Q2 2024 Runway Growth Finance Corp Earnings Call

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

Unknown Executive: Coordinator 2024 Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Quinlan Abel, Assistant Vice President, Investor Relations. Please go ahead.

Quinlan Abel: Operator. Good evening, everyone, and welcome to the Runway Growth Finance conference call for the second quarter ended June 30th, 2024. Joining us on the call today from Runway Growth Finance are David Spreng, Chairman, President, and Chief Executive Officer; Greg Greifeld, Managing Director, Deputy Chief Investment Officer, and Head of Credit of Runway Growth Capital; and Tom Raterman, Chief Financial Officer and Chief Operating Officer. Runway Growth Finance's second quarter 2024 financial results were released just after today's market close and can be accessed from Runway Growth Finance's Investor Relations We have arranged for a replay of the call at Runway Growth Finance.

Speaker Change: Thank you, operator. Good evening everyone and welcome to the Runway Gross Finance Conference Call for the second quarter and did June 30, 2024.

Speaker Change: 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.

Speaker Change: Runway Growth Finance's second quarter 2024 financial results were released just after today's market close and can be accessed from Runway Growth Finance's Investor Relations website at investors.runwaygrowth.com. We have arranged for a replay of the call at the Runway Growth Finance webpage.

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, and without limitation, market conditions caused by uncertainty surrounding changing interest rates, changing economic conditions, and other factors we identified in our filings with the SEC.

Speaker Change: During this call, I want to remind you that we may make forward-looking statements based on current expectations.

Speaker Change: The statements on this call that are not purely historical are forward-looking statements.

Speaker Change: 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.

Speaker Change: including, and without limitation, market conditions caused by uncertainty surrounding changing interest rates, changing economic conditions, 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. With that, I will turn the call over to David.

Speaker Change: 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.

Speaker Change: You should not place undue reliance on these forward-looking statements. The forward-looking statements contained on this call, I made as of the date here of, and runway growth finance assumes no obligation to update the forward-looking statements or subsequent events.

Speaker Change: To obtain copies of SEC-related filings, please visit our website. With that, I will turn the call over to David.

David Spreng: Thank you, Quinlan, and thank you everyone for joining us this evening to discuss our second quarter results. Today, I'll reflect on the first half of the year and second quarter highlights, provide an overview of our financial results, and lastly, discuss our outlook for the remainder of 2024. During the second quarter, we were pleased to execute on attractive opportunities. We've been encouraged by the volume of quality companies seeking non-diluted growth capital and our position as a potential growth partner.

Speaker Change: i

David: Thank you, Quinlan, and thanks everyone for joining us this evening to discuss our second quarter results.

David Spreng: We completed two investments in new portfolio companies at the end of the second quarter, representing $75.5 million in funded loans. These investments included the completion of a $58.4 million senior secured term loan to Airship Group and a $17.1 million senior secured term loan to Onward Medical. Airship is an enterprise software platform focused on customer engagement for mobile apps, while Onward is a medical technology company creating innovative spinal cord stimulation therapies.

David: Today I'll reflect on the first half of the year and second quarter highlights, provide an overview of our financial results, and lastly, discuss our outlook for the remainder of 2024.

David: During the second quarter, we were pleased to execute on attractive opportunities. We've been encouraged by the volume of quality companies seeking non-diluted growth capital and our position as a potential growth partner.

David: We completed two investments in new portfolio companies at the end of the second quarter, representing $75.5 million in funded loans. These investments included the completion of a $58.4 million Senior Secured Term Loan to Airship Group.

David: and a $17.1 million senior secured term loan to Onward Medical.

David: Airship is an enterprise software platform focused on customer engagement for mobile apps, while Onward is a medical technology company creating innovative spinal cord stimulation therapies.

David Spreng: We believe both companies are representative of our focus on high quality, late stage companies in the sectors we know best, technology, healthcare, and select consumer service and product industries. Runway delivered total investment income of $34.2 million and net investment income of $14.6 million in the quarter. Our average portfolio risk rating increased to 2.47 in the second quarter compared to 2.44 in the first quarter of 2024. We continue to proactively monitor our portfolio for potential issues that may arise regardless of market conditions and uphold our commitment to supporting borrowers throughout the entire lifetime of a loan.

David: We believe both companies are representative of our focus on high-quality, late-stage companies in the sectors we know best – technology, healthcare, and select consumer service and product industries.

Speaker Change: Runway delivered total investment income of 34.2 million and net investment income of 14.6 million in the court.

David: Our average portfolio risk rating increased to 2.47 in the second quarter compared to 2.44 in the first quarter of 2024.

David: We continue to proactively monitor our portfolio for potential issues that may arise regardless of market conditions and uphold our commitment to supporting borrowers throughout the entire lifetime of alone.

David Spreng: Further, we believe our focus on originating investments at the top of the capital stack and avoiding situations with significant downstream financing risk and junior capital at play reduces the risk of volatility often associated with investing in early stage companies. We will thoughtfully accelerate origination growth moving forward. Turning now to the market.

David: Further, we believe our focus on our regaining investments at the top of the capital stack and avoiding.

David: Situations with significant downstream financing risk and junior capital at play reduces the risk of volatility often associated with investing in early stage companies.

David: We will thoughtfully accelerate origination growth moving forward.

David Spreng: As the Federal Reserve continues to focus on taming inflation, investors are cautious, and companies at various stages are contending with a heightened probability of down rounds and liquidity constraints. As we anticipated, companies that raise capital at record valuations during 2021 and 2022 continue to seek debt as a means for non-dilutive growth. However, in today's challenging capital markets, venture-backed companies are heavily scrutinized as investors prioritize the highest quality companies with clear paths to profitability.

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

David: As we anticipated, companies that raised capital at record valuations during 2021 and 2022 continue to seek debt as a means for non-dilutive growth. However,

David: In today's challenging capital markets, venture-backed companies are heavily scrutinized as investors prioritize the highest quality companies with clear paths to profitability.

David Spreng: In the current environment, we are seeing companies raising at quite conservative levels relative to their enterprise value, which translates to an increasing quantity of attractive opportunities for runways. Our investment thesis is always centered on supporting passionate entrepreneurs by providing access to minimally diluted growth capital. The importance of capital preservation and providing a margin of safety cannot be overstated amid a challenging background. Our critical eye on underwriting, emphasis on credit quality, and focus on acyclical sectors provides comfort in our potential credit performance moving forward.

David: In the current environment, we are seeing companies fundraising at quite conservative levels relative to their enterprise value, which translates to an increasing quantity of attractive opportunities per runway.

David: Our investment thesis is always centered on supporting passionate entrepreneurs by providing access to minimally diluted growth capital.

David: The importance of capital preservation and providing a margin of safety cannot be overstated amid a challenging backdrop.

Speaker Change: Our critical eye on underwriting emphasis on credit quality and focus on a cyclical sectors provides comfort in our potential credit performance moving forward.

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

David: We are going to remain disciplined and will be ready to execute on the right deals in the coming quarters. That said, we believe that the operating environment for many borrowers has improved meaningfully in recent months.

David: In these situations, we are going to be opportunistic as we seek to redeploy capital and diversify our portfolio with confidence in the underlying fundamentals of the borrower's business.

David: Amit's improving macro conditions in certain subsets.

Speaker Change: In our view, this will not necessarily result in linear portfolio expansion quarter to quarter, but we'll ensure we are positioning our portfolio and shareholders for long-term returns.

David: With that, I'll turn it over to Greg for an overview of the investment landscape.

Greg Greifeld: Thanks, David. I'd like to take a moment to focus on U.S. venture equity deal activity in the second quarter, which increased sequentially to the highest deal value since Q2 2022, potentially marking an inflection. U.S. late stage venture equity represented 42% of total deal value and 29% of total deal count in the second quarter of 2024, marking strong quarterly figures. Companies at the later stages of venture have been the most apt to lengthen runway and the most cautious to stay out of the market to stem further dilution.

