Q4 2024 TriplePoint Venture Growth BDC Corp Earnings Call
Good afternoon, ladies and gentlemen, welcome to the Triple point venture growth P. D. C Corp, fourth quarter 'twenty 'twenty four earnings conference call.
At this time all lines have been placed in a listen only mode. After the Speakers' 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 triple point venture Growth's website.
Company management is pleased to share with you the company's results for the fourth quarter and full fiscal year of 2024.
Speaker Change: Today, representing the company is Jim <unk>, Chief Executive Officer, and Chairman of the board such all serve US Palmer, President and Chief Investment Officer, and Mike will helps Chief Financial Officer.
Speaker Change: Before I turn the call over to Mr. La Bae 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 todays that during this call management will make certain statements that relates to future events or the company's future performance or financial condition, which are considered forward statements.
Speaker Change: Forward looking statements under spread all securities law.
Speaker Change: You are asked to refer to the company's most recent filings with the securities and exchange commissions 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 invest.
Speaker Change: 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.
Speaker Change: To obtain copies of our latest S. E. SEC filings. Please visit the company's website at Www Dot T. P V G Dot com.
La Bae: Now I'd like to turn the conference over Mr. Over to you Mr. La Bae. Please go ahead.
Speaker Change: Thank you operator, good afternoon, everyone and welcome to <unk> fourth quarter earnings call.
Speaker Change: Throughout much of 2020 for the venture markets for growth stage companies continue to be challenging and we continue to be patient and selective. This was reflected in TPG slower investment activity over the first three quarters of the year.
Speaker Change: Heading into the second half of the year and accelerating in the fourth quarter led by the AI sector, we saw improvement in venture growth stage investment activity.
Speaker Change: Against this backdrop tpg's pipeline markedly increase.
Speaker Change: We're encouraged by these positive signs and also thank the outlook on the investment sectors, we are investing in.
Speaker Change: As we position <unk> to capitalize on an improving venture capital market. We also remain focused on proactively managing the portfolio continuing on the path of portfolio diversification and investment sector rotation and maintaining our strong liquidity.
Speaker Change: Turning to the quarterly results, we generated net investment income of $12 6 million or <unk> 32 per share over earning our regular quarterly dividend.
Speaker Change: Regarding our strengthening pipeline signed term sheets with venture growth stage companies at our sponsor Triple play capital increased 246% to 323 million in the fourth quarter.
Speaker Change: This is the highest level in two and a half years.
Speaker Change: We have also added another 215 million of signed term sheets for venture growth stage companies a T. P. C. In the first quarter here to date at this rate. We believe signed term sheets in this quarter may exceed last quarters.
Speaker Change: All of this bodes very well for T. P V G and represents potential future debt investment opportunities.
Speaker Change: Our new debt commitments to venture growth stage companies in the quarter also reached two year highs to 72 million <unk>.
Speaker Change: Increasing 75% compared to the prior quarter.
Speaker Change: Since the end of the quarter, we closed an additional 53 million in debt commitment.
Speaker Change: We also achieved $50 million in fundings in the quarter and since the end of the quarter, we funded an additional $24 million.
Speaker Change: Moving a bit to the portfolio, we continue to curtail geographic and consumer and e-commerce concentrations and significantly increase diversification and investment sector rotation and what we believe are the favorable venture capital industry sectors in 2024.
Speaker Change: This approach has continued here into 'twenty fives.
Speaker Change: Yeah.
Speaker Change: We continue to actively manage the portfolio and are working through existing credit situations, which have put pressure on NAV.
Speaker Change: These are companies on the fourth quarter watch list that had been on the watch list for the last three consecutive quarters and in some cases three of them for the last three years.
Speaker Change: As we look at the fourth quarter no new companies were added to the watch list and our weighted average credit score remained consistent with the third quarter. So Joel will discuss a little bit more on credit later in the call.
Speaker Change: Moving to the broader TPG portfolio, we're encouraged by the capital raises and the performance by a number of our companies.
26 of T. P V G active debt portfolio companies raised $1 8 billion last year.
Speaker Change: An increase of almost 200% over 2023.
Following the end of the quarter lost orbital announced their 170 million series C equity financing raise.
Speaker Change: For the overall T. P. P. G portfolio more than 3 billion was raised by companies during 2024.
Speaker Change: This includes both active portfolio companies, where we have debt outstanding as.
Speaker Change: As well as those companies, where we no longer have debt outstanding, but in which T. P. P. G continues to hold its warrant and equity investment positions.
Speaker Change: Some notable 'twenty 'twenty four races, each of them over 100 million included flow health Cresta correlate metropolis depths and others.
