Trinity Capital Inc. ($TRIN)

Thank you, and welcome to Trinity Capital's First Quarter 2026 Earnings Conference Call. Speaking on today's call are Kyle Brown, Chief Executive Officer; Sarah Stanton, General Counsel and Chief Compliance Officer; Michael Testa, Chief Financial Officer; and Gerry Harder, Chief Operating Officer. Also joining us for the Q&A portion of the call is Ron Kundich, Chief Credit Officer. Earlier today, we released our financial results, which are available on our website at ir.trinitycapital.com. Before we begin, please note that certain statements made during this call may be considered forward looking under federal securities laws. Please review our most recent SEC filings for further information on the risks and uncertainties related to these statements. With that, allow me to turn the call over to Trinity Capital's CEO, Kyle Brown.

Thanks, Ben, and thank you, everyone, who is joining us today. Trinity Capital continues to perform because of our diversified lending platform of 5 complementary verticals, our ever expanding managed funds platform that delivers incremental income to Trinity shareholders and our internally managed structure that ensures total alignment between investors and employees. To start off, here are some highlights from Trinity's performance during the first quarter. Our net asset value grew 7% quarter-over-quarter and 40% year-over-year to a record $1.2 billion. Platform AUM increased to more than $2.9 billion, up 36% year-over-year. Our originations engine remained robust, achieving $306 million of fundings and $396 million of commitments. We maintained strong credit with nonaccruals at 1% of the portfolio at fair value. Furthermore, I'd like to spotlight some shareholder-focused results from Q1. We're paying a $0.17 monthly dividend through the end of Q2, and Trinity shareholders have now been the beneficiaries of more than 6 consecutive years of a consistent distribution. Also, we are scheduled to announce our Q3 dividend in June subject to Board approval. Trinity's year-to-date total return leads the BDC space. And since our IPO 5-plus years ago, Trinity has delivered a cumulative return of 119% far outpacing the S&P 500's 86% over the same time period. Our return on equity remains one of the best in the BDC space, achieving 15.8% in Q1. Our managed funds platform continues to grow at a calculated pace and income generated from that platform continued -- contributed $0.04 to our $0.53 per share net investment income in Q1. And looking forward, we have 197 more positions in 127 portfolio companies, which have the potential to provide incremental upside to our shareholders. We continue to grow strategically and thoughtfully. In Q1, we funded $306 million, 39% more than the first quarter of 2025. Our investment pipeline remains robust with $1.2 billion in total unfunded commitments and $300 million of term sheets accepted as of March 31. As a point of emphasis, 94% of our unfunded commitments remain subject to rigorous ongoing diligence and investment committee approval, while only 6% of these commitments are unconditional. Our origination activity reflects consistent performance across the lending verticals within the Trinity platform driven by our experienced team of originators and underwriters. As a direct lender with a proprietary pipeline, we do not rely on syndicated deals and maintain immaterial overlap with other BDCs, providing our investors with access to a highly differentiated portfolio across our 5 complementary lending verticals. At the same time, we remain firmly committed to disciplined underwriting and strong credit performance, which are essential to our long-term success. The only notable intersect with some other BDCs is through our newly announced joint venture with Capital Southwest, a co-investment vehicle that is focusing on a first-out senior secured loans in the lower middle market. This partnership with [indiscernible] internally managed BDC allows us to diversify into a new segment of the lower middle market with a proven partner while minimizing risk and providing stable income for our investors. To briefly touch on the AI and software topic. Enterprise SaaS is currently 10% of our portfolio. Many of those are PE-backed [indiscernible] middle market companies that have successfully integrated AI to enhance their offerings, increasing the value, not eroding it. The strongest companies continue to adapt and execute. We are not seeing deterioration in our software exposure, rather, companies with top-tier management teams, durable moats and flexible strategies are increasingly distinguishing themselves. With respect to AI itself, we are not trying to pick winners at the application layer. Our exposure is focused on the infrastructure side through our equipment financing platform, which has deep experience financing data centers, GPUs, CPUs and power assets. That's the backbone of the AI ecosystem and it benefits regardless of which applications win. We remain focused on building a diversified portfolio that consistently delivers strong returns through all macroeconomic cycles. Our consistent performance is driven by 3 defining strengths: our differentiated structure, disciplined underwriting and world-class team. Our 5 complementary verticals, sponsored finance, equipment finance, tech lending, asset-based lending and life sciences, providing meaningful diversification while keeping us firmly within our core competencies. Each vertical is powered by dedicated teams, originators, underwriters and portfolio managers forming a scalable, highly efficient operating model that drives results. Structurally, as an internally managed BDC, there is no external manager collecting fees. And our employees, management and board all own the same shares as our investors, increasing alignment and a shared commitment to consistent dividends and long-term value creation. We operate like shareholders because we are shareholders. Our structure also supports premium valuation because investors own the management company and the underlying assets. The management incentive fees generated through our managed fund business flow to the BDC, creating incremental income and enhancing value and fueling growth, all for the benefit of our shareholders. Our people are the foundation of everything we've built at Trinity. Our high-performance culture is rooted in humility, trust, integrity, uncommon care and continuous learning with an entrepreneurial spirit. This culture enabled us to consistently attract and retain the best people who are the driving force behind our sustained growth. Since we started Trinity, the goal has never changed, out earn the dividend, grow the business and do it the right way. That means originating our own deals, underwriting them through our own vigorous standards and making important decisions as one internally managed team whose interest fully aligned with our shareholders, not third-party managers. What we have built and continue to build is a platform with real breadth and growing scale, and with our managed funds platform continue to expand, we are adding scale and diversification in ways that few BDCs can replicate. That's not an accident. It's structural. We did not stumble into this position. We have strategically built it. The pipeline is active. Our underwriting discipline is intact. We believe our capitalization strategy positions us well to grow earnings power as the market continues to evolve. Trinity is not your typical BDC, and that is precisely the point. We are differentiated by design and built to last, regardless of market conditions. Now to provide a more fulsome update on our managed funds platform. I'd like to turn the call over to our General Counsel and Chief Compliance Officer, Sarah Stanton, who is spearheading many of our corporate development initiatives. Sarah?

