Earnings call transcript Q1 2023

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Operator

Ladies and gentlemen, thank you for standing-by and welcome to the Runway Growth Finance First Quarter 2023 Earnings Conference Call. Please be advised that today's conference call is being recorded.

I would now like to hand the conference over to Mary Friel, Assistant Vice President, Business Development and Investor Relations. Please go ahead.

Mary Friel

Thank you, operator. welcome quarter Growth ended and for conference everyone, first the March evening, to Finance Runway call Good XX, XXXX.

the Chairman, Chief on are Financial Officer and us call Operating Runway Chief from Joining Officer. Chief Growth Tom David Raterman, Spreng, Officer Chief Investment Officer, and Executive and Founder today Finance

and quarter Relations from accessed Runway Finance's Investor first XXXX released Finance's be results Growth were after can just at investors.runwaygrowth.com. website Runway financial today's market closed Growth

Runway a We web of replay Growth have at Finance's call for arranged page. the

During could I COVID-XX may changing interest to to actual forward-looking uncertainty our The other and Including you make materially are not that are and expressed remind caused forward-looking SEC. this are guarantee identify we expectations. factors those statements the historical are limitation, a on and this rates, subject filings and results current impact forward-looking of surrounding statements. with want in from to call, forward-looking pandemic, by performance in the that statements. market economic not the conditions purely uncertainties conditions, the without other factors statements we based statements rising cause that These differ call on of future

based any on those on assumptions assumptions these we that the based statements inaccurate result, believe forward-looking to Although the and can of can be incorrect. forward-looking are statements prove which assumptions are reasonable, those as a be

statements forward-looking visit To forward-looking obligation SEC as The no Runway please these our You the Finance of and on events. hereof obtain related statements on update should date Growth this to subsequent of not undue place website. are filings, forward-looking the statements. contained copies call made reliance or assumes

David. the will call over turn I that, to With

David Spreng

discuss would thank our you I'll to this for XXXX like market quarter Thank start I results. evening dynamics to you, highlights, outlook. us providing and by discuss broader quarter and our first first Mary, joining and all

in portfolio on banking seasoned who steady industry cycle. ability market. Runway our that improved of shockwaves and In have throughout the industries to attribute disruptions demonstrated We traversing focused quarter, be caused recession-resistant its members experienced weather the economic every that hand team a roster first our to

seen We to sector began want Bank. of last Silicon banking volatility our since with we've to a which the call, the address in the moment closure take Valley

As previously, SVB, facilities loans no credit participate companies. did agented any included particularly had early-stage in stated by SVB was that or Runway lender. deposits a with or in as lending nor portfolio concentrated SVB's we

impair banking anticipate in will on portfolio sector stage our in not did Given financially portfolio. our managing the with disruptions the capital our structure. latest Runway's continued companies We communicating proactive in recent and focus venture and headwinds remain we the ecosystem, companies banking the

and a landing public for We positions debt the to this hard space. venture private dynamic as Runway adjusted risk believe investors expectations potential seen we've management our Industry-wide, of preferred the approach a recession. in lender

we priority by earnings, has deliver stable strategy returns. as Since while delivered as disciplined Our continued market execute well attractive any inception, we and its in Runway the in best. did industry earnings sectors recession-resistant investments built the the that late-stage most has stable team know in debt space. operate We our companies underwriting believe this portfolio environment. mitigating risk always stable to risk-adjusted we venture highest-quality the to been in first-lien

which company the team of our and portfolio strategy, the we With positions our believe for we continued throughout success strength confident of the of the looming concerns, experience durability macro in XXXX. remain our

