TriplePoint Venture Growth BDC Q1 2024 Earnings Call Transcript

Quartr
Provided by Quartr
May 1, 2024

There are 7 speakers on the call.

Operator

Good afternoon, ladies and gentlemen. Welcome to the TriplePoint Venture Growth BDC Corp First Quarter 2024 Earnings Conference Call. At this time, all lines have been placed in a listen only mode. After the speakers' remarks, there will be an opportunity to ask questions and instructions will follow at that time. This conference is being recorded and a replay of the call will be available in an audio webcast on the TriplePoint Venture Growth website.

Operator

Company management is pleased to share with you the company's results for the Q1 of 2024. Today, representing the company is Jim Labe, Chief Executive Officer and Chairman of the Board Sujal Srivastava, President and Chief Investment Officer and Chris Matthew, Chief Financial Officer. Before I turn the call over to Mr. Labe, I'd like to direct your attention to the customary Safe Harbor disclosure in the company's press release regarding forward looking statements And remind you that during this call, management will make certain statements that relate to future events or the company's future performance or financial condition, which are considered forward looking statements under federal securities law. You are asked to refer to the company's most recent filings with the Securities and Exchange Commission for important factors that could cause actual results to differ materially from these statements.

Operator

The company does not undertake any obligation to any forward looking statements or projections unless required by law. Investors are cautioned not to place undue reliance on any forward looking statements made during the call, which reflect management's opinions only as of today. To obtain copies of our latest SEC filings, please visit the company's website at www.tpvg.com. Now, I'd like to turn the conference over to Mr. Labegh.

Speaker 1

Good afternoon, everyone, and welcome to TPVG's Q1 earnings call. During the Q1, we continue to navigate through the current venture capital markets. While the market remains slow and deal activity and deal value have yet to improve, there continues to be unique opportunities in this market for us, as well as initial signs that overall VC markets may gradually begin to improve. This includes growing demand at TriplePoint Capital from what we believe are quality venture growth companies and companies across the venture stages. Complementing these initial positive signs, we continue to make progress in the Q1.

Speaker 1

With setting a strong foundation heading into the second half of this year. As we progress through the year, our focus will be on positioning TPVG for the future, while continuing to maintain our strong portfolio yield and liquidity, as well as managing the portfolio. Turning to our quarterly results, we generated net investment income of 15.5 $1,000,000 or $0.41 per share and over earned our regular quarterly dividend. Since going public in 2014 and including the Q1 dividend, cumulative dividends to shareholders now total $15.45 per share. Over this 10 year period, we've exceeded our dividends on a cumulative basis and our objective is to continue to generate NII in spillover income.

Speaker 1

During the quarter, we improved our gross leverage ratio to 1.27x and further enhanced our liquidity, based primarily on prepayment activity, which included 2 prepayments totaling 30,800,000 During the quarter, we continue to manage the portfolio and are encouraged by a number of positive portfolio company developments and an increase in the value of the equity and warrant portfolio. 1 of these developments was a growing number of fund raising rounds by our portfolio companies, which we believe signals a sign of strength. During the quarter, 8 of our portfolio companies completed rounds, raising $584,000,000 in aggregate, representing a sizable quarterly as well as year over year increase. Additionally, post quarter, several companies have raised rounds and others are raising this quarter. We'll continue to prioritize TPVG's long term position in the venture lending market and we expect the remainder of the year to be more active.

Speaker 1

To this end, we're continuing on the path of diversifying the portfolio, including the sector and geographic we've been talking about the last several quarters. In many respects, we think of it as being a new crop of investment sectors as well as venture growth company profiles. The NVCA labels it as a different camp of companies. In this environment, investors have become far more cautious and selective and we believe the new and emerging crop of venture companies is strong. A number of venture growth companies have already gone through valuation resets and dealt with the market challenges.

Speaker 1

These are companies that have adjusted business models. They are on more moderate cash burn levels. They have reasonable growth objectives and are projecting paths to profitability. They are gaining a great deal of interest and traction from investors. Our focus will continue to be on investing in companies operating in these attractive sectors and ones that have recently raised fresh capital, have ample cash runways, have backing from our select venture investors, have prudent management teams and whose business models have attractive unit economics and high retention rates.

