SuRo Capital Corp. Price & Performance (SSSS)

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 the today's prepared remarks by management is available on our website at www.serocap.com under Investor Relations, Events and Presentations. Today's call is being recorded and broadcast live on our website, www.serocap.com. Replay information is included in our press release issued today. This call is the property of Cerro 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.cerrocap.com or the SEC's website at sec.gov. Now, I would like to turn the call over to Mark Klein. Thank you, Jackson. I would like to thank everyone for joining the call and thank our investors for their continued support. We are excited to share the results of SuRo Capital's fourth quarter and fiscal year twenty twenty four.

We're especially excited to welcome the many new participants on the call With that in mind, we'll start with a quick history of SuRo, before diving into why we believe our portfolio is at a major inflection point. Based on the thesis that companies with stay private longer we started this firm fourteen years ago with the objective of providing access to market leading private companies before they go public. That thesis has played out.

When SIR was founded, there were fewer than 100 unicorns Today, there are roughly 1,500 unicorns 50 decacorns and a handful of centricorns. Over this time period, we have owned a number of marquee technology companies including Facebook, Twitter, Snap, Spotify, Lyft, Dropbox, Palantir and Coursera just to name a few. We've enjoyed many robust market cycles including mid-twenty twenty to early twenty twenty two when we monetize over $250,000,000 of our portfolio assets and declared and paid a total of approximately $9 per share in distributions. As with all BDCs, we are required to distribute functionally all of our net realized gains. Consistent with our past practices, we will be transparent and communicative about our dividend strategy. Today, we believe we are looking at another one of those highly compelling moments in the market. The next wave of anticipated IPOs in our portfolio include [indiscernible] [indiscernible] Lime, VAST Data, and at some point in time OpenAI. This is as large of a pipeline of pre IPO businesses as we can recall in the Fund's history. We believe the IPO window is reopening. And this is an incredibly exciting time for our portfolio as we approach potential monetizations. We are already seeing the exciting activity build in our portfolio.

On March 3, Corwee filed its S-one ahead of what has been widely reported as one of the most highly anticipated IPOs of the year. According to a Bloomberg report, Corweave's IPO is expected to target evaluation greater than $35,000,000,000 and is seeking to raise approximately $4,000,000,000 FOROIET's perspectives indicates the company generated $1,900,000,000 in 2024 revenue, over eight times greater than in 2023. According to a report from the information, Coreweave expects that tremendous growth to continue. Forecasting $8,000,000,000 in 2025 revenue. Subsequent to Corwee's IPO filing, the company announced that it signed a significant contract with OpenAI. According to a company press release, Huawei signed a five year contract with OpenAI worth up to $11,900,000,000 a deal that would also give OpenAI a $350,000,000 equity stake in Coreweave. Additionally, the company announced it reached an agreement to acquire Weights and Biases a leading AI developer platform. The acquisition extends Corwee's cloud platform by enabling an end to end experience for customers enhancing functionality for the world's leading AI labs and enterprises to build, tune and deploy AI applications. According to a report from the Information, Coralweave is acquiring Weights and Biases at a $1,700,000,000 valuation. As previously announced, additional $5,000,000 follow on investment in Coreweave Series A shares via a secondary transaction.

That investment brought our total basis in Corweave to $25,000,000 making CoreWeave the single largest investment in our fund's history. With its best in class cloud infrastructure, we believe Corweave will continue its exponential growth and capitalize on accelerated AI adoption. We are pleased to see the company's tremendous success to date and look forward to the company's imminent IPO. This is exactly the type of pre IPO access we seek to provide our shareholders. I will now discuss our other AI infrastructure OpenAI and BaaS Data. Starting with OpenAI. As previously announced, during the third quarter, we made a $17,500,000 investment in OpenAI through the Class A interest of ARC Type one Deep Ventures Fund. According to a Wall Street Journal report last month, as well as many other news sources, OpenAI is in talks to raise $40,000,000,000 at a $300,000,000,000 valuation.

