Harold Zagunis - CFO Jim Labe - CEO and Chairman Sajal Srivastava - President and CIO

Good afternoon ladies and gentlemen, and welcome to TriplePoint Venture Growth's Q1 2015 Earnings Conference Call. At this time, all lines have been placed in a listen-only. After the speaker's remarks, there will be a question-and-answer period and instructions will follow at that time. This conference call is being recorded and a replay of the call will be available as an audio webcast on the TriplePoint Venture Growth website. I would now like to turn over to Harold Zagunis, Chief Financial Officer at TriplePoint Venture Growth. Mr. Zagunis please go ahead.

Thank you, Ian. And thank you everyone for joining us today. We're pleased to share with you the results of the first quarter of 2015. Here with me to discuss our results are Jim Labe, Chief Executive Officer and Chairman of the Board; and Sajal Srivastava, President and Chief Investment Officer. Before I turn the call over to Jim, I would like to call your attention to the customary Safe Harbor disclosure in our press release regarding forward-looking statements. I'd remind you that during call, we will make certain statements that relate to future events or the company's future performance or financial condition, which may be considered forward-looking statements under federal securities law. We ask that you refer to our most recent filings with the Securities and Exchange Commission for important factors that could cause actual results to differ materially from these statements. We do not undertake any obligation to update our forward looking statements or projections unless required by law. To obtain copies of our latest SEC filings please visit our website at www.tpvg.com. With that, I'll turn it over to Jim.

Thanks Harold and welcome everyone. The first quarter was another great quarter for building TPVG's franchise and demonstrating the strength of our Venture Growth lending approach. The quarter also marked our first full year as a public company. As many of you are aware on March 27th we raised almost $94 million in net proceeds in our first offering of common stock since the IPO. In passing I'd like to note that we received the proceeds per share before offering costs in excess of our net asset value and that the offering also included both institutional and retail investor participation. We really appreciate the trust and support of both our deep institutional base as well as our long term retail stockholders. The proceeds of this offering will help us expand our portfolio to meet the large and growing demand. The offering also provides some additional benefits such as an increase in market cap and rising trading volumes in our stock. Once again the first quarter results demonstrates the strength of our franchise and of our Venture Growth Stage Venture lending model. During the quarter we generated net investment income or NII if you will, significantly in excess of our declared dividend which demonstrates our close to fully ramped return potential as were levered roughly 0.8 times or so. During the quarter we also delivered a weighted average portfolio yield of 14.5% and that's excluding any pre-payment activity. In the first quarter we also had one additional company Simplivity join the billion dollar club. This now brings our total to five companies in this club at our overall 26 tech and life science portfolio companies. These are companies which have raised private equity financing rounds at a billion dollar or higher valuation. This doesn't even include one more company presently at a $900 million valuation, I wish it were the $900 million club sometimes or maybe 800 or 700 million as we have some in that category, but these don't count yet for the billion dollar club. Simplivity's round as well as other companies closing equity rounds during the quarter contributed about 1.4 million in unrealized warrant gains. And we're not done yet, we expect more billion dollar club members before the end of the year. During the quarter we also worked through a credit situation with Coraid which supports our thesis of the underlying value inherent in these Venture Growth Stage companies. As we look ahead to our second year as a publicly traded company our level of enthusiasm continues to increase. I am excited. The market ingredients for TPVG seem to all be there and all be the right ones, and all be in the right combinations. The ones we have consistently been talking about, demand, growth, reputation, discipline, quality and returns. I'm encouraged by what we believe is the market opportunity to finance [indiscernible] in some of the most cutting edge tech and life science companies out there. These are in fields ranging from cyber security to next generation data center technologies and then mobile applications for health to personal medical wearable. I'm excited by the strong level of activity from our select venture capital investors and the return potential it represents for the business. We intend to continue to capitalize on this demand. Let me be clear though, we are not in a rush to deploy this recently raised capital. We're going to continue to grow our portfolio in a disciplined manner while seeking to deliver attractive risk adjusted returns to all of our stockholders. Let me turn the call over now to Sajal who will provide you with more detail about our first quarter's portfolio composition and investment activity.

