Q1 2024 Runway Growth Finance Corp Earnings Call

Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Runway Growth Finance first 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.

Ladies and gentlemen, thank you for standing by and welcome to the Runaway growth Finance first quarter 2024 earnings conference call.

Quinlan Abel: Be advised that today's conference is being recorded I would now like to hand, the conference over to Quinlan evil.

Quinlan Abel: President Investor Relations. Please go ahead.

Quinlan Abel: Thank you operator.

Quinlan Abel: 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, 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 first 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 on the Runway Growth Finance website.

Quinlan Abel: Good evening, everyone and welcome to the runway growth Finance conference call for the first quarter ended March 31 2024.

Quinlan Abel: Joining us on the call today from a runaway growth finance are David Spring, Chairman, President and Chief Executive Officer.

Quinlan Abel: Greg Greifeld, managing director Deputy Chief investment Officer, and head of credit a runway gross capital.

Quinlan Abel: And Tom Rado men, Chief Financial Officer, and Chief operating Officer.

Quinlan Abel: Runaway growth Financial's first quarter 'twenty 'twenty four financial results were released just after today's market close and can be accessed from runway growth finances Investor Relations website at investors got runway growths dotcom.

Quinlan Abel: We have arranged for a replay of the call at the runaway growth finance webpage.

Quinlan Abel: 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 statement, including, but not limited to, market conditions caused by uncertainty surrounding rising interest rates, changing economic conditions, and other factors we identified in our filings with the SEC.

Quinlan Abel: During this call I want to remind you that we may make forward looking statements based on current expectations. The.

Quinlan Abel: Statements on this call that are not purely historical are forward looking statements.

Quinlan Abel: 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 uncertainty surrounding rising interest rates changing economic conditions.

Quinlan Abel: And other factors, we identified in our filings with the SEC.

Quinlan Abel: 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 in this call are made as of the date hereof, and Runway Growth Finance assumes no obligation to update the forward-looking statements or subsequent, To obtain copies of SEC-related filings, please visit our website.

Quinlan Abel: 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.

Quinlan Abel: You should not place undue reliance on these forward looking statements.

Quinlan Abel: These 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.

Quinlan Abel: To obtain copies of the SEC related filings please visit our website.

Quinlan Abel: Before we begin, on behalf of the company, we are thrilled to welcome back David Spreng as he assumes full responsibility as Chairman, President, and Chief Executive Officer of Runway Growth Finance. And with that, I will turn the call over to David.

Speaker Change: Before we begin on behalf of the company. We are thrilled to welcome back David Spring as he assumes full responsibility as chairman President.

Quinlan Abel: And she thinks I could've officer of runway goes finance and with that I will turn the call over to David.

David R. Spreng: Thank you, Quinlan, and thanks to everyone for joining us this evening to discuss our first quarter results. I want to thank all of those who reached out for their support during my recovery process.

David: Thank you Colin Lynn and thanks, everyone for joining us this evening to discuss our first quarter results I want to thank all of those who reached out for their support during my recovery process.

David R. Spreng: Furthermore, I'd like to thank Greg, Tom, and the entire Runway team for their collaboration in navigating the dynamic macro environment over the last several months. To start, I'll provide some first quarter portfolio highlights, then an overview of our financial results, and finally discuss the current market trends that we're observing. During the first quarter, Runway saw heightened pipeline activity and completed two investments in new and existing portfolio companies representing $25 million in funded loans. Runway delivered total investment income of $40 million and net investment income of $18.7 million in the quarter. These figures both represent an increase of approximately 2% from the prior year period.

Speaker Change: Further I'd like to thank Greg, Tom and the entire run rate team for their collaboration in navigating the dynamic macro environment over the last several months.

David R. Spreng: To start I'll provide some first quarter portfolio highlights then an overview of our financial results and finally discuss the current market trends that we're observing.

David R. Spreng: During the first quarter runway saw heightened pipeline activity and completed two investments in new and existing portfolio companies representing $25 million in funded loans.

David R. Spreng: Runway delivered total investment income of $40 million and net investment income of between $7 million in the quarter.

David R. Spreng: These figures both represent an increase of approximately 2% from the prior year period.

David R. Spreng: Our Weighted Average Portfolio Risk Rating increased slightly in Q1, which Tom will provide more details on shortly. We're very focused on credit quality and believe in working closely with all of our portfolio companies throughout the entire lifetime of our loans. This belief drives our monitoring philosophy and is the foundation for preserving credit quality. Consistent communication with our borrowers enables us to accurately mark investments and mitigate potential risk while maintaining consistent yield. Turning now to the market.

David R. Spreng: Our weighted average portfolio risk rating increased slightly in Q1, which Tom will provide more details on shortly.

David R. Spreng: We're very focused on credit quality and believe in working closely with all of our portfolio companies throughout the entire lifetime of our loans.

David R. Spreng: This belief drives our monitoring philosophy and is the foundation for preserving credit quality consistent communication with our borrowers enables us to accurately mark investments and mitigate potential risks, while maintaining consistent yield.

David R. Spreng: In our view, companies are increasingly exploring the use of debt as a minimally dilutive alternative to equity financing, which bodes well for us as a preferred partner known for sophisticated financing solutions that meet borrowers' diverse needs. As the economy proves resilient, with expectations for a soft landing, we believe our low leverage ratio and ample dry powder position us well to take advantage of opportunities that meet our high credit bar. Our role as a lender is to support the best companies with high conviction to reach their full growth potential.

David R. Spreng: Turning now to the market in our view companies are increasingly exploring the use of debt is a minimally dilutive alternative equity financing, which bodes well for us as a preferred partner known for sophisticated financing solutions that meet borrowers diverse needs.

David R. Spreng: As the economy improves resilience with expectations for a soft landing, we believe our low leverage ratio and ample dry powder position us well to take advantage of opportunities that meet our high credit bar.

David R. Spreng: Our role as a lender just to support the best companies with high conviction to reach their full growth potential we are not a lender of last resort to provide funding during a crisis or a troubled situation.

David R. Spreng: We are not a lender of last resort to provide funding during a crisis or a troubled situation. In fact, we are often the last capital brought in before a company executes a strategic exit like an M&A transaction or IPO. And that point remains critical for us. As an investor, I've spent nearly three decades sourcing, evaluating, and dealmaking in the venture ecosystem. Prior to founding Runway nearly nine years ago, I was a venture capitalist for over 20 years.

David R. Spreng: In fact, we are often the last capital brought in before a company execute a strategic exit like an M&A transaction.

David R. Spreng: Our IPO.

David R. Spreng: And that point remains critical for us as an investor I've spent nearly three decades sourcing evaluating and dealmaking in the venture ecosystem prior to founding runway nearly nine years ago I was venture capitalists for over 20 years, my experience across economic cycles and rate.

David R. Spreng: My experience across economic cycles and rate environments underscores the importance of underwriting rigor. In the current market, we are seeing more venture-backed companies seeking capital than ever before. Further, these companies have a difficult fundraising backdrop as they mull over the possibility of down rounds and seek non-dilutive capital. We know this may sound counterintuitive given the quantum of VC dry powder.

David R. Spreng: Environment underscores the importance of underwriting rigor.

David R. Spreng: In the current market, we are seeing more venture back companies seeking capital than ever before.

David R. Spreng: Further these companies have a difficult fundraising backdrop as they mall over the possibility of down rounds and seek non dilutive capital.

David R. Spreng: We know this may sound counterintuitive, given the quantum of D C dry powder, but it's important to remember that many of these companies last raise money at record valuations and now want to preserve a function on the cap table for their investors and employees.

David R. Spreng: But it's important to remember that many of these companies last raised money at record valuations and now want to preserve a functioning cap table for their investors and employees. That is precisely why our focus on selectivity and underwriting standards remain so high. We know that we're not going to bat a thousand on every loan. But when we have a credit that is pressured, our underwriting analysis strives to ensure that future challenges are limited to unforeseen external factors.

David R. Spreng: That is precisely why our focus on selectivity and underwriting standards remain so high.

David R. Spreng: We know that we're not going to bat a thousand on every loan.

David R. Spreng: But when we have a credit that has pressured our underwriting analysis strives to ensure that future challenges are limited to unforeseen external factors. This may include changes in market conditions or shifts in an operating environment as opposed to loosen.

David R. Spreng: These may include changes in market conditions or shifts in an operating environment as opposed to loosened underwriting standards. A poorly structured loan is far more than just a challenge for that one borrower in a portfolio. It requires more time from a lender's team, puts stress on the ability to monitor other names in the portfolio, and ultimately impacts a portfolio's earnings power. To be clear, we currently have two names on non-accrual, and we're working towards favorable outcomes for our shareholders there. That said, we're not going to adjust our underwriting standards to accelerate portfolio growth that minimizes the impact of these credits in the near term.

David R. Spreng: The underwriting standards.

