Trinity Capital Inc. (TRIN) Earnings Call Transcript
November 4, 2026
Earnings Call Speaker Segments
Hi, Mickey. This is Sarah. Thanks for the question. Yes, happy to expand on that. So, the first JV that we closed with Capital Southwest, that relates to first out senior secured loans that primarily Capital Southwest is originating. So, kind of was a strategic and risk mitigated way for us to expand our reach into a segment of the lower middle market that we were not currently active in. Our latest joint venture with Capital Southwest relates to deals in our sponsor finance vertical. So those are our kind of, you know, more mature EBITDA positive borrowers. And the real purpose of launching that joint venture is really just to get a better cost of capital for those assets. You know, we have a credit facility for that entity that is really optimized for those types of credits, which are, again, more mature, very creditworthy borrowers.
Are those borrowers concentrated in any particular sectors?
Those are primarily going to be lower middle market, fully kind of integrated software companies. We'll see some service-oriented as well, but the focus for us are going to be kind of the more mature software companies, senior secured facilities.
Okay. And so when you underwrite those, given everything that's been discussed about AI over the last few quarters, and your target of the lower middle market, how do you approach underwriting for those companies? I mean, they clearly need to have some sort of very meaningful competitive advantage for you to even consider them, I would assume. But, you know, what else are you looking for in those issuers before you dive in?
Yes, I mean, we launched that business with all these things in mind. We don't carry some long legacy portfolio of software deals, right, 5, 10 years ago. These are mostly kind of newly established facilities...
These are mostly newly established facilities.
with that underwriting in mind, meaning what AI tools have they either developed or developing? Yes, what traction have they had selling those products, and so that goes into our underwriting. And what we have been looking for are really mature software companies that are highly integrated within an organization that are not easy to rip out or can't rip out who are selling and using these tools already. And so our portfolio is with that whole concept in mind, meaning there are going to be winners and losers. Let's identify who the winners are, and let's use this kind of period of volatility here to get in and really lock down some great credits.
And one more note on the JV is that's also co-investing, right? So these are investments, Desert Star. I mean, these are assets originated by TRIN. Portions are held on the TRIN balance sheet, but also syndicated to Desert Star.
Understand and just one follow-up question. You know, from our -- from the analyst chair, it's hard to forecast the allocated expenses to the RIA, which, you know, they more than doubled to $2 million, but platform AUM, you know, clearly didn't double. It grew from 3.2 to 3.4. How should we think about the trend and the allocation of expenses to the RIA over the coming quarter as these managed fund businesses and joint ventures continue to grow?
Yes, it should be actually pro rata based on the size and growth of the managed funds business. So this quarter, we did launch a Desert Star JV. There was a seed portfolio that we syndicated down there, $130 million. So that ended up being a success of itself, grew the managed fund platform in a one-time launch. Overall, like syndications, those vehicles that are co-investing, anywhere from 15% to 20% to 30% of our deals that are funded in the quarter are going to be syndicated to those vehicles.
So is $2 million a decent run rate assumption for the next few quarters?
Yeah, to the extent that there's no new vehicles, we're obviously continuously focusing on capital raising in the private and the managed funds businesses. But to the extent that those just continue to scale evenly periodically, you'll see that pro rata allocation be consistent.
I understand. Those are all my questions this morning. Thank you for your time.
Thanks. Thank you.
Thank you. We'll go next now to Paul Johnson with KBW.
Yes, I just had a few questions. In terms of like repayment activity this quarter, higher level of repayments, I just ask, was that surprising or expected by you guys? And is there anything, I guess, you know, that you would see on your radar for that to potentially kind of elevate it into next year?
Hey, Paul. It's Kyle. We -- those repayments are consistent, but they ebb and flow. And so, you know, we saw a little bit more last quarter. I don't believe that's any kind of trend that we can point to going forward. It's going to continue to ebb and flow. It'll be consistent every quarter. We saw a little bit more life science and tech, but it'll just continue to be steady as it's always been. No trends to point to.
Thanks. And my next question is more of a higher-level question, but as the origination funnel has expanded quite a bit over the years and the lending verticals have evolved as well, I mean, you now have conceivably kind of an overlaying like allocation decision on top of just kind of the individual credit reviews within your business with all the vehicles managed underneath the advisor and conceivably just a higher volume of deals, I would think, that you would have to review. I guess I'm wondering how has or how would you expect the investment committee or anything with the review process, I guess, to change over time to reflect that?
