SuRo Capital Corp. (NASDAQ:SSSS) Q3 2023 Earnings Call Transcript

SuRo Capital Corp. (NASDAQ:SSSS) Q3 2023 Earnings Call Transcript November 8, 2023

Operator: Good day, and welcome to the SuRo Capital’s Third Quarter 2023 Earnings Conference Call. Today’s call is being recorded. Your lines will be on listen-only. However, you will have the opportunity to ask questions at the end. [Operator Instructions] I will now hand you over to your host Adam Bates to begins today’s conference. Thank you.

Adam Bates: Thank you for joining us on today’s call. I am 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. We are pleased to share the results of SuRo Capital’s third quarter 2023. The third quarter of 2023 was characterized by a broad ongoing weakness in the public equity and bond markets. Economic uncertainty has continued into the fourth quarter, although recent reports and commentary from Federal Reserve has led investors believe the Fed may be done or close to done raising interest rates. While the fee be done with interest rate hikes geopolitical unrest, including wars in Israel and Ukraine, coupled with a view that consumers are pulling back has fueled continued volatility in the equity markets. In the first half of the year, we expressed our view that we believe the IPO market could open in Q3, which, in fact, did occur.

See also 12 Best Waste Management Stocks to Buy Now and Top 11 Extreme Value Stocks To Buy.

Q&A Session

Unfortunately, while there were several notable tech companies that debuted in the public markets, as of today, all of these companies have declined from their IPO price. The poor performance of these stocks as well as other IPOs has led to a pause in the IPO market. The IPO market is broadly closed and will likely reopen during the first or second quarter of 2024. The apparent delay in the IPO market has led to more volatility in the private markets with secondary trading in many instances, being significantly inconsistent with public comparables. As we have highlighted for several quarters, there is a disconnect between pricing of late-stage secondary opportunities and the recent performance of public markets. While we have been fortunate to find what we believe to be a couple of excellent opportunities, these are more the exception than the rule as valuations of private markets remain inconsistent and higher than their public components.

To that end, we have observed private secondary opportunities trading up or down around 25% within very short periods of time with no apparent catalyst. Additionally, we have noted stocks bid in offered simultaneously and meaningfully different prices. Finally, and perhaps the most instructive, we have observed trading in companies at levels that were meaningfully above their IPO, where their IPO was first indicated and finally priced. It is clear to us that the private secondary markets are opaque. To navigate through them, it is imperative to have constant dialogue with the myriad of secondary participants. To be prudent in price in such an opaque and wide-ranging market, it is critical to perform rigorous valuation analysis as we deploy capital against these opportunities.

As private companies face some prospects of prolonged time lines to IPO, our pipeline has remained extremely active with many companies and investors seeking liquidity. In fact, we continue to see more potential investments than other times. With that said, as always, we remain very focused on our potential entry levels. During the quarter, we were able to execute several new investments. Additionally, as previously discussed, one of our SPAC investments closed its previously announced merger and two other SPACs announced definitive agreements to merge with target companies. We made two new investments during the quarter. We invested $5.8 million in FourKites, a supply chain visibility software company through secondary transactions and we also invested $1 million in Stake Trade, the sports betting exchange doing business as profit exchange through a primary transaction as part of the SuRo Capital portfolio.

Please turn to Slide 4. FourKites is a leading real-time supply chain visibility solution. FourKites has been a pioneering for us behind the idea that companies should know where their goods are at all time from the initial onset of being loaded onto a truck to when they finally reach a delivery destination. The impact of FourKites technology is evidenced in its impressive clientele which includes recognized brands such as nine of the top 10 consumer packaged good companies and 18 of the 20 food and beverage companies. Today, FourKites helps over 1,200 of the world’s most recognized brands leverage real-time visibility and unlock efficiencies that save them millions of dollars a year. We believe that FourKites is in a unique position to capture additional market share as they continue expanding their business and target customers with some of the most complex supply chain needs.

We also made a $1 million investment in profit exchange through a primary transaction. Profit exchange is a peer-to-peer sports betting exchange focused on providing better the best pricing and a seamless experience that is different from the incumbent operators. Betters on the platform have the ability to request their own wagers or pick from outstanding options driven by both users and market makers. The company has gone through extensive licensing in regular tests and is now live in New Jersey with plans to expand to other legal betting states in the future. We are excited about the exchange wagering opportunity in the US, given the success Betfair has had in the UK and we believe Prophet Exchange has both the team and the technology to execute on the large market opportunity.

Please turn to Slide 5. During the quarter, Colombier Acquisition Corp., a SPAC in which we own both stock and warrants, successfully closed its business combination with PSQ Holdings also known as Public Square. Public Square is a leading marketplace of patriotic businesses and consumers that began trading on the New York Stock Exchange under the symbol PSQH on July 20. At quarter end, we valued our position at approximately $18 million and a cost basis in Public Square is approximately $2.7 million. The lockup restriction on the warrants expired on August 19, and our common shares are subject to a one-year lockup period as of the business combinations closing with a pricing condition that would unlock shares earlier. Allison will provide additional details on our Public Square investment later in the call.

As we previously discussed, the Acquisition Corp. announced a signed definitive agreement to merge with Oklo in Advanced Fission Technology and nuclear fuel company. On July 11, 2023 – on July 11, 2023. On September 27, 2023, the company filed an S-4 with the SEC. The combined company will be named Oklo and intend to list on the New York Stock Exchange with the symbol Oklo. The transaction, which has been approved by the Board of Directors Oklo and of Ocean AltC is expected to close in late 2023 or early 2024 and is subject to approval by AltC and Oklo shareholders, as well as other closing conditions. Lastly, during the quarter, on August 1, 2023, Churchill Capital Corp VII announced signed a definitive agreement to merge with CorpAcq, corporate compound specialized in acquiring small- and medium-sized business enterprise, also known as SMEs in the UK.

The transaction has been approved by the Boards of Directors of CorpAcq and Churchill VII and is expected to close in early 2024, subject to approval by Churchill VII and CorpAcq shareholders as well as other closing conditions. Turning to the third quarter. We ended the quarter with a net asset value of $212 million or $8.41 per share. This is an increase in net asset, up from $7.35 a share in Q2 of 2023 and up from $7.83 a share in Q3 of 2022. Please turn to Slide 6. Turning to our top five positions. I first want to highlight our cash position. As of quarter end, our cash and short-term US Treasuries available for investment were approximately $94 million, representing 32% of our gross assets. We continue to believe having cash in this environment have antageously positions us to continue seeking out new opportunities emerging from current market conditions.

SuRo’s top five positions as of September 30 were Learneo, Public Square, Service Titan Blink Health and StormWind. These positions accounted for approximately 61% of the investment portfolio at fair value. Additionally, as of September 30, our top 10 positions accounted for approximately 82% of the investment portfolio at fair value. Transitioning to our public investments. As previously stated, it is our objective to sell our public positions when lockup restrictions expire and as relative stability in a given public position to trading. In line with this approach, we have continued to monetize our public unrestricted positions. During the third quarter, we monetized most of our remaining position in next door and subsequent to quarter’s end, we began monetizing our position in public square warrants.