Trinity Capital Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 1, 2023

There are 14 speakers on the call.

Operator

Good afternoon.

Speaker 1

My name is Mike, and I will be your conference operator today. At this time, I would like to welcome everyone to Trinity Capital's Third Quarter 2023 Earnings Conference Call. Our hosts for today's call are Steve Brown, Chairman and Chief Executive Officer Kyle Brown, President and Chief Investment Officer David Lund, Chief Financial Officer Michael Testa, Chief Accounting Officer 3rd and Ben Malcolmson, Director of Investor Relations. Jerry Harter, Chief Operating Officer Ron Kundich, Chief Credit Officer and Sarah Stanton, Chief Compliance Officer and General Counsel

Speaker 2

are also on

Speaker 1

the call. This call is being recorded and will be available for replay beginning at approximately 3 p. M. Eastern Time. 3rd call.

Speaker 1

The replay dial in number is 888-214-9125 and no conference ID is required for access. 3rd question. It is now my pleasure to turn the call over to Trinity Capital's Director of Investor Relations, Ben Malcolmson. Please go ahead.

Speaker 3

Thank you, Mike, and welcome everyone to Trinity Capital's earnings conference call for the Q3 of 2023. Trinity's Q3 financial results were released earlier this morning and can be accessed 3rd question from Trinity's Investor Relations website at ir. Trinitycap.com. A replay of the call will be available on Trinity's website 3rd call. Before we begin, I would like to remind everyone that certain statements that are not 3rd question and answer session.

Speaker 3

Based on historical facts made during this call, including any statements relating to financial guidance, may be deemed forward looking statements under Federal Securities Laws. Because these forward looking statements involve known and unknown risks and uncertainties, 3rd question. There are important factors that could create that could cause actual results to differ materially from those expressed or implied by these forward looking statements. We encourage you to refer to our most recent SEC filings for information on some of these risk factors. 3rd.

Speaker 3

Trinity Capital assumes no obligation or responsibility to update any forward looking statements. Please note that the information reported on this call 3rd party services and the company's 3rd question. 3rd. Now please allow me to introduce Trinity Capital's Chairman and CEO, Steve Brown.

Speaker 4

Thank you, Ben, and thanks everyone for joining us today.

Speaker 5

Quarter. As you have seen

Speaker 4

in the earnings release, we generated strong Q3 results with record net investment income fueled by a robust originations pipeline. 3rd quarter. Net investment income for the quarter was $23,400,000 or NII per share of $0.58 providing 118 percent coverage on our regular dividend. NAV increased by $0.02 to $13.17 per share, due in part to a healthy balance sheet and the stability of our portfolio, which 3rd quarter earnings per share. We further strengthened our liquidity during the quarter by accretive stock issuances under our ATM program, 3rd quarter, as well as our $82,000,000 equity raise in August.

Speaker 4

I'm especially pleased that we have increased our quarterly dividend by 2.1%, 3rd quarter marking the 11th consecutive quarter of dividend increases. Last month, we increased our quarterly regular dividend to $0.49 per share, 3rd consecutive quarter. In addition to a supplemental dividend of $0.05 per share to comply with tax regulations. The Board will further evaluate our tax position in Q4 and determine if additional supplemental dividends are required. As we previously announced effective January 1, 2024 and consistent with the company's long term succession plan, I will become Executive Chairman of the Board of Directors, while continuing to serve on the company's investment committee 3rd and Kyle Brown will become Chief Executive Officer.

Speaker 4

As CEO of Trinity for the past 15 years, I have had the privilege of leading a best in class team 3rd party platform, and together we took the platform public, creating significant returns for our investors. Since our IPO in 2021, 3rd quarter. Trinity has delivered more than $169,000,000 in cumulative distributions. Also, we have been 3rd quarter and have successfully started a JV, both of which provide off balance sheet growth opportunities that give us the ability to generate 3rd accretive returns for our BDC investors. I look forward to transitioning into this new role and partnering with Kyle as he leads this team

Operator

quarter and a half year

Speaker 4

over year growth. Since joining the firm in 2015, Kyle has played an important role in his capacity as President and Chief Investment Officer, where he has overseen the company's lending policies and investment strategy. He has been a driving force in building this team and our business, 3rd and he is in a prime position to lead us to even better places. This is an exciting next chapter for Trinity. And with that, I'll turn the call over to Kyle.