$XX.X portfolio the companies, seven investments quarter funded representing in operating Runway existing Turning to results. loans. in million completed first

and higher remains Runway's capital. to path as profitability, never companies which we companies we last credit portfolio. to mentioned use debt from Our with healthy quality growth been in call. originations evaluate reflects non-dilutive see deployment and adding conviction extremely said, to team our quarter clear That first which bar the we Runway seasonality to demand selective activity new seeking and continue with the in investments, has

remained ratio first our the Runway leverage We leverage X.XX in times times venture powder X.X our from ample to public increasing core lowest the quarter. peers in X.XX has to the range to ratio dry and only slightly of among debt deploy. X.X

to weather-proof terms approach this our and capital However, quality platform building in has generate We been always quantity. better return-on-equity. deploying selectivity believe a over will

year This delivered represents net XXX% million at XX% quarter, the the investment down year of investment prior of $XX.X approximately X% the in deeper the the Tom a but total look quality, from and of end from portfolio $XX.X income credit remained risk strong million at and rating at X.X of weighted-average the million respectively an in were Net $XXX.X our income end Runway from $XXX.X of million first XXXX. $XXX.X increase period. assets quarter. at in X% provide constant our will prior million QX period down and XXXX. QX

to now and Turning underwriting. structuring

principles profitability well process key origination the structural a is of credit-first of protections economic the With across as around value-creation multiple understanding at has Runway proven loan-to-value, loan-to-value across of covenants and and the active portfolio, monitoring core weighted-average built our a approach. enable communication. by XX.X% demonstrated component track-record a cycles, our as of thorough its our As and that underwriting low underwriting borrowers effective past

margin cannot and importance and weakness, of sheets the In with providing preservation growing balance for base portfolio safety over be our an a overstated. concern and rates companies' both potential of environment economic capital higher our

our on guardrails, believe us in are while for our to work-through thoughtful a see borrowers balances and borrowers. We for borrowers risk a good shareholders. effective and limitations and partner arise continue limit safeguarding value loan-to-value. with traction and as quality such pursuing helping preserving them. itself covenants to establishing while us being growth on to our when both work measures mitigate Management problems mindset We risk These they the and us credit prides and downside allow simultaneously

and were dollar-weighted our loans increased loan-to-value XX% from in loan-to-value QX our and QX portfolio step the we for QX previous that that calculated ratio quarters, XX% at of in modestly end In QX. with found XXXX to in the XXXX

to to a continue valuation. We employ conservative approach

losses. to primary because heading existing this first-lien two into our to and mitigate it and Runway a focused important was to taking year our you the gives follow-up for preserve this a alone. the to with rigorous and party itself a The in any being and can Ultimately which means on subordinated protects fiduciary loans on reasons; our might second a monitoring is exclusively control the first of portfolio investors support almost focus our empowers of focus focus that is from is find We minimizing see our lender partner and external good portfolio companies. value capital. loans to for As secured senior risk us that first-lien second-lien investors our be action underwriting us precluded companies. is from borrowers situations proactive

We portfolio. with is portfolio a monitoring in each terms requirements the ensure losses core for potential set customized not on loan. do portfolio companies the to fits-all cadence into one-size positioned companies we approach. and Portfolio is any avoid all investors capital of of and our to built communication Our take is built a protect are

in and comprehensive each quarterly internally Additionally, periodically confidence our a a process which markets. in undergoes offers valuation our by basis position a third-party, portfolio on

Pitchbook $XX.X billion market outlook. venture in Turning to late-stage recent US slowed According to QX. equity to value the data, deal

That's come it debt relative largest structure they equity We the dependent venture financing equity financing, however a trends, to and an While access market venture in companies minimize Venture paths with strong Runway Across is dynamics. debt onerous the terms, late-stage rescue solution. concern equity expensive replace equity provide provides to companies is require business environment. is slower-growth that on remains borrowers the ideal proposition our which navigate option risk. snapshot BC value equity not on as ecosystem, can including can to further when this with to for profitability downstream growth operations capital, not a insulates believe non-sponsored a surrounding continues us defined be and where data focus fuel debt from though and capital through to very for dilution. because

portfolio that mindful companies hand. dynamic can our grow conditions, loan in prudently support that need continue book. confident and companies portfolio to current may our are support as however, additional helping we existing are to We our provide We to the lender, economic navigate ability

to while they expand solutions, see creative more future relationships pipeline assess as continues we companies Our quality face financing explore to fundraising come and Runway banking to challenges.

