Good afternoon. My name is Chelsea, and I will be your conference operator today. At this time, I would like to welcome everyone to the Trinity Capital's Fourth Quarter and Full Year 2022 Earnings Conference Call. Our hosts for today's call are Steve Brown, Chairman and Chief Executive Officer; Kyle Brown, President and Chief Investment Officer; David Lund, Chief Financial Officer; Michael Testa, Chief Accounting Officer; and Sarah Stanton, General Counsel. Gerry Harder, Chief Operating Officer; and Ron Kundich, Chief Credit Officer are also present. Today's call is being recorded and will be made available for replay at 8:00 PM Eastern Time. The replay dial-in number is 1800-934-3336 and no conference ID is required for access. [Operator Instructions]. It is now my pleasure to turn the call over to Sarah Stanton. Please go ahead.

Thank you, Chelsea, and welcome, everyone, to Trinity Capital's earnings conference call for the fourth quarter and full year 2022. Trinity's fourth quarter and full year 2022 financial results were released just after today's market close and can be accessed from Trinity's Investor Relations website at ir.trinitycap.com. A replay of the call is available on Trinity's website or by using the telephone number provided in today's earnings release. Before we begin, I would like to remind everyone that certain statements that are not based on historical facts made during this call, including any statements relating to financial guidance, may be deemed forward-looking statements under Federal securities laws. Because these forward-looking statements involve known and unknown risks and uncertainties, there are important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements. We encourage you to refer to our most recent SEC filings for information on some of these risk factors. Trinity Capital assumes no obligation or responsibility to update any forward-looking statements. Please note that the information reported on this call speaks only as of today, March 2, 2023. Therefore, you are advised that time-sensitive information may no longer be accurate at the time of any replay listening or transcript reading. Now, please allow me to introduce Trinity Capital's Chairman and CEO, Steve Brown.

Thank you, Sarah. Thank you to everyone joining us today. As you saw in our earnings release this afternoon, we generated strong fourth quarter results to finish an incredible year, exceeding expectations and breaking records on many financial metrics. Our talented team delivered an exceptional performance in 2022 for our shareholders, and I'd like to start by recapping just a few of our many achievements. First, our originations and fundings brought us to $1.1 billion in total assets, growing our total asset position by 20% as compared to the end of 2021. Second, our investment portfolio at costs grew by 45% which generated a $145.5 million in total investment income. Third, our net investment income came in at $21.6 million for the fourth quarter and $71.6 million for the year, representing increases of 104% and 83% over the prior year periods. This outstanding performance allowed us to deliver NII of $0.62, and $2.26 per share for the quarter and the year. We just delivered our eighth straight quarter of dividend increases. For 2022, we declared combined regular and supplemental dividends totaling $2.33 per share for our shareholders, an 85% increase over the 2021 dividends. Our NII per share of $0.62 for Q4 represents a $0.06 increase from the prior quarter and 135% coverage on our core dividend. Our return on average equity based on NII increased to 17.9%. Fourth, in the first quarter, we realized gains from the sale of our investment positions in Lucid and Matterport that contributed to the $33 million or $0.94 per share of realized gains on the ending share basis. Lastly, we ended 2022 with approximately $60 million, or $1.73 of undistributed income. As a reminder, the undistributed income from 2021 of approximately 19 million was distributed through the $0.60 supplemental dividends we declared and…

