Earnings call transcript Q3 2022

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Operator

Good afternoon. My name is Chelsea, and I will be your conference operator today. At this time, I would like to welcome everyone to the Trinity Capital Third Quarter 2022 Earnings Conference Call.

Our hosts for today's call are Steve Brown, Chairman and Chief Executive Officer; David Lund, Chief Financial Officer; Michael Testa, Chief Accounting Officer; Gerry Harder, Chief Operating Officer; and Sarah Stanton, General Counsel. Ron Kundich, Chief Credit Officer, is also present. Chief not is today's be and country of call. President will and joining Brown, Investment out Officer, the Kyle us on

for [Operator is call Stanton. (XXX)XXX-XXXX Today's be no turn conference Eastern recorded the being required and now The replay for Please my is available to access. Time. number call Sarah p.m. is at go over dial-in and replay to ID ahead. X:XX Instructions].It is made will pleasure

Sarah Stanton

conference telephone I replay release.Before everyone, call financial Trinity's welcome, ir.trinitycap.com. and call, the of these important actual any unknown securities update responsibility these facts to number not factors. like be just expressed federal those or and call most to of forward-looking relating statements. forward-looking Chelsea, deemed earnings Trinity's could Trinity's XXXX for or accessed would is including in information that Trinity there statements. from the website obligation Investor quarter our historical on Capital's materially statements you forward-looking financial Capital quarter today's no are to differ implied under remind forward-looking made risk refer may Because after uncertainties, you, statements at are for encourage results involve some XXXX. on to by assumes of and to from we that on guidance, We known recent any Thank filings certain website can statements risks these statements results be earnings close and third to everyone factors Trinity using cause laws. this during SEC released Relations based today's third that market begin, A available provided to the or were by

longer reading. today, Please X, no Therefore, note or time-sensitive transcript time replay XXXX. are November of speaks on as information the advised may accurate of call any be at listening that that you this only the reported information

introduce Capital's Steve Brown. to Trinity me Chairman CEO, Now, allow and

Steven Brown

Thank call market and in thank to everyone into hesitancy of conditions you and begin today. lowest QX our putting volatility joining impacting count by sector current VC is of seeing the every you, This private the was market us QX to since deal Estimated are public XXXX. Sarah, investor the context. financial I and want we markets.

is provide and that Given this after recognize exits listings that historic backdrop, is strong two this in previous investment been period public it great times, tumultuous to the not fewer are in returns investors. but can where have XXXX also opportunity surprising We levels years. there all these a

traditional attractive demand Given best-in-class as environment enterprise and VC to identify a the innovations. financing to and has clear the to decline needed in values and Trinity, capitalize of on transactions, alternative become solutions financing sectors with an and raises down market equity presence platform, track there market back. dilutive emerging record is its rounds pull for consistent this

according quarter to high XXXX, important point still record first also was $XX that activity fundraising reached billion VC is It a of investments continued quarter, months powder all-time in an third billion companies VC end support with dry Pitchbook. at and disruptive was available the capital at X the in third the for out technologies. high make of to and approximately $XXX portfolio of to the

future. including the and BDC in again sector, back seen the XXXX. those have technology it of to stage to to proved in resilient each and XXXX our these and through with XXXX companies, innovation At venture-backed periods, growth then investing be In volatility. we we the Trinity, these market, markets going before, remains current critical dealing investing is of Although that clear are complications the in

have we have assembled to that a We stress. business platform have and find themselves under as they in our as to We a been team address their growth portfolio markets. steward team companies fundamentals portfolio manage world-class assembling work believe with a differentiated well companies as built

with our vigilant reach for committed to ever. and to We portfolio successful as are companies our working process underwriting outcomes all remains as stakeholders,

Now, quarter. our performance this to let's turn

in NII increased performance, strong improved release As our earnings our this for afternoon, and our dividend seventh we saw our liquidity. quarter you generated portfolio, consecutive the grew

an As at of I in mentioned, floating of the than XX% we and rate. benefit see with from debt rate our earnings at began perspective, fixed interest rate investments XX% QX, more increases to of borrowings our

investment to filings adds share a prime our the basis current or rate earnings. XXX $X.XX interest As increase given income today, we in additional million our point of mix, annual indicated in per an our $X.X

