TRIN - NASDAQ

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" Compass Point Research

" Jefferies LLC

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" Keefe, Bruyette, & Woods

" Wells Fargo Securities

" B. Riley Securities

" Ladenburg Thalmann

Good morning. My name is Angela, and I will be your conference operator today. At this time, I would like to welcome everyone to Trinity Capital's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] It is now my pleasure to turn the call over to Ben Malcolmson, Trinity Capital's Head of Investor Relations.

Thank you, and welcome to Trinity Capital's Third Quarter 2025 Earnings Conference Call. Speaking on today's call are Kyle Brown, Chief Executive Officer; Michael Testa, Chief Financial Officer; and Jerry Harder, Chief Operating Officer. Joining us for the Q&A portion of the call are Ron Kundich, Chief Credit Officer, and Sarah Stanton, General Counsel and Chief Compliance Officer. Earlier today, we released our financial results, which are available on our website at ir.trinitycapital.com. Before we begin, please note that certain statements made during this call may be considered forward-looking under federal securities laws. Please review our most recent SEC filings for further information on the risks and uncertainties related to these statements. With that, please allow me to turn the call over to Trinity Capital's CEO, Kyle Brown.

Thanks, Ben, and thanks, everyone, for joining us today. To start off, we're pleased to highlight several key achievements from a strong Q3 for Trinity Capital as we continue to mature as a best-in-class alternative asset manager focused on the private credit space. We delivered $37 million in net investment income, a 29% increase compared to Q3 of last year. Our net asset value grew 8% quarter-over-quarter to a record $998 million. Platform AUM increased to more than $2.6 billion, up 28% year-over-year. We maintained strong credit quality with nonaccruals at 1% of the portfolio at fair value. And we distributed a third quarter cash dividend of $0.51 per share, marking the 23rd consecutive quarter of a consistent dividend for our shareholders. Trinity Capital continues to outperform across key metrics. Our return on equity and effective yield rank among the best in the BDC space. Our NAV has grown 32% year-over-year, while our credit metrics have remained consistent. Since our IPO nearly 5 years ago, Trend stock has delivered a cumulative return of 114%, far outpacing both the peer average of 63% and S&P 500 78% over the same time period. And looking forward, we have a growing asset management business, generating new income as well as 210 warrant positions in 133 portfolio companies, which have the potential to provide incremental upside to our shareholders as IPO and M&A activity continue to rebound. We entered the fourth quarter with excellent momentum. And in Q3, we funded $471 million, bringing year-to-date investments to $1.1 billion, nearly matching all of 2024's total. Our investment pipeline remains robust with $773 million of new commitments in Q3 and $1.2 billion in total unfunded commitments as of quarter end. Important to note that 94% of our unfunded commitments remain subject to rigorous ongoing diligence and investment committee approval, while only 6% of these commitments are unconditional. Our originations activity reflects consistent growth in all our verticals across the Trinity platform. It's a powerful flywheel fueled by our lead team of originators, and we own the pipeline. We do not depend on syndicated deals and have immaterial overlap with other BDCs, all of which give our investors access to a highly differentiated portfolio of investments through our 5 business verticals. All the while, we remain deeply committed to disciplined underwriting and credit performance, which are the bedrock of our long-term success. I would like to touch on 2 noteworthy topics concerning the private credit space. First, let's talk about rate cuts. To date, rate cuts have had a limited impact on our business. Unlike most BDCs, the majority of our loans include interest rate floors at or near the original closing levels. This means that when rates decline, our income does not decline proportionately. Looking ahead, additional rate cuts are expected to have a muted impact on our returns, partially due to a majority of our portfolio having already hit their floor rates, which could drive some early repayments and the capturing of prepayment fees and restructuring fees. Further rate cuts would also lower our borrowing costs by reducing the interest expense on our floating rate credit facility. And secondly, PIK is a nominal portion of our income with less than 2% of our income based on PIK. We continue to strategically raise equity, debt and off-balance sheet vehicles to fuel our growth. In Q3, we raised $83 million of equity through our ATM program at a 19% average premium to NAV. We closed a new joint venture with a large asset manager to provide new liquidity and earnings. We converted a separate vehicle into a private BDC, which is now actively raising money. In addition, we're in the process of raising outside capital for our third SBIC fund, which provides low-cost leverage and is expected to add over $260 million of capacity to our platform. Together, these initiatives underscore our ability to scale the platform and expand investment capacity. The funds I just discussed are managed by our wholly owned RIA Trinity Capital Advisor, which manages third-party capital and generates new income above and beyond the interest and equity returns from our BDC's investment portfolio. As shareholders of Trinity Capital, investors benefit from the fees collected by our managed fund business. I'm going to be a broken record on this point in every call going forward. What we are building is not your typical BDC. We are building a platform that can scale while driving up earnings and NAV. We believe our consistent performance is driven by our differentiated structure, disciplined underwriting and world-class team. Our 5 complementary business verticals, sponsor finance, equipment finance, tech lending, asset-based lending and life sciences position us to maintain a diversified portfolio while staying closely aligned with our core competencies. Each vertical is supported by a dedicated originations team, underwriters, portfolio managers, together forming a highly effective and scalable operating model. Structurally, as an internally managed BDC, our employees, management and Board hold the same shares as our investors, promoting complete alignment of interest and a shared commitment to delivering consistent dividends and long-term value. This structure also supports a premium valuation as shareholders benefit from ownership of both the management company and the underlying assets. In addition, the management and incentive fees generated through our managed funds business flow directly into the BDC, creating incremental income streams, enhancing valuation and fueling platform growth, all for the benefit of our shareholders. From a talent perspective, we're passionate about fostering a vibrant culture rooted in humility, trust, integrity, uncommon care and continuous learning with an entrepreneurial spirit. Our unique culture enables us to attract and retain the best people in the industry and fuels our continued growth trajectory. From the onset, our goal has been clear to consistently outearn our dividend while growing the BDC. We continue to deliver on that mission. Trinity Capital is strategically positioned within the private credit market, supported by a differentiated pipeline, disciplined underwriting and a growing platform. And on the capitalization front, we're laying the foundation for a managed funds business that will expand our direct lending strategy and create additional income streams for Trinity shareholders. Overall, we remain very bullish about the opportunities before us. We're committed to building a company that aims to deliver outsized returns for our investors while demonstrating uncommon care for our people and partners. And with that, I'll turn the call over to our CFO, Michael Testa, to discuss our financial results in more detail. Michael?