David R. Spreng: A poorly structured loan as far more than just a challenge for that one borrower in our portfolio.

David R. Spreng: Requires more time from a lender's team put stress on the ability to monitor other names in the portfolio and ultimately impacts of portfolios earnings power.

David R. Spreng: I want to be clear. We currently have two names on nonaccrual and were working towards favorable outcomes for our shareholders. There that said, we're not going to adjust our underwriting standards to accelerate portfolio growth that minimizes the impact of these credits in the near term.

David R. Spreng: Instead, we aim to preserve our ability to serve the broader portfolio and deliver value for our shareholders through disciplined underwriting. We've been investors and operators for a long time, and we have a strong idea of what is ahead of us. We are confident in our ability to source, originate, and underwrite deals that are up to our standards in the coming year. Further, we have a line of sight on our ability to preserve earnings power and ensure our shareholders can expect consistent distributions for their foreseeable future.

David R. Spreng: Third we aim to preserve our ability to serve the broader portfolio and deliver value for shareholders through disciplined underwriting.

David R. Spreng: We've been investors and operators for a long time and we have a strong idea of what is ahead of US we are confident in our ability to source originate and underwrite deals that are up to our standards in the coming year.

David R. Spreng: Further we have a line of sight on our ability to preserve earnings power and ensure our shareholders.

David R. Spreng: Can I expect consistent distributions for the foreseeable future.

David R. Spreng: Our selectivity is what will fund our future dividends in the years to come, and we're optimistic about the opportunities we're evaluating that we expect to manifest in the latter half of the year. We remain committed to delivering value to our shareholders, which is a direct result of the strength of our portfolio. With that, I'll turn it over to Greg. Thanks.

David R. Spreng: Our selectivity is what will fund our future dividends in the years to come and we are optimistic about the opportunities. We're evaluating that we expect to manifest in the latter half of the year.

Greg: We remain committed to delivering value to our shareholders, which is a direct result of the strength of our portfolio.

David R. Spreng: With that I'll turn it over to Greg.

Greg Greifeld: David, I want to further expand on our view of the current operating environment and our strategic positioning in the market. In our view, U.S. economic resilience is by far the most important macro story of recent quarters.

Greg: Thanks, David I want to further expand on our view of the current operating environment and runway strategic positioning in the market.

Greg Greifeld: In large part, we have seen that resilience firsthand through our portfolio. US late stage venture equity represented 52% of total deal value and 31% of total deal count, marking the strongest quarterly figures we've seen to date. While overall venture activity remains suppressed, years of strong fundraising have resulted in well over $300 billion in dry powder waiting to be invested. We believe Runway's value proposition amid the current market backdrop remains clear, and companies will continue to seek minimally dilutive capital to extend and supplement. This is bearing out in the opportunities we're seeing.

Greg Greifeld: In our view U S. Economic resilience is by far the most important macro story of recent quarters in large part we have seen that resilient firsthand through our portfolio of companies.

Greg Greifeld: S late stage venture equity represented 52% of total deal value and 31% of total deal count marking the strongest quarterly figures we've seen to date.

Greg Greifeld: Overall venture activity remains depressed years of strong fundraising have resulted in well over 300 billion.

Greg Greifeld: In dry powder waiting to be deployed we believe runways value proposition amid the current market backdrop remains clear.

Greg Greifeld: As David mentioned, we have seen more pipeline activity in the first quarter than at historical levels. Our business model remains compelling to borrowers seeking growth capital in this current market. We are focused on the fastest growing sectors of the economy we know best, which include life sciences, technology, and select consumer service and product industries.

Greg Greifeld: <unk> will continue to seek minimally dilutive capital to extend runway and supplement equity this is bearing out and the opportunities. We're seeing as David mentioned, we are seeing more pipeline activity in the first quarter than historical levels. Our business model remains compelling to borrowers seeking growth capital in this current market we are focused on.

Greg Greifeld: Fastest growing sectors of the economy, we know best which include life Sciences technology, and select consumer service and product industries, while few deals of our target check size better consistent high standards in the first quarter. We are confident in our ability to selectively deploy capital at favorable terms when the market.

Thomas B. Raterman: While few deals of our target check size met our consistently high standards in the first quarter, we are confident in our ability to selectively deploy capital at favorable terms when the market becomes more lender-friendly in the second half of this year. We remain committed to upholding our credit-first philosophy as an organization, and we are proud of the team's diligence in evaluating these opportunities while actively managing our portfolio in parallel. Further, we are increasing the avenues we have to evaluate and see more deals.

Thomas B. Raterman: Becomes more lender friendly in the second half of this year, we remain committed to upholding our credit first philosophy as an organization and we are proud of the team's diligence in evaluating these opportunities while actively managing our portfolio in parallel further we are increasingly avenues, we have to evaluate and see more deals as does.

Thomas B. Raterman: As discussed on our last call, we are pleased to announce our newly formed joint venture with Cadma Capital Partners, a credit financing platform for the venture ecosystem that was established in 2023 by Apollo. Runway Cadma One LLC is an equal partnership between Runway and Cadma that will focus on financing private and sponsored late and growth stage companies. We look forward to the incremental deal flow we expect to result from this partnership and have already been encouraged by the discussions that are taking place. While selectivity remains at the forefront, we're actively pursuing more opportunities to source attractive investments and evaluate them

Thomas B. Raterman: On our last call. We are pleased to announce our newly formed joint venture with <unk> capital partners, a credit financing platform for the venture ecosystem that was established in 2023 by Apollo runway CAD. One LLC is an equal partnership between runway a chatbot that will focus on financing private and spas.

Thomas B. Raterman: Late in growth stage companies, we look forward to the incremental deal flow. We expect results from this partnership and have already been encouraged by the discussions that are taking place.

Thomas B. Raterman: Selectivity remains at the forefront, we're actively pursuing more opportunities to source attractive investments and evaluate attractive deals in the industries. We know best with that I will now turn it over to Tom.

Thomas B. Raterman: Thank you, Greg, and good evening, everyone. During the first quarter of 2024, we saw increasing pipeline activity and executed on investments that demonstrate our disciplined lending strategy. We completed two investments in the first quarter, representing $25 million in funded loans. Our weighted average portfolio risk rating increased to 2.44 in the first quarter from 2.39 in the fourth quarter of 2020. Our rating system is based on a scale of 1 to 5, where 1 represents the most favorable rating.

Thomas B. Raterman: Okay.

Thomas B. Raterman: Thank you, Greg and good evening, everyone during.

Thomas B. Raterman: During the first quarter of 2024, we saw heightening pipeline activity and executed on investments that demonstrate our disciplined lending strategy. We completed two investments in the first quarter, representing $25 million in funded loans.

Thomas B. Raterman: Our weighted average portfolio risk rating increased to 244 in the first quarter from $2 39 in the fourth quarter of 2023.

Thomas B. Raterman: Our rating system is based on a scale of one to five where one represents the most favorable rating.

Thomas B. Raterman: Quarter over quarter change in our internal portfolio risk rating resulted from three investments, which each declined one category from their Q4 2023 ratings of Category 2, 3, and 4, to ratings of Category 3, 4, and 5, respectively. The Category 5 investment is Mingle Healthcare, which continues to be an honor. In line 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 current. By comparing this consistent grouping of loans on a like-to-like basis, we found that our dollar-weighted loan-to-value ratio improved slightly from 27.6% to 26% sequentially.

Thomas B. Raterman: Quarter over quarter change in our internal portfolio risk rating resulted from three investments, which each declined one category from their Q4 2023 ratings a category two three and four to ratings of category three four and five respectively. The category five invest.

Thomas B. Raterman: <unk> is mingle healthcare, which continues to be on nonaccrual.

Thomas B. Raterman: In line with previous quarters, we calculated to loan to value for loans that were in our portfolio at the end of the fourth quarter and at the end of the current quarter.

Thomas B. Raterman: In comparing this consistent grouping of loans on a like to like basis, we found that our dollar weighted loan to value ratio improved slightly from 27, 6% to 26% sequentially.

Thomas B. Raterman: Our total investment portfolio had a fair value of approximately $1.02 billion excluding Treasury bills, a decrease of 1% from $1.03 billion in the fourth quarter of 2023 and a decrease of 10% from $1.13 billion for the comparable prior year. Our portfolio continues to be concentrated in First Lien Senior Secured Loans. As of March 31st, 2024, Runway had net assets of $529.5 million, decreasing from $547.1 million at the end of the fourth quarter of 2020. Nav4Share was $13.36 at the end of the first quarter, compared to $13.50 at the end of the fourth quarter of 2020.

Thomas B. Raterman: Our total investment portfolio had a fair value of approximately 1.2 billion, excluding treasury bills, a decrease of 1% from $1 3 billion in the fourth quarter of 2023, and a decrease of 10% from $1. One 3 billion for the comparable prior year period.

