RWAY - Earnings call 3 2023 | Runway Growth Finance Corp.

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Operator

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

I would now like to hand the conference over to Taylor Donahue, Investor Relations. Please go ahead.

Unknown Executive

Thank you, operator. welcome third Runway XXXX. quarter and Call Finance everyone, the for ended evening, to Growth the Conference Good September XX,

us Runway Executive today Greg market call third Investment Officer Finance released Financial on at President Growth and of Chief as Joining Chief are Credit well Investor Head Finance today's Tom of Finance's and and from just Growth were Deputy results Chief Greifeld, Capital; of Finance's Officer Runway Officer Chief and Runway and Growth Growth accessed acting quarter Acting investors.runwaygrowth.com. the be financial Raterman, Officer. Runway XXXX Growth can from close after Operating as Runway website Relations

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

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

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

and or events. this of forward-looking on these to place assumes The not statements statements. the Runway call subsequent contained statements no Finance made should the reliance obligation are on as update Growth forward-looking You undue date hereof, forward-looking

filings, please To obtain our visit of SEC website. copies related

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

Greg Greifeld

us joining for everyone, results. third thanks, quarter discuss to and Taylor, our Thanks,

of David who update absence. Growth's Before on a want and provide Spreng, leave Officer, Executive prepared medical is on starting remarks, we Chief an to Founder Runway my Chairman,

Growth look has We are David's select doing the community recovery XXXX the to during We Capital. and at well pleased provided that first in return adviser are process. of for our half has David is and support forward ongoing to share appreciate and investment his resumed Runway the responsibilities external hopeful

Today, XXXX the our lastly, outlook highlights I'll quarter provide environment third and to into market speak heading discuss XXXX.

demonstrate been quarter for a has of Runway third Our since investment that results inception. the approach guiding credit-first principle resilience Growth our

market conditions a rate the effects While economy than uncertainty has the interest U.S. expected XXXX, play elevated out. higher performed financial tighter and of as better in remains environment

low to companies loans underwriting focus that not allowed just and high-quality on to has portfolio survive. us can loan-to-value to Our build continue a succeed

raises. favored risk, companies opportunities portfolio have capital which or with limited proven that crucial exits require have that We additional unknown has for downstream for timing always financing

current deploying has in capital Our the patience and been is during more strategic earlier environment lender-friendly than XXXX year. this

this an continue to expect to into we favorable XXXX environment and beginning lender-friendly opportunities. increase We in investment are see

a with late-stage enforced on has maintained industries. steady ability to with industry-leading credit by as its preferred deliver our We portfolio a lender believe debt venture Runway hand performance a position focused recession-resistant

compelling growth highest-quality Runway with partnering companies We in a returns market. risk-adjusted Growth believe continue opportunity stable from that to for investors looking the represents the are for

the loans. quarter, bar high activity completed third new X portfolio representing Originations during operating third we credit losses, mitigating in for record which to companies deployment existing of quarter credit evaluating process. new attribute strong while quarter quality the disciplined has investments million Runway rigorous Runway and to approach to mitigating underwriting structuring our to our $XX.X reflect Turning results. investments in a funded built loan preserve and track risk. and in

XX% $XXX.X from an X% quarter, end last Runway of investment of $XX from were third representing in year XX% million third the Net prior income increase quarter, net million and down the the and period. the million delivered at income investment total $XXX.X quarter. of of assets $XX.X million approximately

risk Tom slightly increased loan investments the second origination a our will X.XX in X.XX is secured quarter loan-to-value third portfolio first average XXX% provide deeper across the to the from look of portfolio weighted credit in quality, XX% our weighted rating portfolio. senior nearly quarter. is at but Runway's and comprised lien average at entire

credit runway We expand growth our evaluate continue uphold as to the portfolio. we to opportunities standards

equity Data, $XX PitchBook the Let's billion turn for value, a outlook. the opportunity, to was view debt year-to-date. to According approximately venture QX we deal which now market proxy U.S. venture recent late-stage as market

