TPVG - NYSE

Good afternoon, ladies and gentlemen. Welcome to the TriplePoint Venture Growth BDC Corp. Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] This conference is being recorded, and a replay of the call will be available in 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 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 cautionary 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 conditions, 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 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. Now I'd like to turn the conference over to Mr. Labe.

Thank you, operator. Good afternoon, everyone, and welcome to TPVG's fourth quarter earnings call. 2025 was a year of meaningful progress and improved performance across the portfolio. We continue taking important steps aimed at increasing TPVG's scale, durability, income-generating assets and NAV as we seek to create enduring shareholder value over the long term. During the year, our team executed with discipline and focus, proactively managing our portfolio and selectively capitalizing on opportunities with high-quality U.S.-based venture growth stage companies. We're pleased to have achieved progress in strengthening the portfolio during 2025 and continuing to resolve past credit situations, while at the same time, making strong progress on our path of portfolio diversification, geographic and investment sector rotation. The portfolio continued to stabilize during the year with NAV increasing year-over-year from 2024 to 2025. We believe this reflects the progress we're making in creating a more durable platform and portfolio that's supportive of increasing NAV over time. In 2025, the investment portfolio grew year-over-year. TPVG closed $508 million of new debt commitments to venture growth stage companies. This represents a significant increase from the $175 million we recorded back in 2024, and it marks the highest levels of originations activity in over 2 years. In the second half of the year, as expected, our fundings began to increase as we executed on the pipeline and existing borrowers drew on their committed facilities amid the improvements in the venture landscape. We ended the year with $287 million in fundings, more than double that of the previous year. The demand for venture debt remains active, and our platform ended the year with a pipeline exceeding $2 billion. We benefited from the notable uptick in venture capital investment activity throughout 2025. According to PitchBook, venture capital deal value increased to $339 billion across more than 16,000 deals as of the end of 2025, second highest in a decade. Deal value in our core venture growth market segment rose 131% year-over-year. As a result of this strong market environment, in 2025, we signed $1.2 billion of term sheets alone with venture growth stage companies at our sponsor, TriplePoint Capital, one of the largest venture lending firms serving this market. Taking a closer look at the portfolio. Throughout the year, we made significant progress diversifying our business with commitments to 8 new borrowers during the fourth quarter and 28 new borrowers in 2025. This was an increase of 250% over the previous year. These borrowers are all in what we believe are high potential durable sectors, including those leveraging AI to drive product differentiation, market disruption and efficiency. We continue to take advantage of this strong market demand, preferring companies with meaningful revenues, strong margins, solid cash runways and at or near EBITDA positive or with path to cash flow generation and debt service without the need for further equity fundraising. Turning to our ongoing portfolio investment sector rotation and in particular, AI, we believe AI is no longer a cyclical theme. It's a structural multi-decade transformation reshaping every sector of the economy. AI alone represented 65% of the total U.S. venture deal value last year and 39% of the deal count, underscoring both the scale and the breadth of capital flowing into the space. We expect this momentum to continue, driving significant venture investment activity this year and a sustained opportunity as a result for us in the years to come. Over the past, we've been proud to support innovative AI leaders in our portfolio such as Observe AI, Edge, Aradoo, Marvin, Encord and EnCharge AI, among others. These companies reflect our strategy of backing what we believe to be category-defining companies at the forefront of applied AI infrastructure and deployment. We'd be remiss not to discuss our current view of SaaS and the potential impact AI has on this industry. Despite persistent headwinds warning a SaaS-pocalypse, we believe concerns surrounding software and SaaS markets, especially those for venture capital-backed businesses are overstated. While this is clearly a headline issue, this is more problematic in our minds for PE sponsors and middle market lenders dealing with those legacy software companies in their portfolios and believe it's less relevant in the VC industry, particularly at these venture growth stages. We note that most of the TPVG portfolio companies in this space are typically considered AI native or AI-enabled companies and market disruptors, not to disrupt it and are leveraging AI natively to enhance product offerings or driving more efficient operations or taking market share from those legacy incumbents. As we highlighted in the last 4 earnings calls, we've been adding AI-enabled software companies ever since AI and the large language models began gaining widespread adoption in 2023. If you look at the makeup of our portfolio, while under 35% of our exposures could be classified in that broader software categories, 70% of those companies that we invested in were 2024 and 2025 vintage investments, all companies which we invested in during the last 2 years during this AI era and all of them with AI enablement and tech-forward AI attributes. Importantly, even those vintages prior to 2024, only 5 companies by count are all made of embedded vertical application software companies that are so entrenched and mission-critical, it'd be a major challenge to replace them. It's not all AI. In addition to it, we continue to pursue opportunities in other diversified sectors. We're witnessing a renewed focus on American domestic priorities, particularly in aerospace and defense, infrastructure and the ongoing of advanced manufacturing. Policy tailwinds and national security are driving notable capital markets activity, reinforcing the durability of investment in those sectors. We're positioning TPVG to benefit directly from these secular trends through portfolio companies such as PerryLabs, USCT, Valor and Standard Bots, among others. These are businesses that align with national priorities and are building mission-critical technologies. As capital increasingly flows towards these strategic sectors, supported by federal policy and procurement reform, we believe venture-backed innovators in cybersecurity, aerospace, defense, robotics, energy and resources and advanced manufacturing will remain durable recipients of both equity and venture debt capital. I'd say we're also encouraged by the health of these venture markets and some reemerging signs of liquidity with M&A and IPOs. As the exit market continues to improve, we are well positioned to realize value for shareholders with our sizable equity and warrant portfolio. At year's end, we held warrant positions in 118 portfolio companies and equity investments in 55. As we've been mentioning, we have positions in several leading companies cited as top IPO candidates, including Cohesity,