Speaker 1

We'll also continue to evaluate hold sizes, debt to equity ratios, deal structures and other key metrics. We're excited by the increase in signed term sheets. Following the 70% increase in venture growth signed term sheets as we experienced in the 4th quarter, term sheet signed by TriplePoint Capital increased an additional 30% in the first quarter to a total of $130,500,000 And here in the second quarter already, we've signed almost 30,000,000 of new term sheets at TriplePoint Capital. Many of these signed term sheets are in investment sectors that are consistent with the same sectors that our select venture investors have and are continued to shift into. This includes AI, cybersecurity, climate and digital health.

Speaker 1

In addition, there's increased and renewed interest in vertical software, hardware and robotics, semiconductors, applied tech, environmental and sustainability technologies and aerospace, sorry, Aerospace as examples. As we've been citing, this includes a number of our portfolio companies that are already operating in these stronger performing categories, with some making considerable progress such as Corelight, Lost Orbital, Hover, Arcadia Power, Flash, Caldeiros, Overtime and others. Through both discussions with our select VCs, as well as reflecting on transactions we've recently signed up and others that we're continuing to evaluate in this market on an ongoing basis, new investment activity in particular has pivoted towards, no surprise, the artificial intelligence applications and infrastructure category. Some of our companies come to mind. For example, K Health, which pairs clinicians with advanced AI to provide data driven personalized care around the clock and FitOn, a leading digital wellness platform that serves as an always on individual full gym and wellness coach with no equipment needed.

Speaker 1

Uniphore, which introduced the 1st multimedia AI and data platform built specifically for the enterprise using generative knowledge and emotional AI is another one. Although the overall VC markets continue to remain sluggish, particularly for growth stages, there are a few emerging signs of future promise. Dry powder, the undeployed funds at venture capital firms remain significant as $300,000,000,000 across the venture landscape. On an increasing basis, we are hearing the word optimistic make its way into more conversations with venture capital investors and companies. We're hearing it usually in connection with increased opportunities for new investments, but also on the outlook for a future pickup in venture M and A and IPO activity.

Speaker 1

We believe that once the IPO markets come back and M and A activity returns to more historical levels, it will be a sea change for growth stage companies, especially those companies within our portfolio that are outperforming in this market. It will also attract growth stage growth stage investors to return to the market. With our outstanding warrant positions in more than 97 portfolio companies and equity positions within more than 46 portfolio companies, we believe we stand to benefit in this additional way to our debt returns when the market returns to a better M and A and IPO landscape. In the meantime, we'll continue to position TPVG for when the overall VC market conditions improve. TriplePoint Capital, our sponsor, will continue to invest in its people and our platform, including building our originations and investment teams, portfolio management capabilities and our support staff.

Speaker 1

TriplePoint is well positioned to capture the business as overall market conditions improve. For now, we will remain active in the market and plan to continue building a pipeline consisting of venture growth stage companies positioned for strength under current market conditions. These are all critical elements for the long term that we believe position us to build NAV and create sustainable shareholder value. With that, I'll turn the call over to Sajal.

Speaker 2

Thank you, Jim, and good afternoon. Investment pipeline activity increased for the 3rd consecutive quarter as TriplePoint Capital signed $130,000,000 of term sheets with venture growth stage companies compared to $100,000,000 in Q4 $58,000,000 in Q3, reflecting an increase in origination activity by our investment team, an increase in direct referrals from our select venture capital funds, and more importantly, an increase in what we believe are high quality companies looking for debt financing. With regards to new investment allocation to TPVG during the Q1, TriplePoint Capital allocated $10,000,000 in new commitments with 1 new portfolio company to TPVG compared to $4,000,000 in new commitments with 2 existing portfolio companies in Q4 and $6,000,000 of new commitments with 3 companies in Q3. The commitment made during the Q1 was to fit on an all in one health and wellness and preventative care platform. Here in Q2, we've closed $20,500,000 of new commitments with 1 new portfolio company in the AI and software industry and one existing portfolio company in the financial technology industry.