deal smaller is and values. total XXXX observed for in of value U.S. remains above XX% dynamic deal recent down represented late-stage value nearly XXXX years. XXXX the continuation and While levels from X/X equity XXXX, and total preceding period the This it at of in record deal late-stage comparable count. is of in more deal a value year-to-date deals quarters, we've but venture

late-stage the that active. is ecosystem This VC snapshot shows

the to expects of companies into and that our in substantial remainder the middle as those deal accelerate of year team proceeds. However, spend raised volume XXXX equity next XXXX

companies the that to will targets explore Runway previous additional late-stage growth. capital minimally dilutive high-quality venture debt to dry, supplement raise raises. the fund will of capital companies runs liquidity As form growth to need We in believe

quarters. Runway's previous remains outlook consistent with

outlook navigate and has as The ability management future. foreseeable our growth business become tightening many conditions. for additional opportunities us high. potential availability companies, a the Capital major confidence remains gives market to market in concern execute For new

continue relationships has steady we of a our Our kept depth and and reputation strong deal pipeline opportunities. robust stream to evaluate of

careful to achieving premium a proven business credit That are said, and will first clear philosophy to essential to continue runway monitoring, results. to companies focus goes high-quality which and our on path back success. This with models

in the today, As engage meet market only deals making are those are bar. seeing evaluate to high we our we sure we that with

size. ourselves in on QX terms, facility, evolving and believe deleveraged a well is capitalize on sheet or We positioned market credit balance have ample drive growth revolving XXXX. conditions protections from deploy positioned XXXX to portfolio our sacrificing and the nondilutive With without to we capital Runway quality to

I'll now it Tom. over turn to

Thomas Raterman

Thanks, loans. portfolio Runway Runway's to funded third the $XX.X in in second evening, the XXXX. average million in risk from completed everyone. slightly quarter in and Greg, rating X X.XX increased weighted the of quarter third good representing investments X.XX quarter,

Our where is to rating X only to status, is in the favorable X, quarter X system represents have continued PivotX. X a company credit X of rated scale which we most on based our nonaccrual rating. At end, portfolio

phases on As completed of in we earlier prior the expect PivotX to we've said steps our to late next calls, and resolution year-end. earnings are be

XXXX. ongoing economic States the Looking on uncertainty weigh across trajectory broadly, markets we United to expect we more approach as

of of soft the increased, has a anticipate the for a landing grapples believe impact with rates. a While risk higher challenging as we interest managing environment is Runway's forecasts probability longer effectively record differentiator. indicate that track We market the of

is priority variable team's deliver shareholders. equation in quarterly superior teams, that X its returns to our Runway company is every proactive and credit for of portfolio maximize risk-adjusted A often weeks. portfolio Our performance each least monitoring. connects key at to approach preserving while capital our management to with

Our team the problems address highest. takes early optionality a proactive conversations approach difficult when and to remains has

our loan-to-value loan in quarter increased to found weighted portfolio loans at the quarters, previous QX. In line that and calculated end second with the ratio that were the XX.X% XX.X% of slightly from dollar our to for quarter. in in value current we We QX

$X quarter $X.X in fair total a portfolio $XXX.X year value billion, second approximately from the investment period. XX% and the XXXX decreasing X% from billion million comparable of Our of for prior had increasing

of of second As $XXX.X the slightly was quarter second decreasing of end compared the million at the the Runway had of from third quarter of the quarter net end XX, NAV to XXXX. share at assets at end September XXXX. XXXX, $XX.XX per $XXX.X million, of the of $XX.XX

spread assets. loans or our are above floors, XXX% currently of floating closing or comprised the interest at time signing set term base the rate which rate loan generally As All agreed-upon at earning a is the the reminder, plus reflect sheet. rate of portfolio interest credit

third prioritizes credit-first received XXXX. the environments. driven late-stage in and second an differentiator for a in repayments, million Runway approach increase quarter Growth's the companies, the by which liquidity refinancing quality principal portfolio. quarter, Elevated This from are a Runway's provides Runway in with manner prepayments In an ideal our approach as of million to we highest primarily are $XXX.X candidates and is investing of underwriting that activity $XX.X increase strength market that's of XXXX. prepayment in Further deploy overall the view acquisition to the to health we most fully indicator which in accretive,