Thank you, Kyle. We are encouraged by the strategic and steady growth of our managed funds business, which diversifies our capitalization sources and generates fee income that benefits TRIN shareholders. AUM for our managed funds now sits at $400 million across 4 vehicles with meaningful new funding capacity coming from our recently announced SBIC fund, as well as expansion into the lower middle market with the addition of our Capital Southwest joint venture, I'll discuss in a moment. Our managed funds platform continues to enhance returns for TRIN, contributing $0.04 per share to NII in Q1, roughly 8% of the $0.53 total. We continue to thoughtfully raise managed funds to fuel our growth and minimize public shareholder dilution. Q1 brought 2 noteworthy developments in our managed funds platform. First, we held an initial close of $45.3 million in equity commitments to our new SBIC fund, constituting more than half of our target of $87.5 million of equity commitments. The SBIC fund will benefit from attractive low-cost leverage from the small business administration at a 2:1 debt-to-equity ratio and is expected to add more than $260 million of incremental capacity to the platform once it is fully scaled. Earlier this week, we announced our final license approval from the SBA, and we expect to begin deploying out of the fund this quarter. Second, as Kyle mentioned, we entered into a joint venture with Capital Southwest which provides an efficient avenue for Trinity to expand into a new complementary segment of the lower middle market, while maintaining strong credit underwriting alongside a highly respected partner in the space. With this new JV, we now co-manage several co-investment vehicles that diversify our capitalization sources or allow us to strategically expand our originations power without diluting shareholders. Our managed funds business is generating new income above and beyond the interest income and equity returns from our BDC's portfolio investments, all to the benefit of TRIN shareholders. These initiatives demonstrate our ability to strategically grow, expand investment capacity and further diversify our capital base. I'd now like to turn the call over to CFO, Michael Testa, to discuss our financial results in more detail. Michael?

Thank you, Sarah. Our operational and financial performance remained strong in the first quarter. We generated $90.1 million of total investment income, a 38% year-over-year increase and $44.5 million in net investment income or $0.53 per basic share, representing 104% coverage of our quarterly distribution. Estimated undistributed taxable income is approximately $68 million or $0.78 per share, which is equivalent to more than 4 months of distributions. We continue to reinvest the spillover for the benefit of our shareholders while maintaining a consistent and meaningful distribution. Our platform continues to deliver best-in-class performance. In Q1, we generated 15.8% return on average equity and a 15.8% weighted average effective portfolio yield, both of which are at the top of the BDC sector. Tilt continues to be an immaterial function of our business with 1% of our income based on Tilt. And lastly, approximately 2/3 of our debt portfolio is either fixed rate or already at its interest rate floor, making us less sensitive to rate cuts than many of our peers. Total net assets grew 7% to a record $1.2 billion, up 40% year-over-year. NAV per share moved from $13.42 to $13.27. The decrease reflects realized and unrealized losses in the quarter and the dilutive impact of our annual restricted stock award issuance, partially offset by accretive ATM issuances and now earning our distributions. NAV per share remains up 2% year-over-year. Turning to our capital position. We raised $78.4 million through our equity ATM program during the quarter, at an average premium to NAV of 12%. Our net leverage ratio decreased to 1.15x from 1.18x quarter-over-quarter. Total platform liquidity stood at over $500 million as of the end of Q1, including capacity across our managed funds. To discuss our portfolio performance in more detail, I'll now pass the call over to our COO, Gerry Harder. Jerry?