Thomas B. Raterman: Our portfolio continues to be concentrated in first lien senior secured loans.

Thomas B. Raterman: As of March 31, 2024, when we had net assets of $529 5 million decreasing from $547 1 million at the end of the fourth quarter of 2023.

Thomas B. Raterman: NAV per share was $13 36 at the end of the first quarter compared to $13 50 at the end of the fourth quarter of 2023.

Thomas B. Raterman: Our Q1 2024 investor presentation includes a detailed nav bridge for the. Approximately four and a half cents of the decline in NAB per share arose from our equity investments, including warrants, where the largest equity investment impact was the write-down of our equity holdings in Coginity, which was received in conjunction with the sale of our former portfolio company, Aginity. Approximately 12.5 cents of the unrealized loss was attributable to changes in the value of certain debt investments, the most significant of which was the markdown of our debt investments and snag a job amounting to approximately 2.9 million or seven cents.

Thomas B. Raterman: Our Q1 2024 Investor presentation includes a detailed NAV bridge for the quarter.

Thomas B. Raterman: Slightly four five cents of the decline in NAV per share arose from our equity investments, including warrants or the largest equity investment impact was the write down of our equity holdings in <unk>, which was received in conjunction with the sale of our former portfolio company <unk>.

Thomas B. Raterman: Approximately $12.05 of the unrealized loss was attributable to changes in the value of certain debt investments. The most significant of which was the markdown of our debt investments and spinnaker job amounting to approximately $2 9 million or <unk> <unk> per share.

Thomas B. Raterman: As a reminder, 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 at the time of closing or signing the loan. In the first quarter, we received $34.5 million in principal repayments, a decrease from $63.4 million in the fourth quarter of 2022. This is a result of our credit-first approach to investing that prioritizes the highest quality sponsored and non-sponsored companies, which are often ideal candidates for refinancing or acquisition in most markets.

Thomas B. Raterman: As a reminder, our loan portfolio is comprised of 100% floating rate assets. All loans are currently earning interest at or above the agreed upon interest rate floors, which generally reflect the base rate plus the credit spreads at the time of closing or signing the term sheet.

Thomas B. Raterman: In the first quarter, we received $34 5 million in principal repayments, a decrease from $63 4 million in the fourth quarter of 2023.

Thomas B. Raterman: As a result of our credit first approach to investing that prioritizes the highest quality sponsored and non sponsored companies, which are often ideal candidates for refinancing or acquisition in most markets.

Thomas B. Raterman: This level of repayments indicates that our portfolio is performing as we expect it and fits within our stated investment criteria. For example, on April 26, 2024, our loan to Turning Tech Intermediate, also known as ECHO 360, was repaid in full. As discussed during our fourth-quarter earnings call earlier this year, we expect additional prepayment activity throughout the year, with activity building significantly in the second half of 2021. We believe prepayment activity provides runway with liquidity to deploy in a manner that is fully accretive.

Thomas B. Raterman: This level of repayments indicates that our portfolio is performing as we expected and fits within our stated investment criteria on.

Thomas B. Raterman: On April 26, 2024 hour loan to turning Tech intermediate also known as <unk> hundred 60 was repaid in full.

Thomas B. Raterman: As.

Thomas B. Raterman: <unk> during our fourth quarter earnings call earlier. This year, we expect additional prepayment activity throughout the year with activity building significantly in the second half of 2024.

Thomas B. Raterman: We believe prepayment activity provides runway with liquidity to deploy in a manner that is fully accretive.

Thomas B. Raterman: Increased prepayments and an uptick in M&A activity enable us to reinvest in attractive opportunities. We generated total investment income of $40 million and net investment income of $18.7 million in the first quarter of 2024, compared to $39.2 million and $18.3 million in the fourth quarter of 2020. Our debt portfolio generated a dollar weighted average annualized yield of 17.4% for the fourth quarter of 2024, as compared to 16.9% for the fourth quarter of 2023 and 15.2% for the comparable period last year. Moving to our expenses.

Thomas B. Raterman: Increased prepayments and an uptick in M&A activity enabled us to reinvest in attractive opportunities in the market.

Thomas B. Raterman: We generated total investment income of $40 million and net investment income of $18 7 million in the first quarter of 2024 compared to $39 2 million and $18 three men in the fourth quarter of 2023.

Thomas B. Raterman: Our debt portfolio generated a dollar weighted average annualized yield of 17, 4% for the fourth quarter of 2024 as compared to 16, 9% for the fourth quarter of 2023, and 15, 2% for the comparable period last year.

Thomas B. Raterman: For the first quarter, total operating expenses were $21.3 million, up 2% from $20.9 million for the fourth quarter of 2020. Runway recorded a net unrealized loss on investments of $6.6 million in the first quarter, compared to a net unrealized loss of $5.9 million in the fourth quarter of 2020. We had no realized loss in the first quarter compared to a net realized loss of 17.2 million in the prior quarter.

Thomas B. Raterman: Moving to our expenses for the first quarter total operating expenses were $21 3 million up 2% from $20 9 million for the fourth quarter of 2023.

Thomas B. Raterman: <unk> recorded a net unrealized loss on investments of $6 6 million in the first quarter compared to a net unrealized loss of $5 9 million in the fourth quarter of 2023.

Thomas B. Raterman: We had no realized loss in the first quarter compared to a net realized loss of $17 2 million in the prior quarter.

Thomas B. Raterman: We remain confident that our highly selective investment process and diligent monitoring of portfolio companies support our track record of maintaining low levels of non-accrual loans coupled with generally healthy credit. As of March 31, 2024, we had two loans on non-accrual status. Our loan to Mingle Healthcare represents outstanding principal of 4.3 million at a fair market value of 3.2 million, and our loans to Snagajob represent outstanding principal of 42.3 million at a fair market value of 35.5. These loans represent 3.8% of the total investment portfolio at Fairbanks.

Thomas B. Raterman: We remain confident that our highly selective investment process and diligent monitoring of portfolio companies support our track record of maintaining low levels of non accruals, coupled with generally healthy credit performance.

Thomas B. Raterman: As of March 31, 2024, we had two loans on nonaccrual status, our loan to mingle health care represents outstanding principal of $4 3 million and a fair market value of $3 2 million and our loans to snag a job represent outstanding principal of $42 3 million at a fair market value of 30.

Thomas B. Raterman: $5 5 million.

Thomas B. Raterman: These loans represent three 8% of the total investment portfolio at fair value.

Thomas B. Raterman: In the first quarter of 2024, our leverage ratio and asset coverage were 0.91 and 2.09 times, respectively, compared to 0.95 and 2.05 times at the end of the fourth. Turning to our liquidity, at March 31st, 2024, our total available liquidity was $319.9 million, including unrestricted cash and cash equivalents. We had borrowing capacity of $313 million, reflecting an increase from $281 million and $278 million, respectively At quarter end, we had unfunded loan commitments to portfolio companies of $235.8 million, the majority of which were subject to specific performance milestones.

Thomas B. Raterman: In the first quarter of 2024, our leverage ratio and asset coverage.

Thomas B. Raterman: Zero point 91, and two nine times, respectively compared to zero point 95, and two five times at the end of the fourth quarter.

Thomas B. Raterman: Turning to our liquidity at March 31, 2024, our total available liquidity was $319 9 million, including unrestricted cash and cash equivalents.

Thomas B. Raterman: We have borrowing capacity of $313 million, reflecting an increase from $281 million and $278 million respectively. On December 31 2023.

Thomas B. Raterman: At quarter end, we have unfunded loan commitments to portfolio companies of $235 8 million the majority of which were subject to specific performance milestones.

Thomas B. Raterman: 42 million of these commitments are currently eligible to be funded. During the quarter, we experienced two prepayments totaling $34.5 million and scheduled amortization of $0.4 million. The prepayments included a partial principal repayment of our Senior Secure Term Loan to Fiscal Note for $27.4 million and a partial principal repayment of our Senior Secure Term Loan to Marley Spoon for $7.1 million. As mentioned on our previous earnings call, in 2023, our Board of Directors approved a stock repurchase program, giving us the ability to acquire up to $25 million of Runway's common stock.

Thomas B. Raterman: $42 million of these commitments are currently eligible to be funded.

Thomas B. Raterman: During the quarter, we experienced two prepayments totaling $34 5 million in scheduled amortization of zero point $4 million.

Thomas B. Raterman: The prepayments included a partial principal repayment of our senior secured term loan to physical note were $27 4 million and a partial principal repayment of our senior secured term loan to Marley spoon for $7 1 million.

Thomas B. Raterman: As mentioned on our previous earnings call in 2023, our board of directors approved a stock repurchase program, giving us the ability to acquire up to $25 million of runways common stock.

Thomas B. Raterman: In the first quarter the company repurchased approximately 887000 shares under the program, which expires on November <unk> 2024.