Speaker 2

During the quarter, TPVG funded $13,500,000 in debt investments to 3 portfolio companies, which is down from $24,400,000 in debt investments to 6 portfolio companies in Q4 and slightly higher than the $12,700,000 we funded to 5 companies in Q3. These funded investments carried a weighted average annualized portfolio yield of 14.3% at origination. Approximately 75% of the fundings this quarter came from new investment origination during the quarter. Our quarterly gross funding target continues to be in the $25,000,000 to $50,000,000 range and we expect to be at the higher end of the range as we increase the allocation of new investments to TPVG over the course of the year. During Q1, we had $30,000,000 of loan prepayments with prepayment related income contributing to an overall weighted average portfolio yield of 15 point 4% in line with the past 2 quarters levels of prepayment activity and portfolio.

Speaker 2

Excluding prepayment, core portfolio yield was 14.7%, up from 14.4% in Q4 and 14.1% in Q3. With regards to fundraising activity, as Jim mentioned, 8 portfolio companies with debt outstanding raised $584,000,000 during the quarter, up from 5 portfolio companies raising $157,000,000 last quarter and 3 companies raising $47,000,000 in Q3. Monza represented the lion's share of the fundraising activity having raised approximately $430,000,000 at a $5,000,000,000 valuation during the quarter. This data does not include Metropolis or Cohesity's announced financings. As we discussed during our last earnings call, we are seeing capital raising activity within our portfolio picking up and have several portfolio companies either in active fundraising discussions or expecting to launch a fundraising process shortly.

Speaker 2

Approximately $200,000,000 of new capital was raised by our portfolio companies in April alone. We believe this fundraising activity should bode well for the long term credit quality of our portfolio companies as well as for the potential value of our portfolio. As of March 31, we held warrants in 97 companies and held equity investments in 46 companies with a total fair value of $78,000,000 Our warrant and equity portfolio experienced a $6,000,000 net unrealized gain in fair value or $0.16 per share for the quarter, primarily driven by new equity round valuations, improving public trading multiples and continued financial performance of our portfolio companies as well as improving stock prices for our publicly held portfolio. During the quarter, the Align Company was acquired by Orchard Technologies, DIA and Company was acquired by Full Beauty Brands and Underground Enterprises completed its asset sale and liquidation process. DN Underground were removed from the credit watch list and we realized losses of $8,900,000 from these events, of which $5,100,000 was previously recognized on an unrealized basis in prior quarters.

Speaker 2

During the quarter, 2 companies were downgraded from category 2 to category 3, primarily due to short runway in conjunction with upcoming financing or strategic events already underway and are expected to be either upgraded or removed from the watch list upon completion. One portfolio company TFG Holdings with a fair value of approximately $18,000,000 was downgraded from category 3 to category 4 during Q1 and was acquired here in Q2. Our loan has been paid off in cash and a seller note in line with our mark for Q1 and will be removed from our watch list in Q2. 1 portfolio company, Outdoor Voices, which is in the strategic process was downgraded from category 4 to category 5 and we expect the process to be completed in Q2. While our total percentage of category 3, 4 and 5 investments rose slightly this quarter, I would like to point out that we expect upgrades to a few of our category 3 rated investments over the course of 2024 as a result of achieving sustained profitability and or completing financing events that are underway as well as the fact that we've already removed TFG, a Category 4 rated loan here in Q2 as a result of its acquisition.

