Trinity Capital Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
October 30, 2024

There are 11 speakers on the call.

Operator

Good morning, ladies and gentlemen. My name is Jim, and I will be your conference operator today. This time, I would like to welcome everyone to Trinity Capital's Third Quarter 2024 Earnings Conference Call. All participants have been placed in a listen only mode and the floor will be open for your questions following the presentation. All participants have been placed in a listen only mode or pardon me, I just already said that.

Operator

As I stated, the call will be open for your questions after the prepared remarks. It is now my pleasure to turn the call over to Ben Malcolmson, Head of Investor Relations for Trinity Capital. Please go ahead.

Speaker 1

Thank you, and welcome to Trinity Capital's earnings conference call for the Q3 of 2024. Today, we are joined by Kyle Brown, Chief Executive Officer Michael Testa, Chief Financial Officer and Gerry Harder, Chief Operating Officer. Also joining us for the Q and A portion of the call are Ron Kundich, Chief Credit Officer and Sarah Stanley, Chief Compliance Officer and General Counsel. Trinity's financial results were released earlier today and can be accessed on our Investor Relations website at ir. Trinitycap.com.

Speaker 1

Before we begin, I would like to remind everyone that certain statements made during this call may be deemed forward looking statements under federal securities laws. Because these forward looking statements involve known and unknown risks and uncertainties, we encourage you to refer to our most recent SEC filings for information on some of these risk factors. Trinity Capital assumes no obligation or responsibility to update any forward looking statements. Now allow me to turn the call over to Trinity Capital's CEO, Kyle Brown.

Speaker 2

Thank you, Ben. Thanks everyone for joining us today. In the Q3, our strategies performed strongly, helping us deliver record results. Top highlights from Q3 include record net investment income of $29,000,000 a 26% increase versus Q3 of last year. Net asset value grew to $757,000,000 up 11% from $680,000,000 last quarter.

Speaker 2

Platform AUM reached a record $2,000,000,000 In Q3, we made a record $459,000,000 in investments, gross fundings, which was largely driven by $406,000,000 of secured loans and included debt investments to 11 new portfolio companies. Trinity paid a cash dividend of 0.51 dollars per share, representing our 19th consecutive quarter of a consistent or increased dividend. We're proud of our performance in Q3 as our 5 distinct business verticals continue to fuel our growth and take market share. As a reminder, our verticals are tech lending, equipment finance, life science, warehouse financing and sponsor finance, which focuses on private equity backed businesses. Each of our business verticals has its own experienced team to lead originations, credit and portfolio management functions, giving them the ability to scale efficiently.

Speaker 2

Our strategic growth initiatives have generated extraordinary momentum, highlighting our commitment to expanding the platform. Trinity Capital is first an alternative asset management company as well as a direct lender. We continue to see efficiencies of scaling our balance sheet at the public company level and we're now hyper focused on building out our asset management business to invest in our various business verticals. We're different than externally managed BDCs in that when you buy our stock, you're buying into a pool of diversified assets, yes, but you're also buying into a management company. We are not like externally managed BDCs that are simply pool of assets.

Speaker 2

It's also important to note that because we're an internally managed BDC, our employees, management and Board all own the same shares as our investors. This maintains 100% aligned with our shareholders and a focus on delivering growing returns for our investors. Earlier this year, we expanded into Europe, giving us increased global exposure and better access to an active tech landscape, which in turn allows us to support high growth companies across multiple continents. We intend to replicate the success that we've had here in the U. S.

Speaker 2

With our complementary lending businesses in Europe and beyond. Regarding deployment, we maintain a strong investment pipeline, including $606,000,000 in unfunded commitments, leaving us well positioned for our continued growth. As a reminder, a vast majority of Trinity's unfunded commitments are subject to ongoing diligence and approval by our investment committee. Credit and underwriting, portfolio management are all fundamental to our success over the long term. We have a unique structure characterized by collaboration between originations, credit and portfolio teams to manage our inbound opportunities in active portfolio companies.