Thomas B. Raterman: Finally on April 32024, our board declared a regular distribution for the first quarter of <unk> 40 per share as well as a supplemental dividend of <unk> <unk> per share payable with the regular dividend.

Thomas B. Raterman: Confident that through our prepayment fees in spillover income, we will have no difficulty covering our dividend in the foreseeable future.

Thomas B. Raterman: In the first quarter, the company repurchased approximately 887,000 shares under the program, which expires on November 2, 2020. Finally, on April 30, 2024, our board declared a regular distribution for the first quarter of $0.40 per share, as well as a supplemental dividend of $0.07 per share payable with the regular distribution. We're confident that through our prepayment fees and spillover income, we will have no difficulty covering our dividend in the foreseeable With that said, Operator, please open the line for questions. Thank you. At this time, we will conduct a question and answer session.

Thomas B. Raterman: With that operator, please open the line for questions.

Speaker Change: Thank you at this time, we will conduct a question and answer session.

Operator: To ask a question during the session, you will need to press star one on your telephone. You will then hear an automated message advising that your hand is raised.

Thomas B. Raterman: To ask a question during the session you will need to press star one one on your telephone.

Operator: Then here an automated message advising that your hand is raised.

Operator: To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A roster. Our first question comes from Melissa Wedel from J.P. Morgan. Melissa, your line is open.

Operator: To withdraw your question. Please press star one again.

Operator: Please standby, while we compile the Q&A roster.

Operator: Our first question comes from Melissa Wedel from Jpmorgan Moelis.

Melissa Wedel: Your line is open.

David R. Spreng: Good afternoon. Thanks for taking my questions today. First, David, it's great to hear you again. Welcome back. I know that you talked about seeing an increasing pipeline during the first quarter. I think part of that was related to the CADMA, JV. Did you give a specific amount of activity that you've seen in the youth today?

Melissa Wedel: Hi, good afternoon, thanks for taking my questions today.

David R. Spreng: First David it's great to hear you again welcome back.

David R. Spreng: Okay.

Speaker Change: Wasn't sure if I missed this I know that you talked about.

David R. Spreng: An increasing pipeline during the first quarter I think part of that was related to the Padma.

David R. Spreng: The JV with.

David: Can you give a specific amount of activity that you've seen and to use today.

David R. Spreng: Hi Melissa, thanks very much. And it is great to be back. I think the words that we knew were heightened pipeline activity. And I know that sounds pretty nebulous, and in a way, it is, because to be a little more concrete, our actual number of deals is pretty flat compared to what it was last year. The volume of opportunities is pretty flat, but we think that it's a higher quality. In 12 months, there's been such a high level of disarray in the venture community.

Speaker Change: I'm listen thanks, very much and it is great to be back.

David R. Spreng: I think the words that we use.

David R. Spreng: Were heightened pipeline activity.

David R. Spreng: And I know that sounds pretty nebulous in a way it is because to be a little more concrete.

David R. Spreng: Our actual number of deals is pretty flat.

David R. Spreng: To what it was last year.

David R. Spreng: The volume of opportunities is pretty flat.

David R. Spreng: But we think that its a higher quality.

David R. Spreng: Yes.

David R. Spreng: Over the last.

David R. Spreng: 12 months Theres been such a high level of disarray in the venture community.

David R. Spreng: And so many companies struggling to figure out how they're going to continue to operate, that we've seen a lot of opportunities that really just don't meet our standards. So we've been pretty harsh in cutting things off early. We are pretty far along on several deals that I think will close quite soon, and the visibility that we have on other stuff just looks really encouraging. So I can say with a really high level of confidence that you're going to see us starting to do more deals. I don't know how relative to the goal for the entire year, but it's going to accelerate.

David R. Spreng: And so many companies struggling to figure out how they are going to continue to operate.

David R. Spreng: We've seen a lot of.

David R. Spreng: Opportunities that really just don't meet our standards, so we've been pretty harsh.

David R. Spreng: In cutting things off early.

Speaker Change: We are.

David R. Spreng: Pretty far along on several deals that I think will close quite soon.

David R. Spreng: And the visibility that we have on other stuff just looks really encouraging so I can say with a really high level of confidence.

David R. Spreng: That youre going to see us starting to do.

David R. Spreng: More deals I don't know how far.

David R. Spreng: <unk> will get caught up relative to the <unk>.

David R. Spreng: <unk> for the entire year, but it's going to accelerate.

David R. Spreng: Quite a bit.

David R. Spreng: Okay, I appreciate that additional context. I was hoping you could also walk us through Snagajob, and you know, we understand that when something goes on not a pool, there can be a lot of avenues and different pathways to resolution. Could you help us understand sort of the nature of this one and share any details, any timeline, any thoughts that you're able to? Appreciate it. Yeah.

Speaker Change: Okay I appreciate that additional context.

David R. Spreng: I was hoping you could also walk us through now good job.

David R. Spreng: And.

David R. Spreng: We understand that when somebody goes on non accrual there can be a lot of avenues and different pathways.

David R. Spreng: Alicia could you help us understand sort of the nature.

David R. Spreng: Of this one and.

David R. Spreng: Sure any any details any timeline any any thought that youre able to appreciate it yes of course, I will turn it over to Greg for that.

David R. Spreng: Yeah, of course. I'll turn it over to Greg for that. Yeah, I

Greg Greifeld: Yeah. Hi Melissa.

Greg Greifeld: Yes, Melissa so snag a job as a company that is undergoing a number of headwinds that you're seeing with a number of their peers versus both public and private.

Greg Greifeld: So Snagajob is a company that is undergoing a number of headwinds that you're seeing with a number of their peers, both public and private. It's a fluid situation where we're very actively involved with the management team, and with the equity sponsors. Additionally, we have engaged, we have a bunch of operating partners where we have called one of them in to help us deal with the situation. So it is something that we are intimately involved with on a weekly, if not daily basis and are working to have the best outcome in the right timeframe for all stakeholders, but definitely our investors first and foremost.

Greg Greifeld: It's a fluid situation, where we're very actively involved with the management team with the equity sponsors and Additionally, we have engaged we have a bunch of operating partners, where we have called one of them in to help us deal with the situation.

Greg Greifeld: So it is something that we are intimately involved with on a weekly if not daily basis.

Greg Greifeld: Working to have the best outcome and the right timeframe for all constituents, but definitely our investors first and foremost.

Greg Greifeld: Understood. And is that because of the fluid nature of the situation? I think it means that that's one where it's harder to have a sense of the timeline and an ultimate pathway.

Greg Greifeld: Understood and then because of the fluid nature of the situation.

Greg Greifeld: I.

Greg Greifeld: You mean that that Thats, one where charter to have.

Greg Greifeld: Our sense on timeline and ultimate pathway.

Greg Greifeld: I think that's definitely fair. We're continuing to evaluate, in concert with the management and sponsors, all different avenues available to us, which you know are changing in order to accurately reflect that uncertainty. We have put it on non-accrual, but we do believe that there are a number of paths and different outcomes ahead of us that can still have a favorable outcome. Okay, thank you. Thank you, Melissa.

Greg Greifeld: I think that's definitely fair, we're continuing to evaluate in concert with the.

Greg Greifeld: Management and sponsors all different avenues available to us which are changing in order to.

Greg Greifeld: Accurately reflect that uncertainty we have put us on non accrual, but it is one we do believe that there are a number of paths and different outcomes ahead of us.

Greg Greifeld: Phil.

Greg Greifeld: A favorable outcome.

Speaker Change: Okay. Thank you.

Melissa Wedel: Thank you, Melissa. One moment for our next question. Our next question comes from Casey Alexander from Compass Point Research and Trading. Casey, your line is open. Yeah.

Speaker Change: Thank you Melissa one moment for our next question.

Melissa Wedel: Our next question comes from Casey Alexander from Compass Point Research and trading Casey Your line is open.

Casey Jay Alexander: Yeah, hi, good afternoon, and thanks for taking my question. Runways and David, welcome back. It is nice to have you back.

Casey Jay Alexander: Yes, hi, good afternoon, and thanks for taking my questions runways and David welcome back. It is nice to have you back.

David R. Spreng: My question is, Can you kind of explain the rationale for even having a JV when the company's been public for about two and a half years now, and only in one quarter has the leverage ratio exceeded one time, and that was at 1.02 times? I mean, the company's consistently under leveraged. So what's the rationale for having a JV?

Casey Jay Alexander: My question is can you kind of explain the rationale for even having a JV when the company has been public for about two and a half years now and only in one quarter has the leverage ratio exceeded one time and that was.

David R. Spreng: At one point or two times I mean, the company spent consistently under leveraged so what's the rationale for having that J P.

Thomas B. Raterman: Yeah, thanks, Casey. And it's good to hear your voice as well. I'll turn it over to Tom for that one.

