Runway Growth Finance Q4 2023 Earnings Report

Runway Growth Finance EPS Results

• Actual EPS: $0.45
• Consensus EPS: $0.49
• Beat/Miss: Missed by -$0.04
• One Year Ago EPS: $0.45

Runway Growth Finance Revenue Results

• Actual Revenue: $39.23 million
• Expected Revenue: $40.26 million
• Beat/Miss: Missed by -$1.03 million
• YoY Revenue Growth: N/A

Runway Growth Finance Announcement Details

• Quarter: Q4 2023
• Date: 3/7/2024
• Time: After Market Closes
• Conference Call Date: Thursday, March 7, 2024
• Conference Call Time: 5:00PM ET

Runway Growth Finance (NASDAQ:RWAY), Inc. is a publicly traded business development company that provides customized debt and equity financing solutions to high‐growth, venture‐backed companies. The firm specializes in structuring senior secured loans, unitranche facilities, second‐lien financings, convertible notes and equity co‐investments designed to extend the cash runway for late‐stage companies. Runway’s flexible capital offerings are aimed at supporting technology, life sciences and other innovation‐driven sectors as they pursue growth initiatives and prepare for liquidity events.

Originally launched in 2017 under the name Saratoga Investment Corp., the company rebranded as Runway Growth Finance in 2020 following the acquisition of an established middle‐market credit manager. Runway’s management team combines private credit, venture and growth investing expertise, leveraging deep relationships within the venture ecosystem to source and underwrite financing opportunities. Their investment approach emphasizes rigorous due diligence, active portfolio monitoring and collaboration with existing shareholders to drive value for portfolio companies.

Headquartered in the United States, Runway Growth Finance primarily serves companies based in North America while selectively considering opportunities in Western Europe. The firm targets businesses approaching significant milestones such as initial public offerings or strategic mergers and acquisitions, offering financing structures that help founders and investors preserve equity ownership and maintain strategic flexibility. Runway’s sector‐focused teams deliver tailored financing solutions designed to bridge the gap between late‐stage venture capital and public market access.

Runway Growth Finance Q4 2023 Earnings Call Transcript

Key Takeaways

• Strong 2023 performance: Runway expanded ROE to 13.1% and raised its annualized dividend yield to 15.1% while maintaining 99% of its portfolio in senior secured first-lien loans to preserve credit quality.
• Disciplined Q4 investing: The company closed eight debt financings totaling $154.6 million, including three new portfolio companies, and upheld strict underwriting standards amid a challenging deal environment.
• Balance‐sheet flexibility: Leverage was reduced to 0.95x with asset coverage of 2.05x, and Runway ended the year with $281 million of available liquidity and $278 million of undrawn credit capacity, aided by a secondary share offering.
• Strategic joint venture: Runway formed an equal-equity partnership with CADMA Capital (backed by Apollo) with $70 million of initial equity and up to $200 million of financing capacity to extend its reach in late-stage venture debt.
• 2024 outlook: With a robust pipeline and borrowers set to seek capital as 2021–22 runways expire, Runway expects elevated prepayments and new originations while maintaining its high credit bar and capital preservation focus.

Presentation

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to the Runway Growth Finance fourth quarter and fiscal year ended 2023 earnings conference call. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Quinlan Abel, Assistant Vice President, Investor Relations. Please go ahead.

[Quinlan Abel, Assistant VP of Investor Relations at Runway Growth Finance]

Thank you, operator. Good evening, everyone, and welcome to the Runway Growth Finance conference call for the fourth quarter and fiscal year ended December 31, 2023. Joining us on the call today from Runway Growth Finance are Greg Greifeld, Acting Chief Executive Officer of Runway Growth Finance, and Deputy Chief Investment Officer and Head of Credit of Runway Growth Capital, and Tom Raterman, Acting President and Chief Financial Officer and Chief Operating Officer. Runway Growth Finance's fourth quarter and fiscal year ended 2023 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.

[Quinlan Abel, Assistant VP of Investor Relations at Runway Growth Finance]

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, changing economic conditions, and other factors we identified 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.

[Quinlan Abel, Assistant VP of Investor Relations at Runway Growth Finance]

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 Greg.

