Runway Growth Finance Corp. 8.00% Notes due 2027 Q2 FY2025 earnings call

• David Spreng began by discussing the second quarter financial highlights, reflecting on the first half operationally and sharing the outlook for the remainder of 2025. He emphasized Runway's focus on driving shareholder value as part of the BC Partners credit platform, noting broadened origination channels and expanded financing solutions already put into action in the second quarter. • Greg Greifeld shared progress in optimizing the portfolio, including details of the investment in Swing Education, credit quality metrics, and the outlook on the venture debt market. He highlighted the investment in Swing as an ideal check size for portfolio diversification and education technology as a high-growth sector insulated from macro headwinds. • Tom Raterman delved into the financial results, covering total investment income, net investment income, expenses, net realized loss on investments, prepayments, details of the nonaccrual loan to Mingle Healthcare, net assets, NAV per share, leverage ratio, asset coverage, available liquidity, unfunded commitments, the stock repurchase program, and the declared distributions for the third quarter.

For the second quarter, Runway delivered total investment income of $35.1 million and net investment income of $13.9 million. The total investment portfolio had a fair value of $1.02 billion, an increase of 2.1% from $1 billion in the first quarter. The dollar weighted loan-to-value ratio increased slightly from 29.0% to 29.8%. The debt portfolio generated a dollar weighted average annualized yield of 15.4% in the second quarter. As of June 30, 2025, net assets were $498.9 million, decreasing from $503.3 million at the end of the first quarter. NAV per share was $13.66 at the end of the second quarter, an increase of 1.3% from $13.48 at the end of the first quarter. The leverage ratio and asset coverage were 1.05 and 1.95x respectively as of June 30, 2025, compared to 0.99 and 2.01x at the end of the first quarter. Total available liquidity was $297 million as of June 30, 2025, with a borrowing capacity of $291 million. Unfunded commitments were $164.9 million, with $135.5 million earmarked for debt financing to portfolio companies and $29.4 million for equity financing to the JV with Cadma. Approximately $35.7 million of the unfunded debt commitments are eligible for drawing based on achieved milestones.

• Management is satisfied with the pipeline and remains laser-focused on delivering superior risk-adjusted returns for shareholders. • For the third quarter, there is an expectation of a slightly elevated level of repayments that will be beneficial to NII. This benefit is expected to offset the negative recurring impact of increased interest expense. Efforts are underway to originate additional opportunities to replace the anticipated repayments. • The outlook for 2026 is generally more promising than the second half of 2025. The focus is on portfolio optimization, which includes rightsizing the investment size for the BDC, introducing new products, diversifying through products, and using dry powder in a judicious manner.

Q: Nonaccruals have been very low, but PIK as a percentage of total investment income has been increasing. What is the breakdown between force PIK and companies using optionality?

A: Greg Greifeld stated that PIK is used for both offensive and defensive reasons, to assist borrowers with short-term cash flow and to win transactions. Thomas B. Raterman echoed this, noting it is a tool in the toolkit to retain the best loans in the portfolio or secure new deals.

Q: How do you anticipate the share repurchase program will progress in the coming quarters?

A: Thomas B. Raterman explained that the share repurchase program is executed via a 10b5-1. It is used more aggressively when there is a higher discount to NAV as it is more accretive, and less aggressively when the discount diminishes.

Q: Were there any one-time costs associated with the refinancing conducted during the quarter?

A: Greg Greifeld replied that in the second quarter, approximately $0.04 per share was related to increased interest expense. Of this, about $0.015 was one-time costs linked to the acceleration of deferred financing costs on existing secured notes, and about $0.025 is an ongoing increase in interest expense from taking out 4.25% notes and replacing them with 7-plus percent notes.

Q: What is the likelihood of the $35 million of unfunded commitments eligible for drawing based on achieved milestones being drawn down?

A: Greg Greifeld stated that it depends on the economic environment, but historically, it is approximately 50-50. Thomas B. Raterman added by highlighting the quality of the credits in the book.

Q: What can be expected regarding repayment activity in the third quarter?

A: Greg Greifeld said there is an expectation of a slightly elevated level of repayments in the third quarter that will benefit NII. These benefits will offset the negative recurring impact of increased interest expense, with efforts to originate additional opportunities to replace the anticipated repayments, which could lead to a decrease in NII in the near-term fourth quarter.

Q: Were the new originations, particularly the 2 new portfolio companies, larger deals shared with the BC platform or taken entirely by Runway?

A: Thomas B. Raterman said the 2 deals announced last quarter were done exclusively in the BDC, while the 2 subsequent events were portions of larger deals run by BC, with Runway receiving appropriate allocations of deals that fit the RWA vehicle mandate.

Q: How to reconcile the first half deal flow suggesting a strong year with the cautious remarks?

A: Thomas B. Raterman said the environment is mixed, with a focus on quality. Diversification is a key theme, and a deal like Swing is a smaller size relative to the portfolio, aiding in diversification and allowing growth as the company expands.

Q: Does AI skew the numbers in PitchBook data?

A: Thomas B. Raterman said AI is a sector, but typically plays in the latest stage of the venture and growth market, so those opportunities might be a couple of years away from being meaningful in the book.

Q: How does Runway approach investing in the consumer sector to reduce risk and cyclicality?

A: Thomas B. Raterman said they focus on 3 main sectors: technology, health care, and consumer, with allocation shifting between sectors. They focus less on consumer relative to other sectors, targeting consumer companies with $100 million-plus revenue, a proven track record, and less tolerance for burn or path to profitability.

Q: Any new developments on the Cadma JV?

A: Greg Greifeld said the Cadma JV is in place, ramping up, with expectations of additional transactions between now and the end of the year. It is a good relationship, but underwriting is done judiciously, with benefits from an ROE perspective expected in a few additional quarters.

Q: Detail on new products receiving positive market reaction and originations?

A: Thomas B. Raterman said all new products are well received, with examples like a structured second lien and a revolver. This is part of product expansion from being part of the BC Partners platform, providing more points of call on the same relationships and companies and sponsors.

Q: Why is M&A slower to pick up in the venture market?

A: Thomas B. Raterman said companies had to survive and cut burn over the past 2-3 years. Now, there are green shoots in terms of sales teams and additional capital to fund growth. Boards see an opportunity for companies to return to growth and increase exit value. The IPO market is not typically a source of deleveraging for growth stage businesses, with potential for tie-in of debt raises with IPOs.