Speaker 2

We remain very selective and adhere to a rigorous diligence process. Only a small percentage of inbound deals reach the underwriting stage. This proactive approach greatly mitigates risk and positions us to excel in all macroeconomic cycles. At Trinity, we pride ourselves on 3 core principles exhibiting uncommon care for our employees, customers and stakeholders 2, serving our clients by being partners rather than just money and 3, by providing outsized returns for our shareholders. Investing in our teams and systems is key to our growth and enabling us to further diversify our investments to create a best in class direct lending platform.

Speaker 2

We are excited about the future and look forward to continuing to capitalize on our momentum as we continue to maximize value for our shareholders. And with that, I'll turn the call over to Michael Testa, our CFO to discuss financial results in more detail.

Speaker 3

Michael? Thank you, Kyle. In the Q3, we achieved a record total investment income of $61,800,000 resulting in a 33% increase over the same period in 2023. Our effective yield on the portfolio for Q3 was once again an industry leading 16.1% and our core yield, which excludes fee income was strong at 14.9%. Net investment income for the Q3 was $29,000,000 or $0.54 per basic share compared to $23,000,000 or $0.58 per basic share in the same period of the prior year.

Speaker 3

The increase of $6,000,000 or 26% year over year net investment income growth is primarily attributable to the continued earnings power of Trinity's growing platform, while the decrease in net investment income per share is mostly attributable to the shares issued over the past year. Our net investment income per share represents 106 percent coverage of our quarterly distribution. Our estimated undistributed taxable income is approximately $64,500,000 or $1.12 per share. We continue to reinvest this capital for the benefit of our investors while maintaining a consistent and meaningful distribution. Our platform continues to generate strong returns for our BDC shareholders with ROAE of 16.2% based on net investment income over the average equity and ROAA of 7.1% based on net investment income over average total assets.

Speaker 3

As of September 30, 2024, our NAV was $757,000,000 up from $680,000,000 as of June 30, 2024. And our corresponding NAV per share was $13.13

Speaker 4

at the end

Speaker 3

of Q3, an increase from $13.12 as of June 30, 2024. The increase in net assets per share was primarily due to the net investment income exceeding the declared dividend and accretive ATM offering, partially offset by the portfolio activity in new RSAs issuances in September. During the quarter, we continue to strengthen our balance sheet enhanced liquidity through a variety of capital markets activities. We expanded our ATM program and in Q3 raised $80,000,000 in gross proceeds and an accretive premium to NAV to fund our ongoing portfolio growth. We further upsized our credit facility to $510,000,000 in total commitments, which is diversified across a total of 13 banks.

Speaker 3

We raised $115,000,000 through the issuance of investment grade unsecured notes maturing in 2029. And these notes are callable after 2 years and trade on our ticker TRINI. And subsequent to end the quarter, we further enhanced our liquidity position by raising $142,500,000 of unsecured private placement notes with maturities ranging from 2027 to 2029. Our reliance on unsecured debt continues to be at a conservative level and adjusted for the recent private placement issuance is under 30%. We also continue to realize the benefits of a co investment in the joint venture and vehicles under the RIA subsidiary, which in Q3 provide approximately $1,600,000 or $0.03 per share of incremental income to the BDC.

Speaker 3

During Q3, we syndicated $41,000,000 to these vehicles. As of September 30, we had more than $250,000,000 of assets under management in these private vehicles, providing incremental capital for growth and accretive returns to our shareholders. Our net leverage ratio, which represents principal debt outstanding of cash on hand, was 1.2 times as of September 30, 2024. Our strong liquidity position with diverse capital sources both from capital raised by the BDC and through our wholly owned RIA subsidiary provide Trinity with the flexibility to manage a strong pipeline and be opportunistic in the marketplace. I'll now turn the call over to our COO, Gerry Harder to discuss our portfolio performance and platform in more detail.