[Greg Greifeld, Acting CEO at Runway Growth Finance]

Thanks, Quinlan, and thanks, everyone, for joining us this evening to discuss our fourth quarter results. Today, I'll touch on 2023 highlights, provide an overview of the operating environment, discuss our key takeaways from the fourth quarter, 2023 as a whole, and share our outlook for the year ahead. In 2023, Runway took a measured approach, which delivered on our strategy and set the stage for us to take advantage of more favorable market conditions in 2024. Throughout 2023, Runway generated strong risk-adjusted returns, preserved leading credit quality, and reduced our leverage to free up dry powder for new deals in a more lender-friendly market in 2024, while also supporting existing portfolio companies.

[Greg Greifeld, Acting CEO at Runway Growth Finance]

Since the fourth quarter of 2022, Runway has expanded its return on equity by 33 basis points to 13.1% and annualized dividend yield by 186 basis points to 15.1%. These strong returns are underpinned by what we believe to be the least risky portfolio in the venture debt space, with 99% senior secured first lien loans. Runway remains committed to driving shareholder value, which is enforced by our strong and consistent base dividend and ongoing supplemental distributions. Turning to investment activity. 2023 was a transitional year as companies and sponsors adjusted to the new normal of higher interest rates, tighter covenants, lower valuations, and generally lower amounts of both debt and equity capital. Our actionable pipeline remains strong, but few deals met our underwriting criteria as companies held unrealistic expectations, particularly in the first half of 2023.

[Greg Greifeld, Acting CEO at Runway Growth Finance]

As a reminder, we aspire to help the best companies access non-dilutive capital to fuel growth. We are not a lender of last resort to help fix a troubled situation or give management teams one last chance to swing for the fences. We believe our operating results speak to our focus on preserving industry-leading credit quality while safeguarding our shareholders. I remain proud of the team's diligence in evaluating the influx of deals we've been presented, while remaining selective in the pursuit of only the highest quality late-stage companies who have demonstrated a clear path to sustainable profitability. To that end, we executed eight investments in new and existing portfolio companies in Q4, three of which were new positions for the BDC. Amid the dynamic market environment, our team remains focused on mitigating risk and supporting our existing portfolio companies.

[Greg Greifeld, Acting CEO at Runway Growth Finance]

In 2023, our strategy was to allow meaningful repayments to occur to reduce our leverage and increase our access to dry powder. Our low leverage ratio and ample dry powder gives us the ability to focus on opportunities that meet our high credit bar without having to worry about the terms and restrictions from our lenders. To summarize, we maintain highly selective due diligence processes and credit selection criteria in Q4, positioning us to originate attractive investments in the year ahead. We will continue to prioritize credit quality and manage our balance sheet defensively. In addition to investment activity, I'd like to mention two other achievements. First, we increased liquidity for our shareholders through a secondary offering in the fourth quarter, which Tom will provide additional color on in a moment.

[Greg Greifeld, Acting CEO at Runway Growth Finance]

Second, subsequent to quarter end, we were pleased to announce our joint venture with Cadma Capital Partners, a credit financing platform for the venture ecosystem that was established in 2023 by Apollo. Runway Cadma One LLC is an equal partnership between Runway and Cadma. With financing capacity of up to $200 million, the joint venture will focus on financing private and sponsor-backed late and growth stage companies. We're thrilled to enter this partnership and look forward to updating you as appropriate in future quarters. Turning now to a recap of the 2023 operating environment. 2023 was a dynamic year in which we experienced a U.S. regional banking crisis and the collapse of Silicon Valley Bank, which significantly impacted the venture marketplace.

[Greg Greifeld, Acting CEO at Runway Growth Finance]

This period of financial stress, coupled with high inflation, led to cautious bank lending standards, prolonged higher for longer rates, fluctuating equity markets, and declining valuations, all of which have contributed to a challenging environment for deal-making across all stages. During this time, we took decisive action to protect our high-quality portfolio of first lien loans through constant communication with management teams and the disciplined evaluation of our portfolio throughout the year. Further, as we sought to apply disciplined portfolio management and preserve credit quality, we began to see some green shoots in 2023. According to recent PitchBook data, U.S. late stage venture equity deal value was approximately $80 billion for fiscal 2023, down from record levels in 2021 and 2022, but still above 2020 and the years preceding.

[Greg Greifeld, Acting CEO at Runway Growth Finance]

Further, US late stage venture equity represented 47% of total deal value and 29% of total deal count, marking the strongest annual figures we've seen historically. This is a continuation of the dynamic we've observed in recent quarters: higher volumes of late stage deals, but at smaller values. With borrowers seeking capital against the backdrop of a challenging fundraising environment, we believe the opportunity for Runway Growth's value proposition is clear. Companies are continuing to seek minimally dilutive capital to extend runway and supplement equity as that market remains challenged. And with this heightened demand, in 2023, we raised the bar on our rigorous and selective investment criteria. We believe our borrowers are among the highest quality in the late stage venture ecosystem. This is demonstrated by their ability to raise capital.