To put this into the context of our portfolio, if a financing were completed at this valuation, we anticipate the value of our OpenAI investment would be approximately double. In addition to this financing, it was announced that OpenAI is a lead partner in the Stargate project According to the company's website, the Stargate project intends to invest $5,000,000,000 over the next four years building new AI infrastructure for OpenAI in The United States. Turning to the business itself since our last update. OpenAI has made significant strides in both its consumer and enterprise offerings. The company recently launched GPT [indiscernible] multimodal model that enhances speed, accuracy and reasoning capabilities across text, image and audio inputs. OpenAI's growth has been remarkable. According to report from the information OpenAI expects to more than triple this revenue from $3,700,000 to more than $12,500,000 and expects 2026 revenue to reach $28,000,000,000 According to a Reuters report, last month OpenAI had more than 400,000,000 active users. For comparison, according to a report from the Information, in January 2024, OpenAI had approximately one in 10,000,000 active users. According to our Reuters report on the enterprise side, OpenAI has more than 2,000,000 paying business customers, more than double the number of business customers it had in September.

As previously announced, during the quarter, we made a $12,000,000 investment in VAST Data through the membership interest of IH10 LLC and SBV's sole portfolio asset is an interest in Bassettas Series B shares. VAST DATA is a data management solution for leading AI companies MaaS has emerged to an due to an inability of legacy data management solutions to to serve customers building complex AI applications. For several decades, enterprise data software was built around the concept of tiers, Tiered storage is the idea that data is segmented based on its importance daily operations. However, AI applications need access to all data at once rendering the tiered storage system increasingly obsolete. VAST collapses the tiered storage model by offering all flash storage All flash storage allows all data in a pipeline opposed to data in a specific tier to be accessed instantly. This is especially valuable for companies that train AI models to produce outputs Since our last update, BASIS can continued to expand its presence in the AI infrastructure space through key partnerships and new product innovations. Recently, the NHL selected VAS Data as its data infrastructure partner to support NHL Edge the league's advanced analytics platform. The NHL will leverage VAST data to to power real time tracking of players and the puck generating new insights for teams, broadcasters and fans.

Additionally, VAST Data recently announced Insight Engine, a next generation AI powered analytics platform built in collaboration with NVIDIA.

Insight Engine enables organizations to analyze large datasets leveraging accelerating computing power to power real time decision making. Fast Data has quickly cemented itself as a dominant AI infrastructure provider According to a company press release at the end of twenty twenty three, VASTA had reached over $200,000,000 in ARR, Additionally, the company had been cash flow positive for the last three years. According to PitchBook, Bassett has raised almost $400,000,000 equity financing from such investors as NEA, General Atlantic, TPG and others. [indiscernible] We believe VAST data is poised for growth as a leading data management provider for the AI universe. Before highlighting additional updates in our portfolio, I'd like to turn to our fourth quarter results. We ended the quarter with a net asset value of $157,600,000 or $6.68 per share. Please turn to Slide 10. SuRo Capital's top five positions as of December 31 were [indiscernible] which includes our $15,000,000 investment in [indiscernible] [indiscernible] and our aggregate $10,000,000 follow on secondary investments in [indiscernible] OpenAI through our investment in ARC Type one Deep Ventures Fund Larnio, Blink Health and Whoop. These positions accounted for approximately 44% of the investment portfolio at fair value. Additionally, as of December 31, our top 10 positions accounted for approximately 74% of the investment portfolio.

As of year end, our liquid assets totaled approximately $23,600,000 representing 10% of our gross assets. Continuing with our broader portfolio, In December, ServiceTitan priced its IPO at $71 per share above the anticipated raise range, raising approximately $625,000,000 It closed the first day of trading at $101 per share reflecting a 42% increase. As of today, Servant's Titan stock closed above $50.85 dollars per share well above our cross bases. We are pleased with ServiceTitan's strong public market debut which we expect to be the first of several IPOs in our current portfolio. As is typical, we have a one hundred and eighty day lock up period from the IPO date on our ServiceTitan public shares. Turning to Canada. [indiscernible] As previously discussed, December, Canva had more than two twenty million monthly users in over 190 different countries, up from 200,000,000 monthly users in October. According to the same source, CamVA hit the milestone [indiscernible] 30,000,000,000 designs created by the Canva community. That is over 38,500,000 designs now created per day. On the enterprise side, the company in that more than 95% of the Fortune five hundred is using Canva to create collaborate and communicate and communicate. According to a CNBC report, Canva is now generating approximately $2,500,000,000 in annualized revenue.

