Q1 2024 Trinity Capital Inc Earnings Call
[music].
Please standby we're about to begin.
Jamie: Good afternoon, My name is Jamie and I will be your conference operator today.
Jamie: At this time I would like to welcome everyone to Trinity Capital's first quarter 2024 earnings Conference call. This call is being recorded and will be available for replay beginning at approximately three P. M Eastern time.
Jamie: The replay dial number is one 800 839 to 389 and no conference I D is required for access at.
Jamie: At this time, all participants have been placed in a listen only mode and the floor will be opened up for your questions. Following the presentation.
Jamie: I would like to ask a question at that time. Please press star one on your telephone keypad.
Jamie: If at any point. Your question has been answered you may remove yourself from the queue by pressing star two.
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Jamie: Lastly, if you should require operator assistance you May press star zero it.
Jamie: It is now my pleasure to turn the call over to Ben Atkinson head of Investor Relations for Trinity Capital. Please go ahead.
Ben Malcolmson: Thank you Jamie and welcome to Treaty Capital's earnings Conference call for the first quarter 2024 today.
Ben Malcolmson: Today, we are joined by Kyle Brown, Chief Executive Officer, Michael Tester, Chief Financial Officer, and Jerry harder Chief operating Officer, who.
Ben Malcolmson: Also joining us for the Q&A portion of the call are Ron <unk> Chief Credit Officer.
Ben Malcolmson: <unk> been chief compliance Officer, and General Counsel.
Ben Malcolmson: True. These financial results were released earlier today and can be accessed from our Investor Relations website at IR Dot Treaty cap Dot com.
Ben Malcolmson: A replay of the call will be available on our website or by using the telephone number provided in today's earnings release.
Ben Malcolmson: 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.
Ben Malcolmson: 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.
Jamie: We encourage you to refer to our most recent SEC filings for information on some of these risk factors.
Jamie: Trinity Capital assumes no obligation or responsibility to update any forward looking statements.
Jamie: Note that the information reported on this call speaks only as of today May <unk> 2024. Therefore, you are advised that time sensitive information may no longer be accurate at the time of any replay listening or transcript reading.
Jamie: Now please allow me to turn the call over to trendy capitals CEO Kyle Brown.
Kyle Steven Brown: Thank you Ben and thanks, everyone for joining us today.
Kyle Steven Brown: First quarter was a strong start to the year for Trinity we remain opportunistic opportunistic in the current market by investing in our platform as we continue to scale and deliver value to our shareholders.
Kyle Steven Brown: Notable highlights during the quarter include $243 million of gross fundings across eight new portfolio companies and two.
Kyle Steven Brown: The existing portfolio companies plus.
Jamie: Platform, a U M growth, 38% year over year, pushing our assets under management to $1 6 billion.
Jamie: Record net investment income of $25 2 million, 30% increase versus Q1 of last year and return of equity of 16, 1%.
Jamie: Our performance allowed us to increase our quarterly dividend of <unk> 51 per share in the first quarter, making this the 13th consecutive quarter, we've increased our dividend credit underwriting and portfolio management.
Jamie: To remain fundamental to our success, we maintained rigorous standards and originations diligence and portfolio management to position us to effectively navigate a dynamic market.
Jamie: Our team of nearly 80 professionals as the quarter cornerstone of Trinity's track record.
Jamie: And is the key to our trajectory going forward, we're committed to creating a unique culture here of excellence that is built around six pillars humility integrity trust uncommon care continuous learning and an entrepreneurial spirit all of which creates a differentiated lending platform that we've built here at Trinity.
Jamie: We strive to provide value above and beyond expectations to every part of the Trinity platform, whether that's employees clients or investors.
Jamie: And as an internally managed BDC, our employees and management on the same shares as our investors.
Jamie: Shareholders out a pool of assets as well as the management company, which maximizes returns and maintained strong alignment of interest with our shareholders.
Jamie: Our commitment to expanding the platform as highlighted by our investments in strategic growth initiatives across the platform.
Jamie: In the first quarter Trinity solidified its position as a diversified lender by further growing our four distinct business verticals equipment financing life Sciences warehouse lending and tech lending each with their originations their own originations credit and portfolio management teams.