Greg: Thanks, David. I'd like to take a moment to focus on the U.S. Venture Equity Deal activity in the second quarter, which increased to quenchily to the highest deal values since Q2 2022, potentially marking an inflection point.

Speaker Change: U.S. late stage venture equity represented 42% of total deal value and 29% of total deal counts in the second quarter of 2024, marking strong quarterly figures.

Greg: Companies at the later stages of venture have been the most apt to lengthen runway and the most cautious to stay out of the market to stem further delusion.

Greg Greifeld: We expect many late and growth stage companies to continue to struggle with fundraising and liquidity constraints for the remainder of 2024, a reflection of investor caution given the higher for longer rate environment, geopolitical tensions, and uncertainty associated with the U.S. election cycle. As David mentioned, the companies seeking our financing solutions are coming to the table conservatively relative to their enterprise value, a trend we will continue to monitor over the coming quarters.

Speaker Change: We expect many late and growth-stage companies to continue to struggle with fundraising and liquidity constraints for the remainder of 2024, a reflection of investor caution given the higher-for-longer rate environment, geopolitical tensions, and uncertainty associated with the U.S. election cycle.

Greg: As David mentioned, the companies seeking our financing solutions are coming to the table conservatively relative to their enterprise value, a trend we will continue to monitor over the coming quarters.

Greg Greifeld: Against a mixed backdrop of geopolitical uncertainty, we are pleased with the depth and quality of our pipeline. However, while financial conditions remain very accommodating, risks such as fiscal policy given higher levels of debt and interest rates are coming into focus.

David: Against a mixed backdrop of geopolitical uncertainty, we are pleased with the depth and quality of our pipeline. While financial conditions remain very accommodating, risks such as fiscal policy given higher levels of debt and interest rates are coming into focus.

Greg Greifeld: We remain confident in our ability to capitalize in the dynamic environment by deploying capital while delivering strong credit performance to maximize risk-adjusted returns for our shareholders. We are witnessing our recent efforts paired with deep sector relationships translate to a broader funnel of high-quality opportunities for the Runway Growth platform. Under David's leadership, our targeted outreach and marketing efforts yielded new investment opportunities in the second quarter, bringing a diversified mix of companies into our pipeline.

Greg: We remain confident in our ability to capitalize in a dynamic environment by deploying capital while delivering strong credit performance to maximize risk-adjusted returns for our shareholders.

Greg: We are witnessing our recent efforts paired with deep sector relationships translate to a broader funnel of high quality opportunities for the runway growth platform.

Greg: Under David's leadership, our targeted outreach and marketing efforts have yielded new investment opportunities in the second quarter.

Greg Greifeld: By continuing to strategically invest in our team-wide distribution networks and scale our strategy beyond late-stage companies in select industries, we look forward to pursuing diversified investment opportunities across the ecosystem. As larger deals refinance, we plan to replace them with smaller loans, thereby increasing the range of industries and verticals present in our portfolio. This is a trend we expect to continue.

Greg: Bringing a diversified mix of companies into our pipeline by continuing to strategically invest in our team-wide distribution networks and scale our strategy beyond lay-stage companies in select industries. We look forward to pursuing diversified investment opportunities across the ecosystem.

Greg: As larger deals refinance, we plan to replace them with smaller loans, thereby increasing the range of industries and verticals present in our portfolio.

Tom Raterman: As you look at the larger deals we've done, many have started out as smaller loans, and our balance has grown with the company. In fact, over a third of the portfolio companies have increased their financing throughout our partnership. And of the loans that upsized, commitments increased 55% on average from the original. By completing smaller deals, we now have a pipeline for more fundings and expanded fundings down the road, thereby allowing us to deploy more capital to performing companies.

Greg: This is a trend we expect to continue. As you look at the larger deals we've done, many have started out as smaller loans and our balance has grown with the companies.

Greg: In fact, over a third of the portfolio companies have upsized their financing throughout our partnership. And of the loans that upsized, commitments increased 55% on average from the original commitment.

Greg: By completing smaller deals, we now have a pipeline for more fundings and expanded fundings down the road, thereby allowing us to deploy more capital to performing companies.

Tom Raterman: I want to reiterate David's point that we plan to thoughtfully accelerate origination growth moving forward, and these initiatives do not mean that we expect to drive incremental portfolio expansion every sequential quarter. However, it does mean that we're confident in our position to deploy capital from our balance sheet and redeploy capital that may come from prepayment activities. As we evaluate various investments in our pipeline, we see a path to executing select transactions at more opportunistic terms in situations where we're confident the borrower is positioned to outperform.

Greg: I want to reiterate David's sentiments.

David: We plan to thoughtfully accelerate origination growth moving forward, and these initiatives do not mean that we expect to drive incremental portfolio expansion every sequential quarter. However, it does mean that we're confident in our position to deploy capital from our balance sheet and redeploy capital that may come from prepayment activity.

Greg: As we evaluate various investments in our pipeline, we see a path to executing select transactions at more opportunistic terms.

Tom Raterman: We believe that some economic headwinds have subsided in the sectors and subsectors we like the most, and we want to take advantage of those improved operating environments for certain borrowers. With that, I will now turn it over to Tom to dive deeper into our finesse.

Greg: In situations where we're confident the borrower is positioned out for form. We believe that some economic headwinds have subsided in the sectors and sub-sectors we like the most, and we want to take advantage of those improved operating environments for certain borrowers.

Tom Raterman: Thank you, Greg, and good evening, everyone. During the second quarter of 2024, we expanded deal flow, completing two investments in new companies late in the quarter representing 75.5 million in funded loans. Our weighted average portfolio risk rating increased to 2.47 in the second quarter compared to 2.44 in the first quarter of 2020. Our rating system is based on a scale of 1 to 5, where 1 represents the most favorable creditor.

Greg: With that, I will now turn it over to Tom to dive deeper into our financials.

Tom: Thank you, Greg, and good evening, everyone. During the second quarter of 2024, we expanded deal flow, completing two investments in new companies late in the quarter, representing 75.5 million in funded loans.

Tom: Our weighted average portfolio risk rating increased to 2.47 in the second quarter compared to 2.44 in the first quarter of 2024.

Greg: Our rating system is based on a scale of 1 to 5, where 1 represents the most favorable credit rating.

Tom Raterman: The change this quarter largely reflects a downgrade of our loan to snag a job to Category 5. As with previous quarters, we calculated the loan-to-value for loans that were in our portfolio at the end of the first quarter and at the end of the current quarter. In comparing this consistent grouping of loans on a like to like basis, we found that our dollar weighted loan-to-value ratio increased from 25.8% to 27.3% sequentially. This sequential increase is primarily the result of the increased loan-to-value ratio of snaggage.

Greg: The change this quarter largely reflects a downgrade of our loan to snag a job to Category 5.

Greg: As with previous quarters, we calculated the loan to value for loans that were in our portfolio at the end of the first quarter and at the end of the current quarter.

Greg: In comparing this consistent grouping of loans on a like-to-like basis, we found that our dollar-weighted loan-to-value ratio increased from 25.8% to 27.3% sequentially.

Greg: The sequential increase is primarily the result of the increased loan-to-value ratio of Snagajob.

Tom Raterman: Our total investment portfolio had a fair value of approximately $1.06 billion excluding Treasury bills, an increase of 5% from $1.02 billion in the first quarter of 2024 and a decrease of 3% from $1.1 billion for the comparable prior year. Our loan portfolio continues to be comprised almost exclusively of first lien senior secured loans. As of June 30, 2024, Runway had net assets of $506.4 million, decreasing from $529.5 million at the end of the first quarter of 2020. Nav per share was $13.14 at the end of the second quarter compared to $13.36 at the end of the first quarter of 2020.

Greg: Our total investment portfolio had a fair value approximately 1.06 billion excluding Treasury bills and increased to 5% from 1.02 billion in the first quarter of 2024 and a decrease of 3% from 1.1 billion for the comparable prior year period.

