SuRo Capital (NASDAQ:SSSS) released first-quarter financial results and hosted an earnings call on Tuesday. Read the complete transcript below.

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The full earnings call is available at https://edge.media-server.com/mmc/p/9ow6ooku/

Summary

SuRo Capital reported a significant increase in net asset value (NAV), with a 76% quarter-over-quarter rise to approximately $361.6 million or $14.24 per share.

The company announced a strategic transition from an internally managed BDC to an externally managed structure via NeoStar Advisors LLC, in partnership with Magnetar, pending stockholder approval.

SuRo Capital made notable investments, including a $9.5 million investment in Clickhouse and funding for Tensorwave, showcasing a focus on AI and technology-driven companies.

Management emphasized the alignment with stockholders by preserving the value of existing portfolio gains from new incentive fees post-externalization.

The company is rebranding to NeoStellar Capital Corp. with plans for enhanced sourcing, due diligence capabilities, and cost savings with the new external management structure.

Full Transcript

OPERATOR

Increasingly important across observability, security, analytics, product telemetry, cloud data warehousing and AI driven applications. This matters because as AI moves from experimentation to deployed enterprise use cases, the infrastructure required to store, analyze and act on data at scale becomes increasingly critical. Clickhouse's relevance is already visible in demanding AI environments including Anthropic, which Clickhouse has publicly described as using its technology to scale observability for all AI workloads. Clickhouse is another example of the kind of company we seek to invest in. It is already a scaled venture backed technology leader, but we believe its strategic relevance is becoming greater as real time data infrastructure becomes more important to enterprise AI deployment. For SuRo, the opportunity is to build exposure while companies like this remain private. Because this investment was made after the quarter's end, it is not part of our March 31st net asset value. It is, however, an important example of how we intend to build the future portfolio. Now I want to turn to what we believe is one of the most important strategic steps in SuRo Capital's history. Our Board of Directors approved a proposal to transition SuRo from an internally managed BDC to an externally managed structure through Neostellar Advisors LLC LLC, an advisor jointly owned by members of our current team and Magnetar. The proposal remains subject to stockholder approval. This is not a sale of the company. The company will continue to be a publicly traded BDC and our investment focus will remain centered on high growth venture backed private companies. While the core strategy will remain the same, we we believe the proposed structure will enhance the platform supporting the strategy and better positioning us to pursue high quality investment opportunities. Since 2019, our internally managed structure has served us well. Our team has built the portfolio, navigated volatile markets, returned significant capital to stockholders and delivered meaningful value. The Net Asset Value (NAV) increase this quarter is evidence of that work. At the same time the market has evolved. Leading private companies have more choices today and they increasingly look for investors who can bring more than capital including scale, relationships, strategic support, capital markets, experience and a long term partnership. We believe the proposed partnership with Magnetar positions us to compete more effectively in this environment. Magnetar brings significant scale with approximately $18 billion in asset under management, more than 20 years of investment experience and a track record of investing in differentiated technology venture backed companies across artificial intelligence and technology enabled sectors. The strategic logic is straightforward. We are preserving the investment strategy and leadership continuity that brought us to this point while adding Magnetar's broader scale, sourcing reach, diligence capabilities, portfolio