Jamie: Our exceptional relationships with portfolio companies and industry partners have also been pivotal in achieving our strong performance in the first quarter, an aggregate of $1 2 billion of equity was raised by 21 of our portfolio companies demonstrating that our portfolio companies are able to secure the funding they seek.
Jamie: We ended the quarter with a strong investment pipeline, including 405 million of unfunded commitments, leaving us well positioned for continued growth in 2024.
Jamie: As a reminder, all of Trinity's unfunded commitments are subject to ongoing diligence and approval by our investment Committee.
Jamie: Turning to the macro environment activity is picking up in the venture capital and private equity world.
Jamie: Exceptional levels of dry powder remain in Bdcs and non bank lenders continue to be vehicles of choice for sponsor backed companies.
Jamie: With this high demand for capital, we maintain our selective approach with new opportunities.
Jamie: As a direct lender, we own our pipeline and have originators strategically located in major markets.
Jamie: Around the country to further build the deep relationships with sponsors banks and operators.
Jamie: We pride ourselves on three core principles here at Trinity exhibiting uncommon care for our employees and our partners, serving our clients by being partners, rather than just money and providing outsized returns for our shareholders.
Jamie: We're bullish about future we plan to continue to invest in our teams systems diversifying our investments to build a best in class direct lending platform.
Jamie: We're just getting started and we look forward to extending this momentum in the quarters to come as we continue to grow and maximize value for our shareholders.
Jamie: And with that I will turn the call over to Michael test, our CFO to discuss financial results in more detail Mike.
Michael Testa: Thank you Kyle in Q1, we achieved record total investment income of $55 million, a 21, 5% increase over the same period in 2023.
Michael: Our effective yield on our portfolio for Q1 was once again strong at 15, 8%.
Michael: Our corn yield, which excludes fee and prepayment income was $15, 5.3%, mostly consistent with the prior quarter.
Jamie: Net investment income for the first quarter was $25 $2 million or 54 cents per basic share an increase of 30% compared to $19 $3 million or 55 cents per basic share in the same period of the prior year.
Jamie: Our net investment income represents 106% coverage of our quarterly distribution and our undistributed income is approximately $65 million or $1.33 per share.
Jamie: Our platform continues to generate strong returns for our shareholders with ROA E. Based on net investment income over average equity of 16, 1% and our O. A a based on net investment income over average total assets of seven 5%.
Jamie: As of March 31, 'twenty 'twenty four R. N. A V was $626 million, which increased from $611 million as of December 31, 2023.
Jamie: Corresponding NAV per share was $12.88 per share at the end of Q1, which decrease from $13 19 per share as of December 31st 2023.
Jamie: The decrease in NAV per share this quarter was primarily attributable to the issuance of restricted stock awards that enable us to continue to grow our platform as well as net unrealized depreciation that Jerry will discuss in more detail later in the call.
Jamie: Under our ATM program in Q1, we raised approximately $24 $3 million in proceeds.
Jamie: All at an accretive premium to NAV to fund our ongoing portfolio growth.
Jamie: As of March 31, 'twenty 'twenty four we had total liquidity of $172 million comprised of $160 million of Undrawn capacity under our credit facility.
Jamie: And $12 million in unrestricted cash and cash equivalents.
Jamie: We continue to realize the benefits of our co investment joint venture, which in Q1 provided $1.3 million or three cents per share of interest dividend and fee income to the V C.
Jamie: During the quarter the joint venture also expanded its revolving credit facility and as of March 31, 2024 had more than $200 million of assets under management.
Jamie: This off balance sheet vehicles provides incremental capital for growth and accretive returns to our shareholders.
Jamie: At the end of the quarter, we raised $115 million unsecured notes that mature in 2029.
Jamie: Further enhancing our balance sheet and liquidity position and extending our maturity ladder.
Jamie: We believe our current debt funding mix, which is currently 74% unsecured debt is appropriate and we remain consistent with managing the right side of the balance sheet.
Jamie: We intend to repay $30 million over 2020 five notes.
Jamie: In may our weighted average cost of debt was in line with prior quarter at seven 4% and we continue to benefit from a low fixed rate debt, having access to the unsecured market during a period of lower interest rates.