Yes. Yes, I mean, it's actually a little more simple than it sounds, but we've got 5 different businesses that all operate independent of one another. They're executing on an annual operating plan, meaning October of last year, November of last year, we sat down, we said, what are we going to achieve in 2026 and how much we're going to deploy and when over what period of time, and those various teams are just executing exactly to that plan. And for the last 3 years, we've actually hit that plan pretty much right on the head or exceeded it. And so allocation of capital is really decided a year in advance. So everything we're doing right now, the dollars we're deploying and the capital that we're raising, both on- and off-balance sheet, it's all per plan. And I would tell you that internally we already have 2027 figured out. And we have a plan for '28 and '29. And maybe some of that is going to be -- we're going to continue to iterate on it, but we are creating goals and we have a vision for the future. And then we just execute on the plan and we build a system around it and we let that system carry the burden and we execute. And so that's -- I mean, that's what we're doing. We have been doing for years now. It isn't going to change going forward. We've created multiple layers of personnel and very senior personnel within each vertical from an underwriting perspective and portfolio management perspective. So that has to go through many filters before it gets to the eventual investment committee. And so we have those buy boxes set. We have those underwriting standards and principles set. All the work is done and then presented to the investment committee in a very clear, concise, and consistent manner. So we're good at building plans and executing them. That's what we're going to keep doing.
Appreciate it. Thanks for that, Kyle. That's all for me.
Thanks, Paul.
We'll go next now to Eric Zwick with Loop Capital Markets.
Thanks. Hello, good day, everyone. Maybe just a quick follow-up on the pipeline since we are just discussing that. In terms of -- you have 2 really strong quarters in a row of production, so just curious where that pipeline stands today versus say 90 days ago, and what does the mix look like from a vertical perspective?
We continue to see -- thanks, Eric. This is Kyle. The pipeline has continued to build. We have, I would tell you, the largest pipeline that we've had in our history right now. And we're executing on those term sheets. We continue to push on pricing. We continue to see more and more equipment in manufacturing here domestically. And with some of the AI boom going on, I just continue to see equipment being a bit of an outlier. But as you can see, last quarter was pretty distributed amongst the verticals. And I guess I'd go back to the previous comment, which is each of our verticals has an annual operating plan that they're executing to, and they have an allocation of capital to go out and, you know, deploy capital and execute on that plan, and that's what they're doing. So that's how we think about it. You know, there's going to continue to be some outperform on the equipment side, but more or less we're just executing on that plan, which is starting to look more and more diversified across the verticals. I would say also you can get a glimpse of that from the --
unfunded commitments, which, you know, we always remind our investors, we -- these are subject to our investment committee approval, you know, 9/10 of the time, right? But about a third of that is within healthcare and life sciences, about a quarter of it in equipment, and about 20% in tech lending with ABL and sponsor making up the rest. So that's kind of a good proxy for the pipeline because those are deals that we've already won term sheets, and these are subsequent tranches.
That's very helpful, thanks. Next question maybe for Michael, just looking at the income statement, there was a noticeable quarter-over-quarter increase in the non-control, non-affiliates fee income line. I guess anything in particular that drove that number higher, and is that a kind of, you know, one-time increase or non-recurring, or do you expect some of that strength to continue?
Yes, I mean, I think this quarter you saw fee income increase significantly. I think there hasn't been a whole lot of change between non-control and non-affiliate in our portfolio, but this quarter we did see the spike of fee income of prepayment exit fees as well as origination fees, agent fees that we get that are somewhat transactional based.
Okay. And I guess were those kind of transaction fees more on new kind of origination activity or repayments? Just trying to figure out like it's -- you're obviously originating more, so you may see more of those on the front end. So just trying to understand how much of the increase we saw is sustainable in future quarters.
Yeah, I mean, a lot of this is driven from our equipment financing vertical. So we get, you know, anywhere from 2% to 3% closing structuring fees on those assets. So if you have a portfolio that continues to grow and has more origination activity, you'll see the benefit there. This quarter, again, like Kyle mentioned, you know, prepayment fees came through. Those were split between tech and life sciences, but it's been elevated. Those continue to -- you know, we saw that last quarter, we saw that the previous quarter, so we could continue to see that increase as these companies are healthy, they're meeting their milestones. It's a combination of M&A activity, refinancing us out with cheaper debt, but continue to grow.
