Runway Growth Finance (RWAY) 6 Aug 222022 Q2 Earnings call transcript

Ladies and gentlemen, thank you for standing by and welcome to the Runway Growth Finance Second Quarter 2022 Earnings Conference Call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Mary Friel, Assistant Vice President, Business Development, and Investor Relations. Please go ahead.

Thank you operator. welcome second Runway XXXX. quarter and call Finance everyone the for ended afternoon to Growth the conference Good June XXth, us Officer. Executive today David call Raterman, Chief and on Growth and Tom With are Chief Officer Finance Operating Founder; from and Spreng, Chief Officer, Runway Chief Financial Investment Officer, Chairman, the Growth today's and can be Runway Growth financial XXXX investors.runwaygrowth.com. close quarter Relations results were at from market Runway Finance's Finance's second released Investor website just after accessed

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

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

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

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

volatility. persistent weatherproof for some the the highlights, success We the and investment Today even Mary which of Growth credit-first investment us remainder for provide quarter, a net income origination an Growth and year. disciplined of had Thank thank evening. all an Runway overview and face operational brief you, platform. to outstanding outlook the Runway of market quarter, market this you I in process attribute our will delivering record underpins the joining

cost innovative resonate equity expands, financing capital debt high-quality to with model durable differential the continues companies. As Runway between and Growth's

are companies portfolio payment. providers. positioned partners capital we success recognize sheet final ensures not from Runway simply Our are Growth term for to our

Our origination to deals. increased of prior net million times XX% in This year million million the the growth our with quarter income commitments second quarter new second period. completing leverage end from new our with as We quarter. nine growth of and from drive prior quarter the times. in period. represents the we core revolving investment X.XX were X.X the portfolio income This our delivered team all in assets from million and year companies. strong strategy and portfolio We million investments proceeds the the of ratio up $XXX.X in prudent $XX.X at second in of up existing $XXX completed investment is $XXX.X Notably, $XXX.X XX% Net credit total delivered respectively million facility to from $XX.X portfolio XX% investments funded in in including ongoing leverage. part

secured risk loan-to-value paired portfolio the weighted at concentration believe prudent XX.X%. have strategy. loans is in of demonstrated debt we a with our origination BDCs performance underwriting first average by and record Our public We lowest as among senior venture lien

components communication to are late-stage focus key monitoring a Our the strong of and frequent Disciplined to recession-resistant credit companies. companies quality prevent losses underwriting in keep approach our is active and our strong testament on portfolio.

To to origination. steady team We of best-in-class made are end that that share deep experience hires. that knowledge have thrilled quarter to deal we end, rigor flow to deal we a underwriting I'm origination sector employ four brings see. strategic we subsequent building and to order in we course to believe Of generate a every

Ted Goldrich, Brad Morisoli Direct he new and President venture us lending as Cavan, increase of Corp. led will Jeff joins two Lending Pritchard, BlackRock lending and and the members efforts brings our growth the Brannon experience. firm's from globally where Our nearly decades bench. of technology served banking depth Brad BlackRock Brad of

and We Banking. Growth. and years experience CIBC brings are to nearly TriplePoint experience Ted between Stifel of also Stifel Jeff and and Runway joins from Venture brings years growth. excited to us welcome us Innovation of Brannon the Ted, joins from Jeff XX Bank seven

in-depth sector. composition. built Lastly At to Brannon in and he joins new constantly us origination portfolio Runway, sciences focus all our the will SWK and expertise where future and Holdings contribute are networks additions opportunities. we positively hiring a These evaluating nearly after growth life with impact seven years meaningfully

continue focused team to will make investments in geographic remaining industry support tailwinds. We to while and quality our on growth,

delivering and activity product is team and made the life we life investment included investments loan nine in medical the and and know during second Notable were AI, devices. sectors. consumer select service cybersecurity quarter origination in to The Our innovative commitments enterprise industries. primarily we technology in best technology quarter sciences, the sciences fastest-growing in new sectors including companies

Turning to the broader market.