support and institutional infrastructure. In addition, Magnetar's experience across the AI infrastructure ecosystem and gives us additional depth in one of our core focus areas and in a market we believe will be increasingly important to broader technology growth. As many of these businesses become more capital intensive, Magnetar's experience with cost of capital, balance sheet management and transaction structuring becomes even more relevant. We also expect the proposed structure to strengthen our origination and diligence capabilities while creating a broader platform to support portfolio companies. Put simply, we believe this gives us greater scale, broader capital solutions and deeper institutional capabilities to support private companies as they grow. If approved by stockholders, we believe this combination would position us to be one of the largest platforms focused on publicly traded access to venture backed private companies. Public venture capital has historically been a fragmented market and we believe greater scale, stronger infrastructure and deeper sourcing capability can matter in competing for high quality private company investments. This would be a significant change and positive for us in our competitive position. For stockholders and portfolio companies, we believe the benefit would be a broader platform, deeper resources and a stronger ability to support ambitious private companies building in large markets. I want to speak directly about shareholder alignment. Being shareholder friendly is not just a slogan for us. It is how we evaluate major decisions. The value created in the existing portfolio belongs to our shareholders under the proposed advisory agreement. Pre existing investments are not included in the incentive fee calculation. In plain English. The value already created in this portfolio is preserved for stockholders and is not subject to a new incentive fee simply because we are changing the management structure. We believe this is an important and stockholder friendly feature additionally subject to the conditions described in the proxy materials. An affiliate of Magnetar is also expected to invest $20 million in our company. We believe this is a meaningful signal of commitment and alignment. Magnetar and the Board think like owners because we are owners. Our goal is not simply to report a higher nav. Our goal is to convert portfolio value into long term stockholder value. This means disciplined investing, thoughtful liquidity management, expense discipline, transparency and continued focus on returning value to our stockholders. Let me close with this. This is one of the most important moments in SuRo Capital's history. We delivered the largest quarter over quarter Net Asset Value (NAV) increase we have ever reported. Our nav increased approximately 76% quarter over quarter. This is not a routine result. It reflects the strength of our portfolio, the quality of companies we have backed and the power of our strategy giving public stockholders access to high growth venture backed companies aligned with important technology chain trends. We do not view the quarter as the finish line, but as the beginning of the new chapter. Our recent investment activity, including tensorwave and Clickhouse reflects the same discipline, identifying private companies where strategic relevance is emerging, building exposure selectively and giving public stockholders access to opportunities that that remain largely outside of the public markets. Our proposed partnership with Magnetar through Neostellar Advisors LLC is designed to provide sero capital with greater scale, stronger infrastructure, broader sourcing reach and deeper diligence capabilities as we seek to invest in and partner with the next generation of of high growth private companies. Net Asset Value (NAV) captures the progress we have made. The opportunity is what comes next. Our focus now is straightforward. Build on this momentum, maintain our discipline and translate portfolio progress into lasting shareholder value to our stockholders. Thank you for your continued trust and support. With that, I will turn the call over to Alison Green to review our financial results.