Speaker 4

3rd.

Speaker 5

Thank you, Steve. I'm looking forward to stepping into the role of CEO and continue to work with our record setting team and 3rd quarter and a quarter of closing $1,000,000,000 to $1,000,000,000 to

Operator

$1,000,000,000 to $1,000,000,000,000 to $1,000,000,000 to

Speaker 6

$1,000,000,000,000 to $1,000,000,000,000,000 to $1,000,000,000,000,000

Speaker 5

3rd quarter and extended preparation to position the company for tremendous opportunities ahead. Our vision and mission remain the same, to build the world's leading credit platform for the global growth economy. We'll continue to maximize Trinity's track record and trajectory as we expand the portfolio to add value for our shareholders. 3rd. We focus on doing 3 things exceptionally well here at Trinity, exhibiting uncommon care for our employees and partners, making more than money for our clients and providing outsized returns for our investors.

Speaker 5

Looking at the macro environment, the VC industry remains an attractive place to make debt investments 3rd question and answer session. We are pleased to report that we are in the midst of the merger and the market conditions that we have in place. High quality growth companies are going to continue to need to raise capital and debt will be a preferred avenue over heavily dilutive equity down rounds. Interest from investors seeking to partner with company founders to build positions in companies remains high. 3rd quarter.

Speaker 5

The level of opportunity can be gauged by looking at the volume of deals in the market.

Operator

3rd quarter. Including the latest data from Q3,

Speaker 5

the estimated number of deals in each quarter of 2023 continued to surpass all previous years except for the unusual activity 20 1 2022. We have exceptional relationships with our portfolio companies and the breadth of our relationships with sponsors 3rd party and investors allows us to see even more opportunities as we've worked with more than 900 different equity and sponsors in our history. 3rd quarter. In spite of somewhat challenging fundraising environment, our portfolio continued to get funded and to see opportunities to raise additional capital. 3rd quarter.

Speaker 5

Year to date, 45 of our portfolio companies have raised an aggregate of more than $2,400,000,000 in new capital to drive their next phase of growth. 3rd quarter. Volatility in the banking industry and a more conservative approach toward lending continue to drive additional opportunities for Trinity's direct lending solutions. We

Operator

quarter. We finished the quarter with

Speaker 5

a strong pipeline of $348,000,000 in unfunded commitments, all of which are subject to milestones, ongoing diligence and approval by our investment committee. 3rd quarter. We remain very selective and committed to adhering to our rigorous diligence process with a smaller percentage of deals reaching the underwriting stage. 3rd quarter. Our distinct structure and collaborative origination credit and portfolio teams takes a proactive approach to managing our inbound opportunities in active portfolio companies, quarter, which greatly mitigate risk and position us to excel in all cycles.

Speaker 5

Gross fundings in Q3 were approximately 149,000,000 3rd quarter earnings call. Proceeds received from repayments of the company's debt investments during Q3 totaled approximately 177,000,000 Our Q3 fundings were comprised of $81,000,000 to 5 new portfolio companies and $66,000,000 to 10 existing portfolio companies $2,000,000 of capital calls to our joint venture. The composition of our portfolio remains consistent with prior quarters, shows diversification across 19 different industries. 3rd. We have intentionally constructed that portfolio with varied industry segmentation with our large industry exposure representing only 13% of the portfolio at cost.

Speaker 5

3rd quarter. As announced earlier this year, we have further built out our life science vertical by making key hires and opening a new office in San Diego, which 3rd quarter and a half year over year basis points to the year. We continue to be enthusiastic about the prospects of our life science vertical and believe the industry holds immense potential for growth. Our team has built an attractive platform to support the financing needs of growth stage companies. 3rd quarter.

Speaker 5

Our people are Trinity's biggest asset and as we continue to build and grow the organization, we never forget that our culture is built on humility, trust, 3rd consecutive quarter of the year. We continue to believe that we are in a position to continue to grow our business and continue to grow our business and continue to grow our business. 3rd quarter. We believe this mindset makes us a destination for the best talent in the industry and we continue to make strategic hires to bolster our team for the exciting road ahead. 3rd quarter.

