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.

Thank you, operator. Good evening everyone and welcome to the Runway Growth Finance conference call for the second quarter ended June 3th, 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. We have arranged for a replay of the call at the Runway Growth Finance webpage. During this call, I want to remind you that we may make forward-looking statements based on current expectations. The statements on this call that are not purely historical are forward-looking statements. These forward-looking statements are not a guarantee of future performance and are subject to uncertainties and other factors that could cause actual results to differ materially from those expressed in the forward-looking statements, including and without limitation, market conditions caused by uncertainties surrounding rising interest rates, changing economic conditions, and other factors we identified in our filings with the SEC. Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions can prove to be inaccurate and as a result, the forward-looking statements based on those assumptions can be incorrect. You should not place undue reliance on these forward-looking statements. The forward-looking statements contained on this call are made as of the date hereof, and Runway Growth Finance assumes no obligation to update the forward-looking statements or subsequent events. To obtain copies of SEC related filings, please visit our website. And with that, I will turn the call over to David.

Thank you, Quinlan and thanks everyone for joining us this evening to discuss our second quarter results. Today, I'll reflect on the first half of the year and second quarter highlights, provide an overview of our financial results; and lastly, discuss our outlook for the remainder of 2024. During the second quarter, we were pleased to execute on attractive opportunities. We've been encouraged by the volume of quality companies seeking non-dilutive growth capital and our position as a potential growth partner. We completed two investments in new portfolio companies at the end of the second quarter, representing $75.5 million in funded loans. These investments included the completion of a $58.4 million senior secured term loan to Airship Group and a $17.1 million senior secured term loan to ONWARD Medical. Airship is an enterprise software platform focused on customer engagement for mobile apps, while ONWARD is a medical technology company creating innovative spinal cord stimulation therapies. We believe both companies are representative of our focus on high-quality late-stage companies in the sectors we know best; technology, healthcare, and select consumer service, and product industries. Runway delivered total investment income of $34.2 million and net investment income of $14.6 million in the quarter. Our average portfolio risk rating increased to 2.47% in the second quarter compared to 2.44% in the first quarter of 2024. We continue to proactively monitor our portfolio for potential issues that may arise regardless of market conditions and uphold our commitment to supporting borrowers throughout the entire lifetime of a loan. Further, we believe our focus on originating investments at the top of the capital stack and avoiding situations with significant downstream financing risk and junior capital at play reduces the risk of volatility often associated with investing in early-stage companies. We will thoughtfully accelerate origination growth moving…

Thanks David. I'd like to take a moment to focus on the U.S. venture equity deal activity in the second quarter, which increased sequentially to the highest yield value since Q2 2022, potentially marking an inflection point. U.S. late-stage venture equity represented 42% of total deal value and 29% of total deal counts in the second quarter of 2024, marking strong quarterly figures. Companies at the later stages of venture have been the most apt to lengthen Runway and the most cautious to stay out of the market to stem further dilution. We expect many late and growth-stage companies to continue to struggle with fundraising and liquidity constraints for the remainder of 2024, a reflection of investor caution given the hire-for-longer rate environment, geopolitical tensions and uncertainty associated with the U.S. election cycle. As David mentioned, the company is seeking our financing solutions are coming to the table conservatively relative to their enterprise value, a trend we will continue to monitor over the coming quarters. Against a mixed backdrop of geopolitical uncertainty, we are pleased with the depth and quality of our pipeline. While financial conditions remain very accommodating, risks such as fiscal policy, given higher levels of debt and interest rates are coming into focus. We remain confident in our ability to capitalize in the dynamic environment by deploying capital, while delivering strong credit performance to maximize risk-adjusted returns for our shareholders. We are witnessing our recent efforts paired with deep sector relationships translate to a broader funnel of high-quality opportunities for the Runway Growth platform. Under David's leadership, our targeted outreach and marketing efforts have yielded new investment opportunities in the second quarter, bringing a diversified mix of companies into our pipeline. By continuing to strategically invest in our team-wide distribution networks and scale our strategy beyond late-stage…

