Trinity Capital (US:TRIN)2024-08-07 12:01FORM 10-Q Filing Information Registrant Information Basic filing information for Trinity Capital Inc.'s Form 10-Q, including SEC file number, address, and securities - Trinity Capital Inc. filed a Form 10-Q for the quarter ended June 30, 20241 - The company is registered under Commission file number 001-399581 Securities Registered Pursuant to Section 12(b) of the Act | Title of Each Class | Trading Symbol(s) | Name of each exchange on which registered | | :------------------------------ | :---------------- | :---------------------------------------- | | Common Stock, par value $0.001 | TRIN | Nasdaq Global Select Market | | 7.00% Notes Due 2025 | TRINL | Nasdaq Global Select Market | | 7.875% Notes Due 2029 | TRINZ | Nasdaq Global Select Market | | 7.875% Notes Due 2029 | TRINI | Nasdaq Global Select Market | - As of August 6, 2024, the registrant had 53,370,609 shares of common stock ($0.001 par value per share) outstanding1 - The registrant is classified as a Non-accelerated filer and an Emerging growth company1 PART I: FINANCIAL INFORMATION Item 1. Consolidated Financial Statements Unaudited consolidated financial statements for Q2 2024 and FY 2023, with comprehensive notes Consolidated Statements of Assets and Liabilities Total assets and liabilities increased from Dec 2023 to June 2024, driven by investments and borrowings Consolidated Statements of Assets and Liabilities (in thousands) | ASSETS | June 30, 2024 (Unaudited) | December 31, 2023 | | :------------------------------------------------------------------------ | :------------------------ | :---------------- | | Investments at fair value: | | | | Control investments | $29,764 | $32,861 | | Affiliate investments | $29,109 | $11,335 | | Non-Control / Non-Affiliate investments | $1,365,942 | $1,230,984 | | Total investments | $1,424,815 | $1,275,180 | | Cash and cash equivalents | $46,102 | $4,761 | | Interest receivable | $13,976 | $11,206 | | Deferred credit facility costs | $1,765 | $2,144 | | Other assets | $18,769 | $17,691 | | Total assets | $1,505,427 | $1,310,982 | | LIABILITIES | | | | KeyBank Credit Facility | $254,700 | $213,000 | | 2025 Notes, net | $151,452 | $180,485 | | August 2026 Notes, net | $123,762 | $123,474 | | March 2029 Notes, net | $111,782 | — | | December 2026 Notes, net | $74,085 | $73,898 | | Convertible Notes, net | $49,076 | $48,757 | | Distribution payable | $26,443 | $23,162 | | Security deposits | $11,169 | $12,287 | | Accounts payable, accrued expenses and other liabilities | $22,919 | $24,760 | | Total liabilities | $825,388 | $699,823 |\ | NET ASSETS | | | | Common stock, $0.001 par value per share (shares issued and outstanding) | 51,849,429 | 46,323,712 | | Paid-in capital in excess of par | $708,529 | $633,740 | | Distributable earnings/(accumulated deficit) | $(28,542) | $(22,627) | | Total net assets | $680,039 | $611,159 | | Total liabilities and net assets | $1,505,427 | $1,310,982 | | NET ASSET VALUE PER SHARE | $13.12 | $13.19 | Consolidated Statements of Operations Total investment income and net investment income increased for Q2 and 6M 2024 compared to 2023 Consolidated Statements of Operations (in thousands, except share and per share data) | Metric | Three Months Ended June 30, 2024 | Three Months Ended June 30, 2023 | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :---------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | Total investment income | $54,641 | $46,045 | $105,094 | $87,583 | | Total expenses | $27,259 | $23,295 | $51,916 | $44,906 | | Net investment income | $26,743 | $22,097 | $51,900 | $41,426 | | Net realized gain/(loss) from investments | $(6,488) | $(26,611) | $(5,136) | $(26,976) | | Net change in unrealized appreciation/(depreciation) from investments | $10,573 | $24,396 | $(1,427) | $27,916 | | Net increase/(decrease) in net assets resulting from operations | $30,828 | $19,882 | $45,337 | $42,366 | | Net investment income per share - Basic | $0.53 | $0.61 | $1.07 | $1.17 | | Net