Speaker 5

In the Q3, we also continue to realize the benefits of our direct lending joint venture. This off balance sheet growth provides incremental returns that flow to our shareholders. 3rd quarter. Our RIA is positioned to be an opportunistic off balance sheet growth lever. Our team is engaging with several potential investment partners and we expect to have more progress to share in the coming quarters.

Speaker 5

We're focused on building a platform both on and off balance sheet that is accretive for investors. As a reminder, we are an internally managed BDC 3rd quarter earnings call. We will

Operator

now begin the call to

Speaker 5

strategic partnership in less dilutive growth capital. We want to be the go to lender for growth oriented companies providing a wide range of financing solutions. And we are well positioned to profitably grow the balance sheet. And as we increase our off balance sheet activity, we'll seek new ways to improve returns for our shareholders. Our CFO, David Love, will now discuss our operating performance in more detail.

Speaker 5

Dave?

Speaker 7

Thank you, Kyle, and welcome to everyone joining us 3rd quarter. We generated strong operational performance in the 3rd quarter underscored by the strength of our balance sheet and the ability to 3rd consecutive quarter. In Q3, we recorded total investment income of $46,400,000 3rd quarter earnings call, a 20% increase over the same period in 2022. This growth was attributable to interest earned on the higher average loan balances quarter and our investment portfolio, the benefit of increases in the prior rates since Q3 of 2022 and OID acceleration.

Operator

3rd quarter.

Speaker 7

Our effective yield on the portfolio for Q3 was 16.7% compared to 16.2% in the 2nd quarter. 3rd quarter. Our core yield, which excludes non recurring fee income increased to 15.5% from 14.8% in the prior quarter. Services with 74% of our debt investments at floating rates. While on the borrowing side, 19% of our outstanding debt quarter at the end of the 3rd quarter was at a variable SOFR rate contributing to a solid net interest margin or NIM 3rd quarter of 12.9 percent for the quarter.

Speaker 7

Net investment income for the 3rd quarter was a record $23,400,000 or $0.58 per basic share, 3rd quarter earnings call, an increase of 25.6 percent compared to $18,600,000 or $0.56 per basic share in the same period of the prior year. 3rd quarter. Our operating activities generated strong returns for our shareholders with ROAE based on NII over average equity 13.6% and ROAA based on NII over average total assets of 8%.

Operator

3rd quarter.

Speaker 7

Lastly, as of September 30, 2023, NAV increased 18.1% to $569,500,000 3rd quarter and NAV per share increased to $13.17 compared to $13.15 in Q2. 3rd quarter. The increase in NAV per share was primarily the result of net investment income that exceeded the company's declared dividend and accretive stock issuances. 3rd quarter. I will now hand the call over to Mike Testa, our Chief Accounting Officer, who will discuss our credit performance, liquidity and capital allocation.

Speaker 2

Thanks, Dave. The credit quality of our portfolio companies remains strong and stable with approximately 97% of our portfolio performing at fair value. 3rd quarter. Our average internal credit rating for the Q3 stood at 2.8 based on our 1 to 5 rating system 3rd quarter with 5 indicating very strong performance. This rating is in line with our average credit rating in each of the last four quarters 3rd quarter and reinforces Trinity's track record of low loss rates.

Speaker 2

We currently have 4 portfolio companies on nonaccrual 3rd party capital with a total fair value of approximately $28,000,000 representing just 2.6% of the total debt portfolio. 3rd quarter. Moving to liquidity. As of September 30, 2023, we had total liquidity of approximately $257,000,000 quarter, comprised of approximately $250,000,000 of undrawn capacity under our credit facility and $7,000,000 in unrestricted cash and cash flow. Additionally, we've continued to co invest with our joint venture, which provides additional investment liquidity 3rd quarter and as of Q3 had $134,000,000 of assets under management.

Operator

3rd quarter.

Speaker 2

Our net leverage ratio, which represents principal debt outstanding with cash on hand, improved to 0.92x this quarter 3rd quarter as a result of $82,000,000 follow on equity offering and increased portfolio repayments. We also utilized our ATM program during the quarter, 3rd quarter, raising approximately $13,000,000 in gross proceeds at a premium to NAV, further supporting long term growth of Trinity. 3rd quarter. The health of our capital structure and balance sheet remains the top priority for Trinity. As Kyle mentioned, this commitment is underscored 3rd quarter by the successful execution of the joint venture and potential investment partner discussions under the RIA.