Speaker 3

Gerry? Thank you, Michael. Since our last earnings call, Trinity has continued to focus on executing across our 5 business verticals, which strengthen and diversify our platform, while enhancing our ability to offer customized financing solutions to our evolving client base of growth oriented companies. We remain dedicated to supporting companies at every stage of their growth journey. At the end of the 3rd quarter, on a cost basis, our total portfolio consisted of approximately 76% secured loans, 18% equipment financing, 4% equity and 2% warrants.

Speaker 3

The composition of our portfolio remained consistent with prior quarters with diversification across investment type, transaction size, industry and geography. Our portfolio is segmented across 22 industry categories with our largest industry exposure, finance and insurance, representing 18.1% of the portfolio at cost. This exposure is spread across 15 borrowers and includes both term loans and asset backed warehouse facilities. Our next largest industry concentrations are medical devices and space technology, representing 11.4% and 9.8% of the portfolio at cost respectively. Life Sciences related industries collectively made up 26.3% of our total portfolio on a cost basis.

Speaker 3

Among our 5 business verticals, the detailed breakdown of our fundings in Q3 was as follows: 39.8 percent to Tech Lending 29.4 percent to Life Sciences 15.7% to warehouse financing, 9.1% to equipment financing and 5.4% to sponsor finance. As of the end of Q3, our largest debt financing is to Solaris Corporation, which represents 3% of our debt portfolio and 2.8%

Speaker 2

of

Speaker 3

our total portfolio on a cost basis. Our 10 largest debt investments collectively represent 22.4% of our total portfolio on a cost basis. Now turning our focus to credit. The credit quality of our portfolio improved quarter over quarter with approximately 98.6% of our portfolio performing on a fair value basis. Our average internal credit rating for the 3rd quarter stood at 2.9 based on our 1 to 5 rating system with 5 indicating very strong performance.

Speaker 3

This rating is an increase from the average credit rating in each of the last four quarters and is attributable to a combination of credit upgrades to existing portfolio companies as well as strong originations of new credits within the 3rd quarter. As a percentage of the debt portfolio on a cost basis, credits within the lowest two tiers remain virtually unchanged from Q2. Quarter over quarter, while the number of portfolio companies on non accrual increased from 4 to 5, our non accrual credits decreased on both the cost and fair value basis. Our portfolio company Nexi was removed from non accrual as the transaction was fully realized in Q3 at a very slight decrease versus our Q2 net asset value. 2 smaller credits, Sun Basket and FormLogic were placed on non accrual within the quarter.

Speaker 3

At the end of Q3, our non accrual credits had a total fair value of approximately $22,200,000 representing 1.4 percent of the total debt portfolio, a slight decrease from Q2. At quarter end, 80% of our total principal outstanding was backed by 1st position liens on enterprise equipment or both. For our financings covered by all asset liens, the weighted average loan to value sits at 22.1%, while over 2 thirds of these companies have a loan to value of less than 15%. These statistics demonstrate that our portfolio companies are generally not over levered and are in a healthy position to service the debt even in instances when our loan may not be in 1st position. Year to date through September 30, our portfolio companies have collectively raised $2,900,000,000 of equity, already surpassing the total amount our portfolio raised in all of 2023.

Speaker 3

32 of Trinity's portfolio companies raised equity in Q3 versus 26 in Q2 and 22 in Q1. These encouraging stats speak to our portfolio's quality and ability to secure funding in an evolving market. In closing, we want to emphasize that our credit quality and portfolio management are the utmost importance to Trinity. One of Trinity's hallmarks is that our staff members think and operate like shareholders and we always strive for resolutions that benefit both our investors and our partners. At this time, we'd like to open the line for questions.

Speaker 3

Operator?

Speaker 4

Thank

Operator

you. We'll hear first today from Casey Alexander at Compass Point.

Speaker 5

Good afternoon. I guess it's still morning here. So good morning. Good morning. And thank you for taking my question.

