TriplePoint Venture Growth BDC Corp.

Good afternoon, ladies and gentlemen. Welcome to the TriplePoint Venture Growth BDC Corp. Second Quarter 2022 Earnings Conference Call. At this time, all lines have been placed in a listen-only mode. After the speaker's 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. Company management is pleased to share with you the company's results for the second quarter of 2022. Today representing the company is Jim LeBay, Chief Executive Officer and Chairman of the Board, Sajal Srivastava, President and Chief Investment Officer, and Chris Matthew, Chief Financial Officer. Before I turn the call over to Mr. LeBay, I'd like to direct your attention to the customary safe harbor disclosure and 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 conditions, 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. The company does not undertake any obligation to update 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. LeBay.

Thank you, Operator. Good afternoon, everyone, and welcome to TriplePoint Venture's second quarter 2022 earnings call. Against the backdrop of macroeconomic uncertainty, we continued to make strong progress executing against the plan that we laid out at the beginning of the year. Demand for our debt financing in the quarter was strong, and we maintained our focus working with our select leading venture capital investors and continuing with our disciplined approach of investing in what we believe are the highest quality venture growth deals. During the second quarter, We achieved several key objectives, including growing our portfolio to record levels, over-earning the dividend, and generating strong portfolio yields. During the past few quarters, we have gradually been bringing up our portfolio leverage, and in the second quarter, we're pleased to have hit our target leverage range. We exceeded our funding goals last quarter, funding more than $157 million of debt investments, and have maintained strong momentum heading here into the second half of 2022. Specifically, we've signed more than $803 million of new term sheets at venture growth stage companies at TPC, our sponsor. This is the highest for any quarter since our IPO. We also entered into new debt commitments of $260 million during the quarter, and additionally, our pipeline has now grown to more than $2 billion for venture growth stage companies at quarter's end. Turning to the portfolio, our earnings power remains strong. We generated NII of 41 cents per share in the quarter and exceeded our 36-cent dividend. A third of our portfolio companies have raised an aggregate of more than 1.7 billion of capital in the first half of this year. In terms of the overall venture capital market, it continues to hold its own. Here's a few stats of the fundamentals. Private venture markets have remained highly active even amid this public equity volatility, and venture capital investment levels remain well above pre-COVID averages for any quarter. U.S. venture capital firms invested more than $62 billion last quarter across nearly 4,500 transactions. Despite this challenging market environment, year-to-date venture capital funds have raised $122 billion, according to the NVCA and PitchBook, and venture capital funds have now increased their dry powder to a record $290 billion since 2019. All this dry powder that's looking to be deployed in the near term bodes well for our portfolio companies and the equity available to them. For quality companies, There really couldn't be a stronger pool of capital than access. Having stated all this, we can't ignore the recent shifts and the impact in the venture markets due to this tech sell-off. This has created disconnects between public and private company valuations. We continue to expect private market valuations of late-stage growth companies to plateau or even reset as valuations have been leveling off. In the venture capital IPOs last quarter, they were almost nonexistent. Investors are prioritizing their existing portfolio companies with the goal of supporting them through profitability, particularly at this venture growth stage, which is the market in which we operate. Given the market choppiness, many companies have revised their plans for this year, but it's important to note they're all still growing. For example, companies which previously had ambitious yearly growth plans of maybe 100 percent or so, they've now revised their growth expectations, let's say, to somewhere more like maybe 40, 50, or 60 percent or so, all of this resulting in more moderate cash burn rates and extended cash runways. Many venture investors have guided their portfolio companies towards revamped plans to maintain two or more years of cash on hand and a goal of achieving profitability sooner. We view this as a positive and favorable trend when it comes to debt repayment, as well as for our portfolio's credit quality. As we look forward, several of these market conditions serve as positive drivers behind both the increased demand for venture lending and opportunities for TPVG that we believe will continue to play out during the remainder of the year. Companies are turning towards debt and layering in as part of their go-forward plans. Following a record year for venture capital activity, many of the companies that raised equity recently at attractive valuations are now looking to add debt in this valuation-sensitive market. Companies are increasingly evaluating debt financing solutions as a result of the longer timelines for public listings. Other companies out there are seeking additional runway in the form of debt as they plan out their timetable and future equity rounds and augment their financing strategy and capitalization plans. We've seen each of these scenarios in the second quarter, and we expect the trend to continue in 2022 and beyond. These trends have helped create a sustained demand for venture lending, and provides continuing advantages for us with our