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Trinity Capital Inc. (TRIN)·Q1 2024 Earnings Summary

Executive Summary

  • Record quarter: total investment income $50.5M (+21.5% Y/Y) and NII $25.2M ($0.54 basic), with dividend coverage of ~106% and 13th straight regular dividend increase to $0.51; NAV/share ended at $12.88 as unrealized depreciation and RSU issuance offset strong NII .
  • Credit trends improved sequentially: non‑accruals fell to $30.4M (2.4% of debt FV) from $43.2M (3.5%) in Q4, helped by Core Scientific’s removal from non‑accrual; ~97.6% of the portfolio performing and weighted average risk rating steady at 2.7 .
  • Origination engine remains robust: $286.8M of new commitments and $242.7M fundings in Q1; unfunded commitments ended at $405M, with leadership calling the pipeline the “most robust” ever .
  • Balance sheet actions extend ladder and liquidity: issued $115M 7.875% notes due 2029 (TRINZ) and plan to redeem $30M of 2025 notes; available liquidity $172M; net leverage 118% with 74% unsecured debt, 7.4% weighted average cost of debt .
  • Strategic expansion post‑quarter supports forward growth narrative: launched Sponsor Finance vertical and expanded operations into Europe; fully exited Core Scientific equity with a 17.7% IRR on initial investment .

What Went Well and What Went Wrong

  • What Went Well

    • Record investment income and NII; management emphasized diversified verticals (tech lending, life sciences, equipment, warehouse) and a large, active pipeline: “We’re bullish about the future… diversifying our investments to mold the best‑in‑class direct lending platform” .
    • Credit stabilization: non‑accruals decreased to 2.4% of debt FV; CFO and COO noted most unrealized depreciation concentrated in one credit and Core Scientific mark‑to‑market, with portfolio otherwise slightly up .
    • Dividend growth and coverage: regular dividend raised to $0.51; NII per share covered the regular distribution by ~106% and undistributed income was ~$55M ($1.33/share) providing additional cushion .

  • What Went Wrong

    • NAV/share declined to $12.88 (from $13.19) due to RSU issuance and net unrealized depreciation, partially offset by accretive ATM issuance .
    • Net investment margin moderated to 12.2% (from 13.2% in Q4), reflecting a modest step‑down in effective yield (15.8% vs 16.7% prior quarter) and mix effects .
    • Higher leverage (118% vs 106% in Q4) as debt outstanding increased to fund net portfolio growth; while within target, this reduces immediate balance sheet flexibility if credit were to soften .

Financial Results

MetricQ1 2023Q4 2023Q1 2024
Total Investment Income ($M)$41.538 $47.834 $50.453
Net Investment Income ($M)$19.331 $25.067 $25.157
NII per Share – Basic ($)$0.55 $0.57 $0.54
Net Increase in Net Assets from Operations per Share – Basic ($)$0.64 $0.40 $0.31
Net Investment Margin (%)N/A13.2% 12.2%
  • Versus prior year: TII +21.5% and NII +30.1%, both company records .
  • Versus prior quarter: TII increased from $47.8M to $50.5M; NII roughly flat at ~$25M; NIM stepped down from 13.2% to 12.2% .
  • Versus estimates: S&P Global consensus (revenue/EPS) was unavailable at time of analysis; beat/miss cannot be determined.

Segment/Portfolio Mix (Fair Value)

Portfolio Mix ($M)Q4 2023Q1 2024
Secured Loans$885.3 ~$1,000.0
Equipment Financings$336.8 $277.6
Equity & Warrants$53.1 $75.5
Total Investments (FV)$1,275.180 $1,363.862

Key KPIs and Credit

KPIQ3 2023Q4 2023Q1 2024
Effective Yield on Avg Debt at Cost (%)16.7 16.7 15.8
Core Yield (%)15.5 15.2 15.3
Non‑Accruals (FV, $M)$28.0 $43.2 $30.4
Non‑Accruals (% of Debt FV)2.6% 3.5% 2.4%
Weighted Avg Risk Rating2.8 2.7 2.7
Debt-to-Equity (Leverage)94% 106% 118%
Floating-Rate Debt Investments (% principal)73.8% 69.0% 75.4%
NAV per Share ($)$13.17 $13.19 $12.88
Available Liquidity ($M)$257.2 $141.8 $172.0
Regular Dividend per Share ($)$0.49 (plus $0.05 supplemental) $0.50 $0.51

Origination & Cash Flows

Activity ($M)Q4 2023Q1 2024
New Commitments$340.7 $286.8
Gross Investments Funded$267.4 $242.7
Early Repayments$42.9 $43.4
Assets Sold to JV$24.6 $55.4
Debt Principal Repayments (Total)$108.9 $148.5

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Regular Dividend per ShareQ1 2024$0.50 (Q4 2023) $0.51 Raised 2.0%
2025 Notes RedemptionMay 17, 2024N/ARedeem $30.0M of $182.5M outstanding 2025 notes New action
RIA DeploymentQ2 2024 (target)N/A“Deploying capital in Q2” New initiative
Formal Financial Guidance (revenue/margins/OpEx/tax)—NoneNoneMaintained