Alison Green (Chief Financial Officer)

Thank you Mark. I would like to follow Mark's update with a review of our investment activity and portfolio company realizations during the first quarter and subsequent quarter end, a high level review of our investment portfolio as of quarter end, including the investment theme breakdown, and a more detailed review of our first quarter financial results including our current liquidity as of March 31st. I'll also touch on notable items during the first quarter and subsequent to quarter end, including our announcement of the Board Approved Externalization. On December 31, SuRo Capital committed up to $20 million to Magnetar Opportunity 2025.4LP, a special purpose vehicle invested in Tensorwave Inc. During the quarter on January 2, SuRo Capital funded 5 million of the $20 million capital commitment. As of May 5, $5 million of the $20,000,000 capital commitment to Magnetar Opportunity 2025.4LP had been funded. The remaining commitment of up to $15 million is subject to the satisfaction of certain conditions. Throughout the first quarter, we sold 440,246 common shares of Grab A Gun Digital Holdings Inc. Following the removal of lockup restrictions on January 15, these sales resulted in net proceeds of approximately $1.4 million and a realized gain of approximately $891,000 as of March 31. We hold 599,754 public common shares or approximately 58% of our original position. Additionally, during the quarter we received a distribution from our True Global Ventures 4/ Venture Capital Fund investment for approximately $246,000 subsequent to quarter end. On April 8, SuRo Capital completed a $225,000 investment in the common stock of Huntress Labs Inc. Through a secondary transaction. Additionally, on April 22, we completed a $9.5 million investment excluding fees in the Series A preferred shares of Clickhouse Inc. Through a secondary transaction subsequent to quarter end, SuRo Capital received two distributions from CW Opportunities II LP totaling approximately $3 million in net proceeds. CW Opportunities II LP is an special purpose vehicle (SPV) for which the Class A interest is solely invested in the Class A common shares of coreweave Inc. SuRo Capital is invested in the Class A common shares of Core Weave Inc. Through its investment in the Class a interest of CW Opportunity II LP. The distributions were categorized in aggregate as approximately $902,000 of return of capital and a $2.1 million realized gain. The realized gain is calculated based on the current reporting by the fund and confirmed through our accounting, but may be subject to change or adjustment due to the impact of performance fees that may be charged by the fund. I would now like to turn to our portfolio as a quarter end. Our top five positions as of March 31st were Whoop, OpenAI, Vast Blink Health and CW Opportunity 2LP. These positions accounted for approximately 72% of the investment portfolio at fair value. Additionally, as of March 31, our top 10 positions accounted for approximately 88% of the investment portfolio segmented by 7 general investment themes. The top allocation of our investment portfolio at March 31 was to consumer goods and services, representing approximately 43% of the investigations and Software as a Service were the next largest categories with approximately 29 and 12% of our portfolio respectively. Approximately 6% of our portfolio was invested in education technology companies and the financial technology and services segment accounted for approximately 5% of the fair value of our portfolio. The logistics and supply chain category accounted for approximately 4% of the fair value of our portfolio and service Sports accounted for 2%. As of March 31. We ended the first quarter of 2026 with a net asset value of approximately $361.6 million or $14.24 per share, which is consistent with our financial reporting. The increase in NAV per share from $8.09 at the end of Q4 2025 was primarily driven by a $6.25 per share increase from the net change in unrealized appreciation of our investment, a $0.04 per share increase resulting from net realized gain on our portfolio investments during the quarter and a 2 cent per share increase related to stock based compensation. The increase in NAV per share was partially offset by a 16 cent per share decrease due to net investment loss during the quarter. At March 31, there were 25,387,393 shares of the company's common stock outstanding. Finally, regarding our liquidity as the quarter ends, we ended the quarter with approximately $46 million of liquid assets, including approximately $43.3 million in cash and approximately $2.7 million in unrestricted public securities. Not included in our unrestricted public securities are approximately $15.9 million of public securities subject to lockup or other sales restrictions as of quarter end. This represents our remaining investment in CoreWe's via our Class A interest of CW Opportunity II LP. Subsequent to quarter end, the purchaser of 6.5% convertible notes due 2029 elected to exercise their conversion option on multiple occasions and convert a total of $5 million of principal into 682,815 shares of SuRo Capital's common stock and $19.56 in cash in lieu of fractional shares. Upon completion of these conversions, the remaining principal balance of the 6.5% convertible notes due 2029 was approximately $30 million. As Mark mentioned, subsequent to quarter end on April 2nd, Stero Capital's board of Directors, including all of its independent directors, unanimously approved a proposal to transition from an internally managed BDC to an externally managed structure through a new investment advisory agreement with Neo Stellar Advisors llc, an entity jointly owned by certain current Sterile Capital employees and Magnatar holdings llc, which is affiliated with Magnetar's Multi Strategy Alternative Investment Platform. The externalization is expected to provide access to enhanced investment sourcing and due diligence capabilities through Magnetar's fully integrated platform, preserve all realized gains on the Company's existing portfolio for the benefit of stockholders through the exclusion of pre existing investments from any incentive fee calculations and result in an annual expense savings. In connection with the externalization, an affiliate of Magnetar will make a 12 $20 million investment in the company and the company's current management team, including Mark Klein and myself, will continue in our current capacities. The externalization is subject to stockholder approval and additional details are set forth in the Company's current report on Form 8-K filed with the securities and Exchange Commission on April 7th. That concludes my comments. We would like to thank you for your interest and support of SuRo Capital. Now I will turn the call over to the operator for the start of the Q and A session.

OPERATOR

Thank you. If you like to ask a question or make a contribution on today's call, please press star 1 on your telephone keypad. To withdraw your question, please press star 2. Please limit yourself to one question per person. You will be advised when to ask your question. We will take our first question from Alex Paris, Barrington Research. Your line is open. Please go ahead.