Speaker Change: We presently hold warrant positions in 98 companies and equity investments in 47.
Speaker Change: This portfolio includes some leading companies in their fields, which also appear on either pitch books. Notable U S. IPO candidates list or their European exit predictor IPO candidates list and includes company names such as Cohesively Revolute ends yes.
Speaker Change: Cocoa key Senate recently raised its series H investment round and according to Fintech Globo, the transformative transaction values, the combined company at over $7 billion.
Revenue is now reportedly Europe's most valuable private technology company and announced did secondary transaction of shares had a 45 billion valuation last quarter.
Speaker Change: Other companies such as style pad file vine monzo, among others or often discussed and these same categories.
Speaker Change: While overall IPO exit activity for venture capital backed companies remain muted last year.
Speaker Change: We believe that based on the makeup of this warrant and equity portfolio T. P V. G stands to benefit when the markets reopen.
Speaker Change: Yeah.
Speaker Change: Looking at the venture capital investment market. The improvements that we saw last quarter set to continuing stage for T. P. V. G here on a going forward basis.
Speaker Change: According to Pittsburgh N V C. A deal value increased to $209 billion across more than 15000 deals last quarter.
Speaker Change: This surpassed pre pandemic in 2023 levels and venture activity continues to show signs of recovery.
Speaker Change: There is a level of renewed optimism for steady improvement in dealmaking here in 'twenty five.
Speaker Change: Given this as a backdrop the demand for venture lending significantly strengthened in the fourth quarter as a result.
Speaker Change: This is evidenced by our increased investment activity during the quarter and T. P. CS deal pipeline for venture growth stage companies, which reached the highest level since 2021.
Speaker Change: Going forward, we expect the strengthening demand for venture debt to continue throughout the year fueling our expectations of renewable portfolio growth and 25 as these capital markets continue to rebound and high growth companies seek strategic financing.
Speaker Change: Tailwind center market are being driven both by our printers and investors, who increasingly recognize venture debt as a strategic tool to extend runway took.
Speaker Change: To accelerate growth to finance opportunistic acquisitions and minimize equity dilution.
Speaker Change: A further trend we're experiencing is in upward demand and our pipeline for larger dollar sizes reflective of some of these larger equity capital raises and increasing investment activity at venture growth stage companies.
Speaker Change: We will continue on our path to portfolio diversification and industry sector rotation and are actively adding new borrowers and durable high potential sectors. These are ones like vertical is software aerospace and defense health Tech and AI among others.
Speaker Change: These sectors offer exciting investment opportunities and are experiencing strong investment momentum.
Speaker Change: One Prime example of an AI enabled software solution is our portfolio company, Cresta, which is making significant technological and commercial progress in reinventing the customer contact center.
Speaker Change: With limited human interaction and with enterprise grade generative AI solutions.
Speaker Change: Portfolio companies, such as affinity players Hell Panorama and fit on exemplify this trend offering innovative and specialized solutions and vertical I software.
Speaker Change: In addition portfolio companies such as Perry Labs.
Speaker Change: Space lost orbital are well positioned to capitalize as the defense sector is benefiting from government fundings surrounding concerns and the increase investment in next generation defense Cyber security and satellite technologies.
Speaker Change: As we've stated on past calls our focus in these new sectors continues to remain on companies that have recently raised capital that have ample cash runways have backing from our select venture investors have prudent management teams and whose business models have attractive unit economics and hybrid.
Speaker Change: Tension right.
Speaker Change: Finally, I'd like to formally welcome our new CFO, Mike Wilhelm who joined US in January and who you'll be hearing from later on the call.
Speaker Change: Mike 30 years of financial leadership in private credit experience further bolsters triple points, leading platform and its growth plans.
At our sponsor we're also continuing to prepare for future growth, making key investments now to further expand our investment team and strengthen our operational infrastructure.
Speaker Change: As we continue to move into 2025 P. P V. G remains committed to identifying and financing high growth companies across dynamic industries, reinforcing our role as a leading provider of venture debt solutions to growth stage companies.
Speaker Change: While we will continue to maintain our careful disciplined and up for quality over quantity, given the improving market conditions and the pickup in investment activity by our select venture investors.
Speaker Change: We see increased deployment of our capital and venture growth stage investment as well as increasing portfolio developments through the year.
Speaker Change: All of which we believe will enable us to continue to execute on our plan to increase T. P. V. G scale durability portfolio diversification and income generating assets.
Sergio: With that let me turn the call over to Sergio.
Sergio: Thank you Jim and good afternoon, let me begin by reviewing our performance in Q4 and full year 2024, as well as highlight key expectations for 2025.
