meeting is April 28. And that conclude 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?
Operator: And we'll go first to Devin Ryan of JMP Securities.
Kevin Fultz: This is Kevin Fultz on for Devin Ryan. Looking at SuRo Capital Sports, the vehicle has $10 million of committed capital and has invested $1 million to-date, can you just talk about expectations around the investment cadence there and if you view the $10 million of capital as an initial investment with expectations for further -- sorry, for future growth beyond that?
Mark Klein: That's a great question. We're obviously very excited about -- and it's not a unique view of the direction of sports betting and the adoption of sports betting throughout the country and looking for opportunities to capitalize on that. We have looked at probably a couple of dozen companies to-date and we will -- we see them on a very regular basis. I think this is an initial investment of $10 million over several companies with the anticipation that those companies would continue to raise money and then we will continue to participate in that. The sports betting industry is largely fragmented, there are obviously very large players in the space than a lot of smaller ones, and we are spending our time to try to identify them and participate. In the case of BettorView, not only are we an investor, but we are also -- were able to garner Board membership as well.
Operator: And now we will take a question from Howard Kaminsky of Kaminsky Family LLC.
Howard Kaminsky: I'll limit this to one question, but I have a couple of them. On Page 4 of the presentation, you noted the valuation of Course Hero at $32.5 million, that's $2.5 million less than what was disclosed in the 10-K, given all of the positive attributes and news concerning Coursera, as well as the online education space in general, why did you take the markdown in value?
Mark Klein: Great question and thank you for that. We have a very stringent set of heuristics that we apply against our evaluations, which start with transactions in secondary -- either primary transactions, primary capital raises and over time, we had tried that as part of our valuation mechanism and either move to where there are secondary trades and/or public comps that influence that. In the case of Course Hero, there were those secondary transactions that were occurring, that greatly influenced the valuation for this quarter. So that's why you ended up with a modest write-down in Course Hero. I think, it is counter-intuitive giving -- given the success of the Coursera IPO, as well as names like Chegg and their success. But -- we are very stringent about our valuation, consistent with it, we have an independent valuation firm in Anderson and our auditors, Marcum also point our valuation as well as the valuation committee within the Board.
Operator: And now, we will go to Jon Hickman of Ladenburg.
Jon Hickman: I guess my question is mostly for Allison. The last page of the presentation, where you walk through the NAV, I'm a little confused, I don't see where the gain from Coursera -- the unrealized gain from Coursera factors into your calculations. Can you walk me through that?
Allison Green: Let me just pull out my pen, okay, so I can help you a little bit more here. I believe, the unrealized -- because the -- with Palantir leading unrealized, since we realized Palantir during the first quarter, that kind of created a nice little vacuum out of the unrealized gain that kind of covered the increase in gain from Coursera. So that can kind of covered it and made the net unrealized gain for the quarter about 1.3 and then you'll see the major Palantir gain reflected in the realized gains.
Operator: And that was all the questions that we had. I would like to turn the call back to our speakers for any additional or closing comments.
Mark Klein: Well, as always, we like -- we would like to thank all of you for taking the time to listen to this call, for being investors and for supporting SuRo Capital. If any of you have additional questions, feel free to reach out to Allison or myself and we're happy to have a conversation. Again, thank you very much for your time and effort, we really appreciate it. Thank you. Bye.
Operator: And with that everyone, that does conclude today's call. We'd like to thank you again for your participation. You may now disconnect.