Speaker 5

I think this is sort of a multipart question, but it's an extraordinary amount of originations during the quarter. And investors have sort of been trained to be somewhat wary of growth that comes at that kind of pace. And so I'm curious how you feel about growing at that kind of pace and still making sure that credit quality stays really pristine. You did have a couple of new non accruals in this quarter, one of them which is an equipment finance company. And so I think it's just something that investors are always going to keep an eye on when you're growing at that pace and would really like to hear from you how you intend to keep that credit quality pristine when you're growing at such a rapid pace?

Speaker 2

Hey, Casey. Good to talk to

Speaker 3

you this morning. This is Jerry. I'll start out with that one on the multipart. So we are aware of that sentiment from investors that wariness. And but the way we think about it is the diversification across our business verticals and we've got extremely experienced individuals who are focusing on these verticals, both leading the vertical market and also leading the credit within the vertical market.

Speaker 3

So we built Trinity intentionally to scale and our credit quality is going to show itself over time as it has throughout our track record. So we very much want our investors to believe that, that we've built this to scale and we're going to show folks that we have.

Speaker 5

All right. My next question relates to that. Because of the large amount of originations that you had in this quarter, you also sold a considerable amount of stock through the equity ATM program and actually increased shares outstanding by more than 10% quarter over quarter. If you think about that, that seems like an amount that maybe might be more appropriate for a syndicated stock offering as opposed to being out in the market every day with an ATM program of that size. How do you balance the scales of where you raise equity and the manner in which you raise equity relative to that rate of growth?

Speaker 2

Yes. Casey, this is Kyle. We're being opportunistic, raising both equity and debt. We're looking at the opportunities in front of us and we're taking advantage of them. This is a really efficient way to raise equity.

Speaker 2

We're doing it on balance sheet at the public company level. We're doing it off balance sheets under the RIA and we're doing it in a way that's accretive to investors. So we'll continue to deploy capital if the opportunity is there. We'll continue to raise equity and debt when the opportunity is there and we're going to do it in the most efficient manner in a way that's good for investors, which I think we've shown.

Speaker 5

I'm not sure that entirely answers my question because the question was how do you balance between an ATM versus a syndicated equity offering knowing that when you're raising equity to that extent being out in the market every day has some impact on the valuation of the stock?

Speaker 2

You're talking about doing an overnight opposed to an ATM, Casey?

Speaker 5

Correct. Correct.

Speaker 2

Yes. I mean, we've done a fair bit of that. I mean, we're doing it 5 years now. And I guess every time we do an ATM or every time we do overnight, the stock has been affected in a big way. That's probably affected shareholders in a more negative way and it's more costly.

Speaker 2

I mean, we use the ATM, it's a 1% fee, 1% to raise equity. We do an overnight, it's at a cost of 6% to 8%. So if we can access the ATM, it costs a lot less, it saves money for shareholders.

Speaker 5

All right. Thank you for taking my questions.

Speaker 4

You bet. Thank you.

Operator

Our next question comes from Christopher Nolan at Ladenburg Thalmann. Go ahead please.

Speaker 6

Hey, guys. Hey, Chris.

Speaker 7

Mike, what

Speaker 6

was the driver of the realized loss in the quarter?

Speaker 3

Yes. That was one of the positions we noted in Terry's remarks that was Nexi that was realized this quarter. Again, we had marked that down fair value in the past quarters. So from a NAV perspective, it was neutral on that realization. You saw an unrealized flip.

Speaker 3

So yes, that was the big driver there.

Speaker 6

Great. Next question is operating expenses, it seems to be growing. Where are you guys making your investments? And what's the run rate we should expect for coming quarters?

Speaker 3

Yes. I think Q3, you saw that tick up. Again, we've been making hires throughout first half of the year and into this quarter. As Jerry said, building out the 5 different verticals and each of the team underneath that. So I think Q3 is probably a good run rate you'll see for the next quarter or so.

