TriplePoint Venture Growth BDC Corp.

Good afternoon, ladies and gentlemen. Welcome to the TriplePoint Venture Growth BDC Corp. Fourth 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 fourth quarter and full fiscal year 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 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. 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. Please go ahead.

Good afternoon, everyone, and thank you for joining TPVG's fourth quarter earnings call. During 2022, we achieved several key objectives while continuing to take our selective approach given market volatility. We grew the portfolio to record levels, generated both record investment income and record NII, and over-earned our distribution. Other accomplishments included further diversifying the portfolio, maintaining our target leverage ratio, and growing our core portfolio yield, which has now expanded over the past seven consecutive quarters. During the year, we also raised accretive equity capital and increased overall leverage, as well as extended our credit lines to strengthen our balance sheet. Turning to some fourth quarter highlights, the earnings power of the business remains strong. We generated net investment income of 58 cents per share and exceeded our 37-cent quarterly distribution. We're pleased to announce that our Board of Directors has approved an 8 percent increase in the distribution to 40 cents per share. This represents the second consecutive increase in our quarterly distribution. our distribution has now increased by 11 percent over the past two quarters. Since going public almost nine years ago, we have declared $13.45 per share in distributions, including four special distributions, with the most recent special distribution declared in December 2022. Over this time, we've also exceeded our distributions on a cumulative basis, and maintain sizable spillover income. Turning to the venture markets, tightening monetary policy and the downturn in public company multiples and valuations have continued to impact venture capital investment activity. Quarter-over-quarter activity in 2022 dropped off steadily. According to PitchBook, In Q4, an estimated 936 deals closed for a total of $1.35 billion, the lowest quarterly deal value since the second quarter of 2018. For many companies, prior year plans of growth at all costs have shifted to revised plans of conserving cash at all costs. Venture capital investors are continuing to be selective with their investments, especially when it comes to new investments, and continue to spend time with existing portfolio companies, encouraging moderate growth and monthly cash burn rates. In today's environment, small inside investor-led rounds and convertibles, reduced growth plans, and cash runway paths to profitability are common. Given aggressive valuations from the past and a reduced revenue outlook, for some companies, capital raising in this environment is often a challenge. This is a period of valuation resets and potential down rounds. While not all companies will face this scenario, we anticipate there will be more down rounds in the future. As a lender, servicing our debt and companies having capital in the bank is key, as we're indifferent as to the equity round pricing itself. While we expect these trends to continue in the first half of 2023, One bright spot in the venture market has been venture capital fundraising. Although the investing pace was down, venture capital fundraising was exceptionally strong in 2022, and this bodes well for the venture lending business. According to PitchBook, $163 billion closed across 769 funds in 2022, setting an annual record for capital raised. there continues to be a record amount of dry powder, estimated more than $300 billion, which is now sitting on the sidelines. And for quality companies, there couldn't be a stronger pool of capital to access. Based on some recent conversations I've had with several of our select funds, there are already early signs and a widespread belief that investment momentum will pick up in the second half of this year and into 2024. especially given this large amount of dry powder. Although they're still focusing on existing companies, there is somewhat of a general waiting game sentiment out there. These investors tell us they're continuing to wait out market volatility but forecast better times ahead. With that said, we are finding pockets of new investments starting to pop up and witnessing appetites starting to increase in technology investing. In our portfolio, we're finding that deals are still getting done. It's simply taking a little longer and a little slower pace. Turning to the investment portfolio, it continues to be about the long term. While we can't ignore the present down cycle, tech investing has always been about one, three, five years out, the long term. Despite current market volatility, It was notable that 56% of our portfolio companies that are active credits raised capital last year, representing almost $2.5 billion raised to 36 companies, of which more than $300 million came in the last quarter alone. At quarter's end, our investment portfolio reached nearly a billion, a record increase for the full year. In addition to those companies where we have active debt outstanding, Our diverse portfolio also spans across a number of companies where we have warrants and equity investments, even when there is no outstanding debt. Collectively, years in, in fact, we have investments in more than 121 portfolio companies. Saja will comment more about the warrant and equity portfolio. Despite the macroeconomic environment, inflationary concerns, and the broader economy potentially headed into a recession, A number of TPVG portfolio companies continue to grow. Some are experiencing tailwinds or achieving profitability these days. We're optimistic on the outlook for many of the diverse investments we funded in the class of 2022. In particular, it includes such sectors as robotics, cybersecurity in companies such as Corelight, space in companies such as Loft Orbital, vertical