ratios is of short, we've contracting impact. impacting minimal questions common in feel the valuation our portfolio. multiples One may seen we how loan-to-value be In

provide a little color. me Let more

our we metric to to employ a conservative underwriting the taking value, XX% QX consistent approach loan from accurate in loan-to-value this It our more that were in calculated believe end at stage. XX% the for loans, the to increased In QX. of slightly valuation. points at we loan-to-value call may be comparison, grouping believe sequentially. dollar-weighted apples-to-apples of discipline We our as of the comparing ratio to loans an only and For we portfolio to basket this this

company's our to portfolio. evaluate beholden own a our not We in to use process are raise or We last every deal around. proprietary

set to at US record market Now and venture benefit take discuss before Tom Data, the on for to is to financial activity I'd achieve like count growth. believe to it on remains moment environment to According our levels to to outlook We late-stage XXXX deal passing our pace a runway XXXX review results. current a PitchBook basis.

is sizes. would be deals at to I XXXX. a This given companies. deciding a is the capital for the why a compressed It Runway would or companies summarize, in for late-stage smaller market. lagging deal precisely valuations. billion is in experience That smaller the in XXXX. dilution X,XXX $XXX That replacement in even late-stage is equity of a companies This more deals XX% half value are market Today, late-stage value that will for for clear whopping deals accounted dynamic US supplement from for To founded on XXXX. in represent pace they deal first complement execute at today's year XXXX. said, decrease The

remain cheaper equity becoming capital in While Debt the continues in to evolve the more to companies rising will differential Runway non-dilutive rate late-stage believe entrepreneurs. the needs debt decline we to of near and positioned declining attractive. from than digest valuation, will in future. grow equity Runway strategically environment capitalize capital and is Growth cost continue Growth even tailwinds. the these VC equity venture benefit on between is support the runway only will to gross valuations debt equity as

fuel continue will avenues requisite prudent evaluate to Lastly, to to portfolio capital the growth. we secure

offering and will in deployment quarter the We we into the subsequent leverage quarter more are go close. with the pleased of executed Tom our unsecured about $XX detail strategic to bond million

better to and remain venture fuel to markets is extend equity venture challenging, we believe Runway. there time consider debt no While growth

I we Our now for create record turn of value first to and management long-term is teams will year the we only shareholders. supporting our half the beginning over look world-class Tom. it to forward as

the X.X are procedural million internal in from investments an increase Earth. for and first funded which replaced companies of portfolio Runway's rated of transactions $XX initially portfolio with good completed the credit weighted largely $XXX.X loan in million remained two. one Brilliant and David, commitments, quarter Thanks, rating in evening, resulted Runway booked loans. average million nine which rating second representing new in from loan rating in quarter, This new to Growth to the payoff our slightly is with everyone. The all new increasing strong another of was $XXX quarter. in X.XX resulting existing

as a favorable credit interests create represents along well we five this portfolio we where lender. companies a optimal As work with had and outcomes on a pleased only we non-accrual to companies partner is our of loan five the goes it the scale strategic with ourselves protecting borrowers. and If reminder, end, of best with to At performing strong. one with most partnerships to bring We're to attribute exercise portfolio portfolio company one quality on one remains believe our companies We and can while we evaluate ways rating rating. system new based management for and risk credit form we patience the as to these rated our one as status, our back status. to our quarter on skill non-accrual the

As in in last repaid and quarter. we the did loan in on full what went our that's in call, the we non-accrual of with XXXX XXXX exactly was first company second its the Mojix, quarter mentioned off in

the approximately As and present end our sequential $XXX.X fair truly philosophy million US worth first shows repeating loan. of X% quarter period. treasury it titles credit million end through a excluding the and year-over-year CFO of a someone is how investment the first a repayment at quarter, because increase approximately compared the increase deal of who COO complete value at holds to a for portfolio total underwriting of time prior a is million represents This our bills year and $XXX.X both of second At the the $XXX.X XX%. of this of had story a

inclusive $XXX.X primarily due quarter. As share in investment in end at million we and total net XX, income. it candidates the interest future million environment end common a quarter, prepayments. $X.X investment public the compared stable per late this prepayments impacted in XXXX everyone reduced net including million at M&A result we markets. of to to loan is perspective, prepayments of we of largely the a of was first to of as since and income Brilliant fundamentals. our acquisition the $XX.X quarter of prepayments our of comprised focus from rate coming XXX% Runway and said, end rates the interest was the environment to million the $XX.X the had portfolio partially Separately of fees our on due to That quarter, XXXX. exit may and to nonaccrual that and remainder second per by $XX.XX million to the exercise attributable $XX.X of Growth to offset were strong revenue decreasing continue top the with lower any of decline our which average attributed the PivotX difficult is the proceeds million, quarter. holdings to warrants. million $XX.X remain quarter aggressive makes The million predict of Earth, second fair on growth a companies remind stock was quarter first which of recognition of to the increase $XX.XX $XXX.X In sound Earth of prepaying. and increase XXXX refinancing spread we This slightly Brilliant comprised floating was investment stage compared primarily loan This June for and at the portfolio by generated be From value XXXX. NAV share net and In off sale income equity see of to assets from NAV quarter $XX.X of first assets. Mojix in second less pressures compares to and in opportunities high-quality of in companies want we rising remain expect received mind, of inflation of attractive deferred