Speaker 2

Managing our existing portfolio continues to be a high priority for us as a result of increased equity fundraising, increased acquisition activity and improving operational performance by our portfolio companies. We expect credit to continue to stabilize over the course of 2024 with the frequency of new credit development slowing and in certain cases the potential for upgrading of credit ratings. With regards to new investment opportunities, as Jim mentioned, we are seeing what we believe are more companies of higher quality starting to come to the equity and debt markets, and we believe that these new investments have the potential to be a very strong vintage of venture capital and venture lending opportunities. We believe our efforts over the past year to reduce leverage and unfunded commitments, to boost liquidity from prepayments and repayments, proceeds from sale under our ATM program, as well as extending and the upcoming renewal of our credit facility put TDVG in a position to take advantage of the improving pipeline of new deals as the year unfolds. We believe that by returning to portfolio growth over the course of 2024 and into 2025 and by continued focus on smaller hold sizes and industry sector rotation with companies that have generally recently raised new equity capital, we will continue along our goals of increased portfolio durability and diversification.

Speaker 2

As we look to onboard new loans, we intend to maintain our strong yield profile not only by maintaining spreads, but also by continuing to incorporate fixed rate investments, which along with anticipated portfolio growth will bode well for our ability to continue to cover our dividend. Finally, as equity fundraising activity continues by our portfolio companies and public market multiples expect to see improvement in the fair value of our warrant and equity portfolio. In closing, we remain focused on our business and will continue to follow our long term playbook of generating strong returns for fellow shareholders and we look forward to what's in store for TPVG and our shareholders for what we believe will be improving conditions in both the overall venture capital and venture lender markets over the course of 2024 2025. With that, I'll now turn the call over to Chris.

Speaker 3

Thank you, Sajal, and hello, everyone. During the Q1, we made notable progress on a number of financially focused efforts, which we believe have improved our overall position. We generated strong interest income from our diversified loan portfolio. As expected, we intentionally had another light order of originations and fundings. We over earned this quarter's dividend and we also improved leverage to 1.27 times on both the gross and net basis.

Speaker 3

At the same time, we made further progress reducing unfunded commitment levels in the Q1 from 100 and 18,000,000 to $73,000,000 And as a result, TPVG has ample liquidity at the ready to support our existing portfolio companies, satisfy our unfunded commitments and make selective new investments. For the Q1, total investment income was $29,300,000 with a portfolio yield of 15.4% as compared to $33,600,000 with a portfolio yield of 14.7 percent for the prior year period. The decrease in total investment income was primarily driven due to lower average debt portfolio as compared to a year ago. For the Q1, total operating expenses were $13,800,000 as compared to $15,100,000 for the prior year period. These expenses consisted of $7,000,000 of interest expense, which was lower this quarter due to reduced overall leverage, $4,300,000 of base management fees, dollars 611,000 of administrative expenses and $1,800,000 of G and A expenses, which were generally flat to last quarter.

Speaker 3

Due to the shareholder friendly total return requirement under the incentive fee, there was no incentive fee this quarter. Further, we expect limited incentive fee expense during the remainder of 2024. For the Q1, net investment income totaled $15,500,000 or $0.41 per share compared to $18,600,000 or $0.53 per share for the prior year period. For the Q1, net realized losses on investments totaled $8,800,000 This was primarily in connection with the write off of investments of 2 portfolio companies. Of note, 5,100,000 or 58% of the realized loss on these companies was previously included in unrealized losses and was reclassified from unrealized to realized in the quarter.

Speaker 3

As such, $3,800,000 of the realized loss in 2024 had no impact on net asset value in the quarter. For the Q1, net change in unrealized gains on investments was $1,300,000 consisting of $6,200,000 of net unrealized gains on the warrant and equity portfolio resulting from fair value adjustments and $4,900,000 from the reversal of previously recorded unrealized losses from the investment portfolio that were realized during the period, reduced by $9,800,000 of net unrealized losses on the debt portfolio resulting from fair value adjustments. As of quarter end, net asset value was $341,000,000 or $9.02 per share compared to $346,000,000 or $9.21 per share as of year end. We declared a regular quarterly dividend of $0.40 per share with a record date of June 14 to be paid on June 29. In addition to over earning the dividend, we continue to retain sizable undistributed income, which totaled $42,300,000 or $1.12 per share at the end of the period.

