Runway Growth Finance Corp.

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

Thank you, Operator. Good evening, everyone. and welcome to the Runway Growth Finance conference call for the fourth quarter and fiscal year ended, December 31st, 2022. Joining us on the call today from Runway Growth Finance are David Spring, Chairman, Chief Executive Officer, Chief Investment Officer and Founder, and Tom Ratterman, Chief Financial Officer and Chief Operating Officer. Runway Growth Finance's fourth quarter and fiscal year 2022 financial results were released just after today's market close and can be accessed from Runway Growth Finance's investor relations website at investors.runwaygrowth.com. We have arranged for a replay of the call at the Runway Growth Finance webpage. During this call, I want to remind you that we may make forward-looking statements based on current expectations. The statements on this call that are not purely historical are forward-looking statements. These forward-looking statements are not a guarantee of future performance and are subject to uncertainties and other factors that could cause actual results to differ materially from those expressed in the forward-looking statements, including and without limitation market conditions caused by uncertainty surrounding the rising interest rates, the impact of the COVID-19 pandemic, changing economic conditions, and other factors we identify in our FCC filings. Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions can prove to be inaccurate, and as a result, the forward-looking statements based on those assumptions can be incorrect. You should not place undue reliance on these forward-looking statements. The forward-looking statements contained on this call are made as of the date hereof and Runway Growth Finance assumes no obligation to update the forward-looking statements or subsequent events. To obtain copies of the SEC-related filings, please visit our website. With that, I will turn the call over to David.