in XXXX million second investment $XX.X income $XX Runway $XX.X of compared $XX.X XXXX. million quarter and in the income and the of generated total quarter third net million of million investment of to

for XX.X% XX.X% of comparable Our XXXX XXXX debt XX.X% weighted the as second of and quarter generated the annualized average a for last of period quarter third to yield portfolio for in compared dollar year. the

our Moving expenses. to

down expenses quarter, For X% for second from $XX.X of million, the operating million third XXXX. the total $XX.X were quarter

loss of the quarter investments unrealized $X.X million net third in gain a of on in recorded million net compared a $X.X XXXX. quarter to second of unrealized Runway the

were were generate quarter leverage nondilutive third the quarter leverage end respectively, compared at investments portfolio with asset part and our and recoveries In and quarter as X.XX the third second X.XX XXXX, the of X.XXx funded to the X.XXx, our All to in ratio of strategy of of growth. XXXX.

$XXX and and was liquidity. XXXX. million capacity cash XX, At we compared $XXX million, respectively, June our including to liquidity $XXX.X equivalents, million, million total available cash XX, borrowing $XXX.X our XXXX, unrestricted Turning of to September as and had on

had of the to these were loan which subject companies We to currently million commitments of milestones. majority of specific are portfolio funded. $XXX.X eligible unfunded commitments million, be $XX.X to performance

Technologies and senior IO million. Detect Alerian $X.X as prepayments the $XX Systems well prepayments senior for for million, totaling as During term for principal X million Stone for to principal Technologies loans our to and Marley million $XXX.X $XX included full of scheduled $XX.X the Cybersecurity repayment million secured our term $XX $X.X of repayments loan experienced quarter, for amortization partial we EPIC million. Fidelis million, of secured The

well end, quarter of Element $X.X Holdings Snagajob by funded Gynasonics company. to equity and of funded part $X to to million Runway's as Subsequent as million raised the larger as million investments $X.X a to

secured last Links track. a a commitment monitoring week, a vehicle $XX million Up, software senior late real-time million for GPS $XX.X partial Inc. received also of loan and term under Revo Runway addition, provider $XX.X to million prepayment from we In a funded of

fourth regular repurchase the Board well a as The through $XX Finally, for of quarter payable also with declared a million distribution of on regular November November share XXXX. our as approved share per share effective $X.XX $X.XX the per supplemental program X, dividend. dividend Board the X,

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

Operator

[Operator Ladenburg. line of with first question Our Instructions] from Schleien Mike comes the

Mickey Schleien

high-level start Greg question. wanted Tom, to and with I a

think venture underwriting I you SVB bar. mostly year. the raise As lenders And that's impact the down mentioned, this of debt funding is and

for need keep that year demand. But the bar Looking your lenders in may a do recession volume out liquidity potential I next think depress into on deal the extent to high. space, continue your year, appreciate comments you to what drive as next could

Greg Greifeld

Yes.

without a industry-specific So I volume as doubt, a this think shocks on macroeconomics combination other that impact have had and as of year. deal SVB well

reenter companies that as late-stage made Data, substantial capital the have these expect substantial seen growth, in longer. half that second as PitchBook do to are that's make middle changed, by we and capital has volume market, longer we such, have a and or going that tick And P&L amounts for However, in order do in capital the capital we needed next in think that the of up be and for that and they we've having XXXX to to for that last volume. believe needing substantial is year, additional well, for to cuts deals raised XXXX their the to last as who companies realized market down equity of in driven

Mickey Schleien

Okay. drove I give appreciate into the unrealized clarification. insight us depreciation? some Could quarter's this you what

Thomas Raterman

marks Yes, change quality some a was that credit methodology in equity was sizable and in X that. in there There had marks, that were of no was changes really changes Mickey, in broad particular the movement. wholesale terms public fairly debt driving it's the CareCloud Tom. for or there then But

Mickey Schleien

fee the of income, seems Tom, there despite exits, the outsized level pretty significant? any which, Okay. to were contributors still

Thomas Raterman

a of end was of there amount payments. significant Well, term

driver was on the OID there fair acceleration then So there, prepayment amount fees and a were the big of that. of really

Mickey Schleien

right? question, Is the . My those looks and Okay. misinterpreting of that numbers? repayments I it am towards end weighted exits like last quarter. the the Or were

Thomas Raterman

come quarter. one in prepayment either weighted toward quarter. beginning at Revo. be or of of tends those exception partial of have We the most volume, to the prepayment That's of end the of end on Deal kind quarter fourth to did the the out, But of the at rule. the the

Mickey Schleien

Okay. all questions appreciate are Those my this time. your I afternoon.