Speaker 2

3rd quarter. These vehicles provide accretive earnings to the BDC, while providing additional liquidity to the platform, and we look forward to providing additional updates as appropriate.

Speaker 1

And we have our first question from Kyle Joseph with Jefferies.

Speaker 8

Good morning, guys. Thanks for taking my questions and congrats on a good quarter. I just want to get your take, we're 6 plus months out since the Silicon Valley fallout and just give us a sense for how the markets evolved in those month and whether you guys have seen some stabilization and how that's impacted competition as well.

Speaker 5

Hey, Kyle. This is Kyle. So a couple of things and maybe just start with some of the data we've seen internally. 3rd quarter. We have seen this year a pretty significant uptick in senior loan, the percentage of loans and opportunities 3rd consecutive quarter that are senior secured and I'd say that's primarily for even later stage companies where we might have seen the bank 3rd quarter.

Speaker 5

We just internally have seen a really significant uptick 3rd consecutive quarter. Now we primarily lend on senior secured loans, but that data alone for more mature companies, it was really interesting. It just shows that they're lending less money

Operator

to us.

Speaker 5

Opportunities have significantly 3rd increase top of funnel. And but I would say that banks are kind of doing what banks have traditionally done, which is focus on receivable financing. So we're seeing 3rd bank's kind of focusing on what they do best and we think that that trend probably continues going forward.

Speaker 8

Got it. Very helpful. And so, yes, that's a good segue. Next one is just the investment in the pipeline really going forward. Obviously, you guys 3rd.

Speaker 8

De levered a lot, some from repayment, some from the equity raise. But with your balance sheet where it is, should we take that as a sign that the pipeline is really strong? Quarter. And then how do you guys think about managing leverage going forward?

Speaker 5

Yes, I'll touch on it. Mike, you can also touch on it. But We really want to make sure that we keep that leverage in a place where we have liquidity. We can take advantage of the market and opportunities in front of us.

Operator

3rd quarter. The combination of

Speaker 5

on and off balance sheet capital gives us some additional levers there to keep leverage low, but also continue to drive up earnings. And so 3rd quarter. We're really focused on continuing to increase earnings per share, ROE, and increase that dividend. And so the ability for us 3rd question to offload deals to some of our off balance sheet entities yet drive up to new income while decreasing our leverage ratio. That's quarter.

Speaker 5

Those are really interesting tools that we're going to continue to use going forward.

Speaker 2

And just to provide color on the backlog, in Kyle's prepared remarks, 3rd quarter, we covered $348,000,000 of unfunded commitments. We also have quite a bit of term sheets accepted. So over $600,000,000 3rd quarter and a good portion of that is to our equipment financing products.

Speaker 8

Got it. Very helpful. Thanks for answering my questions.

Speaker 1

And our next question comes from Christopher Nolan with Ladenburg Thalmann.

Speaker 6

Steve, congratulations on your transition and Kyle, congratulations on your transition. I guess going forward, given the dividend, the common dividend yield is roughly 14% right now.

Speaker 9

Where do

Speaker 6

you stand in terms of cost of capital for further equity raises?

Operator

It's a

Speaker 5

little tough hearing you, Chris. I think you said how do you feel about future equity raises. Is that right? Cost of capital 3rd quarter.

Speaker 6

Yes, the dividend yield is 14%. And are you comfortable with raising equity, where you're hang out a 14% dividend yield on that new equity.

Speaker 5

Yes. So on future equity raises, 3rd quarter. We are really dedicated to making sure we do not dilute investors. We're really dedicated on 3rd quarter. We are very dedicated to increasing that earnings per share.

Speaker 5

And so to the extent that we go and we raise additional equity, those things 3rd quarter. We do have a significant pipeline. We have great opportunities in front of us, but increasing AUM for the sake of AUM growth just doesn't that's not

Operator

3rd quarter. We're not structured to focus on that first.

Speaker 5

And so we'll raise additional equity as we need to, but not at the sake of 3rd

Speaker 6

quarter. Yes, please go ahead.