$XX.X investment from net represents increase the on QX by from of prior coverage share per XX% XXX% QX million. income $X.XX Our a core and a dividend. quarter $X.XX record increased NII QX to a our for

We delivered quarter, XX million $XX across commitments commitments strong the in deployments in on $XXX million both and funding and originating new companies. portfolio

at cost the performing. of criteria demonstration credit remains granularity our a our is of diversification the Our portfolio. XX% quality as strength our in This investments of stable, portfolio investment as debt well key the with of and

solid from higher one per year contributed This ago. is the share. regular portfolio to increase allowing our consecutive seventh $X.XX and dividend, than this quarter's to dividend have our was us that our regular $X.XX operating to growing increased quarter performance, Our XX% quarterly we dividend

share dividend previously share promise we our Year-to-date, we provide addition, a quarter. $X.XX of declare a to and out cash supplemental XXXX, third supplemental paid dividend the expressed quarter in fourth per have the intent In consecutive the dividends, to $X.XX delivered for in Board subject to we've of supplemental against approval. per our

year, that exits to shareholders. for over returns our public from benefited generate dynamic not we are portfolio on dependent our and last the While listings

from has is in and from be $XX that strong primarily absorb always capital gains capital thesis can used our spillover estimated losses. gains we that generated the been or portfolio, year. our income Our yields deliver dividends to million, supplemental earlier Trinity's deliver realized

attributed decline marks on in Our NAV was volatility to The changes. rate or primarily QX. by per companies, $X.XX NAV as depreciation, per unrealized value share portfolio our market general to to share driven fair $XX.XX declined well interest two as by which was and X% compared

issuing by of position these we our an During strengthened and million notes reopening X% liquidity notes. XX.X the our additional quarter,

our We $XX to million by also of and $XXX Credit common KeyBank Facility stock total a million. million $XX upsized sold our of

our continues culture a part Trinity, critical be strategy. to At of

who Over Accordingly, with has decade the of the hire on needed have to our XX new talent years, a science source of last we primarily entrepreneurial building vertical. intentionally and talent environment venture Director North in over experience Lauren Life us an individual And addition the Managing out Cosentino, in are This Raleigh, an created spirit has our that encourages ecosystem, a to end, continue focused in Sciences the and to further team. growth. team Origination we fosters Carolina, unique that expanded mindset. the our we life located allowed

venture strategies we execute evolving the As into move last working meet our needs ecosystem continue will to the of our to of companies. existing support to the while quarter XXXX, debt we portfolio

for we differentiated updates and profitable shareholder it growth, driving our now and Our on squarely composition investment returns. portfolio performance. provide Harder, Operating hand on will positioned focused platform Gerry? Officer, over I remain our Gerry to is Chief to

Gerald Harder

equity employees well my and credit risk, remarks and have are monitor that management a whose of today successful communication we served function by in track their companies Steve. our forces the scale behind stakeholders. investors been sole staff to and I'd record, will business start These investment them reminding our stay as driving portfolio. constant with processes expand and we continue dedicated maintain us have like Thanks, our Trinity We underwriting rigorous our portfolio process. is to and time-tested our to portfolio follow our

Building million million substantially investment $XX to on $XX subject from total principal fundings million and new $XXX from XX by million in in in deployments with unfunded $XX in the commitments $XX seven of of million gross Trinity commitments, portfolio normal the finished repayments new million companies offset Gross including the all first year, diligence $XXX We half $XX existing in committee. funded which early partially the ongoing portfolio and $XX in million, was repayments, quarter originated companies. deployments We QX. to approval our was deployments by record to which of million and amortization. are were of

challenging consistent strong diversification remains with XX quarters represents different strong macro the relatively of and The across composition Our prior portfolio our industries. environment. remains despite pipeline

investments are venture between debt financings. Our and split debt equipment

of At our equity of value, fair is loans, value, while invested XX% comprised or of million secured remainder XX% in warrants. $XXX at comprised million is million is our debt of or portfolio and The $XXX financings. portfolio, equipment fair $XX

severely in Board been mining one its early filed financings. decision address made that on XX, coming been the further directly to number late Core developments the The Scientific, to and companies to make publicly-traded other went of in an like performance some that one and liquidity several November largest and the its with respect payments has strategic with On announcing a of state Digital potential to companies and October of October operating Asset our of release its alternatives. in not exploring sector. the Scientific had equipment due recent the I'd had Core U.S., X-K crypto portfolio impacted,