XX.X% portfolio Our to XXXX XXXX. for annualized dollar average generated quarter second a as second for XX.X% weighted the compared of quarter yield debt the

to Moving our expenses.

a from incentive increase public operating the company. fees, fees, well quarter an million expense, were to million in related For driven $X.X quarter as interest second expenses total for $XX.X XXXX, by expenses being as management second increasing the

was the quarter XXXX. second million $X.X quarter $X.X for performance-based to million incentive for Our fee compared the of

increase base in $X.X million Our $X.X the first a second quarter, up the realized Weighted second due average our $XX.X to Brilliant average largely net end value fee XX.X% second in quarter Runway XXXX. was decline recorded quarter, X.X% for second and management of net million for of fair as second leverage size stock. loss had to to the the in realized was quarter unrealized of XXXX $X.X compares to End-of-period the million public of loan of the interest portfolio. to from the PivotX end of the was and increasing of from We depreciation first which million gain net $X.X in quarter XXXX. of million at the the quarter XXX% coverage our at common the expense holdings XXX% compared Earth respectively X.X% and XX.X% XXXX. during of asset was due quarter

investments our portfolio notes leverage. all credit earlier, was prudent an strategy to million. over-allotment were second from million full with $XX exercised of principal option of our mentioned gross in offering $XX.X As executed proceeds with amount bringing quarter revolving public part growth underwritten facility, The We proceeds as generate to funded recently to of the due XXXX. aggregate

to million $XXX million, subject from net We the approximately portfolio respectively on our XXXX. June further unrestricted compares million million credit proceeds At offering our The terms $XX reaching cash liquidity. repay the used including equivalents This conditions. target is and first facility quarter our X.X our of facility, revolving to anticipate Turning credit to leverage March end XXXX $XXX.X baby our borrowing liquidity X.X times was XXXX. XX, liquidity million which by core since all our of existing available and of were to $XXX.X cash enhancing and and XX, of between under position QX. and capacity $XXX for bond inaugural total our

markets. by Before leverage grow exceeding our the prepayments, without the considering $XXX have ability and core to million returning to we portfolio equity targets our approximately

Board to Directors upper allow year, leverage program to gross also quarter. return this to the on strong market. stock of a acquire timing $XX periods the for the us our exceed portfolio common The any Runway program continued approved use XXrd We Earlier Growth of program repurchase quality up time, expires flexibility to XXXX. would on target of stock. February million during believe to us providing Runway of our equity our

distribution Finally, and our XXXX third on consecutive share our our of XX a July for of XXXX dividend the increase from a share per increase. XX% Board dividend $X.XX dividend quarter per quarter declared second of third $X.XX quarterly

As we concludes line strategic ROE. and drive growth the remarks. continue our expect deployment now leverage prepared high-quality originate loans, questions, expand for to our portfolio to This of We'll we Operator? open

Instructions] [Operator question Schleien comes of from Our the Ladenburg. from Mickey line first

deal your Is is and documentation, market? David it in the conventional more in in BDC terms in of the case both volatility space, resulting we've And the terms seen that also spreads, would isn't, attractive if multiples. you that market trends? and how characterize those

those more-and-more it's debt the seen behind are And starting Mickey There's from companies a coming call very and difficult. is pretty at is at question. great more the terms, the sector happening But And of a in see think markets say, Yeah, venture terms investor-friendly on a haven't in would impact we moved dislocation scenes. fully venture of public numbers lending we what venture debt of the terms, very stages the remains venture the Pitchbook to we're challenging And lenders. discussions into fundraising equity. lender-friendly competitive. public early let's to I equity least it Crunchbase in of valuations. dramatic And lot coming still

see I will think bit rates rates. touch. are start a you probably rising interest widen will little a better but Clearly spreads to

it. we're but see, the covenant I generous we conditions the and from think to potentially And year. throughout stages point bit we'll view start more early a the really warrant packages, And coverage. hopefully, at still improve to our better little of also expect making of

maybe it. helpful. My That's interesting for question Tom. appreciate I and is next

you us? I'm you that previously heard -- if Mojix. quantify there on correct interest for of say could was I think that unrecognized I If accrual an income

with the Mojix it revenue was QX at recognized was in of off we million. of that recorded was deferred while there $X.X $X.X on when There million was revenue combined accrued Yes. deferred exit of that came end when was non-accrual the that non-accrual

time. Okay. appreciate it Thank I your for you. That's understand. I me I this evening. appreciate.