Alex Paris (Equity Analyst)

Hi guys, thanks for taking my question and congrats on the superb Q1 and the plan for externalization. So that's going to be my question. The externalization, As I recall, prior to 2019, the portfolio was external, was externally managed, you took it in and now you're externalizing it again. So point number one. Point number two. I had a quick review of the proxy and I see not only are you creating a joint venture with Magnetar under the name NeoStellar Advisors LLC, but actually Suro's name will be changed to NeoStellar Capital Corp. Under the symbol nslr. I guess it's a two part question number one, I think the shareholder meeting, the special shareholder meeting is scheduled for June 10th. When do you hope to close this transaction? And then the related question is both you and Allison noted that this is expected to result in cost savings. So I'm wondering if you could just provide a little additional color on how that's done. You're obviously going to pay the external manager a management fee plus an incentive fee. What costs are we eliminating from the internal management of the fund?

Mark Klein (CEO)

Thanks Alex. That's the longest one question ever, but appreciate it. So let's start with we were externally managed, we made a determination to be internally managed as we took the group that managed the portfolio and brought it in house. As I noted in my prepared remarks, I think a lot has changed in the public venture capital markets and we came to the conclusion that in order for us to be at the top of the pyramid of all, have the largest asset management platform available to invest in public markets, having greater depth from both investment sourcing, diligence, support infrastructure, et cetera, to partner with a firm like Magnetar, which we have done an awful lot of investing with over the years, just simply made sense. It makes us the largest platform to invest as a public investor in venture backed securities. I think that matters right now. I think size matters, I think scale matters, I think the ability to bring other aspects to portfolio companies as opposed to just writing a check matters. And if you look at the success Magnetar has enjoyed and the fact that we invested with them in coreweave, we're investing with them in tensorwave, they are really on top of the game in the venture space. And as capital becomes more important and different capital solutions become more important to private companies, they are a great partner and significantly enhance what we are doing. And again, we're the first ones ever to do it. And we started 15 years ago and we continue to pioneer as having a terrific partner. As far as cost savings, it's in the proxy. This will be less expensive for our investors certainly to start in respect to expenses related to the management of the portfolio. As far as incentive fees, we made a point of saying that the entire portfolio and all the unrealized gains and all the success that has occurred to date and will occur and occurs up until the externalization, there's no incentive fee being charged on that at all. That is for all of our shareholders in the future. If as we invest money and we realize profits on those new investments, there may be an incentive fee on that at that point in time, which candidly will be quite some time away from now. So we are really excited about this. This is really differentiated. This makes us as significant as we are now, much more significant. And it was a decision our board took and we took as management and we're really excited about that. The vote is on June 10th. This upon approval by our shareholders, we'll enter into a management agreement with NeoStellar. We will rebrand to NeoStellar and that will be effective on July 1st. Thank you.

OPERATOR

We will take our next question from Marvin Fong. Btig, your line is open. Please go ahead.

Marvin Fong (Equity Analyst)

Great. Thanks for taking my question. Again, congratulations as well and looking forward to the externalization. I just have a big picture question. After all this success, we can all see that the private and public markets around AI are quite excited here. Can you just kind of talk about what you're seeing now in terms of investment opportunities and Clickhouse is another hot company you were able to get in on. But are you seeing opportunities like you're doing with Tensorway that are milestone based and can offer some protection and that these companies actually have to need in order to gain access to further capital. Can we expect kind of more structures like that or just kind of describe in general what you're seeing out there?

