Runway Growth Finance Corp.

Ladies and gentlemen, thank you for standing by and welcome to the Runway Growth Finance Second Quarter 2026 Earnings Conference Call. Please be advised, today's conference is being recorded. I would like to have the conference over to Quinlan Abel, Assistant Vice President, Investor Relations. Please go ahead.

Thank you, Operator. Good morning, everyone. Welcome to the Runway Growth Finance Conference Call for the second quarter, ended June 30th, 2026. Joining us on the call today are David Spreng and Mike Rovner, Co-Chief Executive Officers of Runway Growth Finance and Co-Chief Investment Officers of Runway Growth Capital LLC, our investment advisors. Also joining us are Carmela Thompson, Chief Financial Officer, Avisha Khubani, Chief Credit Officer, and Tom Raterman, Vice Chairman. Runway Growth Finance's second quarter 2026 financial results were released just after market closed yesterday 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 to be available on 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, without limitation, market conditions caused by uncertainties surrounding interest rates, changing economic conditions, and other factors we identify in our filings of the FEC. 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, Quinlan, and thank you everyone for joining us this morning to discuss our second quarter 2026 results. I'm pleased to be joined by our recently appointed co-chief executive officer, Mike Rovner, our CFO, Carmela Thompson, our chief credit officer, Avisha Khubani, and Tom Raterman, who joins us in his new capacity as vice chairman. Today, I will discuss notable developments from the quarter and provide color on our capital allocation strategy and portfolio activity. Avisha will discuss our portfolio evaluation process and credit monitoring framework, and then Carmela will provide a deeper dive into our financial and portfolio metrics. Mike and Tom will join us later for Q&A. Before I turn to these items, I'd like to introduce Mike Roepner, who has been appointed Co-Chief Executive Officer of Runway Growth Finance and Runway Growth Capital and Co-Chief Investment Officer of Runway Growth Capital serving alongside me in leading the platform. Since partnering with BC Partners in 2025, we have remained focused on building a stronger, more diversified platform that is well positioned to generate attractive long-term returns for our shareholders. One of the important strategic benefits of that partnership is access to the breadth of BC Partners credit capabilities, investment resources, and talent. Mike's appointment reflects that advantage. Mike brings more than 30 years of experience spanning technology, venture capital, private credit, and growth lending. Prior to joining BC Partners through its acquisition of Ovation Partners, the private credit platform he co-founded and led, might spend his career investing in, financing, and helping grow innovative businesses. That breadth of experience gives him a unique perspective on the venture ecosystem from entrepreneur to venture investor to lender, which we believe will be invaluable to Runway. Throughout his career, he has deployed over $2 billion while maintaining a highly selective underwriting philosophy focused on investing in only the highest conviction opportunities. This philosophy closely aligns with the credit first culture we built at Runway. We believe Mike's experience, judgment, and connectivity across the broader VC partners platform will meaningfully strengthen our investment capabilities. While I remain fully committed to Runway, I also want to ensure that we are building a leadership team capable of guiding the company through its next chapter. Tom and I have been deliberate in that effort, focusing on creating continuity and positioning Runway for long-term success. I'm excited to welcome Mike and confident that he will be an outstanding partner as we lead Runway forward. Our strategy and priorities remain unchanged. We will continue to emphasize disciplined underwriting, active portfolio management, and a relentless focus on generating attractive long-term returns for shareholders. I founded Runway with the goal of building a differentiated venture lending platform. And today with Mike joining our leadership team, the expanded resources of BC Partners a more diversified portfolio and an exceptionally talented organization. I believe we are entering our next chapter from a position of strength and are well positioned to capitalize on the opportunities ahead. Now, turning to the results. During the first half of 2026, we remained focused on executing our long-term strategy despite a challenging operating environment. are all shaped by heightened scrutiny of credit quality, evolving interest rate expectations, and cautious sentiment towards software. These dynamics continue to weigh on BDC sector performance and contribute to a disconnect between market pricing and underlying performance. In Runway's case, we believe our share price materially undervalues the fundamentals of our portfolio, the outlook for credit performance and the long-term benefits of the SWK transaction, which has significantly enhanced our portfolio diversification by both industry and loan size. At an over 49% discount to our second quarter net asset value, or NAV, as of August 4th, 2026, we believe the market is pricing in a level of stress that is not supported by the fundamentals of our portfolio. Our capital allocation strategy is designed holistically to maximize long-term total shareholder return, and we believe our ability to deliver attractive returns over time depends on maintaining an appropriately sized investment portfolio and strong earnings capacity. Together, these attributes provide the foundation for supporting an attractive dividend backed by earnings and growing net asset value over time. With this in mind, the recent announcement that BC Partners and its affiliates have committed to purchasing up to 10% of the company's outstanding common stock over the next two years, while our shares trade below 70% of NAF reflects their conviction in our strategy and the long-term value of the business. These purchases demonstrate meaningful alignment with shareholders and may provide incremental demand for our shares without reducing the company's capital base, investment portfolio, or future earnings capacity. At the company level, we continue to believe disciplined repurchases remain an attractive use of capital while our shares trade at a meaningful discount to intrinsic value. Once our trading blackout period ends on August 11th, we will be able to execute a new Rule 10b-5-1 plan and evaluate additional repurchase opportunities through open market purchases or tender offers as appropriate. At the same time, our strong origination pipeline allows us to remain highly selective in deploying capital. By continuing to originate high-quality investments and recycle capital into attractive opportunities, we can further diversify the portfolio, enhance overall quality, and preserve the earnings power necessary to support the current dividend and grow it over time. This disciplined approach also positions the portfolio to absorb normal credit losses over the course of the investment cycle while maintaining financial flexibility. We believe that meaningful affiliate purchases, disciplined company repurchases, and selective originations together provide the most balanced path towards reducing the discount to NAF. More importantly, they preserve the portfolio quality, earning capacity, and financial flexibility that are essential to our primary objective of delivering attractive long-term total returns to shareholders. Turning now to portfolio activity for the quarter, as we've discussed, we intentionally slowed origination activity during the first part of the year to focus on closing our acquisition of SWK Holdings. As such, Origination activity increased meaningfully from the first quarter and we see second quarter activity as more representative of originations across the first half of 2026 than of the second quarter alone. We focused on further diversifying the portfolio through investments in companies across healthcare and life sciences and select consumer sectors. completing four investments in new and existing portfolio companies and follow on investments to six portfolio companies representing 85.8 million in total fundings. Following the completion of our acquisition of SWK on April 6th, we also funded approximately 239.6 million of investments acquired in the transaction through a mix of cash and equity. As I mentioned earlier, diversification remains a key strategic priority and we have made meaningful progress over the last several quarters. For example, since June 30, 2025, we have reduced average loan size by a percentage of costs by approximately 28%. The SWEK transaction was an important step in advancing this objective, but we have multiple avenues to further diversify the portfolio over time, including refinancing loans at lower balances and selectively syndicating portions of new originations to third parties while retaining smaller hold positions on Runway's balance sheet. Looking ahead, I remain confident in the strength of our portfolio the execution of our strategy and the expertise of our seasoned investment team. Together, these qualities position us well to deliver positive outcomes for both our borrowers and our shareholders. Now I will turn it over to Avisha who's joining us on the call today to provide a deeper dive into our portfolio evaluation and credit monitoring processes. Avisha, over to you.