[Greg Greifeld, Acting CEO at Runway Growth Finance]

Runway portfolio companies raised approximately $450 million in equity or other junior capital relative to our billion-dollar loan portfolio, and we continue to deploy prudent underwriting standards that prioritize quality over quantity. In sum, the market was turbulent in 2023, but our proactive strategy and distinctive portfolio architecture enabled us to deliver value to both our portfolio company management teams and shareholders. Tom will dive deeper into our financial performance, but I want to close with an overview of our outlook for 2024, which is consistent with previous quarters. Companies completed equity funding rounds in 2021 and 2022 at historically high valuations, which provided 24-36 months of runway. These companies will soon need to go to market to raise additional capital, and we believe we are well positioned to take advantage of these opportunities.

[Greg Greifeld, Acting CEO at Runway Growth Finance]

Increasingly, management teams turn to Runway because we are more than just a lender. We offer strategic counsel, financial expertise, and an operational network that we believe drives optimal results for our borrowers and shareholders. Our team continues to see a robust pipeline of opportunities. Despite the challenging market and deal activity, our pipeline of qualified, actionable deals grew relative to 2022. This demonstrates our increased discipline and tighter credit box. In the first quarter of this year, which tends to be our slowest seasonally, we have issued multiple term sheets with new borrowers. 2024 is already off to a fast start between our newly formed joint venture with Cadma and transaction activity. We look forward to sharing more in May. With that, I'll turn it over to Tom.

[Tom Raterman, Acting President, CFO and COO at Runway Growth Finance]

Thanks, Greg, and good evening, everyone. Reflecting on 2023, we're proud of Runway's performance amidst a challenging operating environment for our portfolio companies and fundraising environment across the venture landscape. We completed 8 investments in the fourth quarter, representing $154.6 million in funded loans. Our weighted average portfolio risk rating increased to 2.39 in the fourth quarter from 2.24 in the third quarter of 2023. 4 portfolio companies moved from Category Two to Category Three during the quarter. Our rating system is based on a scale of 1 to 5, where 1 represents the most favorable credit rating. Our portfolio continues to be concentrated in first lien senior secured loans, focused on the latest stage, highest quality companies in the venture debt market.

[Tom Raterman, Acting President, CFO and COO at Runway Growth Finance]

With 99% of our portfolio with a weighted average risk rating of three or better, we're focused on maintaining a high bar for evaluating investments. In line with previous quarters, we calculated the loan-to-value for loans that were in our portfolio at the end of the third quarter and the current quarter. We found that our dollar-weighted loan-to-value ratio slightly increased from 24.7% in Q3 to 27.8% in Q4. Our total investment portfolio had a fair value of approximately $1.03 billion, excluding Treasury bills, flat from $1.01 billion in the third quarter of 2023, but a decrease of 9% from $1.13 billion for the comparable prior year period.

[Tom Raterman, Acting President, CFO and COO at Runway Growth Finance]

As of December 31, 2023, Runway had net assets of $547.1 million, decreasing from $570.5 million at the end of the third quarter of 2023. NAV per share was $13.50 at the end of the fourth quarter, compared to $14.08 at the end of the third quarter of 2023.... Included in our Q4 2023 investor presentation is a detailed NAV bridge.

[Tom Raterman, Acting President, CFO and COO at Runway Growth Finance]

The decline in NAV is primarily a result of an unrealized loss of $7.7 million on our CareCloud preferred stock holdings, which we are electing to hold as we see an opportunity for equity upside in the future, as well as the realized loss of $17 million on our debt investment in Pivot3, $6.4 million of which was reflected as an unrealized loss in our Q3 2023 financial statements. As a reminder, our loan portfolio is comprised of 100% floating rate assets. All loans are currently earning interest at or above agreed-upon interest rate floors, which generally reflect the base rate plus the credit spread set at the time of closing or signing the term sheet.