Thank you. And last one for me, just looking at the pace of ATM share issuance in 3Q, it was lower than it had been in the past maybe 4 or 5 quarters. Any particular reason that it was lower in 3Q, and what should we kind of expect for your desire to kind of utilize the ATM going forward?
Yeah, I mean, we love the ATM program. It's an efficient, optimal way of raising capital when, just-in-time, as we see deployments and the pipeline grow, we're able to manage the ATM program effectively to meet those funding requirements. But we had higher repayments and higher syndications, so we're able to manage the amount of equity, new equity we raise. At the end of the day, we're constantly looking at raising capital if it's accretive to net investment income or on a NAV basis.
Thank you for taking my questions today.
Thanks, Eric.
We'll go next now to Jason Stewart with Compass Point.
Thanks. You guys have been pretty thoughtful about your approach to the infrastructure, equipment, GPU, compute finance space. I'm wondering if you could share some high-level thoughts on the election impact and maybe any change in the near-term landscape to that business and how you're positioned vis-a-vis that change. Thanks.
Yes, I mean, I think, you know, first and foremost, when you remove some uncertainty, you know, that typically helps or hurts markets, but at least that clarity gives investors the ability to make decisions based on what they think they know. So I'd say first and foremost, that's probably a good thing because we at least have an understanding as to where different politicians sit on the topic. The business that we've done to date, assuming it is more difficult to get data centers up and going and GPUs deployed, will just simply benefit, I think, from some of that volatility. So if I'm taking kind of the optimistic standpoint, what we've done so far is now a little bit more valuable than it was before. And if it is more difficult to get GPUs online and data centers across the country, you know, that cost of those units is going to go up. And so I think for what we've done already, it means it's a positive impact to us. What we do going forward, I think we'll do what we always do, which is sit back, make sure we understand the playing field, understand the new risks, see if it's changed, and then start to step into the opportunity if it makes sense to. So I think that's how I see it.
Yes, it strikes me as creative financing solutions will still be a necessary part of the puzzle. So thank you, Kyle, for that color.
Thanks. Yes.
We'll go next now to Chris Muller with Citizens Capital Markets.
Hey, guys. So I guess looking at your 5 verticals and the prospect for higher rates, is there a particular area that you guys expect to outperform in a rising rate environment that you might lean in on a little more if the forward curve is realized?
Yes. Yes, I think it's a great question. You know, I think we're already leaning into that kind of lower middle market space. We have been now for a couple of years. A lot of private credit moving upstream focusing on middle and upper middle markets. You know, higher rates mean better returns there, but I would say that all of them are really going to benefit. I mean, we provide this analysis to shareholders which really shows pretty limited impact to TRIN on a, you know, rate -- rates going down. But with rates going up, that really increases our income because our facilities, the majority of them, they have floors, which is great if rates are going down, but they don't have ceilings. And so that can drive new payoffs, right, like we saw before when rates went up, which can increase fee income or that can just create more and higher current income as well. So I think we set the portfolio up to do really well in a rate-declining environment, knowing that if rates went up, we happen to benefit from that. So I feel pretty good about our position relative to rates and rate sensitivity.
Got it. And rising rates are an obvious tailwind for the bottom line, but maybe thinking about some secondary effects, do you guys expect your fundraising efforts to also benefit from improving sentiment?
Yes, man, it's a good question. Fundraising is always hard. I think that our track record and consistency in a rising rate environment, a declining rate environment, 5 different administrations, all of that has been very consistent. And when we're talking to investors, that's really what we're pointing to is our consistency throughout different markets, our ability to gauge what's going on, understand the new risks, pivot. We like to say we're scrappy around here. I know Jerry hates that word. Some of us like it. But we are. And so we're going to assess what's going on. We're going to assess where the new maybe veins or pockets of investment and opportunities are. And then we're not going to be afraid to jump in there and figure it out. So, yes. You know, fundraising is going well. It's always hard, but, man, I would say it's going really well, and it's a big part of our future, providing liquidity through our managed funds business, which gives TRIN unlimited upside to our stock, earnings per share, NAV, et cetera. So we're really going to focus on building out our verticals and making sure they're best-in-class. And then we're going to align that with capital through our managed funds business to make sure that we have the liquidity necessary to keep building those businesses.
Okay. It's very helpful. Appreciate you guys taking the questions today.
Good to hear from Chris.
Thank you. We'll go next now to Christopher Nolan with Ladenburg Thalmann.
Sarah, what's going to be the leverage level for this new JV once it's fully deployed?
Leverage levels for the new JV? Where is it at right now, Mike?
