SuRo Capital Corp (SSSS) 2015 Q2 法說會逐字稿

Good day ladies and gentlemen and think it was standing by. Welcome to the GSV Capital's second-quarter 2015 earnings conference call.

(Operator Instructions)

This call is being recorded today Thursday, August 6, 2015. I will now turn the conference over to Nick Franco of GSV Capital.

Thank you for joining us on today's call. I'm joined today by GSV Chairman, CEO and Chief Investment Officer Michael Moe and Chief Financial Officer William Tanona.

Please note that a slide presentation that corresponds to today's prepared remarks by management is available on our website at www.gsvcap.com under investors events and presentations.

Today's call is being recorded and broadcast live on our website www.gsvcap.com. Replay information is included in our press release issued earlier today. This call is the property of GSV Capital Corp. 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.

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 GSV Capital's latest SEC filings please visit the website at gsvcap.com or the SEC's website at SEC.gov.

Now I'd like to turn the call over to Michael Moe.

Thank you, Nick, and good afternoon. We are delighted to have the opportunity to share with you the results of a strong quarter for GSV Capital included achieving our highest per share NAV since inception for the second quarter in a row.

First I will review our portfolio as of June 30, 2015, then I will highlight some recent developments and update you on several investments. I will then turn it over to Chief Financial Officer Bill Tanona who will provide a brief financial overview and then open it up for questions.

Let's start with slides 3 and 4. As of June 30, 2015 our net assets were approximately $303.6 million, or $15.72 per share. This is an increase in the previous NAV per share high last quarter of $15.66 and $14.86 at June 30, 2014.

Importantly we achieved this NAV per share high despite an $11.1 million decrease in the value of our remaining Twitter shares held which started the quarter as our largest position. During the quarter we sold 4,000 shares of Twitter at an average net price of $51.52 recognizing approximately $13.7 million of net realized gains which resulted in a 43.5% IRR. We still hold 800,600 shares of Twitter and plan to continue to monetize our public and private positions as we see the attractiveness when opportunities present themselves.

For the second quarter our top 10 positions accounted for approximately 57.4% of our total portfolio, consistent with prior quarters. Our three largest investment, Palantir, 2U and Dropbox, represented 30% of the total portfolio.

Palantir is a rapidly growing leader in big data, analytics, and security and is currently our largest position in the portfolio. Palantir's platform has changed the way organizations use data and is deployed in critical ways with government, commercial and non-profit organizations around the world. Co-founders include leading Silicon Valley entrepreneurs and investors Peter Thiel, Joe Lonsdale and Alex Karp.

In late July Palantir filed a Form D with the SEC disclosing that it had raised approximately an additional $450 million under its $500 million private offering of equity securities. According to The Wall Street Journal and Fortune Magazine Palantir's $20 billion valuation makes it the fourth most valuable VC-backed private company in the world. This is behind China's Xiaomi, Uber and Airbnb.

The new financing was not reflected in our evaluation of Palantir for the record quarter per share in our NAV as it happened after June 30. We are excited about the strong momentum and milestones that Palantir has achieved and we believe we will continue to see strong progress.

We believe 2U, our second largest position, continues to show strong performance including the results that they posted this afternoon. A leader in digital education, 2U partners with prestigious universities and institutions around the world to create market and deliver best-of-breed online degree programs through proprietary software-as-a-service. 2U's MBA at UNC program was recently named the number one ranked online MBA by Princeton Review.

In June 2U welcomed former Deputy Secretary of Education Jim Shelton as the chief impact officer, adding to an accomplished and passionate leadership team. The progress of 2U has been impressive and we're confident the Company will continue to capitalize on the increasing global demand for any time, affordable, high-quality online education. After the market closed 2U also announced a multi-program deal with NYU which we view very, very positively and its third program with USC in the nursing area.

Another notable financing among our portfolio of companies this quarter was in Spotify, the world's music streaming service giant. According to The Wall Street Journal the $526 million round valued the company at $8.5 billion.

Spotify is now available in 58 markets around the world and recently disclosed it has built an impressive user base of over 20 million paying subscribers out of 75 million active monthly users. Half of the 20 million paying subscribers were added just in the past year.

There are two things that are unique and we believe impressive about Spotify besides its growth. First, for a freemium model over 25% of its monthly users pay for it. Typical freemium models only convert between 1% and 10% of users into paying customers, so the fact that Spotify has more than doubled that we think is quite notable.

The second, given its young demographic you would expect a very high churn rate in its subscriber base. In fact, it's very low. So you've got a company that's growing very fast with a high subscription model, visible revenue growth, we're quite pleased with Spotify and the outlook there.