Operator

comes the Wedel JPMorgan. Our next from question of Melissa line with

Melissa Wedel

it. so busy so the far far, sounds in the a provided only pretty into and activity about details investment like XQ. in we're I actually X you It appreciate quarter weeks

towards yet of to versus Given that. that what of if just of repayment to end activity you with tends seen on commentary lot wondering additional quarter, of color this activity activity any the then pull have a inside come sort be already and skewed might you've on this quarter that sort any back

Greg Greifeld

Yes.

to And fund realizing look So do that there that we trend beginning it rest quarter are activity is to there to the starting that expect continue. the the We additional that the busy to it. have line with trend of of actually definitely budgets some folks the sentiment that of the the a has for their opportunity echo quarter. been next with should towards growth sight we year, for start be do need as

Thomas Raterman

And the isn't there anything in of normal outside for as repayments, pace. particular Melissa, then

going think less be would it I than less. substantially to substantially it's expect We be to QX.

Melissa Wedel

Cercadence Okay. in If could you That's to a particular should due we both in around a quarter might are coming at fourth of marked follow into at helpful. the bit that discount read looks maturities, if looking terms a what refinancing. up we're that have near-term this on there's I'm if like and wondering it rate, just Mingle, or of I couple repayment anything cost. two

Greg Greifeld

Yes.

coming might of both refinance, names you maturities think the are to with I up. actively those looking as expect,

is variety makes and for period sense books. we seen them that on a know our they a we names them that just the there also credits of structure time, a for are determining stay if are to have We cycles intimately. Since known weather have through of

Operator

[Operator with line from Instructions] comes B. Rowe of Our next Bryce Riley. the question

Bryce Rowe

volume right paired ask with of can Greg kind the about about lower maybe buyback prospects buyback the about talk active wanted or up sheet you're with to now. just activity so into look just guess, leverage origination and of you'd as might some curious sounds the you opportunities that like? relative good Tom, and balance to talked prefer I XXXX, kind the the I go to pipeline working It and some what for you just of where you've spend money got put and kind we like money. the

Thomas Raterman

Bryce. Thanks, Yes.

our is shareholders that and at said, is return I That capital always grow that we're times use general, leverage the NAV leverage our a and in the think ourselves to preference making capacity of in there our good capacity. first are portfolio. to such to to where an investment distributions, via means investment compelling using is opportunity trading a discount

be set Board forward to use that So and we return share year, by we use team on to thought looking wanted repurchase. some parameters forward, as equity the the of look next capacity the our leverage that ability to and opportunistic the have our to for enhance

Bryce Rowe

the dividend throughout Obviously, of in maybe we're to see helpful, 'XX paid touch in plan thoughts quarter. of XXXX. it on going you was if kind declaration the on . kind how you've the supplemental you that event? think of a of or That's terms 'XX fourth to one about more a here Tom. could supplemental Okay. Any And and

Thomas Raterman

dividend. to be our continue as that would the the rate income able continue certainly and incremental take as XXXX, think supplemental and to portfolio. the the at thought dividend would supplemental interest dividend. to environment like we'll on It we of I some a through distribute is get keep We form be base into yield look to

our able portfolio do would to And to expect the the if that. we objective grows, than return be grow to where point can to it's base. we So a more

