RWAY - Earnings call transcript Q2 2024 | Runway Growth Finance Corp.

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Runway Growth Finance Second Quarter 2024 Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Quinlan Abel, Assistant Vice President, Investor Relations. Please go ahead.

Quinlan Abel

Thank you, Operator. Good evening, everyone, and welcome to the Runway Growth Finance conference call for the second quarter ended June 30, 2024.

Joining us on the call today from Runway Growth Finance are David Spreng, Chairman, President and Chief Executive Officer; Greg Greifeld, Managing Director, Deputy Chief Investment Officer and Head of Credit of Runway Growth Capital; and Tom Raterman, Chief Financial Officer and Chief Operating Officer. Runway Growth Finance's second quarter 2024 financial results were released just after today's market close and can be accessed from Runway Growth Finance's Investor Relations website, at investors.runwaygrowth.com.

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

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

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

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

David Spreng

everyone, for second and XXXX. overview us reflect of evening this discuss financial remainder joining to quarter lastly, thanks, our an second year for first on the I'll results, our and quarter half our highlights, outlook of Quinlan, results. Today, you, of Thank discuss the the provide and

an Group to X encouraged We've new senior as funded companies of focus growth therapies. of quality million senior the of and seeking the on high-quality mobile in know growth ONWARD term completed million to late-stage stimulation During company term a investments position $XX.X best: investment spinal execute is are innovative representative the loan believe pleased and These income cord secured representing at in healthcare industries. Runway million is of volume in our we a total the service we second companies the companies secured select the quarter. technology, and on loans. on by apps, loan million creating consumer and sectors both potential medical the We Medical. Airship companies included income our million software engagement to We net delivered customer in attractive a capital end partner. $XX.X technology platform while Airship for nondilutive $XX.X of $XX.X quarter, $XX.X of enterprise opportunities. ONWARD a investment and quarter, been focused second product investments completion portfolio were

quarter average in to first X.XX second risk Our quarter, compared the in XXXX. portfolio X.XX increased the rating to of

play for reduces of our we We on commitment continue financing our throughout that at issues early-stage volatility uphold loan. Further, potential investing risk our and in and of a may avoiding with the the capital situations and portfolio at the significant monitor to borrowers junior downstream lifetime with top originating investments to of risk associated the of often capital arise conditions stack entire companies. regardless proactively focus believe market supporting

origination will We thoughtfully moving growth, forward. accelerate

to now Turning market. the

down focus are contending to inflation, continues cautious, heightened constraints. and stages Reserve and with are Federal the rounds companies various As of at on taming liquidity investors probability

at continue companies XXXX debt raised during that and for to capital a valuations means anticipated, record nondilutive growth. seek we as As XXXX

to companies value, quantity an companies conservative opportunities as current are heavily venture-backed their the attractive increasing levels to quite fundraising we which today's companies Runway. enterprise clear in scrutinized, challenging investors capital with relative for highest-quality environment, prioritize the seeing paths of to However, markets profitability. In are translates at

to access always backdrop. has thesis and challenging be providing capital. The importance a dilutive providing amid minimally a entrepreneurs supporting by cannot of capital investment overstated margin Our safety growth centered of preservation on passionate

emphasis on forward. focus sectors on and in eye critical credit on Our quality our underwriting, credit potential acyclical provides performance, moving comfort

to on our amidst opportunistic coming quarters. our in disciplined business to subsectors. environment for positioning the it and landscape. investment necessarily going has ready overview of believe in in and confidence returns. With improved many not diversify the capital seek our we'll underlying are ensure Greg the In deals execute to We we to shareholders certain to this portfolio be we going we long-term but right we in that these the fundamentals In redeploy for borrowers remain that, That are will months. recent operating in result of meaningfully with said, be linear will situations, for portfolio the view, improving expansion and turn conditions over the quarter-to-quarter are borrower's macro portfolio I'll an as