Thank you, Michael. Our portfolio continues to demonstrate exceptional strength driven by broad diversification across 22 industries with no single borrower representing more than 4% of total exposure. Our largest industry concentration, finance and insurance accounts for 14.5% of the portfolio at cost and is diversified across 25 portfolio companies. Portfolio quality remained consistent quarter-over-quarter with 99% of debt investments performing at fair value. On a 1 to 5 scale, where 5 indicates very strong performance, the average internal credit rating was 3.0, a slight improvement over last quarter and reflecting broad-based strengthening across the book. Before discussing our realized and unrealized activity for the quarter, I want to remind everyone of Trinity's quarterly asset valuation process, which has performed in conjunction with third-party valuation firms. These specialists provide an independent assessment of our asset valuations and their conclusions, along with the Trinity team's internal assessments are subject to approval by our Board of Directors and review by our independent auditor. This rigorous process tests our assumptions and methodologies and provides healthy checks and balances, all of which are in place to give investors confidence in our asset valuations. With that context, our Q1 results included approximately $10 million of net realized losses and $5 million of net unrealized depreciation. The realized loss was primarily driven by the equity conversion of 2 loans, partially offset by the exit of one warrant position. The net unrealized depreciation reflected a combination of broader market valuation dynamics and mark-to-market adjustments on certain positions. During the first quarter, we saw a strong portfolio churn with $114 million in early repayments. This figure is a slight increase over the 2025 quarterly average early repayments of approximately $83 million. Additionally, our loan book continues to skew toward a greater number of new portfolio companies. 60% of our portfolio at cost has been originated since the start of 2025 and investments from pre-2024 vintages now comprise less than 12% of the portfolio at cost. Quarter-over-quarter, the number of portfolio companies on nonaccrual went from 4 to 5. During Q1, one debt financing that was on our watch list in Q4 was placed on nonaccrual status. As of March 31, nonaccruals represented approximately 1% of the total debt portfolio. At quarter end, 88% of total principal was secured by first position leans on enterprise value, equipment or both. For enterprise backed loans, the weighted average loan to value was 19% and consistent with previous quarters. Across our 5 business verticals, the approximate breakdown of our fundings in Q1 was as follows: 41% to life sciences, 22% to equipment financing, 13% to sponsor finance, 13% to tech lending and 11% to asset-backed lending. Looking ahead, our portfolio remains defensively positioned with a strong first lien bias and low loan to values. Our disciplined underwriting culture and diversified platform allow us to continue delivering consistent dividends and net asset value growth. With a shareholder-first mindset, our team remains focused on building a best-in-class BDC that generates sustained long-term value for our investors. Before we conclude our call, we'd like to open the line for questions. Operator?

[Operator Instructions] And our first question will come from Finian O'Shea with Wells Fargo Securities.

Yes. So Kyle, I was interested in the opening commentary on your sort of AI focus, that's obviously where a lot of the money is going in VC and maybe it's not -- maybe it's a little risky. It sounds odd from a debt perspective for the companies that don't work out. But there's also presumably a ton of upside on the equity perspective and seeing if you see those rounds if your originators look at if they're in the sort of equity flow and if that's an opportunity to maybe construct a portfolio of those names, a few losers maybe, but maybe a few spectacular winners as well.

Yes. Thanks for the question, Fin. Actually, as it is related to AI, we're not taking really any -- making many at all investments in venture debt as it relates to AI. Almost everything we're doing relative to AI is lower middle market, small public companies, private equity-backed deals and really kind of primarily all the equipment financing that goes around that. And so we see this as a great opportunity for a couple of reasons. One, we have mission-critical equipment as our collateral, GPUs, CPUs, power generation equipment. And they have real value. They have real value in kind of any environment. And so we also we love that we can get in there and finance equipment that doesn't depend on whether or not a company can become the next disruptor. And so most of our investments there are all focused on primarily equipment or at scale private equity-backed lower middle market companies. So I hope that answers your question.

Yes. That's helpful. A follow-on on the origination LifeSci was the sort of [indiscernible] this quarter, it looks like seeing if there's anything to that, if it's more your team being better built out and such or more the market opportunity, the deal flow and where we might expect that to continue to trend?