Great thanks, Steve, we are truly pleased with the performance of our originations and credit team during 2022. I mean we originated $976 million in commitments and $631 million in investments. Our portfolio grew to $1.1 billion on fair value basis, an increase of 25% on a fair value basis. Investment activity led to the addition of 34 new portfolio companies during 2022. During the fourth quarter, we entered into commitments of $239.5 million and funded $121.4 million, including $71 million in deployments to seven new portfolio companies and $15.4 million in gross deployments to non-existing portfolio companies. We finished the quarter with $393 million of unfunded commitments, which provides us with a strong pipeline for continued fundings leading into 2023. And as a reminder, our unfunded commitments are subject to ongoing diligence and approval by our Investment Committee. Our pipeline activity remains solid for Q1, despite narrowing our funnel and tightening our investment criteria. To meet this growing opportunity, we completed two transformative initiatives in 2022 with the close of our joint venture, and SEC exemptive relief for our RIA. We are encouraged by the multiple growth levers we have in place, which are differentiating ourselves in the BDC industry. Our JV structure not only allowed us to expand the portfolio, but also generate predictable fee income, while keeping the balance sheet healthy and nimble. The RIA structure will allow us to raise funds off the balance sheet providing outsized returns for investors in a complementary way. We can now raise co investment type vehicles to grow the platform with the ability to raise capital from multiple channels all to the benefit of the BDC, which owns 100% of this RIA. At Trinity, we believe our internal management structure enhances our shareholder alignment and ability to think outside the…

Thank you, Kyle. As Steve and Kyle mentioned this was an outstanding quarter and year for Trinity across multiple performance fronts. Turning specifically to our fourth quarter financial performance, our portfolio growth of 45% during 2022 and the increase in benchmark rates contributed to our total investment income of $41.5 million, a 75.8% increase over the same period in 2021 and a 7.3% increase over the third quarter of 2022. Fee income decreased to $909,000 as our early loan repayments to only $14.8 million in the quarter. Our effective yield on the portfolio for Q4 was 15.5%, an increase from 15.2% in the third quarter. Our core yield which excludes nonrecurring fee income increased to 14.2% from 13.5% from the prior quarter. Both our effective yield and core yield primarily increased due to the rise in benchmark rates. Year-over-year total investment income increased by 77% to a record $145.5 million in 2022, from $82.2 million in 2021. Our consistent originations helped drive this increase while we maintain a consistently high effective yield across the portfolio. Our debt portfolio continues to be well positioned ahead of anticipated future rate hikes with 68% of our debt investments at floating rates, while on the borrowing side only 30% of our outstanding debt at the end of the fourth quarter what is a variable rate at SOFR. We incurred a total of $10.3 million in interest expense and amortization and deferred financing costs on various debt facilities as compared to $9.3 million in Q3. The increase in interest expense was primarily due to the full quarter of expense incurred under the $57.5 million of additional 7% notes issued in Q3, and an increase in the interest rate and weighted average borrowings outstanding during the quarter under our KeyBanc credit facility. Our other operating expenses…

Thanks, Dave. Turning to credit quality, our portfolio companies continued to perform well in fourth quarter of 2022 with approximately 95% of our portfolio performing at cost. As Kyle mentioned, at the end of the quarter, we had four investments on nonaccrual, representing just 1.7% of the fair value of the investment portfolio. Our average credit rating for the fourth quarter stood at 2.8 based on our 1 to 5 rating system with 5 indicating very strong performance. This rating is just slightly lower than our average credit rating of 2.9 in Q3. Our overall credit quality has remained solid. We've taken practical approach to all those in our portfolio. We continue to diligently monitor our portfolio companies' performance, being mindful of the macro environment that could impact our operations. Moving to liquidity as of December 31, 2022, we had total liquidity of approximately $173 million comprised of approximately $162 million of undrawn capacity under our credit facility, and $11 million in unrestricted cash and cash equivalents. Our net leverage ratio, which represents debt outstanding less cash on hand, increased to 1.33x this quarter, as a result of our borrowings on our credit facility, which contribute to our portfolio growth. As of December 31st, total debt principal outstanding was $620 million and had a weighted average cost of debt of 6.8%, up from 6.3% at September 30th, due to higher base rates on our credit facility. Unsecured debt represented 70% of the total debt at quarter end, down slightly from the prior quarter as we borrowed under our credit facility. With the majority of our investment portfolio imploding reinvestments compared to the majority of our outstanding borrowings at fixed rates, we expect that further increases in the base rates in 2023 would positively impact our net interest margin and NII…

[Operator Instructions] And our first question will come from Finian O’Shea with Wells Fargo. Finian O’Shea: Our first question, are you able to provide us any color on the portfolio company level liquidity, cash runway and so forth? And maybe a higher level fundraising backdrop?