Speaker 6

Great. Final question. For these off balance sheet vehicles, what's your threshold in terms of an IRR? I know you're looking at various strategies, but trying to see what's the minimum IRR that you seek from them?

Speaker 3

I mean, right now, since it's a co investment vehicle, the return should be very similar to the return on an investment in Trinstock. So I think the profile again, we expect having fees also to increase the IRR in these off balance sheet vehicles. But yes, I think overall to the investor of that off balance sheet vehicle would be very similar to TRIM. Okay. That's for me.

Speaker 3

Thank you.

Speaker 7

Thanks, Chris.

Operator

Bryce Roe with B. Riley, you have our next question.

Speaker 8

Awesome. Thank you. Good morning. A couple of questions here. Maybe just a piggyback on Chris's question about expenses.

Speaker 8

Obviously, in growth mode, you've been growing the expense base. And one advantage that internally managed BDCs have and you can see it with Maine, Hercules, Capital Southwest is a much lower kind of operating leverage ratio, expense ratio well below 2% in at least 2 of those three cases. You all are maybe a little earlier in your stage of growth at this point. But Kyle, maybe you can just comment on when you think you might see the inflection point in terms of your leverage ratio or expense ratio from a 3% to maybe 3% to 4% level right now and maybe working its way down, at what point will we start to see that inflect?

Speaker 3

Yes, I think, listen,

Speaker 2

I mean, it's apples and oranges when you're comparing us to even a Capital Southwest. I mean, we've got 100 employees, nearly 100 employees and they've got 30. We have fundamentally just different businesses. And so we're building this business right now. We are hiring our expenses.

Speaker 2

We're not optimizing for lowering our expenses right now for earnings. We're growing earnings. And so you will see that as we continue to scale, you'll see that number come down. But we've been able to continue to build a team higher in advance and grow earnings for investors at the same time. And I think you're going to continue to see that.

Speaker 2

There will be efficiencies of scale. You will see like Main Street, they have a thriving off balance sheet, probably management business now and they've been able to downstream some of

Speaker 3

their expenses there. You'll see

Speaker 2

that with us as well. And so I think over the next 12 months, you'll see that number probably from a ratio percentage come down, but we are growing this business. If opportunity is there for us to continue growing, we're going to keep doing it. We're going to keep hiring ahead of that like we've done historically, while also increasing returns for investors at the same time. We've been able to do that.

Speaker 8

Yes, understood. Not trying to say that I get the apples to oranges, but just thinking about holistically the benefit of internally managed and why internally managed BDCs trade at a premium. And I think that's part of it, the fact that you can capture operating leverage as you grow. So appreciate the color.

Speaker 3

You'll see that with us

Speaker 2

and you'll see that leverage. You'll also see that as we continue to manage more money off balance sheet and generate more management fees and incentive fees. You'll see that benefit as being an internally managed business as well there.

Speaker 3

Yes. Okay.

Speaker 8

The hiring and the focus on growth is certainly paid off in terms of originations picking up and especially here in the Q3. Just kind of how do you guys how should we as I guess investors and analysts think about the pace of originations? Can you sustain this level of originations over the foreseeable future? Or will it be kind of more ebbs and flows in terms of what the overall number looks like?

Speaker 2

We are if you break down the originations between our different business verticals, you'll see it's pretty balanced. Each of those verticals is growing at a nice clip right now. We do think the originations is sustainable. We are a little bit ahead of plan, but it's really not we don't feel like we're over our skis from an origination standpoint.

Speaker 3

Most of those

Speaker 2

deals our credit and our underwriting is as focused as ever and we're not seeing some increased percentage of deals get across the finish line. This is exactly how we've done things historically. The amount of deals that are crossing the finish line, that percentage has not changed. And so we're seeing a larger top of funnel because we've expanded business verticals. And so as we continue to build out these businesses, we think the originations is sustainable for us.

Speaker 7

Okay.