deal structures and opportunistic pricing. We also continue to be more selective in our underwriting with a focus on lower total leverage and slightly higher pricing, which reflects the brand, reputation, and track record of the TriplePoint platform and our 100% direct originations business. Prospective portfolio companies today, the high-quality ones, are also being more selective, and they're seeking a dependable and proven debt financing partner. When it comes to debt, they're not solving for rate or the largest deal, but more the best long-term partner, and that is where TriplePoint outperforms. While seeking to capitalize on the strong deal flow, we will continue to be mindful of the times and maintain our strict credit discipline, and as we say in almost every earnings call, stick to our knitting. Maintaining discipline in the current market is especially important. Sergio and I have worked together for 23 years, and we're poised to further draw on our track record of operating through diverse market environments, along with TriplePoint's experienced cycle-tested team, and best position the company. Based on our success managing through multiple cycles, we've learned that if you have the experience and the know-how, Dynamic markets can be some of the most productive and advantageous times for capitalizing on venture lending opportunities. We believe the market could have a positive effect on the venture lending business and yield over the long term. We're also poised to benefit from TPC's differentiated platform that has invested now in more than $14 billion in venture lending transactions. TPC's investment team is the largest in our history. Our pipeline is at record levels, and we are servicing more geographies. As a global platform with multiple vehicles, we're able to serve high-quality portfolio companies regardless of the transaction size or location. To recap, we're very pleased with our strong second quarter performance and our progress executing against our plan. We expect the second half will be driven by continued patience, execution, and performance. With our credit discipline remaining stringent, we continue to be excited by the opportunities ahead and anticipate some active quarters throughout the balance of the year, given the strong pipeline and backlog. In seeking to capitalize on compelling opportunities, we have a cycle-tested team and will remain disciplined and apply our tried and true underwriting standards to select the best deals and deliver strong returns to our shareholders. With that, I'll turn this over to Sajal.

Thank you, Jim, and good afternoon. We remained disciplined during the second quarter, generating strong results despite volatile markets, and continue to execute against our 2022 plan to grow and diversify the portfolio while increasing our use of leverage. Regarding second quarter investment portfolio activity, TriplePoint Capital signed a record $803.6 million of term sheets with venture growth stage companies, and we closed a record $259.9 million of debt commitments to 17 companies at TPVG. Signed term sheets and closed commitments were up from Q221 levels of approximately $251 million and $103 million, respectively. We also received warrants valued at $2.1 million in 16 portfolio companies and made $700,000 of direct equity investments in four companies. Of the 17 companies we committed debt capital to during the quarter, 13 were new portfolio companies and four were existing portfolio companies. During the second quarter, we funded 157.6 million in debt investments to 20 portfolio companies, which was well above our 50 to 100 million guidance range for Q2. Q2 fundings represented an increase from 76 million in debt investments to seven companies in Q2 21. The increase in fundings was related to the strong origination activity during the quarter, where approximately two-thirds of our fundings came from new debt commitments that closed in Q2, which reflects our efforts to drive utilization of our new commitments more efficiently. To be clear, we funded companies with strong existing equity and cash reserves, in many cases topping off recent financings, and extending their runway well into 2023 and 2024. We expect to see 50 to 75 percent of our existing unfunded commitments to be drawn, given the strong existing cash balances and continued fundraising activities of our portfolio companies, typically at the end of the draw periods if utilized. The debt investments we funded during the quarter carried a weighted average annualized portfolio yield of 13.6 percent at origination, which is up from 13.2 percent in Q2 21. Our core portfolio yield during the quarter was 12.8 percent, an increase for the fifth quarter in a row, and up from 12 percent in Q2 21 as a result of both increases in the base prime rate and the increased spread of new investments. In addition, as a result of prepayment activity during the quarter, our overall weighted average annualized portfolio yield on total debt investments was 14.5 percent. Our success growing our portfolio and increasing portfolio yield enabled us to generate earnings in excess of our dividend and once again demonstrate the strong return potential of our business, both on an NII and ROE basis as we scale. As Chris will cover, approximately a third of the fundings for Q2 occurred during the last two weeks of the quarter, and will contribute to income more materially in Q3. In addition, our performance during the second quarter doesn't include the full impact of the prime rate change on June 16th, which will contribute more significantly in Q3, along with the additional prime rate increase in July. With regards to leverage, one of our major objectives for the year is to run at a higher leverage ratio on a more consistent basis. We're pleased to have increased our leverage ratio during the quarter which we expect will result in continued strong net investment income in excess of our dividend in the third