SuRo Capital Corp (SSSS) 2016 Q4 法說會逐字稿

Good day, ladies and gentlemen, and thank you for standing by. Welcome to GSV Capital's fourth quarter 2016 earnings conference call.

(Operator Instructions)

This call is being recorded today, Thursday, March 16, 2017. I would now like to turn the call over to Nicholas Franco of GSV Capital. Please go ahead.

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 Investor Relations Presentations.

Today's call is being recorded and broadcast live on our website, GSVCAP.com. Replay information is included in our press release issued earlier today. This call is the property of GSV Capital Corporation. Any 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 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 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're pleased to share the results of GSV Capital's fourth quarter and FY16. First, I will review the recent quarter and comment on the market fundamentals that are defining GSV Capital's opportunity moving forward.

Then I'll share an update on our top positions and notable developments in the portfolio. I'll then turn the call over to our Chief Financial Officer, Bill Tanona, who will provide a brief financial overview. Then we'll open up the call for questions.

Let's start with slides 3 through 7. Net as assets totaled approximately $192.1 million or $8.66 per share as of December 31, 2016, as compared to $10.08 per share at September 30, 2016. At the end of 2016, we applied a vigorous analysis to GSV Capital's already robust valuation process, metrics and investment priorities to reflect an environment over the past year where it's been increasingly difficult to finance non-unicorn companies.

Even with the marquee names, financings have typically been flat to slightly up over the past 18 months. Recently couple with the dynamic of the GSV Capital's portfolio include a complete write-down of our investment in BMH Solar, and a near complete write-down of our investment in PayNearMe in the fourth quarter. Which together, accounted for approximately 62% of our total net unrealized gains and losses in the quarter. As always, we believe our current NAV reflects the ongoing evolution of the market dynamics, and we'll continue to comprehensively monitor our position and marks.

Additionally, as part of ongoing steps we are taking time prove and strengthen the GSV Capital platform, we are announcing today that two members of the Board of Directors, Cathy Friedman and Brad Koenig, will be transitioning from their roles as of tomorrow, Friday, March 17, as we bring on two new Directors with significant investment and asset management experience. We're very grateful for Brad and Cathy's service to GSV Capital's stockholders.

The first new Director is David Pottruck, the former CEO of Charles Schwab, where he was at Schwab from when it was a $400 million market valued business to $45 billion at one point as CEO. Today, David is the Chairman of Red Eagle Ventures and he's on the Board of Directors of Intel, a role where we has served for the past 17 years.

David is also Chairman of High Tower Advisors, a $35 billion wealth management firm he helped launch in 2008. He will officially join the Board on May 31.

David will be joined by Marc Mazur, the former CEO of Brevan Howard US Asset Management. Marc was an executive at Goldman Sachs its fixed income division for over a decade, and today he serves as a Senior Advisor to Brightwood Capital, a multi-fund asset manager with over $3 billion under management. Marc will officially join the Board on March 17. We're excited to add David and Marc to the GSV Capital Board of Directors, and we think they're going to be great contributors to our future.

While we're disappointed to record fourth-quarter write-downs, we're very encouraged by a distinct opportunity set that is material for GSV Capital. It starts with the portfolio where the average revenue growth was 105% in 2016. This was the third consecutive year where revenue growth has been above 100% for the portfolio.

We continue to see strong fundamentals and accelerated performance in GSV's top names, including Spotify, Palantir, Dropbox, Coursera and Lyft. In the long run, growth drives enterprise value and accordingly we continue to focus on building a portfolio that has the highest and most sustainable growth rates.

We're also pleased to see the strong IPO on March 1t from our portfolio Company, Snap, the parent of Snapchat. It was greeted by eager investors pricing above the range and popping 44%. Today, the Company has over 150 million daily users uploading an average of 29,000 snaps per second, and watching a mind blowing 10 billion plus videos per day, up from just 2 billion in May of 2015. Users spend nearly 30 minutes on the app per day, and over 60% share new content every day.

Interestingly, while Snap's growth surged by almost every relevant metric in the lead up to its IPO, its valuation was no stranger to volatility. In the fall of 2015, for example, Fidelity Investments marked down its position in the company by 25%, only to mark it up again 15% in December of that same year.

In March of 2016, Fidelity invested $175 million in Snapchat in a flat valuation to its previous financing. The consistent thread over the period is is that Snap continued to rapidly emerge as a transformational force in media.

While we're pleased to see a portfolio company go public, Snap's listing signals a broader opportunity for the best names to break through an IPO backlog that has not only been building over the past couple years, but really over the last 15 years. According to Renaissance Capital, which is an expert focused on IPOs, just 102 US companies went public in 2016 and only 40 were venture backed. In fact, IPO proceeds from venture backed companies is down 90% from 2014 to 2016.

The stock market reflects the confidence investors have in the future, and indexes have rallied since the election of Donald Trump and into 2017. Likewise, the IPO market is an indicator of the state of mind of investors. If they're pessimistic new issues shut down, if they're optimistic investors treat IPOs like fresh oxygen.