Thank you, David. I'm pleased to be joining today's call to provide additional color on the portfolio evaluation and credit monitoring framework, which underpin our confidence in the integrity of our remarks and our ability to deliver attractive risk adjusted returns. Our evaluation process is designed to create transparency for investors and to identify emerging performance variances early on. enabling proactive engagement before issues become more significant. To support this process, Runway engages nationally recognized third-party firms to provide independent valuation ranges without input from our investment professionals. Additionally, our valuation coverage is governed by a structured framework that focuses on position size, risk rating, and other relevant portfolio characteristics. We further validate our methodology through backtesting, comparing realized debt exits against prior valuation marks to measure the consistency and accuracy of our valuation process over time. As we disclosed as part of our business update in July, our framework has proven accurate over time with our fair value percentages relative to exit values exceeding 97.5% over the last for quarters prior to realization. Importantly, our quarterly valuation conclusions are reviewed by the Valuation Committee before being presented to the Audit Committee and Board for approval. Now, I would like to take a moment to clarify how we think about our risk ratings and our category three loans in particular. We move alone to category three when we identify early indicators that warrant enhanced oversight such as performance trending below plan, increased monitoring requirements, or higher loan to value level while collateral remains intact. Notably, a Category 3 designation reflects our proactive monitoring framework rather than an impaired credit. Given standard fluctuations in portfolio company performance, we expect that every loan we issue will be placed in Category 3 at some point in its lifecycle. even though these borrowers remain current on their obligations and are not expected to result in a loss of principal or returns. In accordance with our process and standards, 82% of loans with a category three rating or higher have been reviewed by a third party in the last two quarters. As of June 30, 2026, 94% of our portfolio had a weighted average risk rating of three or better with 76% of the portfolio rated in category one or two. Our average weighted portfolio risk rating decreased to 2.34 in the second quarter compared to 2.67 in the first quarter of 2026. Furthermore, 54% of the companies in our portfolio are cashflow positive, underscoring the durable businesses and strong fundamentals our portfolio is built upon. Taken together, we believe these disciplined valuation and risk assessment processes provide a clear and consistent framework for evaluating our portfolio and reinforce our confidence in its underlying credit quality and long-term performance. Carmela, over to you.