Speaker 8

Last one for me. When you look at maybe the breakdown of the portfolio, it looks like the warrant portfolio saw a nice uptick both from a cost basis and fair value basis perspective. Is that just purely a function of getting warrants with some of the new originations?

Speaker 3

Yes. I mean, yes,

Speaker 2

that's a lot of that has to do with the venture debt business and you see we have a large warm portfolio as the market improves that can go up. And so we're seeing some of the benefits of that there.

Speaker 3

Yes. Okay. All right. Thanks so much. You bet.

Operator

Matthew Hurwitz at Jefferies. Please go ahead.

Speaker 4

Hi, guys. Just wondering if we could have a bit more detail on the puts and takes from the non accruals decreasing quarter on quarter? I know you mentioned Nexi, and then 2 companies that were added, but might be good to have some detail on those 2 companies and any other puts and takes?

Speaker 7

Sure. Hey, Matthew, this is Ron Gundich, Chief Credit Officer. Thanks for the question. The 2 companies that were added to the non accrual last quarter, one of them was a small equipment financing and the other one was an aged term loan in our venture debt practice. I'd call it a normal transition, right?

Speaker 7

Nothing abnormal about those two credits. They just got to a point where we prudently put them on non accrual. Of course, Nexi rolled off as a result of recognizing that transaction during the quarter. The most important note is as we look at our non accruals, that credit bucket decreased on both the costs and a fair market value basis, Q3 versus Q2. So consistent with the other things you've heard in the Q and A here, the underwriting rigor remains strong at the top of the funnel or at the top of the portfolio, if you will.

Speaker 7

And important to note that each vertical, as Jerry alluded to, has its own distinct team and included in that team is a portfolio management team that manages each portfolio and their experts in their respective verticals.

Speaker 4

Okay, great. Thanks. And then could you just provide what the timeline typically is to get from a signed term sheet to a commitment and then from a commitment to a funded loan, I can see that they've all grown nicely, but yes, if you could provide some color there?

Speaker 2

Yes, it really depends on the business. But I think generally speaking, 90 days to 120 days from start to finish.

Speaker 4

I see. So from signed term sheet to funding. Okay.

Speaker 2

Signed term sheet to funding.

Speaker 3

Yes,

Speaker 2

45 days.

Speaker 4

Okay. Okay, great. And then last, if I could just ask, how you think about the dividend and when to increase it? There's some discussion of rates impacting earnings. So just your thoughts there.

Speaker 2

Yes. I think we've kept the dividend steady. We certainly could have increased it, but we're really focused on just keeping it stable, building earnings per share, seeing some of that NAV growth. And then will with the Board decide on when to increase it. So our goal as an internally managed BDC with managed funds now is to grow earnings over time and grow the dividend over time.

Speaker 2

So that is our stated goal. We'll decide on a quarterly basis when to bring that up as we see earnings continue to drive forward.

Speaker 4

Okay. Thanks. You bet.

Operator

Binyan O'Shea with Wells Fargo Securities. Please go ahead. Your line is open.

Speaker 4

Hey, everyone. Good morning.

Speaker 9

A lot of discussion on internal today, but seeing you're only getting maybe a touch of credit for that in your stock price. We're seeing if there's any appetite to flip over to external and how you would look at that sort of debate. Thank you.

Speaker 2

No, we're not doing it. We're not thinking about it. This internal structure is ideal for what we do. We have done a great job of raising capital through the public markets, through the capital markets. We've delivered a best in class return to investors.

Speaker 2

We have delivered over $8 per share since we went public. We've raised over $1,000,000,000 of equity in debt. We're now raising money off balance sheet. All of the management fees and incentive fees 100% go to investors. We can drive up earnings per share.

Speaker 2

We can drive up and be best in class ROE. We are an asset management company in a BDC wrapper and it is awesome for investors. We are not ever going to do that. We're not thinking about it. And we are this growth story with a really consistent and great dividend spend.