software, such as Metropolis and Hover, fintech companies, such as Synapse and Ernin, and next-generation sports digital media, such as Overtime Sports and others, to name a few. Turning to our pipeline, we continue to see demand in this market and a growing pipeline of growth stage companies, as some further plan out their timetable and compass debt into their financing and capitalization plans. or utilize venture lending for financing opportunistic acquisitions. Consistent with our longstanding approach, we continue to focus on companies that have recently raised capital, have significant revenue scale, and whose plans in the next one to two years should perform well in this volatile economic environment in currently challenging times. TPVG will continue its established approach of investing in attractive growth stage companies, generally backed by our select venture capital investors, and in companies that we believe have compelling long-term prospects. Sojo and I have now worked together for more than 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. to best position the company to create long-term shareholder value. Based on our experience managing through multiple cycles, we have 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. The key is knowing how to navigate through these choppy seas to the calmer ones that inevitably lay ahead. We believe today's market may have a positive effect on the venture lending business and future yields over the long term. We've now been through multiple cycles together, and some of the best opportunities historically have been debt investment transactions we've written in downturns. We've also learned that in working through these cycles, however, this is not the time to run up the business for the sake of growth. but to continue to capture the quality business in the pipeline. I'd like to provide a short footnote on former portfolio company Medli, which is now behind us and was last year's event. While all venture lenders deal with credit challenges and market downturns, it's a hardwired part of the business and not a question as to if, but when. It should be noted that this sudden, unpredictable development was characterized by very extraordinary and extenuating circumstances, which we've never experienced before in my 40 years of being in the venture lending business. As stated in the bankruptcy filings, this was precipitated by the loss of anticipated financing and the discovery of certain operational, financial, and accounting irregularities and improper activities conducted by former employees, including the original founders. Including the full write-off of MEDLI last year, since TPV's inception almost nine years ago, our cumulative net loss rate remains under 2 percent of cumulative commitments and 3 percent of fundings, slightly above 30 basis points or so per year, and lower if you include the value of the unsold publicly held stock we currently hold. Further, really as an illustrative exercise only, If one were to remove Medley as the outlier, the cumulative net loss rate works out to be more around 1.6 percent of fundings. While an unforeseen and unfortunate development, our path is continuing forward and building upon TPVG's almost nine-year track record now of generating attractive portfolio yield, attractive net investment income, and cumulatively over-earning our dividend. as well as providing returns to our shareholders. To wrap up, we demonstrated the earnings power of our portfolio, grew the portfolio to nearly a billion, and generated record NII. As mentioned, we expect continued demand for our venture lending solutions later this year and beyond. And our focus remains on continuing to invest in a highly selective manner, mindful of today's reduced venture capital investment activity and the current market volatility I've been speaking about as we seek to achieve further portfolio yield and NII growth. We're pleased to have once again increased our regular quarterly distribution and believe we are well-positioned to continue to provide shareholders with an increasing return over time. With that, I'm going to turn the call over to Sajal.

Sajal Sajal Thank you, Jim, and good afternoon. During 2022, we made progress in growing our portfolio, increasing our portfolio yield, and increasing our portfolio and funding diversification, all critical elements for the long term that we believe position us well to create sustainable shareholder value. As we progress through 2023, we will continue to pursue these goals throughout the course of the year while continuing to be focused and disciplined. So, with that background, I will review our performance in Q3 Q4 and full year 2022, as well as highlight key expectations for 2023. Regarding investment portfolio activity during Q4, TriplePoint Capital signed 221 million of term sheets with venture growth stage companies, and we closed 105 million of debt commitments to 12 companies at TPVG. Signed term sheets and closed commitments during Q4 reflected our continued discipline as we seek to select only the highest quality opportunities. Of the 12 companies we committed debt capital to during the quarter, half were new portfolio companies and the other half were existing portfolio companies. We also received warrants valued at $1.1 million in 16 portfolio companies and made $400,000 of direct equity investments in two companies. For the full year, TriplePoint Capital signed a record $2 billion of term sheets with venture growth stage companies, and we closed $594 million of debt commitments with 48 companies at TPVG, of which 34 were new obligors and 14 were existing obligors. We also acquired warrant investments representing $6 million of value and made $6 million of direct equity investments. Given current market conditions, as we look to 2023 as a whole, We expect to see our originations activity increase over the course of the year, and in particular, in the second half of the year. During the fourth quarter, we funded $95 million in debt investments to 16 portfolio companies, which landed at the lower