Speaker 2

Yes. The only thing to add is like we have some good flexibility and opportunities to raise capital 3rd quarter to the ATM or equity offerings, but also from a debt perspective, we have a good balance of liquidity in our credit facility and 3rd quarter. At the lower end of our leverage ratio, have some flexibility there.

Speaker 6

Got you. And then I guess, I know you guys have raised the dividend consistently for the last 11 quarters and congratulations, but 3rd question. What are you thinking in terms of incremental raises? Are they really needed to support the stock price or anything? What's the thoughts around that, please?

Operator

3rd quarter. As our off balance sheet income continues

Speaker 5

to increase and those earnings flow to the BDC, we will continue to have 3rd earnings to share with investors. So, we're not a traditional BDC. Our story is not going to replicate traditional BDCs. We are going to be very consistent with the dividend and then we're going we're trying to be create a growth story for our shareholders.

Speaker 10

And I would also point to our dividend coverage 118%.

Speaker 6

Okay. That's it for me. Thank you.

Speaker 1

And our next question comes from Ryan Lynch with KBW.

Speaker 11

Hey, good morning. 3rd quarter. Kind of following up on Kyle's earlier question about leverage. Obviously, with the equity raise and kind of the minimal growth 3rd quarter in the portfolio. You guys are in a really good leverage spot.

Speaker 11

I understand that you guys are looking at ways 3rd question to increase the operating ROE. You guys have different tools out there like the JV that can increase the operating ROE by growing that. But 3rd question. At this point, do you guys foresee is it the kind of the expectation that leverage will 3rd move back up into kind of that targeted range in a 1.2 ish area, 1.2, 1.3 ish area or 3rd question. The expectation that it will kind of hover around these levels and you will continue to 3rd quarter.

Speaker 5

Hey, Ryan. It's a combination of everything you said there, right? It's we've got some really interesting levers in place, 3rd quarter earnings call. So that we don't have to increase our leverage to generate new returns and higher returns for investors. And so 3rd quarter.

Speaker 5

Keeping it in that range of kind of 1 to 1 to 1 to 1.3, I mean that gives us some real flex on a quarterly basis 3rd question and answer session. To satisfy and make sure we close the deal if we need to close and also utilizing our off balance sheet activity there 3rd quarter to decrease the leverage ratio. And so we've got some really great flex with our leverage. 3rd quarter. But long term, less leverage and higher returns, we actually have the ability to do that with our off balance sheet activity.

Speaker 11

Okay. Yes, it makes sense. I would just say, yes, if you have the ability to do that, I think that makes a lot of sense just given the ROE is 3rd quarter. Already very, very high today and having some balance sheet flexibility, I think is valuable given the current market backdrop. The other question I had was, quarter.

Speaker 11

Can you provide any update on where the situation with Core Scientific stands? 3rd quarter. Obviously, we know what's going on there with that investment, at least from the backdrop. 3rd quarter. It looks like it was maybe written up slightly in the quarter, but still remains at a heavy discount.

Speaker 11

There's been a big move in Bitcoin prices. I'm not sure what the equipment has 3rd question. But just can you give an update on that investment? And have you seen any changes in the underlying market recently given the 3rd big move higher in Bitcoin over the last several months.

Speaker 9

Hey, this is Ron. Ryan, I'll go first and maybe Jerry will tack 3rd quarter. You know where it's at, but there's been a couple significant updates within the quarter. The claim amount and our collateral amount has been finalized with the company, which is obviously a positive thing. And the company has also come to agreement with the equipment lenders under 3 different restructuring options.

Speaker 9

So 3rd question. You asked a question about Bitcoin. Maybe Jerry, if you want to tackle that one. And I think You tag that on at the end of your question, Ryan?

Speaker 1

Yes. I think so here's

Speaker 10

what I'd say, right. We the collateral amount and The collateral and the claim amount were finalized with the company. That's what they're bringing into quarter. We understand the company is very close to reaching agreement with convertible note holders, but as of right now, we haven't heard that that's finalized. 3rd question.

Speaker 10

The judge in the case needed to recuse themselves. There's a new judge. We think the judgment date is at or around the end of the year. And so we can't really say what will happen, 3rd question. What the court judgment will make, but as Ron alluded to, the agreement that Trinity and the company have reached 3rd, as well as all the other equipment lenders.