Jamie: Our net leverage ratio, which represents principal debt outstanding less cash on hand was 1.16 times as of March 31st both our strong liquidity position and the fact, they were operating within our targeted leverage range provides trinity with the flexibility to manage a strong pipeline and be opportunistic in the marketplace.
Jamie: I'll now turn the call over to our CFO, Jerry a harder discuss our portfolio performance and platform in more detail Gerry. Thank you Michael at the end of Q1 on a cost basis. Our total portfolio consisted of 74.3% secured loans now.
Gerald Harder: <unk> 19, 7% equipment financing three.
Gerald Harder: Three 7% equity.
Gerald Harder: Two 3% once the composition of our portfolio remained consistent with prior quarters with diversification across investment type transaction size industry and geography.
Gerald Harder: Portfolio is segmented across 21 industry categories, with our largest industry exposure finance and insurance, representing 13, 3% of the portfolio at cost.
Gerald Harder: Growth in this industry sector was driven by investments in three new portfolio companies in the quarter.
Gerald Harder: Our next largest industry concentrations are green technology, and space technology, representing 10, 5% and eight 7% of the portfolio at cost respectively.
Gerald Harder: Life Sciences related industries, including health care Tech medical devices, biotechnology, and diagnostics and tools collectively made up 18, 2% of our total portfolio on a cost basis.
Gerald Harder: As of the end of Q1, our largest debt financing is to rocket lab USA incorporated and represents three 9% of our debt portfolio and three 6% of our total portfolio on a cost basis.
Gerald Harder: 10 largest debt investments collectively represent 25, 8% of our total portfolio on a cost basis.
Gerald Harder: Yeah.
Gerald Harder: Moving on to credit the credit quality of our portfolio companies remained stable with approximately 97, 6% of our portfolio performing on a fair value basis.
Jamie: Our average internal credit rating for the first quarter stood at 2.7 based on our one to five rating system with five indicating very strong performance this year.
Jamie: <unk> is in line with our average credit rating and each of the last four quarters and reinforces trinity's track record of low loss rates.
Jamie: The total number of credits and our lowest two credit tiers did not change from Q4 to Q1, but was reduced on both a cost and a fair value basis.
Jamie: Quarter over quarter, we remained consistent with five portfolio companies on non accrual.
Jamie: Core scientific was removed from non accrual in Q1, following its emergence from bankruptcy and our election to receive shares of its common stock in lieu of our debt investment.
Jamie: One additional credit was added to non accrual status.
Jamie: As Michael mentioned earlier in his prepared remarks, our decrease in net asset value per share in Q1 was a function of expenses related to growth of the platform as well as unrealized depreciation in the portfolio.
Jamie: Out of approximately $12 million in unrealized depreciation within the portfolio approximately $9 million is due to the single credit mentioned above.
Jamie: Additionally, approximately $5 million of unrealized depreciation was due to a decrease in the publicly traded share price for our common share holdings and core scientific.
Jamie: Outside of these two positions the fair value of the balance of our debt and equity portfolio was slightly up for the quarter.
Jamie: Okay.
Jamie: At the end of Q1, our non accrual accrual credits had a total fair value of approximately $34 million, representing two 4% of the total debt portfolio.
Jamie: At quarter end, 75% of our total principal outstanding was backed by first position liens on enterprise equipment or both.
Jamie: The weighted average loan to value of our entire portfolio sits at just under 19% demonstrating that our portfolio companies are generally not over levered and are in a healthy position to service the debt even if our loan is not in first position.
Jamie: In closing I'd like to remind our investors that our team is made up of dozens of veteran investment professionals, who are solely focused on portfolio management and asset quality.
Jamie: They continue to take a vigilant approach to the overall health of our portfolio companies and when necessary worked tirelessly to find resolutions that benefit both the portfolio company and Trinity shareholders.
Speaker Change: At this time, we'd like to open the question open the line for questions operator.
Speaker Change: Thank you at this time, if you would like to ask a question. Please press star one on your telephone keypad.
Speaker Change: You may remove yourself at any time from the queue by pressing star keel. Once again Thats star one to ask a question and star teacher move yourself.
Speaker Change: We will take our first question from Bryce Rowe with B Riley.
