SuRo Capital Corp (SSSS) 2016 Q2 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. Welcome to the GSV Capital's Second Quarter 2016 Earnings Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened for questions. This call is being recorded today Thursday, August 4, 2016.

I will now turn the conference over to Nicholas Franco, Vice President of GSV Capital. Please go ahead.

Thank you. And thank you for joining us on today's call. I'm joined today by GSV Chairman and CEO, 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 & 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 Corporation, and the unauthorized reproduction of this call in any form is strictly prohibited.

I'd 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 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 our 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. We are pleased to share the results of GSV Capital's second quarter 2016. We're also delighted to announce the Board of Directors has declared a dividend in the amount of $0.04 per share payable on August 24, 2016 to our stockholders of record as of the close of business on August 16, 2016. To learn more, you can refer to our press release filed as an exhibit to our Form 8-K. First, I'm going to review the macro dynamics of creating opportunities for GSV Capital, then I'll review our portfolio as of June 30, 2016 and update you our notable investments.

I will then turn the call over to our Chief Financial Officer, Bill Tanona, who will provide a brief financial overview and lastly open up the call for questions.

Let us start with Slides 3 and 4. Okay. Despite the news, noise and predictions of apocalypse, we're starting to see some bullish signs from the growth economy. Since 2016 -- since its 2016 trough on February 11, the NASDAQ composite is up over 20%. Following Brexit lows in late June, NASDAQ has risen nearly 12% and for the year, NASDAQ is up approximately 3%. At the same time, the IPO market is opening up with Twilio's June 23rd IPO acting as a starting gun, effectively telling private technology companies coming in the water is fine. Twilio's trade up approximately 150% since it's priced at $15 per share. While there have been a paltry 52 US IPOs to-date, there have been 12 since Twilio's included notable listings from technology companies like Line, Callan, which both placed above the range in top 27% and 42% respectively.

And so, you've seen the drum beat over the last three or four weeks with nice momentum, which is quite encouraging. Even though we're entering the lazy days in summer, the recent trend points to broader opportunity for the best names to break through in IPO backlog that's been building not just over the past 12 months, but really over the last 15 years. So, to put some data behind that, from 1990 to 2000, there was an average of 406 IPOs in the United States per year. From 2001 to 2015, there is an average of a 111 IPOs per year, nearly 80% reduction.

In the past 12 months, there's only been top 10 VC-backed technology companies that have gone pubic compared to 31 per year per average from 2011 to 2015; obviously the 31 per year is a low number. So, roughly a third of the already low number. So, despite the weak IPO market, venture capitals haven't stopped investing. According to the National Venture Capital Association, VCs have invested in average of 3,200 companies per year since 2001. So, in 2015 alone, they've invested in 3,709 companies. So, again in contrast, the past five years on average, there's been 31 IPOs per year of the technology VC-backed companies that have gone public. In the last 12 months, there's just been 10.

So, GSV Capital is focused on a similar portfolio with the most dynamic VC-backed private companies, including Palantir, Dropbox, Spotify, Coursera, and Lyft. In the second quarter, we added $4 million position in Snapchat, which is quickly emerging as one of the most popular and engaging social media platforms in the world. As reported by Bloomberg Technology, Snapchat's 150 million plus users watch more than 10 billion videos per day, up from 2 billion in May 2015 and upload more than 9,000 photos per second. The GSV Capital management team has completed numerous studies over the last 20 years that's consistently demonstrated that there is a high correlation between sustainable growth and increase in enterprise value.

Accordingly, our philosophy confirmed by our research is that fundamental growth drives returns. Accordingly, we continue to focus on investing businesses with strongest growth fundamentals. GSV Capital's portfolio companies recorded revenue growth of 105% on average between 2014 and 2015, and we project that 2016 growth will be up over 100% once again.

Let's turn the review of GSV Capital's portfolio on slides 5 through 9. As of June 30, 2016, our net assets were approximately $226.8m or $10.22 per share. Of the five key investment themes we've identified, Cloud Computing and Big Data is our largest commitment representing 33% of the total portfolio at fair value.

Education technology represents 30%; social/mobile is 18%; marketplaces represent 15%; and sustainability is 4% of the total of the portfolio at fair value. For the second quarter, our Top 10 positions account for approximately 53.6% of our total portfolio at fair value. So, again for context, we're investor in 46 companies. So, we have a really a barbell approach where we concentrate and make out-sized commitments to the names that we think have as strongest fundamentals. If you look at GSV's three largest investments, Palantir, Dropbox and Spotify, they represent approximately 25% of the total portfolio at fair value.