Note: The company does not provide quantitative forward guidance on revenue, margins, OpEx, or tax rate; distribution policy updated quarterly by the Board .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2: Q3’23; Q-1: Q4’23)Current Period (Q1’24)Trend
Direct lending demand & pipeline“Opportunity to invest… accelerating as companies turn to direct lending”; TII and NII growth with record fundings “Most robust pipeline we’ve ever had”; $405M unfunded commitments; four verticals scaling Strengthening
Credit quality & non‑accrualsQ3: 2.6% of debt FV; Q4: 3.5% and 5 names on non‑accrual; JV ramp Q1: 2.4% of debt FV; Core Scientific removed; ~$9M of ~$12M Q1 unrealized depreciation from one credit Improving sequentially
Balance sheet & funding ladderQ3: leverage 94%; $250M undrawn revolver Q4: leverage 106%; ATM raised $45.2M Q1: $115M 2029 notes; plan to redeem $30M 2025 notes; 74% unsecured; WACD 7.4%
Off‑balance sheet JV & RIAJV facility closed; RIA framework noted JV AUM $150.7M JV AUM >$200M; contributed $1.3M ($0.03/sh) income; RIA to deploy in Q2
Platform expansion——Sponsor Finance vertical launched (May 7); European operations established (May 22) to broaden sourcing/markets

Management Commentary

  • CEO Kyle Brown: “First quarter was a strong start… $243 million of gross fundings… Record net investment income… Our team of nearly 80 professionals is the cornerstone… We’re bullish about the future… diversifying our investments to mold the best‑in‑class direct lending platform” .
  • CFO Michael Testa: “Record total investment income of $50.5 million… Effective yield 15.8%; core yield 15.3%… NII $25.2 million or $0.54 per basic share… Undistributed income is approximately $55 million or $1.33 per share… Raised $115 million of unsecured notes due 2029… weighted average cost of debt 7.4%… intend to repay $30 million of 2025 notes in May” .
  • COO Gerry Harder: “Credit quality remained stable with approximately 97.6% of our portfolio performing… Average internal credit rating 2.7… ~$12 million in unrealized depreciation, ~$9 million due to a single credit… ~$5 million due to a decrease in Core Scientific’s share price… Non‑accrual credits FV ~$30.4 million (2.4% of total debt portfolio)” .

Q&A Highlights

  • Pipeline strength and diversification: management cited “the most robust pipeline we’ve ever had,” driven by four verticals with dedicated origination, underwriting, and portfolio teams; later‑stage venture opportunities emerging as exit windows open .
  • Capital strategy: opportunistic use of ATM and unsecured debt; accretive growth as an internally managed BDC; focus on accretive balance sheet building versus AUM for its own sake .
  • Competitive landscape: somewhat less bank competition post regional bank stress; Trinity is seeing more deal flow while maintaining tight underwriting and equity support requirements .
  • Deployment mix: annual plan targets ~40–45% tech lending, 25–30% life sciences and equipment, ~10% asset‑based/warehouse, acknowledging quarterly lumpiness .
  • Funding base risk management: diversified revolver syndicate (10 banks); considering secured structures (e.g., CLO) over time to diversify borrowing sources further .

Estimates Context

  • Wall Street consensus (S&P Global) for Q1 2024 EPS and revenue was unavailable at the time of this analysis, so beat/miss versus consensus cannot be determined.
  • Where models may adjust: modest NIM step‑down (12.2% vs 13.2% prior quarter), higher leverage (118%), improving non‑accrual trend, ongoing ATM issuance (share count), JV contribution ($1.3M; ~$0.03/sh) and off‑balance sheet scaling, plus strategic expansion (Sponsor Finance, Europe) .

Key Takeaways for Investors

  • Core earnings power remains strong: record TII/NII and dividend coverage despite modest NIM compression; regular dividend increased again to $0.51 .
  • Sequential credit improvement and concentrated unrealized marks (one credit + CORZ MTM) reduce tail risk; risk rating and performance mix stable .
  • Multi‑pronged growth: robust origination pipeline and unfunded commitments, with new Sponsor Finance vertical and European footprint expanding sourcing channels .
  • Balance sheet prudence: extended maturity profile via 2029 notes, partial 2025 redemption planned, diversified bank revolver; liquidity of $172M supports deployment .
  • Watch for RIA ramp in Q2: off‑balance sheet fee income and JV scaling can add earnings durability and capital efficiency over time .
  • Monitor NIM and yields: effective/core yields remain healthy but slightly lower than Q4; mix shift and prepayment cadence will influence near‑term margins .
  • Near‑term catalysts: continued dividend growth/coverage, confirmation of RIA deployment, funding volumes vs. pipeline, and further clarity on the previously marked credit .

Supporting Press Releases and Materials

  • Q1 2024 earnings press release (financials, KPIs, dividend) .
  • Form 8‑K (Q1 2024) including investor presentation highlights and capital actions .
  • Q1 2024 earnings call (prepared remarks, KPI color, Q&A) .
  • Prior quarters (for trend): Q4 2023 8‑K (record fundings, NIM, NAV) ; Q3 2023 8‑K (NII growth, credit metrics) .
  • Subsequent strategic updates: Sponsor Finance launch (May 7, 2024) ; Europe expansion (May 22, 2024) ; Core Scientific equity exit (June 5, 2024) .