Core Scientific October. was through Trinity current on its payments to

outcome non-accrual We X, financing pending Core developments effective at Scientific have November of on to company. the the placed the future

approximately value collateralized XX, which cost holds equipment, cost. of $XX million an basis September investment with computing of Trinity of of critical XX% million, a fair Scientific, a As is Core in by and $XX.X

company indicated are the that proposal more working that shared toward they subsequent detailed with following In the conversations lenders. their will announcement, a be

to such for be is proposed available be return seen, best exploring benefit continues team company the communication our company remain obtain possible viability be options our the to that and plans of specifics with of portfolio in close and the shareholders. to may the While the by all

the with and Core In CleanSpark. space: companies X three Mining, finance digital public equipment Trinity holds in aggregate, asset Scientific, Hut facilities

$XX an prolonged being $XX of cost on value our electricity of and digital the fair XX, a of value in by the cost on challenges faced fair asset ratio less the to are companies million basis sector, a than September an including represent price and certainly in overall total all basis, for increase XX.X%.There bitcoin costs. X% decrease in these As financings investments or of million

However, have recent time debt-to-equity the the materially that Based available over dramatically exist the of debt Scientific extension not as asset data, public on liquidity of at indicated as less and and our digital debt Scientific. Core better in X CleanSpark, are our in Core their compared did ratios clients, issues underwriting. current to two operations, Hut other their filings, most issues central

Core was Scientific, addition In at in nonaccrual the quarter. to the FemTec Health challenges our to financing on third placed

legacy Trinity in XXXX Sciences which we company, and financed asset, business. they it's is portfolio originally FemTec not our July a part the in entered Trinity Health of FemTec portfolio new a of Life acquired XXXX.

fair a XX.X% value FemTec XX, $X.X to of to As cost million, value of Health $XX.X representing of and cost. our September a loan carried million fair

closely best team obtain the portfolio our to is Our with shareholders. working company the outcome for

quality of with Scientific our Notwithstanding of XX% with our performing FemTec XX. overall the September issues credit remained and Core portfolio stable, as Health,

weighted credits by the rating to compared prior Our the average was primarily quarter, risk change with driven today. we've portfolio X.X%, X.X% the the in down of slightly the two discussed that

I'm call more discuss Lund David Dave? going performance to pass to operating in detail. to the our

David Lund

and Gerry, everyone you you, thank Thank to listening today. in

discipline strong approach, of proving market. Our investment for disrupted the even out strong sheet a financial and our differentiated delivered the we strength third strategy are quarter, results balance in as investment

and rate. the $X.X second Turning to to was portfolio, coupled investment $XX.X loan also fee the interest XXXX. the a results. higher $XX.X from investment of total accelerated XX.X% quarter from income million driven period million increase on record $X.X of of This million, financial higher of We of increase and repayments. with of interest compared a recorded the increase total income income The over million quarter a same XXXX, average early delivered larger of loan attributable during XX.X% increase to was our quarter an higher and prior by third income fee

XX.X% based fee Our the increase early fluctuates was on repayment on effective in driven in income, QX and by second an increase yield activity activity. investment portfolio the primarily XX.X%, the for which the from quarter

income, fee rates base our in in to quarter the non-recurring XX.X% rise the from core XX.X% due to increased rate loans. Our excludes yield, which prior floating on

our Our be to debt floating of XX.X% rates. debt well anticipated the portfolio ahead investments positioned of rate at continues hikes, with

at XX.X% the quarter debt the side, of was borrowing outstanding On rates. approximately third our end the at fixed of

income point we As basis prime in effect XXX million. would increase a net today, our our rate the increasing the in disclosed have filed $X.X XX-Q of by

of interest total of facilities incurred in We and amortization on expense compared our financing to a of deferred $X.X total QX. various costs $X.X million million as debt

debt compared of existing to was additional million the amortization, in outstanding borrowings an $XX.X debt, was notes and Facility. cost and under in our our QX. in average Credit rate KeyBank X% under X.X% due expense increase X.X% average of interest including interest increase weighted fee For and QX, issued interest primarily weighted the to The the