Thank you, Greg and good evening everyone. During the second quarter of 2024, we expanded deal flow, completing two investments in new companies late in the quarter, representing $75.5 million in funded loans. Our weighted average portfolio risk rating increased to 2.47% in the second quarter compared to 2.44% in the first quarter of 2024. Our rating system is based on a scale of 1 to 5, where one represents the most favorable credit rating. The change this quarter largely reflects a downgrade of our loan to Snagajob to Category 5. As with previous quarters, we calculated the loan-to-value for loans that were in our portfolio at the end of the first quarter and at the end of the current quarter. In comparing this consistent grouping of loans on a like-to-like basis, we found that our dollar weighted loan-to-value ratio increased from 25.8% to 27.3% sequentially. The sequential increase is primarily the result of the increased loan-to-value ratio of Snagajob. Our total investment portfolio had a fair value of approximately $1.06 billion, excluding treasury bills, an increase of 5% from $1.02 billion in the first quarter of 2024 and a decrease of 3% from $1.1 million for the comparable prior year period. Our loan portfolio continues to be comprised almost exclusively of first lien senior secured loans. As of June 30th, 2024, Runway had net assets of $506.4 million, decreasing from $529.5 million at the end of the first quarter of 2024. NAV per share was $13.14 at the end of the second quarter compared to $13.36 at the end of the first quarter of 2024. Our loan portfolio is comprised of 100% floating rate assets. All loans are currently earning interest at or above agreed-upon interest rate floors, which generally reflect the base rate plus the credit spread set…

Thank you. At this time, we will conduct a question-and-answer session. [Operator Instructions] Our first question comes from the line of Doug Harter of UBS. Your line is now open.

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

Thanks Doug. Thanks for the question. The drop in yield really is a result primarily of a decrease in prepayment-related income. Spreads were reasonably steady. The portfolio yield remained -- the accounting yield was pretty steady. So it's largely a result of the one-time income.

And then just to help us think about it going forward, kind of, obviously, it's going to vary quarter-by-quarter, but how do we think about, over time, what a normalized level is? Kind of the 1Q or the 2Q or somewhere in between?

In terms of prepayments or the portfolio yield?

Both?

Okay. Well, so let me take prepayments first. So, for the second half of 2024, we expect probably $200 million to $300 million in prepayments. It's a big range, but we have a line of sight for a couple of handfuls of names. Now, that represents probably close to, in total, $0.20 a share in income related to prepayment fees and acceleration of accretion. There's also some offset in NII as a result of those coming out of the portfolio. And then we would expect that, one, this is temporary and, two, that it will take a number of quarters, several quarters to build that back. This isn't a contraction in the portfolio that's permanent by any stretch of the imagination. We'll have a tremendous amount of liquidity available. Our leverage will drop. And so we'll have plenty of dry powder to come back up to that 1.25 times. So, there's -- we expect an elevated level of that prepayment-related income for the next couple of quarters.

Thank you.

[Operator Instructions] Our next question comes from the line of Melissa Wedel of JPMorgan. Your line is now open.

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

There was some prepayment income associated with that. That's a loan and a borrower that we've had the pleasure of working with for a considerable period of time. So, it really relates to prepayments. There wasn't a tremendous amount of acceleration in accretion on the end-of-term payment. And the range of $200 million to $300 million includes the $75 million CloudPay number.

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

The range that I talked about, $200 million to $300 million in prepayments for the second half potentially of the year, includes the $75 million that we received earlier in the quarter from CloudPay.

Okay. Okay, appreciate the clarification. I'm just wondering, I mean, you were pretty specific around the repayment activity. Obviously, we know that the origination activities, it's tough to get your arms around, especially a couple of quarters ahead of time. But is there anything that you can tell us about the origination environment so far in 3Q?