So, let's go through some of these top positions. Palantir, the disruptive Big Data analytics and Security Company remains the largest position in our portfolio. Palantir's platform is changing the way organizations use the data and has deployed a critical government commercial non-for-profit institutions around the world. As reported by the US Department of Defense in the second quarter, Palantir was awarded a $222 million contract to provide software and services and expansive engagement with US Special Operations Command. We continue to see strong momentum from Palantir and believe that company is transforming the landscape of Smart Data.

Our second largest position, Dropbox, is a leading cloud-based file-sharing storage and collaboration platform. Dropbox continues to be propelled by powerful network effects. It's now surpassed 500 million registered users and has 3.3 billion connections made. Dropbox's COO, Dennis Woodside, recently announced that Dropbox is adding 10 million new users per month. The company is coupling viral user growth with a dedicated enterprise strategy. It now has over 8 million paying individuals and 200,000 paying business customers, including the majority of the Fortune 500 companies. Significantly, in late June, Dropbox reported that it has become cash flow positive.

Looking forward, Dropbox has recently formalized a partnership with IBM that will accelerate the adoption of the platform by SAP and Oracle's business application users. Other major Dropbox partners include Dell, Microsoft and Salesforce.

Our third largest position is Spotify, the disruptive music streaming platform that now has over a 100 million users, including 30 million subscribers paying approximately $10 per month. Just to make a note of that, very rarely do you see a framing model. We have more than 2% or 3% or 4% of the users actually paying for it. In Spotify's case, obviously it's 30% pay for the service.

In 2015, CEO, Daniel Ek, revealed a more than 50% of Spotifiers are under the age of 27. Remarkably, given the [same] demographics, 70% of Spotify's initial 2010 subscribers are still paying customers. In June, Ek announced that Spotify now owns half of global streaming music spend with an expanding market share. This is despite the recent competitive offerings from Apple, YouTube and others. In the second quarter, Spotify also launched its much anticipated video service, including proprietary content from partner such as Wise Media and Viacom.

In June, Spotify hired Wall Street veteran and longtime tech baker, Paul Vogel as its Head of Investor Relations, which made the case that we want an initial public offering within the next year. Additionally, before that, Spotify hired former CFO from Netflix, Barry McCarthy to be their CFO. Today, Spotify has raised over $1.6 billion from syndicate of investors that includes Accel Partners, Founders Fund, Technology Crossover Ventures, and Goldman Sachs.

GSV's fourth largest position is Coursera, which is the leading provider of what's called massive open online courses or MOOCs. They reach over 20 million learners worldwide today. Coursera partners of a 140 of the world's leading universities, including Stanford, Yale, Princeton, University of Pennsylvania and Peking University to provide over 1,800 online courses in a freemium model, charging for certification of program completion. Beyond credential monetization, Coursera has launched an enterprise strategy targeting an estimated $325 billion in annual corporate training spending.

Early customers include Yahoo, MasterCard and GE who use the platform to provide low-cost high-quality professional development and new hire onboarding. In the second quarter, Coursera announced the partnership with University of Illinois Urbana-Champaign, one of the Top 5 computer science graduate programs in the United States. They form the first MOOC-based Masters degree in data science. They are one of the students for less than $20,000 to get that degree, which is approximately one quarter of the cost for physical class -- for physical degree. This is very, very disruptive for the overall higher education industry.

Coursera was founded in 2012 by Stanford professors, Daphne Koller and Andrew Ng, who serves as the company's Chairman and also the Chief Scientist at Baidu. The company is led by CEO, Rick Levin, the former President of the Yale University. Today, Coursera has raised a $146 million from the syndicate of investors that includes Kleiner Perkins, NEA, International Finance Corporation, the VC arm of the World Bank.

Next, please turn to slides 10 to 11 for highlights on our recent investment activity. As previously reported, GSV Capital made $4 million investment Snapchat in the second quarter. Snapchat closes more recent funding of $1.8 billion in May, which is disclosed in SEC regulatory filing. As reported by Bloomberg Technology, the Snapchat accounts over 150 million daily active users with the highest engagement raised that we have ever seen across any social media platform. More than 60% of the 13 to 34-year-old who have smartphones are Snapchaters. At recent months, Snapchat has secured media deals with NFL and Major League Baseball for exclusive content, and the platform will carry NBC highlights for the 2016 Olympics Rio starting tomorrow.

