BlackRock TCP Capital Corp.

Ladies and gentlemen, good afternoon. Welcome everyone to BlackRock TCP Capital Corp's first quarter 2024 earnings conference call. Today's conference call is being recorded for replay purposes. During the presentation, all participants will be in a listen-only mode. A question and answer session will follow the company's formal remarks. To ask a question, please press the star key followed by the digit 1. I will repeat these instructions before we begin the Q&A session. And now I would like to turn the call over to Katie McGlynn, Director of the BlackRock TCP Capital Corp Investor Relations Team. Katie, please proceed.

Thank you, Emily. Before we begin, I'll note that this conference call may contain forward-looking statements based on the estimates and assumptions of management at the time of such statements and are not guarantees of future performance. Forward-looking statements involve risks and uncertainties, and actual results could differ materially from those projected. Any forward-looking statements made on this call are made as of today and are subject to change without notice. Additionally, certain information discussed and presented may have been derived from third-party sources and has not been independently verified. Accordingly, we make no representation or warranty with respect to such information. Earlier today, we issued our earnings release for the first quarter ended March 31, 2024. We also posted a supplemental earnings presentation to our website at www.tcpcapitals.com. To view the slide presentation, which we will refer to on today's call, please click on the Investor Relations link and select Events and Presentations. These documents should be reviewed in conjunction with the company's Form 10-Q, which was filed with the SEC earlier today. I will now turn the call over to our Chairman and CEO, Raj Vig.

Thanks, Katie, and thank you for joining us for TCPC's Q1 2024 earnings call, which is also officially the first earnings call for TCPC as a combined entity, post our successful combination with our former affiliate BDC, BlackRock Capital Investment Corp, or BCIC. Today, I'm joined by our president, Phil Tseng, and our CFO, Eric Cuellar. We are also joined today by Michaela Murray, who will be taking over the investor relations role from Katie McGlynn, who is leading the firm to pursue other opportunities. I'd like to officially welcome Michaela to the show. As a reminder, Katie has been a valued member of the TCPC team and private debt platform since 2018, who is instrumental in structuring and closing the recent merger. She has been a great partner and friend and will be sorely missed. We, of course, wish her well in her future endeavors. For today, I will begin with a few comments on the successful completion of our merger with BCIC. I'll then provide an overview of our first quarter results. Phil will follow with an overview of the investment environment and our portfolio and investment activity, and Eric will then review our financial results as well as our capital and liquidity in greater detail. Finally, I will wrap up with a few comments on the opportunities we see ahead before taking your questions. As I mentioned earlier, during the first quarter, on March 18th, we closed our affiliate merger with BCIC. As a reminder, since BlackRock's acquisition of TCP's platform in 2018, the investment activities of both TCPC and BCIC were managed by one team under the current leadership. The merger simply formalizes a combination of these two materially overlapping portfolios and delivers meaningful value for our shareholders through the greater scale and targeted operating efficiency. This includes a lower overall fee structure for the larger combined entity, the likelihood of more efficient access to capital, and income appreciation for the company and ultimately for our shareholders. From this point forward, we will be discussing financial results for the entity on a combined basis. Now, let's begin with a review of the highlights of our first quarter results. I am pleased to report that for the first quarter of 2024, TCPC delivered adjusted net income of $0.45 per share, an increase from $0.44 per share in the prior quarter. Our run rate, NII, remains among the highest in TCP's history as a public company. And our annualized net investment income return on equity for the quarter was 14.7%. And NII continues to benefit from relatively higher base rates and spreads. During the first quarter, our NAV declined 6.4%, primarily due to net unrealized losses on portfolio companies previously discussed, including our investments in two Amazon aggregators, Thrasio and Razor, along with our equity investment in Inventum. The write-downs in the first quarter are mostly the result of circumstances specific to a handful of companies, and as we have stated before, we do not believe these situations or any indication of broader credit challenges in our portfolio. The majority of our portfolio companies continue to report revenue and margin expansion, with many generating sustained performance improvements. That said, I again want to provide commentary on a few of the names that contributed to the portfolio markdowns. Thrasio and Razor both operate in the Amazon aggregator space, and as we've discussed on previous calls, the aggregators are consolidators of small to medium-sized brands that sell through Amazon's market-leading third-party platform. This sector was initially impacted by COVID-related supply chain issues and then by slowing growth in online consumer spending as supply chain issues alleviated, resulting in excess inventories and over-leveraged balance sheets. Given the persistent operating and liquidity challenges that resulted, Thravio, one of the largest standalone aggregators, opted for a balance sheet restructuring via a Chapter 11 filing in February 2024, which we supported given the net benefits from that process. Although a fair bit of work remains ahead of us, we expect ultimately Boraglia to emerge with a lower and more manageable debt structure, as well as a leaner and more efficient operating profile. This should allow the company to remain a leader in the sector and to focus on a return to profitability post-emergence in what we continue to believe a long-term and viable and attractive industry by contrast razor my contrast razor group officer addressed challenges via consolidation and acquired perch in march solidifying the combined entities position as a global leader in the space similar to thrasio's standalone restructuring effort we expect the strategic combination to drive a more efficient operating structure than either company could have achieved in the near-term standalone. We also believe that further consolidation and cost optimization are likely to continue in this space, and ultimately there will be fewer larger-scale and better-capitalized vendors serving it. We will continue to update you on the products of each of these as we are able to. Next, I'll discuss Inventa, an online learning provider which, as we noted last quarter, is navigating a reversion to a more normalized but still positive demand environment. Demand for its tools and services spiked during the pandemic, but that has since corrected following the successful return to in-person attendance in many schools. Relative to pre-pandemic levels, digital education and remote learning services continue to grow in popularity and prominence, and Edmentum remains well-positioned in an industry with positive secular trends. As a reminder, our current investment in Mentum is a residual equity position after we receive full repayment on our loan to the company. As a long-standing player in the direct lending space, our team has experienced lending across market cycles and has developed unique expertise and a proven track record of success working through challenging credit situations. We are leveraging this expertise, believe we have the right teams in place, and are proactively working with management teams, equity owners, and other lenders to improve performance and achieve positive outcomes for our investments. Most importantly, outside of these situations, the credit quality of our portfolio remains strong. As of March 31st, 2024, our internal risk rating was relatively unchanged from December 31st, 2023, and reflects the fact that the majority of our portfolio companies are substantially in line or ahead of base case expectations. Our board of directors declared a second quarter dividend of $0.34 per share, which implies 132% NII coverage based on our first quarter adjusted NII. The second quarter dividend is payable on June 28 to shareholders of record of June 14. We have always taken a disciplined approach to our dividend with an emphasis on stability and strong coverage from our recurring net investment income. Throughout TCPC's 12-year history, We have consistently covered our dividends for recurring net investment income and have also paid several special dividends, including in the most recent quarters. Now I will turn it over to Phil to discuss our investment activity and portfolio.