SuRo Capital Corp (SSSS) 2014 Q1 法說會逐字稿

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the GSV Capital first-quarter 2014 earnings conference call. (Operator Instructions). This conference is being recorded today, May 8, 2014 and I would now like to turn the conference over to Kristen Papke, Investor Relations for GSV Capital. Please go ahead.

Thank you for joining us on today's call. I am joined today by Michael Moe, GSV's Founder and CEO, and Steve Bard, the Company's Chief Financial Officer.

Please note that a slide presentation that corresponds to today's prepared remarks by management is available on the Company's website at www.gsvcap.com under Investors, Events and Presentations. We are also live tweeting segments of this earnings call via the Twitter handle at GSV Cap.

Today's call is being recorded and webcast on gsvcap.com. Replay information is included in our press release that was issued this afternoon. This call is the property of GSV Capital Corp. and any unauthorized rebroadcast of this call in any form is strictly prohibited.

I would also like to call your attention to customary disclosure in our press release today 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, condition or results and involve a number of risks and uncertainties.

Actual results may differ materially from those in the forward-looking statements as a result of a number of factors including 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 GSV Capital's latest SEC filings please visit the website at gsvcap.com. I would now like to turn the call over to Michael Moe. Michael?

Thanks, Kristen, and good afternoon. I am going to begin today with a review of our portfolio as of March 31, 2014 and with recent key developments. Then Steve Bard will provide a brief financial overview and we will take your questions. So let's start with slide 3.

I'm pleased to inform you that net assets totaled $288 million, or $14.91 per share as of March 31, 2014, which, despite the tumultuous market environment, is unchanged from the $14.91 per share reported as of December 31, 2013.

Twitter, our largest position at 28% of NAV, was down $22 million since December 31, but this was offset by positive appreciation in companies such as Palantir, Dropbox and 2U, which are our second, third and fourth largest positions respectively. Additionally, we sold shares of Facebook and Control4 resulting in $7.4 million of net unrealized gains.

Overall the portfolio is performing very strongly with average revenue growth of our 52 investments up over 90% year over year. While it is very frustrating for everybody to have our stock price fall, we have confidence based on 25 years of experience that ultimately the stock price will correlate with the fundamentals of the business. And as I mentioned, the fundamentals of our portfolio are robust.

Given the significant discount of GSV's share price to the $14.91 NAV and strong fundamentals, our Board of Directors has authorized the repurchase of as much as $10 million of GSV Capital Corp.'s common stock over the next 12 months. We have also stated historically that it is our intent to monetize public positions at the earliest appropriate time. So today we are going to even be more specific, it is that our intent is to liquidate a position within 18 months of going public or 12 months after the lockup has expired.

Additionally, to be clear, we intend to pay dividends to the extent we have cumulative net realized gains. For the first quarter our top 10 positions represented 80.5% of net asset value which is virtually unchanged from the fourth quarter.

Our three largest investments, Twitter, Palantir and Dropbox represented just over half of NAV at 51.4%. JAMF moved into our top 10 positions after we made of follow-on $5 million investment in the first quarter. In total we made [follow] investments in six companies.

New to our portfolio in the first quarter was Lyft, EdSurge and General Assembly. Our $5 million investment in ridesharing service Lyft was part of a $250 million recent growth round which was led by Coatue Management, Third Point and Alibaba. Existing investors Andreessen Horowitz, Founders Fund and Mayfield also participated.

We believe that Lyft is on the forefront of this booming [share and] economy trend and is totally disrupting traditional transportation. While Uber is the leader in black sedan transportation, Lyft, more like an air B&B is where regular people share rides and we think is ultimately a market that is potentially much larger.

Our investment in General Assembly was part of a $35 million round led by IVP. General Assembly is rapidly growing a global community of individuals who participate in immersion programs that teach the most relevant 21st century skills such as software development and coding. It is essentially a finishing school for Ivy League.

Turning to slide 5, subsequent to March 31 we closed on investments totaling $11.8 million in six companies so far. Declara is an investment we've made recently. It is a social collaborative learning platform driven by big data analytics and is a company that we are quite excited about and we will talk about later in our remarks.

