Trinity Capital's Q3 2025 Earnings Call: Key Contradictions in Off-Balance-Sheet Capacity, Team Growth, and Credit Trends

Business Commentary:

• Strong Financial Performance:
• Trinity Capital reported $37 million in net investment income for Q3 2025, a 29% increase compared to the previous year. The net asset value grew 8% quarter over quarter to a record $998 million, with platform AUM increasing to over $2.6 billion, up 28% year-over-year.

• The growth was driven by disciplined underwriting, strong credit quality, and strategic capital raises.

  

• Credit Quality and Diversification:

• Trinity Capital maintained strong credit quality with non-accruals at 1% of the portfolio at fair value. The portfolio is diversified, with no single borrower representing more than 3.4% of total exposure, and no single sector accounting for more than 15%.

• The diversification strategy, along with disciplined underwriting practices, ensures consistent credit performance and risk management.

• Capitalization and Funding:

• The company raised $83 million in equity through its ATM program at a 19% average premium to NAV during Q3. This, combined with strategic equity and debt raises, positions Trinity Capital for future growth.

• The capital raises, along with off-balance sheet vehicles, enhance financial flexibility and enable Trinity Capital to invest in high-quality opportunities.

• Managed Funds Business:

• Trinity Capital is building a platform that can scale while driving up earnings and NAV. The diversification into managed funds provides new income streams beyond interest and equity returns from its BDC's investment portfolio.
• This strategic diversification is expected to contribute to long-term growth and valuation enhancement for shareholders.
  

Contradiction Point 1

Off-Balance-Sheet Vehicle Capacity

It involves the capacity of off-balance-sheet vehicles, which impacts the company's ability to originate and manage investments, affecting financial flexibility and potential growth.

What is your current capacity in off-balance sheet vehicles? - Casey Alexander(Compass Point)

2025Q3: Currently, the new vehicle is just ramping up. There is $200 million or so of current capacity there. - Unidentified Trinity Capital Representative

Can you provide more details on the expected timeline for raising third-party capital? - Douglas Michael Harter(UBS Investment Bank)

2025Q2: It's like a $200 million fund that we will be forming throughout the next 12 months. We have already short a $100 million convertible note. - Kyle Steven Brown(CEO)

Contradiction Point 2

Team Capacity and Growth

It involves the company's capacity to scale its team and manage growth, which is crucial for maintaining operational efficiency and meeting investment goals.

What is the capacity for originating and managing business in a period? What are the thresholds for requiring new resources in any vertical? - John Hecht(Jefferies)

2025Q3: We have continued over the last five years to be about a year ahead from an employment standpoint. - Unidentified Trinity Capital Representative

Was there a significant increase in the watch list at fair value quarter-over-quarter? - Casey Jay Alexander(Compass Point Research & Trading, LLC)

2025Q2: We're planning out one, three, five-year plans, and we’ve hired in advance of that. - Kyle Steven Brown(CEO)

Contradiction Point 3

Portfolio Yield and Rate Environment

It involves the explanation of yield changes in the portfolio, which are influenced by rate environment changes, impacting the company's financial performance and investor expectations.

What explains the lower portfolio yields recently? Is this due to your expansion into broader origination verticals, including sponsor-backed deals? - Paul Johnson (KBW)

2025Q3: We haven't seen a lot of yield compression across all five verticals. The majority is due to rate changes and growing our more upstream and mature sponsor finance business. - Kyle Brown(CEO)

Portfolio investments increased by 3% in Q4, yet interest income fell 5% quarter-over-quarter. Can you explain why there was such a significant drop? - Casey Alexander (Compass Point)

2025Q1: A few things. One, we saw the effects of that rate cut last year, kind of moved through the portfolio. We're in a really great position going forward as it relates to rate cuts, having the majority of our portfolio already at base floor rates. - Kyle Brown(CEO)

Contradiction Point 4

Payoffs and Commitments Behavior

It involves changes in the company's funding and payoff behavior, which are critical for understanding the company's financial strategy and cash flow management.

How should we assess the team's current capacity for origination and management volume across verticals? At what thresholds would additional resources be required in any of the verticals? - John Hecht (Jefferies)

2025Q3: We haven't seen a lot of yield compression across all five verticals. The majority is due to rate changes and growing our more upstream and mature sponsor finance business. - Kyle Brown(CEO)

What caused the slowest commitment pace in recent quarters? Was it due to timing, market changes, business decisions, or other factors? - Cory Johnson (UBS)

2025Q1: We slowed down funding efforts in Q1 to focus on our portfolio first with a defensive stance, understanding how macroeconomic conditions impact businesses and investing in companies that are benefiting from them. - Gerry Harder(COO)

Contradiction Point 5

Credit Quality and Non-Accrual Trends

It pertains to the company's credit quality and non-accrual trends, which are key indicators of its financial health and risk management.

What occurred with Nomad Health during the quarter, and what led to the significant write-off before the investment went on non-accrual? - Paul Johnson(KBW)

2025Q3: We have experts within each vertical who understand the nuances of those sectors. Our credit quality has improved, and we're closely monitoring for any early warning signs of credit deterioration. - Ronald Kundich(Chief Credit Officer)

How is the Trump administration's focus on "America healthy again" impacting your life science exposure? - Chris Nolan(Ladenburg Thalmann)

2024Q4: The investment, as I mentioned in the prior question, was partially realized. What ended up happening, about two-thirds of that position was converted to equity. That’s realized from the accounting perspective. - Unidentified Trinity Capital Representative