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

Greg: As of June 30, 2024, Runway had net assets of $506.4 million, decreasing from $529.5 million at the end of the first quarter of 2024.

Greg: Nav per share was $13.14 at the end of the second quarter compared to $13.36 at the end of the first quarter of 2024.

Tom Raterman: 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 term. In the second quarter, we received $25.3 million in principal repayments, a decrease from $34.5 million in the first quarter of 2020. These payments occurred early in the quarter, reducing our average earning assets.

Greg: Our long 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 credits spread set at the time of closing or signing the term sheet.

Greg: In the second quarter, we received $25.3 million in principal repayments, a decrease from $34.5 million in the first quarter of 2024.

Greg: These payments occurred early in the quarter, reducing our average earning assets for the quarter.

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

Greg: As David mentioned, our largest positions in the portfolio are performing well and we expect heightened pre-famous in the near term.

David: This is a testament to our credit-first philosophy focused on the highest quality Sponsored and non-sponsored companies which are often ideal candidates for refinancing or acquisition

Tom Raterman: Our current level of repayments is in line with our expectations for the year, and deployments are growing, which provides us with a line of sight and our ability to cover our dividend distributions in the near term. Furthermore, the sizable amount of inflow generated by these exit fees and repayments will enable us to strategically redeploy capital in a diversified manner to attractive new opportunities that meet our investment criteria. We generated total investment income of $34.2 million and net investment income of $14.6 million in the second quarter of 2024, compared to $40 million and $18.7 million in the first quarter of 2020.

David: Our current level of repayments is in line with our expectations for the year and deployments are growing, which provides us with line of sight and our ability to cover our dividend distributions in the near term.

David: Furthermore, the sizable amount of inflow generated by these exit fees and repayments will enable us to strategically redeploy capital in a diversified manner to attractive new opportunities that meet our investment criteria.

David: We generated total investment income of 34.2 million and net investment income of 14.6 million in the second quarter of 2024 compared to 40 million and 18.7 million in the first quarter of 2024.

Tom Raterman: The decline is primarily a result of a decline in our average portfolio size and a prepayment at the start of the second quarter, which represented a reduction in interest income of approximately five cents per share. The average outstanding debt portfolio declined by approximately 9.5% and 2.2% on a year-over-year and quarter-over-quarter basis, respectively, as we maintained very high credit standards for new transactions. Pick interest as a percent of total interest income declined to 6.8% during the quarter compared to 10.5% during the first quarter.

David: The decline is primarily a result of a decline in our average portfolio size and a prepayment at the start of the second quarter, which represented a reduction in interest income of approximately five cents per share.

David: The average outstanding debt portfolio declined by approximately 9.5% and 2.2% on a year-over-year and quarter-over-quarter basis, respectively, as we maintained very high credit standards for new transactions.

David: PIC interest is a percent of total interest income declined to 6.8% during the quarter, compared to 10.5% during the first quarter of 2024.

Tom Raterman: Our debt portfolio generated a dollar weighted average annualized yield of 15.1% for the second quarter of 2024, as compared to 17.4% for the first quarter of 2024 and 16.7% for the comparable period last year. Moving to our expenses,

David: Our debt portfolio generated a dollar weighted average annualized yields a 15.1% for the second quarter of 2024.

David: as compared to 17.4% for the first quarter of 2024 and 16.7% for the comparable period last year.

Tom Raterman: For the second quarter, total operating expenses were $19.6 million, down 8% from $21.3 million for the first quarter of 2020. Runway recorded a net unrealized loss on investments of $6.3 million in the second quarter compared to a net unrealized loss of $6.6 million in the first quarter of 2020. The unrealized loss was largely a result of an additional markdown of $5.9 million on our loan to Snagaj. We had no realized losses in the first or second quarters of 2020.

David: Moving to our expenses. For the second quarter, total operating expenses were $19.6 million, down 8% from $21.3 million for the first quarter of 2024.

David: Runway recorded a net unrealized loss on investments of $6.3 million in the second quarter compared to a net unrealized loss of $6.6 million in the first quarter of 2024.

David: The unreleased last was largely a result when additional work done, a 5.9 million on our loan to Spagagia.

David: We had no realized losses in the first or second quarters of 2024.

Tom Raterman: As of June 30, 2024, we have two loans on non-accrual status. Our loan to Mingle Healthcare has a cost basis of $5 million and a fair market value of $3.1 million, or 62% of cost. And our loan to Snag a Job has a cost basis of $42.7 million and a fair market value of $30 million, or 70% of that. These loans represent 3.1% of the total investment portfolio in Fairbanks.

David: As of June 30, 2024, we have two loans on nonaccrual status. Our loan to Mingle Healthcare has a cost basis of $5 million and a fair market value of $3.1 million, or 62% of cost.

David: And our Loan to Snag a Job has a cost basis of $42.7 million and fair market value of $30 million or 70% of costs.

David: These loans represent 3.1% of the total investment portfolio at fair value.

Tom Raterman: In the second quarter of 2024, our leverage ratio and asset coverage were 1.1 and 1.91 times, respectively, compared to 0.91 and 2.09 times at the end of the first quarter of 2020. As of June 30, 2024, our total available liquidity was $249.8 million, including unrestricted cash and cash equivalents. We had borrowing capacity of 241 million, reflecting a decline from 319.9 million and 313 million, respectively, on March 31st, 2020. At quarter end, we had unfunded loan commitments to portfolio companies of $254.2 million, the majority of which were subject to specific performance milestones.

David: In the second quarter of 2024, our leverage ratio and asset coverage were 1.1 and 1.91 times, respectively, compared to 0.91 and 2.09 times at the end of the first quarter of 2024.

David: At Jim 30, 2024, our total available liquidity was 249.8 man, including unrestricted cash and cash requirements.

David: We had borrowing capacity of 241 million, reflecting a decline from 319.9 million and 313 million, respectively, on March 31st, 2024.

David: At quarter-end, we had unfunded long commitments to portfolio companies of 254.2 million, the majority which was subject to specific performance milestones.

Tom Raterman: 42 million of these commitments are currently eligible to be, During the second quarter, we experienced one prepayment totaling $25.3 million and scheduled amortization of $1.3 million. This prepayment included full principal repayment of our senior secured term loan to Turning Tech Intermediate. Subsequent to quarter end on July 31st, Cloudpay Inc. prepaid its outstanding principal balance of $75 million on our senior secured term loan. While the exact timing of prepayments is difficult to predict, we anticipate prepayment activity will continue throughout the balance of the year based on the performance and maturity of some of our largest portfolios. These prepayments offer us additional capital to deploy across our pipeline to drive portfolio replenishment and expansion, as well as provide near-term stability around dividend coverage. While we are realistic about the impacts of these prepayments, we believe they demonstrate the health of our underlying borrowers, who continue to perform well.

David: 42 million of these commitments are currently eligible to be funded.

David: During the second quarter, we experienced one prepayment totaling $25.3 million and scheduled amortization of $1.3 million.

David: The prepayment included full principal repayment of our Senior Secured Term Loan to Turning Tech Intermediate, Inc.

David: Tuftsquent to quarter ends on July 31st, Cloud Faking, pre-paid its outstanding principal balance of 75 man on our senior secure term loan.

Speaker Change: Well, the exact timing of pre-payments is difficult to predict. We anticipate pre-payment activity will continue throughout the balance of the year based on the performance and maturity of some of our largest portfolio positions.

Speaker Change: These pre-payments offer as additional capital to deploy across our pipeline to drive portfolio replenishment and expansion, as well as provide near-term stability around dividend coverage.

Speaker Change: While we are realistic about the impacts of these pre-payments, we believe they demonstrate the health of our underlying borrowers who continue to perform well.