investment income per share - Diluted | $0.51 | $0.58 | $1.03 | $1.10 | | Net change in net assets resulting from operations per share - Basic | $0.61 | $0.55 | $0.94 | $1.19 | | Net change in net assets resulting from operations per share - Diluted | $0.59 | $0.52 | $0.90 | $1.13 | | Weighted average shares outstanding - Basic | 50,161,680 | 36,024,566 | 48,455,033 | 35,551,947 | | Weighted average shares outstanding - Diluted | 54,064,395 | 39,691,361 | 52,357,748 | 39,218,742 | Consolidated Statements of Changes in Net Assets Total net assets increased from $611.159M (Dec 2023) to $680.039M (June 2024) due to stock issuances Consolidated Statements of Changes in Net Assets (in thousands) | Activity | Six Months Ended June 30, 2024 | | :-------------------------------------------------------------------- | :----------------------------- | | Balance as of December 31, 2023 | $611,159 | | Issuance of common stock pursuant to distribution reinvestment plan | $658 | | Stock-based compensation | $5,343 | | Issuance of restricted stock awards | $1 | | Issuance of common stock, net of issuance costs | $71,174 |\ | Retired and forfeited shares of restricted stock | $(2,380) |\ | Distributions to stockholders | $(51,252) |\ | Net increase/(decrease) in net assets resulting from operations | $45,337 |\ | Balance as of June 30, 2024 | $680,039 | Common Shares Outstanding | Date | Common Shares Outstanding | | :------------------- | :------------------------ | | December 31, 2023 | 46,323,712 | | June 30, 2024 | 51,849,429 | Consolidated Statements of Cash Flows Net cash, cash equivalents, and restricted cash increased by $41.341M in 6M 2024, driven by financing Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :------------------------------------------------ | :----------------------------- | :----------------------------- | | Net increase/(decrease) in net assets from operations | $45,337 | $42,366 | | Net cash provided by/(used in) operating activities | $(103,292) | $(15,382) |\ | Net cash provided by/(used in) investing activities | $(159) | $(1,470) |\ | Net cash provided by/(used in) financing activities | $144,792 | $18,508 |\ | Net increase/(decrease) in cash, cash equivalents and restricted cash | $41,341 | $1,656 |\ | Cash, cash equivalents and restricted cash at beginning of period | $4,761 | $10,612 |\ | Cash, cash equivalents and restricted cash at end of period | $46,102 | $12,268 | Supplemental Cash Flow Information (in thousands) | Supplemental Activity | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :------------------------------ | :----------------------------- | :----------------------------- | | Cash paid for interest | $21,031 | $20,338 | | Income tax, including excise tax, paid | $2,524 | $2,304 | | Accrued but unpaid distributions | $26,443 | $19,432 | | Distributions reinvested | $658 | $1,215 | Consolidated Schedule of Investments as of June 30, 2024 (unaudited) Detailed breakdown of the $1.425B investment portfolio, primarily secured loans and equipment financings Total Investment in Securities (in thousands) | Metric | Cost | Fair Value | | :----------------------------------- | :---------- | :---------- | | Total Investment in Securities | $1,470,378 | $1,424,815 | | Cash and Cash Equivalents | $46,102 | $46,102 | | Total Portfolio Investments and Cash | $1,516,480 | $1,470,917 | - As of June 30, 2024, Trinity Capital Inc. had four foreign domiciled portfolio companies (two in Canada, two in Europe), representing 4.3% of total net asset value based on fair value55 Control and Affiliate Investments (in thousands) | Category | Fair Value at December 31, 2023 | Gross Additions | Gross Reductions | Realized Gain/(Loss) | Unrealized (Depreciation)/Appreciation | Fair Value at June 30, 2024 | Interest and Dividend Income | | :------------------------ | :------------------------------ | :-------------- | :--------------- | :------------------- | :------------------------------------- | :-------------------------- | :--------------------------- | | Control