Thank you, Jim, and good afternoon. 2025 was a year of disciplined execution as we continue to build a strong foundation and position TPVG for the long term. Beginning with investment activity, TriplePoint Capital signed $207 million of term sheets with venture growth stage companies during Q4 and $1.2 billion for the full year, up more than 60% from $736 million of signed term sheets in fiscal year 2024. With regards to new investment allocation to TPVG during the fourth quarter, our adviser allocated $90 million in new commitments with 12 companies to TPVG. 2/3 of the commitments made during the fourth quarter were to new portfolio companies, reflecting our focus on the obligor diversification and sector rotation. For the full year, we closed $508 million of debt commitments with 28 new portfolio companies and 7 existing obligors, up almost 2x from the $175 million of debt commitments in 2024 with 13 companies. As mentioned during our Q3 call, in anticipation of prepayment and scheduled repayment activity during this quarter, we exceeded our guided range and funded $93 million in debt investments to 16 companies. These funded investments carried a weighted average annualized portfolio yield of 12%. For the full year, we funded $287 million in debt investments to 31 companies, up more than 100% from $135 million to 13 companies in 2024. The lower overall onboarding yields in 2025 reflect a number of factors in addition to the declining rate environment, including originating revolving loans, which enable us to be the sole lender to our portfolio companies, lending to more robust enterprises from a size and scale perspective, including EBITDA positive companies and lower OID as a result of reduced enterprise valuations. During Q4, we had $44 million of loan prepays from relatively seasoned loans, resulting in an overall weighted average portfolio yield of 12.7%. And excluding prepayments, our core portfolio yield was 12.1%. For the full year, we had $120 million of loan prepays as compared to $170 million of loan prepayments in fiscal year 2024. We also had $64 million of scheduled principal amortization and repayments under revolvers during the quarter. For the full year, we had $92 million of these payments, which together with the previously mentioned $120 million of prepays, provided us substantial liquidity to reinvest in our portfolio and to use strategically as we refinance and optimize our go-forward debt stack. During the fiscal year, our investment portfolio grew by over $100 million or 15% as a result of new fundings exceeding prepayment, repayment and amortization within the portfolio. Of our 55 obligors with outstanding loans as of year-end, 7 were added in 2024 and 22 were added in 2025. So progress on our plans for obligor, vintage and sector rotation. Although we continue to see robust demand for debt financing from venture growth stage companies as demonstrated by our $155 million of new term sheets and $15 million of funding so far in Q1, quarterly target for new fundings continues to be in the $25 million to $50 million range for 2026, unless we have line of sight to higher-than-expected prepayment activity. Two portfolio companies with debt outstanding raised $71 million of equity capital during the quarter. And for the full year, 15 debt portfolio companies raised $474 million of equity capital. Although down from 2024, it is not unexpected given the number of new obligors we have added in the past year. In addition, the pace of up round valuations has picked up, which is reflected well in our credit quality as well as the warrant and equity investments associated with these debt investments. No new companies were added to our credit watch list during the quarter, and the weighted average credit ranking of our portfolio slightly improved from Q3. During the quarter, we saw a fair amount of prepayment and repayment activity, along with both net unrealized and net realized gains in the debt portfolio from the resolution of credit situations in addition to fair value adjustments