TriplePoint Venture Growth BDC Corp.

Good afternoon, ladies and gentlemen. Welcome to the TriplePoint Venture Growth BBC Corp First Quarter 2024 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 first quarter of 2024. 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.

Good afternoon, everyone, and welcome to TPVG's first quarter earnings call. During the first quarter, we continue to navigate through the current venture capital markets. While the market remains slow and deal activity and deal value have yet to improve, there continues to be unique opportunities in this market for us, as well as initial signs that overall VC markets may gradually begin to improve. This includes growing demand at TriplePoint Capital from what we believe are quality venture growth companies and companies across the venture stages. Complementing these initial positive signs, we continue to make progress in the first quarter with increased fundraising activity and strengthening performance at our portfolio companies and in building our pipeline, setting a strong foundation heading into the second half of this year. As we progress through the year, our focus will be on positioning TPVG for the future, while continuing to maintain our strong portfolio yield and liquidity, as well as managing the portfolio. Turning to our quarterly results, we generated net investment income of $15.5 million, or $0.41 per share, and over-earned our regular quarterly dividend. Since going public in 2014, and including the first quarter dividend, cumulative dividends to shareholders now total $15.45 per share. Over this 10-year period, we've exceeded our dividends on a cumulative basis, and our objective is to continue to generate NII in excess of our regular quarterly dividend. Of note, we also continue to maintain sizable spillover income. During the quarter, We improved our gross leverage ratio to 1.27 times and further enhanced our liquidity, based primarily on prepayment activity, which included two prepayments totaling $30.8 million. During the quarter, we continue to manage the portfolio and are encouraged by a number of positive portfolio company developments and an increase in the value of the equity and warrant portfolio. One of these developments was the growing number of fundraising rounds by our portfolio companies, which we believe signals a sign of strength. During the quarter, eight of our portfolio companies completed rounds, raising $584 million in aggregate, representing a sizable quarterly as well as year-over-year increase. Additionally, post-quarter, Several companies have raised rounds and others are raising this quarter. We'll continue to prioritize TPBG's long-term position in the venture lending market, and we expect the remainder of the year to be more active. To this end, we're continuing on the path of diversifying the portfolio, including the sector and geographic rotation we've been talking about the last several quarters. In many respects, We think of it as being a new crop of investment sectors as well as venture growth company profiles. The NVCA labels it as a different camp of companies. In this environment, investors have become far more cautious and selective, and we believe the new and emerging crop of venture companies is strong. A number of venture growth companies have already gone through valuation resets and dealt with the market challenges. These are companies that have adjusted business models. They're on more moderate cash burn levels. They have reasonable growth objectives and are projecting paths to profitability. They're gaining a great deal of interest and traction from investors. Our focus will continue to be on investing in companies operating in these attractive sectors and ones that have recently raised fresh capital, have ample cash runways, have backing from our select venture investors, have prudent management teams, and whose business models have attractive unit economics and high retention rates. We'll also continue to evaluate hold sizes, debt to equity ratios, deal structures, and other key metrics. We're excited by the increase in signed term sheets. Following the 70% increase in venture growth signed term sheets that we experienced in the fourth quarter, term sheet signed by TriplePoint Capital increased an additional 30% in the first quarter to a total of 130.5 million. And here in the second quarter already, we've signed almost 30 million of new term sheets at TriplePoint Capital. Many of these signed term sheets are in investment sectors that are consistent with the same sectors that our select venture investors have and continue to shift into. This includes AI, cybersecurity, climate, and digital health. In addition, there's increased and renewed interest in vertical software, hardware and robotics, semiconductors, applied tech, environmental and sustainability technologies, and aerospace as examples. As we've been citing, this includes a number of our portfolio companies that are already operating in these stronger performing categories, with some making considerable progress, such as Corelight, Lost Orbital, Hover, Arcadia