Fin, this is Gerry Harder. Yes. I don't know that I'd read any long-term trends into that, right? The deal flow can be idiosyncratic from quarter-to-quarter. Our Life Sciences team had a great quarter in Q1. Some of that's driven by activity at JPMorgan, which occurs very early in the quarter. So I don't know that I would expect that trend necessarily to continue. That's the great thing about our diversified platform, right, is our 5 verticals that are very complementary. And sometimes we'll see outsized performance from one of them in any given quarter.

Our next question will come from John Hecht with Jefferies.

First question, just kind of on a -- brief modeling question is, anything to think about like expense requirements or human resource requirements given your growth into the new fund vehicles? Or should we think of them just kind of linear growth as the company grows?

John, it's Mike. Actually, having the benefit of these all being co-investment vehicles, we're using the same resources, the same origination platform, portfolio management, credit underwriting. There's limited back office and operations support for these new vehicles, but that's minimal. So it's really the benefit of co-investing along the Trinity platform.

Okay. So just general scale across this for the visible future?

Yes. I mean we've built this platform intentionally to be able to scale long term, and we continue to hire, invest in people and systems and infrastructure. But a lot of the leverage you get with SBIC particularly, we've done SBIC vehicles. We started with an SBIC asset manager. So that is a platform we know a vehicle we know how to operate.

Yes. And then maybe can you tell us like because you are in -- your diversified in several sectors including some more, call it, traditional sectors and in some more tech-oriented sectors. For the pipeline now, are you seeing different sectors where deals are getting done more smoothly than others and/or pricing has moved outward more than others at this point in time?

Yes. There's been decreased activity right now as it relates to kind of software and -- but there's been kind of significant increase in activity as it relates to manufacturing, infrastructure, AI and then everything that goes along with that. And so we're seeing -- I mean that market is robust right now. And we love that space because we can generate outsized returns and it's complicated. And there's a lot of problems to figure out and solve for. It's not just as easy as stroking a check. And so because of that, it's not a race to the bottom on pricing, and we can generate kind of alpha returns by getting smart and really understanding the space like we have always done, whether it's space or defense, getting the weeds, understanding it at a granular level, and that's how we can stand out and generate higher fees and have wider spreads. So everything around space, AI infrastructure and then just generally manufacturing in the U.S. for us is booming right now.

Our next question will come from Brian McKenna with Citizens.

Great. So your managed funds business generated about 120 basis points of ROE on an annualized basis in the quarter. But as this platform continues to scale from here, how should we think about the overall contribution of the firm-wide ROE over the next several years? And then as you launch new strategies over time, how much on balance sheet capital do you plan to invest here to help seed some of these newer vehicles?

Yes. I mean our goal is for you to think of us one day as a publicly traded fund management business, and that requires us to be -- to do 2 things really well: continue to build out bespoke manufacturing, the verticals and really interesting products where we can generate outsized returns on the investments we make and then go out and provide a sampling of different offerings to private investors, whether it's pension funds or banks or retail investors. And so what we've done is create multiple funds that meet those investors where they're at and then give them access to our growing and bespoke interesting manufacturing. So it is very difficult to raise capital, and we are just chopping wood and grinding away doing it. But money finds good deals, and so we're really focused on being that really good deal and continuing to build up that manufacturing. And so over time, we hope to just continue to build out those funds and create value NAV accretion through the manager and then new income for shareholders as we do it.

Okay. That's helpful. And then on the lower middle market opportunity, I appreciate the comments on the new JV and the partnership with the leader in this part of the market. But what else can you do here? And I guess how are you thinking about building versus buying versus partnering? And then I guess, could the lower middle markets ultimately end up becoming the 6th vertical of Trinity?

That's a good question. And I'm not going to give any forward-looking guidance here. But we have historically done a really good job of building businesses. I mean I think what we've done with 5 different unique businesses that all run independent of one another is we are good at building them and hiring great talent and in this case, partnering with someone who has been doing this for a very, very long time and working with them and making joint decisions with them, gets us in that business in a really unique way with a great partner and a great track record, giving us exposure, giving us the ability to diversify some of our assets into a new space that's stable and provides great new income. So I don't think our strategy is changing.

[Operator Instructions] And our next question will come from Erik Zwick with Lucid Capital Markets.

I believe you used the word robust when you described the pipeline earlier in your prepared comments. Wondering if you could provide a little bit more color in terms of how that looks across your lending verticals and also where are spreads today in the pipeline for what you're underwriting and adding to the portfolio compared to the existing portfolio?

