Neostellar Capital Corp. 6.00% Notes due 2026 2026 Q2 Earnings Call

Thank you. Thank you for joining us on today's call.

I'm joined today by Chairman and Chief Executive Officer of Neostellar 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 neostellar.vc under Investor Relations, Events and Presentations. Today's call is being recorded and broadcast live on our website, neostellar.vc. Replay information is included in our press release issued today. This call is property of Neostellar 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 earning 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, 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. To obtain copies of Neostellar Capital's latest SEC filings, please visit our website at neostellar.vc or the SEC's website at sec.gov. Now, I would like to turn the call over to Mark Klein.

Thank you, William. Good afternoon, everyone, and thank you for joining us. Today marks an important moment for our company. This is our first earnings call as Neostellar Capital. For more than 15 years, our team has pursued a clear mission to provide public market investors with access to high growth, venture-backed private companies before those businesses become directly available in the public markets. Neostellar represents the next chapter of that mission. Our investment strategy has changed. The team responsible for the portfolio remains in place. What has changed is the breadth of resources, expertise, and capabilities supporting our strategy, and we believe that meaningfully strengthens our ability to create long-term value for stockholders. Following stockholder approval, our transition to an externally managed structure became effective on July 15th. On July 21st, our team and Magnetar formally announced the launch of Neostellar Advisors.

This evolution comes at a pivotal time for the private markets. Companies are staying private longer. They are raising more capital, and they are increasingly seeking financing solutions that extend beyond traditional equity. Neostellar Advisors brings together our team's 15-year history of investing in venture-backed private companies with Magnetar's institutional capabilities across credit, structured capital, technology, and AI infrastructure. That combination gives us broader resources for sourcing and underwriting, as well as greater flexibility to evaluate structured investments. We believe it expands the opportunity set available to Neostellar while preserving what has always distinguished our approach. The same core investment team, the same public company structure, and the same commitment to disciplined underwriting. Following quarter's end, a Magnetar-affiliated entity invested $20 million in Neostellar. We view that investment as a meaningful expression of Magnetar's commitment to Neostellar and confidence in the opportunity ahead.

With that context, let me turn to our second quarter results and investment activity. We ended the second quarter with net assets of approximately $356 million, or $13.44 per share, compared with $14.24 per share at March 31st, and $9.18 a share a year ago. Our principal investment activity during the quarter centered on two companies, TensorWave and ClickHouse. We funded the remaining $15 million of our $20 million commitment to Magnetar Opportunity 2025-4 LP, a special purpose vehicle investing in TensorWave. We also invested approximately $9.5 million in ClickHouse. Before discussing those investments, I want to place them in the context of the broader AI infrastructure market and the disciplined approach guiding our capital allocation. AI is rapidly establishing itself as a foundational technology layer across the global economy. It remains a major investment theme for our team, building on several years of experience across the sector.

Our portfolio already includes investments in OpenAI, CoreWeave, VAST Data, and Canva. Together, those holdings provide exposure to and insight across multiple layers of the AI ecosystem, including model development, compute, data infrastructure, and AI-enabled applications. TensorWave and ClickHouse extend the exposure into specialized compute capacity and real-time data infrastructure. The pace of development continues to accelerate. When we made our initial investment in OpenAI, ChatGPT had approximately 200 million weekly active users. Today, OpenAI reports more than 900 million weekly active users. Over that period, model capabilities have advanced and adoption has broadened across consumers and enterprises. We are seeing that adoption translate into greater usage, more commercial deployments, and significant capital commitments to the infrastructure required to support them. The scale of this investment cycle is reflected in the capital plans of the world's leading technology companies.