Speaker 2

So, that's what shareholders need to know. That's what they need to understand. And hopefully over time, we'll get the price that we deserve, which is much higher than where it is right now. And I think our shareholders are pretty excited about what we're doing.

Speaker 9

Very good. Thanks so much. That's all for me.

Operator

Our next question will come from Paul Johnson at KBW.

Speaker 10

Yes, good morning. Thanks for taking my questions. Just wanted to ask, I'm sorry if you said it on the call, I just didn't catch it, but how are the just the AUM collectively in the JV and the RIA, how has that been scaling? I think it was close to about $500,000,000 last quarter. Is there any growth there this quarter versus last?

Speaker 3

Yes, Paul, this is Mike. We did syndicate close to $40,000,000 this quarter. Our balance sheet just continues to ramp. So I think you'll see that. Again, in the joint venture, there is a bit of seasoning that goes on.

Speaker 3

So a lot of the prior quarter fundings get syndicated the following quarter. So you'll see that next quarter from this quarter in the joint venture. But then also the vehicle, the private vehicle under the RA subsidiary that's just going to continue to ramp. We are looking to obtain leverage at a bank facility for that. So we're building up capacity in that vehicle as well.

Speaker 10

Okay. Thanks for that. And then one question on the improvement in the credit rating. I think, Bryce, you may have asked this question, but so the improvement of 2.9 versus 2.7, is that primarily just due to the strong growth this quarter? Or were there meaningful upgrades in credit ratings?

Speaker 10

And then my second question to that would be just can you just remind us for any new investments, I guess for a new company, new platform investment, where do those get placed in terms of the sort of default credit rating initially when it's placed into the portfolio?

Speaker 3

Hey, that's a great question. This is Jerry. I can take that. So yes, we did see improvements this quarter. Now some of it is a little bit of rounding, right?

Speaker 3

So it was 2.7 something, now to 2.8 high something. So it looks maybe 1 decimal place like a bigger jump than it is. But nonetheless, we did have we spoke in our prepared remarks about the amount of capital that our portfolio companies raised. Like they had a great quarter, right, in terms of capital raising. And so the 2 biggest factors within our credit rating system are cash runway and performance to plan.

Speaker 3

And so you can imagine cash runway improving for a number of credits that did raise capital. When we bring in new credits, they will generally land around that high end of what we call performing. So in that 2.9, 3.0 range, we like our new credits to show us for a bit before we place them in one of the upper tiers. But I think we did bring in a very strong cohort this quarter. So I think the uptick was a function of capital raising, portfolio companies performing well and strong originations kind of in equal parts.

Speaker 10

Got it. Thanks. That's very helpful. And then just a quick question on the European expansion. I guess, how is the foreign exposure, how would that affect the non qualified assets in the portfolio?

Speaker 10

I don't think it's a very big piece of the portfolio, but would that require any kind of second credit facility or any sort of multi credit facility to be able to expand that business? And how would that flow through, I guess, the interest statement? Because I think I may have seen that some of those loans pay in dollars, but if you could expand on that, it would be helpful.

Speaker 3

Yes, Paul. I'll start and then the rest of the team will chime in. From a non qualified bucket, as you mentioned, European or foreign investments would fall under there. Right now, that bucket is overall all the non qualified assets are about 13%. So plenty of room in that bucket to continue to fund those assets that are foreign.

Speaker 3

Right now, majority of our loans and financings are all in U. S. Dollars. As you mentioned, we do have the ability to land in a foreign denominated currency, which we could utilize a credit facility in that foreign currency to minimize the FX risk.

Speaker 2

Yes, our goal there is just to repeat what we've done here over there. And with the RIA, it gives us the ability to raise capital. So when we do start having some issues maybe with growth there with the size of that bucket, we have the ability to raise capital in a vehicle that's dedicated just to that purpose. So we have a really great opportunity to grow it. We have a great opportunity to raise additional capital dedicated to those investments.