Our during primarily to QX expenses, general other operating million of driven compensation, expenses as expenses million to related approximately consisting and and The $XX.X awards. stock or $XX restricted excise by during approximately QX. taxes, increase was expenses, of higher estimated professional compensation X.X% administrative headcount were and increased $XXX,XXX compared

$XX during a share quarter of count. We share as share the in million net a was in quarter result net activity, $X.XX million quarter. recorded average for to third basic million As $XX.X or operating income unrealized investment of this $XX.X basic the weighted compared preceding $X.XX higher the per or on depreciation per

million our depreciation $XX.X Gerry interest portfolio portfolio. of $XX.X the and of unrealized the to warrant The to related mark-to-market discussed was depreciation in debt and to previously. on Approximately market that depreciation volatility two changes. issues portfolio of due million recognized We general adjustments was related equity $XX.X our remainder performance of primarily unrealized on companies rate and million unrealized the

strong assets compared exceeded distributions ROAE unrealized share. combined NII of our our shareholders X.X%. per based supplemental Our per and on by that to total NII based decrease accretive equity Net primarily the of QX with by $X.XX of result decreased operating XX.X%, shareholders NII activities share the share of over $X.XX, our average of average returns share assets generated to was our $XX.XX on offset per to for our per over equity and issuance. $XX.XX quarter-over-quarter The core the depreciation, ROAA

identify conditions. million, generated as remained and the will strong Lastly, the gains the continue our market opportunities encouraged on approximately and and financial at rising portfolio executed environment. challenging I'm these realized $XX challenging navigate from estimated Trinity spillover strategy. we've judicially quality shown on is rates we we've positioned results by to from as to in capitalize we've well realize discipline we our to investment gains

I will capital Accounting performance, Testa, our will now Mike credit discuss hand the allocation. to Chief who call liquidity our over and Officer,

Michael Testa

Steve. quality. Starting credit with Thanks,

X approximately perform in the fair costs. companies just with of with our quarter cost portfolio companies Our $XX.X continued performing well third X.X% fair had nonaccrual of $XX.X million portfolio a of of the the to third representing we At on basis at of of of value end XX% portfolio the a investment XXXX, million, quarter, of and value portfolio.

at Our we of strong scale, on average to rating credit continue monitor. rating for the average third in based reflects quarter consistent X.X companies X indicating a X.X that stable rating of our and performance. remains QX stood our our relatively performance to credit with five This closely one with portfolio

to Moving liquidity.

position. to the expanded to availability our $XXX During credit QX, us million, facility our we strengthen liquidity under enabling

unrestricted $XX of equivalents. As million, $XXX of September million credit comprised under and XX, our in facility approximately $XXX of of we had and cash approximately million undrawn capacity total cash liquidity

equity in of XX.X our to and in generated in markets, $XX through We reopened notes the additional gross which ] proceeds. continue accretive August active million completing XXXX capital an million offering notes. sold successfully be [ We X%

the As a majority rates, September of notes, addition, by on symbol was January reminder, under on investments recent our fixed are TRINL.As rates. and this trading with the Trinity XX% of floating at treated are including our X% debt callable at XXXX XX, NASDAQ beginning of

to increases impact positively margin. rate base further expect We interest net our

on X.Xx Our decreased debt X.Xx. plus from represents net to outstanding leverage which ratio, principal cash hand,

range flexibility end markets. the of Our uncertain strong in provides our sheet was financial balance greater lower target leveraged on capital

are continued believe access capital of modest liquidity components strategy. to to continue our and that important strong our leverage, We

core have for cash to as This liquidity options to increased shareholders, quarter XXXX, we our be continue the will from a accretive and quarter that capital [ We QX. under our are dividend. actively such Board representing our explore planned a our share declared dividend the X% that investments XX, of per in $X.XX all row ROAA our September managing increase ].On of a is third seventh

