SuRo Capital Corp. (NASDAQ:SSSS) Q1 2024 Earnings Call Transcript

SuRo Capital Corp. (NASDAQ:SSSS) Q1 2024 Earnings Call Transcript May 8, 2024

SuRo Capital Corp. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Hello, and welcome to SuRo Capital’s First Quarter 2024 Earnings Call. My name is Melissa, and I will be your coordinator for today’s event. Please note, this conference is being recorded. And for duration of the call, your lines will be in a listen-only mode. However, you will have the opportunity to ask questions at the end of the presentation. [Operator Instructions] I’ll turn the call over to Adam Bates. Please go ahead.

Adam Bates: Thank you very much for joining us on today’s call. I’m joined today by the Chairman and Chief Executive Officer of SuRo Capital, Mark Klein; and Chief Financial Officer, Allison Green. Please note that a slide presentation corresponding to today’s prepared remarks by management is available on our website at www.surocap.com under Investor Relations, Events & Presentations. Today’s call is being recorded and broadcast live on our website, www.surocap.com. Replay information is included in our press release issued today. This call is the property of SuRo Capital 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, including the impact of any market volatility that may be detrimental to our business, our portfolio companies, our industry and the global economy that could cause actual results to differ materially from the plans, intentions and expectations reflected in or suggested by the forward-looking statements. 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 SuRo Capital’s latest SEC filings, please visit our website at www.surocap.com or the SEC’s website at sec.gov. Now, I would like to turn the call over to Mark Klein.

Mark Klein: Thank you, Adam. Good afternoon, and thank you for joining us today. We would like to share the results of SuRo Capital’s first quarter 2024. As most of you know, for over 13 years, SuRo Capital has provided public equity investors access to late-stage venture capital-backed private companies such as Facebook, Twitter, Snap, Lyft, Dropbox, Spotify, Palantir and Coursera, just to name a few. We are excited to see the renewed and accelerating public investor interest in later-stage venture capital as an asset class. We believe our current portfolio, including recent investments, year-to-date, will continue to drive shareholder value. We are pleased to share that we have deployed more capital in the last four months than any period in the last two years.

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Q&A Session

In addition to our previously announced $10 million investment in liquid debt, we are excited to share that, subsequent to quarter-end, we invested $10 million in Canva, a leading productivity and design software company, and invested $15 million in CoreWeave through an SPV named CW Opportunity. CoreWeave is a cloud infrastructure provider for artificial intelligence and machine learning use cases. CoreWeave is our single largest investment since 2020. I will go into more detail on each company later in the call. As many of you know, from late 2020 through 2021, we liquidated a large portion of our portfolio and paid out approximately $9 per share in dividends. We consistently stated we would be patient in redeploying our capital in the belief that we would be able to deliver shareholders access to compelling opportunities.

We began redeploying in the middle of last year with investments in ServiceTitan and [indiscernible], and continued into this year with liquid debt, Canva and CoreWeave. Over the last four months, we deployed half of our cash that was available at year-end, and we are actively engaged in potential additional investments. Given the strong performance in the public equity markets, coupled with the encouraging performance of recently minted IPOs such as Reddit, Rubrik, Ibotta and Astera Labs, we believe these are indicators of a renewed investor enthusiasm for high-growth technology companies. Turning to our first quarter results. We ended the quarter with a net asset value of $181.7 million, or $7.17 per share. This NAV compares to a net asset value of $7.99 per share at year-end, and $7.59 per share at the end of Q1 2023.

Please turn to slide four. Turning to our top five positions, I first want to highlight our cash position. As of quarter-end, our cash and short-term U.S. Treasury is available for investment were approximately $80.4 million, representing 31% of our gross assets. SuRo Capital’s top five positions as of March 31st were Learneo, ServiceTitan, Blink Health, Locus Robotics, and StormWind. These positions accounted for approximately 51% of the investment portfolio and fair value. Additionally, as of March 31st, our top 10 positions accounted for approximately 78% of the investment portfolio. Subsequent to quarter-end, we made a $10 million investment in Canva on similar terms as the reported company tender. According to Bloomberg, the valuation of that tender came at a significant discount to Canva’s last primary financing.

