Good afternoon ladies and gentlemen, and welcome to TriplePoint Venture Growth's Third Quarter Fiscal 2015 Earnings Conference Call. At this time, all lines have been placed in a listen-only mode. After the speaker's remarks, there will be a question-and-answer period and instructions will follow at that time.

This conference call is being recorded and a replay of the call will be available as an audio webcast on the TriplePoint Venture Growth website. I would now like to turn the call over to Harold Zagunis, Chief Financial Officer of TriplePoint Venture Growth. Mr. Zagunis please go ahead..

Thank you, Melissa. And thank you everyone for joining us today. We're pleased to share with you our results for the third quarter of 2015. Here with me are Jim Labe, Chief Executive Officer and Chairman of the Board; and Sajal Srivastava, President and Chief Investment Officer.

Before I turn the call over to Jim, I would like to direct your attention to the customary Safe Harbor disclosure in our press release regarding forward-looking statements.

And remind you that during this call, we will make certain statements to relate to future events or the Company's future performance or financial condition, which may be considered forward-looking statements under federal securities law.

We ask that you refer to our most recent filings with the Securities and Exchange Commission for important factors that could cause actual results to differ materially from these statements. We do not undertake any obligation to update our forward looking statements or projections unless required by law.

To obtain copies of our latest SEC filings please visit our website at www.tpvg.com. With that, I'll turn it over to Jim..

Thanks Harold and welcome everyone to our third quarter earnings call. Today, we’re going to do things differently than previous calls. I’m going to cover the four key topics on our mind; our stock price, our dividend, our liquidity and our markets.

I’ll then turn the call over to Sajal and Harold for a more in-depth review of the quarterly results and then I'll open the call up for Q&A. First, stock price. We are not happy with where the stock is trading; we don't believe it reflects our fundamental performance or our long-term outlook.

This year, we set out to take advantage of the strong demand in the venture lending market. Now that we've raised additional capital, we are growing our business, and deploying that capital. Customer fundings this quarter were our second highest since our IPO.

Our portfolio yields this quarter as with every previous quarter this year are consistent if not better than all of those from last year.

While our business continues to grow and we continue to lend to what we believe are some of the top and the most exciting tech and life science venture growth stage companies at very attractive returns, today we are also instituting a $25 million stock buyback program that we will use opportunistically. Next, let me talk about the dividend.

Today, we declared another $0.36 quarterly dividend. This fourth quarter dividend brings the year’s dividends to a total of $1.44 per share. It brings the total dividend since our IPO early last year to $2.66 per share. During the same period, our NAV has grown from $14.38 to $14.52.

Based on the earnings to-date in the current portfolio, our 2015 taxable income and that's the income without any capital gains will exceed the dividends that we will have distributed. As a result, we now expect a spillover income carried into 2016.

Further, as we approach our target leverage ratio, given our strong yield profile, we expect our portfolio have support an even higher dividend. Next, let me cover liquidity. The Company is in a strong capital and liquidity position, especially given the current state of the capital markets out there.

Given our capital and the attractive investing environment, we are poised to take advantage of this opportunity. While financial and capital markets may be volatile, our experience has been that this is one we’ll see some of the very best opportunities ever.

We’re in a position to benefit from this, both in terms of selectivity, as well as from the pricing standpoint. Another great development is the position that the FCC has recently taken regarding the treatment of unfunded commitments. Sajal who is going to cover this really positive development in more detail.

Lastly, let me talk about and address the market. We remain particularly enthusiastic on the outlook of the market. Remember, we have a wide window into the venture capital industry and the tech and life sciences investment environment. At the sponsor level, TriplePoint Capital is one of a handful of firms active in the venture lending business today.

We’re in the unique position of providing venture loans across all stages of development of a VC-backed company’s lifespan from the early seed stages right through the growth stages and beyond.

As a result, we are in continual dialogue with our select group of leading venture capital investors discussing their investments and the progression of their portfolio of companies.

We are actively in the trenches, in some of these cases, literally calling on these companies five and more years ahead of when they actually become candidates for venture growth firm from the BDC. This provides us with a tremendous read as I think of it on where the current and future tech and life science company opportunities lie.

We believe these select VCs lead the industry and many of them are particularly active, which is reflective in our pipeline. There is no doubt not all the sectors are in favor today; as a result, we’re evaluating opportunities in those sectors which continue to have the strongest support from these VCs.

