Ladies and gentlemen, thank you for standing by and welcome to the Runway Growth Finance First Quarter 2025 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. You may begin.

Thank you, operator. Good evening, everyone and welcome to the Runway Growth Finance conference call for the first quarter ended March 31st, 2024. Joining us on the call today from Runway Growth Finance are David Spreng, Chief Executive Officer; Greg Greifeld, Chief Investment Officer of Runway Growth Capital LLC, our investment Advisor; and Tom Raterman, Chief Financial Officer and Chief Operating Officer. Runway Growth Finance's first quarter 2025 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 to be available on 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 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. With that, I will turn the call over to David.

Thank you, Quinlan, and thanks, everyone for joining us to discuss our fourth quarter 2025. Today, I'll start by discussing first quarter highlights and how we are optimizing our portfolio in the current environment. Then Greg will shed light on the evolving venture landscape. And to conclude, Tom will provide a deeper dive on our financial performance. For the first quarter, Runway delivered total investment income of $35.4 million and net investment income of $15.6 million. We touched on this during our fourth quarter earnings call at the March, but it's worth reiterating that given the current volatility in the market, our team has been focused on the health of our portfolio, enhancing our origination channels given our recently completed merger with BC Partners Credit and continuing to apply discipline to our underwriting practices. To that end, in the first quarter, we executed on three investments in existing portfolio companies, representing $50.7 million in funded loans. The first quarter tends to be a seasonally slower period, but we've also been selective in our evaluation practices. This selectivity has been informed by the knowledge that our platform and opportunity set would be expanding in short order with the completion of our merger with BC Partners. As we've said, since we announced the BC Partners transaction, we don't anticipate this expansion to result in portfolio growth overnight, but we believe we have ample liquidity and are positioned to move opportunistically when the right investments arise. As we look to the balance of the year, Runway Growth Capital is seeking originations in the total loan size of $30 million to $150 million with the ideal allocation to the BDC remaining between $20 million and $45 million. We believe this range will further diversify our BDC's portfolio over time as we look for new…

Thanks, David, and good evening, everyone. As David mentioned, I'd like to take a step back and speak to the dynamics we see shaping the venture ecosystem and how we are positioned today as a result. In 2021, we saw VC Funds raise capital at unprecedented levels. At the time, the only hurdle for them to raise the next vintage of a fund was deploying the funds that they had. With that backdrop, we saw investors make a high volume of investments, often at progressively larger sizes, which was additive for many firms in their pursuit to raise their next fund. As a result, we saw venture backed companies operate at higher burn levels and deliver, in our view, artificially enhanced growth rates. In effect, many companies were able to buy revenue that wasn't necessarily the highest quality or beneficial to the long-term health of the business. Then in 2023 through 2024, venture capital and growth equity firms experienced slower fundraising environments and this delayed some fund launches. Instead of the next vintage being launched in 6 to 12 months, we saw firms seeking to return to a state of normalcy with deployment taking place over the course of 3 to 4 years. As that played out, venture backed companies had to reckon with the new landscape. They had to either raise dilutive equity at a lower valuation than previous rounds or seek non-dilutive financing solutions. Additionally, this pushed companies to place a renewed focus on profitability over top line growth and reduced cash burn, which involved cutting product expansions. As a result, we saw companies avoid the addition of more capital to the balance sheet via larger loans or equity raises. Today, we believe that the sentiment has begun to shift again and many companies have reached a point…

Thank you, Greg, and good evening, everyone. During the first quarter of 2025, Runway completed three investments in existing companies representing $50.7 million in funded loans. Our weighted average portfolio risk rating remained at 2.33 in the first quarter of 2025, consistent with 2.33 in the fourth quarter of 2024. Our rating system is based on a scale of 1 to 5, where 1 represents the most favorable credit rating. As with previous quarters, we calculated the loan to value for loans that were in our portfolio at the end of the fourth quarter and at the end of the first quarter. In comparing this consistent grouping of loans, we found that our dollar weighted loan to value ratio increased from 28% to 29.1%. Our total investment portfolio had a fair value of $1 billion a decrease of 6.7% from $1.08 billion in the fourth quarter of 2024 and a decrease of 1.2% from $1.02 billion for the comparable prior year period. Our loan portfolio continues to be comprised almost exclusively of first lien senior secured loans. As of March 31, 2025, Runway had net assets of $503.3 million decreasing from $514.9 million at the end of the fourth quarter of 2024. NAV per share was $13.48 at the end of the first quarter, a decrease of 2.2% compared to $13.79 at the end of the fourth quarter of 2024. Our loan portfolio is comprised of 97% 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 at the time of closing or signing of the term sheet. During the first quarter, we experienced three prepayments totaling $71.9 million and scheduled amortization of $3.7 million. We generated total investment income of $35.4…

Thank you. [Operator Instructions] Thank The first question comes from Erik Zwick with Lucid Capital Markets. Your line is open.