Yes, this is Ron. In terms of portfolio cash runway, we're obviously actively monitoring our portfolio on a monthly, if not on often basis. We track those numbers on a company by company basis. We do not have a aggregate -- we don't keep track of the aggregate. But we take each of those into account as we grade and value the portfolio regularly.

For all new investments then we do track and I'd say the one maybe adjusted to underwriting that we're considering is we really want to see 18 to 24 months or more of runway for any new investment coming to portfolio is something that we continue to focus on. Finian O’Shea: And then just to follow-up on the RIA. Any sort of type of vehicle in mind and is this something that you would potentially or likely commit Trinity equity to get vehicle started?

That's a good question. I think part of the part of the purpose of the RIA is to manage other people's money. And so, the goal will be to generate new fee income and carried interest in a fund structure, utilizing someone else's capital primarily. And we are in process, currently, we have begun those discussions with investors and potential investors. And we believe that funds managed by the RIA have the potential to generate a significant amount of income to the BDC in the future. And the structure of it would also be, I think, primarily, at least initially a co-investment vehicle, which will be complementary and help us continue to make new investments, generate new income, and not -- and give us the again, just like the JV the ability to be nimble to BDC level, maximize our capital there. And then for investments that don't fit the BDC whether it's bad income or there's a variety of reasons we can come up with, but we have a significant portfolio and pipeline of opportunities. Not everything fits inside of the BDC. So we want our shareholders to be able to capitalize on those investments as well. And so we see a future where we have funds that can take advantage of those opportunities as well.

[Operator Instructions] And our next question will come from Christopher Nolan with Ladenburg Thalmann.

Steve, what is the leverage level that you guys are looking for, the range?

The range is sort of the 115 to 135 range. We're at the upper end of that right now. We do plan to keep it within the upper end of that range going forward. That's been our policy for some time and still is.

And your stock is just slightly above book value. But it's -- I mean, if it gets -- any thoughts of derisking the portfolio at all -- taking the -- I mean, any thoughts of equity raises, given that your stock is slightly above book?

I think we're going to look at equity raises cautiously. We have proven the ability with our existing portfolio, as it sits today to generate meaningful numbers relative to income than investment income and distributions. And so we can certainly continue, we believe, to perform like that if we don't grow the portfolio, which means if we don't raise money, but obviously, if our stock price reacts positively, and we have the ability to raise some capital and do it just judiciously, we'll certainly do that. It's kind of mentioned with the off balance sheet activity now. We can raise capital there, and we can continue to be active in the marketplace on a co-investment basis. And that gives us effectively liquidity as a platform to go do what we do in the marketplace with the benefit all coming back to the BDC shareholders.

Then, on the dividend, did you guys indicate that there'll be a supplemental dividend in the first quarter or did I miss something?

So we have not determined that, we're going to be visiting with the Board here later this month, I think, as Mike said in his prepared remarks. And we do have spillover income. As you know, we've continued to grow our core dividend, and then for the eight straight quarter, we increased it. So we'll sit down with the Board and look at all of those factors and make a decision later this month.

[Operator Instructions] And our next question comes from Ryan Lynch with KBW.

First question I have following up on the question regarding the RIA. I'm just curious. I know there's a lot of variables and a lot of uncertainty, all the timing of things. But as we sit here today, do you guys have any sort of expectation of when you would hope to get the first fund up and running and some capital deployed? And when potentially that could actually get to the stage where it could start contributing fee income to the BDC?

So timing is not unobserved as you know, I think you can expect some time that's in the next six months that we will have that ramped up and we'll be deploying capital out of it. We mentioned the JV. We've begun deploying out of that. Steven mentioned this before, that also provides us with some liquidity BDC level, because we're doing a look back and we're able to provide advance against fundings we've already done. So, that income, that off balance sheet income, it's already begun, and it will continue. And our intention is for that to grow.