Bryce Wells Rowe: Hi, Thanks, I guess good afternoon from the East Coast.
Jamie: Brian.
Jamie: Hey.
Bryce Wells Rowe: Maybe kind of wanted to start with.
Bryce Wells Rowe: Just from the comments you made about activity picking up you've seen your unfunded levels kind of go up as well as we've progressed here over the last couple of years or so.
Bryce Wells Rowe: Is that is that a function of just that again the market picking up or.
Bryce Wells Rowe: I guess that the the broader capabilities that you're that you've been working on they're at Trinity over you know over the last year or so.
Speaker Change: Yeah. So yeah I just I just got back last night from an off site with our sales team and our San Diego Office 25 professionals covering.
Bryce Wells Rowe: Four different business verticals life science, he couldnt financing tech lending warehouse lending and.
Bryce Wells Rowe: And.
Bryce Wells Rowe: These are people that we've recruited over multiple years there.
Bryce Wells Rowe: Seasoned veterans.
Bryce Wells Rowe: <unk> 20, plus years of experience most of them.
Bryce Wells Rowe: They're fired up.
Bryce Wells Rowe: Wouldn't want to be competing against them.
Bryce Wells Rowe: They are out there building the business very excited tons of opportunities and yeah.
Speaker Change: Yeah. It's it is it is exactly what you said, it's a lot of great people.
Speaker Change: Who are very good at what they do and then it's also.
Speaker Change: It speaks to the diversification of our business, we have continued to grow above and beyond.
Speaker Change: Just doing technology venture loans, we'd have multiple businesses and multiple products and.
Speaker Change: We are seeing growth in those different business verticals. So.
Speaker Change: Yeah. It's it's it's very active right now this is the most robust pipeline we've ever had.
Speaker Change: And it's looking really exciting going forward.
Speaker Change: And as it calls you think about against that backdrop.
Speaker Change: Yeah, there's a lot of planning that needs to go on the kind of the right side of the balance sheet, you've taken some steps with some equity being raised you've got the <unk> and <unk>.
Speaker Change: All right I would assume it's kind of getting up to speed.
Speaker Change: If race and get here.
Bryce Wells Rowe: How do you think about kind of managing the right side of the balance sheet.
Bryce Wells Rowe: Especially with you know with interest rates being a little bit higher.
Bryce Wells Rowe: And.
Bryce Wells Rowe: I guess that markets are a bit open at this point.
Bryce Wells Rowe: Try to take advantage and lock in some debt financing.
Bryce Wells Rowe: <unk> for the right side of the balance sheet.
Bryce Wells Rowe: Uh huh.
Bryce Wells Rowe: The market right. So we're going to we're going to be opportunistic and we're going to raise debt and equity.
Bryce Wells Rowe: Does it make sense to in the most efficient way, we can I think that you saw that with the bond deal we did recently.
Bryce Wells Rowe: You see that with the ATM, that's a really efficient way to work to raise capital, but we start each one of those conversations price with is this growth going to be accretive for our investors again, we have to now it should not be a mystery on what we're trying to do at this point, we're 17 quarters now of a public reporting company of steady and growing returns for shareholders.
Bryce Wells Rowe: <unk>, increasing the dividend 13th straight times, you know I don't need to predict the future for you here, we have laid out what we're doing and where we're going and how we're doing it. So we're not raising capital for the sake of AUM growth that has not that it makes sense as an internally managed BDC I don't want to see my shares diluted.
Bryce Wells Rowe: <unk>, which is the same shares that your investors have not it makes no sense. So we're going to build the balance sheet in a way that's accretive and good for investors, we're going to raise equity Opportunistically, we're gonna raise debt opportunistically. If our team has the ability to grow and build and continue to take market share then we're going to deploy that capital and to the.
Bryce Wells Rowe: And it's a it makes sense to raise equity or debt and its good and we can put it to work and raise returns for investors, we're going to keep doing that.
Speaker Change: Excellent I'll jump back in queue and give somebody else a chance. Thanks.
Bryce Wells Rowe: Yeah.
Bryce Wells Rowe: Well go next to Kyle Joseph with Jefferies.
Bryce Wells Rowe: Yeah.