Power, Flash, Calderos, Overtime, and others. Through both discussions with our select VCs, as well as reflecting on transactions we've recently signed up, and others that we're continuing to evaluate in this market on an ongoing basis, new investment activity in particular has pivoted towards, no surprise, the artificial intelligence applications and infrastructure categories. Some of our companies come to mind. For example, K-Health, which pairs clinicians with advanced AI to provide data-driven personalized care around the clock. And FitOn, a leading digital wellness platform that serves as an always-on individual full gym and wellness coach with no equipment needed. Unifor, which introduced the first multimedia platform AI and data platform built specifically for the enterprise using generative, knowledge, and emotional AI is another one. Although the overall VC markets continue to remain sluggish, particularly for growth stages, there are a few emerging signs of future promise. Dry powder, the undeployed funds in venture capital firms, remain significant at $300 billion across the venture landscape. On an increasing basis, we are hearing the word optimistic make its way into more conversations with venture capital investors and companies. We're hearing it usually in connection with increased opportunities for new investments, but also on the outlook for a future pickup in venture M&A and IPO activities. We believe that once the ITL markets come back and M&A activity returns to more historical levels, it will be a sea change for growth stage companies, especially those companies within our portfolio that are outperforming in this market. It will also attract growth stage investors to return to the market. With our outstanding warrant positions in more than 97 portfolio companies, and equity positions within more than 46 portfolio companies, we believe we stand to benefit in this additional way to our debt returns when the market returns to a better M&A and IPO landscape. In the meantime, we'll continue to position TPVG for when the overall VC market conditions improve. Triple Point Capital, our sponsor, will continue to invest in its people and our platform, including building our originations and investment teams, portfolio management capabilities, and our support staff. TriplePoint is well positioned to capture the business as overall market conditions improve. For now, we'll remain active in the market and plan to continue building a pipeline consisting of venture growth stage companies position for strength under current market conditions. These are all critical elements for the long term that we believe position us to build NAV and create sustainable shareholder value. With that, I'll turn the call over to Sajjaf.

Thank you, Jim, and good afternoon. Investment pipeline activity increased for the third consecutive quarter as TriplePoint Capital signed 130 million term sheets with venture growth stage companies compared to $100 million in Q4 and $58 million in Q3, reflecting an increase in origination activity by our investment team, an increase in direct referrals from our select venture capital funds, and more importantly, an increase in what we believe are high-quality companies looking for debt financing. With regards to new investment allocation to TBVG during the first quarter, TriplePoint Capital allocated $10 million in new commitments with one new portfolio company to TBVG, compared to $4 million in new commitments with two existing portfolio companies in Q4, and $6 million in new commitments with three companies in Q3. The commitment made during the first quarter was to fit on an all-in-one health and wellness and preventative care platform. Here in Q2, we've closed $20.5 million of new commitments with one new portfolio company in the AI and software industry and one existing portfolio company in the financial technology industry. During the quarter, TVBG funded $13.5 million in debt investments to three portfolio companies, which is down from $24.4 million in debt investments to six portfolio companies in Q4, and slightly higher than the $12.7 million we funded to five companies in Q3. These funded investments carried a weighted average annualized portfolio yield of 14.3% at origination. Approximately 75% of the funding this quarter came from new investment origination during the quarter. Our quarterly gross funding target continues to be in the 25 to 50 million range, and we expect to be at the higher end of the range as we increase the allocation of new investments to TPVG over the course of the year. During Q1, we had 30 million of loan prepayments with prepayment-related income contributing to an overall weighted average portfolio yield of 15.4%, in line with the past two quarters levels of prepayment activity and portfolio yield. Excluding prepayment, core portfolio yield was 14.7%, up from 14.4% in Q4 and 14.1% in Q3. With regards to fundraising activity, as Jim mentioned, eight portfolio companies with debt outstanding raised $584 million during the quarter, up from five portfolio companies raising $157 million last quarter and three companies