My other question was, I would love to hear you guys' perspective on what is the pulse of venture capital investors in this environment, their willingness and ability to support portfolio companies that aren't cratering but maybe performing slightly below expectations in this environment. At one point, there was kind of free money and it felt like everybody was getting capital. Certainly the strong companies who are outperforming expectation I think, would still be able to get capital, the ones who are severely underperforming probably aren't. But I'm curious about those companies that are maybe just slightly underperforming expectations and venture capital participants' willingness and ability to continue to help support those companies?

Yes, Ryan, this is Kyle. So a couple of things. One, I don't think as venture capital private equity generally are supporting companies that are cratering anyway, in good markets or bad markets. We have -- we believe the way we've underwritten -- that our companies have a real true moat around the technology. They're growing in the face of headwinds. We've seen this over and over again, with our -- the investments we've made over the last couple of years. And when they need more capital, they get it. And -- but I would say, what companies are having to come to grips with is that, that money is not free like you said, it's not cheap, maybe like it was in 2021, 2022. They're our own portfolio. And the new investments we make founders and CEOs are having to come to grips with the fact that, that company is just not worth the multiple that existed for them a year or two ago. And so while we continue to see our companies get funded, we see it quite regularly in our own portfolio, and they're getting the capital, they need to get a couple of years down the road and continue to grow in the face of headwinds, but the valuation is decreasing. As a secured lender, I’d be cautious, I will say this, it's not that we don't care, we do care. But the majority of our returns are fee income, rate and fee income, current income. And so the valuation whether it's high with the free money, or it's low with more premium capital, that doesn't affect our returns, that doesn't inhibit our ability to collect from our borrowers. So it doesn't necessarily hurt our position. So we monitor it, we track it, we want to see our kind of companies continues to receive capital, and they are getting -- most of those companies are getting it at a revaluation, a lower amount.

Yes. Probably the only thing I'd add to that Ryan is the expectation on the founders is no longer unfettered growth. But pivoting to profitability, right? Let's make this capital last, let's make the cash likes last. That's why the cash like question is difficult one, right? Because you get a much different answer on a trailing 12-month basis than you do on a forward 12 basis across virtually any company within the portfolio, right? Because they're all talking about pivoting to profitability. And there's real enterprise value in the companies we underwrite. So they're getting the equity. It just may not be the valuations that the Congress would love.

[Operator Instructions] And our next question comes from Bryce Rowe with B. Riley.

I wanted to maybe start with the comp line and thoughts about operating expenses. Obviously, you've grown the headcount quite a bit to ramp up. You noted your 57 employees now. How should we think about, you know, the growth of the employee base as we look out over the next couple of years?

Yes. I can tell you Bryce in our annual plan for this year, there's very modest headcount growth. Some of it is within the finance and operations team as we do add the off balance sheet entities, right? There's a bit of complexity in Mike's team on the back end. But growing judiciously, we mentioned in our prepared remarks, we've added a life sciences practice in 2022. We will be expanding that per our plans. But the headcount growth is going to be very moderated in 2023 compared to last year.

And maybe shifting gears here, just thinking about the comment you made around Core Scientific and where its mark as of December 31st, and relative to maybe the performance of Bitcoin here in 2023. When was that mark kind of determined? And was there any ability to kind of go back and reflect what the mark might look like today with some of the better information you have to work with?

Yes. You are going to see us be real consistent with our marks in our valuations. On 12/31, that was the value of that equipment and we have to look it that way, the way we look at it is what could we sell this for right now right today? And listen, we could argue about it all day long about what it's worth today, it doesn't matter. As of 12/31 that's what it was worth. Is Bitcoin up 40% since then? Yes. We are working with the company, we're going to do our best to collect every dollar that and we'll see what happens here. But as of 12/31, that was evaluation. That's what we're reporting, and you're going to see us be real consistent on the valuations.

And then maybe last one for me. You've got a chart and in the K and in the presentation about kind of internal risk ratings. Can you walk through kind of the some of the migration we saw quarter-over-quarter? Is it kind of more a reflection of the, I guess, the environment than anything else?