Thank you, Avisha, and thank you, everyone, for joining us this morning. I'm glad to be speaking with you all today in my new role as CFO and look forward to meeting with you individually in the months ahead. I'd like to start by emphasizing David and Avisha's commentary on the downside risk in our portfolio. To better understand the disconnect between our portfolio's underlying credit quality and the level of credit losses implied by our current valuation, it's important to look at how we evaluate credit quality across the portfolio through our valuation and risk rating framework, which Avisha touched on. We believe our existing framework provides important context for evaluating our business today. Our ratings are designed to identify potential issues early, not simply to reflect realized impairment. And our long-term credit performance demonstrates the effectiveness of that disciplined approach. With this in mind, recent training levels of our stock imply credit losses that meaningfully exceed our historical experience and would require an outside number of total realized losses across categories three, four, and five. Specifically, loans in these categories would need to default and generate more than $250 million of realized losses while assuming a 0% recovery in approximately 10 investments. This compares to our historical recovery rate of 76%. Moving to the second quarter's financial performance, in the second quarter, we generated total investment income of $37.0 million and net investment income of $18.2 million compared to $29.5 million and $10.6 million in the first quarter of 2026. Our total investment portfolio inclusive of the closing of SWK had a fair value of $1.2 billion, an increase of 35% from $886.3 million in the first quarter. As of June 30, 2026, Runway had net assets of $502.6 million, increasing from $438.2 million in the first quarter of 2026. NAF per share was $11.91, a decrease of 2% compared to $12.13 as of March 31, 2026. The quarter-over-quarter decline in NAS per share was the result of $8.1 million, or $0.22 per share, of transaction expenses related to the closing of the acquisition of SWK Holdings. We delivered $0.43 per share of net investment income and a base dividend of $0.33 per share. At quarter end, we had spillover income of approximately $0.68 per share. Net investment income during the quarter was positively impacted by the closing of the SWK transaction in April, loan prepayments, and the reversal of deferred incentive fees related to realized losses in the portfolio, which we will discuss shortly. The reversal of deferred incentive fees totaled approximately $0.09 per share tailwind to NII during the quarter. We are confident that we will cover the dividend on a full year basis, but based on fluctuations in portfolio size and other one-time items, quarterly NAI may vary. We have been working diligently with the management team at both Marley Spoon and BlueShift, and during the second quarter, we were able to complete restructuring of both situations. Looking at BlueShift, in June, we completed its sale to Buconic, which resulted in the take back of an 18.5 million note and recognizing a 16.5 million realized loss. The full economic impact was reflected last quarter through a $17.4 million unrealized loss, resulting in a $0.9 million benefit this quarter. In April, we completed a restructuring of our loan to Marley Spoon and remain actively engaged with the new management team on initiatives to reduce cash burn and evaluate strategic alternatives. We recognized a $31.3 million realized loss in this position during the quarter. Though, as was the case with BlueShift, it was already reflected in the first quarter NAV as an unrealized loss. This quarter, our debt portfolio generated a dollar-weighted average annualized yield of 14.2%, consistent with the first quarter of 2026 and down from 15.4% in the same period last year. The decline was the result of moving Marley, Spoon, and BlueShift to non-accruals at the end of the first quarter. and excluding the impact of these non-recruits, our yield for the quarter would have been 15% reflecting the positive impact of the high yielding assets we acquired from SWK. Looking at expenses, total operating expenses were 18.8 million flat compared to the first quarter of 2026. We recorded the net realized loss on investments of 45.3 million during the second quarter of 2026 compared to a net realized gain on investments of 1.3 million during the first quarter of 2026. Realized losses during the quarter were primarily a function of Marley Spoon and BlueShift and were slightly offset by gains on our Eton warrants of 3.4 million. During the second quarter, we experienced total liquidity events of 36.5 million comprised of 15.9 million of assignments, 10.5 million in repayments, and 10.1 million in equity proceeds. As of June 30, 2026, our leverage ratio and asset coverage were 1.36 and 1.74 times, respectively, compared to 0.98 and 2.02 times at the end of the first quarter. Our total available liquidity was 210.8 million, including unrestricted cash and cash disciplines and we have borrowing capacity of $200 million under our KeyBate credit facility. Looking at the SWK acquisition, we are pleased with its initial contribution to the business. In addition to immediately strengthening our portfolio through greater diversification, SWK contributed $0.05 accretion to net investment income, 26% growth in yielding assets and $3.4 million of realized gain during the quarter. Liquidity also improved by $16.6 million through prepayments and proceeds from the sale of warrants. The acquisition has already improved the overall composition of our portfolio through greater industry diversification, lower average position sizes, and expanded sourcing capabilities. We believe these enhancements together with the increasingly evident earnings contribution from SWK will continue to strengthen the business and create long-term value for shareholders over the coming quarters. In line with our capital allocation strategy and increased emphasis on share repurchases, as of Monday, August 3rd, we have repurchased 3.1 million of shares and have 11.9 million remaining on our existing repurchase authorization. Finally, on August 5th, 2026, our board declared a regular distribution for the third quarter of 2026 of 33 cents per share. As disclosed, we maintain a stable dividend outlook for the year, anticipating greater than 100% coverage. In accordance with our commitment to deliver strong, stable shareholder value, management and the board continue to evaluate future distributions with the goal of maintaining consistency while maximizing returns. With that, operator, we can open the line for Q&A.