This leverages our expertise in social media, learning and Big Data. Declara is an intelligent social learning platform that connects large numbers of people to enormous amounts of content in an efficient, easy to use manner. Declara offers what no other data and analytics or social sharing platform can because it observes how people learn and adjusts accordingly.

We were joined in our investment in Declara by Peter Thiel, the Founders Fund, Data Collective and Catamount Ventures. We also recently sold more shares in Control4 as well as our remaining positions in Violin Memory and most of our position in Silver Spring Networks.

Please turn to slide 6 to take a look at equities and IPO market to date. So year to date the S&P 500 is up 1.5% and the NASDAQ is down 3%, but I don't think this really reflects what has gone on over the last couple months in the overall growth economy where we've seen much more significant corrections thus far.

From a fundamental standpoint you have -- about 80% of the S&P 500 has reported their first-quarter earnings and earnings are up slightly better than what was projected, up about 4.5%. Revenues are slightly below what was projected by analysts at about 2.6% growth.

But I think when you look at the -- ironically when you look at the superb growth companies like Twitter, Yelp and LinkedIn, all reported strong revenue growth numbers last week. But the market remains in a very foul mood, choosing to focus on accentuating the small negatives as opposed to the multiple positives.

This is consistent with the season we are in right now where all news, regardless of reality, is viewed as bad news. It is the type of environment where it is better to not announce anything because it reminds investors [they own a] stock with subsequent selling.

We have experienced these sentiment storms many times before and the best way to weather it is to keep our heads calm while others panic. Moreover, we are in an environment where growth is scarce and interest rates are low.

Economics 101 says that premier growth stocks should be more valuable at times like this, not less. Ultimately we take comfort knowing that over time fundamentals drive stock prices. In the meantime we can buy some of the best growth companies in the world while they are on sale, which includes our own.

So when you look at the IPO market, it's not a surprise to see that it's cooled off significantly. In the past 30 days, 50% of all IPOs priced below the filing range and 86% of tech IPOs have broke issue price, 91% of all IPOs are trading below where they've traded on their first day. This action should be expected given what's taken place with growth stocks and in many ways is healthy to give a pause though it could run a risk of getting overheated.

Unlike what we have seen in previous growth meltdowns, the valuation compression hasn't corresponded with the slowdown in fundamentals. In fact, as I mentioned with the previous example, the opposite is true. So while our crystal ball isn't better than anybody else's, we'd expect the correction to be shorter in duration and a better IPO market to resume when that occurs.

So when we look at -- turning to page 7, slide 7, we will talk about the portfolio mix across the growth themes that we have invested in as of December 31. So looking at the slide you can see the social mobile consists of 25% of our invested capital; cloud and big data is 27%; education technology is 30%; Internet commerce 9%; and sustainability is 9%.

I also want to mention briefly that we held our fifth annual ASU GSV education innovation Summit in Scottsdale last month where we had over 2,000 people at the summit and 230 of the leading education technology companies in the world presenting, including 18 of our portfolio companies. And we had notable keynote such as Jeb Bush, Laurene Jobs, Magic Johnson, Lou Holtz, Secretary of Commerce Penny Pritzker, CEO of Netflix Reed Hastings all at the summit.

I mention this in part to just show the momentum and interest in this marketplace which supports in some degrees our enthusiasm and why 30% of the portfolio is in these exciting names. But also in terms of the summit we think is a huge strategic advantage for our shareholders in that it really puts us in a position to access the leading companies in the space that has got many of the top investors in the world increasingly focused on.

So we think this is an excellent asset that's going to build great value for us over time. And we'd like to replicate what we have done in education in the important areas for us like big data and sustainability over time.

I am also -- I'd like to announce -- I'm delighted to announce that the Board of Directors has named Mark Flynn President of GSV Capital. Mark will remain on the Board of Directors. And Mark is somebody that has got the long-term reputation in Silicon Valley and has been an important confidant of mine for a number of years and we are very excited to have Mark in this position.

As we have done in the past, we've focused on one area that we focus on. Cloud computing and big data is the area that we are going to talk about today. As I mentioned before, it comprises 27% of our overall portfolio. So it is obviously an important and significant area for us.

