Good afternoon, ladies and gentlemen, and welcome to the TriplePoint Venture Growth BDC Corporation Second Quarter of 2024 Earnings Conference Call. At this time, all lines have been placed in a listen-only mode. After the speakers' prepared remarks, there will be an opportunity to ask questions and instructions will follow at that time. This conference is being recorded and a replay of the call will be available in an audio webcast on the TriplePoint Venture Growth website. Company management is pleased to share with you the company's results for the second quarter of 2024. Today, representing the company is Jim Labe, Chief Executive Officer and Chairman of the Board; Sajal Srivastava, President and Chief Investment Officer; and Chris Mathieu, 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 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, and good afternoon, everyone, and welcome to TPVG's second quarter earnings call. During the second quarter, our focus continued to remain on navigating through what the NVCA labels as a generational market shift in the venture capital markets. Given the continued volatility and challenges in the venture capital market, as well as the public markets for technology companies, we stayed on our path of selectively increasing our investment activity to capture growing investment opportunities coming to market, proactively managing our existing investment portfolio, maintaining strong liquidity and taking the steps that we believe will enable us to position TPVG for the future. While we're seeing a modest increase in investment activity, we do not believe this marks an inflection point. The imbalance continues between the levels of venture capital investment activity and the continuing limited exit opportunities through IPOs, a merger acquisitions for venture capital-backed private technology companies. Private company valuations have not fully reset and we expect the valuation overhang in venture growth stage companies to continue to be worked through over the coming quarters. VCs continue to be patient with their investment activity, balancing the need to preserve their dry powder and also growing mindful of the need to generate distributions for the limited partner investors through exit activity. While all at the same time taking advantage of new investment opportunities they are seeing at investor-friendly terms in today's market. Turning to the market for debt financing, the demand for venture lending continues, many from companies who have raised capital in the current market environment or a meaningful existing cash runway and are looking to complement that capital with debt financing given their continued operational success. Combining this continued increase in demand and our previously stated expectation of an increased new investment activity in 2024, signed…

Thank you, Jim, and good afternoon. Investment pipeline activity increased for the fourth consecutive quarter as TriplePoint Capital signed $188 million of term sheet with venture growth stage companies compared to $130 million in Q1, reflecting continued increases in originations by our investment team, referrals from our select venture capital funds and demand from high-quality companies seeking debt financing. Although our investment pipeline activity is increasing, TriplePoint Capital and TPVG continue to be very measured in our approach to new originations in light of market conditions. With regards to new investment allocation to TPVG during the second quarter, in light of our progress of reducing leverage and mindful of our objectives for portfolio diversification, TriplePoint Capital allocated $52 million in new commitments to five companies to TPVG, including two new portfolio companies, our highest commitment amount over the past six quarters. Commitments to new portfolio companies during Q2 included Affinity, a software-based relationship intelligence platform built to expand and involve traditional CRM backed by Menlo Ventures, Careventures and other investors, and Cresta Intelligence, a software company which leverages artificial intelligence to help sales and service agents improve their quality of their customer service backed by Sequoia Capital, Greylock Partners, Andreessen Horowitz and other investors. During the quarter, we also made follow-on commitments to two recent portfolio companies, as well as refinancing existing portfolio company in conjunction with an [upsize] (ph). Thus far in Q3, TPVG has closed a total of $11 million of new commitments to one new portfolio company in the software industry and one existing portfolio company. During the quarter, TPVG funded $38.7 million in debt investments to five portfolio companies which is up from $13.5 million in debt investments to three portfolio companies in Q1 and is our highest funding amount over the past five quarters. We…