Sergio: Regarding the investment portfolio activity during Q4, Triple blood capital signed $323 million of term sheets with venture growth stage companies compared to $93 million of term sheets in Q3, reflecting positive signs for the recovery of the venture lending market and our growing pipeline as we are seeing increased demand for debt financing.
Sergio: From well positioned well capitalized and growing venture growth stage companies in sectors. We are targeting for the full year Triple point capital signed 736 million of term sheets with venture growth stage companies up almost 60% from 471 million of signed term sheets in fiscal year 2023.
Sergio: With regards to new investment allocation to <unk> during the fourth quarter, we allocated $72 million of new commitments with four companies to <unk> up more than 75% from our $41 million of commitments to four companies in Q3 seven.
Sergio: 75% of the commitments made during the fourth quarter were to new portfolio companies, reflecting our focus on diversification sector rotation.
Sergio: And included one holding also known as players help the technology company, providing digital risk management services reporting tools and insurance products to sports organizations.
Sergio: Nuance space and end to end space systems provider that designs builds and operates low Earth orbit satellite constellations, and Perry labs, and digital systems integrator for modernizing legacy platforms and accelerating new development in the defense industry.
During the quarter, we also refinanced an existing portfolio company in conjunction with an up shops.
Sergio: For the full year, we closed 175 million of debt commitments with 13 companies. It's TBD G of which eight were new companies and five were existing portfolio companies compared to $32 million of debt commitments in 2023 with 10 companies of which two were new companies and eight were existing portfolio companies.
Sergio: During the fourth quarter TPG was at the high end of our guided range for fundings as a result of our emphasis on higher utilization of new commitments at closing, we funded $50 million of debt investments to three portfolio companies up 50% from $33 million in Q3.
Sergio: <unk> funded investments carried a weighted average annualized portfolio yield of 13, 5% up slightly from 13, 4% in Q3.
Sergio: For the full year, we funded 135 million to 13 companies with a 14, 1% portfolio.
Sergio: During Q4, we had $53 million of loan prepayments, resulting in an overall weighted average portfolio yield of 15, 8% up slightly from 15, 7% in Q3 excluding.
Sergio: Excluding prepayments for portfolio was 14, 2% down from 14, 9% in Q3.
Sergio: For the full year, we had $170 million of loan prepayments compared to $105 million of prepayments in 2023, resulting in an overall weighted average portfolio at 15, 7% up slightly from 15, 4% in 2023.
Sergio: Core portfolio, excluding prepayments was 14, 5% for the full year down slightly from 14, 7% in 2023, despite the 100 basis point reduction in the prime rate during 2024.
Sergio: As Jim mentioned six portfolio companies with debt outstanding raised $96 million during the quarter. This was down from Q3, but looking at the full year totaled 26 companies with debt outstanding raised $1 8 billion during 2024 compared to 19 portfolio companies raising $594 million in 2023.
Sergio: This represents a substantial increase in both portfolio company count and size of capital raises and also represents a larger percentage increase that overall VC investment activity over the same period of time.
Sergio: This fund raising activity was primarily spread across our 2021 and 2022 new portfolio company vintages, but also included 24 portfolio companies.
We believe this fund raising activity should bode well for the outlook for Oracle Gores their credit quality as for the debt as well as for the value of our warrant and equity investments in these companies.
Sergio: As of year end, our warrants and equity investments and a total fair value of $116 million flat from Q3 and up from $72 million in Q4, 2023, demonstrating the impact from the robust fundraising activity.
Sergio: As Jim mentioned no new companies were added to our credit watch list during the quarter and the weighted average credit ranking of our portfolio was flat with Q3.
Sergio: The total number of companies in our lowest three ratings has improved each quarter over the past three quarters.
Sergio: Five companies currently in our category for ranking have been at all watch list for more than a year and a half with the majority having been on the list for more than two years. So these are not new situations are reflective of recent originations. These are companies that we identified years ago is challenged and we have been working with them in their <unk>.
Sergio: Since then as they continue to operate they continue to focus on ways to expand their businesses with many targeting profitability or exit events during.
Sergio: During the quarter, one portfolio company, a women's fashion company Commerce company called naked with a principal balance of $10 million, which has been rated category. Three since Q3 2023 was downgraded to category four and our loan was placed on non accrual while the company undergoes accordant assisted restructuring process in Sui.
Sergio: Which we expect to be completed in the second half of the year.
Sergio: During the quarter, our investment portfolio experienced approximately $20 million of unrealized losses of which 5 million was related to foreign currency exchange rate changes due to impact of the strengthening U S. Dollar on our euro and pound Sterling denominated debt equity and warrant investments and 50.