And what I'd like to do is, if you'd turn to the next slide, I am going to have Mark talk about our investment some of our investment in the cloud computing and big data space as Mark is the one spearheading our efforts in this important area. Mark?

Hey, thanks Mike. Let me lead off with just a comment. I think our second largest position is Palantir and a number of years ago, upon making that investment, we executed a nondisclosure agreement so we wouldn't comment on the Company publicly. Though there's a terrific cover story written in Forbes last fall that I think would clearly explain the business and their model and their strategy. So Palantir represents a fair value of $42 million, roughly 14.7% of our existing portfolio.

If I'd have you move on to slide 8, Dropbox is a Company we are very excited about. It is a leader in the freemium model, which basically allows people to store their files anywhere from any device or any platform.

What is exciting to us is if you think back to July of 2013, they announced a phenomenal user base of 175 million individuals using Dropbox. In April last month they announced there were 275 million users and 4 million enterprise customers. These are customers saving hundreds of millions of files every year on their platform. From our vantage point, growing the customer base by 100 million over the past nine months is nothing short of phenomenal.

Also in the past quarter Dropbox continued their strong momentum raising roughly $350 million of equity and announced a $500 million credit facility as well as announced that former Secretary of State Condoleezza Rice was joining the Board.

Dropbox has a world-class syndicate of investors. We are delighted to be included along the sides of some of the best venture firms including Sequoia, Benchmark, IVP, Greylock in many of the great institutional investors such as T. Rowe Price, Goldman Sachs and BlackRock. As of March 31, Dropbox is the third largest position in our portfolio roughly $25.1 million, or 8.7% of net assets.

If I could ask you to turn to slide 9, we will speak about a Company called Dataminr. GSV Capital was introduced to Dataminr by the senior management team at Twitter. And Twitter basically explained that this is the leading player in Twitter's ecosystem. Basically Dataminr feeds off the Twitter firehose and applies big data analytics to the information generated by the millions of tweets per day.

Literally there are over 500 million tweets per day and Dataminr's deep algorithms extract the critical information, corroborate the data and deploy it in real-time to its customers.

So who needs real-time information? I would say every media organization clearly, firms such as CNN and others, virtually every government agency domestically and probably in foreign environments as well. Wall Street money managers obviously are people who are interested in real-time information. So the list goes on and on.

We think the applications are broad and far and it is just an extraordinary way to disseminate real-time information on a platform using a platform that has become ubiquitous.

One interesting anecdote, if you looked back to the reporting of Osama bin Laden's death, the Dataminr team was able to learn about bin Laden's death roughly 23 minutes before any other agencies reported it. And the reason is they could extract from 19 different tweets in a 5-minute period. So they used their linguistic analytics and re-analyzing the metadata and confirmed the accuracy of the store.

So a very exciting evolving application in the big data world. We are thrilled to be part of Dataminr's team. They have raised roughly $49 million. The other investors in Dataminr include Venrock and IVP. We've got a fair value of our investment at that the end of March was $4 million.

So turning to slide 10, I'm going to introduce a company called Silicon Valley Data Science. We were introduced to the company by a fellow named Jim Sims who is a founder of Cambridge Technology Partners. It was one of the leading companies that saw the whole client/server adoption and served literally hundreds or most of the Fortune 1000.

Jim spent some time with us sharing his perspective on big data, its application in the corporate market and how he felt it was going to be even bigger than the client/server opportunity.

So just sort of a framework to think about it -- if relational databases today, which is largely proliferated throughout corporate IT, capture about 15% of the available information in a structured format, that means today about 85% of the information is really unstructured and people are very seriously looking at how do we take all of this unstructured data and use it to drive competitive advantage.

So firms such as Silicon Valley Data Sciences are really addressing that issue and problem, they're applying some of the best technology to serving large companies. And our approach to building that team was to find the best of the best. So we went after the big data team at Accenture, brought on board several of their leading data scientists and data architects and have assembled a first-rate team.

We think it provides not only a terrific investment opportunity but a great window into what is going on in corporate America on the adoption of these fast-changing technologies. Our investment in Silicon Valley Data Sciences is roughly $1 million.