Please turn to slide 6 through 8 to look at the equities and the IPO market to date in 2015. So year to date there's been 103 IPOs, this is approximately a 30% decrease from last year at this time.

The median market cap of companies going public is 440 million. This is a lower market cap than what we've seen recently. If you look at the pricing, pricing about 27% of IPOs are priced above the range, 53% within the range.

And this is I'd say slightly higher than you'd see the normal market. Additionally the average one day pop of 21% is also slightly higher than what we'd see in a normal market. Not to a level that the caution flags are coming out but nonetheless something that we pay attention to.

I think importantly with all the press around the unicorns and what we call ubercorns, companies with $10 billion or greater market value, I think it's important just to look at the facts of where we're at in the market today and where we were at in previous periods that showed should have warranted investor caution. So first of all when you look at the VC and IPO activity in 2000 versus today the number of unicorns in 2000 there was just one. Today there is 97.

But when you look at the reasons for that it's really a function of the fact that private companies are staying private much longer plus digital tracks have been laid that will let companies go from idea to reaching tens of millions of people at breathtaking speeds. When you look at the valuation of the market in 2000, in March 2000, the NASDAQ 100 sold at over 100 times earnings. Today the NASDAQ 100 sells at about 22 times earnings and in 2014 we had a record year for IPOs in terms of the last dozen but that was almost half of what the number of IPOs was in 2000.

Time from VC investment to IPO in 2000 was just three years. 2014 seven years it's lengthened slightly. Importantly and this I think is a really important thing just to monitor, you look at the average IPO first day pop in 2008 it was 53%. So you had 440 companies going public with the average company appreciating over 50% in its first day, yet finished the year down nearly 20%.

If you look at last year the average pop was 14%, finished the year up 24%, as I referenced earlier is the average pop this year it's about 21%. The percentage of profitable IPO companies, again you have so much more companies today that are profitable when they go public and the companies are much larger.

The average company going public in 2000 had $18 million of revenue versus $68 million of revenue in 2014. And you look at the VC activity in 2000, again this is 15 years ago, the $105 billion of venture capital investment in 2000 with about half of that in 2014.

I think more importantly from a fundamental standpoint when you look at the next slide, in 2000 you just had 6% of the world's population on the Internet, 370 million people. Today there's 3.1 billion people on the Internet.

Broadband penetration was 1%. Today it's 32% of the people around the world.

PC penetration remarkably which is 3% or 180 million people in 2000, today it's 1.4 billion people or 20%. Mobile phone penetration was 12% in 2000, 5.2 billion today or 73% of the world's population.

And here's where it gets really interesting. Smartphone penetration was exactly 0 in 2000, there was no such thing as a smartphone. Today there's 2 billion smartphones, affectively computers in people's pockets.

Tablet penetration, no such thing, zero, 500 million tablets today. The mobile app economy of course didn't exist. The 140 billion apps were downloaded just last year and the fundamentals behind that computing cost down from $7.03 to $0.04.

Computer storage cost $4.77 to $0.02. The digital natives in the workforce just 6% in 2000, 35% in 2015. And the global middle class has nearly doubled in the last 15 years.

The point is the fundamentals for innovative disruptive technology companies is significant. You have the infrastructure, the tracks have been laid and you're able to see companies on a fundamental basis grow significant value in a hurry and that's what we're focused on. We're focused on companies that have that kind of opportunity.

Next turn to slide 9 where we break up the portfolio mix across growth themes as of June 30. We are constantly analyzing the growth economy and how megatrends are influencing emerging themes as we believe that's where the mega winners will be found.

Of the five key investment themes we have identified education technology continues to be our largest commitment consisting of 36.4% of the total portfolio. Cloud computing and big data represents 32.1%, social/mobile represents 15.3%. Marketplace was 10.4% and sustainability is 5.8% of the total portfolio.

Next please turn to slides 10 and 11 for highlights on recent investment activity. In late July GSV made a $4 million follow-on investment in Enjoy alongside Highland Capital Partners, Kleiner Perkins, Andreessen Horowitz and Oak Investment Partners, increasing our total investment in Enjoy to $5 million.

Enjoy is led by former Apple retail executive Ron Johnson is the world's first personal commerce platform built to redefine the way people buy and enjoy the world's best technology products. By effectively making the Genius Bar on-demand, Enjoy is the Genius Bar meets Uber or better yet in our case the Genius Bar meeting Lyft.

Enjoy experts give customers unmatched personal experience, effectively concierge-like service. Today Enjoy has aggressively established a number of key retail partnerships and has launched operations in the San Francisco Bay Area and New York City.

