Trevor Martin - IR Jim Labe - Chairman & CEO Sajal Srivastava - President & CIO

Jonathan Bock - Wells Fargo Securities Casey Alexander - Compass Point Research & Trading

Good afternoon, ladies and gentlemen, and welcome to the TriplePoint Venture Growth's First Quarter Earnings Conference Call. At this time, all lines have been placed in a listen-only mode. After the speakers' 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 the call over to Trevor Martin. Mr. Martin, please go ahead.

Thank you, Phil and thanks everyone for joining us today. Here with me are Jim Labe, Chief Executive Officer and Chairman of the Board; and Sajal Srivastava, President and Chief Investment Officer; to share with you the results for the first quarter. Before I turn the call over to Jim, I would like to direct your attention to the customary Safe Harbor disclosure in our press release regarding forward-looking statements, and remind you that during this 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. Now I'll turn it over to Jim.

Thanks, Trevor and welcome everyone to our first quarter earnings call. We are still in the early innings of the game, to tell me it has been two months since our last earnings call but even so we continue to take some great [indiscernible] and had some memorable hits in the past quarter. This includes a record quarter for an investment income, a highest since our IPO. It further demonstrates the power of our differentiated venture lending model and while we are still young this past March marked only the third anniversary of our company’s IPO before get into the quarterly results, I would like to share some of the achievements and see IPO. Specifically since three short years, we declared $4.82 in distributions to our shareholders. We committed more than a billion dollars and funded almost 500 million in loans in our select equity investments and all of that was after acquiring an initial portfolio of almost $125 million. We increased our customer base from 16 to 48 customers during that period and the number of our investments more than doubled from 41 to 89. These include what we think are some of the most promising and exciting venture growth stage companies in Silicon Valley and across the globe. During this period, none of our companies were acquired and three went public and that's just the start, there's more in the way. In the past 12 months alone some of these fixes included some of the highest profile and notable IPOs and acquisitions in venture capital backed tech, Nutanix, Jet.com Dollar Shave Club and Simplicity. We also delivered strong weighted average portfolio yield consistently in the 12% to 15% range during this period and that's without the benefit of any customer prepayment. When you include those, the yields are even more impressive. Speaking of customer prepayment activity, we had more than $190 million worth of those in the last three years, these nicely boosted our yield in the quarter some would say occurred and they also provided us with funds for future deployment and our outstanding commitments. We also increased in renewed our credit lines and completed a baby bond offering, we raised equity capital at or above book value and finally we took advantage of what we believe to be short term mispricing a lower stock and bought back almost $11 million of it, all the prices accretive to NAV. What we're very proud of this track record in the strategy behind it that made it possible from the beginning I've stressed that this business is about building and managing a long term portfolio and generating attractive yields and returns to our stakeholders. That's why we call it a long baseball game. But also from the very beginning of the game, we've placed major emphasis on and we have strived to be one of the most shareholder friendly and one of the highest institutionally held BDC something we will continue to be mindful as if we continue to scale TPVG. Now I'd like to share some first quarter highlights which continue again to show the results of our differentiated venture lending model. As I mentioned we had a record total investment income with 14.3 million that's almost up 30% from Q1 of last year. We also had net investment income or NII of 7.9 million which was up almost 18% from the same quarter a year ago. As a result of this, ROE have almost 15% for the quarter and ROAs have more than 8%. We also had a 16.8% weighted average portfolio during the quarter, we saw two portfolio company exits the acquisition of Simplicity in the one of [indiscernible] we have four portfolio companies rates follow on rounds and we also made two directly investment in the quarter Cohesity and [indiscernible], these were investments that we made alongside of and in conjunction with our select venture capital investors. Based on our strong relationship with these investors and entrepreneurs, we are also on a pole position for future debt financing opportunities. We had more than $53 million worth of prepayments from three companies during the quarter this is a continuing part of our business model which contributes not only to our investment income but also boost our yield. It attests to the high quality and strength of our portfolio companies which continue to be able to attract capital experience liquidity events through winner acquisitions or IPO. While these customer pre-payments were greater than customer funding in the quarter which is going to happen from time to time, our total investment portfolio at the end of the quarter was up more than 16% from the same quarter a year ago. So we're pleased to see the year-over-year growth which we also expect to continue in the future. The credit quality of the portfolio also continues to be strong. There were no new downgrades in the quarter and last but not least our stock has been trading well. We hit a fifty two week high during the quarter. While we are pleased with these results and the record investment income for the quarter, we're far from done. This is only the beginning, the early innings. We continue to remain bullish on our business given the strong pipeline and the continued fundraising that's been going on by our select answer capital investors whose investment services drivers behind our business and last year alone they raised more than 15 billion. This reflects of sheer strength and attractiveness of our Select Venture capital investors and the impressive track records. Given this high level of fund raising activity, we expect to continue to see strong demand globally for depth from high quality venture growth stage companies. As we head into the fourth year and step up to the plate for the next innings of the space ballgame, we will continue to focus on the pap to winning the payment. We have the winning team. We are excited on the outlook for the rest of 2017. We plan to remain disciplined and focused on this differentiated venture lending model. We don't plan to veer from our time tested model and we continue to do what we did in the past. We plan to continue to follow what we believe our best in class practices among the BDCs and continue to be aligned with our shareholders both big and small. We believe the patience and hard work in the past will continue to pay off in the quarters to come, team TriplePoint is truly excited this season. I will now turn the call over to Sajal.