As previously discussed, the company reported having completed several secondary transactions at a $32,000,000,000 valuation up from the $26,000,000,000 valuation it received in its larger company tender in April. We made our $10,000,000 investment in Tampa on similar terms as a reported April company tender. Moving on to WHOOP. Subsequent to year end, we executed a $1,000,000,000 follow on investment [indiscernible] via a safe note bringing our total cost basis to $11,000,000 We made our initial $10,000,000 investment in moving Q2 twenty twenty two via the secondary transaction. Since our initial investment, Wolfe has solidified its position as a leader in the wearable fitness and Last year, we expanded into several key international markets including The Middle East, where it has seen strong consumer adoption and growing brand recognition. Wolf has also continued to distinguish itself as the go to wearable for elite athletes and high performance individuals. In a testament to its credibility at the highest level of sports, Cristiano Ronaldo became a global brand partner. Elevating WOOX's presence in elite performance training. Additionally, Patrick Mahomes were awarded during the Super Bowl showcasing the device in tracking and optimizing real time athletic performance on the biggest stage in sports.

I would now like to provide an update on our Last month, Liquid Debt aired its first national Super Bowl advertising [indiscernible] marking a significant milestone in the company's marketing strategy. In addition to this major marketing initiative, since our investment liquid debt has expanded its product line with the introduction of soda inspired sparkling waters, The new flavors Killer Cola Doctor. Death and Root Beer Raff offers consumers a unique twist on soda flavors, aligning with the media brand edgy strategy. The addition of soda flavored sparkling water adds to the ever growing portfolio of teas, sparkling waters and still waters. These developments reflect Liquid Dead's commitment to innovative, market and product diversification, reinforcing his position as a disruptive force in the beverage industry. We are excited about Liquid Desk's trajectory and remain confident in its potential to further disrupt the beverage market.

The company's commitment to creating marketing and product innovation reflects its ability to stand out in a competitive market we look forward to supporting its continued success. Please turn to Slide 15. Turning to our SPAC investments. We are excited to report the full exit of our position in Oaklow during the fourth quarter. Achieving a significant return of over 20 times our initially invested capital in Altsea Sponsor LLC the sponsor of Altsea Acquisition Corp. Additionally, we exited all of our public square common shares at a significant profit Subsequent to year end, Columbia acquisition two announced it entered into a definitive business combination agreement. The transaction is expected to close this summer. These examples are all testaments to the success of our SPAC sponsor strategy we established several years ago. Alison will provide additional detail on our public positions and investment monetizations in her remarks. Before I turn the call over to Allison, I would like to reiterate how excited we are about the positions of our of our portfolio. Across AI infrastructure and applications, and consumer goods and services, our portfolio is packed with market leading companies on the verge of IPOs. Within AI infrastructure, CoreWeave OpenAI and VAST Data represent a quarter of gross assets and 37% of our net assets. 2024 alone, we invested nearly $55,000,000 in AI infrastructure.

Within AI adjacent companies, Canva, ServiceTitan, Woop, Blink Health and SuRo Robotics representing another 29% of our gross assets. Within our consumer vertical, [indiscernible] are two dynamic leading brands with businesses at scale for IPOs. Altogether, these investments give our investors access to some of the most highly anticipated pre IPO names in the private markets. Thank you for your attention. And with that, I will hand it over to Alison Green, our Chief Financial Officer.