Speaker 10

Got it. Thanks for that. And then I would imagine that you're looking at a lot of new sponsors for that market. I guess if that's true, I mean, what is kind of the threshold for a new deal, a new sponsor? Is there a deeper diligence process just because it's a new market?

Speaker 10

How does that work?

Speaker 2

Yes. I mean, Ron, you can jump in as well here. But we're not doing anything that we haven't done historically. So we've been doing business in Europe at a smaller scale for 10 years. And so deals have to go

Speaker 7

through the same exact process. This is Rod. It's the same underwriting rigor that we use here in the States. The gentleman we've brought on to lead that effort is a venture debt pro who's been lending to venture backed companies out there for over a decade. So and he's a known quantity.

Speaker 7

He's known to us. We didn't hire a stranger, right? We hired someone that we have some track record with on a personal level as well. So So the question is a good one, but for now it's same margin orders, same underwriting criteria. Jerry mentioned a couple of the portfolio criteria earlier in an earlier answer.

Speaker 7

So same process. And as

Speaker 3

we build out that team, we're going to bring in individuals who are experienced doing business in that geography, right? We're not looking to send over from Phoenix or the Bay Area. We're going to grow that team with folks that are in markets in the UK.

Speaker 10

Got it. Appreciate that. It's helpful. That's all for me. Thanks.

Speaker 4

Thank you.

Operator

Our next question comes from Doug Harter with UBS.

Speaker 2

Thanks. Hoping you could talk about your outlook to continue to grow the RIA channel and kind of how we should think about the operating leverage for that to fall to the bottom line for TRIN shareholders? Hey, Doug. We're really focused on raising capital for the RIA, both as a kind of co investment vehicle for across the platform and then also raising capital specifically for our different verticals and getting the appropriate leverage for the different risk that each of those businesses take. And so that's a big focus for us now and into next year.

Speaker 2

Our goal there is to raise capital where we can charge management fees and incentive fees, all of which will flow to our investors. It's going to be a big part of our future. I can't give you specific numbers. I hope to give you more detailed information in the not so distant future. But in raising capital is a slot.

Speaker 2

It's difficult. It's hard. It takes a long time to raise capital privately. And we have been at it for a while. We've seen some success.

Speaker 2

We hope to see more of it in the not so distant future. Great. Thank you.

Operator

And that concludes our Q and A portion for today's conference. I'm pleased to turn the floor back to CEO, Kyle Brown for any additional or closing remarks.

Speaker 2

Thank you. We're proud of the Q3 results and look forward to updating you on our 2024 results during our next call in February. Also, we look forward to seeing many of you at our investor event in Manhattan on November 19th. If you'd like to attend, please contact our Head of Investor Relations, Ben Malcolmson. I'd like to thank everybody for participating in our call today.

Speaker 2

We appreciate your interest and investment in Trinity Capital. Have a great rest of your day. Thanks.

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Key Takeaways

  • Trinity delivered record Q3 results with net investment income of $29 million (up 26% year-over-year), NAV of $757 million (up 11% quarter-over-quarter), platform AUM of $2 billion and a record $459 million in gross fundings to 11 new portfolio companies.
  • The company paid a cash dividend of $0.51 per share, marking its 19th consecutive quarter of a consistent or increased distribution, with net investment income covering 106% of the dividend.
  • Growth was driven by five distinct verticals—tech lending, equipment finance, life sciences, warehouse financing and sponsor finance—each supported by dedicated teams for origination, credit due diligence and portfolio management.
  • As an internally managed BDC, Trinity aligns management, employees and shareholders, leveraging its public‐company balance sheet while building out an asset management business to earn management and incentive fees.
  • Trinity strengthened its liquidity and capital structure by raising $80 million via its ATM, upsizing its credit facility to $510 million, issuing $115 million of unsecured notes and $142.5 million of private placement notes, resulting in a 1.2× net leverage ratio and $606 million of unfunded commitments.
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Earnings Conference Call
Trinity Capital Q3 2024
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