Canva is an online productivity-designed software and collaboration platform with a mission to empower everyone in the world to design. Featuring a simple drag-and-drop user interface, the company provides a cloud-first browser tool to create presentations, social media posts, videos, and more. 2023 was a momentous year for Canva. The information reported in Canva finished the year with $2 billion in annualized revenue. Additionally, according to its annual report, Canva surpassed 170 million monthly users in 190 different countries. Canva also surpassed 20 billion designs created and over 6 billion of these designs created in 2023 alone, equivalent to 1 million designs per hour. Over the course of the year, Canva significantly scaled its enterprise segment.

At the end of 2023, more than 90% of the Fortune 500 companies were using Canva, and 135,000 teams and companies of more than 1,000 employees were designing on the platform. According to Canva’s annual report, these companies include Starbucks, FedEx, Salesforce, Johnson & Johnson, PayPal, and many more. Lastly, Canva greatly bolstered its AI-powered product offerings in 2023. In October, Canva launched Magic Studio, a suite of AI-designed tools including text-to-image and text-to-video generation, file reformatting, instant animation, and more. According to Canva’s annual report, these AI products have already been used more than 4 billion times. Canva has emerged as a leader in AI-facilitated content creation having been selected as Apple’s number two generative AI app for 2020.

According to PitchBook, Canva has raised over $580 million in equity financing from investors including Bessemer Venture Partners, General Catalysts, Iconiq, and more. We believe Canva is uniquely positioned to dominate the amateur and prosumer design market as it makes graphic design more accessible. Additionally, subsequent to quarter’s end, we made a $15 million investment in CW Opportunity 2, an SPV that will invest in CoreWeave’s preferred shares. CoreWeave is a specialized cloud provider delivering access to a suite of NVIDIA GPUs coupled with its fast and flexible cloud computing infrastructure. CoreWeave is a critical foundation for AI and machine learning use cases from the initial stages of training a model to ultimately producing a model’s output per end users.

During the training phase, a model takes in large data sets to develop the ability to generate responses and insights. In other words, during the training phase, a model learns how to address its end users’ needs. To serve the training phase, CoreWeave offers distributed clusters or connected computers using NVIDIA’s groundbreaking quantum infinity band network solution. During the inference phase, a model creates predictions and insights based on a user’s live input. The inference phase occurs when, for example, a large language model, or LLM, writes a response based on a user’s input. With spin-off times as short as 5 seconds, CoreWeave offers one of the most powerful inference solutions using NVIDIA GPUs. In fact, according to a company blog post, CoreWeave’s inference service performs 8 to 10 times faster than a major generalized cloud provider.

Over the last few months, CoreWeave has cemented itself as a leader in AI infrastructure. In March, NVIDIA unveiled its Blackwell GPU architecture, which according to a company press release will enable organizations to build and run generative AI up to 25 times less cost and energy consumption than NVIDIA’s predecessor. As a preferred cloud service provider of NVIDIA and as a company in which NVIDIA has made an investment, CoreWeave was named as one of the first companies expected to offer Blackwell-powered instances to the public. With relationships with such companies as NVIDIA, Mistral AI and Datadog, CoreWeave is a major building block for advancements in generative AI. NVIDIA has seen monumental growth driven by generative AI development and adoption.

According to its fourth quarter of fiscal 2024 results, its data center platform reached a record of approximately $18.4 billion in Q4 revenue up over 400% year-over-year. In its prepare remarks, management described the tipping point of computing powered by data centers stating that the data center infrastructure is rapidly transitioning from general purpose to accelerated computing. By offering distributed access to NVIDIA’s GPUs, data centers are becoming a foundation element of generative AI. As an infrastructure provider, CoreWeave is strongly positioned to continue to benefit from NVIDIA’s acceleration and broader acceleration in AI. According to PitchBook, CoreWeave has raised over $3.8 billion in debt and equity financing from investors such as Coatue, Fidelity, Magnetar, and others.