Greg Greifeld

the XXXX, stem dilution. total of of the and marking have to XXXX, sequentially QX stay moment to the the value Thanks, been value point. U.S. lengthen the venture count deal quarterly quarter, the runway further figures. XX% of an focus highest in deal a equity stages marking David. deal I'd since activity in equity second market to on later apt most and take XX% like second cautious the out to potentially inflection late-stage U.S. venture quarter most deal at strong the total to increased of represented which to Companies of venture

of many and environment, tensions given and rate expect election reflection of growth-stage to constraints caution higher-for-longer associated to remainder the continue investor uncertainty liquidity fundraising with with U.S. and geopolitical the late- XXXX, We for a the companies cycle. struggle

we table and value, are trend monitor over enterprise continue will mixed to coming our their uncertainty, we seeking a depth a the As of coming quarters. Against backdrop are of conservatively geopolitical mentioned, David companies to the our solutions with the pipeline. the to relative pleased financing quality

dynamic accommodating, for interest remain our the maximize environment levels in capital While higher into are and ability policy, debt risk-adjusted such deploying our delivering to risks performance returns by fiscal confident credit as shareholders. coming remain focus. financial to very capitalize while conditions of rates, given We in strong

targeted platform. efforts efforts our witnessing David's a our Under are companies sector and high-quality broader the quarter, of have relationships We Runway team-wide distribution beyond continuing pursuing opportunities yielded networks late-stage across companies for translate with leadership, forward a into deep strategy to investment in diversified scale new our and recent marketing strategically outreach diversified select pipeline. By we in our Growth second the mix the to funnel investment to invest our of opportunities opportunities bringing look ecosystem. in industries, paired

refinance, As plan a is our with to to smaller them the and portfolio. present we expect thereby continue. verticals This increasing replace in larger loans, industries range of deals we trend

we've loans and started out have larger grown smaller balance with has the companies. as at look done, you deals many our As the

of companies deploy quarter. We drive loans for down over increased performing that fundings plan forward, thoughtfully sequential thereby average us fact, the and do In allowing commitments of companies. I a from to the every and to the incremental now growth road, more these expanded reiterate commitment. By we accelerate original portfolio upsized, have more partnership. initiatives XX% moving David's And portfolio X/X we to capital origination not sentiments. expect to expansion upsized that fundings pipeline want throughout our on financing completing deals, their the smaller have to mean

our However, sheet capital it position to come redeploy does from capital in deploy and mean that balance confident our activity. from may that we're prepayment

we're transactions deeper certain pipeline, see that, subsided more in some at advantage is positioned the where those take our We into in the have outperform. our a borrowers. With improved believe sectors that headwinds environments As select we to in to operating the executing evaluate dive of economic and I we we most, path situations opportunistic terms for borrower confident to turn we investments over now and like subsectors it want to financials. to Tom various will

Thomas Raterman

and good Thank you, everyone. Greg, evening,

of X in we the investments in completing flow, representing expanded second XXXX, quarter, million late new in deal funded the During quarter $XX.X loans. companies

X.XX X.XX portfolio quarter, risk the the quarter weighted-average in XXXX. of to to rating in first Our second increased compared

system on of is Snagajob represents scale reflects downgrade loan a this of quarter based X where the rating X. largely credit The a X Category our to favorable to X, change rating. most to Our

of loans value ratio sequentially. The increased that the increase we the current XX.X% XX.X% is for result in In of Snagajob. loans primarily calculated As with of basis, our a were grouping quarters, end portfolio to loan comparing like-to-like the sequential of quarter this dollar-weighted from previous the at the the we the end consistent at first and of quarter. loan-to-value our found that increased ratio on to loan-to-value

a the first for total fair an $X.XX had the of of Our Treasury portfolio from of investment period. a XXXX increase billion comparable in X% excluding billion billion, prior decrease X% and $X.XX year of bills, $X.X quarter value from approximately

exclusively be loan of first lien continues to Our senior almost portfolio secured loans. comprised