Thank you, Mark. I would like to follow Mark's update with a more detailed review of our fourth quarter and financial results as of December 31, [indiscernible] well as a brief highlight of activity subsequent to year end to date. This will include our investment activity, update on our current 6% notes due 2026, their repurchase the 6.5% convertible notes due 2029 and current liquidity.

As Mark mentioned, during the fourth quarter, we completed a $12,000,000 investment in the [indiscernible] IH10 LLC is an entity whose sole portfolio asset is interest in VAST Data's Series B preferred shares through an SPV. [indiscernible] Additionally, during the fourth quarter, we made a $5,000,000 follow on investment in core Weave's Series A preferred shares through a secondary transaction. [indiscernible] Aggregated with a $15,000,000 investment in the Class A interest CW opportunity two LP, an SVV for which the Class A interest is solely invested in the Series C preferred shares of CoreWeave Inc. And the $5,000,000 follow on investment in CoreWeave's common shares through a secondary transaction, both made earlier this year, current aggregate exposure to CoreWeave currently stands at $25,000,000 on a cost basis. Subsequent to year end, we completed a $1,000,000 follow on investment in WHOOP via a safe note, bringing our aggregate to date investment in WHOOP to approximately $11,000,000 and an aggregate additional $300,000 follow on investment in Orchard Series one senior bringing our aggregate to date investment in Orchard to approximately $12,800,000 In November, we exited our position in Oaklow following the We received the Oaklow public common stock following their successful merger with Alt C Acquisition Corp, in which we invested approximately 2 and $50,000 in that Spak sponsor.

Upon the sale, we received proceeds of approximately $5,100,000 resulting in a net realized gain on the investment of approximately $4,800,000 During the fourth quarter, we continued to exit our position in public common shares of Public Square, fully exited the position as of December 3. We received the Public Square public common stock public warrants following their successful merger with the first Columbia SAC.

In which we invested approximately $2,600,000 in that SAC sponsor.

During the fourth quarter, we sold the remaining $1,616.000187 dollars Public Square common shares approximately $5,500,000 net proceeds resulting in a realized gain of approximately $4,000,000 Additionally, during the fourth quarter, we continued to monetize our holdings in the public warrants of Public Square and sold 500,000 Public Square warrants for approximately $539,000 in net proceeds resulting in a realized gain of approximately $324,000 We To date, we have sold 1,976,032 public common shares, 903,963 public warrants at Public Square for approximately $7,300,000 in net proceeds. And resulting realized gain to date of approximately $5,300,000 Finally, during the quarter, we sold 125,000 public common shares FORGE, resulting in net proceeds of approximately $130,000 and a realized gain of approximately $14,000 and we received a distribution of approximately $143,000 related to our investment in TruGlobal Ventures four plus Please turn to Slide 16. Segmented by seven general investment themes, the top allocation of our investment portfolio at year end was to artificial intelligence infrastructure and applications.

Representing approximately 28% of the investment portfolio at fair value. Software as a Service and applications and consumer goods and service were the next largest categories with approximately 2414% of our portfolio respectively. Approximately 13% of our portfolio was invested education technology companies and the logistics and supply chain category accounted for Financial technology and services accounted for 8% of the fair value of our portfolio and service accounted for 2% as of December 31. Please turn to Slide 17. [indiscernible] like to provide more detail on the note repurchase program for the 6% notes due 2026 and the issuances of our 6.5% convertible notes due 2029. On 08/06/2024, Cerro Capital's Board approved a discretionary note repurchase program, which allows the company to repurchase up to $35,000,000 of our 6% note due 2026 exclusive of any applicable fees, through our open market purchases, including block purchases, such manner as will comply with the provisions of the Investment Company Act of 1940, as amended and the Securities Exchange Act of 1934 as amended. During the quarter ended 12/31/2024, we repurchased an additional 203,168 of the percent notes due 2026 under the note repurchase program. As of December 31, we had repurchased $1,213,304 of the 6% note due 2026 under the note repurchase program.