Tom Raterman: As mentioned on our previous earnings calls, in November 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. In the second quarter, we repurchased approximately 1,074,842 shares under the program, which brings the total shares purchased to date to 2,833,283 and effectively exhausts the November 23 program. On July 30, 2024, our Board of Directors approved a new stock repurchase program of $15 million, which will expire on July 29, 2025, or earlier, if we repurchase the total amount of stock authorized for repurchase on. During the second quarter, Oak Tree Capital Management and affiliates completed a secondary offering of $4,312,500 shares of our common stock.

Speaker Change: It's mentioned on our previous earnings calls, in November 2023, our Board of Directors Approved the Stack Repurchase Program, giving us the ability to acquire up to $25 million of runways common stock.

Speaker Change: In the second quarter, we repurchased approximately 1,074,842 shares under the program.

Speaker Change: which brings the total shares purchased to date.

Speaker Change: to 2,833,283 and effectively exhaust the November 23 program.

Speaker Change: On July 30, 2024, our Board of Directors approved a new stock repurchase program of $15 million, which will expire on July 29, 2025, or earlier, if we repurchase the total amount of stock authorized for repurchase under the program.

Speaker Change: During the second quarter, Oak Tree Capital Management and affiliates completed a secondary offering of 4,312,500 shares of our common stock.

Tom Raterman: We were pleased to see this enhanced liquidity for our shareholders and broader ownership of our common stock as we execute against our long-term strategic objectives. Finally, on July 30, 2024, our Board of Directors declared a regular distribution for the second quarter of $0.40 per share, as well as a supplemental dividend of $0.05 per share payable with the regular distribution. With that, Operator, please open the line for questions.

Speaker Change: We were pleased to see this enhanced liquidity for our shareholders and broader ownership of our common stock as we execute against our long-term strategic initiatives.

Pamela: Finally, on July 30, 2024, our Board of Directors declared a regular distribution for the second quarter, a 40 cents per share, as well as a supplemental dividend, a 5 cents per share, Pamela with the regular dividend.

Unknown Executive: Thank you. At this time, we will conduct a question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Please stand by while we compile the Q&A list. Our first question comes from the line of Doug Harder of UBS. Your line is now open.

Speaker Change: With that, Operator, please open the line for questions.

Speaker Change: Thank you. At this time, we will conduct a question and answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your questions, please press star 11 again.

Pamela: Please stand by when we compile the Q&A roster.

Speaker Change: Our first question comes from the line of Doug Harder of UBS. Your line is now open.

Unknown Executive: Thanks and good afternoon. I'm hoping you could give a little more detail behind the drop in yield on the portfolio this quarter.

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

Unknown Executive: Thanks, Doug. Thanks for the question.

Speaker Change: Thanks, Doug. Thanks for the question. The drop in yield really is a result primarily of a decrease in

Unknown Executive: The drop in yield really is a result primarily of a decrease in and prepayment related income. Spreads were reasonably steady, the portfolio yield remained, and the accounting yield was pretty steady. So it's largely a result of the latter

Speaker Change: and prepayment-related income. Spreads were reasonably steady, the portfolio yield remained, the accounting yield was pretty steady, so it's largely a result of the one-time income.

Unknown Executive: And then just to help us think about it going forward, you know, kind of, obviously, it's going to vary quarter by quarter. But, you know, how do we think about over time, what a normalized level is, kind of, one cue or the two cues or somewhere in between?

Speaker Change: And then just to help us think about it going forward, you know, kind of, obviously, it's going to vary quarter by quarter. But, you know, how do we think about over time, what a normalized level is kind of one cue or the two cue or, or somewhere in between?

Unknown Executive: In terms of prepayments for the portfolio Both. Okay, well, so let me let me take prepayments first.

Speaker Change: In terms of pre-payment, we're the portfolio yield.

Unknown Executive: So for the second half of 2024, we expect probably 200 to 300 million in prepayments. It's a big range, but we have a line of sight for a couple of handfuls of names. Now that represents, probably close to, you know, 20 cents a share in income related to prepayment fees and Acceleration of Accretion. There's also some offset in NII as a result of those coming out of the portfolio.

Speaker Change: Ab...

Speaker Change: Both.

Speaker Change: Okay. Well, so let me take pre-payments first. So for the second half of 2024.

Speaker Change: We expect probably 200 to 300 men in pre-payments. It's a big range, but we have a line of sight for a couple of handfuls of names. Now, that represents...

Speaker Change: probably close to in total, you know, $0.20 a share in income related to prepayment fees and

Speaker Change: and Acceleration of Accretion.

Speaker Change: Yeah, there's also some offset

Unknown Executive: And then we would expect that, one, this is temporary, and two, that it will take a number of quarters, several quarters to build that back. This isn't a contraction in the portfolio that's permanent by any stretch of the imagination. With a tremendous amount of liquidity available, our leverage will drop, and so we'll have plenty of dry powder to come back up to that 1.25 times. So we expect an elevated level of that prepayment-related income for the next couple of quarters. Thank you. As a reminder to myself,

Speaker Change: And I, as a result of those coming out of the portfolio, and then we would expect that one, this is temporary, and two, that it will take a number of quarters, you know, several quarters to build that back, this isn't.

Speaker Change: contraction in the portfolio that's permanent by any stretch of the imagination, we'll have, yeah.

Speaker Change: You know, a tremendous amount of liquidity available or leverage will drop and so we have plenty of power to come back up to that at one point to five times. So there's we expect an elevated level of that.

Speaker Change: Pre-payment related income for the next couple of quarters.

Unknown Executive: As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. Please wait for our next question. Our next question comes from the line of Melissa Wedel of J.P. Morgan. Your line is now open. Good afternoon. I appreciate you taking the time to answer my question today. You've talked a lot about expecting higher repayment activity in the near term and certainly appreciate the disclosure around cloud pay. It looks like that one might have come in just before the two-year mark since origination. Should we think about that one?

Speaker Change: Thank you.

Speaker Change: As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced.

Unknown Executive: Second Quarter 2024 Earnings Conference Call. Please be advised that today's conference is being recorded.

Quinlan Abel: I would now like to hand the conference over to Quinlan Abel, Assistant Vice President and Vesta Relations. Please go ahead. Thank you, operator.

Speaker Change: www.globalonenessproject.org

Quinlan Abel: Good evening, everyone, and welcome to the Runway Growth Finance Conference call for the second quarter ended June 30, 2024. Joining us on the call today from Runway Growth Finance are David Spreng, Chairman, President and Chief Executive Officer, Greg Greifeld, Managing Director, Deputy Chief Investment Officer, and Head of Credit of Runway Growth Capital, and Tom Raterman, Chief Financial Officer and Chief Operating Officer. Runway Growth Finance is second quarter 2024 financial results. We're released just after today's market close and can be accessed from Runway Growth Finance Investor Relations website at investors.runwaygrowth.com.

Speaker Change: [inaudible]

Speaker Change: One moment for our next question.

Speaker Change: Our next question comes from the line of Melissa Weddle of JPMorgan, your line is now open.

Melissa Weddle: Good afternoon, appreciate you taking my question today. You've talked a lot about expecting higher repayment activity in the near term and certainly appreciate the disclosure around cloud pay.

Speaker Change: It looks like that one might have come in just before a two-year mark since origination. Should we think about that one as having prepayment income associated with it?

Quinlan Abel: We've arranged for a replay of the call at the Runway Growth Finance Webpage. During this call, I want to remind you that we may make forward-looking statements based on current expectations. The statements on this call that are not purely historical are forward-looking statements. These forward-looking statements are not a guarantee of future performance and are subject to uncertainties and other factors that could cause actual results to differ materially from those expressed in the forward-looking statements, including and without limitations.

Unknown Executive: There was some prepayment income associated with that. That's a loan and a borrower that we've had the pleasure of working with for, you know, a considerable period of time. So it really relates to prepayments. There wasn't a tremendous amount of acceleration in accretion at the end of term, and the range of 200.

Speaker Change: There was some prepayment income associated with that, that's a loan.

Speaker Change: and a borrower that we've had the pleasure of working with for a considerable period of time. So it really relates to prepayments. There wasn't a tremendous amount of acceleration in accretion on the end-of-term payment.