Thanks Jim and good afternoon everyone. As Jim mentioned we are pleased with the strong level of equity investment activity from our select venture capital investors and the strong demand for Venture Growth Stage lending. TriplePoint Capital's strong platform and selective approach continue to resonate in the venture lending market place. In particular its venture growth pipeline continues to grow with high quality companies looking for creatively structured debt financing within TPVG's target return profile. Given these conditions, TriplePoint Capital signed 72.5 million of term sheets with venture growth stage companies in Q1 and another 23 million so far in Q2 and the pipeline continues to grow but also as Jim mentioned TPVG entered Q1 at the high end of our targeted leverage ratio along with a healthy backlog of unfunded commitments. As a result during the quarter we reduced the throttle on new commitments for TPVG until we raised our new equity capital. Following our successful raise at the end of the first quarter we have once again been adding new commitments as demonstrated by the 25 million we have closed so far in Q2. Jumping back to Q1 though, we funded one debt investment for 10 million, made a 250,000 equity investment and acquired warrants valued at 300,000 in one company. The 10 million debt investment funds in the quarter had a weighted average yield of approximately 15.7%. Our total weighted average portfolio of yield excluding pre-payments was 14.5%. During the quarter one of our customers pre-paid its outstanding loans totaling 10 million which brought our weighted average portfolio yield to 14.6%. As March 31, approximately 12% of our total debt portfolio consisted of floating rate loans. At quarter's end our unfunded commitments totaled a 153.5 million to nine companies of which 28 million was dependent upon the companies reaching certain milestones before the debt commitment becomes available to them. Our unfunded commitments included 86 million that will expire during 2015 and 67.5 million that will expire during 2016 if not drawn prior to exploration. Since these commitments make expire without being drawn upon unfunded commitments do not necessarily represents future cash requirements or future earnings assets for the company. As we have mentioned before overtime we generally expect about 75% of our gross unfunded commitments to eventually be drawn. Furthermore based on equity financing activity portfolio companies with meaningful amounts have current liquidity may not use their facilities with us may delay drawing on their lines towards the end of their availability period or may request to extend draw periods to give them more time to decide whether to utilize our facilities with us. Regarding credit quality, as of March 31st, the weighted average internal credit rating of the Debt Investment Portfolio was 2.06 or unchanged from the end of the prior quarter. As a reminder, under our rating system loans are rated from one or clear to five or red with clear being the strongest credit rating and all new loans initially rated white. During the quarter one clear rated customer paid off its 10 million of loans. We funded 10 million of loans to one obligor which we initially rated white in subsequently upgraded that obligors 29.5 million of total outstanding loans to clear based on a strong performance during the quarter as well as the fact that they close the very large equity capital rays at a significant premium over last round. As previously discussed during the quarter we downgraded our loans to Coraid from yellow to orange and then to red in conjunction with accelerating the outstanding obligations owe to us. Coraid then entered into a foreclosure agreement that provided for our third party to purchase certain assets and assume the outstanding obligations owed to us. As part of this process we’ve reduce the fair vales of the outstanding loans by 3.5 million and road off the warrants we received when we originated the transaction. On April 15 the third party Intermodal Data Inc. a series A company back some of the venture capital investors in Coraid acquired the assets and entered into a new loan agreement with us for the outstanding amounts owed. Regarding other key indicators of portfolio, health and quality, as of March 31st, the weighted loan to enterprise value at the time of origination for our portfolio was approximately 9.5%, not a meaningful change from the end of Q4 and well below our general guidelines of 25%. In addition approximately 17% of our debt investments consisted of growth capital loans where the borrower had adventure bank term loan facility in priority to our senior lien down from approximately 21% in Q4. We also had four customers close follow on equity ramps during the quarter while not all out companies need additional equity capital we generally view our customers is doing so is a positive indicator given the additional liquidity to service our debt and or get them to [indiscernible]. As Harold will discuss shortly these rounds led to a meaningful unrealized gain on our warrants during the quarter. We continue to expect to see liquidity and exit events within the portfolios start in the second half of this year given some of the activity already underway. We again thank our stockholders for their support in our first follow on equity offering as Jim said we will continue to deploy our capital in a discipline manner in order to generate attractive risk adjusted returns for you. With that I will now turn the call over to Harold to review the financial highlight for the first quarter and give you an overview of our financial position.