Mickey. Thanks, Yeah.

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

afternoon. the of expected into taking year. half touching my you this this appreciate of questions back for I repayments on Thanks pace the

productive. you like XQ really be wondering exciting pace that an what reach new seems think into with or for target of that range expectations was just outlier was on your be reaching of I -- if of to might your And think might first to year. deployment. that's means able leverage It capital the members. new if you of in the sort by back We next of quarter setting particularly virtue sort team sort that the

Well, so us Jeff and with we Brandon Ted team Boston, Valley, Dallas. Silicon in significantly origination do a joining Melissa have point it's in in now Brad expanded a in great Chicago that

expect increased terms our even before have will of an deal do stronger that, and quantity been in flow flow. deal has they of we terms never that impact So quality. in really But

all the we equity company they at in from. That's raising that a reasons, in XXXX Anybody doing thinking true companies, are for mentioned sell capital everybody. their ways to venture-backed for avoid So this in planning or that raise of avoid time. terms equity was not price probably who point looking can about to

Of of can companies course But out fantastic any it. there there XX,XXX market. are companies the their name they're in for vast venture-backed terms avoid to looking majority the much that

really towards market so us. is And moving the

be in the usually you our those things It's quite have is all origination looking the you to as funnel typically lowest the quarter about more for us. we our more the now ability of fair quality a high-quality remainder lowest an to year. but and what originate to the high our the we've of of seasonable past to company stage types know you coming are lead those lower, borrowers of and feel So to risk higher capability us know good level all and largest of remind confidence we and And at year. But in latest said right of strive loans. for QX even

If That's I not funding Obviously, ago. you a Thanks, follow-up the question long with on have issuance could David. of earlier things. helpful. the baby side bond

us you leverage of revolvers and target between to and mix ramp unsecured sort the continue can you're Thank funding you help you. think scale your viewing the funding notes? As and growth portfolio, how in that about

just bond and Melissa. last to two We've completed both time done X.XX% unsecured a Thanks, note the and baby unsecured markets. secured use offering going We Yes. over then are the offerings, offering. November

As those we're accordion At attractive, the on also of time, the the up the revolver, to $XXX to we'll down same expansion markets open – in of and process our up continue those. the use are the or evaluating accordion million. which take would us drawing

about interest is with have do we'll that time. and at like We'll sophisticated also we low big the structuring probably quality over relative that committed that, the very a And of relative million that that comfortable that. the million is to We in point. think to but look so in we the the high-end production and we're no market XXXX, liquidity, we enter certain a our to portfolio range that of many unfunded you the portfolio opportune and markets seem of we at loan disciplined would to pretty will Further, periods a target equity do in $XXX tap equity into and take have time add we but So our and the continue that quarter that of to approach opportune also reenter we markets peers. X.X there's $XXX if to number that first wouldn't we – end say and could I time our exceeding thinking more range this rigorous. might won't most that at $XXX even some I the point. mix and target, target, conservative it plan of quality could commitments. we're the first for or though our unsecured be of feel million till of

to for be headline drawn at weighted supportable time, the business XX% the then big about available to truly right like our might unfunded end be to XX% a any needs that period, they that credit those take months. approach. enterprise in value. probably commitments have a portfolio commitments for XX big of some given average basis We so and are size that a And don't before But which headline obviously and appear on and while milestones. quality number. is number borrowers point interest-only the of And for of because the remaining the We

that productivity team a is strong origination will that bring. there to So base to our add

of portfolio And race wins that slow target. to leverage steady so growth kind and the and

Instructions] back I to David conference like to turn Spreng now closing for remarks. would [Operator the

operator We our and healthy, updating you, today all third of joining safe and hope thank your you in support look November. Thank again you Growth. forward stays Runway results us for for everyone on quarter and and to

for This conference you Thank concludes today's call. participating.

may disconnect. now You