Hi. Good afternoon, guys.

Good afternoon.

Wanted to start with a question. Just one of the comments on Slide 7 indicates that median and late-stage deal sizes are down and that healthcare lending is low. And I guess maybe on the second part of that statement, just curious if you could maybe add a little commentary there in terms of if this is a new term development where healthcare lending has slowed or if there's something larger at play and maybe kind of why you elected to include that in that statement in there.

Yes, Eric, those are the numbers from across the industry wide as reported in the PitchBook Venture Monitor. I think that Greg can comment more specifically on healthcare, but I just know listening to the feedback from our folks and from the peers that it's just been a little bit of a softer, slower, more cautious quarter. And I think that's what's driving those results.

Got it.

Yes. And regarding healthcare, I would say that that remains one of the 3 core pillars of verticals we look at between technology broadly healthcare as well as a very selective amount of risk. I would say looking across our pipeline, we've seen some more interesting things come on the technology side recently. And given the announcement today about potential impact to drug prices coming out of the potential executive order, that's going to be something that we will be very focused on seeing those details as they come out.

Thanks. I appreciate the additional comments there. And maybe just a follow-up on that, the pipeline. I noticed Q1 activity was almost 70% refinances. As you look at the pipeline today, curious how it looks in terms of add on refinance and new opportunities?

Yes. And to echo my comments about the deal we closed Autobooks, that is a term sheet that we had signed and anticipated to occur in Q1. Ultimately, the use of proceeds there was to help Autobooks fund an M&A deal, which given the turbulence, I think, that we all experienced in Q1, the negotiations of the finer point of that acquisition itself took longer than I think either buyer or seller expected, which caused it to push into Q2. I think those are the types of dynamics that we are seeing in this rapidly evolving market where there is desire to do deals, but folks are trying to make sure that they have the appropriate structure and pricing.

Okay. And could you provide an update on the JV, if there's been any recent investment activity there?

Yes. I would say that the JV investment activity continues to be somewhat muted as the overall environment and our approach for credit, as Greg mentioned, has been cautious. So the JV is experiencing that same level of speed if you will and ramp or lack thereof just the general cautiousness of the approach to credit today.

Thank you for taking my question today.

The next question comes from Melissa Wedel with JPMorgan. Your line is open.

Good afternoon. Thanks for taking my question. I wanted to start first with NII trends. I mean, obviously, there was a pickup quarter over quarter, and but despite that increase, I noted that your declared dividend or the supplemental dividend declared for 2Q was actually a little bit lower than what you paid in the first quarter. Just curious if you can contextualize that and help us frame how you're thinking about the earnings power of the portfolio?

Thanks, Melissa. Thanks for joining the call today and for the question. Just to step back to reiterate the dividend policy. So in March, we announced the revised dividend policy rebasing to $0.33 a share and then a supplemental dividend of up to 50% of NII. We clearly today have a bias toward building NAA and -- I'm sorry, building NAV per share as opposed to building the dividend because we don't seem to be getting credit for the dividend in the market. So we're confident in the core earnings power of the portfolio and the ability to cover the dividend, certainly the base dividend and we set that base dividend modeling a number of different portfolio outcomes with respect to looking at potential for declining rates throughout the balance of the year, a variety of scenarios with respect to non-accruals. And so we're confident in the portfolio's ability to cover that dividend going forward. And the supplemental dividend will continue to look up look for that target of up to 50%, but not necessarily saying it will be 50% every quarter.

Okay. I appreciate that. So just putting a finer point on sort of earnings power of the portfolio, I'm hearing you say that the supplemental dividend declared for the second quarter isn't reflective necessarily of your expectations of the earnings power, but more of a function of a decision to be billed NAV versus payout up to half of DSS earnings above the base dividend.

That's correct.

Okay. So that being the case, assuming stable base rates, do you feel like the NII per share of $0.42 that you saw in the first quarter is fully reflective of the ongoing dynamics, again, given stability in the base rates? Or were there some special onetime things we should be thinking about?

No. Again, I think we feel good about the earnings power of the portfolio, the ability to cover the base dividend. And the NII will vary quarter to quarter based on the growth of the portfolio or on the acceleration of income related to prepayments.

Thank you.

And the next question will come from Mickey Schleien with Ladenburg. Your line is open.

Yes. Good afternoon, everyone. Wanted to start by asking about terms. Clearly in the conventional private credit arena, we it's been very borrower friendly and spreads have generally been tight with the market imbalance. But as you mentioned in your prepared remarks, the demand for private debt capital is better. And I'm curious how that's impacting the trends that you're seeing in your pipeline versus perhaps a year ago?