Thanks, Kyle. Our operational and financial performance remained strong in the third quarter. We generated $75.6 million in total investment income, a 22% year-over-year increase and $37 million in net investment income or $0.52 per basic share, representing 102% coverage of our quarterly distribution. Estimated undistributed taxable income is approximately $63 million or $0.84 per share, which we continue to reinvest for the benefit of our investors while maintaining a consistent and meaningful distribution. Our platform continues to deliver top-tier performance, generating 15.3% return on average equity, among the highest in the BDC space. And our weighted average effective portfolio yield remained strong at 15% for the quarter despite the declining rate environment. Net asset value per share increased from $13.27 at the end of Q2 to $13.31 at the end of Q3, reflecting accretive capital raises. Total NAV rose 8% to $998 million, up from $924 million at the end of Q2. We further strengthened our capital base by raising $83 million through our equity ATM program during the quarter at an average premium to NAV of 19%. With no debt maturities until August 2026, our balance sheet and capital structure remains strong and positioned to scale earnings per share while maintaining moderate leverage. Our co-investment vehicles continue to enhance returns, contributing approximately $3.3 million or $0.05 per share of incremental net investment income in Q3. We syndicated $120 million to these vehicles during the quarter and as of September 30, managed $409 million in assets across our private vehicles. Our net leverage ratio increased slightly to 1.18x at quarter end. With strong liquidity, diversified capital sources and capacity across the Trinity platform, we are well-positioned to underwrite a robust pipeline, maintain strong credit discipline and deploy capital into high conviction opportunities. To discuss our portfolio performance in more detail, I'll now pass the call over to our COO, Jerry Harder. Jerry?