Thank you, ladies and gentlemen. If you have a question or a comment at this time, please press star 1-1 on your telephone. If your question has been answered and you wish to leave yourself in the queue, please press star 1-1 again. We'll pause for a moment while we compile our Q&A roster. Our first question comes from Sean Paul Adams with the Raleigh Securities. Your line is open.

Hey, guys. Good morning, and congratulations on the quarter. It seems like you guys have the two-prong approach, you know, the affiliates, advisors, and management repurchasing up to 10% of the shares, you know, going live alongside concurrently the company $15 million repurchase plans. So on the capital allocation side, you still have about 11.9 million left on the company plan. How do you guys rank continued buybacks versus pay down within the vehicle?

Repurchases, right now we're at 1.36 leverage ratio. And so that's at the top end of our range. and so we want to be cognizant of that going forward and as we receive repayments we want to take a portion of that to pay down our outstanding debt to decrease our leverage and then use that towards repurchases but then also being opportunistic with new deals We want to be cognizant that full repayments of loans coming in will impact our leverage ratio negatively as well as our coverage ratio. And so we want to make sure that we're cognizant in terms of balancing both of those.

Okay. And as a quick follow-up, earnings was a blowout versus the prior guidance and expectations. It seems like the SWK yield is really helping improve the core upside. How much should we view this and kind of a normalized forward environment on the SWK side contribution.

The five cents is what the quarterly run rate would be. Of course, as loans repay, that would adjust from a SWK asset or existing legacy runway assets, but the five cents accretion is reflective of a go forward accretion on that SWK asset.

Okay, thank you for the call. Thank you. One moment for our next question. Our next question comes from Eric Swift with Lisa Kappelmark. It's your line, Wilson.

Thank you. Good morning, everyone. I wanted to start with a question on your current pipeline for new investments and curious if you could maybe break that out between the composition from the legacy Runway BC partners Platform, and then SWK. And just kind of curious, you know, mid to longer term, your thoughts on, you know, certainly the benefits of bringing the SWK portfolio on have diversified the portfolio. Would you expect that mix to be fairly consistent over time? And I guess that was kind of the genesis or the kind of the root of the question about the pipeline mix today.

Yeah, sure. I can handle that. It's a little bit too early to tell, but we continue to see very strong deal flow from BC. We've already done nine deals together. and they're a really good source of deal flow and they're also a really good source of due diligence help when we find an opportunity where they may have more expertise on their team. As far as SWK goes, I think we've already funded two. SWK Portfolio Companies, and there's a lot of opportunity to upsize and refinance their loans. And then just the regular normal deal flow is also pretty strong. And we think leaning into software might make a lot of sense right now. the the spreads are wider and the terms are better so we're doing a lot of that but it is as far as SWK goes and putting exact percentages on it it's it's a little too early to tell we'll track that throughout the year and report on it as we go.

Thanks I appreciate the the color there and maybe just to follow up on your comments about software being relatively attractive right now. Certainly, we're all well aware that over the past six months or so, there's been some concern there. So I'm wondering outside of just the valuation impacts and what the market is saying, can you just talk a little bit about your software portfolio and what you've seen over the past six or 12 months in terms of revenue or EBITDA growth and things of that nature?