XXX% Our GAAP dividends of the of NII coverage generated quarter. approximately for regular our

dividends share Board's supplemental in October subject Board fourth Both Additionally, $X.XX approval. dividend. the paid per were dividend December, We quarter declaring XX, the on XXXX. the for a anticipate approved to

year look earnings to spillover closing $X.XX the million per an out invest share shareholders. or QX the capital undistributed continues us approximately at end strong. accumulated $XX of maintain further forward to afford Our distribution and the of benefit the and of opportunity investors for our We a consistent our to to meaningful

turn over to call like I'd the to comment. a for back Steve final

Steven Brown

Mike. Thanks,

investors. highlight current attractive with for So want opportunity X and you represents an Trinity why prospective leave points that investment I to

Trinity to including recently on our per is XX%. where meaningful stated discount is on and When NAV of our currently nearly trading First, based Based dividend yielding Trinity stock XX%. stock at $X.XX, regular supplemental yielding Trinity dividend, share. our is is a trading our most stock over

is income dividend regular consistent net our Second, coverage. supported fully investment by

losses, Third, we that distribute as gain as the of of invest $XX to spillover allows offset million benefit have us supplemental continue mentioned shareholders gains to potential previously, capital approximately the capital for dividends. or our

XX% revenues consistently public. performing, position liquidity in since is strong on continue with our earnings. delivered with something we we portfolio strong. going Trinity are This of have we our a finally, And current is believe grow and to to position,

Our is portfolio healthy.

going excited forward. We to to are continue our execute strategy investment

team the year. and XXXX few new in will Our the maintain standards the into highest of last months

And would the happy operator, with be we open to for questions. that, line

Operator

Instructions]. [Operator

will come Thalmann. Nolan from question Christopher first Ladenburg Our with

Christopher Nolan

quarter? left nonaccrual a which this investment the portfolio Was there

Steven Brown

I don't No, believe so.

Christopher Nolan

the of gets assets. prepared we're to Okay. do It's think where of a with recovery is take that, Core have might And a do situation I sort which get if it -- can -- that? and on Are that this see may you you you something we possession to Scientific. in guess then to coming actually you

Gerald Harder

As collateral our completed financed becomes months. that equipment financings, the locations. with best shareholders, Scientific, the Core prepared The all is for equipment. our within those We certainly case last year do the are. In equipment in if equipment then audits is And outcome the several our that. this four it's we earlier know of where we're to tagged,

Operator

will from question next Lynch KBW. Ryan with Our come

Ryan Lynch

make nature the First $XX like then debt understood had much Scientific? unrealized you representative It of and one, losses of your in debt you kind And million what were this I portfolio. How breakdown FemTec correctly. what estimate to Was to was write-downs related, and it want they was or the guys mark-to-market about was I sure credit Core just remaining the outside -- write-downs from looked related, in Core the of the of of portfolio? remaining kind had if for FemTec?

Gerald Harder

Yes, is for the Thanks Ryan, Gerry. this question.

the think. think is on million, I FemTec -- markdown sorry I'm yes. I loan, approximately $X the

so So we that That $X same -- actually equity And and I approximately about loan, for unrealized. Core the had then transaction. complicated equity amount think we acquired have with the on took million unrealized that on was $X Scientific FemTec. an position in also portfolio was we FemTec. XXXX, million former underwritten a company They the a

David Lund

Dave. this is Brian, And

to performance portfolio. The rising rest rate impact and really have the really fixed our we this rates, are was interest related are because to is other on the not portion rates. of the related those But loans equipment fixed rate that did

Steven Brown

practical we that the standpoint, from time And will market back we recovers. over believe a get as

Ryan Lynch

guys and process. understand But -- But because like on to company. answer did value so mark? a that know tough you arrive from sounds And guys fair try very is question guys' fluid it still your how current Core information a it's this then to I Scientific, I on you at are -- Okay. more waiting it's

Gerald Harder

Yes.

XXXX. on challenged increased of company was a XX clear But mark keeping least, mind, and we flow. was going be list liquidity was company October through, rate using the accordingly. the That For a so watch It the the to cash we're in was September their at on known, discounted the September at that first had announcement quarter was discount XX, the -- X/XX XX. we and our

how we a the GAAP appropriate mark-to-market from So that's was that did standpoint.