Speaker Change: and the range of 200 to 300 million includes the 75 million dollar cloud pay.

Quinlan Abel: Market conditions caused by uncertainties surrounding changing 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.

Unknown Executive: I'm sorry; I missed the first part of that.

Speaker Change: Number.

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

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

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

Unknown Executive: Okay, okay. I appreciate the clarification.

Speaker Change: Okay, appreciate the clarification. I'm just wondering, I mean, you're pretty

Speaker Change: Specific around the repayment activity, obviously, we know that the origination activities, it's tough to get your arms around, especially a couple quarters ahead of time.

Unknown Executive: To obtain copies of SEC-related filings, please visit our website.

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

David Spreng: With that, I will turn the call over to David. Thank you, Quinlan, and thanks everyone for joining us this evening to discuss our second-quarter results. Today, I'll reflect on the first half of the year, and second-quarter highlights provide an overview of our financial results, and lastly discuss our outlet for the remainder of 2024.

Speaker Change: Is there anything that you can tell us about the origination environment so far in 3Q?

Unknown Executive: Yeah, sure, Melissa. I would say there's probably five really important points to make, three kind of on the demand side, and then two as relates to the environment. And from a demand perspective, borrowers are more realistic about valuation structure and terms. They've finally come to grips with the reality of the market, and they really delayed raising as long as they could.

Speaker Change: Yeah, sure, but I would say it is probably five really important points to make three kind of on the demand side and then two as relates to the environment.

David Spreng: During the second quarter, we were pleased to execute unattractive opportunities. We've been encouraged by the volume of quality companies seeking non-deleted growth capital in our position as a potential growth partner. We completed two investments in new portfolio companies at the end of the second quarter, representing 75.5 million in funded loans. These investments included the completion of a $58.4 million senior secured term loan to airship group, and a $17.1 million senior secured term loan to onward medical.

Speaker Change: and from a demand perspective.

Speaker Change: Borrowers are more realistic about valuation structure and terms.

Speaker Change: They finally come to grips with the reality of the market, and they really delayed raising as long as they can, and now especially in the face of...

Unknown Executive: And now, especially in the face of a potential economic downturn, they really do want to raise money, and equity remains scarce and expensive. So there's a lot of demand for the capital that we provide. And from an environmental point of view, if you will, base rates are likely to decline, and spreads, hopefully, will expand a bit. And as I said earlier, we're able to get more in terms of structure like covenants and a little bit better spread.

Speaker Change: potential economic downturn that they really do want to raise money and equity remains scarce and expensive. So, there's a lot of demand for...

David Spreng: Airship is an enterprise software platform focused on customer engagement for mobile apps, while onward is a medical technology company creating innovative spinal cord stimulation therapies. We believe both companies are representative of our focus on high quality, late-stage companies in the sectors we know best, technology, health care, and select consumer service and product industries.

Speaker Change: The capital that we provide.

Speaker Change: and from a...

Speaker Change: environmental point of view, if you will, base rates are likely to decline and spreads hopefully will expand a bit. And as I said earlier, we're able to get more in terms of

Speaker Change: structure, like covenants, and a little bit better spread. And the other point is that these companies are actually borrowing less.

Unknown Executive: And the other point is that these companies are actually borrowing less so that they pay less, and they're looking for a lender that can grow with them. And we're almost always able to structure something that makes sense for both the borrower and the runway.

David Spreng: Runway delivered total investment income of 34.2 million and net investment income of 14.6 million in the quarter. Our average portfolio risk rating increased to 2.47 in the second quarter compared to 2.44 in the first quarter of 2024. We continue to proactively monitor our portfolio for potential issues that may arise regardless of market conditions and uphold our commitment to supporting borrowers throughout the entire lifetime of alone. Further, we believe our focus on originating investments at the top of the capital stack and avoiding situations with significant downstream financing risk and junior capital that play reduces the risk of volatility often associated with investing in early-stage companies.

Speaker Change: so that they pay less and they're looking for a lender that can grow with them and we're almost always able to structure something that makes sense for both the borrower and runway.

Unknown Executive: Is that helpful?

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

Speaker Change: Is that helpful?

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

Unknown Executive: No, well, I think Greg and I both said in our prepared remarks that the funnel looks very good. But we have, it's like every quarterback has waited, and we remain really, really, really picky and really cautious about deals that we're going to do, and the environmental wrapper, if you want to call it that, and not from an ESG perspective, but just what the economy is like, there's even more volatility in that than there was over the previous year or so. So, you know, that kind of weighs heavily on our underwriting. And when things are on the fence or on the bubble, we tend to be more conservative.

Speaker Change: No, well, the I think Greg and I both said.

Speaker Change: in our prepared remarks that

Speaker Change: The funnel looks very good, but we...

Speaker Change: have, it's like every quarterback and waited and we remain really, really, really picky and really cautious about deals that we're going to do and, and

David Spreng: We will thoughtfully accelerate origination growth moving forward. Turning now to the market, as the Federal Reserve continues to focus on payment inflation, investors are cautious and companies at various stages are contending with heightened probability of down rounds and liquidity constraints. As we anticipated, companies that raised capital at record valuations during 2021 and 2022 continue to seek debt as a means for non-deludive growth. However, in today's challenging capital markets, venture-backed companies are heavily scrutinized as investors prioritize the highest quality companies with clear paths to profitability. In the current environment we are seeing companies fundraising at quite conservative levels relative to their enterprise value, which translates to an increasing quantity of attractive opportunities for runway.

Speaker Change: The environmental rapper, if you want to call it that, and not from an ESG perspective, but just what the economy is like, there's even more volatility on that than there was.

Speaker Change: Over the previous year. So, you know, that kind of way is heavily on our underwriting.

Speaker Change: When things are on the fence or on the bubble, we tend to be conservative.

Unknown Executive: And so I wouldn't expect a massive Q3. But I think, you know, we're going to do some deals in Q3. And hopefully, they won't both be on the last day of the quarter, or not both, but that they'll be more spread out throughout the quarter. That's our goal.

Speaker Change: and so I wouldn't expect a massive Q3, but I think, you know, we're going to do some deals in Q3 and hopefully they won't both be on the last day of the quarter, or not both, but

Speaker Change: There'll be more spread out throughout the corner.

Unknown Executive: of it. Thank you. Of course. One moment for our next question. Our next question comes from the line of Bryce Rowe of B Riley. Your line is now open.

Speaker Change: That's our goal. Got it. Thank you.

David Spreng: Our investment thesis is always centered on supporting passionate entrepreneurs by providing access to minimally diluted growth capital. The importance of capital preservation and providing a margin of safety cannot be overstated amid a challenging backdrop. Our critical eye on underwriting emphasis on credit quality and focus on a cyclical sectors provides comfort in our potential credit performance moving forward.

Speaker Change: Of course.

Speaker Change: One moment for our next question.

Speaker Change: Our next question comes from the line of Bryce Row of B Riley. Your line is now open.

Unknown Executive: Thanks. Good. Good evening.

Unknown Executive: You know, I want to maybe follow up on some of Melissa's questions or comments there. I think, David, you and Greg both talked about broadening the funnel out, you know, whether it was last quarter or over the last couple of quarters. Can you help us, or can you talk a little bit about that process? I assume there's some, you know, pun intended here; there's a bit of a runway in terms of that process.

Bryce Row: Thanks for your good evening.

Bryce Row: Want to maybe follow up on some of Melissa's questions or comments there.

Bryce Row: I think, David, you and Greg both talked about broadening the funnel out, you know,

Speaker Change: Whether it was last quarter or over the last couple quarters, can you help us or can you talk a little bit about that process?

David Spreng: We are going to remain disciplined and will be ready to execute on the right deals in the coming quarters. That said, we believe that the operating environment for many borrowers has improved meaningfully in recent months. In these situations, we are going to be opportunistic as we seek to redeploy capital and diversify our portfolio with confidence in the underlying fundamentals, of the borrower's business amidst improving macro-conditions in certain substance.