We continue to experience strong demand globally from many exciting and well-known venture growth stage companies. A lot of these names we've been tracking for years and have watched them grow and perform.

I do want to say though, while the pipeline is large and growing, we're going to continue to be very selective and truly pick only those that we believe are the best opportunities. Growth for growth's sake is not our motivation. That wraps up these four key topics; the stock price, dividend; liquidity in the market.

In our opinion, we view every single one of these as near-term catalyst for our business, especially in conjunction with our portfolio growth momentum, the strong return profile of our asset and the upside potential from our equity and warrant portfolio. With that I’d like to turn the call over to Sajal..

Thank you, Jim, and good afternoon everyone. We continue to see strong demand for venture growth stage lending having signed $115 million of term sheets at TriplePoint Capital in Q3, up from $62 million in Q2 and the pipeline continues to grow. We also closed $86 million of new commitments with four companies, up from $57.5 million in Q2.

During Q3, we funded $53.1 million of debt investments to five companies, up significantly from the $7.5 million of debt fundings in Q2 and acquired warrants valued at $70,000 in four companies. This resulted in net portfolio growth of $53.9 million or 26% in Q3 and we are really pleased with the portfolio momentum we are building.

Because 81% of our fundings this quarter occurred in September, we didn't realize full income benefit from these loans and our results for the fourth quarter will show the effects of a full quarter of performance for them.

This has been pretty consistent aspect of the venture lending business, with the majority of funding occur at the end of a quarter and the loans don't contribute materially in the quarter they fund but do to in the next one.

Even without prepay this quarter; our total weighted average portfolio yield was 17.5%, primarily related to transacting loans with higher end of term payment.

At quarter's end, our unfunded commitments totaled $170.4 million to nine companies, of which $22 million is dependent upon the companies reaching certain milestones before the debt commitment becomes available to them.

$20 million of the $170 million will expire during 2015 and the majority of the remaining amounts will expire during 2016, if not drawn prior to expiration. I would also like to note that of the $86 million of new commitments we entered into Q3, over $38 million or 44% funded during the quarter.

As Jim highlighted earlier following months of discussions with SEC explaining our position with respect to unfunded commitments, we are pleased to report that based on recent conversations with SEC we have been advised that are only requirement with respect to unfunded commitments will be to have adequate liquidity and funding capacity to meet these obligations, which of course is something we've always done.

This outcome has being recommended position since the very beginning and is a very positive development. So we will continue to be thoughtful with regard to the levels of our unfunded commitments. Moving on to credit quality.

As of September 30, the weighted average internal credit rating of the debt investment portfolio was 2.10 as compared to 2.01 at the end of the prior quarter. As a reminder, under our rating system, loans are rated from 1 to 5, with one being the strongest credit rating and all new loans are initially generally rated to.

During the quarter in addition to adding new loans to category white, we downgraded $20.9 million in principal balance of loans to virtual instruments from white to yellow. All other loans remain unchanged. Regarding other key performance indicators of our portfolio.

As of September 30, the weighted loan to enterprise value at the time of origination for our portfolio excluding intermodal was approximately 8.3%. Approximately 23% of our total debt portfolio consisted of floating-rate loans, which is up from 21% last quarter.

Approximately 35% of our debt investments consisted of growth capital loans where the borrower has a term facility from a bank in priority to our senior lien, which is up from 27% last quarter, reflecting generally the strong revenue and credit profile of the new companies we're adding to the portfolio.

We had one customer close a private round of financing in Q3, Medallia, which closed $150 million equity round at a reported valuation in excess of $1 billion, our eighth company to become a unicorn after we committed capital to them.

Although we had no prepays in Q3, we had one customer provide us notice of prepayment in conjunction with the closing of their equity round which was targeted to close in Q3, but slipped two days to October 2, which is why we had to mark the loan up in Q3.

On the strategic fronts, we are making progress on our SBIC application and expect to have it submitted by the end of the month. We are also in the process of negotiating the renewal of our revolving credit facility. In addition, we recently received feedback from the SEC on our exemptive relief application for co-investing and we're reviewing it.

We continue to be busy building our franchise and growing a great portfolio. In addition to our strong West Coast originations, we're seeing the benefits of our efforts on the East Coast and the U.K. as those teams are generating high quality deal flow for us.