David R. Spreng: Yes.

Thomas B. Raterman: Thanks, Casey and it's it's good to hear your voice as well I'll turn it over to Tom for that one.

Thomas B. Raterman: Thanks, David. Thanks, Casey, for the question.

Tom: Thanks, David Thanks, Casey for the question.

Tom: So as you look at our remaining capacity, it's about to get up to that one two times or about 175.

Thomas B. Raterman: So as you look at our remaining capacity, it's about to get up to that 1.2 times. We're about $175 to $200 million, which is just, you know, a handful of deals. It's five to six deals. Our target hold for the BDC is in that $35 to $40 million range. Yet, as we think about where we're positioning and want to position the portfolio in our Deal Target, our target market, it's that later stage, which tends to be a slightly larger deal, which would be in that 50 to $75 million range. So it allows us to continue to participate in that risk sector that we want, while at the same time, not overextending, you know, our desired hold and maintaining diversification. Hey, thank you. That's my only question.

Thomas B. Raterman: To 200 man, which is just.

Speaker Change: A handful of deals it's 5% to six deals.

Thomas B. Raterman: Our target hold for the BDC is in that $35 million to $40 million range, yet as we think about.

Thomas B. Raterman: Where we're positioning and want to position the portfolio.

Thomas B. Raterman: Deal target our target market, it's that later stage with tends to be a.

Thomas B. Raterman: A slightly larger deal which would be in that 50.

Thomas B. Raterman: <unk> $50 million to $75 million range. So it allows us to continue to participate in that risk sector that we want.

Speaker Change: Well at it.

Thomas B. Raterman: The same time not over extending.

Thomas B. Raterman: Our desired hold and maintaining diversification in the portfolio.

Speaker Change: Alright. Thank you that's my only question.

Speaker Change: Thank you.

Thomas B. Raterman: Okay.

Bryce Wells Rowe: Our next question comes from Bryce Rowe on B. Reilly. Your line is open.

Thomas B. Raterman: Our next question comes from Bryce Rowe from B Riley Your line is open.

Bryce Wells Rowe: Thanks a bunch. David, good to have you back. It's good to hear your voice. Yeah, you're welcome. Let's see, wanted to maybe just try to help us calibrate the, you know, the prepayment or the visibility of the kind of prepayment activity that you see coming here and in the balance of the year. And then maybe a related question would be trying to size up the pipeline relative to that prepayment activity and, you know, whether you think we'll see any kind of net growth for the balance of the year.

Bryce Wells Rowe: Thanks, So much David good to have you back good to hear your voice.

Bryce Wells Rowe: Alright.

Bryce Wells Rowe: Hi.

Speaker Change: Youre welcome.

Bryce Wells Rowe: Sure.

Bryce Wells Rowe: Let's say one more wanted to maybe just try to help us calibrate.

Bryce Wells Rowe: The prepayment.

Bryce Wells Rowe: The visibility of the kind of the prepayment activity that you see coming here in the balance of the year.

Bryce Wells Rowe: And then maybe a related question would be trying to size up the the pipeline relative relative to that prepayment activity, whether whether you think we'll see kind of net growth for the for the balance of the year.

David R. Spreng: Yeah, Bryce, thanks. Great to hear your voice. And I'll turn it over to Tom after just making a few comments.

Speaker Change: Yes, great. Thanks, great to hear your voice and.

David: I'll turn it over to Tom after Im just making a few comments in the first is.

David R. Spreng: And the first is, you know, the common response every time is that it's almost impossible to forecast prepayments, but we know when they come that we just have to run that much faster on the origination side. And that for companies that we want to keep in the portfolio, we'll do whatever we can. Sometimes that's impossible. When a portfolio company goes public and has hundreds of millions of dollars of cash on the balance sheet, or we've had situations where JP Morgan was the lead underwriter and offered him a line of credit at 500 basis points below our costs.

David R. Spreng: The common response every time, you said, it's almost impossible to forecast prepayments.

David R. Spreng: But we know.

David R. Spreng: When they come that we just have to run that much faster on the origination side and that for companies that we want to keep in the portfolio. We will do whatever we can.

David R. Spreng: Sometimes that's impossible.

David R. Spreng: When a portfolio company goes public and has hundreds of millions of dollars of cash on the balance sheet or we've had situations where.

David R. Spreng: J P. Morgan was the lead underwriter.

David R. Spreng: <unk> offered them a line of credit.

David R. Spreng: 500 basis points below our cost so.

David R. Spreng: Sometimes you just can't defend against it.

David R. Spreng: So sometimes you just can't defend against it, but there are other times where we welcome the repayment so that we can redeploy the capital in today's more attractive environment. So I guess, you know, my bottom-line answer question is: we don't exactly know what the prepayments will be, but whatever they are, we're going to ensure, to the best of our ability, that there are net positive new deployments, significant ones for the

David R. Spreng: But there are other times, where we welcomed the repayment so that we can redeploy that capital in today's more attractive environment. So I guess.

David R. Spreng: My bottom line answer your question is we don't exactly know what prepayments will be.

David R. Spreng: But whatever they are we're going to insure.

David R. Spreng: To the best of our ability that there are net positive new deployments cigna.

David R. Spreng: Significant ones.

David R. Spreng: For the year.

Thomas B. Raterman: Yeah, just to add a little to that, we know looking forward that we've got some component of scheduled amortization, we have a couple of transactions that are maturing, and then we know that we've got a handful of companies that are in some sort of sort of process. Now, as you paste those out, think about when that happens.

Speaker Change: Yes, just to add a little to that we know looking forward that we've got some component of scheduled amortization. We have a couple of transactions that mature and then we know that we've got a handful of companies that are in some.

Thomas B. Raterman: Sort of sort of process now as your pace those out and think about when that happens.

Thomas B. Raterman: You know, those will likely come mid to end of the third quarter and then be more back end weighted in the fourth quarter. At the same time, that's where we see the origination momentum building. I think, you know, second quarter will be closer to, net originations will be flat, maybe slightly up. But we'll start seeing that flywheel process building into quarters three and four, and we'll see a greater net origination so that we can replace the earnings power in the long term from those prepayments. In the short term, we would anticipate, you know, a fair amount of accelerated income as a result of prepayment fees and some OID in in quarters.

Thomas B. Raterman: Those will likely come mid to end of third quarter, and then be more backend weighted in fourth quarter.

Thomas B. Raterman: At the same time.

Thomas B. Raterman: That's where we see the origination momentum building I think second quarter will be closer to.

Thomas B. Raterman: Net originations will will be.

Thomas B. Raterman: Flat, maybe slightly up but.

Thomas B. Raterman: But we'll start seeing that flywheel process.

Thomas B. Raterman: Building into quarters, three and four and and we will see a greater net origination so that we can replace the earnings power.

Thomas B. Raterman: In the long term from those prepayments in the short term.

Thomas B. Raterman: Would anticipate a fair amount of accelerated income as a result of prepayment fees and some OID.

Thomas B. Raterman: <unk> four okay.

Bryce Wells Rowe: That's helpful. Maybe a couple more for me, you know, Tom. You talked about being comfortable with the dividend coverage, and I assume that to mean kind of the all-inclusive dividend with the base and the spillover, sorry, the supplemental. Can you kind of help quantify where spillover is, you know, at this point? And then my second question would probably also be for you, Tom, just in terms of buyback activity.

Speaker Change: Okay. Okay.

Bryce Wells Rowe: That's helpful. Maybe a couple more from me Tom yet you talked about.

Bryce Wells Rowe: Being comfortable with the.

Bryce Wells Rowe: With dividend coverage.

Bryce Wells Rowe: And I assume that to mean kind of the all inclusive dividend with the base and the spillover I'm sorry. The supplemental can you can you can you kind of help quantify where spillover is at this point.

Bryce Wells Rowe: Then my second question would probably also be for you Tom just in terms of buyback buyback activity nice to see it in the quarter. It looks like you continue that subsequent to quarter end was curious kind of what the.

Bryce Wells Rowe: Nice to see you in the quarter. It looks like you continued that subsequent to quarter end. I was curious about what the average price was for the second quarter purchases and, you know, just where the appetite is from a price perspective.

Bryce Wells Rowe: What the average price was for the second quarter purchases.

Bryce Wells Rowe: Where the appetite is from a pricing perspective there. Thanks.

Thomas B. Raterman: Well, why don't I answer the first part of that? Well, I'll speak to the dividend first. Certainly, we would like to continue the supplemental dividend. I think as we look at what we know today with the current spillover pool and what we anticipate going forward in prepayments, we ought to be able to maintain that through the year. Obviously, our biggest priority is maintaining the base dividend, and so we're always going to want to keep adequate spillover should we see a quarter where we get a lot of loan maturities that are close or prepayments that are close to maturity, so you don't have a lot of accelerated OID or prepayment income. So we want to keep the spillover kitty in good shape there.