related to obligor performance, sector outlook changes and foreign currency exchange. Briefly reviewing material updates across all of our credit rating categories. During the quarter, we had 2 Category 1 or Clear rated obligors repay their loans. We added $72 million of loans to 13 obligors to Category 2 or White rating as a result of new investment activity, offset by $42 million of loans to 5 companies as a result of prepayments and repayments due to acquisition, the most material being 30 Madison, which closed its acquisition by RemedyMeds. As a reminder, 30 Madison was an existing TPVG portfolio company, but also acquired the assets of TPVG portfolio company, Pill Club and assumed our outstanding loans. This transaction represents a full recovery inclusive of end of term payments on both transactions. With regards to our Category 3 or yellow-rated loans, during the quarter, we saw a partial prepay from one obligor, fair value increases in our loans to Flink as a result of its recently announced equity raise as well as reductions in the fair value of our loans to Prodigy Finance, a fintech focused on lending to international graduate students due to sector and business performance. With regards to Category 4 or orange rated loans, the most material development is associated with our portfolio company, NA-KD, an EBITDA positive Swedish women's fashion e-commerce company. During the quarter, NA-KD's lenders, which includes TPVG and other investment vehicles controlled by our sponsor, have recapped and restructured the company and now own a controlling position of the equity of the company. As part of this process, the lenders reduced the total amount of debt outstanding by converting a portion of the outstanding loans into a hybrid loan instrument, which we now treat as an equity investment on our balance sheet and a small amount into common equity to take the controlling position. As part of our process, we experienced gains as a result of getting full recognition for unaccrued interest end of term payments and fees, which was higher than both our cost basis and fair value. The lenders are working with NA-KD to evaluate strategic alternatives for the business over the next 12 to 18 months. Our sole Category 5 or Red obligor, Frubana, continues to work through its recovery process. And here in Q4, we received recoveries of approximately 25% of Q4's fair value. We believe that the resolution on 30 Madison Pill Club and the developments with NA-KD demonstrate that while some of these credit journeys may take longer than expected, our continued efforts have the potential to work out in our favor. As of year-end, we held warrants in 118 companies and equity investments in 55 companies with a total fair value of $138 million, up from warrants in 98 companies and equity investments in 48 companies with a fair value of $116 million last year. During the quarter, we did experience a fair amount of volatility in our warrant equity portfolio, resulting in an overall net unrealized loss despite the unrealized gains from our debt investments and a slight reduction in our NAV for the quarter, although NAV is still up $0.12 year-over-year. These unrealized warrant and equity losses were driven from fair value marks on Prodigy's preferred equity, which, as previously mentioned, was due to performance and sector concerns, and write-offs resulting from companies acquired or where our investments expired, offset by unrealized gains from positive results from recent equity rounds by Upgrade, Filevine, [indiscernible] and others. As we take a step back to assess 2025 and our outlook for 2026, our playbook continues to be focused on building a strong foundation for TPVG and positioning TPVG for the long term by strengthening our balance sheet, driving portfolio scale and quality, rotating the portfolio into newer vintages, resolving credit situations, increasing the earnings power of our business and growing net asset value and shareholder value over the long term. With that, I will now hand the call over to Mike.