Thank you Jim and good afternoon everyone. In Q1, we signed approximately $49 million of term sheets a TriplePoint capital and close 37 million of debt investments and 2.4 million of equity investments. New customers in the quarter included Stance which designs and manufactures premium socks and personal apparel using a proprietary direct-to-garment printing system enabling them to print high resolution images on their unique fibers stances partnerships with well known celebrities Disney, the NBA, Major League Baseball and others as some of you may have seen on May 4th Justin Trudeau the Prime Minister of Canada actually wore Stance’s Star Wars socks during his meetings with the Prime Minister of Ireland, so some great visibility for the company. Stance has raised more than $110 million of equity capital from investors including memo ventures, Kleiner Perkins, [indiscernible] partners and others. Varsity Tutors operate the platform that connects students with personalized instruction and tutoring online and through mobile devices to accelerate academic achievement, the company has raised more than 15 million of equity capital from technology crossover ventures and others, our key equity investments in the quarter were with Cohesity which is a hyper converged, secondary storage company founded by the former cofounder and CTO of Nutanix which you may recall was a big hit for us. We co-invested in a 90 million round of equity financing, co-led by Sequoia Capital, Google Ventures and others. Cohesity has raised more than 150 million of equity capital in total. Towards these networks which makes innovative software and hardware and network virtualization platforms for the cloud we co-invested in a 21 million round of equity financing co-lead by Memo Ventures, new enterprise associates to second others, Purbase has raised more than 100 million of equity capital in total, both of our equity investments were direct investments alongside our select VC investors as a result of our unique relationships, these were not purchases in the secondary market from selling stockholders or employees. During Q1, we funded 12 million of debt investments to three companies and 2.4 million of equity investments in the two companies mentioned earlier and acquires warrants valued at 200,000 in three companies. We also had 53.3 million of customer pre-payments. As a result of the prepays, our portfolio yield was 16.8% without the prepays our portfolio yield was 12.5%. During the quarter, we had one obligor just with loans with 22.5 million of principal balance that were on nonaccrual during the quarter due to a delay in the acquisition which ultimately occurred in Q2 without impact of Xirrus non-accrual during the quarter our portfolio yield would have actually been 18% with the prepays and 13.7% without. With regards to prepays, I think we agree with how the analysts have covered it in their reports, not every company or deal will be a homerun but the beauty of prepays and repays actually is that we lock-in our return often higher than originally expected plus we get our capital back to deploying new companies. In certain cases they may also demonstrate our experience as a credit manager and our ability to work together with our select VC investors and entrepreneurs to find the right course of action and the right soft landing without burning our reputation or relationships in the process. I also think it's critical to point out that coming out of Q4 where we were at the higher end of our target leverage ratio, we're obviously limited in what portfolio growth we could pursue until either we raise more equity capital or experience prepays so our funding is in Q1 reflects that. As we mentioned our last call, we were going to rush into an equity raise especially in light of the prepay activity we saw but to be clear we see a strong path for portfolio growth and we expect to be back to our target leverage ratio in the coming quarters. At quarter’s end, our unfunded commitments totaled 117.4 million to ten companies of which 50 million is dependent upon the Company's reaching milestones before the debt commitment becomes available to them. A 72.4 million of 117.4 million will expire during 2017. During Q1 we had 25 million of unfunded commitments expire. Moving on to credit quality, as of March 31, the weighted average internal credit rating of the debt investment portfolio was 1.94 as compared to 1.85 at the end of the prior quarter, so another strong quarter for credit performance. As a reminder, under our rating system loans are rated from 1 to 5 with one being the strongest credit rating in all of new loans are initially generally rated 2. During the quarter we remove 35 million of loans from category one and 18.3 million of loans from category two due to prepays. We had 5 million of new loans to category two 5 million new loans to category one and 2 