Not surprisingly, groups like Renaissance Capital have predicted an IPO rebound in 2017. Historically, leading portfolio positions with a runway to IPO have been a positive catalyst for our stock.

And in fact, GSV Capital traded a premium to the NAV in advance of high-profile IPOs from Facebook and Twitter. With GSV Capital selling at approximately 40% discount of NAV, we think there is exceptional risk/reward opportunity for investors base don the strong momentum behind GSV's top names and improving IPO environment that we believe is materializing.

Let's turn to slides 8 through 9 for a review of GSV Capital's portfolio. Of our five key investment themes, education technology is the largest commitment representing 30% of the total portfolio at fair value. Cloud computing and big data is 34%, and social mobile is 18%. Marketplaces represent 10% and sustainability 2%.

As of December 31, 2016, our top-10 positions accounted for approximately 60.2% of our total portfolio at fair value. GSV's three largest investments, Palantir, Spotify and Coursera, represented approximately 28.5% of the total portfolio at fair value. So what this obviously reflects is really a barbell approach where we've made outside commitments to the companies that we think have the strongest fundamentals and upside potential.

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 their data. It is deployed at critical government, commercial and non for profit institutions around the world.

In a recent interview with Yahoo Finance, CEO Alex Karp, indicated that the Company will be profitable in 2017, noting that Palantir's cash burn rate has declined by approximately 60%. Palantir's operations in the UK are already profitable, as European revenue has roughly tripled over the past three years.

In October 2016, Karp stated at The Wall Street Journal's global technology conference that the Company has positioned itself to go public which would create liquidity opportunities for employees. This was a significant statement, as previously Palantir has denied any interest in going public.

Our second largest position is Spotify, the disruptive music streaming platform that now reaches over 100 million users with 30 million songs across 60 global markets. In March 2017, Spotify announced it had 50 million paying subscribers. This is up from 40 million in September 2016 and 30 million in March of 2016.

Spotify has over twice as many paying subscribers as its key competitor, Apple Music, which reported 20 million as of December 2016. Spotify isn't just holding its own against Apple, it's actually building a wider lead.

Earlier this month, Spotify announced that it acquired Sonalytic, a developer of audio detection technology that can identify songs, mix content and audio clips. It also tracks copyright protected material and aids in music discovery. To date Spotify has raised over $1.6 billion from a syndicate of investors including Axel Partners, Founders Fund, Technology Class Over Ventures and Goldman Sachs.

GSV's third largest position is Coursera, the leading provider of massive open online courses, or MOOCS, that reaches over 24 million learners worldwide. Coursera is partnered with 149 of the world's leading universities, including Stanford, Yale, Princeton, the University of Pennsylvania and Peking University to provide over 2,000 online courses in a freemium model. Charging for certification programs that are completed.

It also launched a radically disruptive accredited online degree program, including the IMBA and Masters in Data Science in partnership with the University of Illinois. Priced at just $20,000, these offerings are one-fifth of the typical cost of comparable physical programs.

Beyond degrees and credential monetization, Coursera has also launched an enterprise strategy targeting an estimated $325 billion in annual corporate training spending. Early customers in this initiative include BNY Mellon, Boston Consulting Group, Loreal, and Access Bank who use the platform to provide low-cost, high-quality professional development and new hire onboarding.

In early 2017, Coursera partnered with Google to launch a suite of on demand Google cloud platform training courses developed and taught by Google experts. Topics include cloud development and fundamentals, data analytics, machine learning, security and operations.

Coursera was founded in 2012 by Stanford professors Daphne Koller and Andrew Ng, who serves as the Company's Chairman and is also the Chief Scientist at Baidu. The Company is led by CEO, Rick Levin, the former President of Yale University for 20 years. To date, Coursera has raised $146 million from a syndicate of investors that includes Kleiner Perkins, NEA, The International Finance Corporation, the VC arm of the World Bank and Yuri Milner.

Beyond our top-three positions, Dropbox, a leading cloud-based file sharing storage and collaboration platform, became the fastest software as a service business to reach $1 billion in revenue run rate milestone in January according to a report from IDC. It took just eight years, ahead of SAS all stars like Salesforce and Workday.

Dropbox continues to be propelled by powerful network effects, tallied over 500 million users and 3.3 billion connections made. As of mid-year 2016, it held over 8 million paying individuals who has added approximately 10 million new users per month. Additionally, Dropbox has approximately 200,000 paying business customers including a majority of the Fortune 500 companies.

Significantly, in June 2016, CEO Drew Houston, reported that the Company had become cash flow positive. You can access more of GSV's research about Dropbox in our most recent weekly newsletter, A2Apple, which is available at A2Apple.com.

Turning to another key position in January, the ride sharing platform Lyft announced they'd delivered 163 million rides in 2016, more than tripling its 2015 total. The Company also reported in March of 2017 that it already launched in 100 new cities this year, and that its growth was accelerating in every market across the country. In addition to its impressive growth and execution, Uber's recent series of public missteps has created further opportunities for Lyft and Lyft is taking full advantage of that.