Mark Klein (CEO)

Thanks Marvin. Great question and I'll answer in two parts. First of all, we are really excited about Clickhouse. Clickhouse has quickly become the de facto real time analytics platform. They position themselves to benefit from AI applications which demand real time data. This company is growing at 250% year over year. It is phenomenal. It provides their service at 10 times the rate the speed as their competitors at approximately a tenth of the cost. It is truly an amazing company. I suspect most people on this call probably haven't heard about it. We view this as we're in front in the same way we were in front with Vast when no one heard of it, or even CoreWeave when no one heard of it. That's how we view Clickhouse and I suspect as we move towards the end of the year, they will become more notable. That's one, two, I think. And you and I have talked about it. I've talked about it publicly. The markets are robust or perhaps frothy in the AI space, specifically in the private market side, we see an awful lot. We are seeing more deals now than we've ever seen before. And as we've talked about it, you have to start is, are you in the right, Are the tailwinds still there? Are you in the right sector, sub sector? Are you one of many in a space or one of a few? Do you have the right to win once you get to all that? Can we actually structure an investment, whether it's like tensorweight, which I think is extremely well structured, or can we simply price it in a way that there's an opportunity to invest and see returns? And that leaves an awful lot of companies that candidly at this point in time are tough to invest in. But we have found opportunities, whether it was Clickhouse and tensorwave, as we've discussed before, we are really set up to win. They are to Advanced Micro Devices (AMD) what core Weave was to NVIDIA. As most of you probably see, Advanced Micro Devices (AMD) just reported a blowout quarter. Tensorwave is going to be where they're housing their Advanced Micro Devices (AMD) chips. It's an extremely exciting investment. Investment is structured in a way that we put $5 million in, $15 million will be following on, assuming certain conditions are met. And we think that's going to be an absolute raging success. We're really looking forward to tensorway's future.

OPERATOR

Thank you. We will take our next question from John Hickman. Ladenburg. Your line is open. Please go ahead.

John Hickman (Equity Analyst)

Hey, thanks for reporting early. I was able to get on. I have a question about. In the past, the top five positions have generally met around. They've been around 50% of your portfolio and currently the top five. John, you still there?

OPERATOR

Pardon for the interruption. Participant line disconnected. We will take our next question from Brian McKenna. Citizens, your line is open. Please go ahead.

Nate Sauer (Equity Analyst)

Yeah, hey guys, this is Nate Sauer on for Brian McKenna. So first of all, congrats on the, you know, the great moves this quarter and the especially impressive results so far this year. Maybe just extending the discussion on externalization real quick. I was wondering if you guys could provide a little or get a little bit more specific on the timing, like why is right now the ideal time.

OPERATOR

I think we lost him as well. Operator, pardon for the interruption. Yes, we lost Brian line. We Will take our next question from Alex Ferment, Lucid Capital Market. Your line is open. Please go ahead.

Alex Ferment (Equity Analyst)

All right, thanks guys. I'll try to ask it real quick here and sneak it in, but congratulations guys on the really strong start to the year. Wanted to ask about your portfolio composition here in terms of your sector allocations. Obviously your investment in WHOOP has been tremendously successful here. When you think about that, as well as the wind down in your position in coreweave, you know, you're kind of at a unique moment here where health and wellness is actually a really large percentage of the portfolio right now. Should we expect to see incremental investments kind of back in that AI area to get that part of the portfolio back up? I guess you already did that subsequent to the quarter here with Clickhouse. But just any kind of high level thoughts on sort of the composition of your portfolio by sectors and what should we expect to see going forward? Sure. Thanks, Alex. Yes, in some ways I guess we're victims of our own success with Whoop, as Whoop just completed a $575 million funding at over a $10 billion valuation. It's obviously been sort of knocked it out of the park with that. That is a unique situation for us. It's a great situation, but unique. As you can see, we did just put $10 million into Clickhouse. We will be funding another $15 million into Tensorwave and you will see the concentration more into the technology, AI, AI infrastructure, et cetera, again be the largest focus of our fund. But as you did note right now with the success of whoop, that has caused a bit of concentration in that space. Thank you.

OPERATOR

There are no further questions on the line, so I will now hand you back to your host for closing remarks.

Mark Klein (CEO)

Thank you all for joining this call. We greatly appreciate it. Sorry for a couple of the problems apparently with the questions, but we're very excited here. We had obviously the best quarter we've had on a quarter over quarter basis ever. We're extremely excited about our partnership with Magnetar and the rebranding to NeoStellar. We're always available for your questions or comments. Feel free to reach out to us and thank you again for attending the call. We greatly appreciate it.

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