Thanks Sajal. For the first quarter our total income in other income was $9.8 million representing a weighted average portfolio yield of 14.6% on our investments for the period held, of that 14.6% yield 11% was from cash keep on payments, [0.6%] was the original issued discount of upfront facility and warrant 2.9% was from the accretion of end of term payments and [0.10%] was from the impact of prepayment. Excluding the impact of pre-payment the weighted average portfolio yields for the quarter was 14.5% which is consistent with that of the previous quarter. Our expenses this quarter were $4.9 million compared to $4.8 million in the prior quarter. Our base management fee was $1.2 million our incentive fee was $1.2 million there was a reversal of capital gains and tendency of $300,000. Our debt expenses were $1.6 million and our administrative and general expenses were $1.2 million. We recorded net investment income of approximately $4.9 million for $0.48 per share excluding the impact of a reversal of our capital gains incentive fee is $300,000. Our core net investment income was $4.6 million or $0.45 per share in the first quarter. I would like to remind you that core net investment income is a non-GAAP financial measure. We believe core net investment income is an important measure of the investment income that we will be required to distributed year this capital gains incentive fee are accrued based on unrealized gains but are not earned until realized gains occur. For a reconciliation of core net investment income please see the press release we issued this afternoon. Keep in mind also that these numbers reflect the impact of the slightly higher weighted average share count due to the equity offering at the end of the quarter. In the first quarter we had a net unrealized loss on our investment of $1.9 million or $0.18 per share this consisted of $3.3 million and net reduction in the fair value of our debt investments which included the $3.5 million reduction for Coraid offset by $200,000 related to net gains in the fair value and other debt investments and approximately $1.4 million in gains on warrants due to changes in fair value primarily from four portfolio companies closing equity rounds at higher valuation. During the quarter we also have a $300,000 realized loss from riding off to warrants received from Coraid. Our net increase in net asset resulting from operations for the first quarter were $2.7 million or $0.27 per share reflecting the impact of the $0.18 of net unrealized losses and the $0.03 of realized losses on our $0.48 of net investment income. As we mentioned on our prior earnings call we had excess taxable income store over $1.2 million from 2014 which was paid as part of our first quarter dividend on April 16 to stockholders record as of March 26. As of the end of the first quarter we estimated our undistributed 2015 taxable income is approximately $2.2 million or $0.l4 per share. On an annualized return basis our net increase in net assets this quarter represented a 7.3% return on our average net assets. Our net investment income was 13.2% on average net asset and our core net investment income was 12.4% on average net assets. I will remind you again that Coraid net investment income is a non-GAAP measurement as provided in addition to but not at the substitution for net investment income. Coraid investment represents net investment income excluding the company's capital gains incentive fee. As of March 31 we had 74 investments in 26 companies our investments included 45 debt investments 24 warrant investments and five direct equity investments. The total costs in fair value of these investments were approximately $252 million and $251.7 million respectively. As of March 31 the company's net assets were approximately $237.9 million or $14.48 per share compared to approximately $145 million or $14.61 per share as of December 31, 2014. The increase in the aggregate net assets was a result of our public offering of common stock at the end of the first quarter. The decrease in the net asset value on a per share basis was primarily due to the net annualized losses recognized this quarter and the operating cost associated with our public offering of common stock. On March 27 we priced to public offering of 6.5 million shares of common stock raising $93.7 million after operating cost. TriplePoint Capital covered approximately $3.7 million in underwriting and offering related expenses. We incurred approximately $800,000 in operating cost which reduced our NAV by $0.05 which was partially offset by the $0.01 accretion from the equity offering. At March 31 our total cash position was $18.3 million we had a $94.6 receivable related to the public equity offering which we received on April 1 and we had available capacity of $80 million under our credit facility. During the course of the first quarter our leverage ratio was 0.8 times and dropped to 0.5 times at quarter end as a result of the equity offering. Finally our Board of Directors declared a dividend of $0.36 per share for the second quarter of 2015 payable on June 16 to stockholders of record as of May 29. With that I'll turn the call back over to Jim.