Thank you, Sajal, and hello, everyone. For the second quarter, total investment income was $27.1 million and a portfolio yield of 15.8% as compared to $35 million or a portfolio yield of 14.7% for the prior-year period. The decrease in total investment income was primarily due to a lower weighted average principal amount outstanding on our income-bearing debt investment portfolio. For the second quarter, total operating expenses were $14.5 million as compared to $16.3 million for the prior-year period. These expenses consisted of $8.7 million of interest expense, which included $1.8 million or $0.05 per share of a one-time fee related to the minimum utilization clause on our credit facility; $3.8 million of base management fees; and $2 million of general and administrative expenses. There were no incentive fees this quarter. For the second quarter, net investment income totaled $12.6 million or $0.33 per share compared to $18.8 million or $0.53 per share for the prior-year period. During the second quarter, the company recognized net realized losses on investments of $18.8 million, consisting primarily of $20.2 million of net realized losses on the investment portfolio from the write off and restructuring of investments and partially offset by $1.3 million of net warrant and equity gains from the sale and disposition of investments. Net change in unrealized gains on the investment portfolio for the second quarter was $14.9 million, consisting of $12.8 million of net unrealized gains on the warrant and equity portfolio and $10.9 million of net unrealized gains from the reversal of previously recorded unrealized losses from investments realized during the period, offset by $8.8 million of net unrealized losses on the existing debt investment portfolio. As of quarter-end, net asset value, or NAV, was $353 million or $8.83 per share compared to $346.3 million or $9.21 per share…

[Operator Instructions] At this time, we will take our first question, which will come from Crispin Love with Piper Sandler. Please go ahead.

Thanks, and good afternoon everyone. Just starting off, you reset the dividend at $0.30, net investment income here decreased to about $0.33, I'm curious if you can discuss your outlook for net investment income over the near term, especially with rate cuts coming and your portfolio sitting at around $715 million range at quarter-end, and when you think you can get back to an area where you're growing the portfolio again?

Yeah. So Crispin, I'll take that. So, we have reset the dividend based on our current expectation of the strength of the existing portfolio and maintaining our target leverage ratio, which is where we are sitting now. We've also considered the impact of some near-term Fed rate changes that are expected to come in the near future, as well as looking at the first half of 2025. Some of the other things we're also thinking about are some of the variables we had this quarter. Management fees tend to be quite flat. So, we've assumed a pretty flat management fee. No incentive fee is expected to be incurred for the rest of this year and for at least the early part of 2025. Admin fees and G&A are pretty well baked and consistent quarter-to-quarter. So, all that assumed, we assume a kind of a consistent portfolio size with the leverage we have to the extent -- Sajal, referred to NAV appreciation, NAV appreciation would result in additional ability to grow the portfolio. So, I think that covers the question, I think.

Great. Thanks, Chris. That's all helpful. And then, just in the last week or so, we've seen plenty of volatility in broader markets, credit spreads have widened. There have been kind of more fears of a potential recession. So, can you discuss a little bit how you feel about your current credits that are performing as well as kind of new credits you're looking at? It seems like you're taking a cautious approach here. But just curious if anything has changed in your outlook recently? Or is it pretty stable? Or just kind of has anything gotten worse? Just curious in the current environment and the volatility that we've seen more recently.

Yeah. Crispin, I'll take it. Our credit risk scores obviously reflect our current view on our existing obligors and based on market conditions. And so, I think our perspective as we look to the most major impact to our sector and our industry is venture capital fundraising, venture capital investment activity. And I think Jim talked about it, essentially flat Q2, Q1, but still up from last year. So, I think we would like to see that activity increase. I don't think the current -- this week's volatility necessarily impacts the private market investment activity as long as the volatility is short. I still think there is that more fundamental mismatch that Jim talked about, about regarding public valuation multiples and private valuation multiples, and we still need that to clear that imbalance. And so, I think it will take a few more quarters for that to occur, investment activity to improve and exit activity to improve as well, which are all beneficial for not only new investment opportunities but our existing portfolio companies.

Great. Thank you, Sajal, and appreciate you both taking my questions.

And our next question will come from Finian O'Shea with Wells Fargo. Please go ahead.

Hey, everyone. Good afternoon. A follow-up on earnings. Chris, can you give us after deleveraging, which has been going on for few quarters, what would like the exit rate be of NOI? You also said the portfolio and leverage would be stable from here. So, where would earnings, say, be at next quarter all else equal?

Yeah. So, without giving you specific numbers, certainly, what we did was considered the existing portfolio size and steady state. So, we have hit our leverage target. I know we worked towards that over the last six to nine months. And so, we're at our targets now. So, it's really more about turning the portfolio and building it from there. So, I think you can build your models resetting that portfolio size to where we are today and then some of the comments I made about some of the P&L expense and items there should help you drive your models.

Okay. So, on the level of the dividend, it sounds like earnings power is revisited given the greater-than-anticipated repays getting you to sort of your destination. You also talked about the base rate curve, but your payout yield, I think, is nearly 14%, and a base rate curve normalizing, would probably have you a bit below -- that's still much higher than you earned historically. So, is there a sort of -- is there another bridge or lever from here assuming as well normal incentive fees and interest costs? Thanks.