Thank you, Mary, and thank you all for joining us this evening to discuss our fourth quarter results. I'd like to start by providing fourth quarter 2022 highlights, then I'll discuss broader market dynamics and the outlook for 2023. 2022 was a pivotal year for Runway. It was our first full calendar year as a public company. We believe our investment thesis was validated and we demonstrated the value in pursuing a portfolio that focuses on the latest stage companies in the venture market. Despite a volatile backdrop, Runway continued to prudently deploy leverage to fuel non-diluted growth for its portfolio companies while delivering five consecutive quarters of dividend increases to our shareholders. Since inception, we've built a track record of lending to what we believe to be the highest quality late and growth stage companies. I want to take a moment to summarize our very successful year. Runway delivered record originations of $878 million. We expanded leverage more than sevenfold to 0.97 times. We grew ROE 165 basis points to 10.3%, increased our base dividend per share to 40 cents, marking an 11% increase from our prior quarter and 60% increase since our initial public offering. Additionally, we declared a supplemental dividend of 5 cents per share payable with the first quarter dividend, along with our intention to pay a similar dividend in each quarter of 2023. We recorded zero realized credit losses. We expanded our investment and finance teams by over 40%, and we grew our strategic footprint with new offices in Boston and Dallas. Now let's turn to our fourth quarter results. Runway closed 2022 with record fourth quarter portfolio growth. We completed 12 investments in new and existing portfolio companies. This represents $327 million in new commitments, including $233 million in funded loans. Runway is committed as ever to focusing on quality, high growth potential companies in the sectors we know best. including life sciences, technology, and select consumer service and product industries. Notably, our team deployed two loans to PE-sponsored companies during the fourth quarter, highlighting our strategy to migrate towards larger, less risky opportunities. We view growth-focused PE-backed companies as an integral segment of the platform that offers compelling risk-adjusted returns. We also increased our core leverage ratio from 0.6 to 0.97 times in the fourth quarter, reaching our target range and on an accelerated schedule. This is an important achievement for Runway as we unlock the full potential of our balance sheet's earnings power and expand our return on equity. Runway delivered total investment income of $37 million and net investment income of $18 million in the quarter. This represents an increase of approximately 109% and 68% respectively from the prior year period. Net assets were $576 million at the end of the fourth quarter, down 5% from $606 million in the prior year period, yet up from $574 million at the end of Q3 2022. Tom will dive deeper into our continued credit quality, but our weighted average portfolio rating improved to 2.1 compared to 2.2 in Q3. We are pleased with the strength and resilience of our portfolio. While we anticipate continued macro turbulence in 2023, we believe our durable portfolio is built for all economic environments. A top priority is the quality of our portfolio, and due to persistent Fed rate increases and inflationary pressures, our team has been even more selective in evaluating additions to the runway portfolio. We demonstrated our ability to grow and execute. However, during times of uncertainty, we redouble our diligence efforts and become even more patient. Our next area of focus is our structuring and underwriting. We focus on mutually beneficial terms that position runway at the top of the cap table. Relative to other listed venture debt BDCs, we believe runway is exposed to the least amount of risk. This is demonstrated by our concentration in first lien senior secured loans, as well as our weighted average active loan to value at origination of 17.4%. across the entire portfolio. As we've done in the past, we also calculated the loan to value for loans that were in our portfolio at the end of Q3 and Q4. In comparing this consistent grouping of loans, our dollar weighted loan to value ratio was consistent at 22% in Q3 and 23% in Q4. This reflects the extremely conservative approach to valuation our credit team takes during the underwriting process to insulate our portfolio from exaggerated valuations. For our existing positions, we pride ourselves on our monitoring process. From term sheet to final payment, we're in regular communication with our portfolio companies to proactively assess their ability to identify and navigate potential challenges. Our communication cadence with portfolio companies is built into our terms on each loan. We do not take a one-size-fits-all approach. Portfolio monitoring is built on a core set of requirements for all portfolio companies and is customized from that base to ensure an ongoing program that meets our needs as a lender while allowing the borrower to operate as efficiently as possible. Additionally, each position in our portfolio undergoes a comprehensive valuation process internally, on a quarterly basis, and periodically by a third party. For perspective, every material investment in our portfolio was reviewed by a third party valuation specialist at least twice throughout 2022. This gives us confidence in our marks, even amid challenging operating environments for our portfolio companies. Looking at the broader market outlet, three things are clear. Valuations are declining, VC deployments are down, and exit activity is slowing to recent year lows. We view these trends as a natural part of the venture cycle. They are also demand drivers for non-dilutive growth loans as an alternative to expensive equity. Our credit bar is high. and we see increasing demand for Runway's creative financing solutions. Our team continues to originate high quality deals while focusing on companies with sound fundamentals and proven business models. The latest venture capital data reinforces these themes. According to recent pitch book data, late stage venture capital activity continued to decline through 2022 as the market faced ongoing volatility. However, it's important to note 2022 late-stage deal values remain historically high, outpacing 2020 and 2019 by 34 and 62% respectively. Compared to record levels in 2021, deal count only declined by 5%. In other words, based on this data, late-stage companies are continuing to raise equity capital but in smaller increments. The venture capital ecosystem is nearing the end of the 10-year expansion cycle. According to PitchBook data, even though U.S. venture capital raised in 2022 was a record $163 billion, venture capital fundraising slowed significantly in the fourth quarter as the full impact of the denominator effect became apparent in investor commitments. We expect this trend to continue for the foreseeable future, suggesting that VCs will be very judicious in deploying available dry powder. On the venture debt side, according to PitchBook, 2022 was the fourth consecutive year surpassing $30 billion in new loan fundings. This demonstrates the resilience of venture-backed companies embracing debt as nondilutive growth capital, which bodes well for Runway. Before I turn the call over to Tom, I want to highlight a performance metric we take pride in, our consistent dividends to shareholders and sustained shareholder return. Since becoming a public company, we've increased our dividend five consecutive quarters, representing 60% total growth. We achieved this while building what we believe to be the most stable portfolio in the venture debt landscape. While the macro environment likely will continue to impact our portfolio companies, we have confidence that we can continue to execute our disciplined strategy to drive long-term shareholder value. Turning to 2023, we continue to prioritize financing recession-resistant companies with proven business models and minimal downstream financing risk. The cost differential between debt and equity capital continues to be a tailwind for the runway platforms. As a reminder, the first quarter tends to be seasonally the slowest period in terms of originations activity, which is consistent with what we have experienced here today. This market dynamic is not expected to impact the supplemental dividend program we discussed earlier on this call, of course, subject to Board approval. The team continues to see a robust pipeline of opportunities in the marketplace, and we will continue to evaluate these deals with discipline, and rigor that we have employed to date. I will now turn it over to Tom.