This is the first time NBC has ever distributed highlights from a platform other than NBC owned property. Additionally in May, Snapchat lost a significant expansion of its advertising offerings, including Snapchat partners and advertising platform that will enable Snapchat ads to be sold by third-parties for the first time. With its investment in Snapchat, GSV Capital joined the syndicate of [backers] that includes Benchmark, Kleiner Perkins, Lightspeed Venture Partners, Coatue Management, General Catalyst Partners, IVP, Tencent and Alibaba.

We are also pleased to announce a $500,000 follow-on investment in GSVlabs. Founded in 2012, GSVlabs is a global innovation platform based in the heart of Silicon Valley that accelerates start-ups and connects corporations to exponential technologies, business models, and entrepreneurs. At the core of GSVlabs is a community of game-changing entrepreneurs focused on key verticals, including Big Data, sustainability, education technology, entertainment and mobile. GSVlabs is now home to over 170 start-ups, which last year raised $200 million from Venture Capitalist.

At the access point of the start-up ecosystem, major corporations like IBM, JetBlue, 3M, The Times of India, Intel, Google Launchpad and AT&T have partnered with GSVlabs to launch new initiatives to identify talent and to propel new business models. GSVlabs creates value through this virtuous circle capturing equity and game-changing start-ups, while providing high-value innovative services to entrepreneurs and corporations. GSVlabs sits in intersection of proven models. Co-working platforms like WeWork, which recently was valued at $16 billion, generates revenue from -- generates recurring revenue around shared space and basic services.

Accelerators like Y Combinator capture equity in potentially game-changing businesses. Y Combinator alumni include Dropbox and AirBnB, [bared] at $10 billion and $26 billion respectively. Today, I think this is a very compelling for GSV Capital shareholders. We own over 70% of GSVlabs. We envisioned having centers in key innovations, the GSVlabs centers and key innovation hubs around the world capturing equity of hundreds of start-ups per year, effectively creating a global pipeline of lottery tickets and potentially game-changing businesses.

In May, GSVlabs announced a partnership with The Times of India, India's largest media company to launch accelerators in Bangalore and Delhi in conjunction with Times of India's $2 billion corporate VC-arm brand capital. Times of India has already invested in AirBnB and Uber and is looking a vicious way to get access to the most dynamic entrepreneurs in India. These programs are currently running in Delhi and Bangalore. On September 14 and 15, GSVlabs will be hosting its second annual Pioneer Summit as the event is focused on catalyzing exponential ideas and creating the dynamic ecosystem for entrepreneurs, investors and change agents.

We think this does a number of positive things for both GSVlabs and GSV Capital shareholders. It gives us a window to some of the most excited and promising new businesses as well as puts us in the forefront of this ecosystem given this more credibility and more access to businesses that have a tremendous potential. Featured speakers at the Pioneer Summit include Nikesh Arora, the former President of SoftBank., Joe Lonsdale, Founding Partner of 8VC, Ron Johnson Founder and CEO of ENJOY, which is a portfolio company of GSV Capital and John Donahoe, the Chairman of PayPal. For more information please visit pioneersummit.com.

In June, GSV Capital hosted its third annual Investor Day where we are very humbled to have over 900 attendees come to our event, which we held at GSVlabs. We have presentations from many of our portfolio companies, CEOs including Jason Rosenthal from Lytro, which by the way is extremely exciting in terms of what Lytro is doing selling effectively picks and settles to the virtual reality minors; Carlos Watson from Ozy Media; Rick Levin from Coursera; Justin Kitch from curious.com; Danny Shader from PayNearMe; and Dean Hager from JAMF. Please visit gsvcap.com to download our annual investment letter, which covers many of the key themes I addressed in my keynote remarks at our Investor Day. Thanks for your attention. With that, I will turn over to our CFO, Bill Tanona. Bill?

Thank you, Michael. Today, I will briefly provide a financial overview followed by an update on our current liquidity position. If you please now turn to Slide 12 for the financials as of June 30, 2016. We ended the quarter with an NAV per share of $10.22. As you can see in the Slide 12, a quarter-over-quarter breakdown of the change in NAV is shown that is consistent with our financial reporting. In sum, the $0.74 per share decline in NAV was driven by net investment losses of $0.06 per share, net realized gains of $0.05 per share and net changes in unrealized depreciation of $0.72 per share.

