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Trinity Capital Inc. (TRIN)·Q3 2024 Earnings Summary

Executive Summary

  • Record total investment income of $61.8M (+33.2% YoY) and record NII of $29.4M ($0.54 per share); NAV rose to $756.8M and $13.13 per share, driven by strong originations and accretive ATM activity .
  • Originations and fundings surged to record levels (commitments $629.2M; fundings $459.0M), with 145 portfolio companies; floating-rate debt investments were 76.6% and first-lien mix 80% .
  • Liquidity improved via unsecured notes (7.875% due 2029, ticker TRINI) and a $142.5M private notes offering; KeyBank facility upsized to $510M and extended to 2029; leverage increased to ~122% .
  • Dividend held at $0.51 per share (19th consecutive consistent or increased regular dividend); NII covered dividend by ~105.9%, supporting distribution stability .
  • Wall Street consensus (S&P Global) for Q3 2024 EPS and revenue was unavailable at time of retrieval, limiting formal beat/miss assessment [GetEstimates error].

What Went Well and What Went Wrong

What Went Well

  • “Record third-quarter performance… disciplined underwriting and proactive portfolio management,” with five business verticals fueling growth; platform AUM reached $2.0B .
  • Credit quality improved: 98.6% performing (FV basis), nonaccrual FV decreased to ~$22.2M (1.4% of debt portfolio); weighted average internal risk rating rose to 2.9 .
  • Robust capital markets execution: $115M unsecured notes (TRINI) and $142.5M private notes; KeyBank facility increased to $510M and maturity extended to 2029 .
  • Quote: “We are… an asset management company in a BDC wrapper and it is awesome for investors” (on internal management alignment and off-balance sheet fee streams) .

What Went Wrong

  • Realized losses of ~$13.9M (primarily one debt position), partially offset by equipment financing gains; NII margin compressed sequentially given higher interest and operating costs .
  • Interest expense rose to $16.9M from $10.8M YoY due to increased borrowings and higher base rates; total operating expenses (ex interest) also rose with headcount growth .
  • Analysts flagged concern about rapid growth pace and heavy ATM usage; management defended ATM as lower-cost equity versus overnight offerings (1% vs. 6–8% fees) .

Financial Results

MetricQ3 2023Q1 2024Q2 2024Q3 2024
Total Investment Income ($USD Millions)$46.4 $50.5 $54.6 $61.8
Net Investment Income ($USD Millions)$23.4 $25.2 $26.7 $29.4
NII per Share – Basic ($)$0.58 $0.54 $0.53 $0.54
Net Increase in Net Assets per Share – Basic ($)$0.42 $0.31 $0.61 $0.45
Effective Yield (%)16.7% 15.8% 16.0% 16.1%
NII Margin (%)50.4% 49.9% 49.0% 47.5%

Notes: “EPS” for BDCs is typically proxied by NII per share; S&P Global consensus was unavailable to compare beats/misses [GetEstimates error].

Segment/Portfolio Composition (Fair Value)

MetricQ1 2024Q2 2024Q3 2024
Secured Loans ($USD Millions)~$1,000.0 $1,000.0 $1,269.7
Equipment Financings ($USD Millions)$277.6 $332.6 $305.1
Equity & Warrants ($USD Millions)$75.5 $89.6 $112.1
Portfolio Companies (Count)128 136 145
First-Lien (% of debt)75.3% 78.1% 80.0%
Floating-Rate (% of debt principal)75.4% 69.9% 76.6%

Key KPIs and Balance Sheet

MetricQ1 2024Q2 2024Q3 2024
ROAE (%)16.1% 16.3% 16.2%
ROAA (%)7.5% 7.4% 7.1%
Leverage (Debt-to-Equity, %)118% 114% 122%
NAV ($USD Millions)$626.3 $680.0 $756.8
NAV per Share ($)$12.88 $13.12 $13.13
Nonaccrual FV ($USD Millions)$30.4 $24.0 $22.2
Nonaccrual (% Debt Portfolio FV)2.4% 1.8% 1.4%
Dividend per Share ($)$0.51 $0.51 $0.51
NII Coverage of Dividend (%)——105.9%
AUM ($USD Billions, Platform)$1.6 $1.7 $2.0
Commitments ($USD Millions)$286.8 $289.3 $629.2
Fundings ($USD Millions)$242.7 $230.6 $459.0
Exits/Repayments ($USD Millions)$148.5 (debt) $180.3 $198.4

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Operating Expenses (run-rate)Near-term (Q4 2024)N/A“Q3 is probably a good run rate you’ll see for the next quarter or so.” Implied maintained
Dividend per ShareQ3 2024$0.51 (Q2 2024) $0.51 (Q3 2024) Maintained
Revenue, Margins, OI&E, Tax Rate, Segment-specificQ3/Q4 2024N/ANo formal quantitative guidance givenN/A