Yes, sure, Melissa. I would say there's probably five really important points to make, three kind of on the demand side and then two as it relates to the environment. And from a demand perspective, borrowers are more realistic about valuation, structure and terms. They've finally come to grips with the reality of the market. And they've really delayed raising as long as they can. And now, especially in the face of a potential economic downturn, they really do want to raise money, and equity remains scarce and expensive. So, there's a lot of demand for the capital that we provide. And from an environmental point of view, if you will, base rates are likely to decline and spreads hopefully will expand a bit. And as I said earlier, we're able to get more in terms of structure, like covenants, and a little bit better spread. And the other point is that these companies are actually borrowing less, so that they pay less, and they're looking for a lender that can grow with them. And we're almost always able to structure something that makes sense for both the borrower and Runway. Is that helpful?

It is. I guess I'm also wondering if there's anything specifically you can size for us in terms of 3Q activity so far, unless I missed it already?

No. Well, I think Greg and I both said in our prepared remarks that the funnel looks very good, but we have -- it's, like every quarter, back end-weighted, and we remain really, really, really picky and really cautious about deals that we're going to do. And the environmental wrapper, if you want to call it that, not from, like, an ESG perspective, but just what the economy is like, there's even more volatility on that than there was over the previous year. So that kind of weighs heavily on our underwriting. And when things are on the fence or on the bubble, we tend to be conservative. And so I wouldn't expect a massive Q3, but I think we're going to do some deals in Q3. And hopefully, they won't both be on the last day of the quarter -- not both, but that they'll be more spread out throughout the quarter. That's our goal.

Okay. Thank you.

Of course.

Our next question comes from the line of Bryce Rowe of B. Riley. Your line is now open.

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

So, it's a great question. And we're referring to the fact that we are simultaneously trying to achieve our overall origination goals with a more conservative lens and a more challenging backdrop, but we're also trying to add diversification to the portfolio. And our average commitment last quarter, and I think really over the last couple of quarters, is right around $40 million. And that's perfect to accomplish both of those goals, but it does mean we need to do more deals. So, we're busier. We're spending a lot more time filtering. And I think that's just the new reality that we have to get used to. But the one thing I can assure you is we're not doing any less thorough of an analysis or being any less thoughtful about how we structure and price the deals that get into the portfolio.

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

I'll answer that, Bryce. The Board did approve last week a $15 million share repurchase program. So, we have reloaded that bucket, if you will. And I think as we look at it, clearly, depending on where the stock trades, we're, we believe, investing in ourselves. At the same time, I think we have a bias to really return capital to investors through dividends and through building a portfolio that demonstrates significant core earnings power over time. We have a lot of capacity to use that $15 million right now, whether it's leverage or not. So, we'll just have to see what opportunities the market gives us on that, and we'll certainly be opportunistic in implementing that program.

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

Yes, I think -- yes, we'll have to look at all of that. Again, our preference is to maintain the base dividend and keep that intact, which is our intention. And we've got a good amount of spillover today. The prepayment income should generate more. We'll have to see what the pace of originations is. We want to be thoughtful about it. We're going to be credit-first about it. And at the same time, we want to build that portfolio back as quickly as possible. So, I kind of have to kick the can down the road on that. We want to -- we'd like to continue that supplemental as long as we can, but the pace of originations will really determine that. But we're in a good position right now with the supplemental and the anticipated prepayment income for a healthy dividend.

Okay. All right. That’s it from me. Thank you

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

Thank you, operator. As we enter the second half of 2024, we look forward to advancing Runway's portfolio through high-quality loans at favorable terms. As the number of venture-backed companies seeking capital in the current market environment continues to grow, it is critical that we maintain our dedication to selectivity and underwriting vigor, while evaluating future opportunities. We believe our credit-first approach to investing and monitoring continues to power our stable portfolio and will enable us to navigate changes in market condition or shifts in the operating environment. We're ready to take advantage of opportunities as the market becomes more lender-friendly. Thank you all for joining us today and we look forward to updating you on our third quarter 2024 financial results in November.

Thank you for your participation in today's conference. This concludes the program. You may now disconnect.