Thank you, Sajal, and good afternoon, everyone. For the full year, we generated net investment income of $42.3 million or $1.05 per share on total investment income -- sorry, on total investment and other income of $90.9 million. Our weighted average annualized portfolio yield on debt investments was 13.7% for the year compared to 15.7% in the prior year. The decline in yield primarily reflects the lower interest rate environment, including reductions in the prime rate as well as a shift in portfolio mix toward lower-yielding, higher-quality borrowers. During the year, we funded $287 million of new debt investments compared to $135 million in the prior year, reflecting the continued strength of our origination platform. We received $212 million of scheduled principal amortization, prepayments and early repayments during the year, resulting in a net increase of approximately $85 million in our debt investment portfolio at cost. As of year-end, our total investment portfolio at fair value totaled approximately $784 million compared to $676 million at December 31, 2024, representing a 16% increase year-over-year. For the full year 2025, we declared and paid total distributions of $1.08 per share, consisting of $1.06 in regular quarterly distributions and a $0.02 supplemental distribution. We ended the year with estimated spillover income of $42.3 million or $1.04 per share, providing meaningful earnings carryover into 2026. Net asset value increased year-over-year to $8.73 per share at December 31, 2025, compared to $8.61 per share at December 31, 2024. For the full year, we recorded a net increase in net assets resulting from operations of $49.2 million or $1.22 per share compared to $32 million or $0.82 per share in the prior year. Overall, 2025 was characterized by disciplined capital deployment, active portfolio repositioning and continued strengthening of our balance sheet. Total investment and other income for the fourth quarter was $22.5 million, representing a weighted average annualized portfolio yield on debt investments of 12.7%. The decrease in yield compared to the prior quarter primarily reflects lower base rates, including reductions in the prime rate. Approximately 63% of the debt portfolio is floating rate and 79% of those loans are at their prime rate floors as of December 31, 2025. As a result, we expect the impact of any additional interest rate reductions on our net investment income to be limited, particularly as lower base rates would also reduce interest expense on our floating rate borrowings under the revolving credit facility. This structural positioning continues to serve as an important stabilizing factor in a declining rate environment. Net investment income for the fourth quarter was $9.9 million or $0.25 per share compared to $10.3 million or $0.26 per share in the prior quarter. Net increase in net assets resulting from operations was $8.1 million or $0.20 per share. During the fourth quarter, the company recognized net realized gains on investments of $4.8 million, resulting primarily from the restructuring of an investment in one portfolio company. The net change in unrealized losses on investments for the fourth quarter was $6.6 million, consisting of $11.6 million of net unrealized losses on the existing warrant and equity portfolio resulting from fair value adjustments, offset by $3.3 million of net unrealized gains on the existing debt investment portfolio from fair value adjustments and $1.7 million of net unrealized gains from the reversal of previously recorded unrealized losses from investments realized during the period. Total operating expenses for the fourth quarter were $12.6 million, net of income incentive fee waivers. During the quarter, $2 million of income incentive fees were earned but fully waived by the adviser. For the full year, the adviser waived $5.3 million of income incentive fees. In addition, under the total return requirement embedded in our incentive fee structure, income incentive fees were further reduced by approximately $3.1 million earlier in the year. Collectively, these items increased net investment income by approximately $8.5 million for fiscal year 2025. As previously announced, the adviser amended its waiver in November to waive the quarterly income incentive fee through the end of fiscal year 2026. As of December 31, 2025, we had total liquidity of $252.4 million, consisting of $47.4 million of cash, cash equivalents and restricted cash and $205 million of available capacity under our revolving credit facility. We ended the quarter with a gross leverage ratio of 1.33x and a net leverage ratio of 1.20x. We ended the quarter with $260 million of unfunded commitments, down modestly from $264 million in the prior quarter. Of these commitments, approximately $51 million are milestone-based and therefore, contingent upon borrowers achieving specified performance targets. The remaining commitments are well laddered over the next several years with approximately $80 million scheduled to expire in the first half of 2026, $71 million in the second half of 2026, $83 million in 2027 and $27 million in 2028. During the quarter, we successfully extended our revolving credit facility, extending the revolver period to November 30, 2027, and the final maturity to May 30, 2029. The amendment also improved key economic terms, including reduced borrowing spreads and higher advance rates. On February 27, 2026, the company entered into a note purchase agreement providing for the issuance of $75 million in aggregate principal amount of senior unsecured notes due February 2028 with a fixed interest rate of 7.5%. On March 2, 2026, we used the net proceeds from this issuance, together with borrowings under our revolving credit facility and cash on hand to repay in full the $200 million of unsecured notes that matured March 1, 2026. With the March 2026 maturity fully addressed, our capital management strategy remains focused on preserving liquidity and financial flexibility while optimizing our overall fixed to floating debt mix and managing our forward maturity profile. While certain maturities are now more concentrated in late '27 and early 2028 as a result of recent refinancing activity, we are actively managing that profile and expect to address those opportunistically well in advance of their respective due dates, consistent with our disciplined and proactive approach to capital markets execution. During 2025, our sponsor, TPC, purchased approximately 1.8 million shares of our common stock under its discretionary share purchase program, further demonstrating alignment with shareholders. Following year-end, TPC continued purchasing shares, bringing total purchases under the program to approximately 2 million shares or nearly 5% of our outstanding shares. Combined with the extension of the income incentive fee waiver through the end of fiscal year 2026, these actions underscore our continued focus on long-term shareholder value. In summary, 2025 was a year of stabilization and repositioning. We strengthened overall credit quality, enhanced our capital structure and extended our revolving credit facility on improved terms. With a higher quality portfolio mix, approximately 79% of our floating rate debt investments already at their prime rate floors and the income incentive fee waiver in place through the end of fiscal 2026, we believe TPVG enters 2026 on solid footing. That concludes our prepared remarks. Operator, please open the lines for questions.