We evaluate environment. will continue we opportunities thoughtful as in to extremely market be current the

over I will now Tom. turn it to

Tom Raterman

first held the constant in the Thanks, fourth David, at portfolio risk compared everyone. $XX.X million Runway's quarter quarter first weighted rating X.X funded X Runway quarter, in in completed evening, the representing to XXXX. and average investments of good loans.

rated credit favorable status. a our X, have scale portfolio continued the only system and to reminder, most we rating. represents rating a on where on of X At non-accrual based X company As to X X quarter-end, is

and senior other investment our During the over quarter, between which loan lien we all restructured our with Gynesonics split secured priority a preferred equity. has and equity, first terms

fee support this entire in growth with to our additional We're result capital first-out the received current company's development. the also restructuring. investment that the contributions amended We equity The stack. agreement junior from investment pleased attracted and and remains

fair and portfolio, from investment excluding holding quarter million prior value for $X.X the constant fourth US $XXX.X of from period. the comparable XXXX bills at treasury total XX% a approximately Our increasing of billion, year

the decreasing fourth We're quarter from of industry-leading stable we of $XXX.X NAV, XXXX, of XXXX. quarter at XXXX. end Runway share first XX, $XX.XX of NAV of fourth end our of of compared $XX.XX which million the $XXX.X at was March As to with at assets end levels the of had scrutiny. the feel pleased the reflects per the quarter million, net

$XX.X XXX% plus million quarter received $XX.X loans the In $XX.X respect $XX earning signing decrease to by largely credit of million interest time investment of benefit the agreed principal generated the or currently the is of continue million a in from which increase and or quarter XX.X sheet. XXXX compared the XXXX. to to higher of of and closing which investment our our net rate the $XX.X in in from of income spread above driven in the portfolio set at rates. upon loan of rate interest floating Runway floors, quarter, rate total at we first All will generally the income rates, base XXXX, of first million assets, the size million reflect interest term With are portfolio. quarter comprised first in fourth repayments, the of

a first average quarter quarter to XXXX compared of the yield generated XX.X% annualized portfolio first XXXX. the as XX.X% for debt for weighted Our dollar of

Moving expenses. to our

quarter quarter coverage compared as and strategy leverage first of million, loss the the operating realized increase with with fees, non-dilutive the investments $X.X depreciation the expense first XX% net debt from net performance-based the average incentive driven as leverage generate quarter, of of $X.X to million first the of to of XXXX. For the depreciation XXX%, were end loss realized by of the an net first first increase expenses this respectively, million our first to made XXXX. of of net expense The was X.X% million quarter majority balance a the from quarter XXXX. End-of-period $X.X million at part during end and Weighted of and growth. first fees. quarter million fees quarter at of were to of X.X% was the asset increasing of fourth $XX.X management interest XXXX. XXXX. the total XXX% for in and higher in quarter, quarter $X.X a for was All Runway portfolio had in $X.X We XXX% unrealized quarter was the unrealized compared compared in first fourth in the increasing of funded of up recorded interest

to those December unfunded subject We are to liquidity. cash portfolio $XX which of eligible XX, companies to of was loan as Turning including available million, our million and At XX.X cash $XX of and million commitments the had total XX, on to million, funded. be $XXX borrowing respectively, currently compared XXXX. our commitments and unrestricted $XXX were of majority liquidity equivalents XXXX, specific March million, to $XXX.X milestones, capacity performance

as we completed quarter, notes. pursuant placement our conditions $XX $XX facility enhanced the to accordion a credit to we in the by of private $XXX by million During million, the and to million facility unsecured to credit quarter-end, total subject agreement. further a of three-year the liquidity increasing Subsequent reflected feature terms

our full balance received $XX loan dry remains favorable million of well deploy also of capital the fortifies powder ample to Mustang at terms With Bio. Runway increasingly We for selectively to the that prepayment year. our sheet, remainder positioned

well second the payable Board dividend. distribution share for Finally, a on as $X.XX declared as May per the share, X, a XXXX, $X.XX per quarter supplemental regular of of our regular with dividend

quarter future from similar last the XXXX, supplemental intends to Runway Directors. to Board each remaining a pay subject of of dividend for communicated quarter, As approval

line our This questions. concludes remarks. for We'll open the Operator? prepared now