As Jim mentioned earlier, we are not seeing a slowdown in demand for debt or in investment activity by our venture capital sponsors. In fact, our pipeline continues to grow. Great companies with innovative technologies, strong growth trajectories and top tier VCs are attracted to our reputation, track record and creative approach to lending.

With that, I'll now turn the call over to Harold to review the financial highlights for the third quarter..

Thank you, Sajal. For the third quarter, our total investment in other income was $9.2 million, representing a weighted average portfolio yield of 17.5% on our investments for the period held.

Of that 17.5% yield, 10.7% was from cash coupon payments, 0.008% was from the original issue discount of upfront facility fees and warrants and 6% was from the accretion of end of term payments. There were no prepayments during this period. Our expenses this quarter were $4.6 million, which was lower than the $5.3 million in the prior quarter.

Our base management fee was $1.5 million. Our income incentive, fee and capital gains incentive fee totaled $400,000. Our debt expenses were $1.7 million and our administrative and general expenses were just over $1 million.

For the third quarter, we recorded net investment income of approximately $4.7 million or $0.28 per share and core investment income of $4.9 million or $0.29 per share. I remind you that core net investment income is a non-GAAP financial measure.

We believe core net investment income is an important measure of the investment income that we will be required to distribute each year since capital gains incentive fee are accrued based on unrealized gains, but are not earned until realized gains occur.

For a reconciliation of core net investment income to net investment income, please see the press release we issued this afternoon. This quarter we had net unrealized gains in our investment of over $1 million or $0.06 per share.

The unrealized gains were primarily due to the $1.2 million increase in fair value of loans of one obligor in anticipation of their prepayment in early October, offset slightly by a net $200,000 mark-to-market reduction in warrant and equity holdings in publicly traded companies.

Our net increase in net assets resulting from operations for the third quarter was $5.7 million or $0.34 per share, reflecting the $0.06 of net unrealized gains and the 28% of net investment income. On an annualized return basis, our net increase in net assets this quarter represented a 9.4% return on average net assets.

Our net investment income represented a 7.7% return on average net assets and our core net investment income represented an 8% return on average net assets. I remind you again that core net investment income is a non-GAAP measurement and is provided in addition to, but not as a substitution for net investment income.

As of September 30, we had 80 investments in 32 companies. Our investments included 44 debt investments, 29 warrant investments and 7 direct equity investments. The total cost and fair value of these investments were approximately $261 million and $262 million, respectively.

As of September 30, the company's net assets were approximately $242.1 million or $14.52 compared to approximately $242 million or $14.54 per share as of June 30. As of September 30, our total cash position was $50.4 million. During the quarter, we raised $52.8 million from our first public offering of notes.

This offering was part of our plan for re-levering the business after our equity raise earlier this year, in addition to providing more flexible capital than our revolving credit facility which does enable us to borrow against all of our loans in full. We're expecting notes to help fund our SBIC subsidiary assuming continued progress on that front.

It will also be helpful in building a track record for securitizations and credit ratings down the road. These notes have a five-year term with a two-year non-call provision and a 6.75% interest rate. We use the proceeds to temporarily pay down our revolving credit facility and we will draw back on that facility as we fund investments.

At the end of the quarter, we had $14 million of debt drawn on our revolving credit facility and we had approximately 0.3 times leverage, which was consistent with our average leverage throughout the quarter.

For the fourth quarter of 2015, our Board of Directors declared a dividend of $0.36 per share payable on December 16 to stockholders of record as of November 30. Our dividend distributions are based on earnings generated over the year. Through the first nine months of 2015 we generated net investment income of over $15.9 million to $1.10 per share.

Our net increase in net assets for the first nine months totaled $15.5 million or $1.07 per share. Through September 30 we estimate we have earned $2.4 million or $0.14 per share more in taxable income than we have distributed. We expect to cover our full year's dividend from our ordinary earnings and have spillover income into 2016.

Now, I'll turn the call back over to Jim..

Thanks, Harold. At this point, we will be happy to take your questions.

Operator, can you please open the line?.

[Operator Instructions] Your first question comes from Douglas Harter with Credit Suisse. Your line is open..

Hello, good afternoon.

Could you talk about how you will prioritize share repurchase versus making new investments?.

Sure. Hi, Doug, it’s Sajal here. So again it’s managers of capital, obviously we are balanced in terms of balancing the return potential for investments and returning capital.