Yes, I mean, happy to. Where we saw migration within the portfolio was -- as you know, we have five bins, three of which are our different levels of performance. And so we saw more companies in that center performance bin versus one of the higher. And so these are still performing loans that doesn't indicate distress. When you look at our risk rating, performance to plan is a very big aspect to that, right? And so our portfolio companies faced quite an inflection within 2022, where we just spoke about it earlier, the growth plans that they may have -- might have laid in early in the year needed to be tempered quite a bit. So -- but the portfolio is robust on the lower two categories, we've been stable, I guess two credits that we've talked about in the past. So, we don't see great danger there in that migration, but it reflects the reality as of year-end.

[Operator Instructions] And at this time, we have no further questions in the queue. We do have one last question from the Vilas Abraham with UBS.

Just on loan spread, what are you guys seeing there now? And are you trying to push those at all with new borrowers and new investments?

This is Kyle. We do continue to push on pricing. We continue to push on awards. And we have seen that trend up. We will continue to be aggressive on transactions that make to the finish line from a pricing perspective. So on a percentage basis, it's not a significant increase. But it is an increase nonetheless.

Stay, we keep them relatively constant spread over prime. So you'll see anywhere from 6.5% to 7.5% over prime on most of our underwriting. So it's going to move more with the prime than necessarily we're moving a spread.

And then just maybe just a broader question on M&A. When do you think that picks up again, particularly since it seems like the sentiment is that valuations are pretty reasonable or close to the bottom here? What are your general thoughts around there? And I guess how that plays into new investments and the conversations around how it's just going to look like at some point? Thanks, bye.

Yes. You can ping-pong this, guys, a little bit here. But I'll start, this is Kyle. I think we have seen a lot of [PD] interest. I think that will continue to be an M&A. We'll see M&A increase in that category. I think the IPO and kind of traditional exit market, public markets are probably less interesting for the time being, but I think private equity is absolutely sniffing around and you might see more of that here throughout 2023.

If you look at our Q4 the early repayments was pretty much a low watermark, I think set it 14 million, Dave?

14.8.

14.8. So, which makes the $0.62 even more impressive, right? Because it wasn't built on early repayment fees. We don't see that materially picking up in Q1. But maybe second half of the year, I think we'll see a little bit more activity. That's what the crystal ball says, but we don't really know.

Our next question will come from Casey Alexander with Compass Point.

One is a technical question and then one is more of a broader picture question. Firstly, the technical question. In relation to Hut 8, normally, if it equipment finance loan prepays, my understanding is that they have to prepay the principal and all contractual interest payments that would have been due to the end of the loan. In the case of a merger, where you're calling for a payoff, is it the same or do they just have to pay off the principal?

Casey, it’s Kyle. We are -- we can force pay off and they are on the hook for all future payments.

Secondly, from a bigger picture, it's obviously a volatile time in venture capital and venture debt. I mean, we're seeing that with most of the earnings reports. And we've seen that with your results. So from a strategic sort of sense, do you think it's the right time to be intentionally running at the top end of the leverage range? And do you think by doing so is it your opinion that credits going to improve over the next two or three quarters?

So a couple of things. I think A, the JV provides us with liquidity, right? We believe we're also going to be able to recycle capital in the BDC. The portfolio as it is right now, even with these non-accruals is generating a significant amount of income. And we believe that will continue. And then the additional off balance sheet activity that we are in the process of raising right now is really going to fill up a nice void or just help -- continue to help us provide incremental deployment. So that leverage ratio is going to swing between the ranges Steve gave you utilizing that capital.

And also, we're going to start seeing some of the loans come off of interest only. And so we're going to be able to recycle some of that capital back into the marketplace to support our companies and continue investing. So it's a time for good opportunity, Casey.

At this time, there are no further questions in the queue. So I would like to turn the call back over to Steve Brown, Chairman and CEO for closing remarks.

Thank you. And again, thanks to everybody that dialed in today. We appreciate your support. And we're excited about the results for 2022 in the fourth quarter, and we look forward to getting back with you at the end of Q1 to talk about how we've done. Thanks, guys.

Thank you, ladies and gentlemen, this does conclude today's teleconference and we appreciate your participation. You may disconnect at any time.