[Operator Instructions] And the first question today will come from Finian O'Shea with Wells Fargo Securities.

One thing we picked up, it said 2 names raised money this quarter, 2 debt investment names. Can you remind us like is that a low number in the historical context? And if so, anything sort of to see there on the macro for venture, if that's kind of just a one-off timing thing?

No, Fin, as I mentioned in my prepared remarks, I think it's a reflection of the freshness of the vintages of our portfolio given the number of new obligors we added both in 2024 and 2025. So we expect the fundraising activity for those names to be more in '26, '27. And so I would say it is a reflection, though, obviously, of more of the capital going into AI and AI-related investments overall, as Jim mentioned during his prepared remarks. But I'd say, if anything, just again, a reflection of the rebalancing and rotation of our portfolio into newer vintages.

Okay. No, I appreciate that. And then sort of high level on the sort of long-term goals as you outlined. I just wanted to ask if there's any maybe change in the playbook. You've been above book, fairly well above book BDC at one time, obviously, more generous environment. But today, the sort of starting point is below ground for you. It's a pretty small BDC. Your cost of capital is pretty high. It just feels like a pretty long march to be generating an adequate market yield. So seeing if there's any like if you have -- and I appreciate that you could only say so much if there was something, but do you think about change in strategy kind of thing? Or is it sort of same playbook, get back to ideal clean high-yielding venture debt portfolio?