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

quarter loan in of floating-rate or or plus rate of above currently credit is are set agreed-upon signing earning Our average the term $XX.X a the for the occurred decrease our second in These repayments, early first million sheet. In quarter. the interest at loans the floors, portfolio the from at quarter, assets. million base comprised generally of assets $XX.X quarter, received in interest time All we the the XXXX. which reflect earning rate XXX% principal payments spread closing reducing

heightened expect in in are nonsponsored on performing positions near highest-quality prepayments ideal is As testament and sponsored term. David the which acquisition. mentioned, or the a the credit-first largest for are often to candidates and we refinancing our This well, philosophy focused our portfolio companies,

the to and of $X.XX portfolio average quarter XXXX. during interest very of as by year-over-year percent represented million compared to average of The approximately a a a which reduction to on X.X% approximately maintained total declined investment the in decline our quarter, a transactions. PIK in the in current provides first our net new X.X% debt start generated high X.X% that manner of and growing, of repayments Our XXXX, dividend opportunities new by with income exit enable and $XX.X line Furthermore, year, and meet to fees these expectations amount the in and us term. million us income $XX in and with sizable is in capital in of the quarter-over-quarter during our is of our million outstanding as declined of second interest to for the decline the the of in are primarily investment to second result $XX.X sight basis, quarter, $XX.X credit a of XXXX. prepayment compared income respectively, quarter standards share. The the total cover strategically investment per and size redeploy will income distributions a a our attractive near at of generated of diversified interest line million for quarter first criteria. We ability level we repayments portfolio inflow XX.X% deployments which

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

Moving to our expenses.

the of loss on to a total of $XX.X quarter in from $X.X additional first quarter XXXX. For XXXX. unrealized or largely loan expenses second a $XX.X $X.X net of first quarter, an result of loss compared of a the the XXXX. Runway losses unrealized markdown second the of The million were in million, for recorded had quarters no second of on first our to Snagajob. We unrealized realized million the loss down quarter, million was operating X% million investments in net $X.X

status. June nonaccrual of XXXX, had X XX, As on we loans

these X.X% asset $X Healthcare Mingle market a market in portfolio or And of compared $XX to the has XX% or of loan of second to total companies portfolio decline $XXX.X a of cash from of of the our including capacity to has the subject were coverage cost. the million, of million, we million currently to and had of loans million were to end and XX% quarter respectively, the million, of commitments $XXX to loan available $XXX value XXXX. At fair investment equivalents. cost funded. on which liquidity million, borrowing cash unrestricted quarter had XX, at million $XXX.X $XXX.X $XX.X our X.XXx of X.XXx, of a ratio million, and reflecting X.XXx commitments value million eligible unfunded are June Snagajob and and XX, and total and performance cost basis XXXX. At fair March of XXXX, specific We $X.X first quarter-end, loan X.Xx milestones. represent was cost. Our majority fair million, be leverage of a XXXX, value. In of $XX our respectively, These basis

senior prepayment of XX, amortization million. During Inc. Subsequent term Inc., included secured secured our on $XX prepaid million full The of on Tech experienced million outstanding the Intermediate, to its X totaling CloudPay, $X.X principal second repayment principal July loan. quarter, balance senior quarter-end, prepayment, our $XX.X and Turning loan we term scheduled of to

predict, exact expansion While positions. based drive additional anticipate These and deploy stability the dividend of the the as maturity largest portfolio we pipeline year activity prepayments replenishment some as around to of provide the throughout difficult to across of prepayment performance our coverage. prepayments timing well portfolio near-term capital is of will our us offer on and to balance continue

well. are we the who these While they believe realistic of demonstrate to about the we borrowers of perform our impacts health prepayments, underlying continue

X,XXX,XXX the of to a XXXX, date stock repurchased purchased which for stock X,XXX,XXX our the board XX, of XXXX, program, the new approved in of effectively our giving expire 'XX XXXX, repurchase program, program. ability if $XX million, approximately on common us the which In stock repurchase brings XX, November earlier and we the under of July program repurchase acquire amount our million shares Runway's authorized November of As earnings directors second directors to calls, we on July exhausts under total total repurchase the approved to mentioned or shares will previous stock. up program. On quarter, to the $XX board a

strategic were shareholders our quarter, second enhanced a of common the execute and shares as stock. X,XXX,XXX of affiliates common Management secondary During broader pleased of liquidity Oaktree We our and Capital our our for this stock we see to completed ownership long-term against initiatives. offering

distribution second questions. the the of of dividend that, please open with regular share quarter board of $X.XX declared as share supplemental on payable a July for dividend. With directors well our as per $X.XX for a XXXX, XX, Finally, per the Operator, line regular