Sergio: Million was related to fair value adjustments on our debt investments TBD.
Sergio: <unk> has not funded any non U S dollar denominated debt investments since Q1 2023.
Sergio: So far in Q1, the dollar has generally weakened since year end, which will benefit these investments.
Sergio: Of the 15 million due to fair value adjustments on our debt investments. The vast majority of it was associated with three of our consumer and e-commerce portfolio companies already on our watch list.
Sergio: <unk> rated category, three and Rowley and mine Candy, both rated category four.
Sergio: Although these companies continue to focus on growing and expanding their businesses. We adjusted the fair values of these investments due to the additional maturity date extensions of their outstanding debt.
Sergio: <unk> reduced assumptions and multiples for their enterprise values for recovery purposes to reflect the challenges they continue to face as well as any changes to their capital stack.
Sergio: All three companies continue to consider either further capital raises or strategic processes with one company in the later stages of a process.
Sergio: As we take a step back to assess 2024 and our outlook for 2025, our playback playbook continues to be focused on building a strong foundation for <unk>, while market conditions improve since Q4 2023 and through most of 2024.
Sergio: Approach was to remain active with our select venture capital funds and in the market, while taking a measured approach to new originations in light of market conditions, our sector rotation plan and our sector preference focus while staying on top of the portfolio managing existing credit situations at the same time, we reduced our.
Sergio: Net leverage and unfunded commitments in order to have access to substantial liquidity to prepare for improving market conditions and increasing demand for debt capital from companies that meet our underwriting requirements.
Sergio: With this in mind, we believe that by focusing on portfolio growth in 2025 by growing our pipeline targeting well positioned and well capitalized new customers and attractive sectors and by increasing the pace of new commitments and new investment fundings, while maintaining our strong yield profile, we will continue along the.
Sergio: Path to building a strong foundation for TPG through asset scale increased portfolio diversification and industry sector rebalancing, enabling us to drive <unk> earnings power over the course of the year.
Sergio: In terms of portfolio growth, while our forecast for quarterly gross investment fundings is in the range of $25 million to $50 million for the first quarter. We believe that this range me increased over the course of the year as and if market conditions improve so.
Sergio: So far in Q1, TBC has already signed 215 healing of term sheets and TPG is close to $53 million of new commitments and funded $24 million of debt investments.
Sergio: Recognize that portfolio growth as well as prepayment activity over the course of the year, we will have a material impact on our ability to cover our distribution and we will continue to be mindful of both over the next few quarters.
Sergio: As market conditions improve over the course of 2025, we expect to see improving fundraising activity for our portfolio companies and as capital markets improve we could see a pick up negative activity as well both of which should have a positive impact borgwarner and equity portfolio. In addition to our credit outlook for our debt investments.
Sergio: We know that some of our portfolio companies continue to explore the secondary market as an alternative to the IPO market with revolute successful secondary last year, and a $45 billion valuation and there have been reports of a potential new secondary process at a 60 billion valuation as.
Sergio: As well as reports of cohesive. These secondary process at an 8 billion valuation both of which would have positive impact to our investments should they occur.
Sergio: In closing we remain focused on executing on our plan for positioning TPG not only for 2025, but for the future as well with that I will now turn the call over to Mike and welcome him to his first earnings call with us.
Mike Wilhelm: Thank you Sandra and Hello, everyone I'm excited to be part of the Triple point platform and I look forward to working alongside our talented team to position the company for the future.
Mike Wilhelm: For the fourth quarter total investment income was $26 million with a portfolio yield of 15, 8% as compared to $33 million and a portfolio yield of 15, 6% for the prior year period.
Mike Wilhelm: The decrease in total investment income was primarily due to a lower weighted average principal amount outstanding on our income bearing debt investment portfolio, partially offset by the higher portfolio yields.
Mike Wilhelm: Total investment income for the full year of 2024 totaled $109 million with a portfolio yield of 15, 7% this compared to 137 million for the prior year period with a portfolio yield of 15, 4%.
Mike Wilhelm: For the fourth quarter total operating expenses were $13 1 million lower when compared to the $15 7 million for the prior year period.
Mike Wilhelm: These expenses consisted of $7 6 million of interest expense $3 4 million of base management fees 500000 of administrative expenses and $1 6 million of G&A expenses.
Mike Wilhelm: Due to this shareholder friendly total return requirement under the incentive fee structure. There was no incentive fee this quarter.
Mike Wilhelm: Total operating expenses for the full year of 2024 totaled $54 1 million as compared to $63 7 million for the prior year period, a 15% decrease.
Mike Wilhelm: For the fourth quarter net investment income totaled $12 6 million or 32 cents per share compared to $17 3 million or <unk> 47 per share for the prior year period.