Operator

the Our Group. [Operator Zwick line Hovde Instructions] first question comes Erik from of of

Erik Zwick

wanted first maybe I start leverage. just to on

and mentioned you've to the in environment, the know mentioned that leverage first range a preferred your kind X.X%. to you investments of consider closer with the in X.X% moved right You were little funded bit David, I going target higher. quarter of

curious So of you leverage face-to-face you fundings how shapes how up see how kind just your environment as pipeline for profile the with frame the today? current today well additional as

Tom Raterman

than pressure as certainly other ever history. grow the really throughout can it's I been. and said, the Sure. David as an amount have portfolio high feel of And the quality strong pipeline is as prudently anyway don't we take as leverage We our selectively comment. to as and extraordinary

unfunded So drawn, over given is in today, good we available liquidity million $XXX are which at million, offering shape. be to that about note if and you that pretty which we're our and $XX commitments prepayments, feel our the look is

slightly X.X%. don't will any that I opportunities. very, over over outside range, outside of X% pressure attractive of that some drift feel step we to very We likely up or think

So with the that upper-end range expect going be that stated bouncing and we'll I year. remainder being X.X% of at think we're the the the around for forward comfortable there of

Erik Zwick

on just I -- on Slide I XX. looking was at move move to wanted XX actually, then Slide and to the to want And so I

higher impact the July down starts to it on that this curve Fed guess it that moving a potential disagreement big maybe to would Fed at saying in point. seems a the the curve, pause which looking have the of at point, the potential that rates is at kind would and period, looking rates, come is what that portfolio by with suggest Just is actually hold SOFR I the and SOFR at

rates that what So the curious and due yield higher income your from how kind investment the you that of grow today. just for perspective, to opportunity potentially face prospect the means net of to

Tom Raterman

least floating Well, that you'll I think And financing structure, our credit that capital be still short-term, we're would at in debt, XX%, would XX%. we under see rate probably looking at the facility. the primarily revolving add any

rate. of So we'd really have are loans a assets XXX% perfect our match there with floating because

a down, that see where as going think toward I would economy have signal a that that we circumstance, that you is the view in to coming rates likely be go.

Now landing, that positively. it is may economy step expanded impact we'll mean the the to want into judge if we much to then better but return headed would hard growth, then want and able toward range, be we which that how portfolio add a equity on to

David Spreng

companies do, on becomes service is or to at a I makes dramatically, not they more guess is there if pre-profit least of which increase the if it add point a bit you're debt for I Right. would of do side they Erik, interest a which rates hurdle. other is prohibitive it seeing curve, what at but that their

the seen needle. XX%, of companies They not that much, companies or their rate probably a have yet. and with have the where stage move going where it's whether we clear really interest latest to closer XX%, to less and much We it path XX% profitability plan factor isn't our are profitability. to play, a is And

again, for structures. we're have So dramatically, yet. look reason, that seeing yet. probably as of be different not lot we're not up there But might were seeing we a But that at to some rates pushback to, if a slightly point will of go

Erik Zwick

level, could a mentioned, now, this Fed I but able question burden, but and I'll you you're change as higher maybe kind aside. last you step me but companies interest and does to a higher beneficial go for would if that spot of at it higher from going for being to withstand that. guess much too be seem the a the then kind hold here of And right, sweet longer does certainly

in park were to strategy whether short-term if strategy the of Just and was treasury those prepayments quarter, what have investments? a of cash that curious a some on it's maturities the bills either of some of kind part purchase after the those or just longer-term in the terms to

Tom Raterman

strategy disruption long-term frankly wanted beef-up and the our to the banking system a liquidity noise sheet. to treasuries not We in given the It's have on point. that balance the at

to So we will, wanted treasuries. in have excess live if liquidity, very you short-term

we our down those So were seven-day and subsequently paid treasuries those and liquidated treasuries, have revolver.