Lastly, turning to slide 11, Mike mentioned earlier Declara, a company we recently invested in. This is a cloud-based collaboration platform. What's exciting about the Declara solution is they use semantic search and predictive analytics to help organizations solve complex problems.

And sort of instead of giving every person this identical collaboration perspective, Declara uses its predictive analytics to bring the right content to the right person in the right context. They bring it from a variety of sources and it's gaining wide scale adoption very, very quickly.

Who would use it? An example that we are involved with is a large pharmaceutical company who is really trying to shorten their drug delivery time and cost. And they sought this platform out as a way to foster innovation throughout their global organization and expedite the communication, collaboration and ultimately the drug development cycle.

So we, last month in April, GSV led a financing round and participated with Founders Fund, Data Collective and Catamount Ventures. So in a snapshot, the cloud computing and big data is a very, very exciting growth area. GSV is extremely well-positioned. As Mike mentioned, roughly 27% of our portfolio is positioned in this sector today and we intend to continue to pursue the best companies and partner with the leading management teams. With that let me turn it over to Mike.

Yes, just lastly before I turn it over to our CFO, Steve Bard, I want to let people know in conjunction with our annual shareholder's meeting on June 4 -- Wednesday, June 4, we are going to have our first annual Investor's Day from 1 o'clock to 5 o'clock. And we are going to host this at nestGSV, which is our portfolio Company which is an incubator of over 70 young startup businesses.

nestGSV is located in Redwood City, California and we would welcome any shareholders, analysts, investors that have an interest in learning in much more detail what we do at GSV and be introduced to some of our key portfolio companies. With that I will turn it over to Steve.

Thank you, Michael. Let's turn our attention to slide 12 and, as Michael indicated, our NAV for March 31 is $288 million, or $14.91 per share, which is exactly where we left off on December 31. So let's take a look at the changes -- the three major components that impact NAV and how that factored into the calculation.

The first major component that we want to look at is the net realized gain on our investments which was $7.9 million, or $0.41 per share for the quarter. And this gain reflects the sales that Michael had referenced of our shares of Facebook and Control4.

The next major component of NAV that we want to look at is net operating expenses. Those were $4.9 million ((sic -- see slide 12) this quarter, or $0.25 per share. As a reminder, the operating expenses include management fees, accrued incentive fees, costs incurred under our administration agreement, director's fees, legal and audit fees, insurance, Investor Relations and also expenses associated with our credit and our debt facilities. Again, that translated to $0.41 per share.

And the third component that we want to look at is unrealized depreciation on investments which represented about a $3 million loss or $0.16 per share for the first quarter. And this was primarily attributable to the decrease in fair value of Twitter and our Facebook positions for the quarter ended 3/31.

So again, when you combine these three major components -- net operating expenses, net realized gains, the net change in unrealized depreciation -- there was no net change to net asset value per share. And so, we remain at $14.91 per share for the period ended March 31.

So, thank you for your attention. With that I will turn the call over to the operator to start the Q&A session. Operator?

(Operator Instructions). Jeff Houston, Barrington Research.

Hey, thanks for taking my question. As you look to exit your Twitter position, should we expect it to be in a manner that is similar to how you exited Facebook, that is gradually, a certain percentage over time? Or just any thoughts there. And then the second quick question is when do you expect to file your 10-Q? Thanks.

Sure. In terms of the Twitter position, we have a game plan with the stock, as we have with every position that we own. We believe today that Twitter is significantly undervalued to what we believe it is worth. And as the shares approach what we believe fair value is we'll look to exit the position and deploy it into new promising opportunities.

I will make the point as you referenced Facebook, it is exactly what we had with Facebook. We had a game plan, we had our analysis in terms of what we both felt Facebook was worth and what catalysts were and how we played out different scenarios. And as you mentioned, we sold the position with just a little bit remaining as it continued to rise. And so in terms of filing the 10-Q, Steve?

Sure. That will be -- well, it is due Monday after the close so it'll be filed tomorrow or Monday, Jeff.

Great, thank you.

Jared Schramm, ROTH Capital Partners.