David Spreng: In our view, this will not necessarily result in linear portfolio expansion quarter to quarter, but we'll ensure we are positioning our portfolio and shareholders for long-term returns.

Speaker Change: I assume there's some, you know, point-point intended to do there's a bit of a runway in terms of that process.

Unknown Executive: And, you know, how has it yielded, you know, a better pipeline? And, you know, not necessarily quantify that for us, but maybe give us multiples of what you expect from a pipeline once those efforts really start to take hold.

Speaker Change: How has it, or has it yielded?

Speaker Change: You know, a better pipeline and not necessarily quantified that for us, but maybe give us multiples of what you expect from a pipeline once those efforts really start to take hold.

Unknown Executive: Yeah, so it's a great question, and we're referring to the fact that we are simultaneously trying to achieve our overall origination goals with a more conservative lens and a more challenging backdrop, but we're also trying to add diversification to the portfolio. And our average commitment last quarter, and I think really over the last couple quarters, was right around $40 million. And that's perfect to accomplish both of those goals, but it doesn't mean we need to do more deals.

Speaker Change: Yeah, so it's a great question and we're referring to the fact that we are simultaneously trying to achieve our overall

Speaker Change: Origination Goals with a more conservative lens and a more challenging backdrop, but we're also trying to add diversification to the portfolio and our average commitment

Greg Greifeld: With that, I'll turn it over to Greg for an overview of the investment landscape. Thanks, David. I'd like to take a moment to focus on the U.S, venture equity deal activity in the second quarter, which increased sequentially to the highest deal values since Q2 2022, potentially marking an inflection point. U.S, late-stage venture equity represented 42 percent of total deal value and 29 percent of total deal counts in the second quarter of 2024, marking strong quarterly figures.

Speaker Change: Last quarter, and I think really over the last couple quarters, is right around $40 million, and that's perfect to accomplish.

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

Speaker Change: Both of those goals, but it doesn't mean we need to do more deals.

Speaker Change: So we're busier, we're spending a lot more time filtering. And I think that's just the new reality that we have to get used to. But the one thing I can show you is we're not

Greg Greifeld: Companies at the later stages of venture have been the most apt to lengthen runway and the most cautious to stay out of the market to stem further delusion. We expect many late and gross-stage companies to continue to struggle with fundraising and liquidity constraints for the remainder of 2024. A reflection of investor caution given the higher for longer rate environment, geopolitical tensions, and uncertainty associated with the U.S, election cycle. As David mentioned, the companies seeking our financing solutions are coming to the table conservatively relative to their enterprise value.

Speaker Change: doing any less thorough of an analysis or being any less thoughtful about how we structure and price the deals that get into the portfolio.

Unknown Executive: And then, you know, not nice to see the repurchase activity, you know, it sounds like most of that program has been used up. There's some opportunity for another one at some point if the board authorizes one. Can you talk about your appetite for that, especially considering what could be a much smaller credit facility outstanding or a big pile of cash with the repayment activity that's expected?

Speaker Change: Okay.

Speaker Change: Um...

Speaker Change: And then, you know, it's not nice to see the repurchase activity, it sounds like most of that program has been used up.

Speaker Change: There's some opportunity for another one at some point if the board authorizes one.

Greg Greifeld: A trend we will continue to monitor over the coming quarters. Against a mixed backdrop of geopolitical uncertainty, we are pleased with the depth and quality of our pipeline. While financial conditions remain very accommodating, risks such as fiscal policy, given higher levels of debt and interest rates, are coming into focus. We remain confident in our abilities to capitalize in the dynamic environment by deploying capital while delivering strong credit performance to maximize risk adjusted returns for our shareholders.

Speaker Change: Can you talk about your appetite for that, especially considering what could be a, you know, either a much smaller credit facility outstanding or a big pile of cash with the repayment activity that's expected?

Unknown Executive: Yeah, I'll answer that, Bryce. The board did approve a $15 million share repurchase program last week. So we have reloaded that bucket, if you will. And I think, as we look at it, you know, clearly, depending on where the stock trades, we're, we believe in investing in ourselves. At the same time, I think we have a bias to really return capital to investors through dividends and through building a portfolio that demonstrates significant core earnings power over time.

Speaker Change: Yeah, I'll answer that Bryce. The board did approve last week a $15 million dollar share repurchase program. So we have

Speaker Change: Reloaded that bucket, if you will, and I think as we look at it, you know, clearly, depending on where the stock trades, you know, we're, we believe in investing in ourselves. At the same time, I think we have a bias to

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

Speaker Change: really returned capital to investors through dividends and through building a portfolio that demonstrates you know, significant core earnings power over time.

Unknown Executive: We have a lot of capacity to use that $15 million right now, whether it's leverage or not. So we'll just have to see what opportunities the market gives us on that, and we'll certainly be opportunistic in implementing that program.

Speaker Change: We have a lot of capacity to use that $15 million right now, whether it's leverage or not. So we'll just have to see what opportunities the market gives us on that, and we'll certainly be opportunistic in implementing that program.

Greg Greifeld: As larger deals refinance, we plan to replace them with smaller loans, thereby increasing the range of industries and verticals present in our portfolio. This is a trend we expect to continue, as you look at the larger deals we've done, many have started out as smaller loans and our balance has grown with the companies. In fact, over a third of the portfolio companies have upsized their financing throughout our partnership, and of the loans that upsize commitments increased 55% on average from the original commitment.

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

Speaker Change: Okay, last one for me, you just laid out the...

Speaker Change: Potential prepayment income and certainly outsized.

Speaker Change: relative, or for the second half of the year, can you kind of talk about that relative to, you know, the distribution of supplementals, you know, on a, maybe on a going forward basis?

Greg Greifeld: By completing smaller deals, we now have a pipeline for more fundings and expanded fundings down the road, thereby allowing us to deploy more capital to perform income. News. I want to reiterate David sentiments. We plan to thoughtfully accelerate origination, growth moving forward, and these initiatives do not mean that we expect to drive incremental portfolio expansion every sequential quarter. However, it does mean that we're confident in our position to deploy capital from our balance sheet and redeploy capital that may come from prepayment activity. As we evaluate various investments in our pipeline, we see a path to executing select trends and transactions at more opportunistic terms in situations where we're confident the borrower is positioned to outperform.

Speaker Change: Do you think you might keep that in your pocket as spillover to cover future regular-way dividends in light of a portfolio that might get smaller?

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

Speaker Change: Yeah, I think.

Speaker Change: Yes, we'll have to look at all of that. Again, our preference is to, you know,

Speaker Change: the main cane, the base dividend, and keep that in intact, which is our attention. And we've got a good amount of spillover today in the pre-payment income should generate more.

Speaker Change: We'll have to see what the pace of originations is, and we want to be thoughtful about it. We're going to be credit first about it, and at the same time we want to build that portfolio back as quickly as possible.

Unknown Executive: So, you know, I kind of have to kick the can down the road on that. We want to keep that supplemental as long as we can, but the pace of originations will really determine that, but we're in a good position right now with the supplemental and the anticipated prepayment income for a healthy dividend. Okay.

Greg Greifeld: We believe that some economic headwinds have subsided in the sectors and sub sectors we like the most, and we want to take advantage of those improved operating environments for certain borrowers.

Speaker Change: So, you know, I kind of have to kick the can down the road on that. We want to keep, we'd like to continue that supplemental as long as we can, but the pace of originations will...

Tom Raterman: With that, I will now turn it over to Tom to dive deeper into our financials.

Speaker Change: will really determine that, but we're in a good position right now with the supplemental and the anticipated pre-payment and comfort for our healthy dividend.

Tom Raterman: Thank you, Greg, and good evening everyone. During the second quarter of 2024, we expanded deal flow, completing two investments in new companies late in the quarter, representing 75.5 million and funded loans. Our weighted average portfolio risk rating increased to 2.47 in the second quarter, compared to 2.44 in the first quarter of 2024. Our rating system is based on a scale of 1 to 5, where 1 represents the most favorable credit rating.