raising $47 million in Q3. Monzo represented the lion's share of the fundraising activity, having raised approximately $430 million at a $5 billion valuation during the quarter. This data does not include Metropolis or Cohesity's announced financings. As we discussed during our last earnings call, we are seeing capital raising activity within our portfolio picking up and have several portfolio companies either in active fundraising discussions or expecting to launch a fundraising process shortly. Approximately $200 million of new capital was raised by our portfolio companies in April alone. We believe this fundraising activity should bode well for the long-term credit quality of our portfolio companies as well as for the potential value of our warrant and equity portfolio. As of March 31st, we held warrants in 97 companies and held equity investments in 46 companies with a total fair value of $78 million. Our warrant and equity portfolio experienced a $6 million net unrealized gain in fair value, or $0.16 per share for the quarter, primarily driven by new equity round valuations, improving public trading multiples, and continued financial performance of our portfolio companies, as well as improving stock prices for our publicly held portfolio. During the quarter, the Align Company was acquired by Orchard Technologies, Dia and Company was acquired by Full Beauty Brands, and Underground Enterprises completed its asset sale and liquidation process. Dia and Underground were removed from the credit watch list, and we realized losses of $8.9 million from these events, of which 5.1 was previously recognized on an unrealized basis in prior quarters. During the quarter, two companies were downgraded from category two to category three, primarily due to short runway in conjunction with upcoming financing or strategic events already underway, and are expected to be either upgraded or removed from the watch list upon completion. One portfolio company, TFG Holdings, with a fair value of approximately 18 million was downgraded from category three to category four during Q1 and was acquired here in Q2. Our loan has been paid off in cash and a seller note in line with our mark for Q1 and will be removed from our watch list in Q2. One portfolio company, Outdoor Voices, which is in the strategic process, was downgraded from category four to category five and we expect the process to be completed in Q2. While our total percentage of Category 3, 4, and 5 investments rose slightly this quarter, I would like to point out that we expect upgrades to a few of our Category 3 rated investments over the course of 2024 as a result of achieving sustained profitability and or completing financing events that are underway, as well as the fact that we've already removed TFG, a Category 4 rated loan here in Q2, as a result of its acquisitions. Managing our existing portfolio continues to be a high priority for us. As a result of increased equity fundraising, increased acquisition activity, and improving operational performance by our portfolio companies, we expect credit to continue to stabilize over the course of 2024 with the frequency of new credit development slowing, and in certain cases, the potential for upgrading of credit ratings. With regards to new investment opportunities, as Jim mentioned, we are seeing what we believe are more companies of higher quality starting to come to the equity and debt markets, and we believe that these new investments have the potential to be a very strong vintage of venture capital and venture lending opportunities. We believe our efforts over the past year to reduce leverage and unfunded commitments, to boost liquidity from prepayments and repayments, proceeds from sale under our ATM program, as well as extending and the upcoming renewal of our credit facility, put TBVG in a position to take advantage of the improving pipeline of new deals as the year unfolds. We believe that by returning to portfolio growth over the course of 2024 and into 2025, and by continued focus on smaller hold sizes and industry sector rotation with companies that have generally recently raised new equity capital, we will continue along our goals of increased portfolio durability and diversification. As we look to onboard new loans, we intend to maintain our strong yield profile not only by maintaining spreads, but also by continuing to incorporate fixed-rate investments, which along with anticipated portfolio growth, will bode well for our ability to continue to cover our dividend. Finally, as equity fundraising activity continues by our portfolio companies and public market multiples improve, we expect to see improvements in the fair value of our warrant and equity portfolios. In closing, we remain focused on our business and will continue to follow our long-term playbook of generating strong returns for fellow shareholders, and we look forward to what's in store for TPBG and our shareholders for what we believe will be improving conditions in both the overall venture capital and venture lender markets over the course of 2024 and 2025. With that, I'll now turn the call over to Chris.