Hey, good afternoon. Any new verticals you'd think about expanding to as we had in the back half of 2014 and into 2015? And I guess applying that same metric to geographic regions, kind of getting less concentrated in the US? Any thoughts there?

A couple things. We're constantly looking at megatrends, growth themes, studying both what we see going on in the growth economy, as well as what are leading VCs are focused on because they are often a clue to emerging areas bubbling up.

One area that we have a significant interest in, but we haven't made any material investments to date, is what we call the digital doctor and looking at the megatrend of the digitization of the healthcare system, which is -- obviously there's a number of interesting opportunities that have developed in that space. But we think that is going to be a huge area of opportunity for some time to come.

As it relates to investments outside of the United States, our name, GSV stands for Global Silicon Valley. And while we are located in Silicon Valley and Silicon Valley remains the heart of innovation with amazing opportunities in between San Francisco and San Jose, we will look to invest in the most promising growth companies anywhere where we can find them and we think that we have advantage to access shares and can see the potential.

With our structure we are prohibited from investing more than 30% of our assets outside the United States. To date we have made investments in Spotify, which is a company that is outside the United States. We have invested in a company called SinoLending, which is a Shanghai-based Company that is sort of the Lending Club of China. And we think that is a really exciting company.

As you may be familiar with Lending Club, China's -- you might have heard -- well, it's an interesting opportunity. And again, we are interested in the greatest opportunities we can find. And we're constantly looking at themes that we think have legs. But thanks for the question.

Thanks for taking my question.

John Wright, Cantella & Co.

As of tonight I think Twitter is approximately 22% down from the 28% at the end of the quarter. That is still a very large position and I think contributes to the market discount to your net asset value. I would hope that you would recognize that and begin to reduce that position.

Thank you. The size of the Twitter position in our overall portfolio is a good problem because it represents the fact that we have had nice appreciation in the shares. We have tremendous confidence in the long-term Twitter story in terms of the fundamentals of the business.

And yet as I have said, we look at Twitter today, it's a public company. As we said earlier in our statements, once a company is public we'll look to exit the position at the earliest appropriate time. We've also referenced that we're looking as a guidepost to our investors that that period should be within 18 months and, again, it depends where the share price is.

So we watch Twitter shares decline with the overall decline in many high-growth names, but yet the fundamentals are extremely strong. And so, what our experience has shown us is that ultimately fundamentals that drive stock price and still we'll continue to monitor that with the eye towards reducing that position as we think it benefits our shareholders. But I appreciate the comment. Thank you.

This is Steve Bard. I would just add that our cost basis in Twitter is about $17 and change. And so, even in light of the downturn we're still in a good position. Thank you for the question.

(Operator Instructions). Christopher Nolan, MLV & Co.

Hey guys, thanks for take my question. A quick question. The concentration between the various areas seems to have shifted around since the last quarter. Does this simply reflect like social media is down, big data is up? So, essentially just reflect incremental investments as well as the change in value in Twitter?

Yes, it's a combination. I mean the Twitter investment is a meaningful -- it was 35% of overall portfolio last quarter, down $22 million in value. During the quarter at the same time companies like Dropbox and Palantir had financings done that were up from where they were in the previous quarter.

We absolutely -- one of the reasons we talk about the five themes and we talk about the representation within those five themes, because we look at that because we don't want to be over weighted in anything that -- we look at this in a careful manner. The fact of the matter is what we really want is to access the best companies.

And big data, there is just an explosion of growth and opportunities in that space. And by the way, there's companies that we would've liked to have participated in and we feel proud of our batting average of getting in the names that we focused on. But there are some amazing names in the big data and cloud area that we didn't get in that we would've liked to.

So we are just looking for the best companies. We have an eye towards -- what we think are the best growth prospects. We have an eye towards not being over concentrated in any area, but we're going to still focus on where can we get access to the very best companies with the best growth fundamentals. But you see that shift is not so much strategic but more of a reflection of what happened in the market (multiple speakers).

Got it. Is it fair to say that the $7 million in realized gains was basically redirected to new investments?

I mean -- go ahead -- I mean I think the -- go ahead.