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2 2024)Current Period (Q3 2024)Trend
Originations pace and scalabilityQ1: Multi-vertical buildout; robust pipeline; disciplined underwriting . Q2: $231M fundings; mix across five verticals; sustainable scaling .Record $459M fundings; balanced across verticals; management views pace as sustainable (not “over our skis”) .Accelerating, viewed as sustainable
Credit quality/nonaccrualsQ1: Nonaccrual FV ~$30.4M (2.4%); rating 2.7 . Q2: Nonaccrual FV ~$24.0M (1.8%); rating 2.7 .Nonaccrual FV ~$22.2M (1.4%); average rating 2.9; removal of Nexi from nonaccrual; 2 added prudently .Improving
Funding mix and leverageQ1/Q2: Unsecured notes (TRINZ), ATM, revolver upsized; leverage ~1.07–1.16x .Additional unsecured (TRINI) + $142.5M private notes; revolver to $510M; leverage ~1.2x .More diversified funding; modestly higher leverage
Internal vs external managementQ2: Internal structure alignment; building RIA/JV fee streams .Strong statement against externalization; internal model benefits shareholders via fees/incentives .Reinforced internal model
Rate sensitivity and floorsQ2: Weighted average floors protect asset yields if rates fall .Portfolio largely floating with floors; 76.6% floating; potential upside if corporate funding costs fall .Protective stance maintained
Europe expansionQ2: Entered Europe; nonqualified bucket room; plan to use RIA vehicles .Continued discipline; most loans USD; team with local experience; ample nonqualified bucket capacity (~13%) .Early build-out

Management Commentary

  • Kyle Brown (CEO): “We are… an asset management company in a BDC wrapper… 100% [of] management fees and incentive fees go to investors… We are not ever going to [externalize]” .
  • Kyle Brown (CEO): “We made a record $459 million of investments… largely driven by $406 million of secured loans… [and] paid a cash dividend of $0.51 per share” .
  • Michael Testa (CFO): “Effective yield… 16.1%, core yield 14.9%. NII… $29M or $0.54… [representing] 106% coverage of our quarterly distribution” .
  • Gerald Harder (COO): “Credit quality… improved… 98.6% performing… nonaccruals decreased on cost and FV; largest debt financing ~3% of debt portfolio” .
  • Ron Kundich (Chief Credit): “Two companies were added to nonaccrual… normal transitions; Nexi rolled off… nonaccrual bucket decreased on both cost and FV” .

Q&A Highlights

  • Pace/dilution concerns: Analysts questioned rapid originations and large ATM usage; management emphasized vertical diversification and cost efficiency of ATM (1% vs. 6–8% for overnight) .
  • Realized losses: Nexi drove realized loss; NAV-neutral given prior marks; unrealized flipped accordingly .
  • Expense trajectory: Q3 OpEx a reasonable run-rate for next quarter amid growth investments; scaling expected to lower ratios over time .
  • Off-balance sheet economics: Co-investment vehicles target returns similar to BDC with fee uplift; scaling JV and RIA continues .
  • Dividend policy: Maintaining stable $0.51 for now with aim to grow over time as EPS/NAV build .

Estimates Context

  • S&P Global consensus EPS/revenue estimates were unavailable at time of retrieval, preventing formal beat/miss comparison [GetEstimates error].
  • Given record TII/NII and sequential growth, estimate revisions may trend upward for NII per share and investment income, while higher interest/OpEx could temper margin expectations .

Key Takeaways for Investors

  • Momentum story: Record investment income and NII, expanding AUM to $2.0B, and improving credit metrics underpin near-term strength .
  • Scaling platform: Balanced growth across five verticals appears sustainable, supported by diversified funding and accretive equity issuance .
  • Income durability: NII covered dividend; floating portfolio with rate floors provides downside protection if rates decline, creating potential NIM tailwind as funding costs fall .
  • Credit vigilance: Nonaccruals declining and risk ratings improving; realized losses manageable and often offset by warrant/equity upside across cycles .
  • Capital strategy: Continued use of unsecured notes and upsized revolver enhances liquidity and maturity ladder, but leverage ticked up—monitor capital markets access and cost of funds .
  • Internal model advantage: RIA/JV fee streams accrue to shareholders; management firmly opposed to externalization—watch fundraising progress and fee scale-up .
  • Near-term trading: Positive catalysts include continued originations, fee-business updates, and potential rate cuts benefiting NIM; risks include rapid growth scrutiny and higher OpEx run-rate near term .

Sources

  • Q3 2024 press release and exhibits:
  • Q3 2024 earnings call transcript:
  • Related Q3 press releases: dividend declaration (Sep 18) ; record originations (Oct 8) .
  • Prior quarters: Q2 PR/transcript ; Q1 PR/transcript .
  • Notes offering PR (Oct 30): .