In April 2015 we made a $1.5 million follow-on investment in GSVlabs, increasing our total investment in GSVlabs to $7.5 million. GSVlabs is a hub of innovation, focused on incubating, accelerating the high-growth, high impact verticals of ed tech, sustainability, big data and mobility, the focus areas of GSV Capital.

GSVlabs houses over 140 startups, provides support services and networking opportunities with over 100 mentors and advisors and partners with industry leaders such as Intel, AT&T, IBM, Toyota, Mercedes-Benz, Nvidia and Cleantech Open. Last month GSVlabs launched the Silicon Valley Data Academy where elite data engineering and data science experts teach high demand skills in an eight-week immersive training program. GSVlabs also recently rolled out ReBoot that accelerated and empowers women to restart their careers through immersive technology education and professional networking. With the dynamic and extensive network of entrepreneurs, thought leaders, expert mentors and corporate innovation leaders we believe that GSVlabs is well-positioned to accelerate the stars of tomorrow and will benefit GSV Capital shareholders greatly.

In April 2015 GSV participated in a $50,000 follow-on investment early shares which is a real estate crowdfunding platform. Overall the fundamentals of our portfolio remain strong. We estimate the average portfolio revenue growth for our 52 companies is over 100% year over year, consistent with the strong revenue growth we've seen in 2013 and 2014 as you can see on slide 12.

In the second quarter we had several events to support our investors and portfolio companies as well as unique access to innovative, fast-growing businesses including we held our second -- our Sixth Annual ASU GSV Education Innovation Summit in April which we had over 2,500 attendees. 270 disruptive education technology companies presented at this event which again is a terrific opportunity for portfolio companies as well as for us to get a window to future leaders.

This continues to be an important vehicle to create investment opportunities in the transformational education technology world. And we believe it again helps accelerate GSV portfolio companies businesses.

We also hosted our Second Annual Investor Day in June, welcoming over 400 attendees to GSVlabs with presentations from portfolio companies' CEOs, including Carlos Watson from Ozy Media, Rick Levin from Coursera and Danny Shader from PayNearMe. Please visit the gsvcap.com to download our annual stockholders' letter which addresses key themes covered at the Investor Day as well as the way that we have our approach to identifying and investing in these dynamic growth companies, what we call the stars of tomorrow. Also I just want to alert you to the Pioneer Summit that we're hosting on October 7 through the 9 at GSVlabs where we'll have over 100 disruptive technology companies presenting.

Thanks for your attention. And with that I will turn it over to our CFO Bill Tanona.

Thank you, Michael. Today I will be providing you with a brief financial overview and update on our current liquidity position and an update on the status of our 851(e) application. Please now turn to slide 13 for the financials as of June 30, 2015.

Our NAV per share increased by $0.06, or 40 basis points quarter over quarter to a record high of $15.72 per share. The $0.06 increase was comprised of $0.71 per share of gross realized gains which were partially offset by $0.29 per share change in unrealized gains and $0.17 per share in net tax provisions related to those two items. Additionally, we incurred $0.19 per share of net investment loss resulting from our ongoing operating expenses.

In April 2015 GSV sold 400,000 shares of Twitter at an average net price of $51.52 per share for total net proceeds of $20.6 million. Our liquid assets ended the quarter at approximately $102.8 million, consisting of $8 million of cash, $18 million of unused borrowings under our credit facility and $76.7 million of public securities not subject to lock-up agreements of which approximately $38.5 million are subject to periodic sales restrictions.

Now I'd like to spend a couple of minutes to give everyone an update on our RIC status. An ongoing priority for us is to be granted RIC status by the SEC. And as many of you are aware we resubmitted our 851(e) application to the SEC in December 2014 in an effort to obtain certification to be treated as a RIC for the 2013 taxable year.

At the end of March we received comments from the SEC regarding the resubmission of our application and are continuing to work with our attorney and the commission. For the past several months we have been engaged in an active dialogue with the SEC explaining why we should be classified as such. There can be no assurance that we will receive SEC certification to be treated as a RIC for the 2013 taxable year and we are unable to make a reasonably reliable estimate when, if ever, we will become eligible to be treated as a RIC.

Should we not qualify as a RIC for 2013, we intend to elect to be treated as a RIC for the 2014 taxable year if management determines it is in our best interest to do so. If we do elect to be a RIC in 2014 we would expect some modest accretion to NAV as we release the deferred tax liabilities associated with being a C-corporation.

Furthermore, in the event we qualify as a RIC management would expect the Board to declare a distribution payable from its net realized gains which stood at approximately $26.9 million for the six months ended June 30, 2015. This figure can and will change based on additional realized gains and losses for the remainder of the potential distribution period in 2015, though. Once we've received clarity on this matter we will be better able to provide investors with our future distribution and capital management plans.