Speaker 3

Now just an update on unfunded investment commitments overall liquidity and balance sheet leverage. We successfully reduced our unfunded commitments from $118,000,000 at year end to $73,000,000 at quarter end. As of quarterend, total liquidity was $312,000,000 consisting of $1,000,000 in cash and 311,000,000 available under the revolving credit facility. We had $30,800,000 of prepayments and $6,800,000 of scheduled principal amortization generating 37,600,000 of liquidity during the quarter. We continue to maintain a diversified capital structure.

Speaker 3

As of the end of the quarter, a total of $434,000,000 of debt was outstanding, consisting of $395,000,000 of fixed rate investment grade notes and $39,000,000 outstanding on our revolving credit facility, which has a $350,000,000 total aggregate commitment. We paid down our revolving credit facility and improved our overall leverage during the quarter. We ended the quarter with a leverage ratio of 1.27 times. This week, we entered into an amendment to our credit facility, which extends the revolving period into Q3 so that we can finish documenting the annual renewal of the facility. We expect that the new revolving period will mature on November 30, 2025 with final maturity on May 31, 2027.

Speaker 3

Existing lenders are engaged in driving to documentation closing in an orderly manner. We have 3 steps to the ladder of term debt maturities with the maturity scheduled to occur in 2025, 2026 and 2027. The most near term is $70,000,000 maturity in March of 2025. Given the very attractive 4.5% fixed interest rate on this balance, we expect to keep this balance outstanding until its scheduled maturity. Depending on market conditions at that time, we expect to either issue a new tranche of similarly sized notes in Q1 of 2025 or use our revolving credit facility to pay off those notes at maturity.

Speaker 3

Later this year, we will evaluate the refinancing of the 2 remaining maturities, which include $200,000,000 of 4.5 percent fixed rate due in March of 2026 and $125,000,000 at 5% fixed rate and due February of 2027 to allow ample opportunity and time to consider cost effective alternatives. Given the very favorable rates the existing notes, we do not expect to prepay or refinance these amounts until near their original maturity dates. In connection with the term notes, DBRS assigned an investment grade credit rating in connection with those transactions and recently reported a BBB low rating and investment grade issuer rating. In addition, DBRS increased its outlook on TPVG to stable. So this completes our prepared remarks today.

Speaker 3

And so operator, could you please open the line for questions at this time?

Operator

Absolutely. Today's first question comes from Finian O'Shea with Wells Fargo. Please go ahead.

Speaker 4

Hey, everyone. Good afternoon. First one on the credit facility, appreciate the update there. Can you actually 2 parts sort of, can you touch on what has set up the issue of needing to finish documentation? I don't think we've come across that issue if that's routine or something more related to recent performance?

Speaker 4

And then Chris, I think you flagged last quarter that the pay down was planned to satisfy or eventually satisfy, but until then to pay down for the diversification test. Correct me if I'm wrong, if that's still the case, are you at a point where you're able to draw or how far from that would you be given the current portfolio? Thanks. Great.

Speaker 3

Yes, so let me take both of those. So the timing on the credit facility, all these syndicate partners are engaged and the commitment levels will remain the same. It really was to do with our year end financial reporting and getting the documentation done. So it was the close proximity to our issuance of our K. We didn't get the K.

Speaker 3

We didn't get the approvals and the documents done. So they're going through that, I would say, the normal cadence. We just added another 30 or 60 days to the time period to get the documentation done to avoid the drama associated with doing that in the ordinary course. On the other question you had, we have no need anymore to gross up the balance sheet. We don't have any non qualifying assets in the unfunded commitment bucket any longer.

Speaker 3

That was cleared out over the last 2 or 3 quarters. So we successfully paid down the credit facility right after the end of the quarter of Q1 and did not need to gross up the balance sheet again. So that issue is behind us. And as Jim mentioned about issue. So you should expect gross and net leverage to be more tightly coordinated as opposed to the outlier that you saw in the prior

Speaker 2

couple of quarters.

