TriplePoint Venture Growth BDC Corp.

Good afternoon, ladies and gentlemen. Welcome to the TriplePoint Venture Growth BDC Corp Third 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 third quarter of 2022. Today, representing the company is Jim LaBey, Chief Executive Officer and Chairman of the Board, Sajal Srivastava, President and Chief Investment Officer, and Chris Mathew, Chief Financial Officer. Before I turn the call over to Mr. LaBey, I'd like to direct your attention to the customary safe harbor disclosure and the company's press release regarding forward-looking statements. I 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 filing 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 reflects 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. At this point, I would now like to turn the conference over to Mr. Obey. Please go ahead.

Good afternoon, everyone, and thank you for joining TPVG's third quarter earnings call. During the quarter, we further capitalized on the strong demand for our financing while continuing to grow the portfolio in a disciplined manner. We're pleased to have efficiently invested the capital from our recent accretive 55 million equity offering. This helped us grow our portfolio to a record fair value of almost a billion, generate net investment income, or NII, of 51 cents per share, and achieve a weighted average portfolio yield of 13.8 percent. For the third quarter, our NII again exceeded our quarterly distribution. And we're proud to announce that our board made the decision to increase the regular quarterly distribution to 37 cents per share. Given our sizable portfolio, coupled with favorable fixed rate financing and increasing portfolio yields, we believe we remain in a strong position to both generate NII that covers our new 37 cent per share dividend and to further increase yields and returns to shareholders over time as we've done today. Since going public more than eight years ago, we have now declared $12.60 per share in regular quarterly distributions, and in addition, three special dividends for total distributions to shareholders of $12.95 per share. Notably, our NII has exceeded our distributions on a cumulative basis during this time. while also maintaining sizable spillover income. Turning to yields, we have now grown our core portfolio yield to over 6.5 quarters and expect the positive trends and opportunities to continue. In seeking to capitalize on the opportunities in the market, we will continue to focus on investing in what we believe are the most attractive venture growth stage companies with the strongest prospects, and a focus on quality. We believe there will be increasing opportunities in the many months ahead, especially given favorable market conditions that we expect to last throughout 2023. Turning to the venture markets, U.S. steel investment activity decreased in the quarter, although I'll note that the investment activity remains above all the pre-COVID levels, and it's already exceeded all previous years so far, except for 2021. As you know, TPVG primarily works with a select group of venture capital investors and the companies in which they invest. Given today's market choppiness and uncertainty, these venture investors are being more selective with their dollars, and they're also being far more cautious and mindful of new investments, which we believe is a positive development. They deployed far less capital during this past summer and used the pause to continue to focus on existing portfolio companies, many whom appropriately revised their plans to more moderate rates of growth and monthly cash burn rates, which again, we view as a positive development in this environment. Having said all this, our select group of leading venture capital investors that we work with have no lack of capital to deploy. In fact, several of them raised substantial funds this year. As a whole, U.S. venture capital fundraising has already set a new annual high through the first three quarters of this year. According to PitchBook NVCA, through the nine-month 2022 period, U.S.-based venture funds have raised $151 billion, surpassing last year's previous record. and taking the last 21-month fundraising total to more than $298 billion. Last quarter, 6 percent of the funds accounted for 62 percent of the capital that was raised. And we note that several of our select venture capital investors were in that 6 percent. Given the recent quarterly raises, combined with the previous record fundraising years, There's an ample supply of venture capital sitting on the sidelines, and this so-called dry powder has climbed to new heights last quarter, PitchBook NVCA now estimating it still at more than $300 billion. TPVG's portfolio companies are in a strong position to continue to benefit from this over time. In fact, last quarter, our portfolio companies raised more than $270 million of capital. And year to date, TPVG portfolio companies have raised more than $2 billion. And many continue to raise additional capital attesting to the quality of our companies. All this capital raising aside, many of our portfolio companies continue to grow. Some are experiencing tailwinds in this environment. A number of others have achieved profitability. Some are in thriving niche or niche software sectors, and still others are in some very high-interest sectors, such as microsatellites, breakthrough health tech technologies, and other sectors. The market drivers behind the demand at growth stage companies for our venture lending continues to be favorable as well, and we believe will be sustained in the months ahead. Many companies who relied previously on equity alone have continued to turn towards debt and layering it in as part of their go-forward plans. In addition, growth stage companies that raised equity over the last year or so at attractive valuations are increasingly turning towards venture lending given today's valuation-sensitive markets. Longer timelines for public listings and the need for additional runway between equity rounds serve as another driver. These days, growth stage companies are planning out their timetable and encompassing debt in their financing strategies and capitalization plans. And still other examples, some companies are increasingly commencing with drawdowns under their existing credit lines as part of augmenting their financing base. We've seen each of these scenarios play out in the third quarter and expect the trend to continue in 2023. These trends, combined with a lower risk appetite from commercial banks, has helped create strong and sustained demand for venture lending and provides advantages to us with our deal structures and opportunistic pricing. To wrap up, We've demonstrated the significant earnings power of our sizable and high-quality portfolio through growing it now to nearly a billion, generating record NII and posting an attractive portfolio yield. We expect conditions to continue into 2023 and beyond, allowing us to continue to invest in a highly selective and disciplined manner with compelling growth stage companies, as well as in the process, achieving further portfolio, yield, and NII growth. We're pleased to increase our regular quarterly dividend and are well-positioned to continue to provide shareholders with a strong and increasing return over time. With that, I'll now turn the call over to Sajal.