Sure. So I mentioned it before, but I mean, anything around manufacturing and equipment is booming right now. And I would say across the platform, we've been growing at a 30% to 40% annual growth rate as far as deployment goes. I don't see that changing anytime soon. Each of those businesses in each of our verticals is really growing at a different pace depending on where they're at scale wise. But lower middle market, I think, is going to continue to be a robust business, this baby boomer and transfer of wealth that's happening. It's real. We are seeing it. And that's right in our sweet spot, that kind of $20 million to $100 million check sizes. So I think you'll continue to see us be really active in that space.

And any thoughts there on kind of how spreads you're looking in the market today relative to the existing portfolio?

Yes. We have not -- I mean it depends on the vertical, but we might -- we're seeing maybe a little more pressure on tech lending or life sciences, but then we're seeing some really interesting returns in the lower middle market and then with our equipment financing business. And so overall, it's really nothing notable one way or the other.

Okay. I appreciate that. And then just looking at the income statement, the fee income has really ramped up the past 2 quarters, and I think some of that is due to the success you're having on the managed fund side. So just curious if there was a 1Q number, if there was anything kind of nonrecurring in the quarter or if that's a good number to kind of build off going forward?

Yes. I mean, you did see some elevated repayments this quarter. Those are hard to predict going forward. But I think we do feel comfortable with looking out at least one quarter that will continue to be higher than our normal. But that does prepayments, you get the benefit on more recent deals, the accelerated OID and prepayment penalty that we have. But those do reoccur. But yes, there is some of that coming in, in Q1.

Our next question will come from Christopher Nolan with Ladenburg Thalmann.

On the new vehicles, are they going to be co-investing the same portfolio companies as TRIN?

Chris, this is Sarah. Thanks for the question. So with respect to the SBIC fund, that will be a co-invest vehicle with deals originated by TRIN. So it will essentially take a piece of every deal that's eligible for an SBIC fund in accordance with our allocation policy, there are some nuances, as you know, with SBIC eligibility. For instance, the portfolio company has to be located in the United States. And then with respect to the Capital Southwest joint venture, that will be largely transactions originated by Capital Southwest. And that -- those will be kind of first out senior loans placed into that joint venture. And we will be underwriting those alongside Capital Southwest and we'll get -- it's kind of -- it's 50-50 governance, so we'll have a say on what assets go into that vehicle.

Also -- and can we expect higher leverage ratios as you try to -- as you finance the new SBIC sub?

No, that's not the plan. So I'm glad you brought it up. We did something different with the SBIC fund and something different than BDCs have done historically, so we're told, which is, we went out and raised third-party capital. So utilizing our adviser that TRIN shareholders own 100% of. We were able to go out and raise third-party capital, which we can then leverage [indiscernible] providing us with $270 million of new AUM that we can charge management fees and incentive fees on, we started April 1. And we'll use those to co-invest alongside of TRIN. So it doesn't -- we didn't approach it the same way most groups do, which is take your own equity off your balance sheet and get more leverage. We're utilizing other people's money because we have the ability to do that. And that's our strategy with the Trinity Capital Advisor.

Great. And final question. As the outlook for growing in the lower middle market area, does that include -- start making equity investments in these companies and possibly taking control positions?

No. We're focused on being a lender. And as you know, our returns historically for 20 years now have been primarily rate and fee income, and that is still the vast majority of our income and the returns we generate are not based on equity upside or warrants. And that's not -- the strategy is not changing.

Our next question will come from Paul Johnson with KBW.

Yes. So does the SBIC fund that was recently obtained for the [ RIA ] fund, does that mean that it's unlikely going forward that there would ever be an SBIC license eligible for the BDC on balance sheet? Or is it just -- that it's just way more valuable within the RIA to allow you to raise capital under like an SBIC fund type of structure?

Yes. Good question. For us, it's way more valuable because we don't have to issue new shares, right, at TRIN to pull together that $70 million. And generating management fees and incentive fees on new capital is just new revenue, right, without issuing new shares. So this is the strategy, and we want to deleverage TRIN BDC over time. And doing more vehicles like this gives us more liquidity and new income so that we can deleverage TRIN over time, putting us in a great spot to have liquidity and the ability to be opportunistic. So the more off-balance sheet vehicles we can ramp up, it just gives us more control and derisks the BDC.

Thank you. This does conclude our question-and-answer session. So I'd like to turn the call back over to Kyle Brown, CEO, for closing remarks.

Well, on behalf of Trinity Capital team, thank you for joining the call today. We appreciate your continued interest and investment in Trinity Capital, and we look forward to updating you on Q2 results during our next earnings call in August 5. Have a great day. Thanks.

Thank you, ladies and gentlemen. This brings us to the end of today's meeting. We appreciate your time and participation, and you may now disconnect.