Subsequent to year end through today, we repurchased an additional 199,990 of the 6% notes due to 2026 under the note repurchase program. To date, we 1,616,462 or approximately $35,300,000 in aggregate principal dollar amount of the 6% notes have been repurchased for approximately $35,000,000 resulting in the total use of the authorized available funds. Now moving on to the 6.5% convertible no issuance. On August 6, SIRGO Capital entered into a no purchase agreement by and between the company and a private purchaser pursuant to which we may issue up to a maximum of $75,000,000 in aggregate principal amount of 6.5% convertible notes due 2029. Pursuant to the note purchase agreement, on August 14, we issued and sold and the purchase or purchase $25,000,000 in aggregate principal amount of the convertible notes also referred to as the initial notes.

Under the note purchase agreement, upon mutual agreement between the company the purchaser, we may issue additional convertible notes with the same terms as the additional notes sale and subsequent offerings to the purchaser, which we refer to as additional notes or additional notes with modified pricing terms, which we refer to as new notes. In the aggregate for both the additional notes and the new notes up to a maximum of $50,000,000 in one or more private offerings. Interest on the convertible notes will be paid quarterly in arrears on March 30, June 30, September 30 and December 30 at a rate of 6.5% per year. The convertible notes will mature on 08/14/2029 and maybe redeemed in whole or in part at any time or from time to time at our option on or after 08/06/2027. Upon the fulfillment of certain conditions. The convertible notes will be convertible into shares of our common stock at the purchaser's sole discretion at an initial conversion rate of 129.0323 shares of our common stock per $1,000 principal amount the convertible notes. Subject to adjustments and limitations as provided in the note purchase agreement. The net proceeds from the offering convertible notes will be used to repay outstanding indebtedness make investments in accordance with our investment objective and investment strategy, and for other general corporate purposes.

The no purchase agreement includes customary representations, warranties and covenants by the company. On 10/09/2024, pursuant to the note agreement, we issued and sold in the purchase or purchase $5,000,000 in aggregate principal amount of additional notes. Subsequent to year end pursuant to the note purchase agreement on January 16, issued and sold in the purchase or purchase an additional $5,000,000 in aggregate principal The total $10,000,000 additional notes are treated as a single series with the initial note and have the same terms as the initial notes. Additional notes are fungible and rank equally with the initial note. Upon issuance of the most recent additional notes on 01/16/2025, outstanding aggregate principal amount of our 6.5% convertible notes to 2029 became $35,000,000 Please turn to Slide 18.

We ended the fourth quarter and fiscal year twenty twenty four an NAV per share of $6.68 which is consistent with our financial reporting.

The decrease in the NAV per share from $6.73 at the end of Q3 was primarily driven by a $0.22 per share decrease from the net change in unrealized depreciation of our investments. A $0.16 per share decrease due to net investment loss, and a $0.06 per share decrease from the impact of stock based compensation during the quarter. The decrease in NAV per share was offset by a $0.39 per share increase resulting from net realized gain on our investments during the quarter. Regarding our liquidity as of year end, we ended the year with approximately $23,600,000 of liquid assets, including approximately $20,000,000 in cash and approximately $3,000,000 in unrestricted public securities. [indiscernible] The $14,000,000 of public securities subject to lock up or other sales restrictions as of year end are not included in this balance. Would like to conclude with some notes on our share repurchase program. As Mark mentioned earlier, Capital is committed to initiatives that enhance shareholder value. Accordingly, as previously announced on October 29, our Board of Directors authorized a $4,300,000 expansion to the share repurchase program to $64,300,000 and an extension of the share repurchase program through 10/31/2025. [indiscernible] the inception of the share repurchase program in August 2017, we repurchased a total of over 6,000,000 shares of our common stock for a total deployment of approximately $39,300,000 the $64,300,000 authorized by the Board.

Approximately $25,000,000 remains authorized under the share repurchase program that is now set to expire on October 2025. At 12/31/2024, there were 23,601,566 shares of the company's common stock outstanding. Presently, there are 23,551,859 shares of the company's common stock outstanding. That concludes my comments. We would like to thank you for your interest and support of Storro Capital. I will turn the call over to the operator to start the Q and A session. Operator?