Mike Wilhelm: Further full year of 2024 net investment income totaled $54 5 million or $1 40 per share as compared to $73 8 million or two $2 seven per share for the prior year period.
Mike Wilhelm: Now turning to realized and unrealized gains and losses.
Mike Wilhelm: For the fourth quarter net realized losses on investments totaled 300000, as compared to $52 million for the prior year period.
Mike Wilhelm: For the full year of 2024 net realized losses on investments totaled $33 million as compared to $75 8 million for the prior year period.
Mike Wilhelm: For the fourth quarter net change in unrealized losses on investments totaled $19 5 million.
Mike Wilhelm: Consisting of $15 3 million of net unrealized losses on the existing debt investment portfolio and $5 1 million of net unrealized losses from foreign currency adjustments offset by 900000 of net unrealized gains on the existing warrant and equity portfolio, resulting from fair value adjustments.
Mike Wilhelm: And from the reversal of previously recorded unrealized losses from investments realized during the period.
Mike Wilhelm: For the full year of 2024 net change in unrealized gains on investments totaled $10 5 million consisting of $26 5 million of net unrealized gains on the existing warrant and equity portfolio, resulting from fair value adjustments and $14 7 million from the reversal of previously recorded.
Mike Wilhelm: Warded unrealized losses from investments realized during the period offset by $30 7 million of net unrealized losses on the existing debt investment portfolio.
Mike Wilhelm: Combining realized and unrealized gains and losses, the net realized and unrealized losses for the full year of 2024 totaled $22 5 million, improving I, 80% compared to the prior year period of $113 6 million.
Mike Wilhelm: Okay.
Mike Wilhelm: As of year end net asset value was $345 7 million or $8 61 per share.
Mike Wilhelm: We declared a regular quarterly dividend of 30 cents per share with a record date of March 17th to be paid on March 31st.
Mike Wilhelm: We have undistributed spillover income of $43 4 million or $1.08 per share as of year end.
Mike Wilhelm: In 2024, we covered the dividend with net investment income per share of $1 40, equaling total distributions per share.
Mike Wilhelm: Finally, an update on unfunded investment commitments balance sheet leverage and overall liquidity.
Mike Wilhelm: We ended the year with $105 million of floating rate unfunded investment commitments of which $9 million was dependent upon the portfolio company, reaching certain milestones.
Mike Wilhelm: This level of commitments represent an 11% decline from a year ago and bodes well for new investment capacity in 2025.
Mike Wilhelm: The debt investments in our portfolio as of December 31, 2020 for approximately 63% and principal balance bore interest at floating rates.
Mike Wilhelm: TPG had a total of $400 million of debt outstanding consisting of $395 million of fixed rate investment grade term notes and 5 million outstanding on our floating rate revolving credit facility.
Mike Wilhelm: We improved leverage levels throughout 2024 and ended the year with a leverage ratio of 1.16 times compared to 176 times at the end of 2023.
Mike Wilhelm: As of year end, the company had liquidity of 374 million consisting of $79 million in cash and restricted cash and $295 million available under the revolving credit facility given.
Mike Wilhelm: Given the reduced unfunded commitment levels low balance sheet leverage and current liquidity of $374 million TPG is in a position to grow its investment portfolio in 2025.
Mike Wilhelm: We were pleased to announce earlier in the year. The T. P V. G raised $50 million in aggregate principal amount from the private issuance of senior unsecured investment grade notes due February 2028.
Mike Wilhelm: The notes were delivered and paid for on February 12, 2025, and the net proceeds along with cash on hand will be used to repay the $70 million of notes maturing this month.
Mike Wilhelm: We elected to raise less than the maturing 70 million to both improve and provide greater flexibility with our balance sheet leverage.
Mike Wilhelm: This completes our prepared remarks today operator could you. Please open the line for questions at this time.
Mike Wilhelm: Well now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
Mike Wilhelm: If you are using a speakerphone please pick up your handset before pressing the keys.
Mike Wilhelm: At any time. Your question has been addressed and you would like to withdraw your question. Please press Star and then two.
Mike Wilhelm: At this time, we will pause momentarily to assemble our roster.
Speaker Change: And your first question today will come from Crispin Love with Piper Sandler. Please go ahead.
Speaker Change: Thank you good afternoon, everyone.
Speaker Change: Can you can you discuss your views on credit and to 2025. It seems that you haven't experienced any new credit issues as of late with the refund unrealized losses being driven by prior walks us launch rather than any new ones. So just curious on the forward outlook, there and confidence on credit into 2025.
Speaker Change: Yes, hi.