Thank you, Jim, and good afternoon. Q3 was a strong quarter where we not only grew and diversified the portfolio, We also demonstrated both the earnings power of the business and our alignment with shareholders. With regards to investment portfolio activity during Q3, TriplePoint Capital signed 269 million of term sheets with venture growth stage companies, and we closed 103 million of debt commitments to 10 companies at TPVG. Signed term sheets and closed commitments during Q3 reflected not only the seasonality of the third quarter, but also our continued discipline as we seek to capitalize on the exceptional demand in the market while selecting only the highest quality opportunities, given we expect demand to remain strong and continue to grow throughout 2023. In fact, of the 10 companies we committed debt capital to during the quarter, seven were new portfolio companies and three were existing portfolio companies. We also received warrants valued at $1.9 million in 16 portfolio companies and made $2.6 million of direct equity investments in six companies. During the third quarter, we funded $101.7 million in debt investments to 14 portfolio companies in line with our guided range for Q3. These debt investments carried a weighted average annualized portfolio yield of 14.5 percent at origination, up from 13.6 percent in Q2 22. Our core portfolio yield which again is yield without the impact of prepayments, was 13.8 percent during the quarter, up 100 basis points from last quarter, and represented the sixth consecutive quarterly increase. Regarding prepayments, we had one small prepayment in the quarter that didn't materially contribute to portfolio yield. I would like to also point out that our Q3 portfolio yield does not yet fully reflect the 75 basis point increase announced on September 20th, which will more meaningfully impact portfolio yield starting in Q4. For Q4, we continue to expect portfolio growth with targeted gross quarterly fundings in the $100 million to $200 million range, offset by three prepayments so far, totaling $34 million, which will generate over $1 million of additional income in this quarter. We also made continued progress on diversifying the TPVG portfolio as we achieved a record portfolio size at the end of Q3 with 59 funded obligors as compared to 40 one year ago. In addition, our top 10 obligors represent 32 percent of our total debt investments as compared to 44 percent one year ago. Our equity and warrant portfolio grew as well. with 152 warrant and equity investments as of Q3 22, as compared to 105 investments as of a year ago. During the quarter, our public warrant and equity holdings experienced 2.5 million of unrealized losses, ending the quarter with a fair value of approximately 8.7 million. Approximately 2.1 million of the net unrealized loss was related to our holdings in Forge Rock, which announced in October that it agreed to be taken private in a deal that values the company at $2.3 billion. Forgerock, which has been a portfolio company of the platform since 2016, of TPVG since 2019, and went public in September 2021, is an example of the quality of the TPVG portfolio and the upside potential of our warrant and equity investments. This transaction is anticipated to close in Q1 2023 and will result in a $2.6 million gain on our equity from our Q3 closing value, generating a total of $6.5 million, or 13 times our initial cost. We expect our $30 million outstanding loan to prepay at closing, which should generate close to $2 million of additional income. Moving on to credit quality, as Jim mentioned, our portfolio companies not only raised almost $300 million in new capital last quarter and $2 billion since the start of the year, but have also reduced operating spend to extend runway. Consistent with last quarter, 90% of our portfolio is ranked at our two best credit scores, which means that they are performing at or above expectations. During the quarter, one company with $14 million of principal balance was upgraded from Category 2 to Category 1, and one portfolio company with $25 million of principal balance was upgraded from Category 3 to Category 2 due to improved performance. I should note that ForgeRock's announcement was after quarter end, so we expect to upgrade the loan to Category 1 here in Q4. We downgraded one portfolio company, Medley Health, an online digital pharmacy, with a total principal balance of $34.3 million from Category 2 to Category 3, due to reductions in its operating plan, changes in its senior team, and the overall liquidity position. On November 1st, we were made aware of recent preliminary negative developments at Medley, which we believe may result in a future downgrade of their outstanding loans here in Q4. Regarding other Category 3 companies, all demonstrated stable performance during the third quarter. Our only Category 4 portfolio company, Luminary Roley, raised additional capital in Q3. It represents 1 percent of our total investment portfolio on a fair value basis. During the quarter, we also removed portfolio company Pencil and Pixel from Category 5 as a result of selling its assets consistent with our Q2 valuation mark on the loans. Turning now to the topic of alignment with our shareholders, during the quarter, we successfully raised common stock at a premium to NAV and quickly put the proceeds to work with no drag on NII. Given our best-in-class fee structure with a look-back feature of our incentive fee measured from our IPO in 2014, our incentive fees were reduced by $3.3 million due to unrealized changes in our portfolio value. This resulted in an additional $0.10 of NII for the benefit of shareholders. During the quarter, we put in place a $50 million ATM program in order to balance and bring down our blended cost of equity capital, as well as supplement and potentially smooth out our equity capital raising activity. Of note, the ATM program can only operate when we trade above net asset value. Our board also increased our regular dividend from $0.36 to $0.37, bringing our annualized dividend yield based on NAV to 11.7% and 13.6% based on our 930 closing price. This represents our first dividend increase since Q4 2014. We and our board will continue to monitor performance and outlook over the next couple of quarters as we consider potential additional increases. Finally, as Chris will cover in more detail, we're also mindful of the fact that we have 52 cents of spillover income as of the end of Q3, and we'll continue to work with our board to determine how to thoughtfully and efficiently use those proceeds as we approach year end. Nevertheless, we continue to be heads down, focused on growing and managing our portfolio in a patient and disciplined manner, maintaining our target leverage, and increasing our 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.