TPVG - NYSE

Good afternoon, ladies and gentlemen. Welcome to the TriplePoint Venture Growth BDC Corp. Second Quarter 2025 Earnings Conference Call. [Operator Instructions] 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 2025. Today, representing the company is Jim Labe, Chief Executive Officer and Chairman of the Board; Sajal Srivastava, President and Chief Investment Officer; and Mike Wilhelms, Chief Financial Officer. Before I turn the call over to Mr. Labe, 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 be -- 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. Labe.

Thank you, operator. Good afternoon, everyone, and welcome to TPVG's second quarter earnings call. Before I get into the second quarter update, I'll remind everyone that our focus remained on taking steps to increase the scale, durability and the income-generating assets of TPVG and our sights are set on setting the stage now for the future. I'd also like to highlight that TPVG sponsor and adviser implemented two measures that we believe further strengthen their alignment of interest with TPVG shareholders and which I'll get into a little later in my remarks as well as aligning our distribution level with our current earnings. The second quarter marked another quarter of increased investment activity. We grew the debt investment portfolio to $663 million at cost and continue to capitalize on the strong demand from venture growth stage companies in the favorable investment sectors that we're focused on these days. Signed term sheets with venture growth stage companies at our sponsor, TriplePoint Capital, finished strong last quarter. Over the last 3 quarters, we now have signed term sheets for venture growth stage companies that have exceeded $875 million. Both debt commitments and fundings also increased during the quarter, reaching their highest levels since fiscal 2022 and which helped translate into Q2 fundings that exceeded our guided range. This is the highest level of funding activity in the last 10 quarters. At quarter's end, our pipeline also continued to remain at near record highs since its peak back in 2021. While we anticipate that these notable increases in signed term sheets and commitments all bode well for future growth, we expect this portfolio growth is going to take some time and to materialize over the next several quarters because of the level and amount of prepayment and also the rate of utilization of our unfunded commitments over the course of the year. Touching on the market, while some uncertainties and volatility certainly remain in the venture capital market here in Q2, investment activity continued and venture growth-stage deal activity surged driven by the persistent momentum going on in the AI space. According to PitchBook-NVCA, for the first half of 2025, $84 billion of venture growth stage investments were deployed across an estimated 499 deals. PitchBook also noted positive developments in the broader venture capital IPO market and the M&A markets in Q2, generating $68 billion across 294 exit, marking the highest quarterly value since Q4 2021. There really has been an increase in M&A and IPO activity for sure, although somewhat limited, but increasing last quarter. Given TPVG's relatively sizable equity and warrant portfolio, we stand to unlock value in the portfolio as the exit market continues to evolve, and this window I've been talking about opens up a little further. As an example, we have substantial holdings in Revolut. We also have warrant positions in some leading companies, which are reported publicly as potential future IPO candidate. It includes names such as Cohesity, Revolut,

Thank you, Jim, and good afternoon. Regarding investment portfolio activity during Q2, TriplePoint Capital signed $242 million of term sheets with venture growth stage companies compared to $188 million of term sheets in Q2 2024 and $315 million in Q1 2025. With regards to new investment allocation to TPVG during the second quarter, TPVG -- sorry, TPC allocated $160 million in new commitments with eight companies to TPVG compared to $52 million in Q2 2024 and $77 million in Q1 2025. 75% of the portfolio companies we extended commitments to during the quarter were new customers, all of which fall in the AI and enterprise software sectors, reflecting our focus on obligor diversification and sector rotation. During the second quarter, we exceeded our guided range and funded $79 million in debt investments to nine companies as compared to $39 million to five companies in Q2 2024 and $28 million to five companies in Q1 2025. These funded investments carried a weighted average annualized portfolio yield of 12.3%, down from 13.3% in Q1. During Q2, we had $44 million of loan prepayments, resulting in an overall weighted average debt portfolio yield of 14.5%. Excluding prepayments, our core portfolio yield was 13.6%, which was down from 14.1% in Q1. During the quarter, we grew our debt investment portfolio for the first time materially since Q1 2023 as a result of new fundings exceeding both prepayment, repayment and amortization activity within the portfolio by $31 million. Although we continue to see robust demand for debt financing from venture growth stage companies as demonstrated by our $114 million of new commitments and $21 million of funding so far in Q3, our quarterly target for new fundings continues to be in the $25 million to $50 million range for Q3 2025 with the potential to be at the higher end or slightly above the range in Q4. However, we continue to expect at least one repayment event per quarter this year, which will likely result in our ability to achieve substantial portfolio growth occurring over the course of 2026, when we expect prepayment activity to slow down and potentially our quarterly new debt funding range to expand. Five portfolio companies with debt outstanding raised $216 million during the quarter, compared to four portfolio companies raising $137 million in Q1. As of quarter end, we held warrants in 106 companies and equity investments in 52 companies with a total fair value of $127 million, up from Q1 as a result primarily of a $7.3 million markup in our warrant and equity holdings in Revolut. Our markup this quarter reflects an adjusted value based on the annual financial statements Revolut filed in April, which announced revenues of $4 billion, up 72%, and net profit of $1 billion, roughly double from 2023. In July, it was reported that Revolut raised $2 billion of equity at a $75 billion valuation, which bodes well for further potential appreciation of our holdings as well as does the successful U.S. IPO of Chime, which operates in a similar sector to Revolut. During the quarter, one company with a principal balance of $2.1 million was downgraded from Category 2 to Category 3 due to delays in strategic and/or fundraising process, but we believe remains on track, and one company, Frubana, a B2B marketplace for restaurants and retailers in Latin America with a principal balance of $11 million was downgraded from Category 2 to Category 4 as a result of investors walking from a signed term sheet and withdrawing their support for the company. We are working with the company and their advisers to evaluate strategic options for the company to maximize value and recovery. While we are starting to see improving market conditions in the venture market as a whole, there continue to be events which adversely impacts specific sectors or subsectors and cause certain types of investors to pull back or cause transactions, including M&A, to be delayed or fall apart despite continued underlying performance by the company and result in its accelerated decline. We will continue to real-time assess portfolio company developments performance and outlook over the course of the year and update our marks and values accordingly. With regards to tariffs, as we discussed last quarter, although the situation continues to evolve, we have reviewed our portfolio and have not seen any material impact to those few companies that may have some U.S. tariff exposure. Most of these companies have been actively working to explore opportunities to change their supply chains and source products in lower tariff regions, increase pricing and/or expand their sales outside of the U.S. In closing, we remain aligned, disciplined and mindful of the volatile market environment while executing on our plan for positioning TPVG for the long term by building overall scale, diversification and durability, targeting well positioned and well-capitalized new customers in attractive sectors and driving investment fundings and our earnings power to build shareholder value. With that, I'll now turn the call over to Mike.