Speaker Change: Well why don't I answer that.

Thomas B. Raterman: The first part of that well.

Thomas B. Raterman: Speak to the dividend first certainly we would like to.

Thomas B. Raterman: Continue the supplemental dividend I think as we look at.

Thomas B. Raterman: What we know today with the current spillover pool, and what we anticipate going forward.

Thomas B. Raterman: And prepayments.

Thomas B. Raterman: We ought to be able to maintain that through the year, obviously, our biggest priority is maintaining.

Thomas B. Raterman: The base dividend and so we're always going to want to keep adequate spillover should we.

Thomas B. Raterman: We see a quarter where.

Thomas B. Raterman: We get a lot of loan maturities that are close or prepayments that are close to maturity. So you don't have a lot of accelerated OID or prepayment income so we want to keep.

Thomas B. Raterman: Certainly spillover.

Thomas B. Raterman: <unk> and <unk>.

Thomas B. Raterman: Good shape there.

Thomas B. Raterman: With respect to the buyback, we do have a rubric that we establish at the beginning of every quarter. We set that once the window is open, and we really look at it as a percent of NAV. The deeper the discount to NAV, the wider open the faucet is. I think as we start, if we're trading at 100% of NAV, obviously that's an admirable accomplishment, and it doesn't make any sense to use the repurchase program.

Thomas B. Raterman: With respect to the <unk>.

Thomas B. Raterman: Buy back we do have Rick that we established.

Thomas B. Raterman: At the beginning of every quarter, we stopped that once the window is open and we really look at it is as a percent of NAV and.

Thomas B. Raterman: The deeper the discount to NAV.

Thomas B. Raterman: The wider open.

Thomas B. Raterman: Yes. It is.

Thomas B. Raterman: I think as we start.

Thomas B. Raterman: We're trading at a 100% of NAV, obviously, that's an admirable.

Thomas B. Raterman: Complishments it doesn't make any sense to us that the repurchase program, but as the discount.

Thomas B. Raterman: But as the discount, certainly if it's below 90, as we were for a period of time, that, you know, we're really looking to be aggressive. So, we'll have to see where the market takes us. And, you know, if it's a deep discount to NAV, and we can continue to be creative, we'll use the remaining 10-12 million we have in the repurchase program.

Thomas B. Raterman: Certainly if it's if it's below 90 as we were.

Thomas B. Raterman: For a period of time, but.

Thomas B. Raterman: We're really looking.

Thomas B. Raterman: To be aggressive so.

Thomas B. Raterman: We'll have to see where.

Thomas B. Raterman: Where the market takes us.

Thomas B. Raterman: If it's a deep discount to NAV and we can continue to be accretive.

Thomas B. Raterman: We'll use the remaining.

Thomas B. Raterman: $10 million to $12 million, we have in the repurchase program.

Operator: Awesome. That's great, Collar. Thank you. You're welcome.

Bryce Wells Rowe: That's great, Collar. Thank you. You're welcome.

Speaker Change: That's great color. Thank you.

Speaker Change: Youre welcome.

Speaker Change: Thank you.

Vilas T. Abraham: Our next question comes from Vilas Abraham from UBS. Your line is open.

Bryce Wells Rowe: Our next question comes from Dallas Abraham from UBS. Your line is open.

Vilas T. Abraham: Hey, everybody. Welcome back, David. And thanks for the question. You've done a snaggy job, and I appreciate the color there. How much of an impact did that non-accrual have on Q1 interest income?

Vilas T. Abraham: Okay.

Vilas T. Abraham: Hey, everybody welcome back David and thanks for the question.

Vilas T. Abraham: Just kind of snag a job I appreciate the color there how much of an impact did that non accrual have on Q1 interest income.

Thomas B. Raterman: It went on non-accrual at the end of the quarter, and so the impact's really going forward.

Vilas T. Abraham: It went on non accrual at the end of the at the end of the quarter and so the impact is really going forward.

Vilas T. Abraham: Okay, got it. And then maybe you could comment on Unleveraged. You guys have a target range that is pretty wide, 0.8, I think, to 1.25. You know, just how are you thinking about that? You know, is that really as wide as it is just to capture some of the lumpiness?

Speaker Change: Okay got it and then just maybe if you could comment on.

Vilas T. Abraham: On leverage.

Vilas T. Abraham: Target range that is pretty wide 0.8, I think.

Vilas T. Abraham: To 1.25.

Vilas T. Abraham: Just how are you thinking about that is that really is why did it is just to capture some of the lumpiness.

Thomas B. Raterman: And is there, you know, maybe more of a, you know, kind of a truer ideal level you would like to be at over the next couple of years? And can you talk about that at all? Sure.

Thomas B. Raterman: And is there maybe more of a.

Thomas B. Raterman: Kind of a truer ideal level, you would like to be at over the next couple of years and then can you talk about that at all.

Thomas B. Raterman: Sure, I can take that. We established that range really at the IPO window, and post-IPO, we were at 0.26, so we wanted to give a fairly wide range, and we wanted to accommodate a variety of economic circumstances. When you've got more uncertainty, we really want to be at the lower end of that range to leave dry powder to be opportunistic and to have the ability to manage any non-accruals without getting into any kind of valuation issues and being squeezed from a leverage standpoint. I think if we can operate between 1 and 1.2, I think we're really happy with that range.

Speaker Change: Sure I can I can take that we establish that range.

Thomas B. Raterman: Really at the IPO window.

Thomas B. Raterman: Post IPO we were at.

Thomas B. Raterman: Two six so we wanted to give a fairly wide wide range and we wanted to accommodate a variety of economic circumstances, I think ideally we want to operate between.

Thomas B. Raterman: One in one two and.

Thomas B. Raterman: And robust times when deal flow is good credit.

Thomas B. Raterman: Credit conditions are strong.

Thomas B. Raterman: We will take it up to the upper end of that range. When you have got more uncertainty, we really want to be at the lower end of that range.

Thomas B. Raterman: Two to leave dry powder to be opportunistic and.

Thomas B. Raterman: To have the ability to.

Thomas B. Raterman: To manage any.

Thomas B. Raterman: Non accruals without getting into any kind of valuation issues in and being squeezed.

Thomas B. Raterman: From a leverage standpoint.

Speaker Change: Thank you.

Thomas B. Raterman: If we can operate between one and 1.2 I think.

Thomas B. Raterman: We're really happy with that range.

Vilas T. Abraham: Okay, appreciate that. Maybe one more on the opportunities that you have aligned the site for later in the year in terms of verticals between tech, life sciences, you have some consumer services and products as well. Is it weighted towards, you know, one of those areas more than the others?

Speaker Change: Okay I appreciate that.

Speaker Change: And maybe one more.

Vilas T. Abraham: And the opportunities that you have a line of sight into for later in the year in terms of vertical between Tech life Sciences, you have some consumer services and product as well.

Vilas T. Abraham: Is it weighted towards.

Vilas T. Abraham: One of those areas more than the others.

David R. Spreng: No, it's pretty well spread out. I would say the one category that we're leaning into a little less than the others is the consumer stuff. But we continue to find really interesting Consumer Products and Services that are not, you know, really affected as much by a recession, and those would be the ones that we would favor. And I would mention Madison Reed as a great example there.

Vilas T. Abraham: Okay.

David R. Spreng: No.

David R. Spreng: Pretty well spread out.

David R. Spreng: I would say the one category that we're leaning into a little less than the others is the consumer stuff.

David R. Spreng: But we continue to find really interesting.

David R. Spreng: Tumor products and services that are not.

David R. Spreng: Really affected as much by a recession and those would be the ones that.

David R. Spreng: That we would favor in I would mentioned Madison Reed is a great example, there.

David R. Spreng: But on tech and life sciences, and we use life sciences to refer to anything healthcare related, we continue to see an enormous amount of deal flow. The next deal that will close is probably a life sciences deal. So, between tech and life sciences, it continues to be spread in about the right proportion. We're more weighted towards tech, which we're happy with. We like the competitive nature of that market better than the life sciences side.

David R. Spreng: But on Tech and life Sciences, and we use life sciences to refer to anything health care related.

David R. Spreng: Where we continue to see enormous amount of deal flow.

David R. Spreng: The next deal that will close is probably at life Sciences deal.

David R. Spreng: So.

David R. Spreng: In between Tech and life Sciences.

David R. Spreng: It continues to be <unk>.

David R. Spreng: Fred in about the right proportion.

David R. Spreng: We're we're more weighted towards tech, which we're happy with we like the competitive.

David R. Spreng: Nature of that market better than the life Sciences side.

David R. Spreng: And where the returns in tech tend to be a little higher, the competition is a little lower. And I don't know if this is the right word, but it feels like it's a little more disciplined where we're able to get Covenants and have more appropriate and lower loan-to-value ratios.