Yeah, our software companies have continued to perform as expected. We haven't had anything in the software portfolio move dramatically in terms of risk rating. and certainly nothing that's gone on to non-accrual. But we are watching them closer just because there's so much, I don't know, anxiety in the market right now. But is there anything specific that you want?

Yeah, I mean, that just kind of general color that I was hoping, you know, the contrast is that, you know, the public markets are thinking one thing, but the fundamentals, you know, from what I hear from you and others is pointing in a different direction. So hopefully, at some point, the, you know, public markets will reflect that as well. So that was good. And last one for me, and then I'll step aside. Appreciate the commentary on your valuation process, both on Thank you so much for joining us. The time demand, cost, resources, just curious about your thoughts.

Well, I'll just say one thing and then turn it over to Avisha and Tom and Carmela. But I think you hit the nail on the head. It's all of those things. And it's... I feel like we're among the most rigorous in our evaluation process. And I'm not sure that we would be adding much by adding more names to the third party review list. We almost never have an issue with third party review. And we also do, I guess you'd call it back testing. when there's an exit where we and the third-party reviewers look to see how accurate we were. Were we really way off the mark in terms of where something actually did exit? We've proven to be very, very accurate.

Over the last really five years or more since we've been public. We've worked with our outside auditors in fine-tuning a rubric that determines what we send on a quarterly basis. And certainly cost and time constraints are part of it, but we are also using the same methodologies internally that the third parties would use and the same information. Maybe, Avisha, you want to

Yeah, yes, again, just to layer on, so the framework that we use for review, it's risk-based, so it's designed, so it's not designed for every position to be reviewed, but it will prioritize the review of the larger exposures and those with higher risk ratings. So, for instance, 82% of loans that were Category 3 or higher were reviewed in the last two quarters, and 73% of loans that are greater than 18.5 million were reviewed in the last two quarters. So we think that framework adequately kind of captures risk.

Thank you for the additional commentary there. And you're right, I think the exit mark or the exit valuations that you can compare to your previous valuations really speaks volumes. So thank you for sharing all that data. That's all for me. Thank you.

Again, ladies and gentlemen, if you have a question or a comment at this time, please press star one one on your telephone. One moment for our next question. Our next question comes from Jason Stewart with Compass Point. Your line is open.

Hey, good morning. Thanks. And welcome, Mike, to the team. I was hoping you could comment on obviously some moving parts on the people side. Do you feel like the team is together at this point full or are there more additions to come?

We feel like the team is really strong. There's probably no additions to come. We don't need additions, but if we find somebody who can be really valuable, probably that would be in an origination capacity. We're always open to hiring good people and improving the quality of the team, but We really just feel fortunate that we were able to look around the BC universe and find Mike and that he had such a relevant and appropriate and powerful background and that we could bring him in right away. So we're really looking forward to the opportunity to operate together. We might, if Mike is on, just give him the chance to give a little bit of his background.

Yeah, thanks, David.

I appreciate you throwing it over to me briefly. Good to meet everybody. And I just want to start by thanking David, Carmela, and the entire Runway team for being so welcoming today. in my first few days. And I'm excited to join what is an experienced, dedicated, and high integrity team and to contribute to the quality underwriting and lending work that they've been successfully executing over the years. Now, as David mentioned earlier in the call, I bring more than 30 years of experience spanning technology, venture capital, private equity, and growth lending. You know, I think that breadth of experience has given me a unique perspective on the venture and growth equity investing ecosystem. And I believe it closely aligns with the credit first culture the runway is built. I don't have much more to say at this point, but looking forward to speaking with everyone in more detail this coming quarter.

Right. Okay. Well, thanks for that. Follow up question on the share repurchases for the Advisor. I think you laid out a two-year period. Is the right way to think about that on a straight line basis or perhaps more a bode where it's going to be accelerated given the discount to NAV now and tail off as you approach NAV? How should we think about the cadence there?

I would think about it the same way as we typically execute it on our attendee 5.1 programs. And we have to work within certain windows when we each can be in the market. But we've generally been more opportunistic when the discount to NAV is greater. And I would think that we would continue to do that while managing the availability of capital because you don't want It's always a balance. If you see it at a deep discount, you want to jump in, but at the same time, you want to have dry power available to support the stock going forward over the duration of the program.

Okay. Thank you. Appreciate it.

I'm not showing any further questions at this time. I'd like to turn the call back over to David for any further remarks.

I'd like to say on behalf of the team that we look forward to talking to everybody in the November call, and we also look forward to seeing those of you who are participating in the B. Reilly BDC conference in September.

Thank you, ladies and gentlemen. That concludes today's presentation. You may now disconnect and have a wonderful day.