Operator

from Our line Doug the first UBS. comes [Operator Harter, Instructions] of question of

Douglas Harter

drop the could you a Hoping yield portfolio on this detail behind quarter. give little in more the

Greg Greifeld

remained a in the was the steady. question. income. really decrease in prepayment-related a were for The yield result -- thanks is of reasonably accounting steady. yield Doug, Spreads drop yield The primarily portfolio pretty

a largely income. it's onetime result of the So

Douglas Harter

going somewhere to And but XQ just is? forward, think in to over vary then kind help the time, the think going normalized a or it's Kind or obviously, what between? XQ it level about of us quarter-by-quarter, do we of, about, how

Greg Greifeld

In terms of prepayments yield? or the portfolio

Douglas Harter

Both.

Greg Greifeld

me let first. so prepayments Well, Okay. take

So but million handfuls of of the of big couple for we have half $XXX expect a line prepayments. we probably $XXX for million a sight second range, in XXXX, of a to It's names.

a to is that close total, probably the quarters of of number a result Now out several in build in the by of fees accretion. that $X.XX in prepayment some any contraction that, represents related will and of we of There's that this imagination. We'll of liquidity acceleration it one, quarters, take isn't temporary permanent share portfolio. And those back. stretch to, a would income that's offset in a a expect also coming the then NII and, amount two, This have tremendous to portfolio available. as

Our drop. leverage will

that X.XXx. back dry we'll up to have come powder of so to plenty And

-- that quarters. income So the of for of we there's level prepayment-related expect next couple an elevated

Operator

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

Melissa Wedel

You've repayment that one prepayment looks near appreciate term, talked higher and associated activity X-year since before one that in with just Should a have CloudPay. the certainly think come about disclosure expecting in the a it? It might around income mark having as like origination. we about lot

Greg Greifeld

a and had considerable borrower a pleasure income time. some a working of the with of for was that prepayment with That's loan associated that. There we've period

amount number. So the $XXX $XXX range acceleration million There a of to million in end-of-term million wasn't to includes accretion it $XX on the payment. And CloudPay relates really prepayments. tremendous of the

Melissa Wedel

of I'm the part missed sorry, that. I first

Greg Greifeld

half in CloudPay. I prepayments for to potentially in million about, $XX the the that $XXX of from received million includes quarter talked $XXX The we that second the year, earlier million the range

Melissa Wedel

Okay.

But we Okay. were us that of origination Appreciate the to anything your is origination about so tell time. specific XQ? wondering, ahead quarters get pretty a that you of tough clarification. around I'm the especially just arms Obviously, the there mean, I activity. activities, environment the couple you repayment in it's can far know around,

David Spreng

grips make: remains Yes, to expensive. market. of a delayed scarce with downturn, the of of important the more perspective, environment. And and as to say they've the kind probably do as sure, realistic can. long are it the and then X about would raising relates valuation, reality structure and demand demand from they come there's And to in really on Melissa. points economic They've now, to finally the equity money, terms. really X face X I And side potential as they really especially raise and a want borrowers

that view, rates from as more demand of environmental spreads always a a of lot able the and less, borrowing pay I can of and bit. so Runway. Is the if to hopefully structure, structure provide. And the little we're capital better makes and an that terms they're earlier, base helpful? spread. And able them. decline likely for to lender expand to and almost in we're you that a covenants, bit is with there's said grow actually point And So for both these like get that other that something a will, will less, that looking borrower are for point they we companies And sense are

Melissa Wedel

it I if can specifically already. far, is. size terms guess anything us XQ for I'm in of It unless there's activity you wondering so I also missed

David Spreng

economy the volatility previous is than wrapper, that to just the was year. to not like, quarter, environmental perspective, Well, and really, No. an good, the that our over very about really, back like, that, it's, both and that there's it remain there Greg end-weighted, if really think -- looks the I going have from, you we every I picky really said funnel on And and but we remarks more want even call deals do. what in we're cautious prepared like but ESG

on So things fence underwriting. kind of when that we be are weighs conservative. on the on tend the bubble, heavily And or our to

massive think expect but the That's do goal. we're I be going to that hopefully, on QX. more the but so not And out -- QX, And last in the our quarter. deals they'll I both, day quarter of wouldn't spread they throughout won't a some both be