Operator

Rowe from Riley. of question line of the Bryce B. comes next Our

Bryce Rowe

to kind ask to around the capital as that the quarter? supplemental Wanted maybe thought first retaining NAV? not the kind about supplemental given of the late dividend policy Any and maintaining happened thoughts any in what paying of and

Tom Raterman

It's something quarter at along. as evaluate every and we move certainly we

Board commitment dividend that supplemental of is I the to we a made think right view the out. pay now that

dramatic And that but our the quarter. every so maintain it's I unless Board a think that change, there's view to will supplemental decision make dividend,

Bryce Rowe

of then And of an happened macro from with companies have saw what hearing, there companies. subsequent came been what's amendment in event, you're need given in that in to your I perspective. you're portfolio trying portfolio with support just one a a your might Curious terms or get seeing even what

David Spreng

company want and you environment? the do the speak Tom, I to general can address to specific

Tom Raterman

Sure.

think also evaluated as liquidity. And were early things. it, referring be Board One, quarter-end Mustang to that termination and That TRACON. loan. company, might and of happened them a decided prepay an there they you met with had Bio, to I couple it of So we which I public with think before was good their

to, that we're referring Bryce? is activity the So

Bryce Rowe

I Well, with loan was the that well as Spoon. Marley guess, smaller it as

Tom Raterman

the some look we at a the negotiating million that Frankfurt a the to and seat of we loan in successfully Australian amount. SPAC coming give give we away down order Yes. deal PIK to prospect junior they That's a us coming But thought $XX additional Well, off a as then in that sat them in them seat table. capital transaction really it as at our up. table, lined Spoon outcome all that the the first the in and and There's company time the Exchange reducing as do Marley to to temporary there's joining sure give loan public of forward SPAC all to agreements the off, good and had relief potentially form team appropriate to and adjustment investors we the were make close in right for exchange. a us congratulations was moving and

So we're seat pleased strength the we and and think with to that lot we the year. a it. later have the completion at a credit, We look forward to did that in of of it table, provides

David Spreng

our world terms general debt I'd where had from of for companies that operated And but any of point quarters with seen consistent a remarks, had kind much none We and stage opening in a really, uptick SVB of our relief. venture an very requests different lending diversified our the as from companies amendments number really previous not have since we or in we SVB. with relationships QX add book. sector, have of of was very had is late said The their those. in view, depository relationships

our on impact from no SVB. basically, So portfolio

Operator

question the line [Operator Instructions] Our from Wedel, of Melissa JPMorgan. comes next

Melissa Wedel

you around disclosed that like triggered on I but else beyond activity. you some in could that Gynesonics. I that feel in of anything we might the took that restructuring was and walk what then the place restructuring earlier, been touched kind walk there know XQ you be could that where what's portfolio through through hoping

Tom Raterman

Sure.

regular for late period Gynesonics to was that. time. on and initiated way progress portfolio reasonable they had been making company So fourth Gynesonics were quarter, capital raise, mid a of through has a a

existing new and the bit grow capital us. about still quarter concerned that that any investment to into the give deeper As help up the business capital, and other development. execute In there at support table company gave markets that the term for opportunity the company's and two into a uncertainty, the regular way it remain their of in the the upside venture we pieces, we there. in more order still in economy, senior deadwood close in stack. into equity facilitate more we preferred to top equity their locked broke sponsors a it got to plan, turned room was junior substantial cash entire couple a growth received. and also kind which of a there raise reduce that to time, remains of clean-up piece, on including capital first capital the the equity new and upside secured an of came really bring loan and heavy burden transaction, take to the that same the hand then some and in was cap to We was senior The senior at the and effect other business, the us interest to markets, And

think good execute a to and business sponsors, see we them to outcome and to that's expect continue the So we on plan. for the company our

not seeing As to names as indicated, normally amendment we're would in confident other all or of that restructuring less decision-making activity portfolio, in and led an than from processes Gynesonics. see we to and of we're our that more David any standpoint the

David Spreng

think there syndicate. will where said, anticipate of with anything equity believe that more that a there see that specific, situations the don't be So we is I or we fracturing