Kyle Joseph: Hey, good morning, guys.
Kyle Joseph: Hey, guys my questions.
Kyle Joseph: Just you have given where we are in the year, we're thinking it back to you.
Kyle Joseph: Last year at this point and given you know your expertise in venture, but just give us kind of an update on the competitive environment now that we're kind of a year out from call. It the in the regional bank fallout.
Speaker Change: So I think theres been less competition.
Kyle Joseph: If you're talking about you know our venture business, it's been less competition.
Kyle Joseph: <unk> seen returns you've seen equity dollars start to flow from venture firms I think you're back to 2019 levels, which were at the time historic levels right from a deployment standpoint.
Kyle Joseph: We are.
Kyle Joseph: Top of funnel seeing more deal flow, we've tightened up we've actually seen the amount of deals from a percentage standpoint top of funnel to funding go down.
Kyle Joseph: That's just a testament to our underwriting making sure we're funding the right deals we've seen.
Kyle Joseph: We've seen it.
Kyle Joseph: Runway of of those venture backed companies.
Kyle Joseph: The increase in the barrier and threshold for us to fund companies, we've gotten tighter there on making sure they have the equity support but the investments that we're making right. Now. These are companies that are growing in the face of headwinds. These are great investments at much lower valuations than they saw a couple of years ago.
Kyle Joseph: We.
Kyle Joseph: We are we are seeing growth.
Kyle Joseph: We're seeing some competition I'd say, a little bit less competition, particularly from the banks I think they're pulling back a little bit that's created more opportunities for us to swim upstream and even have some higher quality credits that might have been able to get bank financing before that are now open to the idea of kind of alternative bank financing like Trinity.
Speaker Change: Got it very helpful. And then just shifting to credit all the all the metrics you highlighted it seems like things are relatively relatively stable companies have adapted to the rate environment.
Speaker Change: But did you guys give us a sense for kind of the growth rates, you guys track and where those are trending versus call. It six months ago versus a year ago.
Speaker Change: Okay.
Speaker Change: I think youre talking about R. R.
Speaker Change: It's a good core yields that were you were you talking about.
Speaker Change: No I apologize that.
Speaker Change: I was talking about credit broadly you.
Speaker Change: You got it.
Speaker Change: It's very stable, but just wanted to get a sense for pro growth rate that.
Speaker Change: Our portfolio of companies and how that compares to call it six months ago or a year ago.
Speaker Change: Okay, sorry, Kyle yeah.
Speaker Change: Ron you want to touch on that sure.
Ron: Take out around kind of a chair.
Ron:
Ron: As Kyle mentioned in his answer just now I mean, the top of the funnel is very active we're seeing companies of all shapes and sizes. We're focused on the companies that are growing well growth stage companies.
Ron: The companies that we're lending to our growing at a still at a relatively healthy clip we're not focused on.
Speaker Change: Flat to non growth companies so yeah.
Speaker Change: Broadly speaking the industry is mixed but no. We're laser focused on underground stage, Dan and you know the majority of our portfolio is now made up of investments made post banking volatility.
Speaker Change: So youre looking at companies that have figured out a way to grow and perform with headwinds and those are the investments in the companies, where we're putting capital into so and things haven't changed really for a lot of those investments since since we made them.
Speaker Change: Got it very helpful. Thanks for taking my questions and congrats on another strong quarter.
Speaker Change: Thanks Scott.
Speaker Change: Well go next to Vilas Abraham with UBS.
Speaker Change: Okay.
Vilas Abraham: Hey, everyone. Thanks for taking the question.
Vilas Abraham: Just in terms of the pipeline that you mentioned I was just wondering on on mix. We look at Q1 looks like about 100.
Vilas Abraham: At $88 million venture loan and $50 million equipment finance is that the kind of mix. We should think about throughout this year or is it going to be in.
Vilas Abraham: More opportunistic quarter by quarter.
Speaker Change: So I'll, let I'll, let Jerry give some more specifics, but I'll, maybe I'll just start high level, we've got an a O P that we're sticking too we plan this out well in advance we're very strategic about each of those verticals, how much they're going to deploy.
Speaker Change: Annually quarterly what that pipeline needs to look like to achieve it we feel like we're on plan.