Combined capital expenditures across Alphabet, Amazon, Meta, Microsoft, and Oracle were approximately $154 billion in 2023, $239 billion in 2024. In comparison, Morgan Stanley Research estimates that capital expenditures by the five largest U.S. technology companies will approach $800 billion in 2026 and approximately $1.2 trillion in 2027. As AI becomes more deeply embedded across industries and business workflows, we expect demand for the supporting infrastructure to continue expanding. That includes compute capacity, data and networking infrastructure, cybersecurity, and power. We are excited about the long-term potential of AI, but enthusiasm is not a substitute for discipline. Valuations have risen, competition has intensified, and growth expectations have become very ambitious. In this environment, selectivity matters more, not less. We evaluate each opportunity on its own merits, including company execution, entry price, transaction structure, and downside risk.

We are not seeking to assemble a passive basket of the largest or best-known private companies. Our objective is to identify exceptional businesses early and invest on the terms that we believe appropriately balance risk and return. Our investment in TensorWave exemplifies this discipline. During the second quarter, we funded the remaining $15 million of our $20 million commitment through a Magnetar special purpose vehicle in connection with TensorWave's $350 million Series B financing, co-led by Magnetar and AMD Ventures. This investment fulfilled the commitment we initially made at year-end and increased Neostellar's exposure to one of the most strategically important segments of the AI infrastructure market. Importantly, the stage structure allowed us to increase our exposure as the company executed, rather than committing the full amount at once.

In a highly competitive market for private AI investments, we believe this measured approach preserved access to an attractive opportunity while reinforcing our risk discipline. TensorWave is building an AI cloud around AMD's ecosystem with the goal of providing specialized compute capacity for increasingly demanding AI training and inference workloads. Given that focus, we are particularly encouraged by AMD Ventures' participation as a co-lead investor in the financing. We believe TensorWave is well-positioned as the AI compute market expands and customers seek additional sources of high-performance capacity, greater flexibility, and a more diversified hardware ecosystem. The investment also demonstrates the practical value of the Neostellar and Magnetar relationship. It combines our experience investing in private growth companies with Magnetar's AI infrastructure capabilities and transaction structuring expertise. Turning to ClickHouse, we invested $9.5 million in the company's Series A preferred shares through a secondary transaction in April.

ClickHouse gives us exposure to an increasingly essential infrastructure category through what we believe is a category-leading company that has already achieved meaningful commercial scale. At its core, ClickHouse enables companies to analyze massive volumes of data quickly and in real time. That capability becomes increasingly important as AI and other data-intensive applications move from experimentation into production. These systems generate enormous amounts of operational data. Enterprises need to analyze that information in real time to monitor performance, identify issues, improve products, and make decisions faster. ClickHouse was purpose-built for that environment. The company reports that its cloud offering has surpassed $250 million in annual run rate revenue, more than tripling from a year earlier. It has also added more than 1,000 net new customers since January, bringing its total customer base to approximately 4,000. ClickHouse is already operating at a meaningful scale.

We believe continued demand for real-time analytics and observability can support further growth across AI and broader enterprise workloads. Let me close with a few thoughts. The second quarter and the weeks immediately following it marked a defining period for our company. We made significant investments in TensorWave and ClickHouse. We completed our transition to an externally managed structure, and we began operating under the Neostellar name. The launch of Neostellar reflects the evolution of both private markets and our platform. Companies are remaining private longer. Their financing needs are becoming more sophisticated, and competing effectively for stockholders requires us to think not only about which investments we make, but also about how we access, underwrite, and structure those opportunities.

By combining our team's long history of investing in venture-backed private companies with Magnetar's institutional capabilities, we believe Neostellar is better positioned to identify compelling opportunities, structure investments with discipline, and support portfolio companies as they grow. Put simply, Neostellar expands what we can do. It does not change how we invest. We have always believed that attractive long-term returns begin with disciplined underwriting, thoughtful portfolio construction, and patience. Those principles remain the foundation of our approach. We will continue to pursue opportunities where our experience, access, or structuring capabilities can create a genuine advantage. We will remain selective. We will stay focused on risk-adjusted returns, and we will allot capital with the same discipline our stockholders have come to expect of us. We are energized by this next chapter and confident in the platform we are building.