Speaker 10

The company has 3 debt repayment options, A, B, C. They can choose which suits them best. 3rd quarter. So we considered those three options, did discounted cash flow analysis to value our holdings, and still maintained 3rd. We will have an equitization option as well to consider 3rd quarter.

Speaker 10

Moving forward, the valuation and the exact terms of that are not completely clear at this time. So it's impossible for us to say 3rd question. What we might pick, we expect to make that election within Q4 and we're going to do what we believe is in the best interest of our shareholders when we make that decision.

Operator

And we have our next question from Bryce Rowe with B. Riley.

Speaker 12

Thanks. Good afternoon from the East Coast. Kyle, I wanted to ask, you made the comment And you made the same comment last quarter about your portfolio companies continuing to attract new capital. I think last quarter it was 30 companies. This time it's 45,000,000,000 and the new capital is up $1,400,000,000 to 2.4 $1,000,000,000 Can you just speak to kind of what's driving that and 3rd question.

Speaker 12

Maybe speak to the message that might be counter to what we're hearing or what you might hear more broadly with venture capital ecosystem. Thanks.

Speaker 5

Sure. So, listen, I think that certain industries 3rd. Raising capital is challenging right now. And though what we have seen in our own portfolio and across the board, 3rd question. There is a lot of equity flowing.

Speaker 5

It's just coming at damaging down rounds for investors. To the tune of 20% to 75%, I mean, we've seen that with our own portfolio. 3rd. Even companies doing well and still growing or they're going to have a correction in their valuation, many of which have been delaying what has become kind of the inevitable. And we're seeing that pipeline just kind of push through and companies are trying they're having to take the pain and move forward.

Speaker 5

And so 3rd quarter. Majority of our investments are relatively mature companies who have real technology, real businesses that are worth something and they have technology that That has real value and somebody is going to pay something for it. So we've just seen that play out over and over again within our own portfolio. And 3rd. The market and our own portfolio, there's always going to be a handful of deals we're working on.

Speaker 5

It has to be. That's our industry, right? And 3rd quarter. Since we founded Trinity, we've seen that our warrants and upside potential, they cover our losses and provide some incremental upside 3rd question and answer session. And so we've got a very dedicated portfolio team.

Speaker 5

We've got one individual for every 12 to 15 portfolio companies. 3rd consecutive quarter. That's all they do and we're being incredibly proactive to renegotiate and provide incremental side within our own portfolio. It is easy right now. New deals, you can see it.

Speaker 5

They are priced higher. We're getting more warrants. 3rd quarter. They're very exciting. It's an interesting time to be investing, making new investments.

Speaker 5

But we're actually within our own portfolio as new equity flows in, we're being very proactive 3rd quarter. We're making sure we create those upside potential that upside potential, so that what we can cover any outside or losses we might have in the future and create some additional upside for investors. So we're trying to be really consistent there.

Speaker 12

Great. That's helpful.

Operator

3rd question. Maybe a couple

Speaker 12

of follow ups related to those to that answer. Number 1, you talked about The top of the funnel kind of getting bigger, and then you just also talked about kind of your team. How do you think about the employee base and the employee base growing 3rd question. With the better opportunity set that you're seeing and especially in the context of being internally managed and different from an 3rd. An externally managed BDC that doesn't have salary and benefit direct salary and benefit type of expense on the income statement.

Speaker 12

3rd. Can you talk about kind of the opportunity there from an employee gain or capturing more employee perspective?

Speaker 5

Yes. We have taken a real sniper approach to new employees. We are looking for the best talent in the industry. 3rd. We've got a pipeline filled with potential people across the platform, and we're being very opportunistic question about who we bring on board and we continue to hire in advance.

Speaker 5

So we've that's been a theme for us from the beginning. We wanted to get this platform to scale. 3rd. We have a vision for what we want to build here, 5 years out in the future and then some, and we're hiring 3rd quarter earnings call according to that plan. And so, we're not the BDC is not to scale yet.

