SuRo Capital Corp. (NASDAQ:SSSS) Q4 2023 Earnings Call Transcript

SuRo Capital Corp. (NASDAQ:SSSS) Q4 2023 Earnings Call Transcript March 13, 2024

SuRo Capital Corp. beats earnings expectations. Reported EPS is $-0.11, expectations were $-0.14. SSSS 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 Fourth Quarter and Fiscal Year 2023 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 Jackson Stone. Please go ahead.

Jackson Stone: Thank you 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 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, Jackson. Good afternoon, and thank you for joining us today. We would like to share the results of SuRo Capital’s fourth quarter and fiscal year 2023. In 2023, there was geopolitical conflict, including two ongoing wars, a rapid rise in interest rates and a volatile stock market led higher by a handful of companies. Known as the Magnificent 7, these mega cap stocks drove major market indices to significant gains in 2023. On the other hand, private markets remained weak. According to PitchBook, 2023 venture deal volume declined 30% from 2022 and 51% from 2021. Valuations also declined. Forge’s private market index, which tracks the valuations of late-stage venture-backed private companies, closed the fourth quarter down approximately 5% and down for approximately 20% for the year.

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Q&A Session

As we have discussed for several quarters, we feel the valuations of public markets and private markets are converging. We believe the current environment is now delivering the high-quality opportunities we had been awaiting. As such, we executed three investments during the fourth quarter. In 2023 as a whole, we made investments totaling approximately $26 million with over 70% of that capital deployed into secondary opportunities at significant discounts to their last primary valuations. Additionally, subsequent to year-end, we invested $10 million in supplying demands, otherwise known as Liquid Death’s primary financing, as I will discuss shortly in my remarks. Turning to our fourth quarter results. We ended the year with a net asset value of $203.4 million or $7.99 per share.

This NAV compares to a net asset value of $7.39 a share at year-end 2022. Please turn to Slide 4. Turning to our top five positions. I first want to highlight our cash position. As of year-end, our cash and short-term U.S. treasuries available for investment were approximately $92 million, representing 32% of our gross assets. SuRo Capital’s top five investments as of December 31 were Learneo, StormWind, ServiceTitan, Blink Health and Locus Robotics. These positions accounted for approximately 56% of the investment portfolio at fair value. Additionally, as of December 31, our top 10 positions accounted for approximately 80% of the investment portfolio. Next, I would like to provide further detail on our recent investments. During the fourth quarter, we made a $2.7 million follow-on secondary investment in FourKites, a $325,000 follow-on investment in Xpoint as part of the SuRo Capital Sports portfolio and a $1.6 million investment in the sponsor economics of Colombier Acquisition Corp.

II. Please turn to Slide 5. I would like to provide further detail on our investment in the sponsor economics of Colombier II. The management team most recently had success with our portfolio company, Colombier Acquisition Corp. I, which merged with PublicSquare and began trading on the New York Stock Exchange in Q3 of 2023. As previously discussed, we made a $2.7 million investment in the sponsor economics of Colombier I, and as of the end of the year, we value our position in publics at nearly four times our initial investment. Given the success of Colombier I, we are excited about the prospect of management executing on another compelling opportunity for its second vehicle. So please turn to Slide 6. Subsequent to year-end, we made a $10 million primary investment in Liquid Death, a CPG brand focused on still water, sparkling water and teas.

Our investment was part of the company’s Series F-1 financing round, a $67 million financing completed at a $1.4 billion valuation. The round included all major existing investors, strategic partners such as top national distributors and notable names in entertainment and sports. Since its launch, the company has significantly expanded its footprint to over 113,000 retail doors in the U.S. and UK and has introduced new SKUs in sparkling water, flavored sparkling water, iced tea and powdered hydration mixes. The management team is composed of advertising and beverage industry veterans, including the former Head of Sales of White Claw, the former head of 7-Eleven Ventures and the former Head of Supply Chain for GT’s kombucha, liquid kombucha.

Liquid Death is sold in the largest grocery store chains in the U.S. such as Walmart, Target, Kroger, Whole Foods and Albertsons as well as many of the largest convenience store chains such as 7-Eleven. In 2023, the company achieved over $260 million in scanned sales, which equates to triple-digit growth for the third consecutive year. According to SPINS data, this makes Liquid Death the fastest growing water and iced tea brand ever. As the company continues to grow, their marketing strategy is centered around its almost 8 million Instagram and TikTok followers, making Liquid Death the third largest beverage brand followed on social media. Liquid Death plans to utilize the funds from this capital raise to further scale and optimize distribution, expand its immense retail presence and invest in product innovation.

As we previously discussed, we believe our cash position in this environment advantageously positions us to continue seeking out new opportunities. As we near the end of the first quarter of 2024, we are pleased to share that we not only executed our investment in Liquid Death, but we also anticipate closing two sizable exciting investments by the end of the quarter. These two pending investments totaled $25 million in aggregate. They are both high-growth institutionally-backed businesses, one of which operates in the artificial intelligence industry and the other in productivity software. As with any deals, there is no guarantee that either one of these transactions will close. Transitioning to our public investments. As previously stated, it is our objective to sell our public positions when lockup restrictions expire, and there is relative stability in a given public position’s trading.

In line with this approach, we continue to monetize several of our public unrestricted positions over the course of the quarter. During the fourth quarter, we fully exited our position in NewLake Capital Partners and reduced our positions in Forge, Nextdoor and PublicSquare warrants. So to year-end, we fully exited our remaining position in Nextdoor and further reduced our position in PublicSquare warrants. I would also like to reiterate SuRo Capital’s commitment to initiatives to enhance shareholder value. As such, given the discount our stock is trading at compared to net asset value per share, we believe our active share repurchase program and recently commenced modified Dutch auction tender offer to be efficient and accretive deployments of capital.