David R. Spreng: Where the returns in tech tend to be a little higher that competition is a little.

David R. Spreng: Lower.

David R. Spreng: I.

David R. Spreng: I don't know if this is the right word, but it feels that gets a little more disciplined where we're able to get.

David R. Spreng: The covenants in half.

David R. Spreng: More appropriate and lower loan to values.

David R. Spreng: Yes.

Vilas T. Abraham: All right, I'll appreciate it. You bet. Thanks, Vilas. Thank you.

Speaker Change: Alright I appreciate it.

Speaker Change: You bet. Thanks Jess.

Speaker Change: Thank you.

Operator: As a reminder, to ask a question, you can press star 11 on your telephone and wait for your name to be announced. One moment for our next question. Our next question comes from Mickey Schleien from Ladenburg. Your line is now open.

Vilas T. Abraham: As a reminder to ask a question you can press star one one on your telephone and wait for your name to be announced.

Mickey Max Schleien: One moment for our next question.

Operator: Our next question comes from Mickey Schlein from Ladenburg. Your line is now open.

Mickey Max Schleien: Hello, everyone, and David, welcome back. Yeah, there have been a lot of comments and discussions about the pipeline and activity. I think it would just be helpful if you could step back for a moment. And when we're thinking about the backdrop with, you know, economic uncertainty, also uncertainty about interest rates, a still relatively muted M&A environment, but a lot of private debt capital available. What was your general thesis on the market and its activity levels, notwithstanding the pipeline, which can be very idiosyncratic?

Speaker Change: Hello, everyone and David welcome back.

Mickey Max Schleien: There have been a lot of comments and discussions about the pipeline of activity.

Mickey Max Schleien: It would just be helpful. If you could step back for a moment and just when we're thinking about the backdrop with.

Mickey Max Schleien: Economic uncertainty.

Mickey Max Schleien: No uncertainty about interest rates is still relatively muted M&A environment, but a lot of private debt capital available what was your your general thesis on the market.

Mickey Max Schleien: Activity levels.

Mickey Max Schleien: Notwithstanding the pipeline, which can be very owed a synchronic yes.

David R. Spreng: Yes, again, and that's an excellent question. And, you know, one that we grapple with every day. And, you know, we tend to error on the side of conservatism because the loans that we're making today will be paying dividends next year. So it's really, really important that these be good loans. And as I said earlier, the venture ecosystem is really bumpy right now, and we've never seen so many venture-backed companies. According to PitchBook, there are something like 50,000 venture-backed companies.

David R. Spreng: Yes, Ken and Thats, an excellent question.

David R. Spreng: And one that we grapple with every day.

David R. Spreng: <unk>.

David R. Spreng: We tend to.

David R. Spreng: Air on the side of conservatism.

David R. Spreng: Because the loans that we're making today will be paying the dividend next year. So it's really really important that these be.

David R. Spreng: Good loans and as I said earlier the venture ecosystem.

David R. Spreng: <unk> is really bumpy right now and we've never seen so many venture back companies. According to pitch book, there's something like 50000 venture backed companies.

David R. Spreng: And we know that most of them raised money, if they could, during the peak of the market and then moved to a path to profitability. But so many of them need additional capital. And so many of their VCs are being very stingy with that. And one thing that a lot of people don't pay enough attention to is that, you know, the folks that are really driving the pace of this market are the limited partners or institutional investors, you know, the university endowments, the foundations, the state pension funds, all that kind of stuff that the folks that give the money to the VCs are telling their venture partners to slow down because they have issues at the pension fund level.

David R. Spreng: And we know that most of them.

David R. Spreng: It's money if they could.

David R. Spreng: During the peak of the market and then and then.

David R. Spreng: Move to a a.

David R. Spreng: Our path to profitability mode, but so many of them need additional capital and so many of their vcs are being very stingy with that.

David R. Spreng: And one thing that a lot of people don't pay enough attention to is that.

David R. Spreng: The folks that are really driving the pace of this market.

David R. Spreng: Are the limited partners or institutional investors.

David R. Spreng: The University.

David R. Spreng: Endowments foundations the state pension funds all of that kind of stuff to the folks that give them money to the vcs.

David R. Spreng: Or telling their venture partners to slow down.

David R. Spreng: So until that changes, I don't see VCs getting really, really more liberal with their investments and taking any of the tension off of the current market. And they will continue to focus on their best investments, but on the ones that are more marginal. They're pretty harsh and just basically set them free to go out in the world and survive if they can, and if they don't, so be it.

David R. Spreng: Because they have.

David R. Spreng: Issues at the pension fund level.

David R. Spreng: So.

David R. Spreng: Until that changes.

David R. Spreng: I don't see Vcs getting really really.

David R. Spreng:

David R. Spreng: More liberal with their investments in and taking any of that tension after the current market.

David R. Spreng: We'll continue to.

David R. Spreng: Bold load on their best investments, but on the ones that are more marginal.

David R. Spreng: They're pretty harsh and just basically set them free and say.

David R. Spreng: Go out in the World and survive if you can and if you don't so be it we've got.

David R. Spreng: We've got 40 other portfolio companies that will hopefully make up for it. So it's a, it's just really a choppy environment. And we've been very conservative. You know, we're really focused on doing the best we can for our investors in terms of earnings, cash flow, and ultimately dividends. And of course, that requires avoiding losses. And I know we've had a couple things that have gone on to non-accrual, which is very unusual for us. And we're in the process of working through those. And I also know that, you know, this discussion and the path forward are really about credibility.

David R. Spreng: For the other portfolio companies that will hopefully make up for it.

David R. Spreng: So.

David R. Spreng: It's a.

David R. Spreng: It's just really a choppy environment and we've been very conservative.

David R. Spreng: We're really focused on.

David R. Spreng: Doing the best and for our investors in terms of earnings cash flow and ultimately dividends and of course that requires avoiding losses.

David R. Spreng: And I know we've had.

David R. Spreng: A couple of things that have gone on to nonaccrual, which is very unusual for us and we're in the process of working through those and I also know that this discussion.

David R. Spreng: And instead of saying words that mean nothing, we're going to deliver. And over the course of this year, hopefully, we will avoid additional losses and fix the problems that we have. And then move back into a position of portfolio growth. We're certainly not in this for growth at any cost. We think that's the wrong way to go about it, and we'd rather build a solid foundation. And so we've been just a little slower than we might normally be, and hopefully, that will pay off in the long run.

David R. Spreng: <unk>.

David R. Spreng: And the path forward.

David R. Spreng: It's really about credibility and.

David R. Spreng: And instead of saying words that mean nothing.

David R. Spreng: We're going to deliver and over the course of this year.

David R. Spreng: Hopefully.

David R. Spreng: Void additional losses and <unk>.

David R. Spreng: Fix the problems that we have and then.

David R. Spreng: Move back into a position of portfolio growth, we're certainly not in this.

David R. Spreng: For growth at any cost.

David R. Spreng: We think that's the wrong way to go about it and we'd rather build.

David R. Spreng: Solid foundation and so we've been just a little a little slower than we might normally be and hopefully that will pay off in the long run.

Mickey Max Schleien: Thanks for that, David. That's a really helpful discussion. And just one follow-up, sort of a housekeeping question, maybe for Tom. The fund has consistently generated a somewhat small dividend, but I don't see it this quarter. Was that due to the exit of a company, or what's the outlook for dividend income?

Speaker Change: Thanks for that David David That's really helpful discussion and just one follow up sort of a housekeeping question maybe for Tom.

Speaker Change: The fund has consistently generated.

Mickey Max Schleien: Small dividend.

Tom: But I don't see it this quarter was that due to the exit of a company or whats the outlook for dividend income.

Thomas B. Raterman: So we declared our dividend last week at the $0.40 base and the $0.07 supplemental. You know, certainly, we don't anticipate any changes to the base, and our objective is to maintain the supplemental dividend while not compromising, you know, the spillover cushion.

Mickey Max Schleien: Yes.

Tom: So we declared our dividend last week at the 40 <unk> base in the seven supplemental.

Thomas B. Raterman: Certainly.

Tom: We don't anticipate any changes to the base and our objective is to maintain the.

Tom: The supplemental.

Thomas B. Raterman: Dividend.

Tom: While not compromising.

Tom: Spillover cushion that we have.

Thomas B. Raterman: Tom, I was referring to dividend income on the income statement. Oh, okay. So that dividend income on the income statement came from CareCloud, and in November, that's a public company, we received that equity in the sale of one of our businesses. It was a company called CareCloud, and the public company ultimately adopted its name.

Thomas B. Raterman: Tom I was referring to dividend income on the income statement Oh, okay. So the dividend income on the income statement came from Kerr cloud.

Thomas B. Raterman: And in November.