quarter and over the course of the rest of the year, as well as provide a buffer from the impact of prepay activity. For Q3 and Q4, we continue to expect quarterly fundings in the range of 100 to 200 million on a gross basis. And since our portfolio companies continue to raise equity capital, our expectations remain that we will have on average one prepay a quarter through year end in addition to the scheduled principal amortization of the portfolio. As I mentioned earlier, we demonstrated strong progress on diversifying the TPVG portfolio while scaling. In addition to achieving a record portfolio size at the end of Q2, we had 56 funded obligors as compared to 34 as of Q2 21. In addition, our top 10 obligors represented approximately 35% of our total debt investments as compared to 51% as of one year ago. Our equity and warrant portfolio continues to grow well with 140 warrant and equity investments as of Q2 22 as compared to 110 investments one year ago and represents $107.9 million on a fair value basis, an increase of 71% from Q221. During the quarter, our public warrant and equity holdings experienced 4.6 million of unrealized losses, ending the quarter with a fair value of approximately 11 million. Investments in three of the nine companies are still subject to lockup. Our plan is to liquidate all of our public holdings over the course of 2022 as they recover in value. In fact, as of yesterday's close, we are up another million. Moving on to credit quality, the overall health of our portfolio companies remains solid. As Jim mentioned, our portfolio companies not only raised $1.7 billion since the start of the year, but have also reduced operating burn to extend runway. We're pleased to report that 90% of our portfolio is ranked at our two best credit scores, which means that they are performing at or above expectations. In fact, during the quarter, One company with $2.5 million of principal balance was upgraded from Category 3 to Category 2 due to improved performance. We downgraded two portfolio companies with a total principal balance of $28.4 million from Category 2 to Category 3 due to performance below expectations. We expect both companies to raise additional capital during the third quarter and to have sufficient runway to enable them to improve performance over time. With regards to our other two existing Category 3 companies, both demonstrated stable performance during the quarter with one raising additional cap. In total, our Category 3 loans represent 8.4 percent of our total investment portfolio on a cost basis and 7.9 percent on a fair value basis. And we expect to upgrade these companies as they perform over the course of the rest of the year and are raised significant additional capital. Our only category four portfolio company, Luminary Roli, raised additional capital in Q2 and is heads down planning for another new product launch. Roli represents 1% of our total investment portfolio on a fair value basis. During the quarter, we downgraded Pencil and Pixel, also known as Modsy, to Category 5 as a result of its formal M&A process falling apart at the last minute and the company selling its assets here in Q3. Our principal balance was $15 million, and we marked our loan down to $2.25 million as the end of Q2, which is our expected recovery amount. This was a sudden and isolated event related to specific facts and circumstances around MODSI and its M&A process. When it was evident that the expected transaction would not happen, we explored the alternatives and concluded this was the best outcome to minimize the loss and put the matter behind us. Our credit quality and performance has been exceptional since TPVG's IPO. Cumulative net credit losses after factoring realized gains from our warranted equity investments translate to a cumulative net loss rate of 0.9% based on commitments, and 1.4 percent based on fundings since our IPO eight years ago, or 18 basis points a year. And we expect our existing public stock portfolio to more than offset the modzy loss as and when we sell our holdings. Our outlook for credit over the rest of the year continues to be quite positive, given the strong cash positions of our portfolio companies and their extended runway, their continued fundraising efforts, the continued support of our select VC investors, and, of course, the efforts of our elite credit team to manage situations to good outcomes. I thought it would be helpful to next share some of our thoughts with regards to originations and credit in this environment. At our core, we continue to focus on what I would describe as triple-point worthy companies, the high-quality companies with the best venture capital investors, not just deals or volume for growth's sake, We have been and always will be patient as we look to deploy our capital and grow our portfolio. Our investment criteria have not changed, and in most cases are more stringent. We are a financing source for growth. We encourage the prudent use of leverage, and we expect prospective portfolio companies to have recently raised equity capital, have strong support and conviction from our select VCs, and have meaningful existing cash runway. We continue to believe that it is during volatile times when some of the best companies get funded, which is consistent with our 17-year track record at TriplePoint and the more than 23 years that Jim and I have worked together. In summary, we've made substantial progress against our game plan for the year, despite the market volatility, and are excited for what's in store over the remainder of the year. But make no mistake, we continue to be heads down, focused on growing our portfolio in a patient and disciplined manner, maintaining a solid credit profile, maintaining leverage, growing NII and NAV, all while working with some of the most exciting venture growth stage companies backed by some of the industry's best venture capital funds. With that, I'll now turn the call over to Chris.