David Lund

our and the with appropriate also And they discussed firm felt and the I approach was well. valuation valuation valuation our approach that we it manner to it, the third-party as would say to

Operator

Instructions] come will [Operator Point. next Compass question Casey Our from with Alexander

Casey Alexander

Yes, to clarify that point. just last

lead XX there's All the as fourth it discounted a it's cash how September loan on valued Scientific now? Core that would quarter? you analysis. of using further a now, If that being they the to on things us nonaccrual, in And markdown suspect equal, stand flow right coming

Gerald Harder

Yes.

to exploring financing. looks think a it's what say there, going a lenders. work want there's debt forward-looking to liquidation too that statement, I with plan or options all We the communicate a indicated like, happen. that to to hope expect we that all their what's give forced We know that. little but to it's going call respect early early to that's to that, don't we little that -- We company value know toward We're a right? that not we're has so outcome Casey, can. The don't to they outcome, is right? yet what possible that And we best out the

David Lund

felt just to that given with was on put it it uncertainty the investment. to nonaccrual particular prudent regards We

Casey Alexander

Yes, you loan-to-value take that on think these transactions and mean, with there. market. Do There's machine that that the stands I you certainly in generally -- Where do your place your I fungible. are know now? that decision right prices agree understand

Gerald Harder

on comes million in data range. liquidation market that a the $XX that we've value $X it forced latest in equipment FLV If to million an to the transaction seen, the of Yes. based probably is

Operator

question will Riley. next Bryce from Rowe with B. Our come

Bryce Rowe

see get I balance and Guess equity down to valuation sheet now feel And here. saw NAV to ability wanted how the come sheet expect you leverage for and limits your really probably raise manage quarter-over-quarter. that to on just you a balance leverage, we below wanted start to Obviously, the especially capital just leverage.

expect speak to to the balance we it? play leverage over out a how how you should kind to you of So if manage sheet expect just next and several could quarters

David Lund

to debt-to-equity. would a X.X Dave. X.XX be our Yes, always on We've indicated this comfortable range operating that in we is

bound we're I comfortably. very still within think that

on we that taking right the initiatives with but -- process We at discuss that that are we up are other we will mechanism. now a later funding in date, coming are alternatives to

Bryce Rowe

just -- to wanted in of think terms fairly then hires? hit aggressively the new the kind of Any the an forward to Okay. team maybe guys And from have just expense expense look over perspective I you I on side. ramped grow got sheet. XX you months, XX and for managed, advantage wanted try get to the you operating competitive stand feel to being leverage last capture a do balance where Obviously, a huge you've as internally to now.

Steven Brown

remarks, Yes, add this it helped to to doing is team. going has it We've do area, the judiciously that literally, that. Raleigh-Durham Steve. We're dividends excited we're about in personnel Life Sciences to we continue there And revenues, and so and added judiciously that. we're us prepared in do grow been the our I to excited certainly mentioned team to the new paid and but we'll continue a that. to

So continue that to judiciously. do we'll

Bryce Rowe

was a of for Okay. question. tied more But in is then this Dave, to of quarter and reversed any me, addition maybe nonaccruals? one more modeling there the the the And interest

David Lund

Yes. No.

Operator

Our question Jordan from will Wathen next Wells Securities. Fargo with come

Jordan Wathen

on Core condition? it tell that it Can was purchased if to us one Just you question purchased new Scientific. equipment was that when follow-up

David Lund

was. it Yes,

Operator

questions [Operator have time. queue this the We in further Instructions] no at

would remarks. Brown, for floor back Officer, turn to Chief I So the to closing like Executive Steve

Steven Brown

place on Summit taking December of everyone are both note, to we be November KBW thanks which Mark One XX joining Chelsea, participating on Thank final and today. in XX, the New will you, Jefferies and Midtown the BDC with both again York. call the for

with If in fourth team, contact through our to forward year-end the reporting you'd Trinity arrange and mentioned you. Relations institutions We financial like XXXX. each meeting please look to Prosek, or of quarter Investment directly results a management Thank firm.

Operator

does Third may This Capital Earnings Call. XXXX and gentlemen. your We and time. Quarter you Trinity participation, ladies any appreciate Conference at you, Thank conclude disconnect

Trinity Capital (TRIN) 3 Nov 222022 Q3 Earnings call transcript