Yes, Chris, Mark Flynn. Yes, I think that is the right way to think about it. The dollars are somewhat fungible, but that is the right we to think about it.

Okay. And then following up on the comment earlier in your prepared remarks, talking about the expectations of having realized gains or generate dividends for shareholders, do you have any timing associated with that?

Well, I mean first of all we absolutely would look at that at the end of the year, but there is a possibility that we could do that before that. And so, we just have to -- that is something that we are looking at carefully and some of that is just a function of where certain monetization events are with certain portfolio positions that we have.

But it's for sure something that by the end of the year we would do if we have realized gains. And it is something that we could do in the interim if we felt that was the appropriate thing to do.

Adam Gold, Espial Capital.

I wanted to ask about the management -- the buyback. And I'm very encouraged to see that you guys are stepping up given the massive discount to stated book value. So the first question is the logic behind the size of it, given it's sort of $10 million stocks under [$10], that is about 1 million shares out of 19 million is about 5% to 7%. Why not larger than that? So what was the logic behind the dollar size?

Thanks, Adam. A couple things. One, we believe that our own shares do represent tremendous value and that is meant to be indicated by a stock buyback that we haven't done before. We also think that the fact that what we think ultimately people are looking for us to do is to get into the next Dropbox and Facebook and Twitter. And we want to make sure that we have the opportunity, particularly, by the way, as we have seen.

I mean this is on one hand our stock is impacted, but guess what, the whole growth world is impacted. And if we can buy shares in companies that we think have potential to make many fold returns to our shareholders we want to have the opportunity to do that.

And again, just -- what we've announced, we obviously would have the flexibility depending on what happens to amend that depending on what is going on in the market, what is going on with liquidity, what is going on with opportunities. And what we're really focused on, Adam, is how we can optimize shareholder value for our shareholders. And so, it's a mix, we think this is a great start. We think it's a good message and we are going to keep after it.

Thank you.

Christopher Nolan, MLV & Co.

Michael, given the discount of where the stock is right now, do you attribute that all to the correction in the values for venture equity that's happened over the last few months? Or is there something else in play here for GSVC shares?

That's a great question. I think certainly we are impacted by what has gone on in the overall environment for high growth companies. I think we're a proxy for that. I think people look at us as sort of a proxy for that. It's sort of a double-edged sword. And so, certainly I think that's part of it.

I think -- look, the other piece is that -- I think an understanding of what's going on with the overall portfolio. And we believe one of the reasons why we are doing what we have done -- hopefully you have heard in this call a number of specific things that we are trying to do, not anything with taking our eye off the ball, but things that we can do to help provide better transparency and better understanding of what's going on with our portfolio and what our strategy is.

So the Investor Day that we are having June 4 we are very hopeful that we have a number of people come out for that. Because I think it's tough and a 45-minute call or through a press release or a website to really understand what we're doing. We're confident when you look -- when people get an appreciation for that, I hope it gives them a lot of confidence in the way that we do things, the companies that we are invested in, the people that are surrounding us and what the long-term outlook is.

And so, I think ultimately stock prices reflect confidence and we think as people get to really see what's under the hood, what's going on here, there should be growing confidence. And that everything we're doing is meant to provide that.

Ladies and gentlemen, that is all the time we have for questions today. I would like to turn the conference back to Mr. Moe for any closing remarks at this time.

Yes, thank you. I appreciate everybody tuning in for this call. We are feeling very good about what is going on with the portfolio and what is going on with our team and our ability to deliver great returns for our shareholders.

And while the stock price is where it is we are doing things about that. We believe to reconcile that and we are confident that if we execute on the portfolio side the stock is going to do very, very well for our shareholders.

So with that, again, thank you. We look forward to any follow-ups that people have and we hope we see you all in Silicon Valley on June 4. Thank you.

Thank you. Ladies and gentlemen, this concludes the GSV Capital first-quarter 2014 earnings conference call. If you would like to listen to a replay of today's conference you can do so by dialing 303-590-3030 or 1-800-406-7325 and entering the access code of 4681236 followed by the pound sign. We thank you for your participation today and you may now disconnect.