Thank you, Michael. Our portfolio continues to demonstrate exceptional strength, driven by broad diversification across 21 industries with no single borrower representing more than 3.4% of total exposure. Our largest industry concentration, finance and insurance accounts for 15% of the portfolio at cost, diversified across 20 borrowers. Credit quality remained consistent quarter-over-quarter with 99% of investments performing at fair value. On our 1 to 5 scale, where 5 indicates very strong performance, the average internal credit rating was 2.9, consistent with prior quarters and reflecting the addition of high-quality originations and continued strong portfolio management. Quarter-over-quarter, the number of portfolio companies on nonaccrual remained steady at 4. During Q3, one new company was added to nonaccrual status, while prior nonaccrual investment was realized and rolled off. As of September 30, nonaccruals totaled $20.7 million at fair value, representing 1% of the total debt portfolio. At quarter end, 84% of total principal was secured by first position liens on enterprise value equipment or both. For enterprise-backed loans, the weighted average loan-to-value stood at 18%. During Q3, portfolio companies collectively raised $2.3 billion in equity capital, underscoring both the strength of our borrowers and their continued access to capital in the current environment. Looking ahead, our momentum, disciplined underwriting and diversified platform position us to continue delivering consistent dividends and NAV growth. With a shareholder-first mindset, our team remains focused on building a top-performing BDC that generates sustained long-term value for our investors. Before we conclude our call, we'd like to open the line for questions. Operator?

[Operator Instructions] Our first question comes from Casey Alexander with Compass Point.

You noted that you have $409 million off-balance sheet assets and a new JV. I'm just curious how much current capacity do you have in the off-balance sheet vehicles at this point in time? I know that number can grow because you can always create more of them, but I'm curious how much capacity you have there at this time.

Yes. Casey, there's -- I think with the question looking at our liquidity and our ability to allocate investments each quarter, it grew this quarter. You saw that. I think you'll continue to see that in our allocation policy, we look to which vehicles have more liquidity than others. And those are going to get more share or a higher share, but we're consistently allocating based off of available liquidity. So, I don't think in any period, one vehicle like the BDC that has more liquidity would be under-allocated investments.

We're going to try to grow it as much as we can. I mean that's like the strategy, though, Casey, is the more capital we can raise via the RIA and the various funds we're setting up, that's just new income, right, and above and beyond what our loans generate. And it has a huge impact on our earnings long-term. So, our goal is to grow it as fast as possible. We've got our new BDC that we manage, and we're out there raising money through the kind of wealth channel. And then we have a couple of larger partnerships with large credit funds. that we're now managing, and we're going to try to funnel as much as we can there. And so long as we stay really active and grow kind of the manufacturing side and deployment side of the business, it gives us new earnings potential going forward.

I get all that. But how much capacity do you have at the moment?

Yes. So currently, the new vehicle is just ramping up. So, there's $200 million or so of current capacity there. We'll look to increase that by setting up a debt facility there. And then the other 2 vehicles, they're probably 75% or so funded to date, and those had the benefit of increasing capacity as we deploy or raise additional equity as well as leverage in each of those 2.

We'll go next to John Hecht with Jefferies.

Congrats on another good quarter. A little bit of a related question to the last question is you guys are in 5 verticals. You have multiple funds you run, I guess, but you are focused on scaling the enterprise. How do we think about the capacity of the team right now? How much can that originate and manage in a period? And what are kind of the thresholds where you would need to bring in new resources in any of those verticals?

Yes. So, we have continued over the last 5 years to be about a year ahead from an employment standpoint. We're planning out 1-, 3-, 5-year plans, and we've hired in advance of that. And so, we're reaching some interesting points right now where we have some efficiencies of scale. And a lot of our deployment growth and AUM growth doesn't necessarily correlate to employment additions, at least in the same way. But we are -- we have a -- with our 5 verticals right now, we have a road and a path towards continued growth with the team that we have. And we're still hiring and we're still recruiting great talent, but we've already hired for what we think is a very achievable 2026 plan right now.

Yes, I guess -- this is Jerry. I would add to that, right? The current managed accounts are co-investment vehicles, right? So, they're taking ratable portions of the investments in the 5 verticals where we're already performing. And so, we don't need to add any additional types of capability. The businesses we've been doing for a longer period of time, tech lending, equipment financing, life sciences lending are at or very close to scale, right? So, we're continuing to scale in some of the newer verticals, the sponsor finance and ABL. So, you might see some headcount growth there in '26, but the other businesses are pretty well scaled.