That concludes my comments and we'd like to thank you for your interest. Now we'll turn the call over to the operator to start the Q&A session.

(Operator Instructions) Andy Ellner, JMP Securities.

Good afternoon and thank you for taking my question. In the absence of any near-term resolution on the Company's RIC status and potential to efficiently distribute realized gains to shareholders, what actions have you and the Board considered to create value to shareholders and improve performance at GSVC?

Well, I mean first we're very, very focused on the most important thing we can possibly do is focus on investments and the investments we've made and the management of our portfolio which again I think we're very pleased with the fundamentals of what's going on there.

Secondly, as it relates to the RIC focus and distributions I think as Bill outlined we're working rapidly to get resolution. And I think one way or another I think we're going to have that to be able to communicate in the short term what the end result is.

But I think we have gains, we have taxes that we have already booked. And provided that we didn't get RIC status, which hope that we do, that would result in a pretty significant bump in NAV. And as Bill outlined even if we didn't and we elected to pay taxes we still think it would be a modest increase in NAV.

So I think we're focused on the portfolio. We're focused on optimizing the NAV and we're looking forward to making distributions to our shareholders.

Jeff Houston, Northland Capital Markets.

This is Andy filling in for Jeff. Thanks for taking my call. My question is there any update on the expected dividend scheduled for 2016?

As we just indicated we're clearly looking for some hopeful resolution to our 2013 RIC status. But you know in the event that we don't get it it would be our intention to elect RIC status in 2014 and beyond and therefore if applicable we could pay a distribution from the amount that we just highlighted previously which was $26.9 million. But again that number could change based on additional net realized gains or realized losses that we earn here through the remainder of 2015.

(Operator Instructions) Ed Woo, Ascendiant Capital.

Yes, thanks for taking my question. I just want to know you're right in Silicon Valley. Just what are some of the biggest themes you're seeing right now and are there really concerns with some of the I guess sky-high valuation and what are some of the key themes that you think will persist through the rest of this year?

Well, what's exciting to me about being here in Silicon Valley is if anything innovation is accelerating and it's being driven by a number of powerful fundamentals. And we as a firm are focused on how we get involved with the companies in areas that have the strongest growth and the strongest fundamentals.

Themes that are quite significant mean the big data theme and Palantir is a great example of this is an area that offers tremendous amount of growth and opportunity and use powerful software that is allowing businesses to really be transformed and have real-time data to be both competitive and create advantages. We're seeing all sorts of interesting companies in the big data area. We also have investment in a company called Silicon Valley Data Sciences which is a spinoff from Accenture which is consulting to large organizations and governments and so forth about big data issues.

Also a company we're investing in called Declara. Literally President Obama just had Declara present to the White House on Tuesday, highlighting their very powerful technology and what they're able to do. I think it was one of three companies that they brought in and that's a great investment of ours.

Other areas that continue to be very exciting. I mean the education technology area is booming. And it's booming for a number of key fundamental reasons, a knowledged economy in a global marketplace, education is critical for an individual, for a company and for that matter a country.

So for example the investment that we have in Coursera and I was just at a meeting down there this morning. It's wildly exciting what is going on from an online education standpoint.

2U report their results tonight. So that's another theme that we're very, very excited about.

The sharing economy, clearly our investment in Lyft is a great example of what's going on, being able to leverage the billion smartphones, the 2 billion smartphones, 2 billion people that have smartphones and the ability to basically leverage other assets whether you're looking at Airbnb, what they're able to do with real estate or Uber and Lyft, what they're able to do with cars.

It's a phenomenal theme. And I think sustainability is an area that is we're very, very bullish in terms of new technologies.

And on solar obviously has got a number of competitives but I think an emerging theme is water. When you look at what water technology, we here in California are acutely aware of how critical water is. But water technology is going to be a big area for opportunity and growth and certainly an area of people's focus.

It appears there are no further questions at this time. Mr. Moe, I'd like to turn the conference back to you for any additional closing remarks.

Just again we're very appreciative of people's attention and support of us. We're delighted with what's going on at GSV Capital from a portfolio standpoint. Achieving second quarter in a row of record NAV we think is a strong indicator that the path we're on.

We're working very hard trying to identify and get involved with great companies that can add value to the portfolio and can add to our NAV. And we look forward to answering questions that people have down the road and showing the kind of results that have earned people's attention to us.

So thank you very much, appreciate it, and we look forward to the follow-ups. Bye.

This concludes today's call. Thank you for your participation.