end of our guided range for Q4. These debt investments carried a weighted average annualized portfolio yield of 15.4 percent at origination, up from 14.5 percent in Q3 22. During the full year, we funded 417 million in debt investments to a record 40 companies with a weighted average portfolio yield of 14.2 percent at origination. During Q4, we had 34 million in loan repayments, resulting in an overall weighted average portfolio yield of 15.3 percent. Excluding prepayments, core portfolio yield was 14.2 percent, up from 13.8 percent in Q3, and represented our seventh consecutive quarterly increase. I would like to also point out that our Q4 portfolio yield does not fully reflect the 50 basis point increase announced on December 14th, which will more meaningfully impact portfolio yields starting in Q1. As a result, we are optimistic for another quarter of increased portfolio yield and for portfolio yield to continue to stay strong in 2023, given the rate environment. In 2022, we had 200 million of loan prepayments, resulting in an overall weighted average portfolio yield of 14.7 percent for the year. Including prepayments, core portfolio yield was 13.4 percent for the full year. In terms of our expectations for portfolio growth in 2023, our range forecast for gross investment fundings for the full year is between 300 and 500 million, with Q1 and Q2 likely in the range of 50 to 100 million for each quarter, and Q3 and Q4, each likely to be in the 100 to 150 million range. We believe that the current market volatility creates demand for additional capital, including venture debt, but we will not compromise our focus on quality for portfolio growth sake. In particular, we are concentrating on companies that have recently raised equity capital with even more revenue scale and growth. Since such companies will have more existing cash runway on hand at time of origination, we expect they will likely draw on their lines later in 23 or early 24. Turning to loan prepayments, they continue to be a part of the business, and we appreciate our capital being returned, as well as the accelerated income that is generated. We continue to expect one to two customer prepayments per quarter. We also made continued progress in diversifying the TPVG portfolio by increasing the number of funded obligors to 57 as compared to 49 one year ago. In addition, our top 10 obligors represent 33 percent of our total debt investments as compared to 40 percent one year ago. As Jim mentioned, we continue to see equity fundraising in our portfolio, which is a testament to our quality. During the quarter, eight portfolio companies raised over $300 million of capital. This brings the total of 36 portfolio companies raising over $2.4 billion of capital during 2022, on top of 33 companies raising over $5.8 billion in 2021. Our equity and warrant portfolio grew as well, with 155 warrant and equity investments as of Q4 22, as compared to 121 investments as of one year ago. As of December 31, we held warrants in 107 companies, up from 81 companies as of Q4 2021, and held equity investments in 48 companies, up from 40 companies as of Q4 2021, with a total cost and fair value of $71 million and $96 million, respectively. We nevertheless continue to be excited for the monetization of these instruments associated with our high-yielding debt investments over time when they do ultimately exit. In fact, during the quarter, we sold our publicly traded shares in Forgerock, generating 6.5 million of realized gains. In addition, we hold warrant and equity investments in many promising private companies, including industry leaders like Cohesity, Revolut, Monzo, Upgrade, Financial Force, Flash Parking, Earnings, Merama, and several others, which continue to grow and perform well in this economic environment and we believe will generate substantial realized gains in excess of our current market-adjusted marks. More importantly, we expect our cumulative warranted equity investments to generate realized gains in excess of our cumulative realized losses over the long term. Moving on to credit quality, approximately 89 percent 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, OneSource Virtual, with $3.3 million of principal balance, was removed from Category 1 due to prepayment. VanMoof, an e-bike company with a principal balance of $19 million, and HealthIQ, an insure tech company with a principal balance of $25 million, were downgraded from Category 2 to Category 3. Both were downgraded due to developments in their strategic financing processes. As initially discussed during the Q3 earnings call and further disclosed with an 8K filing on December 12th, we downgraded Medley Health from yellow to red. In conjunction with its bankruptcy filing in December, realized the loss and removed it from our credit watch list. Turning to our credit outlook, we believe that the outlook for our portfolio as a whole is stable, given sizable cash positions of many of our portfolio companies and the resulting extended operating runway, their continued fundraising efforts, and the continued support of our select VC investors. With that said, in a volatile market for venture capital investing and for public technology companies, there will be obligors experiencing stress. Our approach is to be proactive in identifying these companies on our watch list as early as possible, as we have done, and provide them assistance as best as we can alongside their investors to manage through challenging times. Virtual Instruments, Imperfect Foods, Hired, and Xeris are examples of companies that historically were on our watch list where our teams had tremendous success in managing through stress situations resulting in payoffs of our loans in full. In closing, we remain focused on all aspects of our business and will continue to follow our long-term playbook with a focus on generating strong returns for shareholders, meeting the needs of venture-grade stage companies, and further nurturing strong relationships with our select venture capital partners. With that, I'll now turn the call over to Chris.