Unknown Executive: All right, that's it for me. Thank you. As a reminder, to ask a question, please press star 111.

Unknown Executive: As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. I'm showing no further questions at this time. I would like to turn it back to David Spreng, Chairman, President, and CEO, for closing remarks.

Speaker Change: Okay.

Speaker Change: All right, that's it for me. Thank you

Speaker Change: As a reminder to ask a question, please press star one one on your telephone and wait for your name to be announced.

Speaker Change: Episode 2

Speaker Change: www.globalonenessproject.org

Speaker Change: [inaudible]

Speaker Change: I'm showing no further questions at this time. I would like to turn it back to David Spreng, Chairman, President, and CEO for closing remarks.

Tom Raterman: The change this quarter largely reflects the downgrade of our loan to snag a job to category five. As with previous quarters, we calculated the loan to value for loans that were in our portfolio at the end of the first quarter and at the end of the current quarter. In comparing this consistent grouping of loans on a like to like basis, we found that our dollar weighted loan to value ratio increased from 25.8% to 27.3% sequentially.

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

David Spreng: Thank you, Operator.

David Spreng: As we enter the second half of 2024, we look forward to advancing Runway's portfolio through high-quality loans at favorable terms.

David Spreng: As the number of venture-backed companies seeking capital in the current market environment continues to grow, it is critical that we maintain our dedication to selectivity and underwriting vigor while evaluating future opportunities.

Tom Raterman: This is a quential increase is primarily the result of the increased loan to value ratio of snag a job. Our total investment portfolio had a fair value of approximately 1.06 billion, excluding treasury bills, an increase of 5% from 1.02 billion in the first quarter of 2024 and a decrease of 3% from 1.1 billion for the comparable prior year period. Our loan portfolio continues to be comprised almost exclusively of firstly senior secured loans.

David Spreng: We believe our credit first approach to investing and monitoring continues to power our stable portfolio and will enable us to navigate changes in market condition or shifts in the operating environment.

David Spreng: We're ready to take advantage of opportunities as the market becomes more lender-friendly.

David Spreng: Thank you all for joining us today and we look forward to updating you on our third quarter 2024 financial results in November .

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

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

Tom Raterman: As of June 30, 2024, runway had net assets of 506.4 million, decreasing from 529.5 million at the end of the first quarter of 2024. Nav per share was $13.14 at the end of the second quarter, compared to $13.36 at the end of the first quarter of 2024. Our loan portfolio is comprised of 100% floating rate assets. All loans are currently earning interest at or above agreed upon interest rate floors, which generally reflect the base rate plus the credit spread set at the time of closing or signing the term P. In the second quarter, we received 25.3 million in principal repayments, a decrease from 34.5 million in the first quarter of 2020, in 2024.

Tom Raterman: These payments occurred early in the quarter, reducing our average earning assets for the quarter. As David mentioned, our largest positions in the portfolio are performing well, and we expect heightened prepayments in the near term. This is a testament to our credit first philosophy, focused on the highest quality, sponsored, and non-sponsored companies, which are often ideal candidates for refinancing or acquisition. Our current level of repayments is in line with our expectations for the year and deployments are growing, which provides us with line of sight and our ability to cover our dividend distributions in the near term.

Tom Raterman: Furthermore, the sizeable amount of inflow generated by these exit fees and repayments will enable us to strategically redeploy capital in a diversified manner to attractive new opportunities that meet our investment criteria. We generated total investment income of 34.2 million and net investment income of 14.6 million in the second quarter of 2024, compared to 40 million and 18.7 million in the first quarter of 2024. The decline is primarily a result of a decline in our average portfolio size and a prepayment at the start of the second quarter, which represented a reduction in interest income of approximately five cents per share.

Tom Raterman: The average outstanding debt portfolio declined by approximately 9.5 percent and 2.2 percent on a year over year and quarter over quarter basis, respectively, as we maintain very high credit standards for new transactions. Pick interest is a percent of total interest income declined to 6.8 percent during the quarter, compared to 10.5 percent during the first quarter of 2024. Our debt portfolio generated a dollar weighted average annualized yield of 15.1 percent for the second quarter of 2024 as compared to 17.4 percent for the first quarter of 2024 and 16.7 percent for the comparable period last year.

Tom Raterman: Moving to our expenses for the second quarter total operating expenses were 19.6 million down 8 percent from 21.3 million for the first quarter of 2024. Runaway recorded a net unrealized loss on investments of 6.3 million in the second quarter, compared to a net unrealized loss of 6.6 million in the first quarter of 2024. The unrealized loss was largely a result of an additional markdown of 5.9 million on our loans to SNAGA job.

Tom Raterman: We had no realized losses in the first or second quarters of 2024. As of June 30, 2024, we had two loans on non-accrual status. Our loan to mingle healthcare has a cost basis of 5 million and a fair market value of 3.1 million or 62 percent of cost. And our loans to SNAGA job has a cost basis of 42.7 million and fair market value of 30 million or 70 percent of cost.

Tom Raterman: These loans represent 3.1 percent of the total investment portfolio and fair value. In the second quarter of 2024, our leverage ratio and asset coverage were 1.1 and 1.91 times respectively compared to 0.91 and 2.09 times at the end of the first quarter of 2022. 2020-24. At June 30, 2024, our total available liquidity was 249.8 man, including unrestricted cash and cash equivalents. We had borrowing capacity of 241 man, reflecting heat decline from 319.9 man and 313 man, respectively, on March 31, 2024.

Tom Raterman: At 154.2 million, the majority of which were subject to specific performance milestones. 42 million of these commitments are currently eligible to be funded. During the second quarter, we experienced one prepayment totaling 25.3 million and scheduled amortization of 1.3 million. The prepayment included full principal repayment of our senior secure term loan to turning tech intermediate ink. Subsequent to quarter ends on July 31, cloud pay ink prepaid is outstanding principal balance of 75 man on our senior secure term loan.

Tom Raterman: While the exact timing of prepayments is difficult to predict, we anticipate prepayment activity will continue throughout the balance of the year based on the performance and maturity of some of our largest portfolio positions. These prepayments offer us additional capital to deploy across our pipeline to drive portfolio replenishment and expansion, as well as provide near term stability around dividend coverage. While we are realistic about the impacts of these prepayments, we believe they demonstrate the health of our underlying borrowers who continue to perform well.

Tom Raterman: As mentioned on our previous earnings calls, in November 2023, our Board of Directors approved a stock repurchase program giving us the ability to acquire up to 25 million dollars of runways common stock. In the second quarter, we repurchased approximately 1 million 74,842 shares under the program, which brings the total shares purchased to date to 2,833,283 and effectively exhaust the November 23 program.

Tom Raterman: On July 30, 2024, our Board of Directors approved a new stock repurchase program of $15 million, which will expire on July 29, 2025, or earlier if we repurchased the total amount of stock authorized for repurchase under the program.

Tom Raterman: During the second quarter, Oak Tree Capital Management and Affiliates completed a secondary offering of $4,312,500 shares of our common stock. We were pleased to see this enhanced liquidity for our shareholders and broader ownership of our common stock as we execute against our long-term strategic initiatives.

Tom Raterman: Finally, on July 30, 2024, our Board of Directors declared a regular distribution for the second quarter of $0.40 per share, as well as a supplemental dividend of $0.5 per share, pay them with a regular dividend.

Unknown Executive: With that, operator, please open the line for questions. Thank you. At this time, we will conduct a question-and-answer session. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. To withdraw your questions, please press star 11 again. Please stand by, we'll compile the Q&A roster.

Doug Harter: Our first question comes from the line of Doug Harter of UBS. Your line is now open. Thanks in good afternoon.