Speaker 4

Okay, great. Thanks. And I guess a follow-up for Sajal, it sounds like it's more constructive on the VC funding backdrop. I think you flagged a few examples on portfolio companies seeking and or attaining financing from the outside, we hear storylines figures like this from all the venture BDCs every quarter and it's hard to really tell what it means. So if you were to communicate just more in say plain English or give some anecdotal examples of how much the fundraising is improving for companies that need it that would allow for a more constructive or comfortable outlook on our end?

Speaker 4

Anything you're able to do there would be appreciated. Thank you.

Speaker 2

Yes. Let me start with, listen, I think the data shows the overall VC market continues to be challenging.

Speaker 5

So let's

Speaker 2

just be clear, VC fundraising investment activity, it was either flat or down Q1 to Q4. So the VC investment continues to be slow and we're hoping to see that pick up. I think as Jim said, there are certain sectors or certain pockets where we're seeing more activity than others. But to be very clear, it's still a very tough market in the VC world. What we're excited about or pleased with is within our portfolio, we're seeing our portfolio companies increase the frequency and the magnitude of their equity fundraising efforts, which I think is very important in terms of, as we said, overall credit outlook and credit quality.

Speaker 2

And I think the other good news is not only are the sizes of the raises increasing, but it's also companies across the credit rating. So it's not just the category 1 and category 2. We've had category 3 portfolio companies raise equity as well. And so I think the distribution of the fundraising activity, the size of the fundraising, the frequency of fundraising, all are important. Again, initial indicators, it doesn't mean we're out of the woods.

Speaker 2

But as we said, we expect credit to stabilize over the course of 2024 and we think these are all positive data points. And then here in Q2, again, seeing continued strong equity fundraising activity by our portfolio companies is a positive sign.

Speaker 4

Great. Thank you so much.

Operator

I apologize. And our next question comes from Chris Benoit with Piper Sandler. Please go ahead.

Speaker 3

Thanks. I appreciate you taking my question. First, can you just discuss your views on the net investment income and fundings trajectory? And when you think you could be north of that $50,000,000 quarterly number, I think you're still saying kind of $25,000,000 to $50,000,000 Just given the portfolio here has decreased for 4 consecutive quarters, Do you think you're getting back to a point where you can begin growing the portfolio? And then also what are your expectations for NII per share with it just sitting above the dividend in the most recent quarter?

Speaker 2

Yes. Let me start with fundings, Kristen. This is Sajal here. So again, we continue to have our target of 25 to 50. I think we're focused on our target of 25 to 50.

Speaker 2

We're mindful obviously of our leverage ratio. And so as we look to what funds that 25 to 50, it's a combination of contractual portfolio repayments, prepayment activity as well as use of our ATM. And so we want to obviously manage our expectations there. And I think a combination of that too is also, as I mentioned in my prepared remarks, as we increase the allocation for new investments, then that will enable us to be towards the higher end of that range. I think we don't want to overset expectations in terms of exceeding that range.

Speaker 2

I think, again, let market conditions continue to stabilize and improve. And I think we can have a conversation about exceeding it. But I'd say right now, our goal is to use the liquidity that we have and expect to have to maintain the range that we've targeted.

Speaker 3

Okay, great. And then I guess just any expectation on NII per share going forward just sitting pretty close to the dividend? Yes. Crispin, this is Chris. So when we think about kind of the long term view of NII, I guess, I would describe it as we think of a lot of different components there, kind of top line yields.

Speaker 3

Certainly, you've heard news today, no change in prime rates. So I think our storyline on top line yields are stable and strong. When you think about prepayment frequency, size and vintage, vintage matters. We've spoken about that in the past when a loan prepays that has only been around half its life. There's a lot more additional fee income or accelerated fees that we can enjoy.

Speaker 3

So that's we know prepayments are a natural part of the venture lending model and we look forward to them. And they typically have been coming in 1 or 2 a quarter. We have line of sight on a couple that we've spoken about in the past. And then I guess the other part is cost of capital or cost of debt. And as I mentioned, our term debt right now for the next 2 3 plus years is pretty locked in at attractive pricing.