Operator

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

Bryce Rowe

to some Melissa's on up comments of want there. I maybe or questions follow

that of you and assume quarters. here, funnel over talk I whether process? that us bit a pun of start help think, of or for in out, last a broadening you give little really better how the pipeline? both it us, but quantify last those David, talked us hold. necessarily a pipeline terms a it you there's expect take I or runway process. maybe about some, has Can about was multiples bit of what And it quarter can that once or couple a efforts has you Greg from And there's yielded not the intended to

David Spreng

and And we're portfolio. And our question. diversification quarter, more accomplish trying So of it think need backdrop, but achieve our conservative that's of referring it's those does but we're both to couple to to quarters, we lens over And with mean around we the the fact a overall to last I origination $XX also the and are last really to challenging more commitment average perfect a million. do right great simultaneously add to goals trying is more goals, deals. that a

we can one time thing I less have is thorough just any we get get about into portfolio. of to. being new And structure or we're you not reality that But a the filtering. the assure any price thoughtful deals the that's analysis more busier. we're We're that to So think I how and doing spending lot the an less used

Bryce Rowe

Okay.

Can for some of a activity smaller with used one. see appetite of that either talk facility what to you a repayment authorizes at another that's nice sounds there's that, one then pile has your board some for the the big considering activity. the And especially repurchase outstanding opportunity most up, credit It be if program point been Okay. like about could expected? much or cash

Thomas Raterman

did The Bryce. approve million week board program. answer last $XX repurchase that, share a I'll

demonstrates think where we I believe, reloaded So to the capital you we look stock at At we dividends clearly, we're, bias investors power I time, we the think building And through it, over ourselves. bucket, to core time. if really portfolio trades, a investing depending return on will. significant as have through earnings that same and have that a in

use million not. We or lot now, it's leverage that right $XX have a to of capacity whether

So see on to that us the be opportunities in we'll we'll what just gives that, opportunistic have certainly market implementing and program.

Bryce Rowe

Okay.

Okay. Last one for me.

income portfolio of on cover a the prepayment distribution potential supplementals pocket you relative you the and of think basis? maybe dividends of a to future out get as smaller? you Can that kind way might half to talk second laid keep year. of relative -- just in light in going-forward the about Do the spillover outsize certainly You that regular might your that for

Thomas Raterman

dividend pace of to be to credit-first build about going possible. thoughtful back we'll want is And time, have to We'll look the to got amount good as intact, intention. And of that our of it. should be think, income it. maintain what about yes, we've at spillover at all want more. keep Again, to that. I portfolio as we preference and same the base a generate our that today. to see originations quickly is. The the is We're prepayment have which We

we're to like a continue position -- on supplemental for that We but that. kind the in as as supplemental have income we'd will a of good kick really of and prepayment So the determine we the healthy I want right that. can with road pace the long now But the down dividend. can, originations anticipated to to

Operator

remarks. closing further questions would time. at showing to I to David Instructions] I'm like it and turn CEO, this Chairman, [Operator back Spreng, President no for

David Spreng

you, Thank Operator.

half to Runway's second portfolio forward favorable at loans the we through of terms. XXXX, advancing enter high-quality look we As

investing opportunities. power and continues take condition for will to of navigate market it in changes on credit-first to you our the us continues ready joining selectivity stable number the portfolio in operating or XXXX our financial advantage that to forward dedication in is November. look grow, of we lender-friendly. Thank environment you monitoring to evaluating maintain believe capital market future the the shifts We becomes market to us while We're all critical we as to and As enable updating our environment. seeking and quarter more opportunities approach third underwriting results and in to today, venture-backed current our companies vigor,

Operator

Thank your you This conference. today's in participation program. for the concludes

You may now disconnect.

Runway Growth Finance (RWAY) 8 Aug 242024 Q2 Earnings call transcript