David Spreng: I hope you could give a little more detail behind the drop in yield on the portfolio of this quarter. Thanks Doug, thanks for the question. The drop in yield really is a result primarily of a decrease in and pre-payment related income. Spreds were reasonably steady. The portfolio yield remained at the accounting yield was pretty steady. So it's largely a result of the one-time income.

David Spreng: And then just to help us think about it going forward, you know, kind of obviously it's going to vary quarter by quarter, but you know, how do we think about over time what a normalized level is kind of one Q or the QQ or somewhere in between? In terms of pre-payments or the portfolio yield? Both. Okay, well, so let me take pre-payments first. So for the second half of 2024, we expect probably 200 to 300 million in pre-payments.

David Spreng: It's a big range, but we have a line of sight for a couple of handfuls and names. Now, that represents probably close to total, you know, 20 cents a share in income related to pre-payment fees and acceleration of accretion. You know, there's also some offset in the NII as a result of those coming out of the portfolio. And then we would expect that one, this is temporary and two that it will take a number of quarters, you know, several quarters to build that back.

David Spreng: This isn't a contraction in the portfolio experiment by any stretch of the imagination. We'll have, you know, a tremendous amount of liquidity available or leverage will drop. And so we have, we'll have plenty of direct powder to come back up to that one point to five times. So there's, there's, we expect an elevated level of that pre-payment related income for the next couple of quarters.

Unknown Executive: Thank you.

Unknown Executive: As a reminder to ask a question, please press star 111 on your telephone and wait for your name to be announced.

Melissa Wedel: One moment for our next question. Our next question comes from the line of Melissa Wedel of JP Morgan. Your line is now open.

David Spreng: Good afternoon. Appreciate you taking my question today. You've talked a lot about expecting higher repayment activity in the near term and certainly appreciate the disclosure around cloud pay. It looks like that one might have come in just before a two year, two year marks and some certain some origination should we think about that one is having prepayments income associated with it. There was some pre-payment income associated with that, that's a long and a bar over that we've had the, you know, the pleasure of working with for, you know, a considerable period of time. So it really relates to, to pre-payments, there wasn't a tremendous amount of acceleration in, in accretion on the end of term payment. And the range of 200 to 300 man includes the $75 million clock pay.

David Spreng: I'm sorry, I missed the first part of that. So the range that I talked about 200 to 300 man in pre-payments for the second half, potentially, of the year includes the 75 man that we received earlier in the quarter from clock pay. Okay, okay, appreciate the clarification. I'm just wondering, I mean, you were pretty specific around the rate payment activity. Obviously, we know that the origination activity is tough to get your arms around, especially a couple quarters ahead of time.

David Spreng: But, is there anything that you can tell us about the origination environment so far in 3Q? Yeah, sure, Melissa. I would say there's probably five really important points to make, three kind of on the demand side and then two as relates to the environment. And from a demand perspective, borrowers are more realistic about valuation structure and terms. They finally come to grips with the reality of the market and they really delayed raising as long as they can.

David Spreng: And now, especially in the face of potential economic downturn, they really do want to raise money and equity remains scarce and expensive. So there's a lot of demand for the capital that we provide. And from a environmental point of view, if you will, you know, base rates are likely to decline and spreads hopefully will expand a bit. And as I said earlier, we're able to get more in terms of structure, like covenants.

David Spreng: And a little bit better spread. And the other point is that these companies are actually borrowing less so that they pay less. And they're looking for a lender that can grow with them. And we're almost always able to structure something that makes sense for both the borrower and runway. Is that helpful? It is. I guess I'm also wondering if there's anything specifically you can size for us in terms of three Q activity so far.

David Spreng: And look, I miss it already. No, well I think Greg and I both said in our prepared remarks that the funnel looks very good but we have it's like every quarter back end weighted and we remain really really really picky and really cautious about about deals that we're going to do and the environmental wrapper if you want to call it that and not from an ESG perspective but just what the economy is like.

David Spreng: There's even more volatility on that than there was over the previous year so that kind of ways heavily on our underwriting and when things are on the fence or on the bubble, we tend to be conservative. I wouldn't expect a massive Q3 but I think we're going to do some deals in Q3 and hopefully they won't both be on the last day of the quarter or not both but they'll be more spread out throughout the quarter. That's our goal.

Unknown Executive: Okay, thank you. Of course. One moment for our next question.

Bryce Rowe: Our next question comes in the line of Bryce Rowe of Be Riley, your line is now open. Thanks, good evening. You know what I want to maybe follow up on some of Melissa's questions or comments there. I think David, you and Greg both talked about broadening the funnel out, whether it was last quarter or over the last couple quarters. Can you help us or can you talk a little bit about that process?

Bryce Rowe: I assume there's some pun intended here. There's a bit of a runway in terms of that process and how has it yielded a better pipeline and not necessarily quantify that for us but maybe give us multiples of what you expect from a pipeline once those efforts really start to take home. Yeah, so it's a great question and we're referring to the fact that we are simultaneously trying to achieve our overall origination goals with a more conservative lens and a more challenging backdrop, but we're also trying to add diversification to the portfolio.

Bryce Rowe: And our average commitment last quarter and I think really over the last couple quarters is right around 40 million and that's perfect to accomplish both of those goals, but it doesn't mean we need to do more deals. So we're busier, we're spending a lot more time filtering and I think that's just a new reality that we have to get used to, but the one thing I can true is we're not, doing any less thorough of an analysis or being any less thoughtful about how we structure and price the deals that get into the portfolio.

David Spreng: Okay. And then, you know, it's not nice to see the repurchase activity, you know, it sounds like most of that program has been used up. There's some opportunity for another one at some point at the board authorizes one. Can you talk about your appetite for that, especially considering what could be a, you know, either a much smaller credit facility outstanding or a big pile of cash with the repayment activity that's expected?

David Spreng: Yeah, I'll answer that, right. The board did approve the last week a $15 million share repurchase program. So we have, you know, reloaded that bucket, if you will. And I think, as we look at it, you know, clearly depending on where the stock trades, you know, where we believe in investing in ourselves. At the same time, I think we have a bias to really return capital to investors through, through dividends and through building a portfolio that demonstrates, you know, significant core earnings power over time.

David Spreng: We have a lot of capacity to use that 15-minute right now, whether it's leverage or the not. So, we'll just have to see what opportunities the market gives us on that, and we'll certainly be opportunistic in implementing that program.

David Spreng: Okay. Last one for me, you know, you just laid out the potential prepayment income and certainly outsized relative, or for the second half of the year, can you, can you, can you kind of talk about that relative to, you know, the distribution of supplemental, you know, on maybe on a going forward basis, you know, do you think you might, you know, keep that in your pocket as, you know, as a bill over to cover future regular way dividends, you know, in light of the portfolio that might get smaller.

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

David Spreng: So, you know, I kind of have to kick the can down the road on that. We want to keep, we'd like to continue that supplemental as long as we can, but the pace of originations will really determine that. But we're in a good position right now with the supplemental and the anticipate of prepayment income for, for L to give it in, okay.

Bryce Rowe: Alright, that's it for me. Thank you. As a reminder to ask the questions, please press star one on your telephone and wait for your name to be announced.

Unknown Executive: I'm showing no further questions at this time.

David Spreng: I would like to turn it back to David Spreng, Chairman, President and CEO for closing remarks. Thank you, operator. As we entered the second half of 2024, we look forward to advancing runways portfolio through high quality loans at favorable terms. As the number of venture-backed companies seeking capital and the current market environment continues to grow, it is critical that we maintain our dedication to selectivity and underwriting vigor, while evaluating future opportunities.

David Spreng: We believe our credit first approach to investing and monitoring continues to power our stable portfolio and will enable us to navigate changes in market conditions or shifts in the operating environment. We're ready to take advantage of opportunities as the market becomes more lender friendly.

David Spreng: Thank you all for joining us today and we look forward to updating you on our third quarter of 2024 financial results in November. Thank you for your participation in today's conference.

Unknown Executive: This concludes the program. You may now disconnect.