Thank you, Sajal, and hello, everyone. During the second quarter, we funded $79 million of new debt investments, up from $28 million in the prior quarter, and received $45 million in prepayments and early repayments, driving a net increase of $31 million in our debt investment portfolio at cost. As of June 30, 2025, the company had total liquidity of $313 million, consisting of cash, cash equivalents and restricted cash of $63 million and available capacity under its revolving credit facility of $250 million. Of the $250 million of available capacity under the revolving credit facility, there was $91 million of available borrowing base that could be drawn as of June 30, 2025. We ended the quarter with $185 million of floating rate unfunded investment commitments, of which $27 million was dependent upon certain portfolio companies reaching specific milestones. Our unfunded investment commitments expire over the next 2.5 years, with $20 million expiring in 2025, $88 million expiring in 2026, and $77 million expiring in 2027. The end of quarter unfunded commitments represent a 58% increase from the prior quarter, reflecting the continued expansion of our investment pipeline over recent quarters and successful conversion of signed term sheets into closed commitments. We ended the quarter with a leverage ratio of 1.22x. After netting the cash on our balance sheet, net leverage stood at 1.04x. Given the cash we have on our balance sheet, the available borrowing base at quarter end and our target leverage range of 1.3x to 1.4x, we believe we have ample funding capacity for unfunded commitments and for the upcoming refinancing discussed later in my prepared remarks. Turning to our operating results. For the second quarter, total investment income was $23.3 million, with a portfolio yield of 14.5% as compared to $27.1 million with a portfolio yield of 15.8% for the prior year period. The decrease in total investment income was due primarily to a lower average debt portfolio as compared to a year ago while the lower portfolio yield reflected the impact of prime rate reductions and less accelerated prepayment income in the quarter. For the second quarter, total operating expenses were $12 million as compared to $14.5 million for the prior year period. These expenses consisted of $6.7 million of interest expense, $3.3 million of base management fees, $629,000 of administrative agreement expenses and $1.4 million of G&A expenses. Due to the shareholder-friendly total return requirement under the incentive fee calculation, the incentive fee waivers from the company's adviser, there were no income incentive fees during the second quarter of 2025. In the current quarter, $1.3 million of income incentive fees were earned but fully waived by the adviser. As a result of the fee waivers mentioned by Jim earlier, we will not incur any income incentive fee expense for the remainder of 2025. The company's net investment income for the second quarter of 2025 was $11.3 million or $0.28 per share as compared to a net investment income of $12.6 million or $0.33 per share for the second quarter of 2024. For the second quarter of 2025, net realized losses on investments totaled $32,000. During the second quarter of 2024, the company recognized net realized losses on investments of $18.8 million. Net change in unrealized gains on investments for the second quarter of 2025 was $1.9 million, consisting of $6.8 million of net unrealized gains on the existing warrant and equity portfolio resulting from fair value adjustments and $5.8 million of net unrealized gains from foreign currency adjustments, partially offset by $10.7 million of net unrealized losses on the debt investment portfolio resulting from fair value adjustments. During the second quarter of 2024, the company recognized net unrealized gains on investments of $14.9 million. The company's net realized and unrealized gains were $1.9 million for the second quarter of 2025 compared to net realized and unrealized losses of $4.0 million for the second quarter of 2024. The company's net asset -- sorry, the company's net increase in net assets resulting from operations for the second quarter of 2025 was $13.2 million or $0.33 per share as compared to a net increase in net assets resulting from operations of $8.6 million or $0.22 per share for the second quarter of 2024. As of June 30, 2025, net asset value was $348.7 million or $8.65 per share compared to $347 million or $8.62 per share as of March 31, 2025. On August 5, our Board declared a regular quarterly dividend of $0.23 per share payable on September 30 to shareholders of record as of September 16. While we remain focused on increasing net investment income in the coming quarters, we reduced the dividend from $0.30 to $0.23 per share to better align distribution levels as fundings from newer commitments continue to ramp and prepayment activity remains present in the portfolio. We believe this adjustment also positions the company to overearn future dividends and prepare for the anticipated increase in our cost of debt capital as we look ahead to refinancing $200 million of our $375 million in total fixed rate notes maturing in the first quarter of 2026 with a 4.5% fixed coupon. At quarter end, we had estimated spillover income of $42 million or $1.04 per share. Now an update on our capital structure and liquidity. As of quarter end, total debt outstanding was $425 million, consisting of $375 million in fixed rate investment-grade term notes and $50 million drawn on our $300 million floating rate revolving credit facility. Our fixed rate term notes have scheduled maturities in March of 2026, February of 2027 and February of 2028. With $200 million of 4.5% fixed rate notes maturing in March 2026, and given the current interest rate environment, our capital management strategy remains focused on preserving liquidity and financial flexibility to address this refinancing on favorable terms, while continuing to support growth in our investment portfolio and providing shareholder returns in the form of quarterly dividends. As we evaluate refinancing options and market timing for the March 2026 maturity, a key objective is to optimize both our fixed versus floating rate mix and our term versus revolving debt profile. At this time, we expect to refinance the $200 million maturity with a combination of issuing a new tranche of fixed rate unsecured notes in the first quarter of 2026 and use available cash and revolver capacity to retire the remaining balance. Looking ahead, we anticipate increased use of our floating rate revolving credit facility in connection with our refinancing plans. The $300 million facility is scheduled for renewal in November 2025, and we plan to size and structure it to align with our projected AUM and long-term capital strategy. This completes our prepared remarks today. And so operator, could you please open the line for questions at this time?