million of new loans to category three. For the third consecutive quarter, there were no credit downgrades during the quarter. As I mentioned earlier Xirrus which was category three during Q1 paid off their outstanding loans with the principal balance of 22.5 million here in Q2 and has been removed from our watch list. I'm also pleased to announce that we received our first profit distribution from GoGreen Light the party which acquired KnC. This profit distribution is actually sooner than expected reflecting the performance of GoGreen Line. This is separate from in addition to the balance due to us from the trustees completed asset sales. Mine Candy has also initial close on a new round of equity financing in Q1 which is a positive development and we restructured our loan in conjunction with the financing. I did want to point out that there was some incorrect research information that suggested a new mark down on the loan was forthcoming but as we said at the time we previously took our mark down in Q4 in anticipation of the modification and capital infusion, I don't believe a retraction or correction was published however so I wanted to take this opportunity to clarify the situation. I also want to congratulate our portfolio company Shazam on May 25th; they will be preparing their TV game show, Beat Shazam hosted by Jamie Foxx on Fox. During the quarter we had 1.7 million of realized losses of from warrants with 1 million associated with writing off our warrants in simplicity and 700,000 relating to writing off our warrants in ModCloth. With regard to unrealized gains and losses during the first quarter, we had 2.5 million of net unrealized loss on our investment portfolio consisting of 2.6 million a net unrealized loss related to the debt portfolio 1.3 million of net unrealized gain on our warrant portfolio and 1.2 million of net unrealized loss on our public equity portfolio. The 2.6 million unrealized loss in our debt portfolio breaks down as follows: 2.8 million of unrealized loss as a result of reversing the prior markups from the Simplicity loans and taking them to income this quarter. We also had 1.1 million of gains relating to marking up our loans on the rest of the portfolio as they move closer to maturity offset by 900,000 mark down on the loans to Xirrus in anticipation of their payoff. The 1.3 million of unrealized gain in our warrant portfolio consists primarily of reversing the previously recognized unrealized losses on ModCloth and Simplicity is small gains from the quarterly marks from the rest of the warrant portfolio. The 1.2 million of net unrealized loss on our public equity portfolio was all related to the changes in stock price for Nutanix which is publicly traded. The lock up did expire at the end of March so we are now able to sell the shares. Please note that even at the current prices for Nutanix we still have roughly a 2 million unrealized gain. I would like to now cover some of the financial highlights for the first quarter. Our total investment in other income was a record 14.3 million up 29.1% from Q1 ’16, our expenses were 6.4 million consisting of our base management fee of 1.6 million, our incentives fee at 1.5 million, credit facility and interest expenses of 2.4 million and our administrative and general expenses of 900,000, these numbers are higher than Q1 2016 reflecting higher outstanding leverage and the fact that we can earn in incentive fee in Q1 ’16 due to the total return requirement of our best in class fee structure. Our net investment income was 7.9 million up from 6.7 million a year ago. On an annualized return basis, our net investment income represented a 14.8% ROE and an 8.3 ROA again a nice demonstration of the earnings power of our business. As a result of the unrealized and realized gains I spoke of earlier, our net increase in net assets was 3.8 million or $0.25 per share as compared to a net decrease of 7.3 million or a loss of $0.45 per share a year ago. As of March 31st, our net assets were approximately $214 million or $13.38 per share compared to $216 million or $13.51 per share as of December 31. As of March 31st, we had 89 investments in 36 companies. Our investments included 51 debt investments, 29 warrant investments and 9 direct equity investments. The total cost and fair value of these investments were approximately 326.7 million and 328.4 million respectively. A 66% or two-thirds of our debt investments were floating rate up from 45% as of the end of the fourth quarter. As of March 31, our total cash position was 36.6 million and we had 114 million available on our 200 million revolving credit facility, including our baby bods we are approximately 0.65 times less. For the second quarter of 2017, our Board of Directors declared distribution at $0.36 per share payable on June 16 to stockholders over record as of May 31.Now I'll turn the call back over to Jim.