Investments | $32,861 | $1,670 | $(8,506) | $(3,916) | $7,655 | $29,764 | $1,635 | | Affiliate Investments | $11,335 | $15,848 | $0 | $0 | $1,926 | $29,109 | $859 | | Total | $44,196 | $17,518 | $(8,506) | $(3,916) | $9,581 | $58,873 | $2,494 | Consolidated Schedule of Investments as of December 31, 2023 Detailed breakdown of the $1.275B investment portfolio, primarily debt securities across various industries Total Investment in Securities (in thousands) | Metric | Cost | Fair Value | | :----------------------------------- | :---------- | :---------- | | Total Investment in Securities | $1,319,316 | $1,275,180 | | Cash and Cash Equivalents | $4,761 | $4,761 | | Total Portfolio Investments and Cash | $1,324,077 | $1,279,941 | - As of December 31, 2023, Trinity Capital Inc. had four foreign domiciled portfolio companies (two in Canada, two in Europe), representing 5.5% of total net asset value based on fair value92 Control and Affiliate Investments (in thousands) | Category | Fair Value at December 31, 2022 | Gross Additions | Gross Reductions | Realized Gain/(Loss) | Net change in Unrealized (Depreciation)/Appreciation | Fair Value at December 31, 2023 | Interest and Dividend Income | | :------------------------ | :------------------------------ | :-------------- | :--------------- | :------------------- | :----------------------------------------------------- | :------------------------------ | :--------------------------- | | Control Investments | $37,313 | $2,637 | $(2,205) | $0 | $(4,884) | $32,861 | $4,179 | | Affiliate Investments | $1,528 | $11,006 | $(2,328) | $(26,251) | $27,380 | $11,335 | $1,025 | | Total | $38,841 | $13,643 | $(4,533) | $(26,251) | $22,496 | $44,196 | $5,204 | Notes to Consolidated Financial Statements (unaudited) Detailed explanatory notes covering organization, accounting policies, investments, debt, and subsequent events Note 1. Organization and Basis of Presentation Trinity Capital Inc. is a specialty lending BDC and RIC, consolidating subsidiaries but not joint ventures - Trinity Capital Inc. was formed on August 12, 2019, and commenced operations on January 16, 2020, as a Business Development Company (BDC) and a Regulated Investment Company (RIC)98 - The company completed a private offering of common stock and debt in January 2020, followed by an IPO in January 2021, with common stock trading on Nasdaq under 'TRIN'99100 - Trinity Capital consolidates its wholly-owned subsidiaries, Trinity Funding 1, LLC (TF1) and TrinCap Funding, LLC (TCF), which are special purpose bankruptcy-remote entities104 - The company co-manages Senior Credit Corp 2022 LLC (JV) with a JV Partner, investing in secured loans and equipment financings. As of June 30, 2024, Trinity Capital contributed $16.2 million to the JV (debt $11.3M, equity $4.9M) and had an unfunded commitment of $5.2 million106110 - Trinity Capital formed Trinity Capital Adviser LLC (Adviser Sub) in March 2023, which provides investment advisory services to other investment vehicles like EPT 16 LLC. The Adviser Sub and EPT 16 LLC are accounted for as portfolio investments at fair value and are not consolidated112113115116 Note 2. Summary of Significant Accounting Policies Key accounting policies include fair value measurement (Level 3 assets), income recognition, and non-accrual status - The most significant estimate in financial statements is the fair value of investments, which are primarily Level 3 assets (99.2% by fair value as of June 30, 2024) due to the illiquid nature of investments in growth-stage companies119123 - The company uses an income approach (Hypothetical Market Yield Method) for valuing debt securities and a combination of market approach and contingent claim analyses for equity securities and warrants127128 - Interest income is recognized on an accrual basis, including accretion of OID and EOT payments, and PIK interest. Nonrecurring fees are recognized as other income when earned136137140 - As of June 30, 2024, loans to three portfolio companies