Vilas Abraham: For the year and.
Gerald Harder: So it's not just opportunistic no. It's we'd each of these business verticals has their own contribution margin, they're focused on I mean, they know exactly what they need to deploy they know it.
Vilas Abraham: Xactly, what they can spend.
Vilas Abraham: We're not just winging it and we're now just being opportunistic do you want to add to that Jeremy Yes, I mean at a high level.
Jeremy: We're looking at you know somewhere between 40% to 45% of the deployment across the year ought to be in the tech lending and then 25% to 30% are in life Sciences and equipment.
Jeremy: And you know, maybe 10% or so in asset based or warehouse. So this is on the annual level. It is blocky right and so any given quarter you can get the wrong signal of percentages based on.
Jeremy: We happen to close just within that quarter versus what pushes but you know at a high level annually.
Jeremy: You will see tech lending be our largest deployment but.
Jeremy: Life Sciences and equipment, you know also posting very strong.
Jeremy: Yeah.
Speaker Change: Okay and then.
Speaker Change: Venture lending side do you have a line of sight into healthy companies that may or may not or may but may not have come to the.
Speaker Change: Market over the last couple of years that.
Jeremy: You may be high.
Jeremy: Later on in this year as you know as potential opportunities like is there is there anything there that kind of gives you a sense of optimism as to the quality of investment on that side of your deployment that you'll be able to do.
Jeremy: For a few do you mean for potential investments potentially.
Jeremy: Potential investments, yes, yes.
Jeremy: Particularly because we do a lot on the.
Jeremy: The venture debt side, we're doing mostly later stage companies right and so.
Jeremy: I think what Youre seeing there is a lot of companies who have remained.
Jeremy: Private hoping for that IPO or exit type opportunity they're seeing.
Jeremy: They're seeing that window start to open up we're.
Jeremy: We're having different conversations with companies internally externally about financings kind of leading up to it. So I think I think that what you're seeing is.
Jeremy: A new exit opportunity, which is creating new investment opportunities kind of leading towards that which is which is new for 2024.
Jeremy: Okay makes sense and just one more on credit in your prepared remarks, you mentioned, a new non accrual I think you were alluding to the next car.
Speaker Change: Wondering if there was any kind of commentary you could give there on what you're seeing given it seems like.
Jeremy: Mark you have there.
Jeremy: 50% of the cost is a bit more cautious than maybe one of your peers that are baseless.
Jeremy: At the same same company. So is there any color you can provide there.
Jeremy: Think about that.
Speaker Change: Yeah, I mean the.
Speaker Change: You know.
Speaker Change: We tried to be very rigorous and process oriented in our valuation methodology right and so you know we repeat this quarter on quarter.
Speaker Change: You know we follow a rigorous methodology, we use third party.
Speaker Change: Collaboration we happened to have third party collaboration of our Mark to next car just this quarter.
Speaker Change: You know for a scenario like this where very often gonna do profitability weighted I'll come analysis and as you know we're going to lean heavily on the experience of our portfolio management.
Speaker Change: Staff and doing that but I can tell you that account is managed by our most senior portfolio manager with 25 to 30 years experience in the banking industry. So you know he's he's going to call. It as he sees it we're getting third party collaboration and where we're going to be very consistent and following that process quarter on quarter.
Speaker Change: Yes.
Speaker Change: Got it very helpful. Thank you.
Jeremy: And at this time I would like to remind our audience that it is star one if you would like to ask a question again star one well go next to Paul Johnson with K B W.
Paul Conrad Johnson: Yeah, Thanks for taking my questions.
Paul Conrad Johnson:
Paul Conrad Johnson: In terms of like when you guys are making loans on the platform whether it be from any of the verticals that you have warehousing equipment leasing.
Paul Conrad Johnson: During the quarter, whether it's intra quarter or.
Paul Conrad Johnson: You know going over reporting periods I mean, how much do you have any kind of limits or.
Paul Conrad Johnson: I guess any sort of limit on on what sort of hold sizes youre willing to take for any given alone in the BDC or like how much credit I guess, you're essentially you're kind of willing to extend to any single borrower.