Operator

Our Erik comes line from Zwick Group. the of with Hovde next question

Erik Zwick

I leverage, a Wanted to from with, question different another kind start perspective. of on coming guess, but at it

there investment mentioned uncertainty still very and you're market. in a out probability to also lender-friendly of environment increased. starting You some see landing for the noted the There's opportunities increasing remains of soft the and has

does how where leverage on Given an is of you the curious terms capitalize of caution environment this would some economic it in today. pause you of opportunity? up keeping current taking Is maybe opportunity? environment. kind you've leverage curious the lender-friendly that outlook? Or give in just about you to I'm the some how Maybe leverage that today. So consider the think

Thomas Raterman

to very range with we're X.X Erik, Thanks. Yes. comfortable of X.X. leverage our

said X.X X.XX. fact, to In range as expand cross we'll we that we that beyond would that we certain opportunities up X.XX. see environment, And high-quality to more economic the in

to the X.X right performing is and as it quality, high macroeconomic as understanding stands lender-friendly portfolio. if it think the beyond continues and good. and the think But that. I we But to remains objective our develop, more certainty grow see environment is, if what's around to portfolio to now, X.X very expanding in it we'll leverage about is some the happening environment, use

Erik Zwick

the And maybe referring today to curious maybe leverage X you you how some . if over that's provide you're things That's seeing past covenant keep helpful. terms the lender-friendly and of that spreads could to months? types color and changed to that in of XX the environment

Greg Greifeld

Yes.

think covenants. I have is terms to LTV points attachment not covenants having is looking quantum, best definitely of all reasonable above. but and We're the which we're ability seeing the tighter of that the only for something the covenants are So implied answer, much in more short answer more have companies

portions just and period. can extend additional then of us looked for just X% which and justify companies out can't this was of twice is delayed that asked has there's which, actually draw SOFR to if now SOFR higher at floor, substantially with of of cost have to a perspective, anecdote debt debt incremental have I the expense X%, we proceeds And access underwritten this where think had north it have draw that interesting use the is quarter an that who happened the this relative now delayed

that say in we are we're prudent a best proof I capital. think to will to investing But in a own of we're And on is think These businesses I very that key that things the is key we here allocation basis. lending a that evaluate use are this case-by-case like that takeaway companies. their and

Operator

Instructions] [Operator UBS. question Abraham comes of with from line Vilas the next Our

Vilas Abraham

asked my questions just but have been of two one maybe here. Most answered, or and

last here, a characterization couple think from in weighted we fair a that it year, it? we where should your investment quarters follow-on it the runway comments sounds be towards of just new how like of Is So investments. versus much bit was more more about next portfolio should

Greg Greifeld

some I be middle do our to there milestone-based the the delayed and draws, to of gain accessibility these expect capital year expect think up we will do I do deal next that follow-on pick to activity to loans see next year. But activity companies do that in many think new which have meaningfully. we of

Vilas Abraham

that remarks . Okay. And I market your into think ] $XX.X you to come in any there just $XX more, on prepared going looking shortly. Is around a is a to that's thoughts heading Market resolution like how looks quarter. there? million one resolution mentioned here -- [ that PivotX, last million

Greg Greifeld

So word to the first be I use this resolution. final think the point is don't clarification on expect would a We resolution. the I

to treatment, be you require monetization, on a expect our the next so which along accounting step process change us the this of see We to will change books. the will

the be, And the at circumstances clarification that as time we In position by ultimately, the greater of have do unfolds, of terms over. mark facts on the the should the driven impact quarter will in we magnitude be much that. that terms will and of move what when

Operator

and Greg the turn for remarks. to call At Deputy in no I queue. showing closing to would like further now Acting this I'm Head of the Greifeld, CEO, Credit, CIO time, over back questions

Greg Greifeld

operator. you, Thank

performance remains meticulous priority. Credit quarter demonstrates operating practices. underwriting our Third quality Runway's top

our landscape. composition market the with to given and be the selective pleased are portfolio will We continue of current

XXXX. end on and you year joining us March wish updating our look and We safe quarter XXXX today. Thank forward all full for year, you fourth and healthy the you results a we to financial in of

Operator

gentlemen, this your today's participation. you conference for Ladies and Thank call. concludes

You may now disconnect.

Runway Growth Finance (RWAY) 7 Nov 232023 Q3 Earnings call transcript