Our old. is average years company XX

started high that that ago imagine the XX years round money you return. most So people were expectations did out can for people the and had of that recent

provide a will dry what can and and syndicate wipe-out necessarily folks expected I with venture to a that. end be more cycle which lead powder at the you have of isn't fracturing that capital, And situation, saw they is typical the and also it's at go where and of any We to strong to if result but but can out a don't request round don't weak to would being over going got very and going if get good surprised from for without would It's weeded-out for Gynesonics, it is some but investors investors the the the be see deal the and bad folks actually accommodation, And an the us we've of ability essentially a forward, strengthening forward the without syndicate, so we valuations course situations a terms to see are the of business. we some which specific see of is not now, be participate shocked with in to do year. wiped will of part pop-up thing. thing of the us,

Melissa Wedel

more portfolio obviously, transaction Just situations some portfolio there there you because of of to equity? allocation preferred, come looking you about that at particular of and allocation the think now, preferred pass, the was these to cycle a tick-up, portfolio? that the to or we Is being cap common do I through for potentially exposure as as you think reasonable portfolio go how and sort think in see about

Tom Raterman

current They fund, return-focused that's This could be a our are extremely folks interesting where not that's us commitment to credit-first investment do. is and investments, but paying you lies. what

the cap, would current loans, return, a way. that stated we be we fund prefer that. anything structured zero. or on secured focused any So It's don't to senior keep it and have not like but preference equity is first lien This

so that we quite to I'd return. it required, we'll at the But try try simple maximize and of like the that understanding and way avoid structure something So we're say we'll best the any when answer skilled to what's it. of is make it's adept to most

any realistic. don't So to we're that's but simple hoping think not have I is more, answer, Melissa

Melissa Wedel

hold other follow-up are that offerings way. all sort is of that vehicles Runway approach that then that, on an standard preferred participate equity to of I last Are One product if could. a inclined there perhaps or a more across your position the could at or

Tom Raterman

which other We very similar that's LPGP fund, is a private which the strategy BDC. a has have one fund, to

fund kind So those. a equity, we or restructured potential for debt don't be structured focused a preferred place that one would have of any of

no. unfortunately, is, answer the So

in situations market, make time I lot for you've think we're new to focus pretty of folks of the with and not that competitive a it lot and very clear rescue those capital raise, see those that for the but interesting, a and to make they're the not they out type can companies of trying us best on them troubled we especially and more because really, seen to is tend finance. we're lending sure we is loans, our really

Operator

[Operator the Our Instructions] Mickey of of line comes from Schleien next question Ladenburg.

Mickey Schleien

realize the yield presentation. investment basis you points of question reference quick hoping expand a substantially. Page what rates show XX weighted and on was have The you declined the average on could climbing Just XX obviously, I been that on aware of caused else directionally But the which anything there year. movements be that should was the in that portfolio. and I we there of the affect move caused for were outlook balance and could the

Tom Raterman

in do just it the origination quarter, of composition prior lot A the and with has the to Mickey.

part intentional of which average late then first upmarket. down That's being purposeful and our strategy just stage so And quarter, flowed fourth and our through into SOFR spread probably quarter. came a little very in of bit

of months transactions some might are little those having XX have ago. tighter been So end-up we a going yield vis-a-vis where to

Operator

any this David closing turn at [Operator to remarks. the for time. Instructions] I'm showing no like questions Spreng back Mr. over call I'd to

David Spreng

Great. durable operating of to navigate quarter is Thank indicative operator. the current we environment. portfolio performance Runway's the high-quality first constructed you, have

results grow environment. thoughtfully updating XXXX quarter is Our in team Goodbye. to on August. for in our to earnings in companies remains joining well-positioned you you look prudent Thank all and leverage deploying Runway approach value shareholder growth to the confident second forward stage that believe us market. with disciplined the We today. in latest venture of drive We while any portfolio market partnering

Operator

and this participating. Ladies gentlemen, does conclude today's you Thank for all conference.

a Have may day. You great disconnect. now

Runway Growth Finance (RWAY) 9 May 232023 Q1 Earnings call transcript