Notable highlights from GSV's portfolio activity include the monetization of a portion of our position in Lyft at an average net price of $23.67 per share, recognizing approximately $1.1 million of net realized gains, resulting in a 48.2% IRR. Subsequent to quarter-end, we fully exited our position in Twitter at an average price of $18.21 per share, recognizing approximately $300,000 of net realized gains. We also made another partial monetization of our position in Lyft at $24 per share, recognizing approximately $1.4 million of net realized gains resulting in IRR of 43.9%.

Our liquid assets at the end of the quarter were approximately $36.4 million, consisting of approximately $2.5 million of cash, $14.5 million of unused borrowings under our credit facility and $19.5 million of public securities not yet subject to lock-up agreements, none of which were subject to any periodic sales restrictions.

Now turn to Slide 13 for an update on our dividend distribution plans. As Michael indicated, on August 3, 2016, our Board of Directors declared a cash dividend on the outstanding shares of our common stock in the amount of $0.04 per share payable on August 24, 2016 to our stockholders of record as of the close of the business on August 16, 2016.

That concludes my comments. I would like to thank you for your interest and support in GSV Capital. Now, I will turn the call over to the operator and we will start the Q&A session.

Thank you. (Operator Instructions) This time we will take a question from Jeff Houston with Northland Securities.

Hey Michael and Bill, thanks for taking my questions. It's great to see the dividend announced for the quarter. Can you provide some detail on why you decided to have a dividend this quarter and should we expect dividends on a quarterly basis or what is the kind of framework as you think about dividends going forward? Thank you.

Bill, you answer that question.

Yes, thanks Michael. So, Jeff, I would say I wouldn't anticipate on us paying a quarterly dividend going forward. The dividend that the Board announced was a residual payment or distribution as a result of some of the realized gains that we had in 2015. And so, that residual we had to actually declare by September 15th of this year, and so the Board opted to declare that dividend on August 3rd and make that payable here on August 24th.

(Operator Instructions).

It sounds like there is no more questions. Operator, is that correct?

We do have some more questions that just queued up. We will now move to Myron Goldstein with Equities.com.

Okay.

Yes hi. Thank you for taking my question. When you said the fair values are, what are using as a basis for the surveys as the last evaluation of the last offerings those companies have made or just give me some sense of where those are coming from?

Sure. It's a really important question because I think one of the things that has not well understood about GSV Capital is the process that we go through to value every security that in the quarter to that determines our net asset value or NAV. So, the process that we go through is every single security in the portfolio we adjust we capital go through every position and are using a process that looks at things like what's our financing that was done during the quarter when the terms are known. Was there a secondary transaction that was consummated during the quarter? As a company, revenues and business on track or not, if it's not that could mean it has an adjustment to NAV.

The number of things that we have created in terms of the process to go through each security. That process is reviewed by Deloitte & Touche our auditor and so we do everything consistent with that. But in addition to that because it's obviously such a critical issue, our board our independent board hires, hired an evaluation firm called Andersen Tax, which is the largest evaluation firm in the world. They go through each position on a quarterly basis as well and they use similar techniques looking at financings, looking at the water fall analysis, looking at different things that give a reference point to what the fair value is for the quarter and where there is discrepancies between what we come up with the GSV Capital and what Andersen Tax comes up with.

The independent board reviews that and makes the determination ultimately which they think is the correct the most appropriate value. And so and that's the process. So, we think it's a very rigorous process. It's private securities, so it's the information that's there sometimes is not as much as there would be obviously if it goes public but I think the process we go through is as I said it's an exhaustive process, it's a rigorous process and we think I believe that it's something that people would evaluate. They would be very pleased and comfortable with the way that we do things.

Thank you.

(Operator Instructions) It appears that's all the time we have for questions. I will turn it back over to Michael Moe for any additional or closing remarks.

Yes. So, thank you very much again for having tuned into our call. We are very bullish on what we are doing at GSV capital, very bullish on the portfolio and the fundamentals of the portfolio. And we are working very hard to add to have that be recognized by the public marketplace and so again we appreciate your interest and we look forward to follow-up questions you might have after the call. And we look forward to having a very good quarter to talk about in three months. So, thank you very much and have a great rest of the day.

Once again, this does conclude today's conference call. Thank you all for your participation.