Jeremy: So I think historically, we try to stay below that 4% of total assets I think well average were significantly lower than that but that's kind of the that's the threshold. So we don't want any one deal to cause too.
Jeremy: Too much volatility for Trinity and so.
Jeremy: We're going to continue to have a really very granular portfolio diversified across the verticals and then diversified within the verticals with no. One company had the ability to take us down.
Jeremy: Or you.
Speaker Change: You can add to that here yeah I'd further add rate is as we look to grow and expand the platform of Trinity we're going to do this very thoughtfully, but by providing.
Speaker Change: <unk> additional value products to our growth stage companies and not by increasing our hold sizes right that that's not the approach we intend to take so Cal mentioned.
Speaker Change: Yeah, 4%.
Speaker Change: Line, you know I think over time, you can see that drop rate as our platform continues to expand.
Speaker Change: You know and that's at the BDC level, when when we talk about that 4% not.
Jeremy: If the total aggregated holdings across balance sheet.
Speaker Change: Got it I appreciate that.
Speaker Change: Thanks for the color on that and then.
Jeremy: You know as you guys continue to grow you know you're building out the platform with the JV in the RIAA.
Jeremy: Eventually you know.
Jeremy: You're building up you know underwriting teams distinct underwriting teams under each of these verticals of the business.
Jeremy: Obviously head count has been growing pretty fast since you guys have come into the space.
Jeremy: And I was just curious so is there a point kind of where.
Jeremy: Head count or maybe a U M gets to a certain point.
Jeremy: Where do you think you've kind of fully built out the business and maybe.
Jeremy: Now you start to kind of build some scale from there.
Speaker Change: So I mean, I think you ended with.
Speaker Change: What we're trying to do which is build and scale. The internally managed BDC has outreached efficiencies right.
Jeremy: We're going to continue to get to scale and as we do so you'll start seeing some efficiencies in some of our cost ratios expense ratios.
Jeremy: We have a long ways to go before we hit a ceiling on what we can deliver for shareholders. Just at the internally managed BDC that does not include our off balance sheet activity and again I said it before it should not be a mystery at this point about how we're what we're doing and how we're going to do it well.
Jeremy: We now own and are I E. We now manage money off balance sheet, we have been for multiple quarters now generating fee income and we are intending to generate more fee income off balance sheet above and beyond the interest we can generate off our loans and equipment financings etcetera, and so you know.
Jeremy: At what scale can we get this to the numbers the numbers significantly past, where we are right now we're gonna see what this team is capable of we're not going to grow for the sake of growth.
Jeremy: Have a five year plan that we are very honed in on that we think is very achievable growth in a way that's accretive and good for investors.
Jeremy: And then further diversified and not just from a return standpoint, I think that that model I, just talked about with generating fee income above and beyond our loans, that's great for generating new income.
Jeremy: But we also have the ability to grow and diversify the portfolio across multiple verticals, which create further diversification of the portfolio, which I think is a way to mitigate risk right and so.
Jeremy: That's not a specific answer with some numbers for you, but we have our eye on the ball in the end as a public company, we are growing and we're going to do in a way that's really good and accretive for investors.
Speaker Change: Thanks, I appreciate that call.
Speaker Change: Thanks, Bob.
Speaker Change: We'll go next to Casey Alexander with Compass point.
Casey Jay Alexander: Hi, just wondering any update on the odd that launch and funding of the R. I E.
Casey Jay Alexander: So we've been we've been talking about deploying capital in Q2.
Casey Jay Alexander: And that is still the target Casey.
Casey Jay Alexander: Okay. That's.
Casey Jay Alexander: That's my only question. Thank you.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: We will go now with us any MSA with Wells Fargo.
Speaker Change: Hey, everyone. Good afternoon.
MSA: Question as you know, there's a lot of discussion of scaling and growth.
MSA: Two new heights for the business can you talk about your <unk>.
MSA: Expected loss rate on the portfolio.
Speaker Change: Understanding you're.
Speaker Change: We're originating are lending out at.
Speaker Change: 10% over sofa or whatnot, but.
Speaker Change: Yeah.
Speaker Change: Earnings net income have been consistently pretty well.
Speaker Change: Hello, NII, so seeing what you have for updated thoughts there in today's market and how we should think of the portfolio loss rate.