Thanks again, Sajal. At this point we will be happy to take your questions. Operator, could you please open up the line.

We will now begin the question and answer session. [operator instructions] First question comes from Jonathan Bock from Wells Fargo Securities.

So I greatly appreciate your comments on portfolio growth particularly getting into back to your target leverage in a timeframe that I wasn't necessarily expecting so Sajal we are trying to just to juxtapose, can you explain how I mean roughly $70 million of the effective portfolio growth in the phase of the split payments is possible, right. I'm just trying to understand the commitments versus actual funding and in an environment where a lot of companies are doing so well, the demand for debt capital likely would be life?

Yes Jonathan. Good question so let me start off I think Jim covered market is definitely strong in venture capital and which from what we're seeing the demand for venture growth debt or venture stage debt from venture growth based companies is strong and I think the 85 million of a term sheet so far in Q2 plus I think we had about 50 million in Q1 and so we are seeing a strong demand and we expect again now that we've got a fair amount of liquidity from the prepays to deploy that capital back and so I would say....

So you have the ability, just to make sure I am right, so Sajal you effectively slowing fundings and why does the fact that you were waiting for prepayments or was that entirely on the company? Then is it a commitment is it necessarily a funded asset?

Yes, there's no way we were not slowing funding and I think we're being mindful of signed term sheets and new commitments. Remember we have the platform so we have the ability to allocate those downturns where the BDC doesn't have funded capacity or for concentration purposes we can allocate to our private capital but I think the point was that from our perspective we are being mindful of not over committing the BDC with new deals in Q1 in light of the fact that we wanted a prepaid doesn't count so you get the cash but so we wanted to make sure we got cash in the door before we started allocating and committing new deals by TPVG which happened Simplicity happened late in quarter as did ModCloth and so we started reallocating back to TPVG late in the quarter.

I guess, I'd only add we're with probably midway into this quarter. As Sajal mentioned, we already have 85 million of fine term sheet, it doesn't include the ones that are in documentation so forth from signed term sheets in the last quarter. But also we have a pipeline and we don’t spend a lot of time talking about the size of it but when we say that we think there's a strong path to portfolio growth particularly this year, we mean it and the pipeline reflects that and the pipeline being a future business beyond the signed term sheet.

Thank you, Jim, that's very helpful. And then as we turn to just I noticed, when you obviously trying to deploy the capital quite fast, but given that there is $30 million of cash on the balance sheet half depending on funding the opportunity for that cash balance to grow but one could imagine that it's a matter of deployment. Do you pay fees on cash in the, on cash balances?

Yes. So, yes our maintenance fee does include on cash balances. But as you may recall, as a FYI, because we received the prepay so late in the quarter. Normally we take our prepays and we pay down our credit facility. So, because the prepay happened so late, I think was actually one of them is on the last day of the month, we didn’t have time to we have to get notice to our lenders before we prepay. So, that actually prepay occurred in April instead of happening in March because of the timing of cash received.

So, you'll affectively keep the cash balances I mean for virtually zero with no fees paid, I mean, end of it now?

Yes. Historically we keep our cash balances pretty low, which is again because of the collection of that cash so late in the quarter. We weren’t able to pay down our credit facilities.

So, did you waive it or did you pay on the cash that you said, I mean?

So, we waive our manageable fees on, so if for diversification purposes as you may be aware often time's folk's max out their credit lines, max out their cash balances in order to maintain the various diversification requirements. We by treasury bills to do that. And we waive, we bought at a 80 million of treasuries this quarter, we waive our fees on that.

Got it. Congratulations on the prepay for Xirrus. What type of end-of-term fee should we expect in that acceleration to come into income?

Yes. So, Xirrus was on nonaccrual during the quarter and we did take a 800,000 markdown on the fair value of the loan anticipation of the negotiation that occurred for the payoff or for the sale of the company. So, I would expect little boost from any accretion of end-of-term payments. We did go over our principle back but again that was a negotiator.

For then and for halfway through the quarter, there has been 700,000 in fundings and then a large prepay, I guess with the exception of first that I we'd have to maybe just ask. Would it be fair to say that earnings should likely fall below the dividend this quarter just given it's going to take a while for you to get into actual fundings to cover the dividend given a net leverage is like 0.41?

Yes. I think, good point. So, obviously we have $0.50 of NII from Q1. So, I give this a fair amount of buffer going into Q2 as we collect additional prepays and as you know the fundings typically happen, the last month or sometime the last week on the quarter. So, from our perspective, no change from our perspective in terms of covering the dividend for the year. But again, quarter-to-quarter we always deal with the tops from the prepays and over earning and then in those quarters where we're under levered and we got to scale up what we make on the move.

Okay. Thank you, so much.

The next question comes from Casey Alexander from Compass Point Research & Trading. Please go ahead.