Doug: This is Doug I'll take it I would say, yes, we're pleased that the.
Doug: The number and the names on our watch list has been improving for the past three quarters and I think it's a function of again execution on those companies robust fundraising and equity activity as well and so I'd say our perspective is that as long as the market and performance continued of our portfolio companies.
Doug: To be stable, but credit outlook should should be stable or improving over the course of 'twenty five, but obviously if market conditions don't improve our portfolio companies don't perform that that could change.
Speaker Change: Okay, Great. That's helpful. And then just on prepay they were pretty elevated in the quarter can you discuss some of the key drivers. There are there some one offs and just early thoughts on 2025 for Prepays.
Speaker Change: Yeah I'll take this one so I would say our prepay activity a part of it is associated with our intentional goal of rotating out of certain sectors in particular consumer so.
Speaker Change: We have seen in 2020 for about 60% of our Prepays were from ecommerce and consumer related company. So.
Speaker Change: Our goal is of that.
Speaker Change: Portfolio rebalancing and as we look to 2025, we continue to expect the pace of one prepay per quarter, but I think as we look at it just practically these prepays will come from some of our older vintages. So these will be more seasoned assets and so should have less of the.
Speaker Change: Volatile impact on NII, so to speak for the quarters in which they occur.
Speaker Change: Great. Thank you saw though appreciate you taking my questions.
Speaker Change: Your next question today will come from Brian Mckenna with citizens. Please go ahead.
Brian McKenna: Thanks, Good evening everyone.
Speaker Change: So you reported <unk> per share of NII in the quarter some of the impacts of a lower base rates and here I thought that flow through the P&L and instead.
Speaker Change: Histology names on our watch list. So are you still comfortable with the very strong quarterly dividend and then is there a way to think through where and when dividend coverage ultimately trucks.
Speaker Change: Yeah, So I would say.
Speaker Change: They are our perspective and as mentioned in our prepared remarks.
Speaker Change: Historically, we have focused on covering our dividend from NII on a full year basis, and we've been pretty consistent about it although we've had a quarter or two where we've under earned and then made it up on a full year basis heading into 2025, I think we're realistic when it comes to the dividend and mindful that it's.
Speaker Change: The levers of portfolio growth and Prepays that has an impact on it and we do expect fundings to be higher in 'twenty, four and prepayments to be lower but I think the reality is going to be pragmatic.
Speaker Change: Portfolio growth doesn't materialize, we will have to take that into account and be realistic about it.
Speaker Change: Okay. That's helpful. Thanks.
Speaker Change: And then just looking at Neal Hot New fundings in the quarter. They totaled 13, 5%, that's 200 plus basis points below the average yield of the portfolio at year end. So yeah, how should we think about the overall yield of the portfolio as assets continue to turnover throughout 2025, assuming no changes from here.
Speaker Change: Yeah, I mean, I think we continue to believe that.
Speaker Change: <unk> will hold our yield profile.
Speaker Change: The portfolio I think.
Speaker Change: Obviously with the base rates base rates going down 100 basis points over the last 12 months. It takes a little bit of time for that to flow through and then stabilize but keep in mind, we do put set prime rate floors for our new investments and our old investments. So even though two thirds as Mike said it of the portfolio is floating rate, we do have the benefit.
Speaker Change: Ah.
Speaker Change: Prime rate floors, but again I think as we look to venture lending in general there is a target return, we all expect to make as lenders that.
Speaker Change: Relatively high and so that's why we're not anticipating more spread compression.
Speaker Change: I think.
Speaker Change: From our perspective, we'll continue to see the benefit of Prepays, which will then help to boost the overall portfolio yield on a total basis as well.
Speaker Change: Okay, Great I'll leave it there thank you.
Speaker Change: And if you have a question. Please press star and then one.
Speaker Change: And your next question today will come from Casey Alexander with Compass point. Please go ahead.
Casey Alexander: Yeah good afternoon.
Mike Wilhelm: Welcome Mike to the team Q I have yeah.
Casey Alexander: I'm wondering.
Casey Alexander: And I think you can only answer this as of 12 31 to what extent has has the whole portfolio reset now based upon the hundred basis point decrease in base rates or is there still some more portfolio positions that have to reset in.
Casey Alexander: In 2025 in the first quarter of 'twenty five in and if so like how far along the process are we.
Casey Alexander: Yeah.
So I would say when when base rates change. They generally are effective immediately or within the next month for our portfolio companies. So youll see that with the funded assets relatively quickly flow through.
Casey Alexander: Obviously with our unfunded commitments.
Casey Alexander: There was a combination of floaters in fixed rates with or floaters with primary players and so it's a function of also just new asset fundings in windows were originated in.