Speaker 5

I think there's some real efficiencies we'll see as we continue to grow 3rd and increase assets and but we're excited about the people we're bringing on board. We're going to continue to hire in advance the plan that we're trying to execute upon right now. All the while taking into account the fact that we want to make sure that we increase earnings per share 3rd and focus on that ROE growth. And so we balance those two things and we're going to continue to hire and advance and continue to build the platform.

Speaker 1

And we have our next question from Casey Alexander with Compass Point.

Speaker 13

Hi. Good afternoon. It might be a little bit of a rambling question and it refers to a lot of things that you've already said. But I mean just 3rd quarter. Stepping back for a second and looking at the fact that at 0.93 or 0.94 times, you're under levered on the balance sheet, 3rd, which would argue 2 things to me.

Speaker 13

1, that you would take your foot off the gas of the ATM program. 3rd consecutive quarter. And 2, even though the JV is not anywhere near scale and not really contributing much income, you would likely 3rd quarter. Not contribute a lot to the JV right now until you reach a more fulsome leverage level on balance sheet, which would be the best way to maximize your earnings. 3rd question.

Speaker 13

And so I was just wondering if you could speak to that because that mix is seems to make sense to me that things should go on balance 3rd sheet first until you're at a more fulsome leverage, then perhaps you can tap some of the ATM and start to build the JV to scale.

Speaker 5

Thanks, Casey. This is Kyle, and I think Jerry or Mike will add on to it. I think you're looking at a point in time, right? We had a pretty significant pipeline, some of which got pushed right into Q4. So there is that effect a bit.

Speaker 5

But I think we can do both, Casey. I think what we're trying to do is 3rd quarter. We saw this when SEB went down. 3rd. There were suddenly some pretty significant opportunities and if you're highly leveraged at that point, you had less liquidity and less opportunity to take advantage of what was a difficult time and we really want to position ourselves 3rd question to be opportunistic, which I think creates outsized returns for shareholders.

Speaker 5

And so I think there's this combination if we have the pipeline, 3rd. If we can put the money to work, there's this really interesting balance of continuing to issue some new shares, 3rd quarter. We'll utilize our off balance sheet funds, while keeping that leverage in a position where we've got a lot of liquidity available to us.

Operator

3rd question. So if we can continue that up into the

Speaker 5

right trajectory of earnings, dividend increases, while also doing those other things, I mean, that's the sweet spot. Right.

Speaker 10

Yes. I guess one other point after 3 quarters, Q4, Q1, Q2 of very low 3rd early repayments. We did see a substantial uptick on that within Q3, right? And this isn't something we can predict, Right. So we have to capitalize the business to be opportunistic.

Speaker 10

We can't count on those early repayments, but when they come, you might see that 3rd consecutive quarter reflected in the leverage ratio as of September 30. And I think that's what you're seeing.

Operator

3rd quarter.

Speaker 1

And we have reached the allotted time for our Q and A session. I would like to now turn the call back to CEO, Steve Brown, for closing remarks.

Speaker 5

Thank you. We'd like to thank everybody for participating today, and

Speaker 4

we look forward to being in touch with you after the holidays. One final note, as a reminder, I want to highlight that 3rd party members of the Trinity management team will be attending the Jefferies BDC Summit in New York on November 15th. If you're interested in meeting with us at this event, please reach out to Ben or your Jefferies representative. Thanks again. And one last note, go D backs, let's keep it going.

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Key Takeaways

  • Trinity generated record net investment income of $23.4 million (or $0.58 per share) in Q3, providing 118% coverage on its regular dividend and lifting NAV to $13.17 per share.
  • The balance sheet was bolstered by an $82 million equity raise in August and $13 million from the ATM program, leaving total liquidity at $257 million (including $250 million of undrawn credit capacity).
  • The originations pipeline remains robust with $348 million of unfunded commitments, $149 million in Q3 gross fundings, and 45 portfolio companies raising $2.4 billion of new capital year-to-date.
  • The portfolio’s credit quality stayed resilient with 97% of assets performing, just 2.6% on nonaccrual, an average internal rating of 2.8/5, and net leverage at 0.92x.
  • Effective January 1, 2024, Steve Brown transitions to Executive Chairman while Kyle Brown becomes CEO, continuing the firm’s strategy to expand its credit platform for growth-stage companies.
AI Generated. May Contain Errors.
Earnings Conference Call
Trinity Capital Q3 2023
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