Thank you very much. And we'll go ahead and take our first question. From Brian McKenna at Citizens Bank.

Please go ahead. Thanks. So Hope everyone is doing well. I know there's a lot to be excited about.

Looking at the portfolio today. Specifically related to some of the recent investments you made and then also just the pipeline for for some of these IPOs. But NAV did decline 16% in 2024. So what's the internal base case expectation for NAB growth in 2025? And then is there a way to think about how much of the legacy portfolio could see some additional Thanks, Brian. Appreciate it. We don't typically give guidance on a go forward NAV because that would require us to understand where things will be valued at the end of the year. I think there's some math you could do anyhow if you look at where our current portfolio is marked look at where the core we've anticipated range would be and where it ultimately trades. Given the size of that investment, you can certainly make some assumptions about where that will end. The same is same with OpenAI as we did and we discussed in our opening remarks. As to the rest of the portfolio, I think that's really hard to tell. Obviously, recent market volatility probably would make it even harder to sort of sort that. But there is some simple math around a couple of our names that would at least give you an indication of where we think NAV is now.

In respect to further markdowns in the portfolio, our largest and we've discussed it on this call and discussed it with investors has been Lernio. Marked Lernio broadly all the way down or close to where the preference is in the in the learning of capital stack. And that's been the biggest weight on our portfolio on the downside. Hopefully that's helpful.

Thank you. Our next question is from Marvin Fong with BT BTIG. Please go ahead.

Great. Thanks for taking my questions.

And your opening remarks are very comprehensive. So I thought I would just kind of ask on the on the capital structure. So you've issued a light amount of 6.5 notes as you repurchase the 6% notes and now that you've you've repurchased your full authorization of the 6% notes, should you kind of think about your appetite for on the converge structure as basically set now? Or would you consider issuing additional notes on a 6.5 to increase your your cash on hand and add to your investable assets?

Thanks, Marvin. As you've noted, we have retired $35,000,000 in Allison's remarks, dollars 35,000,000 of our 6% notes that come due at the end of next year. We have issued a like kind amount of the convertible notes that carry 6.5% coupon are convertible at $7.75 was 104% premium when issued to our stock price at the time. And so our debt number has stayed the same. At the present time, we're comfortable with that much that kind of leverage on our existing portfolio. So I would not anticipate at the present time issuing any more convertible securities against our existing portfolio. We're comfortable with our capitalization as it is right now.

Thank you very much. And we do have a follow-up question from Brian McKenna of Citizens. Please go ahead.

Okay, great. Thanks for the follow-up. Mark, I believe you mentioned that the number of pre IPO companies in the portfolio today is the largest in ever been. So what's the total dollar amount of these investments And then is there any way to think about what percent of this part of the portfolio can make it to the public markets over the next year?

Great question. So I'm pretty hopeful that Corweave makes it to the public markets this month. So that would be a large one. I think some of the names that may come throughout the year are Lyme, which has made it very clear that they want to come public. Canva may come public the end of the year. I think Liquid Death is sometime earlier next year. I think that VAST has been mentioned many times as a this year, but they're pretty quiet about it. So that's broadly I mean right now, we can see we clearly have visibility to Coreweave. I think all else is sort of up to where markets are and how excited people are to actually delve into the private markets. But the names that we listed earlier are the ones that are within sometime between the end of this year early part of next year that we think of an opportunity to come public.

Thank you. I would like to turn the call back over to Mark Klein for any closing remarks.

Well, thank all of you for joining our call. We really do this is an amazingly exciting time despite the extreme volatility in the public market. We look forward to the CoreWeave IPO. We look forward to some of our other companies and all the exciting developments within them. Thank you again for your ongoing support. Feel free to reach out to us through the IR portal if there's any further questions or any follow ups you might have. Again, thank you everybody very much.

Thank you very much. Once again, that does conclude today's conference. You may now disconnect. [indiscernible]