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Trinity Capital Inc. (TRIN)·Q2 2024 Earnings Summary

Executive Summary

  • Record quarter: total investment income $54.6M (+18.7% YoY), NII $26.7M ($0.53 per basic share), ROAE 16.3%, ROAA 7.4%; NAV rose to $13.12 per share on $680.0M net assets .
  • Strong origination and funding: $289.3M in new commitments and $230.6M funded; equipment financing drove 52% of deployments; non‑accruals improved to 1.8% of debt portfolio fair value .
  • Liquidity bolstered post‑quarter: KeyBank facility expanded to $440M with accordion to $690M and maturity extended to July 2029; issued $115M of 7.875% notes due 2029 (TRINI) .
  • Dividend covered: $0.51 regular dividend with 103.9% NII coverage; 18th consecutive quarter of consistent or increased regular dividend .
  • Catalyst: Platform expansion across five verticals and RIA co‑investment vehicle increases fee income and capital flexibility; management highlights floor rates protecting asset yields if rates decline .

What Went Well and What Went Wrong

  • What Went Well

    • Record investment income and NII: “We achieved record investment income… Platform AUM reached a record $1.7 billion” .
    • Diversified verticals scaling: “Five distinct business verticals… tech lending, equipment financing, life sciences, warehouse financing, and sponsor finance” .
    • Strengthened capital: “Raised $115 million of unsecured notes maturing in 2029 and… upsize to our revolving credit facility” .

  • What Went Wrong

    • Realized losses: Net realized loss of ~$6.5M due to restructuring/exit of three loans, partially offset by Core Scientific equity gains .
    • Higher expenses and interest: Operating expenses ex-interest rose to $14.0M; interest expense climbed to $13.9M YoY on higher borrowings/base rates .
    • Equity dilution impact on per‑share NII YoY: NII per basic share was $0.53 vs $0.61 in Q2 2023 amid higher average shares outstanding .

Financial Results

MetricQ4 2023Q1 2024Q2 2024
Total Investment Income ($M)$47.834 $50.453 $54.641
Net Investment Income ($M)$25.067 $25.157 $26.743
NII per Share – Basic ($)$0.57 $0.54 $0.53
NAV per Share ($)$13.19 $12.88 $13.12
Net Interest Margin % (NIM)13.2% 12.2% 12.2%
ROAE % (quarter)16.9% 16.1% 16.3%
ROAA % (quarter)8.3% 7.5% 7.4%

YoY comparison:

MetricQ2 2023Q2 2024YoY Δ
Total Investment Income ($M)$46.045 $54.641 +$8.596
Net Investment Income ($M)$22.097 $26.743 +$4.646
NII per Share – Basic ($)$0.61 $0.53 -$0.08
Effective Yield (%)16.2% 16.0% -20 bps

Segment/portfolio mix and credit KPIs:

Portfolio Metric (Fair Value unless noted)Q1 2024Q2 2024
Secured Loans ($M)$1,010.8 $1,002.6
Equipment Financings ($M)$277.6 $332.6
Equity & Warrants ($M)$75.5 $89.6
First‑Lien / Second‑Lien (% of debt)75.3% / 24.7% 78.1% / 21.9%
Floating‑Rate Debt (% of debt)75.4% 69.9%
Non‑accruals (fair value, % of debt)$30.4M; 2.4% $24.0M; 1.8%
Weighted Avg Risk Rating2.7 2.7

Operating activity and capital:

KPIQ1 2024Q2 2024
New Commitments ($M)$286.8 $289.3
Gross Fundings ($M)$242.7 $230.6
Exits/Repayments ($M)$148.5 $180.3
Effective Yield / Core Yield (%)15.8 / 15.3 16.0 / 14.7
Liquidity (Cash + Undrawn, $M)$172.0 $141.4
Debt‑to‑Equity (Leverage)118% 114%
Dividend Declared ($/share)$0.51 $0.51