And then another question is you noted that given your unique footprint and the unique and the verticals, there's limited overlap with other BDCs -- so I guess a couple of questions on that is, one is, who do you perceive as your competition in the various verticals? And second is, I guess, given a lower amount of overall competition, how are kind of new deal spreads relative to where they were, say, 6 months ago?

Yes. I mean, to answer your last question there, we just -- we don't see the same rate compression or spread compression and difficulties that the middle market and upper middle market are experiencing right now for a handful of reasons, right? Our verticals are more niche in nature. They're still big markets, and we can really scale them in a unique way. But in our world, we're dealing directly with the company, the CEO, the CFO, the team, we are underwriting the transaction. We're not out there buying syndicated deals and doing some of the things that private credit companies in the middle market and upper middle market are doing. Because of that, it's a very relationship-driven business. And in our space, where we write $20 million to $100 million checks, there's less competition. And so, we just -- we have not seen that spread compression. We're still delivering great returns well above your typical BDC or private credit company in the middle market. When it comes to competition, it's going to vary in a really unique way depending on the vertical. And so I could sit here and list out multiple competitors for each individual vertical, but we are tracking ourselves to other BDCs from a competition standpoint and performance standpoint, and we're trying to be -- what we're building and what we're trying to perform to here is a best-in-class BDC on the KPIs that matter there, NAV growth, a consistent dividend, right? Earnings per share, keeping it consistent, growing. having our nonaccruals stay incredibly low and being a very, very consistent yielding BDC for investors. And so, I hope that answers your question. I can spend a lot of time going through and trying to figure out the top competitors in each individual vertical, but we're really tracking towards being a best-in-class BDC.

Our next question comes from Doug Harter with UBS.

This is Cory Johnson on for Doug. I noticed that the compensation expense over the last couple of quarters has been going up quite a bit. Can you talk about a little bit about why that's the case? Is that just -- is that more hiring? Are there other possible like one-timers in there? And do you expect that to sort of continue to grow over the next coming quarters?

Yes, that's us ramping up. I mean that's hiring. We've added to the team, added some incredible talent to the team, and we're growing. And we also launched a team in the U.K. and an office there to replicate the success we've had here in the U.S. And so not onetime expenses, but just further team growth. And additions to the team, we're still in growth mode. And as far as the way we compare ourselves to our larger peers, we're very small, and we have a lot of growth potential and opportunity in front of us, and we're going to keep growing.

And then just also it looks like you were able to make good progress on your watch credit. Can you maybe just talk a little bit about what exactly occurred there? And then how are your portfolio companies in general, just how are they doing in regards to being able to raise additional investor capital?

Yes. This is Jerry. I can take that one, Cory. So yes, the watch decreased significantly from Q3 that -- so we're pleased with that. One of the particular companies landed on the watch list in the prior quarter as they were trying to close some financing. They've got both a term sheet for financing and an offer for M&A. So, we're feeling much more secure about that position. One of the companies on watched prior quarter became partially realized. And so, the loan portion that remains went on nonaccrual. So went from watch downward. But overall, portfolio health is good. We continue to monitor closely. You'll hear us say all of our verticals include their own originations, underwriting and portfolio management. And overall, portfolio health, we're happy with at this point in time.

[Operator Instructions] Our next question comes from Paul Johnson with KBW.

Can you just maybe if you can take us a little bit further through what, I guess, occurred with kind of Nomad Health during the quarter. It looks like you chose to write off a pretty significant portion of that prior to that investment going on nonaccrual. So, I'd be curious to hear kind of what transpired there.

Yes. It's a little -- this is Jerry again. Thanks for the question. A little bit complicated. So, the investment, as I mentioned in the prior question, was partially realized. So, what ended up happening about 2/3 of that debt position was converted to equity. So that's realized from the accounting perspective. That's a realized transaction. And this is where you see the impact to NAV from that investment. The remaining 1/3 remains debt out of an abundance of caution. We're keeping that on nonaccrual as this plays out. And it's an interesting situation because the equity portion of the transaction is realized, but the story is far from over, right? The company continues to exist, and we're optimistic that, that can accrete some value and be a good story at the end of the day. But mark-to-market, this is where it is right now, and that's what you're seeing reflected in the SOI and the realized results.