Well, I would definitely say it's not the same playbook. I think our playbook is refined every year, a reflection of market conditions and strategic initiatives. I would say, yes, obviously, we're disappointed with the performance of TPVG from a market cap and a trading perspective. It's not a reflection of our sponsor and our platform and the size and scale of our originations and our capabilities, but we are very much focused on it, I think, demonstrated by our sponsor and the things our sponsor has done, particularly with the share purchase program. But I think more importantly, to your point, Fin, I think, listen, we've been articulating it's a multifaceted playbook to get TPVG back to where it should be. It's a combination of, again, building this foundation, positioning for the long term, it's about strengthening the balance sheet and the activities that Mike has done. It's about what Jim and the team are doing about driving new investments and the portfolio scale and rotating into newer vintages. It's what our credit teams are working on and resolving credit situations. It's about improving fundamentally the percentage of income-earning assets in the book. And I think shareholders will benefit from that over the long term. And then I think the wildcard always is the warrant and equity portfolio. And again, Revolut continues to do amazing things. Fingers crossed, they continue to -- but we have others. We're not just one trick pony. And so I'd say it's a multifaceted strategy. It's a refined strategy dealing with the realities of the market and market conditions, but also the advisers strategy experience, Jim and I are now in our 26th year of working together, and we're working hard. So it's not a short fix, it's a long-term playbook, and we appreciate the support and patience from our investors along that journey.

The next question will come from Brian McKenna with Citizens.

Okay. So when you look across the portfolio today, do you think you've worked through most of the negative marks? I'm trying to think through the trajectory of NAV from here. It did increase modestly in 2025. So I'm wondering, is this maybe a new trend and if we should expect this to persist moving forward?

I would say that, again, you can never fully have the crystal ball on credit. We continue to work through the situations. There are known situations. I think -- we're pleased that credit has generally been stabilized over the course of 2025. I think the biggest concern is market conditions and macroeconomic impact. And so I would say I'm hesitant to say we're out of the woods, but I would say we are proactive as we can be. We're resolving situations, and we're making progress, and we'll continue to do so.

All right. That's helpful. And then two questions for Mike. Repayments were clearly elevated in the quarter. You also disclosed that there's been $24 million of prepayments quarter-to-date. But any visibility for the rest of the quarter here in March? And then my other question there, I mean, why not start buying back more of the stock at 60% of book value and maybe do some of that -- you use some of the incremental NII from waiving the incentive fees in 2026. Just curious on a couple of those as well.

Yes, I'll take the remaining prepayment and the activity in the quarter. You're correct. We saw an elevated amount of prepayments in the fourth quarter. We saw some prepayments here early on. Currently, not a ton more visibility in prepayments for the remainder of the quarter, but it is something we're monitoring, but nothing material to note as far as the remainder of the quarter.

And I may add on the share repurchases. And these are things we've done before. I can remember at least twice and remain committed to creating the long-term shareholder value in the near term. The focus these days is, as Sajal mentioned, on our investment earnings and enhancing the earnings power and growing the NAV. It's maintaining financial flexibility. But absolutely, with that said, management, the Board, we're going to continue to consider all these options, including buybacks to create value for our investors.

The next question will come from Crispin Love with Piper Sandler.

This is Ben Graham in for Crispin Love. Looking at your investment portfolio composition, roughly 27% is made up of software companies. So I'm just wondering if you could maybe drill a little deeper within the cohorts of software where you have exposure and what areas in your portfolio you're most confident in? And then also which areas you're more cautious on given these AI disruption themes?

Yes. On the software, the way we think of it is that literally last year, we -- TPVG added 28 portfolio companies and 14 of them were software, of which 9 were, I'd call it, native AI. The other ones were all tech-enabled AI or absolutely leveraging AI tech forward kind of plays. There's only 5 companies, and these were all ones done pre 2024. It's about $85 million, $89 million or so of exposure. Those ones would be more your general software companies, except each of those in themselves are not these SaaS software kind of makeup type companies. So the end of the day in terms of software, the majority of the portfolio of TPVG is deals we've done in the last 2 years. And as I mentioned in prepared remarks, the overwhelming majority all have or a part of, if not AI native AI-enabled solutions.

Awesome. And then if I could ask one more. I was wondering if you could share your latest views on M&A and IPO activity expectations for 2026. And if these expectations have changed again given these market reactions to AI disruption impacts to public software as well as other sectors.