Yeah, right now, right now it's close to 1-to-1. We're going to be consistent with the BDC, slightly higher, trying to get up to 2-to-1, so moderate leverage. But it's optimal, right? You're setting it up a separate vehicle that is, you know, has the structure of line secured facility aligned to those assets. So it's, you know, it's a better advance rate, and you're able to manage it in a better cost of capital there.
Okay, is that really just bank facility type financing?
That's right. A revolving facility, launched it, continue to grow, expect to syndicate it further as it goes. Yes, I mean, I think, again, this is a similar advance rate that our current BDC has, but again, you get a better way to manage it with specific -- those type assets, those type of deals. So anywhere from 60% to 70%.
Great, and I guess as a follow-up, with all these JVs going on, and you actually have a lot of outside entities that want to work with you and tap your deal flow, how -- I mean, should we expect a material increase in your operating expenses or operating efficiencies going forward or is there some operating leverage where you can basically scale up with incremental -- minimal incremental growth?
Growth in expenses? Yes, so I think the first thing to think about is we are -- these are all the same deals with these various JVs. We're just tapping into different pockets of liquidity for them. So there is some scaling leverage there. But you've got to remember that we are not just a stagnant pool of assets, but a management company, an operating company. And so if we're growing at a 20% to 30% annual growth rate, which we have been for 5 years, that means expenses have to go up. Now, income should go up and exceed that, which it has been and will continue to over time, because our expense ratios have continued to come down to the point now where we're right in line with our BDC peers. And over time, as we continue to raise more capital and grow the business, that will just continue to improve. But we're not trying to optimize for -- that is a lever that externally managed BDCs use because they have no other levers. That's not what we're focused on. We are building the business. We are hiring a lot of folks. Income and our earnings per share will increase above and beyond those additional expenses.
And Chris, just to put a finer point on that. So, you know, like Kyle said, these are co-invest vehicles. So like the credit underwriting, the portfolio management, that's already being done. There's no incremental cost there. And then any cost directly associated with a particular vehicle, whether it's, you know, accounting costs, fund admin, those are borne by the specific vehicle, not by the BDC.
All right. Thank you.
Thanks, Chris.
[Operator Instructions] We'll go next now to Alexander Villalobos with Jefferies.
A little bit more detail on originations, just on the environment. What are you guys seeing with spreads, covenants, and leverage? Just a little more detail there on color would be great. Thank you.
Yes, I think we've seen spreads -- well, it depends on the vertical. But I'd say more often than not, over the last few years, spreads have tightened up in some of our verticals. Some not as much, but in some of them, they have been declining over the last few years with competition and a lot of liquidity out there. We've seen that trend start to really hold up, and in some ways, we're pushing pricing. And so I think 2027 should probably look like a spread flat to up year, and we are certainly testing that right now as I believe there is a lack of liquidity as I think back leverage and fundraising has become more difficult. Supply and demand is going to start kicking in. And so, you know, when you're thinking about the broadly syndicated market and spreads there, that's not -- that's just not the market we play in, right? We are originating directly with these companies. The value that we're providing to them and working directly with them means we're going to end up with a higher spread generally. And dealing in the market we deal in, which is this kind of growth stage to lower middle market, we just have different companies, different competition, and there are different spreads. And so we haven't seen the spread compression that the rest of the, you know, private credit market has seen over the last 5 years. It's been smaller, and now it's kind of knee-jerking back the opposite direction.
Great. Thank you and congrats on the results.
Thanks, Alexander.
Thank you. And ladies and gentlemen, it appears we have no further questions this morning. Mr. Brown, I'll turn things back to you, sir, for any closing comments.
Great. Thank you. Well, on behalf of the Trinity Capital team, thank you for joining us today. Q3 was a strong quarter by all measures, and Trinity Capital is experiencing tremendous momentum right now. We're enthusiastic about where we're headed. We're excited to host many of you at our investor event next Thursday at the New York Stock Exchange before we have the honor of ringing the closing bell that afternoon with our team. We look forward to sharing our Q4 results in February. In the meantime, please don't hesitate to reach out to the IR desk with further questions. Have a great day. Thanks.
Thank you very much, Mr. Brown. Again, ladies and gentlemen, that will conclude Trinity Capital's third quarter earnings call. We'd like to thank you all so much for joining us. Wish you all a great afternoon. Goodbye. This live transcript is auto-generated without human intervention or review. This live transcript is auto-generated without human intervention or review.
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