Hi, good afternoon. First of all, Trevor, from a kind of a higher level perspective, is it your sense that as compared to your long history in doing venture growth loans that perhaps the velocity of the portfolio has picked up here in the last couple of years. Do you get that sense?

Again you mean velocity of portfolio growth or velocity of prepay casing?

The velocity of prepays, that the average life of loans maybe is being coming down sum because of an acceleration in general of prepays across the universe over the last couple of years.

I would say that the one nuance of it as we've seen M&A activity pick up. So, if you recall there's been the IPO window had been closed for some time, M&A has been closed for some period of time. So, I would definitely say in the last couple of years, I mean if you look at our portfolio right Jet.com dollars, I mean we had a number of portfolio companies get acquired and then we've had prepays associated with it. So, I think that was a good prepays, right, having exits, portfolio exits and prepays tied to those. So, I think to the extent that we've seen more of those, it shouldn’t be a surprise because we're seeing good things happen with portfolio exits. I think we've maybe had two at times portfolio refi. So, we've been paid out because another lenders come in. I think that's a great data point that our portfolio companies don’t shop us necessarily. And then to the last point, in terms of where we may see a little bit more but again I wouldn’t say it's a pattern but it's more of a reflection of potentially more robust equity fund raising environment in the most recent one to two years and maybe three four five years ago. Yes, with companies raising a heck of a lot of equity capital, there's been a little bit of a bump up in prepay activity when company raises $200 million around the financing and they have $30 million outstanding with us and they're earning less than prime in the bank account or close to zero, and they're paying us 14%. We would naturally expect some prepay associate with that.

I guess I'd only add KCM as a lender, I love getting prepaid, I don’t mind getting prepayments, I like what it does to income and I'm looking for our money back and income. So, I stop sure to saying there's any kind of trend or concluding anything like that and we've given guidance of on average one to two prepays per quarter and its' a baseball game, right. Sometimes it'll be a few more in the inning, sometimes a few as but had stopped short of drawing any kind of market change in the assets.

I think we obviously love getting our money back versus not getting our money back and moving it. So yes, getting it back and prepays and lets we introduce the concept of repays. Of paying off their debt wins schedules. So, those are turn way to things.

Okay. Secondly, can you give us a little bit more color on the equity co-invest? What led to that as opposed to doing a debt solution for the customer?

Yes. I guess the best way to tack that is in some instances depending on the timing, the market, the company, it makes sense to lead with a little equity and then have the debt follow. It's something that we've done for long period of time and it's opportunistic and it's a win-win for all. So, --.

Jim, let me ask you real quick. When you'd be that equity co-invest, do you have an unfunded commitment on the debt side behind it?

No, we don’t. Not if we finalize a debt deal, but I could even point to existing like Nutanix was an example where we did a million equity investment existing on BDC company and then we had a I say it was a $10 million or $15 million line. Sometimes the debt follows the equity timing and sometimes we'd say other way around by the way.

So, by making the equity co-investment and put you kind of in the driver seat of a debt solution does come up?

Absolutely. But again, when we make the equity investment decision, we're making an independent decision, the merits of the investment itself and we viewed as an equity investment in return thresholds that we have and things of that nature. So, we're not using the equity to subsidize that that were viewing as an independent decision.

Okay. Thank you, that's very helpful. In terms of KnCMiner, is there any timings any better sense of timings for the release of funds from the trustee?

Yes. I think a good question, Casey. We're working with our Swedish council, we're hoping to see that distribution start here in Q2. We continue to pester them. I think I mentioned that there as a claims finalization date of April 12th and so our lawyers are literally meeting with them the trustee this week to finalize the timing for the distribution. And again the small distribution I mentioned that we received actually today was separate from that, it was actually again from GoGreen Light. So, that profit distribution agreement that we have. So, nice development there.

Well, "working with our Swedish Council" is not a sentence that we hear that often in a BDC conference call.

Sure enough.

Last question, one question real quick. Any sense on or update on the search for a new CFO?

Yes. No, I think it's an ongoing process. From our perspective, we continue to meet with some great candidates. We continue to be picky about the quality and the caliber and the profile and we expect it to be a 2017 event absolutely.

Well, okay great. Thank you, so much for taking my questions.

[Operator Instructions] Okay. That concludes this afternoons question and answer session. I'll turn the call back over to Jim Labe for some concluding remarks.

I'll close again by expressing my appreciation to all of you for your continued interest and support in TriplePoint Venture Growth. Thanks, and we look forward to speaking with you again soon. Goodbye.

That concludes today's call. You may now disconnect.