I V Media, the next generation media business that delivers information about what's new and next to over 20 million people per month announced it's completed a $10 million financing in January of 2017. As reported on our last earnings call, GSV Capital made a $2 million investment as part of this round. To date, I V has raised $35 million from investors, including the German media company Axel Springer, as well as Emerson Collective, which is Laurene Powell Jobs' investment vehicle, and SV Angel which is Ron Conway.

In February of 2017, Lytro, the pioneering lightfield imaging platform which is selling picks and shovels to the virtual reality miners announced that it completed a $60 million series D financing. As disclosed last quarter, GSV Capital made a $500,000 (technical difficulty) investment as part of this round. Key Lytro investors include, Andreessen Horowitz, NEA and Greylock Partners among others.

Finally, please turn to slide 10. From May 8 through May 10, GSV will be hosting the 8th annual ASU GSV Summit in Salt Lake City. Launched in partnership with Arizona State University, the Summit brings together investors, entrepreneurs and global business leaders with the goal of catalyzing innovation, education and talent.

Called the must-attend event for education technology investors by the New York Times, the Summit hosts over 3,500 attendees, 350 presenting companies. It's been a great platform to both identify investment opportunities for GSV and to accelerate portfolio companies such as Coursera, Curious, General Assembly and Course Hero, four of our top-10 positions.

Past keynotes include Bill Gates, Richard Branson, the former US Secretary of State, Condoleezza Rice. This year, we've confirmed acclaimed author Michael Lewis, tennis legend Andre Agassi, Palantir Co-Founder Joe Lonsdale, amongst others.

You can learn more and register at ASUGSVSummit.com. Thanks for your attention, and with that I'll turn it over to our CFO, Bill Tanona.

Thank you, Michael. Today, I will briefly provide a financial overview, followed by an update on our current liquidity position.

We ended the quarter with an NAV per share of $8.66. A quarter-over-quarter and year-over-year breakdown of the change in NAV is shown on slides 11 and 12 in the presentation deck that we've provided, which is consistent with our financial reporting.

In sum, $1.40 per share quarter-over-quarter decline in NAV was driven by $1.65 per share of net changes in unrealized depreciation of investments and $0.01 of net realized losses. These items were partially offset by $0.17 per share of net investment income, and $0.07 per share benefit on taxes from unrealized depreciation of investments.

On a year-over-year basis, the $3.42 per share decline in NAV was driven by a $3.30 per share net change in unrealized depreciation of investments, $0.06 per share of net investment losses, and $0.12 per share of net realized losses. These items were partially offset by $0.10 per share of a benefit from taxes on unrealized depreciation of investments.

During the fourth quarter of 2016, we sold our full position in Upwork Global at an average net price of $4.31 per share, resulting in roughly $78,000 of net realized losses in the quarter. Those were the only realized gains or losses in the quarter for GSV Capital.

Our liquid assets ended the quarter at approximately $17.1 million, consisting of approximately $8.3 million of cash and $8.7 million of public securities, not subject to lock-up agreements. None of which are subject to any periodic sales restrictions.

We appreciate your support of GSV Capital, and we continue to strive to add value to our stockholders. That concludes my comments, and we'd like to thank you for your interest. I'll now turn the call back over to the moderator to start the Q&A session.

Thank you.

(Operator Instructions)

We'll go first to Alex Paris with Barrington Research.

Good afternoon. This is Chris Howe sitting in for Alex Paris. At one point in time, I think you had held stocks that went public indefinitely and now your position is to exit within 12 months of the lock-out expiration. I guess these thoughts are all related to the recent IPO of Snap, and what's your plan moving forward with that? Thank you.

Thank you. So the guidance that we've given, it's our intent that we will liquidate positions in companies that have gone public, as you've stated, 12 months after lock-out period which is typically six months and that can be adjusted by the underwriter. And as it relates to Snap, what we'll be evaluating is where Snap is at that point, vis-a-vis our price target and what we consider to be the fundamentals at the time.

Ultimately, it's our responsibility to make the best returns for our shareholders. And so while the guidance we've given is that we would liquidate within 12 months after the lock-out period and that is what our full intent is, it will depend on where the stock is at the time and what the circumstances are. We do continue to hold one position that is public for much longer than its lock-up period and that's [Chag].

It's our strong view, and it has to be our strong view because otherwise we'd sell and we'd invest in private companies, that the risk/reward situation for Chag today is super compelling for us to keep the shares for right now. We're very close to the company and what's going on, and we think the stock is dramatically undervalued, vis-a-vis those fundamentals.

So we've kept that outside of the guidance that we provided is what our intent is. So as it relates to Snapchat, it's really going to be a function of where it's trading and what the fundamentals are and what the environment is. But I think it's 90% plus probable that we will liquidate that position within 12 months of the lock-out.

(Operator Instructions)

If there's no more questions, we just want to again thank you for tuning in. We appreciate the interest in GSV Capital. We do believe we have a portfolio that is overall performing quite well, and we think we're entering an environment that should be favorable for GSV Capital and its shareholders.

So we'll continue, we're going to work very, very hard to create the kind of returns that our shareholders deserve. And again, we look forward to talking between now and our next call. Thank you.

This does conclude today's conference. We thank you for your participation. You may now disconnect.