Appreciate that. I mean, why would you choose to take a more accelerated approach to that, I guess, and basically realize or charge off so much of the investment in a relatively kind of accelerated fashion. I mean, was there anything sort of atypical here in the outcome of the situation that was just different from what you expected and this was kind of the best path forward?

Yes. Michael and I were talking about that just yesterday, right? So not really atypical in terms of how the investment was handled. And the realized portion is realized from an accounting perspective, right? And that's GAAP accounting, how we have to do it. And so, it wasn't really an election that we elected to do it that way. The debt portion that was converted to equity is realization. And so, we marked that equity position to market, which you could argue is pessimistic or optimistic. But the company remains, they're operating. And I would say from the equity standpoint, there's far more upside than downside at this point.

So as a result of the restructuring, are you in the control of the equity at this point? Or where do you, I guess, fall in terms of your ownership and what you kind of have in the residual.

It's not a control position, but we have a significant stake and a seat at the table as the company moves forward.

And one last thing for me. I was just wondering just kind of broadly, if you could touch on, if any -- if there's sort of any underlying exposure within the portfolio to consumer receivables either via any of the fintech investments, any of those companies that rely on any sort of -- any one of those receivables structures? That's all for me.

No. The answer is no. The portfolio is incredibly granular and diversified, very little exposure to anything consumer whatsoever. And anything that is consumer is very sticky, has strong retention of customers, and we have a very high mark for any kind of consumer deal to get to the finish line here. And so no, I mean, the portfolios remains incredibly stable with 99% of it performing. And then we focused on one individual credit out of over 100 here, but historically, our loss rate has remained very low with our realized gains offsetting all losses and providing some incremental upside to investors. And so, we don't see any trends that would reflect any change from our historical performance over nearly 20 years on that loss rate.

Yes. And specifically on 2 items that you called out, our asset-based lending is focused on B2B receivables. And those, frankly, are some of the highest performing financings in the portfolio. And with respect to consumer, on our SOI, 2.4% at fair value of our portfolio is what we would classify as consumer products and services. So very low exposure to consumer.

Our next question comes from Finian O'Shea with Wells Fargo Securities.

Kyle, it sounded like we're still pretty upbeat on growth. Can you talk about the split between the BDC issuing in the market, secondary ATM and so forth versus the RIA? And then should we expect the BDC had a pretty good bit this past quarter. Share prices across the industry are also lower. So, seeing if you think that it's as attractive in the context of what you're seeing in the origination pipeline?

Yes. I'll start at the end there. The pipeline is exploding, where we deal, which is late-stage VC-backed companies heading towards an IPO or liquidity event into the lower middle market, $3 million to $15 million of EBITDA sponsor-backed, like this market is robust. It's growing. Private credit companies who have raised too much money, who have to deploy too much money. They're focused on middle market, upper middle market. It's just wide open, and we are seeing kind of a really robust pipeline right now in our -- where we deal. As far as capital raising goes, everything comes down to earnings per share, EPS, and when we talk about and we meet twice a week, our executive team and FP&A group on how we're going to capitalize, how we're going to raise capital to meet the deployment needs that our business has. And it all comes down to EPS and making sure we don't dilute shareholders, right? I mean I'm one of our largest shareholders of Trinity, our executive team and every single person in our company owns Trin shares. We have no incentive to dilute shareholders. And so it's always a combination of equity issuances at the BDC level, downstreaming assets into our new funds that we've set up and with a huge emphasis on raising third-party capital, which we can generate new management fees, incentive fees and then the more permanent capital vehicles or permanent like that we set up, our RIA has NAV growth and NAV accretion because we can value those long-term income streams. And it's just icing on the cake for our shareholders. And so, we're hyper focused on EPS, making sure it's consistent. And we have been working for a couple of years now on building that foundation to where we can see it grow with our managed fund business, and we're there, and we're scaling and executing on that plan right now. So, it's a really exciting time for us.