[Operator Instructions] Our first question comes from Crispin Love of Piper Sandler.

First, on the outlook for fundings. Second quarter is very strong. Pipeline still seems to be strong, but you're still expecting $25 million to $50 million per quarter, I think over the near term. Can you just dig into that a little bit more? I understand the third quarter can be a little bit seasonally slower for VC. So wondering if that's a factor and then just share some thoughts for the fourth quarter and 2026 just based on what you're seeing today?

Crispin, it's Sajal. I'll take it. So I think it's a combination of lower utilization of historical unfunded commitments, lower upfront utilization of new upfront commitments. So I'd say that's the combination, then for Q3, a little bit of seasonality, as you said, although we've got a strong start to the quarter so far. And then Q4, as I guided, expecting to be probably at the higher range and potentially above given, again, Q4 tends to be a busier quarter as well.

All right. Perfect. And then just a second question for me. I saw the TriplePoint Capital stock purchase program, definitely good to see there. But would you also expect to be active with stock buybacks? Or is that unlikely right now just as you preserve liquidity with some of the maturities coming up?

Yes, I'll take that, Crispin. I think it's mostly ourselves and the Board having in mind, creating long-term shareholder value. So we're always actively considering assessing really what comes down to capital allocation. And presently, in terms of capital allocation, it's financial flexibility. So we need to think about our unfunded commitments. We need to think about our upcoming debt maturities in 2026. We have to think about keeping within our targeted leverage range, refinancing the debt, as I mentioned, and really, the financial flexibility, we got the debt rating and some other things coming up and also having the liquidity and the capital that's right. But having said all that, we've done buybacks in the past. The Board will continue to consider actively all these capital allocation issues and balances including a buyback.

The next question comes from Douglas Harter of UBS.

I guess, can you just talk about the repayment activity. Kind of what is it that you're seeing that's kind of causing that to be somewhat elevated that's holding back growth? And why do you expect that to slow next year?

Yes. I'll take it, Doug. So I would say it continues to be robust equity funding raising activity from portfolio companies. And so we're seeing an element of that with the prepayment activity. We're seeing M&A and other activity as well, which is also occurring. And then I think as we look to just 2026, again, the seasonality of the portfolio, the vintages of the portfolio, we would expect, again, the older vintages have very much completed their prepayment activity. We will have fresher, newer vintages from the funding that we have. And so we'd expect prepayment activity to be more delayed in 2026, if anything, more back half loaded and into 2027.

This concludes the question-and-answer session. I would like to turn the conference back over to Mr. Jim Labe for any closing remarks.

As always, I'd like to thank everyone for listening and participating in today's call. We look forward to updating and talking with you all again next quarter. Thanks again, and have a nice day.