Yes. I would definitely say, given the developments of the last week or so, obviously, there's a significant amount of volatility in the market. And so I would say any overall optimism we had about the IPO markets probably is delayed. I wouldn't say closed, but I would say delayed with regards to IPO activity. As Jim mentioned in his prepared remarks, I mean, we have a number of portfolio companies that are preparing and hope to be part of the next class of IPO activity. I think we are pleased, though, we are seeing M&A discussions pick up. Now it's to be determined valuations and multiples and seeing those transactions actually close. But as folks will remember, in prior years, we saw significant lack of M&A activity. And I think we're pleased to see that activity pick up and cautiously optimistic that in light -- even if the IPO markets don't open up, that the M&A markets will continue to be opportunistic and open for those unique opportunities or compelling opportunities.

The next question will come from Christopher Nolan with Ladenburg Thalmann.

A recent discussion I had with indicated that some of the concern around software is not so much their near-term cash flow, it's the terminal value for these companies thinking that AI is just going to cut the legs out from under them over time. If that's the case, and given that you guys have a significant exposure to software, does this affect how you evaluate software companies? And if so, is there a risk of meaningful markdowns in your equity portfolio?

Yes. Chris, let me parse through that in a couple of nuances. So I'd say the -- as Jim first talked about, the majority of our "software companies" they're the class of 24 or the class of 25, and the majority of them are AI-enabled. So we -- there is no -- the codes we use don't have AI categories yet. So we define those as fundamentally AI or AI-enabled companies. As we look to more fundamentally to the other companies that are not in those vintages, as Jim was saying, they're so entrenched with their customers that the ability for a company to replace them is particularly challenging, which makes them incumbent, which again, I think, is important because now let's add the part of the venture lending aspect. So 3-year loans. So this is where cash paying loans. And so this is where we add in the fact the uniqueness of our business that these are short-term financings that these are transactions that are not -- our exit is not predicated on a sponsor selling the company or the company getting acquired. It's fundamentally on companies' either ability to raise another round of financing or cash flow from the business to service our debt. So that's what gives us comfort. So fundamentally, that's the benefit of venture lending to software companies or SaaS companies or AI companies versus more traditional middle market lending.

Sajal, do you guys think in general that AI is a real product now? Or it's just something in the product pipeline of these companies that's going to hit?

No, no, it's a real product. It's all the above.

Yes. I would say it's -- it's not a sector. It's absolutely horizontal across everything. The way I think of it, it's everything these days is AItopia, AI euphoria. And to your question, we're not looking and really don't look at software-only plays, on-prem software, anything like that. It's all AI-enabled software across the Board.

Great. And I guess a final question on this is you guys see a lot of AI out there. Is there any way that this could come into your own operations and start improving your operating leverage on your earnings?

Well, we're already using AI actively software, including some of our portfolio companies, AI in our due diligence processes and other aspects and parts of our business. So that's absolutely something. And we're actually using it as well when we're looking at AI opportunities themselves and actually have some AI software companies, which actually their business is evaluating other AI companies for identity and other issues. But Mike, I don't know if you wanted to add.

Yes, I was going to add just from an operations back of the house, middle of the house standpoint, we've been starting to deploy AI in the back half of 2025 and going to continue that in 2026, rolling it out to all associates and really asking them to rather than us tell them how to use the AI, look for them to find ways to make more efficient -- their jobs more efficient. We're definitely seeing some efficiency already, and I expect to see that more in 2026 and 2027 for sure.

Okay. Is it something you can quantify as you go along? Like provide some guidance, it would be helpful if we can get this efficiency ratio improved.

From my standpoint, it would be a headcount standpoint as far as whether it's the accounting and finance division or the operations division. So I'm not sure that's something we would be disclosing to you all as far as our headcount within the back of the office, but something we can talk about further.

The next question will come from Finian O'Shea with Wells Fargo.

Just seeing if you could tell us the OID on the post-quarter bonds?

0%. Yes. When you say OID, are you talking about the discount? Yes, there is no discount. It's 7.5%. That's right. Yes, we did not issue it at a premium or a discount. Sorry, I didn't quite understand the question. But yes, the $75 million was issued and proceeds were at face value.

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

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 very next quarter. Thanks again, and have a nice day.