Thomas B. Raterman: Public company, we received that equity and the sale of one of our businesses. It was a company called care cloud and the public company ultimately adopted its name they suspended that dividend in November, which certainly created a lot of volatility in the valuation on that level one asset.

Thomas B. Raterman: They suspended that dividend in November, which certainly created a lot of volatility in the valuation of that level one asset. And so, you know, the company has indicated that they expect that dividend to resume later this year. So when CareCloud resumes its dividend, we would expect to see the dividend.

Thomas B. Raterman: So the company has indicated that they expect that dividend to resume.

Thomas B. Raterman: Later this year.

Thomas B. Raterman: So when Coeur cloud resumes their dividend, we would expect to see the dividend income come in again I understand that's helpful. That's it for me. This afternoon. Thank you for your time as always.

Mickey Max Schleien: I understand that that's helpful. That's it for me this afternoon. Thank you for your time, as always. Thanks, Mickey.

Mickey Max Schleien: Thanks, Mickey.

Speaker Change: Thanks Mickey.

Speaker Change: Thank you.

Erik Edward Zwick: Our next question comes from Erik Zwick from Hovde Group. Your line is open.

Mickey Max Schleien: Our next question comes from Erik Zwick from Husky Group. Your line is open.

Erik Edward Zwick: Good afternoon, everyone. And I just want to echo all the previous comments made by David. It's truly great to have you back and hear your voice again. So first question, for me, you know, curious, you know, David, both you and Greg mentioned some optimism for a more lender-friendly market in the second half of 24. And I'm curious if you could, you know, maybe provide a little more detail or color around any kind of indicators or, you know, kind of activity you're seeing now, because that gives you that optimism.

Erik Edward Zwick: Good afternoon, everyone and I just want to echo the previous comments with David It's certainly great to have you back and hear your voice again so.

Erik Edward Zwick: First question.

Erik Edward Zwick: For me curious, David both you and Greg mentioned.

Erik Edward Zwick: Some optimism for a more friendly lender friendly market in the second half of 'twenty four and I'm curious if you could maybe provide a little more detail or color around any kind of indicators are kind of activity youre seeing now today because that gives you that optimism.

David R. Spreng: Well, I'll make a few comments and then turn it over to Greg. But, you know, especially on the tech side, we're seeing terms that make a little more sense. And, and I think you know that we're really big believers in covenants and in having appropriately structured loans and that that is starting to come back and is especially in the, you know, really late-stage, larger deals. We feel that that's where, and we've always felt, that's where the best risk-adjusted returns are.

Erik Edward Zwick: Okay.

David: Well, so I'll make a few comments and then turn it over to Greg.

David R. Spreng: Yes.

David R. Spreng: Especially on the tech side, we're seeing terms that.

David R. Spreng: Make a little more sense.

David R. Spreng: I think you know they were really big believers in covenants and.

David R. Spreng: And in having appropriately structured.

David R. Spreng: Loans and.

David R. Spreng: And that that is starting to come down.

David R. Spreng: And especially in the.

David R. Spreng: Really late stage and larger deals.

David R. Spreng: We feel that that's where we've always felt that's where the best risk adjusted returns are and those companies are now coming to grips with the interest rate environment.

David R. Spreng: And those companies are now coming to grips with the interest rate environment. And, you know, for a long time, there was, I think, a little bit of a sticker job about the rate of increase in rates, which is very fair. But now companies are understanding that this is an environment that we're going to be in, and that they can afford. Maybe there needs to be some adjustments to their budget, but they can afford it.

David R. Spreng: For a long time, there was a I think a little bit of sticker shock.

David R. Spreng: The rate of increase in rates, which is very fair, but now companies are understanding that.

David R. Spreng: The environment that we're going to be in and that they can afford.

David R. Spreng: Maybe there needs to be some adjustments to their budget, but they can afford it so.

David R. Spreng: That's the main basis for those comments I will say the life Sciences side remains a little bit more competitive and a little bit looser.

David R. Spreng: So that's the main basis for those comments. I will say the life sciences side remains a little bit more competitive and a little bit looser. I don't know, Greg, would you like to add some additional color? Yeah, I definitely would.

David R. Spreng: Greg you want to add some additional color.

Greg Greifeld: Yeah, I would definitely echo the sentiments in terms of just the level of structure and what the different companies and sponsors are willing to accept. And I'd add on to that that their own expectations in terms of not only their value of the businesses but also just their ability to support amounts of debt have come in quite a bit too. So opportunities that maybe 18, 24 months ago might have been looking for a certain amount of capital.

Greg Greifeld: Yes, I would definitely echo the sentiments in terms of just.

Greg Greifeld: A level setting of structure and what the different companies and sponsors are willing to accept and I would add onto that that their own expectations in terms of not only their value of the businesses, but also just the ability to.

Greg Greifeld: Support amounts of debt has come in quite a bit too so opportunities that maybe 18 24 months ago might have been looking for a certain amount of capital. We're seeing those same sized companies come back to us today looking for maybe 60% to 70% of that kind of amount.

Greg Greifeld: We're seeing those same-sized companies come back to us today, looking for maybe 60 to 70 percent of that kind of amount, which is much more attractive to us from a loan to value standpoint from other types of attachment points. And we're just seeing a meeting of the minds in terms of what we believe is a reasonable structure, as well as what the companies and the sponsors are actually looking for.

Greg Greifeld: Which is much more attractive to us from a loan to value standpoint from other types of attachment points and we're just seeing a meeting of the minds in terms of what we believe is a reasonable structure as well as what the.

Greg Greifeld: Companies and the sponsors are actually looking for.

Erik Edward Zwick: Thank you, that's helpful. I appreciate the commentary there.

Speaker Change: Thank you that's helpful. I appreciate the commentary there and then just last one for me.

Erik Edward Zwick: And then just last one for me. Notice in this quarter's slide deck, you did not include the interest rate sensitivity slide. So maybe kind of two quick questions there. One, I'm guessing that it hasn't changed a whole lot since last quarter, but I wonder if you can confirm that. And two, just absent there, just maybe indicative of your belief that we're going to be at these levels of interest rates, kind of higher for a longer period or just curious around that point. Yeah, we

Speaker Change: I noticed in this quarter slide deck you did not include the interest rate sensitivity slide so maybe kind of two quick questions. There one of them.

Erik Edward Zwick: That hasn't changed a whole lot since last quarter, but I'm wondering if you could confirm that and two because absent there just maybe indicative of your belief that we're going to be at these level of interest rates kind of drifted higher for longer period are just curious around that at that point.

Thomas B. Raterman: Yeah, we eliminated that slide because it was calculated based on rates going up to 200 basis points from the current level, and we thought the utility of that was limited because I don't think we'll see any increases in rates, and our loans have floors that are at a variety of levels. Typically, it's what the SOFR rate or the prime rate was at the time the loan closed plus the spread, so there's no real change to it. We think it's going to be pretty stable as we settle into this higher for longer, probably for the better part of this year.

Erik Edward Zwick: Yes.

Thomas B. Raterman: We eliminated that slide because it was calculated based on rates going up up to 200 basis points from the current level and we thought the utility of that was was limited because they didnt increase if we see any increases in rates and our loans have floors.

Thomas B. Raterman: I heard a variety of levels typically it's what.

Thomas B. Raterman: On what.

Thomas B. Raterman: There was the sofa rate or the prime rate was at that time, the loan closed plus the spread.

Thomas B. Raterman: There is no real change in it we think it's going to be pretty stable as we settle into this higher for longer.

Thomas B. Raterman: Probably for the better part of this year.

Erik Edward Zwick: Excellent. Thanks for confirming. That's all for me today.

Speaker Change: Excellent. Thanks for confirming that's all for me today.

Speaker Change: Thanks, Eric.

Operator: Thank you. This concludes our question and answer session. I would now like to turn it back to David Spreng for closing remarks. Thank you, operator.

Speaker Change: Thank you.

David R. Spreng: This concludes our question and answer session I would now like to turn it back to David Strang for closing remarks. Thank.

David R. Spreng: Thank you, operator. We believe our late and growth stage portfolio is well positioned for any economic environment. We're in a strong position to deploy capital at favorable terms, and we'll continue to maintain our underwriting rigor while evaluating future opportunities. Thank you all for joining us today. We look forward to updating you on our second quarter 2024 financial results in August.

David R. Spreng: Thank you operator, we believe our late in gross stage portfolio is well positioned for any economic environment. We are in a strong position to deploy capital at favorable terms and we will continue to maintain our underwriting rigor while evaluating future opportunities.

David R. Spreng: You all for joining us today.

David R. Spreng: We look forward to updating.

David R. Spreng: Updating you on our second quarter 2024 financial results in August.

Speaker Change: Thank you.

Operator: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.

Speaker Change: Thank you for your participation in today's conference. This does conclude the program you may now disconnect.

Operator: Okay.

Operator: [music].

Operator: Okay.