Casey Alexander: That could impact portfolio, but I would say generally to answer your question that it should all have been really healthy.
Casey Alexander: <unk> through already so to speak.
Casey Alexander: Okay, great. Thanks, that's helpful. Secondly.
Casey Alexander: You borrowed less than what your refinancing.
Casey Alexander: Yeah, I assume that the difference is headed for the credit facility for the time being in the hopes that you can capture it in some other unsecured financing in the future that rounds up at a lower cost than the one that you did just out is that the right way to think about it.
Casey Alexander: Your question please.
Casey Alexander: Yeah, I was going to say I mean.
Casey Alexander: Casey we are looking to optimize our balance sheet leverage and also looking to rebalance because as of right now and I mentioned in my prepared remarks of the.
Casey Alexander: 400 million outstanding $395 million of that is term debt and so we had.
Casey Alexander: The option to refinance this $70 million maturing with the full 70 million, but we opted to raise less yeah in that effort to rebalance and try to push more of our debt to a revolving facilities.
Casey Alexander: Is that.
Casey Alexander: Balancing act.
Casey Alexander: Does that help you maintain an investment grade rating with the rating agencies by not having too much unsecured is a portion of your liability stack.
Casey Alexander: Yes.
Casey Alexander: In part yes.
That went into the our overall decision.
Casey Alexander: Okay Alright.
Casey Alexander: Thanks for taking my questions I appreciate it.
Casey Alexander: Thank you.
And your next question today will come from Christopher Nolan with Ladenburg Thalmann. Please go ahead.
Speaker Change: Hey, guys I'm.
Speaker Change: Following up on Casey's question.
Speaker Change: So should we expect higher leverage them through 2020 five.
Speaker Change: Yes, I mean, I think Mike Hagan.
Speaker Change: Yeah, I was just going to say, we've talked a lot about portfolio growth. That's what we're expecting here in 2025, and so we're also expecting with that growth that our leverage would climb back up.
Speaker Change: Okay, and that's not assuming any.
Speaker Change: Any ATM because your share prices trading below book right.
Speaker Change: Correct. Yeah. We don't currently have any assumption for any further raised under the ATM.
Speaker Change: Okay, and then I guess more of a strategic question for Jim Jim, especially by your comments on AI and how you guys are making investments in that any possibility of AI sort of cutting down the expense ratios for bdcs are improving returns.
Speaker Change: Well.
Speaker Change: AI is.
Going to continue to be universal prevail in helping across the.
Speaker Change: The board not just probably bdcs, but just in general you named the sector Law Finance software Communications education.
Speaker Change: But.
Speaker Change: Speaking of AI, yeah to prevail and it's probably one out of every three investments were seeing these days, but one definitely needs to be careful of any hype.
Speaker Change: The slight inflationary valuations, which are going on out there.
Speaker Change: But you know at least regarding our AI portfolio and our.
Speaker Change: Platform that just as well as into growth stage.
Speaker Change: Theres some very.
Speaker Change: Lighting niches we're in.
Speaker Change: Durable ones with proprietary datasets and so forth, we're not that bigger universe of these are wide open models.
Speaker Change: How it would apply specifically, we're actually employing some within our due diligence and a couple of other things, but I'm not exactly sure yet how it's going to apply to the BDC business I've got to avoid that Buzz word theres not a conference I don't go to whether it's venture conference.
Speaker Change: Technology, whatever where AI doesn't come up so I'm glad we got an AI question here.
Speaker Change: And then actually here's a second follow up question one of the features of a large language model.
Speaker Change: As I understand it I'm no expert is the ability to read into contracts and then together with things like blockchain, which basically enables to automate execution of contracts are you seeing more of an adoption of those technologies, which you as a lender would get a much more real time.
Speaker Change: View into.
Speaker Change: A customer's contracts.
Speaker Change: What we have to be a little careful because all companies, we have AI policies and things and there are some shortcomings.
Speaker Change: I, even asked us as it continues to evolve.
Speaker Change: Especially given hallucinations and other things like that but.
Speaker Change: Where we're more involved is in these investments where it is in these companies and machine learning and the large language models and data analytics and automation solutions.
Speaker Change:
Speaker Change: Aimed and more unique use cases and applications.
Speaker Change: Stopping short of saying this is something that where we actively deploy your can deploy right now if I'm answering your question. Yes, you are okay, great. Thank you and Mike welcome Dr.
Speaker Change: Thank you.
Speaker Change: And your next question today will come from Paul Johnson with K B W. Please go ahead.
Paul Johnson: Yes, good evening, thanks for taking.
Taking my questions.