And just a follow-up on the sort of exploding pipeline -- managers across the space, they're sort of mixed. Some are more optimistic that it will come back, but no one else is really saying that. No one is that excited. Now to be fair, we haven't heard all of the venture peers yet. So maybe that will transpire in the more life side or tech front. But seeing if there's any concentration there, are you seeing a lot more in, say, late-stage growth or equipment finance vis-a-vis like an ABL or a sponsor finance?

So, we've got 5 different verticals, and it's becoming more and more balanced across those verticals. People still think of us as a venture debt business. You're not a venture debt business. That's about 25% of our deployment. thereabouts. And we have a huge emphasis on equipment right now. We're seeing more and more CapEx needs for U.S.-based companies who are manufacturing their goods here. We're seeing more and more needs for asset-backed lending for companies that have -- that are disrupting the kind of legacy financial sector. We are seeing more and more of these lower middle market companies get picked up and bought, and there's a need for financing there. And so, we are -- and we've been doing this for years now, but we have been diversifying into complementary segments of the market. And so no, there's no concentration in any one of our verticals right now. It's pretty spread out, and the portfolio is looking more and more spread out each quarter.

Our next question comes from Sean-Paul Adams with B. Riley Securities.

It looks like nonaccruals were relatively flat quarter-over-quarter, but the overall rankings for the watch and defaults within the portfolio went down by approximately half. Can you just share a little bit more color about any changes in the portfolio health for those companies?

Yes. I mean, thanks. That was noted on an earlier question. So yes, nonaccruals was pretty consistent. Watch list credits dropped significantly compared to prior quarter. And we saw movement both up and down, right? So, the current nonaccrual includes an investment that was prior on watch. And then 2 other investments were promoted out of watch list as they raised capital and continue to improve their performance. So overall, we think the health of the portfolio is as strong as ever. The credits on the watch list are the ones that we're obviously working most actively, but seeing fewer members in that club is definitely a good thing.

And we'll go next to Christopher Nolan with Ladenburg Thalmann.

What's the plan on the leverage ratio going forward, up or down?

Plan is down for a variety of reasons, right? Right now, we utilize it and kind of scale it up as we load up on deals and then downstream them into our new funds that we're setting up. But long-term, our ability to generate new income via the RIA gives us the ability and have liquidity there, gives us the ability to lower that leverage ratio. We're not trying to maximize returns. I mean we can ratchet that thing up and generate better earnings per share, but that's not the plan. The plan is to lower the leverage, create ample liquidity so we can be opportunistic at the right time and get the proper ratings that will give us the ability to lower our cost of debt capital. And so, our off-balance sheet growth and activity really gives us that ability to lower that leverage ratio over time.

Now the off-balance sheet vehicles, and you guys are not the only ones who do this, but things such as an SLF, I mean, isn't that just sort of like second lien type of risk there? I mean because -- you're in equity in a levered vehicle, inside a levered vehicle.

No. I get that, that's how some BDCs do JVs to ramp up leverage. That's not what we're doing. We're raising third-party capital that we can utilize and co-invest alongside of the loans we're funding and then charge management fees and incentive fees. And we have very little equity in any of those deals. Some we don't have any. And so, we're doing it very different. It's a fund management business where we can offer to investors who can't hold a public security. It gives us the ability to offer up our manufacturing to a different subset of investors and generate income by doing so.

And final question for these off-balance sheet vehicles, are they set up like a fund where investors can call their investments at some point?

Right now, no. Right now, we have a couple of separately managed accounts. And then we have a perpetual BDC, private BDC that investors can -- and it's focused on the wealth management segment. Those are the 3 funds we have currently. But what this gives us the ability to do is raise funds in whatever way we need to. And so, we are exploring a larger institutional co-investment fund. And then we are in the middle of fundraising and closing out our third SBIC fund, which is focused primarily on banks and investors that have had success with us in our previous 2 SBIC funds. So, it's going to come in multiple forms so that we can be investors where they are.

It appears we have no further questions at this time. I will now turn the program back to Kyle Brown for any additional or closing remarks.

Great. On behalf of the Trinity Capital team, thank you for joining us today. We appreciate your continued interest and investment in Trinity Capital. We look forward to sharing our fourth quarter and 2025 results on our next earnings call in February. Have a great day. Thanks.