Yes. So I'll take a first crack at that. This is Greg. I do think that we are seeing an improvement in terms of the structure of the pipeline and the opportunities that we're seeing. There's the things that get reported in the schedule of investments, as you said, in terms of spread, flow rate and other things like that. But I would say most encouraging as well, we're seeing lower asks in terms of leverage from a loan-to-value perspective. We're seeing maintenance of amount of and quality of covenants. So, I think we feel that we're in a good place in terms of the economics, but as importantly, if not more importantly also the structural protections of the underlying documents.

That's really good to hear. Within the pipeline or just thinking broadly, what kind of companies within the AI landscape are you attracted to for investment, if any?

Yes. So what I would say in general is, as I'm sure many folks in the market have seen, there's a large race for everyone to try to find a way to reinvent themselves as an AI company. In general, where we play in the market, we're looking for more mature, larger businesses that are generating a meaningful amount of revenue without a too high of a burn amount. So a lot of the really early-stage companies are still too nascent and immature for us to make loans to, but it is something that we do look for larger businesses. Example in our portfolio is a company Interactions, which has been in for a few years, but we're definitely interested in AI. But again, we're not necessarily willing to go earlier stage than we typically look across the portfolio.

I imagine for those larger, more mature AI companies you're referencing, there must be enormous demand to get those deals. Are the terms and are the risk adjusted returns you can get in that space interesting at all?

I would say that as with everything, there's a need to be opportunistic. But that being said, you're completely right that anytime there's a really hot sector out there, you're going to see folks chase those deals in terms of either economics or structure. And that's why as we look to stick to our netting, you don't necessarily see the most current hot sector come into the portfolio.

Yes, makes sense. Just following up on the healthcare question. It is, if I'm not mistaken, your second largest allocation. To what extent are the cuts at the NIH and the FDA impacting the sentiment and the deal flow that underlies the sort of slow pace that you referenced before?

Yes. I would say that by nature, it is an industry with a tremendous amount of regulatory risk, not only in terms of achieving or not achieving approval, but also in terms of how long things might take. As a result, if you look at the majority of our healthcare book and we've had a good amount of success, particularly a number of the names in the portfolio today, it's post approval businesses that are generating more meaningful types of revenue, which don't necessarily have that same regulatory slowdown risk than you might see for an early stage pre approval biotech or something like that.

Okay. That's interesting. Lastly, just sort of a housekeeping question maybe for Tom, if you could give us some highlights of what drove this quarter's realized gain and the unrealized portfolio depreciation.

Sure. Two parts. What really drove the realized gain was the previous announced closing of the sale of Gynesonics. And if you'll recall in Gynesonics, we had two pieces, we had our loan. So there was the acceleration of some income associated with the loan. But the gain was really driven by the sale of the preferred stock interest. In terms of the depreciation in the balance of the portfolio, that's a function of the ongoing valuation process. And I would say as you look at that, about 50% of that is influenced by performance and 50% is influenced by market multiples. So I think there were a couple of big movers that accounted for the majority of that change.

And Tom, did you just say some of the Gynesonics proceeds were recognized or accrued into income as a fixed fee?

Yes. But the gain on the sale of the equity is what drove that almost $7 million gain.

I understand. Okay. Thanks for your time this afternoon. Those are all my questions.

The next question will come from Douglas Harter with UBS. Your line is open.

Thanks. Your loan yield has had kind of quite a variance over the past couple quarters. Can you just talk about how you're thinking about what is a normalized level that you would think you would kind of achieve as you kind of spread out some of prepayment activity and as you think about that over kind of the next several quarters?

Sure. I think if you look at the variability in yields, there's been spikes at times when we have accelerated or above normal kind of level of prepayments. Going forward, we see fewer prepayments. The transactions are staying in the portfolio longer, which mitigates that spike, if you will, but it also reduces the amount of acceleration from accreted income, whether it's the end of term payment or the OID. So you have a little bit of a less of an impact from that perspective. So if you normalize that yield, I think you're going to you're in the right neighborhood in terms of what we would expect. Our SOFR spreads and our prime spreads are pretty stable and you throw on the end-of-term payments and OID and that generates the core yield.

Okay. I appreciate it. Thank you.

I show no further questions at this time. I would now like to turn the call back over to David Spreng, CEO, for closing remarks. I am showing no further questions in the queue at this time. I would now like to turn the call back over to David Spreng, CEO, for closing remarks.

Great. Thank you, operator, and thank you everybody for joining today. In conclusion, we believe that our high-quality portfolio is positioned to perform amidst ongoing market volatility, and we look forward to updating you on our progress during our second quarter earnings call in August.

[Operator Closing Remarks]