Yeah. Well, I'll grab that one. But I'd say BDC, we think it's pretty important and have distributions to our shareholders, and myself, Chris and Sajal are in that mix, and not very in a significant way. But, hey, you've got to look at the $97 million of liquidity events that we had last quarter. We have been getting back in our targeted leverage range and then lower core portfolio yield. I mean, it's all lower earnings power. So I guess, you could factor in the Fed rate cuts that we may expect that Chris was talking about, and it just boils down to, it's not an easy decision here, Fin, but it's the right decision and it realigns the dividend with the size and the yield of this portfolio. But still providing some sizable distributions to the shareholders.

Okay, fair enough. Thank you. I'll hop back in the queue.

And our next question will come from Doug Harter with UBS. Please go ahead.

Thanks. Can you talk about your outlook for portfolio yield, both kind of the base yield, but also kind of as you think about repayments as well in there?

Yeah, Doug. Sajal, I'll take it. So, I believe, as we reported today, core portfolio without the benefit of prepayment activity, 13.9%. And so, I think as Chris -- sorry, we're getting a little background noise. 60% of our book is floating rate, 40% is fixed rate. So, as we -- and again, we set floors on base rate indices, depending on when the assets are originated. So, we have the lowest prime rate floor we have is 3.25%, but obviously going to as high as where the current prime rate is on our more recent loan book. So, I would say our perspective is that, generally, this 13.9% is a good starting point and then factor in the fact that, again, as the Fed makes changes and reduces rates, you'll see not on a one-for-one basis, but you'll see the impact of that. Yes, obviously, we're onboarding new investments at higher rates, but we have to factor in again the balance of the portfolio. And last point is there is a chart in our Q, obviously, that shows the impact of base rate changes. So, I think you can actually get some more specific information.

Great. Thank you, Sajal.

And our next question will come from Christopher Nolan with Ladenburg Thalmann. Please go ahead.

Hey, guys. To pick up on Fin's discussion, and I don't mean to beat a horse here, but did you cut the dividend enough? Because if you look at as a percentage of NAV, it's close to 14%.

Yeah. So, we think we have. We think that based on the modeling we've done and the variance of the revenue that this portfolio generates, we think that we're in the right level. I think the one thing that I forgot to mention to Fin was one of the variables now that we're at target leverage is the prepayment rate and the vintage of those prepayments. I think we've talked in the past that earlier prepayments generate more income to us. So that will be one of the variables that you'll have to think about over the coming quarters. But otherwise, we think we have a good handle on the earnings power of the portfolio and some of the variables beyond just the kind of top-line revenue.

Okay. And Chris, on the -- shares are now trading below book. Should we assume that the ATM will not be utilized when the share price...

Yeah, that's a fair question. So, we do not have and have never sought the vote to have below share issuance. And so, ATM is at the market assuming that we trade above, including the -- any load that we would pay. So yes, that's correct. If it's below NAV, we're not issuing.

Great. And my final question is, given that you guys are sort of in a portfolio reset mode to a certain degree, what areas -- what industries are you liking and which areas are you not liking in terms of looking at prospective investments?

Yeah. I'd say we pretty much are following what the investment categories and favorable sectors are of the select venture investors that we work with. So probably no surprise. And here and there, we've mentioned some of these. But AI for sure, and that goes -- there's a lot of ways of defining that. But cybersecurity comes to mind. There's a bunch of health tech space and government technology. We love recurring software companies, enterprise software. Interesting enough, robotics, and actually semiconductors is making its way back into the mix of new investment sectors. I'd throw in a little bit vertical software, some environmental sustainability technologies, and space and GovTech, as folks now call it. I think we are deemphasizing the more consumer-focused plays out there and there's less of them.

Great. And finally, Chris, I hope, wish you well in your retirement, and I always appreciate working with you and I appreciate your help and your patience. And okay, that's it for me guys. Thank you.

Thanks for the kind words.

And this will conclude our question-and-answer session. I'd 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 also participating in today's call. Excuse me. We look forward to updating and talking with you all again next quarter. Thanks again, and have a nice day.

The conference has now concluded. Thank you for attending today's presentation. You can now disconnect your lines.