Speaker 3

So when we think about cost of debt on the existing balance sheet, we're in a good place there. And the other variable, I guess, I would say is on the operating expense side. So we've had some volatility from excise tax in 2023 given the over earning of the dividend. We've had a couple of quarters where we had some legal fees from some workouts. So it's those type of things that we think about when we look at covering the NII threshold that we've been at.

Speaker 3

So and of course the likelihood of incentive fees in coming back. So we reported no incentive fee this quarter. It looks like based on where we are from a NAV decline over 2023 that it looks like it'll take at least a few quarters to have that come back. So all that said, it creates a view of a pretty stable NII and dividend. Okay.

Speaker 3

Great, Chris. Thank you. And then can you just give an update on where leverage is today? Is it safe to assume it's pretty close to where it was at the end of the quarter? And are you able to utilize the credit facility today to fund investments?

Speaker 3

I'm not sure if I missed that. Yes. So we are at the same level of leverage now, maybe slightly less today. And then as far as use of the facility, we have full use of it. We can advance and borrow in the ordinary course, it's fully compliant and in full use and the revolving period is in good order.

Speaker 3

So there's no restrictions or limitations on that use. Okay, great. Thanks. I appreciate you taking all my questions.

Operator

Thank you. And our next question comes from Bilo Abraham with UBS. Please go ahead.

Speaker 5

Hi, everybody. Thanks for taking the question. You touched on this a little bit with your previous answers, but just on new money yields versus existing portfolio yield. Can you just talk about that? It sounds like you think it's going to be stable.

Speaker 5

I thought I thought there might be some compression in the level there. Just talk about the spreads and any dynamics there that we should be thinking about moving forward?

Speaker 2

Hi, Vieles, it's Sajal. Yes, I would say, so our new asset yield has been pretty consistent, 14.3%. So generally stable and we continue to expect that to be stable for a couple of reasons. One is obviously, we set the prime rate to the current prime rate on our transactions. We have for those floating rate transactions, we have about 40% of our book is fixed rate investments.

Speaker 2

And so and then as we look to the targeted rates for what our team originates at. So I'd say we expect to continue to maintain our portfolio yield for new assets regardless of rate environment.

Speaker 5

Okay. And yes, you mentioned fixed rate investments. What's your ability now to make those kinds of investments just given that kind of general expectation is that rates are going to be lower at some point in the next 1 to 2 years?

Speaker 2

Yes, I'd say we're opportunistic when it comes. It's a function of as we look to overall structure and credit and risk of a transaction. So it's absolutely something our deal teams are considering and our credit teams are evaluating. And so I would say there's for it's not 100%, but it's very much opportunistic and depending on the company and the structure and the opportunity.

Speaker 5

Okay. Got you. And just a general message on NAV, I guess. Is it fair to listen to your comments and kind of interpret that you feel like we are at a trough here and just given some of the dynamics you're seeing in the portfolio around some of the upgrades you're expecting and I think you mentioned credit stabilization throughout the

Speaker 1

year that

Speaker 5

we're kind of flat to up here as we go through the year?

Speaker 2

Yes. Listen, the teams are hard at work, managing the priorities and portfolio is a high priority. I think we feel good about the equity fundraising activity. Listen, I think credit is stabilizing, but it's still a very challenging venture overall venture capital market. And so we want to be mindful and practical and reasonable about our expectations.

Speaker 2

But again, I think we're seeing some positive indicators. We're also feeling good about the public equity markets and at least where those multiples are as we look to our public sorry, our private warrant and equity portfolio. We obviously saw some value accretion here this quarter and we expect these markets continue to stabilize and improve, we would see some more fair value coming there. So I'd say it's a balance, but we don't want to be too optimistic. We want to be real.

Speaker 2

And this still continues to be a challenging environment, but we're doing a good job managing through it.

Speaker 5

Okay. If could just squeeze one more in here. Can you talk a little bit about shift in terms of sector and geography in terms of strategy. Have you considered at all a shift in the stage of venture backed companies you invest in, namely trying to go maybe a little later stage? And is that even possible given TriplePoint setup?

Speaker 5

Just curious around your thoughts there.