Thanks again Harold. At this point we will be happy to take your questions. Operator can you please open up the line?

[Operator Instruction] And your first question comes from the line of [indiscernible] with Wells Fargo securities. Your line is open.

Thanks and congrats on a great quarter and the equity rise. So just a couple quick questions first you said that you would be patient in kind of deploying the capital. So I'm just trying to get a feel for how you think about in deploying the capital versus the cash drag and the share account and under earning to dividend.

Yes I think ultimately what guides us [quality] yield flows. So as we look to our pipeline we definitely see a strong [several hundred] million dollar pipeline which is translated into unfunded commitments which was roughly 153 million as of cores in and then increased with the additional commitments that we've entered into since then. So I think from our perspective we feel that there is strong backlog, strong outlook for our ability to deploy the capital the obvious dynamic is that is our customers that fundamentally as they need the capital will drove on our facilities and so that’s somewhat beyond our control. Although with some of our newer transactions we are encouraging the customers to draw capital and transaction close or having shorter availability period. So I'd say we manage to our funding capacity and our pipeline and our funded commitments and so given the outlook Jim talked to and I mentioned as well we see the opportunity to originate a very healthy portfolio this year.

Sure and just with regards to that as well so you feel comfortable if it’s a quarter or two quarter underwriting the dividend with $0.14 of spillover.

Yes, absolutely great point and Harold was jumping at the bit too I mentioned. Yes absolutely I mean, as Jim mentioned we're not going to be overly zealous in terms of actually funding the capital, we’re going to be very disciplined about it and the reassurance for our shareholders is the fact that we do have a healthy spillover that'll help smooth out but again we've always been very conservative with regards to our setting dividend and then we're generating a very yielding portfolio.

Sure and then you know just on the repayment activity front, like to get some color here, you mentioned, you kind of expect to pick up in the second half of the year but just so we're trying to think about it you know cause obviously the deal was coming in but the things aren't churning as quickly as you expected, so any update you know that you can reply there, obviously companies are raising capital, higher rounds, that's a plus but you know some of them are staying private longer and it's not kind of translating into the pre-payment amortization quickly as you expected.

Yes, no, no, I think again from our perspective and again please Jim step in, I think our perspective is the guidance we gave in the last call as we expect roughly for the rest this year one pre-pay a quarter and so I don’t think that's reflective of any significant market condition of aggressive equity activities or M&A or IPO activity I think it's a natural churn of pre-pays as we get older as the portfolio gets older and so I would say we're not projecting anything or any market factor necessarily impacting that at least one a quarter of pre-payment activity.

I concur, absolutely agree.

And then just the final one on the Coraid loan, so you marked it down, and just you know when you're having the new loan come on in this quarter is it at the same terms and same value as the previous loan occurred?

Yes, so, as we mentioned we entered into a new loan agreement with Intermodal Data and so now we'll report the loan with Intermodal Data. We did restructure the loan and so we'll show new terms and conditions associated with that in particular, longer maturity date and there is pick feature to our interest on this loan.

[Operator Instructions]. And there are no questions at this time, I’ll return the call to the presenter.

Great thank you. I'll close by expressing my appreciation to all of you for your continued interest and support in TriplePoint Venture Growth. We will continue to build this franchise and portfolio and remain disciplined and focused on what matters most to us, something that we have been talking about since our inception as a company and that is what we call the four Rs - Reputation, Relationships, References and of course Returns. Thanks again and we look forward to speaking with you soon.

This concludes today's conference call, you may now disconnect.