Speaker Change: Going forward. Thank you.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: No I think and Mike maybe you can pull up the exact.
Speaker Change: Loss rates the loss rate has been very consistent for 16 years.
Speaker Change: For those of course have been as a publicly reporting company.
Speaker Change: 32 basis points, I mean, the loss rate in our world.
Speaker Change: As you say.
Mike: Oh, 2000 space 26 basis points, Okay, sorry, it's less than what I thought.
Mike: We have consistently.
Mike: Been able to keep that loss rate low.
Speaker Change: The upside that we get in our investments via warrants and those realized gains.
Speaker Change: The offset those losses and deliver a little upside for investors, we've seen that play out for 16 years, we intend to just keep doing what we've been doing so I do not see for any reason why that loss rates should increase our underwriting and our thesis on how we invest has not evolved or changed.
Speaker Change: And so I think that should stay steady Finn.
Speaker Change: And over time, and I and particularly with this season right now with with valuations dramatically increasing.
Speaker Change: That creates some really interesting upside potential on our warrants and so.
Speaker Change: I think there's some upside that we're starting to see and hopefully baking into the you know the long term plan here with the investments we're making today.
Speaker Change: Okay.
Speaker Change: Awesome that's helpful. Thanks, so much.
Speaker Change: Yeah.
Speaker Change: Well go next to Christopher Nolan with Ladenburg Thalmann.
Christopher Whitbread Patrick Nolan: Hi, guys.
Christopher Whitbread Patrick Nolan: Uh huh.
Christopher Whitbread Patrick Nolan: I appreciate the comments on mitigating risks and so forth I'd like to turn that around a little bit and I'd like to get a better understanding of how you're mitigating risk and your funding base, particularly your debt funding.
Christopher Whitbread Patrick Nolan: Got a number of maturities in 2025 2026, you have a credit facility.
Christopher Whitbread Patrick Nolan: Kind of a 26% of total borrowings by my calculation with a single bank, which.
Christopher Whitbread Patrick Nolan: My estimate is roughly 70% of its loans and commercial related.
Christopher Whitbread Patrick Nolan: Investments.
Christopher Whitbread Patrick Nolan: And you know that's a risk profile for the company, which no one is talking about like let's get your thoughts on that.
Christopher Whitbread Patrick Nolan: Okay.
Christopher Whitbread Patrick Nolan: Hey, Mike here I, just wanted to talk a bit about like why we went into the unsecured market I think.
Mike: Past quarter we.
Mike: We were pleased with the execution on that deal in that size and that again it was.
Mike: Really consistent approach of ladder out our maturities, we're going to continue to tap the market, whether it's secured or unsecured.
Mike: And.
Mike: Across two additional banks and the JV facility.
Mike: When you look at that as a risk mitigate to diversify our funding sources and then long term.
Mike: The vehicles under the RIAA, adding to that flexibility of multiple funding sources debt and equity.
Mike: Yeah.
Mike: Yeah.
Speaker Change: Sorry can you repeat the question.
Speaker Change: Yeah are you going to use more secured funding as these unsecured notes mature.
Speaker Change: Yeah, that's definitely an opportunity for us we've been in discussions we've seen.
Speaker Change: A lot of our peers use a CLO structure.
Speaker Change: For for Securitizing, and an increasing our leverage I think we have room with where our current leverage range that we're operating in but again I think diversifying our lending or borrowing sources is important and I think having the ability across 10 different banks currently in our syndicate.
Speaker Change: And in discussions are expanding that.
Speaker Change: Through the current revolver or additional revolvers in the future.
Speaker Change: Okay key point, there I think Chris you had mentioned before about having exposure to one bank. We've actually we have 10 banks in that syndicate. It's growing we've got close relationships with all of those banks are in that with.
Speaker Change: Strategic we want that to be diversified.
Mike: Across multiple banks.
Speaker Change: Okay. Thanks for detail.
Mike: Yes.
Speaker Change: And it appears that we have no additional questions at this time.
Speaker Change: Okay, well listen we're really proud of our first quarter results and we look forward to updating you on our next call in August we look like to just thank everybody for participating the call today and appreciate your interest and investment Trinity capital have a great rest of your day.
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