Runway Growth Finance Corp.

Ladies and gentlemen, thank you for standing by, and welcome to the Runway Growth Finance First Quarter 2022 Earnings Conference Call. Please be advised that today's conference call 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. Good evening, everyone, and welcome to Runway Growth Finance Conference Call for the First Quarter Ended March 31st, 2023. 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 first quarter 2023 financial results were released just after today's market closed and can be accessed from Runway Growth Finance's Investor Relations website at investors.runwaygrowth.com. We've arranged for a replay of the call at Runway Growth Finances 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 rising interest rates, the impact of the COVID-19 pandemic, changing economic conditions, and other factors we identify in our filings with the SEC. Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions can prove to be inaccurate, and as a result, the forward-looking statements based on those assumptions can be incorrect. You should not place undue reliance on these forward-looking statements. The forward-looking statements contained on this call are made as of the date hereof, and Runway Growth Finance assumes no obligation to update the forward-looking statements or subsequent events. To obtain copies of SEC-related filings, please visit our website. With that, I will turn the call over to David.

Thank you, Mary, and thank you all for joining us this evening to discuss our first quarter results. I would like to start by providing first quarter 2023 highlights, then I'll discuss broader market dynamics and our outlook. In the first quarter, Runway demonstrated its ability to be a steady hand amid banking industry disruptions that caused shockwaves throughout the market. We attribute that to our weatherproof portfolio focused on recession resistant industries and our roster of seasoned team members who have experience traversing every economic cycle. We want to take a moment to address the volatility we've seen in the banking sector since our last call, which began with the closure of Silicon Valley Bank. As stated previously, Runway had no deposits or loans with SVB nor did we participate in any credit facilities, agent and buy, or that included SVB as a lender. SVB's lending portfolio was particularly concentrated in early-stage companies. Given our focus on the latest-stage companies in the venture ecosystems, the recent banking disruptions did not financially impair Runway's portfolio. We anticipate continued headwinds in the banking sector and will remain proactive in communicating with our portfolio companies and managing our capital structure. Industry-wide, we've seen public and private investors adjust their approach to risk management for the expectations of a potential hard landing recession. We believe this dynamic positions Runway as a preferred lender in the venture debt space. Our priority has always been to deliver stable earnings while mitigating risk in any market environment. Runway continued to execute its disciplined strategy and we delivered stable earnings as well as attractive risk adjusted returns. Since inception, we believe our team has built the most stable portfolio in the venture debt space. We did this by underwriting first lean investments in the highest quality late stage companies that operate in the recession-resistant industry sectors we know best. With looming macro concerns, we remain confident in the durability of our strategy, the experience of our team, and the strength of our portfolio, which we believe positions the company for continued success throughout 2023. Turning to the first quarter operating results. Runway completed seven investments in existing portfolio companies, representing $12.9 million in funded loans. Our originations and deployment activity reflects first quarter seasonality and the conviction with which we evaluate investments, which we mentioned in our last call. That said, we continue to see healthy demand from quality companies with clear paths to profitability, seeking to use debt as non-dilutive growth capital. Runway's credit bar has never been higher, and the team remains extremely selective in adding new companies to the Runway portfolio. We remained in our core leverage range of 0.8 to 1.1 times, only slightly increasing our ratio from 0.97 to 1.04 times in the first quarter. Runway has the lowest leverage ratio among the public venture debt peers and ample dry powder to deploy. However, our approach to building a weatherproof platform has always been quality over quantity. We believe that selectivity in deploying capital will generate better terms and return on equity. Runway delivered total investment income of $39.3 million and net investment income of $18.2 million in the quarter. This represents an increase of approximately 104% and 46% respectively from the prior year period. Net assets were $569.8 million at the end of the first quarter, down 5% from $597.5 million in the prior year period, and down 1% from $576.1 million at the end of Q4 2022. Tom will provide a deeper look at our strong credit quality, but our weighted average portfolio risk rating remained constant at 2.1. in Q1 2023. Turning now to structuring and underwriting. As demonstrated by our weighted average active loan to value at origination of 17.4% across the portfolio, underwriting is a key component of our credit first approach. With a proven track record across multiple economic cycles, Runway has built its underwriting process around the core principles of low loan to value a thorough understanding of our borrowers' paths to profitability and value creation, as well as the structural protections and covenants that enable effective monitoring and communication. In an environment with higher base rates and growing concern over potential economic weakness, the importance of capital preservation and providing a margin of safety for both our and our portfolio companies' balance sheets cannot be overstated. We continue to see the value in pursuing a growth mindset while establishing guardrails, such as thoughtful covenants and limitations on loan to value. These measures limit downside risk for both us and our borrowers. We believe our checks and balances are effective and allow us to work with borrowers to mitigate risk for us and them. Management prides itself on being a good partner and helping borrowers work through problems when they arise, while simultaneously preserving credit quality and safeguarding our shareholders. In step with previous quarters, we calculated the loan to value for loans that were in our portfolio at the end of Q4 2022 and Q1 2023, and found that our dollar weighted loan to value ratio increased modestly to 24% in Q1 from 23% in Q4. We continue to employ a conservative approach to valuation. As you can see, a primary focus heading into this year was to mitigate risk and support our existing portfolio companies. Runway's focus on senior secured and almost exclusively first lien loans is important for two reasons. The first is because this focus empowers us to be a good partner to our borrowers, and the second is that it gives us control in being a fiduciary for our investors' capital. Ultimately, that means minimizing losses. The focus on first lien loans protects our investors from situations in which a second lien lender might find itself subordinated to any external party and precluded from taking action to preserve the value of a loan. We follow up our rigorous underwriting with proactive monitoring of our portfolio companies. Our communication cadence with portfolio companies is built into the terms of 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 to ensure we are positioned to protect our investors' capital and avoid any potential losses in the portfolio. Additionally, each position in our portfolio undergoes a comprehensive valuation process internally on a quarterly basis and periodically by a third party, which offers confidence in our marks. Turning to the market outlook. According to recent PitchBook data, US late-stage venture equity deal value slowed to $11.6 billion in Q1. While this data provides a snapshot for VC equity market trends, Runway is not dependent on venture equity dynamics. We believe that our focus on late-stage companies, including non-sponsored borrowers, with defined paths to profitability insulates us further from downstream financing risk. Across the ecosystem, the largest concern for companies is surrounding access to capital as they navigate through a slower growth environment. That's where venture debt can provide a very strong value proposition because relative to equity, which continues to be expensive and can come with onerous terms, debt remains an ideal option to fuel growth and minimize dilution. Venture debt is not, however, rescue financing. Doran doesn't replace equity when the capital structure and business operations require an equity solution. We are mindful that existing portfolio companies may need additional support to navigate dynamic economic conditions. However, as a lender, we are confident in our ability to provide that helping hand. We can support our current portfolio companies and continue to prudently grow our loan book. Our pipeline continues to expand as we see more quality companies come to runway to explore creative financing solutions while they assess future banking relationships and face fundraising challenges. We will continue to be extremely thoughtful as we evaluate opportunities in the current market environment. I will now turn it over to Tom.