So I would say that generally we are going balance both of those opportunities and use them as levers as catalysts for the stock, but again the program itself is at our discretion..

Got it. And then can you just talk about, I know your leverage is fairly low at the moment. But to the extent that as that capital gets deployed, the amount of capital at the parent TriplePoint to be able to continue to fund loans the BDC is unable to..

Yeah, I think the beauty again is, given our externally managed structure and the TriplePoint Capital platform is to the extent that we, the BDC doesn’t have funding capacity.

Then we have the ability at the sponsor to enter into venture growth stage transactions with customers and as part of our strategic efforts, we filed our initial exemptive relief application to co-invest and so what that allow – assuming continued progress and approval from the SEC would allow us to co-invest side-by-side rather than making it binary of deals only going to the sponsor in the event the BDC does not have funding capacity..

Great, thank you..

[Operator Instructions] Your next question comes from Jonathan Bock with Wells Fargo. Your line is open..

Good afternoon, and thank you for taking my questions and congratulations on growth. I’d like to dovetail on Doug Harter’s question for a moment.

Sajal or Jim, my view of prioritization of stock repurchases, it's quite an announcement, that’s very shareholder friendly, but I find it that to the extent you choose to repurchase shares not only does that generate a solid return, but it eases dividend coverage which right now from an operating standpoint of 28 versus 36, right, there is some leverage to grow there that needs to grow there to grow into that level, but I'm curious.

Is your intention to utilize the share repurchase program understanding that it provides in a dividend yield enhancement to folks as you are expunging shares that you have to pay dividends on and in fact improving your cash flow? It really is kind of of interest to me, because you’ve got a quite a compelling investment in what is already a good portfolio.

So maybe a little bit more detail as eye full coverage from true earnings of the dividend today just still think we're a bit short of..

Yeah, Jonathan, it’s great question. I will start and then Jim Harold please jump in. So I think the backdrop is, we were particularly thoughtful with our board and with the management with regarding our share buyback program.

As you may recall, in prior calls, I think we were less open to it and I would say again based on kind of us doing the analysis and thinking through, we said again being the next gen class of BDC managers and being shareholder friendly, having a program in place and actually using it is the right thing to do, but as you point out and as the track record shows, if you were generating some great yielding assets with returns in excess of potentially the benefit of buying back shares, but again as you said again, our thesis of covering our dividend and then of getting to our target leverage and potentially taking it up is important.

So I think that's why when we made the comment earlier about being balanced and so we’re not here just to grow for growth sake, we’re here to again generate great returns for our shareholders and we recognize that it not only comes from portfolio growth, but as you pointed out, it comes from buying back shares, it allows us to reduce the short-term gap that we see between the earnings from the business and the dividend, which again as we kind of proved out last year and earlier this year, our returns more than cover our dividend.

But given the capital we raised and in particular the prepays we had earlier this year, it's taking time to redeploy that capital. So again in summary, we plan on using it and we plan on taking a balanced approach to new deal opportunities as well as actually utilizing the plan..

I appreciate that. And look.

I'm not here to say that stock buybacks are the only way, I just know that when you're making what are high yielding investments, investors also understand that a portion of that yield comes from the amortization of the end of term fee, which does not, to your point, effectively come in, in all-cash all at once, it's lumpy and can be very beneficial as it has been in the past.

So, just a thought of consideration because that's the only -- well, we do understand your all-in yield could be in excess of 15, right. The actual cash component of that which is what it needed to pay cash dividend is just as important. Go ahead, Jim..

I think we get that Jonathan.

We're just not happy the way this is trading below book and we don't understand why it’s at these borderline discounts to the book, and if these levels persist, it's definitely in the interest of the shareholders to buy back at these kind of prices, some amount of this in addition to deploying the usual returns investments..

Makes total sense and ties into the, Jim, kind of your application for co-investment. So you've reviewed it, can you give us a sense what would you consider to be the hurdles to receiving a full exemptive relief application, because there are several folks that provide, I mean exemptive relief applications.

It doesn't mean that the SEC comes after you if you coinvest without it.

In fact, I mean, there are several respected law firms that can outline that, as long as you're following the correct policies and procedures in terms of asset allocation to avoid conflict that’s important to the commission, you could kind of do things via do a process and so I'm interested in your views of how this is progressing and whether or not you have any outstanding items in your own asset allocation policy that would contrast to what perhaps the SEC or your legal counsel is advising you to do on your exemptive application?.