Speaker 2

Yes. Listen, I think as a credit manager, our job is to evaluate all of our performance and investment strategy. So we're obviously always looking at our performance. I would say you bring up an interesting point. I think in the bigger picture, given the economic environment and the capital markets environment, we are absolutely seeing companies stay private longer.

Speaker 2

And as a result, we're seeing demand from companies later in the stages, I call it we call it lower venture middle market or these are EBITDA positive venture capital backed companies that are coming back to us for follow on financing or that were companies that were overfunded with equity during their venture stages or early growth stages, but now recognize that they're going to be private for longer. And so we're absolutely looking at those opportunities. We're excited about those opportunities assuming the yield profile fits. But yes, we are absolutely seeing from opportunities from later than what we call venture growth EBITDA positive or lower venture middle market companies and they absolutely fit into the investment strategy of TPVG and are actively deploying capital and looking at opportunities there.

Speaker 1

All right. Appreciate all the color. Thank you.

Operator

Thank you. And our next

Speaker 6

missed the company name. But I was wondering if that was skewed by any, just one particular company or deal that was in that number?

Speaker 2

Yes, it's Paul. It was 1 day Monza raised 430 of the 584.

Speaker 6

Got it. Thanks. And then how much ability do you have to kind of push on those borrowers that are running up to their kind of maturity dates, possibly getting tight on cash runway. I mean, how much ability do you have to sort of push them to go back to market and raise, of course, where it's possible even in the case where that's likely to be a down round?

Speaker 2

Yes, listen our approach is to be proactive. So it's before they either pushing up against short runway or pushing up against the maturity wall. So I think our approach has always been and we pride ourselves on the collaboration with not only the companies, but their sponsors are select VCs. So our goal is to be as proactive as possible and to encourage them to raise capital either internally and externally. So I would say we are absolutely encouraging.

Speaker 2

And I think the sponsors, the VCs as well and the entrepreneurs, everyone is realistic and wants to where it makes sense. And so I'd say it's very much a collaborative conversation, but the key is to do it before runway gets short. The challenge is what we see in this environment is these events are taking longer. And so that's the key is companies are in process, round used to happen within a matter of months and now it's taking longer. We're seeing term sheets may not necessarily close.

Speaker 2

So it's being proactive during that process of fundraising that is important from a credit management perspective.

Speaker 5

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

Operator

Thank you. And our next question comes from Christopher Nolan with Ladenburg Thalmann. Please go ahead.

Speaker 2

All my questions have been asked. Thanks.

Operator

Thank you. And this concludes our question and answer session. I'd like to turn the conference back over to Mr. LeVay for any closing remarks.

Speaker 1

Thanks, operator. As always, I'd like to thank everyone for listening and participating in today's call. I hope you found it helpful. We look forward to updating and talking with you again next quarter. Thanks again and have a nice day.

Speaker 1

Goodbye.

Operator

Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines and have a wonderful day.

Speaker 3

Goodbye.

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Key Takeaways

  • During Q1, TriplePoint generated $15.5 million of net investment income ($0.41 per share), exceeding its regular dividend and bringing cumulative payouts to $15.45 per share since 2014.
  • The company improved its balance sheet by reducing gross leverage to 1.27x, boosting liquidity, and cutting unfunded commitments from $118 million to $73 million via $30.8 million of loan prepayments.
  • Portfolio companies demonstrated fundraising strength with eight firms raising $584 million in Q1 (and over $200 million in April alone), signaling improved credit quality and capital runways.
  • Deal origination remained robust as term sheet activity rose 30% to $130.5 million in Q1 (plus $30 million in early Q2), focused on high-growth sectors like AI, cybersecurity, digital health, climate tech, and vertical software.
  • Overall portfolio yield held at 15.4% (core yield 14.7%) and the warrant/equity portfolio fair value increased by $6 million, positioning TriplePoint for NAV gains when VC M&A and IPO markets recover.
AI Generated. May Contain Errors.
Earnings Conference Call
TriplePoint Venture Growth BDC Q1 2024
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