and equipment financings to one portfolio company were on non-accrual status, totaling $55.6 million cost and $24.0 million fair value (1.8% of debt investment portfolio). This is a decrease from December 31, 2023, where non-accrual investments totaled $60.8 million cost and $43.2 million fair value (3.5%)142 - The company qualifies as a RIC, requiring distribution of at least 90% of investment company taxable income to avoid federal income tax on distributed amounts149 Note 3. Investments Investment strategy focuses on debt and equity in growth-stage companies, with a $1.425B portfolio - Trinity Capital's investment strategy focuses on debt (secured loans, equipment financings) and, to a lesser extent, equity and equity-related investments in growth-stage companies, often including warrants as yield enhancements153154156 Portfolio Composition by Investment Type (Fair Value, in thousands) | Investment Type | June 30, 2024 | % of Total | December 31, 2023 | % of Total | | :------------------- | :------------ | :--------- | :---------------- | :--------- | | Secured Loans | $1,002,621 | 70.4% | $885,299 | 69.5% | | Equipment Financings | $332,598 | 23.3% | $336,778 | 26.4% | | Equity | $52,159 | 3.7% | $19,576 | 1.5% | | Warrants | $37,437 | 2.6% | $33,527 | 2.6% | | Total | $1,424,815| 100.0% | $1,275,180 | 100.0% | Top 3 Industry Concentrations (Fair Value, June 30, 2024) | Industry | Fair Value (in thousands) | % of Total Portfolio | | :-------------------- | :------------------------ | :------------------- | | Finance and Insurance | $195,073 | 13.8% | | Green Technology | $162,521 | 11.4% | | Medical Devices | $131,174 | 9.2% | Geographic Composition (Fair Value, June 30, 2024) | Geographic Region | Fair Value (in thousands) | % of Total Portfolio | | :---------------- | :------------------------ | :------------------- | | Northeast (US) | $453,432 | 31.9% | | West (US) | $408,773 | 28.7% | | South (US) | $184,644 | 13.0% | | Western Europe | $17,345 | 1.2% | | Canada | $11,960 | 0.8% | Note 4. Fair Value of Financial Instruments Fair value measurements, primarily Level 3 investments ($1.413B), rely on significant unobservable inputs - As of June 30, 2024, $1,412.9 million of total investments at fair value were categorized as Level 3, indicating reliance on significant unobservable inputs for valuation171 Assets Measured at Fair Value (in thousands) - June 30, 2024 | Assets | Level 1 | Level 2 | Level 3 | Measured at Net Asset Value | Total | | :-------------------------------------- | :------ | :------ | :---------- | :-------------------------- | :---------- | | Secured Loans | — | — | $1,002,621 | — | $1,002,621 | | Equipment Financings | — | — | $332,598 | — | $332,598 | | Warrants | — | $1,445 | $35,992 | — | $37,437 | | Equity | $864 | — | $41,684 | $9,611 | $52,159 | | Total Investments at fair value | $864| $1,445| $1,412,895| $9,611 | $1,424,815| | Escrow Receivables | — | — | $2,441 | — | $2,441 | | Cash and cash equivalents | $46,102 | — | — | — | $46,102 | | Total | $46,966| $1,445| $1,415,336| $9,611 | $1,473,358| Key Unobservable Inputs for Level 3 Investments (June 30, 2024) | Investment Type | Valuation Techniques/Methodologies | Unobservable Inputs | Range | Weighted Average | | :-------------- | :--------------------------------- | :-------------------------------------- | :------------------ | :--------------- | | Debt investments| Discounted Cash Flows | Hypothetical Market Yield | 11.4% - 57.3% | 16.7% | | Equity investments| Market Approach | Revenue Multiple | 0.4x - 10.6x | 3.6x | | | | Volatility | 43.9% - 93.5% | 54.7% | | Warrants | Market Approach | Revenue Multiple | 0.6x - 11.1x | 3.4x | | | | Volatility | 34.6% - 125.5% | 60.6% | Fair Value of Financial Instruments Carried at Cost (in thousands) - June 30, 2024 | Debt Instrument | Carrying Value | Fair Value | | :---------------------- | :------------- | :--------- | | KeyBank Credit Facility | $254,700 | ~$254,700 | | 2025 Notes | $151,452 | ~$152,900 | | Convertible Notes | $49,076 | ~$50,400 | | August 2026 Notes | $123,762 | ~$112,100 | | December 2026 Notes | $74,085 | ~$67,400 | | March 2029 Notes | $111,782 | ~$115,500 | Note 5. Borrowings Debt instruments include KeyBank Credit Facility ($350M commitment) and various unsecured notes - The KeyBank Credit Facility has a $350 million commitment, allowing borrowings up to $400 million, with interest at Adjusted Term SOFR plus 2.85% to 3.25%. It matures on October 27, 2026, and is collateralized by TCF's investment assets187 - During the six months ended June 30, 2024, the company borrowed $340.0 million and repaid $298.3 million under the KeyBank Credit Facility, with $95.3 million available borrowings as of June 30, 2024189 Key Debt Instruments Outstanding (as of June 30, 2024, in thousands) | Debt Instrument | Principal Amount Outstanding | Stated Interest Rate | Maturity Date | | :-------------------- | :--------------------------- | :------------------- | :------------ | | KeyBank Credit Facility | $254,700 | Variable | Oct 27, 2026 | | 2025 Notes | $152,500 | 7.00% | Jan 16, 2025 | | August 2026 Notes | $125,000 | 4.375% | Aug 24, 2026 | | March 2029 Notes | $115,000 | 7.875% | Mar 30, 2029 | | December 2026 Notes | $75,000 | 4.25% | Dec 15, 2026 | | Convertible Notes | $50,000 | 6.00% | Dec 11, 2025 | - The conversion rate for the Convertible Notes changed from 66.6667 shares per $1,000 principal amount to 79.2226 shares per $1,000 principal amount (equivalent to $12.62 per share) effective June 28, 2024, due to a cash dividend214 Note 6. Commitments and Contingencies Unfunded commitments for JVs ($5.2M, $6.0M) and operating lease obligations ($7.170M total) - As of June 30, 2024, Trinity Capital had unfunded commitments of $5.2 million for the JV and $6.0 million for EPT 16, representing uncalled capital commitments219 - The company funds unfunded commitments through existing cash and cash equivalents and borrowings under its KeyBank Credit Facility220 Future Minimum Payments Under Operating Leases (in thousands) - June 30, 2024 | Year | Total Payments | | :--------------- | :------------- | | 2024 | $628 | | 2025 | $1,255 | | 2026 | $943 | | 2027 | $950 | | 2028 | $974 | | Thereafter | $2,420 | | Total | $7,170 | - As of June 30, 2024, the weighted-average remaining lease term for operating leases was 6.4 years, and the weighted-average discount rate was 8.62%223 Note 7. Stockholders' Equity Details common stock issuances (IPO, ATM), DRIP, and the expired share repurchase program - Trinity Capital completed a private common stock offering in January 2020, issuing 8,333,333 shares for $114.4 million net proceeds228 - The company's IPO in February 2021 issued 8,006,291 shares at $14.00 per share, with common stock trading on Nasdaq under 'TRIN' since January 29, 2021231 - Under its ATM Program, the company issued 3,224,708 shares for $46.9 million net proceeds during Q2 2024, and 4,877,340 shares for $71.2 million net proceeds during the six months ended June 30, 2024232 - The Repurchase Program, authorizing up to $25.0 million in common stock repurchases, expired on November 11, 2023, with no repurchases made during the three and six months ended June 30, 2024233 - The Distribution Reinvestment Plan (DRIP) resulted in the issuance of 22,578 shares ($0.3 million) in Q2 2024 and 46,034 shares ($0.7 million) for the six months ended June 30, 2024236 Note 8. Equity Incentive Plans Two equity incentive plans (employee, non-employee director) with $23.2M in unrecognized compensation costs - The 2019 Long Term Incentive Plan, for Employee Participants, was amended in April 2024 to increase authorized shares to 9,400,000, effective June 12, 2024239240 2019 Long Term Incentive Plan Activity (in thousands, except shares and per share data) | Metric | Six Months Ended June 30, 2024 | Six Months Ended June 30, 2023 | | :----------------------------------- | :----------------------------- | :----------------------------- | | Unvested as of Beginning of Period | 1,326,891 | 1,041,72