Yes. Jonathan. I think after this year, we've decided to never guess the SEC and the timing and their response or position on things. So I would say we are very similar to many other externally managed BDCs in terms of having a platform.

What's unique about us is again the fact that the BDC focuses primarily on venture growth, which is not the area that our private capital funds and so I think there is a nice differentiation.

So we believe that again that there is plenty of precedent to support a timely relief process, but again we're working with the government, there are always unique elements to every business.

We are not a cookie cutter like some of the other platforms out there, and so we do have unique aspects, but we’re heads down, focused on that, and working through it, but I think we’re going to avoid providing any guidance on timing..

Far enough.

And that also just begs the question because we do see some additional reports coming out from legal counselors as well as another ventures, BDCs, shelf filing was declared effective, where do we stand in terms of the asset coverage requirements that we were talking about prior as well as the looks of liquidity when it comes to unfunded investments?.

Yes. And again, that is my favorite topic. So I'll start and again, I’ll let my colleagues to jump in.

So I think the key thing to keep in mind Jonathan is what we understand, and what we've understood the whole time that the SEC's position was really ensuring that managers had adequate capital and liquidity to meet their obligations and so I think they explored a variety of pads with regards to essentially how to enforce that policy of ensuring folks have sufficient liquidity and so I think based on feedback from PC managers, I think the industry as a whole, they ultimately concluded that the best path was to get the fact that we are all experienced credit managers.

We all know how best to manage our businesses and so by having all of us of as a w hole be more thoughtful and represent that we have sufficient liquidity and funding capacity that that ultimately was the best path to achieve this goal, and so I think that as a result, we are all in a much better place..

Got it. And Harold, I'm just curious on the accounting rules, only because you book a gain this quarter that actually kind of walked into next and then I understand the circumstance, can you just walk through kind of how that's possible.

Normally, I've seen folks just wait to book the gain as opposed to bringing it in prior, just give us kind of the line of thought or the auditors’ thought on that?.

The thought is and this is consistent with something that happened to us in third quarter of last year is we had a non-prepayment that happened in October and when you fair value a loan with payment coming up in two days, you mark that up as an unrealized gain and then in the subsequent quarter, we will reverse that unrealized gain, but we will recognize income, interest income of the prepayment..

Got it. Understood.

And then one other question, just as it relates to virtual investments, I believe, there was a small write-down, can you give us a sense of maybe a few of the weak spots in the quarter and just outline what the $60,000 – the question the folks are asking is, if they get the venture asset class, they appreciate it, they like it, but they, at times wonder if valuations have outpaced fundamentals and does that leave any venture loans in this portfolio overexposed to a correction?.

Yes. Again, I would say generally the beauty for our business as a lender, so one, we're not setting these valuations. Right. These are equity investors that are writing in most cases meaningfully sized checks at these valuations expecting to make returns.

The other beauty is as we mentioned with our eight unicorns, they weren’t unicorns when we led to them, they were unicorns after we led to them and so we are benefiting from that accretion in value, but our thesis is, while we are not trying to second-guess investors, we do also want to factor in, is that valuation obstacle for that company’s ability to raise additional capital to the extent that we are relying on additional capital or potentially in exit events as a basis for repayment.

And so I think our perspective is being mindful evaluations, looking at industry sectors that are in favor, that are out of favor and then identifying and triangulating to make sure that we're not short when we factor in all of that analysis..

I would only add regarding the valuations, we do have pricing protection on most of the warrants generally and we also have to keep in mind, we are focused first and foremost on the debt returns which are really unrelated to the equity valuations and the equity warrant portfolio, it does represent additional upside, but it is not the primary source of the return anyhow..

Got it. Guys, thanks for taking my questions..

[Operator Instructions] That concludes this afternoon’s Q&A session. I will now turn it over to Mr. Jim Labe for closing comments..

Thanks, operator. I’ll close again by expressing my appreciation to all of you for your continued interest and support in TriplePoint venture growth. As a reminder, we will be at the Wells Fargo BDC conference in New York City next week and leading a panel on venture lending. We look forward to seeing many of our investors there.

Thanks, again and I’ll speak with you all soon..

This concludes today's conference call. You may now disconnect..