Estimates comparison: S&P Global consensus was unavailable due to access limitations; therefore, “vs. estimates” comparisons cannot be provided for Q2 2024.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Regular Dividend ($/share)Q2 2024$0.51 (Q1 2024) $0.51 Maintained
Credit Facility Commitments ($M)Post‑Q2$350 (pre‑amend) $440; accordion to $690; maturity to Jul 2029 Raised/Extended
Unsecured Notes Issued ($M, rate)Post‑Q2—$115 at 7.875% due 2029 (TRINI) New Issuance
Financial Guidance (Revenue, Margins, OpEx, Tax)Q3+Not providedNot providedN/A

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2023 and Q1 2024)Current Period (Q2 2024)Trend
Platform diversification (verticals)Ramping off‑balance‑sheet strategies; foundation in secured loans & equipment financing Five verticals (tech lending, equipment, life sciences, warehouse, sponsor finance) emphasized as scalability drivers Expanding breadth
RIA/co‑investment vehiclesJV and RIA as off‑balance‑sheet growth; JV credit facility expansion New private vehicle via RIA to drive fee income; additional liquidity Accelerating
Credit quality & non‑accrualsWeighted avg risk 2.7; non‑accruals 2.4% FV Non‑accruals decreased to 1.8% FV; stable risk rating 2.7 Improving
Geographical expansionNot highlightedExpansion into Europe underway; use of 30% “bad asset bucket” within 1940 Act limits New initiative
Rate sensitivityNot detailedFloor rates across portfolio protect yields in rate‑cut scenario; potential NII benefit via lower corporate funding costs Protective posture

Management Commentary

  • Strategy: “We evolved into a platform of diversified verticals… five distinct business verticals… allow for efficient scalability” – Kyle Brown, CEO .
  • Alignment: “Because we are internally managed BDC, our employees, management and board all own the same shares as you do… maintain 100% alignment” – Kyle Brown .
  • Capital actions: “Raised nearly $47 million… at a premium to NAV. Subsequent to quarter end, we raised $115 million… and completed an extension and upsize to our revolving credit facility” – Kyle Brown .
  • Returns: “Effective yield… 16% and core yield… 14.7%. NII… represents 104% coverage of our quarterly distribution” – Michael Testa, CFO .

Q&A Highlights

  • Credit resolution: One fewer non‑accrual; remaining four are in various stages of workout; one Canadian bankruptcy reconstitution with partial debt roll‑forward and equity conversion .
  • Co‑investment vehicles: Senior Credit Corp is a co‑investment vehicle with institutional partner; new RIA vehicle currently equity only, leverage expected around 1:1 similar to BDC .
  • Europe expansion/Regulatory: European investments will utilize the 30% “bad asset bucket”; capacity under that limit remains ample .
  • Rate floors and asset sensitivity: Portfolio has weighted average floor rates “exceeding 12%+”; in a rate‑cut environment, borrower rates may hold while corporate funding costs fall .

Estimates Context

  • S&P Global Wall Street consensus for Q2 2024 EPS and revenue was unavailable due to access limitations at the time of this analysis; as such, estimate comparisons cannot be provided. If required, we can refresh and incorporate consensus later. Values would be retrieved from S&P Global.

Key Takeaways for Investors

  • Continued NII growth with dividend coverage and NAV accretion suggests durable earnings power; equipment financing mix is rising, supporting deployment pace .
  • Defensive credit profile: risk rating steady at 2.7 and non‑accruals down to 1.8% FV; improves resilience heading into potential macro shifts .
  • Capital flexibility: Expanded revolver and 2029 notes add funding optionality; expect liquidity to support robust pipeline and co‑investment syndication .
  • Rate downside protection: Floor rates across loans mitigate asset yield compression; potential margin tailwind if funding costs decline .
  • RIA vehicle and JV provide fee income and syndication capacity, enabling growth while managing leverage; watch for further private vehicle scaling .
  • Near‑term trading: Positive setup from record NII and facility expansion; lack of estimate data precludes formal “beat/miss” call, but fundamentals skew constructive .
  • Medium‑term thesis: Diversified verticals, disciplined underwriting, and off‑balance‑sheet growth should support ROAE mid‑teens and stable dividend with potential specials if spillover builds .

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