Paul Johnson: So I just want to make sure Im hearing.
Paul Johnson: Nuclear I made pretty loud and clear about.
Paul Johnson: Growing the portfolio and probably using leverage to do that.
Paul Johnson: But.
Paul Johnson: Just curious because you know over the last year two years or so little over a year.
Paul Johnson: Yes, most of the discussion.
Paul Johnson: The calls are about kind of reducing leverage back down into the target range.
Speaker Change: Less attractive potential market.
Paul Johnson: Boy into.
Paul Johnson: So.
Paul Johnson: Obviously a shift here.
Paul Johnson: So where you are going to be more comfortable with taking leverage back up again now that you've kind of reduce it to a more comfortable level. So just want to make sure. That's what you guys are messaging and what I mean.
Paul Johnson: Is it based on.
Paul Johnson: Credit issues that you believe are more under control or a lower level of unfunded commitments that are out there.
Paul Johnson: Or is it just simply just the vintage that you or your <unk>.
Paul Johnson: Being here in 2025, yes.
Paul Johnson: Good question, let me start so I would say that what's fundamentally driving the kind of the outlook for portfolio growth is as we said in our prepared remarks is improving market conditions in the venture capital markets and then improve.
Paul Johnson: Improving demand from high quality companies that meet our credit underwriting criteria. So I would say those are the kind of the primary basis as we look to what's driving our commentary about portfolio growth. It's just it's market recovery and it's the quality that we're seeing which we did not see.
Paul Johnson: Over the last seven quarters, So I think absolutely a change from our perspective based on kind of again the market conditions, improving as it comes to leverage let me just be clear.
Speaker Change: Our leverage right now is artificially high as Mike said because of the magnitude of term debt that we have outstanding so inherent with our liquidity and cash position right. Now we can fund a fair amount of portfolio growth with just the cash we have on hand with no material change to our leverage ratio.
Speaker Change: And then as the portfolio grows and and again, we have these you have to factor in prepayment activities and things like that then we would see our leverage ratio increased as portfolio growth was in excess of again the cash that we have right now I think to Mike's other comment one of the challenges of venture.
Speaker Change: Lending is the prepayment activity as we said one prepayment in quarter.
Speaker Change: You look at where we are right now with given our continued prepayment activity of outlook for one quarter.
Speaker Change: We don't have the revolver to pay down and so we need to have a better balance between.
Speaker Change: Long term debt and revolving debt. So when we have those periods of prepayments were able to benefit from reduced interest expense paid down the revolver and then wait till the portfolio fundings come redeploy than we do when we get to higher overall utilization of our warehouse facilities. Then we look to either go into the.
Speaker Change: The term markets or to the equity markets if.
The stock is cooperating.
Speaker Change: To replenish and balance it out so I think it's going back to that playbook, we're not there yet we've got a fair amount of liquidity deployed before we even talk about increasing our leverage but again, if our assumptions of portfolio growth and muted repayment activity.
To fruition, then we will see that slightly higher leverage tick up over the course of the year.
Speaker Change: I appreciate all that.
Speaker Change: Clarification on that very helpful and then.
Speaker Change: Just one last question for me I mean in terms of your Fintech investments.
Speaker Change: Particularly the more successful ones prodigy.
Speaker Change: Just curious.
Speaker Change: Kind of in your mind, how many of those companies are dependent on.
Bank partnerships.
Speaker Change: Yeah.
Speaker Change: <unk> in general So I would say it's a.
Speaker Change: It depends on the type of Fintech, so to the extent that we have lending in text then they have warehouse providers and I'd say the vast majority of our lending related fin techs have multi syndicate, our multiple credit facilities with a syndicate of lenders projecting for example has actually.
Speaker Change: Tap the securitization markets.
Speaker Change: Before so those are well positioned from that perspective, as we look to our payments and other related fin techs, absolutely that is something at the time of underwriting we're very cognizant of I think the good news is because we focus on venture growth stage companies. These are more proven out more.
Speaker Change: Robust.
Speaker Change: Older companies.
Speaker Change: They've had the benefit of track record to have multiple counterparties on the banking side across Geos. So well protected if these were earlier stage company that would be more of a concern, but again given the venture growth stage focus.
Speaker Change: Less of a risk for our Fintech portfolio company.
Speaker Change: Thank you very much.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to Mr. Jim Lebesgue for any closing remarks. Please go ahead.
Speaker Change: Thanks, operator.
Speaker Change: We'd like to thank everyone for listening and participating in today's call. We look forward to updating and talking with you. All again next quarter. Thanks, once again have a nice day.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Speaker Change: Yeah.
Speaker Change: Yes.
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