[Tom Raterman, Acting President, CFO and COO at Runway Growth Finance]

In the fourth quarter, we received $63.4 million in principal repayments, a decrease from $126.8 million in the third quarter of 2023. This is driven primarily by our credit-first approach to investing that prioritizes the highest quality, late-stage companies, which are ideal candidates for refinancing or acquisition in most market environments. Elevated prepayments for the quarter and year are an indicator of the strength in our approach to underwriting and health of the overall portfolio. We expect additional prepayment activity throughout 2024, with activity building more significantly in the second half of this year. Further, prepayment activity provides Runway with liquidity to deploy in a manner that is fully accretive.

[Tom Raterman, Acting President, CFO and COO at Runway Growth Finance]

We generated total investment income of $39.2 million and net investment income of $18.3 million in the fourth quarter of 2023, compared to $43.8 million and $22 million in the third quarter of 2023. Our debt portfolio generated a dollar-weighted average annualized yield of 16.9% for the fourth quarter of 2023, as compared to 18.3% for the third quarter of 2023, and 15.5% for the comparable period last year. We attribute the spike in the yield in the third quarter of 2023 to an acceleration in prepayments. Moving to our expenses for the fourth quarter, total operating expenses were $20.9 million, down 4% from $20.7 million for the third quarter of 2023.

[Tom Raterman, Acting President, CFO and COO at Runway Growth Finance]

Runway recorded a net unrealized loss on investments of $5.9 million in the fourth quarter, compared to a net unrealized loss of $7.2 million in the third quarter of 2023. We also had a net realized loss of $17.2 million, compared to no realized loss in the prior quarter. The fourth quarter unrealized loss on investments was predominantly due to the loss of $7.7 million, resulting from decreases in the fair value of our preferred equity position in CareCloud. We remain confident that our highly selective investment process and diligent monitoring of portfolio companies support our track record of maintaining low levels of nonaccruals, coupled with generally healthy credit performance. As of December 31, 2023, we had no loans on nonaccrual status.

[Tom Raterman, Acting President, CFO and COO at Runway Growth Finance]

Subsequent to quarter end, we placed our loan to Mingle Healthcare on nonaccrual status, representing an outstanding principal balance of $4.3 million at a fair market value of $3.8 million. The loan comprised 0.37% of the total fair value of the investment portfolio, excluding treasury bills, as of December 31, 2023. In the fourth quarter of 2023, our leverage ratio and asset coverage were 0.95 and 2.5x, respectively, compared to 0.79 and 2.27x at the end of third quarter of 2023. All investments in the fourth quarter were funded with leverage as part of our strategy to generate non-dilutive portfolio growth.

[Tom Raterman, Acting President, CFO and COO at Runway Growth Finance]

Turning to our liquidity, at December 31, 2023, our total available liquidity was $281 million, including unrestricted cash and cash equivalents, and we had borrowing capacity of $278 million, as compared to $312 million and $297 million, respectively, on September 30, 2023. We were pleased with the completion of a secondary offering of approximately 3.7 million shares of common stock owned by Oaktree in November 2023. It's important to note that Oaktree has been a great partner to Runway since 2016, and this is just part of the natural investment life cycle. Ultimately, we view this as a positive for the liquidity of our stock, and over the long term, we expect a larger public float to attract high-quality investors that understand the Runway value proposition.

[Tom Raterman, Acting President, CFO and COO at Runway Growth Finance]

At quarter end, we had unfunded loan commitments to portfolio companies of $201.5 million, the majority of which were subject to specific performance milestones. $42 million of these commitments are currently eligible to be funded. During the quarter, we experienced two prepayments totaling $63.4 million and scheduled amortization of $0.3 million. The prepayments include a full principal repayment of our senior secured term loan to Vero Biotech for $40 million, and a partial principal repayment of our senior secured term loan to Brivo for $23.4 million. As mentioned on our third quarter earnings call, our board of directors approved a stock repurchase program, giving us the ability to acquire up to $25 million of Runway's common stock. To date, the company has not repurchased any shares under the stock repurchase program, which expires on November 1, 2024.

[Tom Raterman, Acting President, CFO and COO at Runway Growth Finance]

Separately, during Q4, through its long-term incentive plan, management of the external advisor purchased 39,473 shares of common-

[Tom Raterman, Acting President, CFO and COO at Runway Growth Finance]

...Finally, on February 1, 2024, our board declared a regular distribution for the first quarter of $0.40 per share, as well as a supplemental dividend of $0.07 per share, payable with the regular dividend. Looking ahead, we expect the venture market to remain challenged as ongoing uncertainty surrounding fiscal policy weighs on the U.S. economic trajectory. While the macro environment will continue to impact our portfolio companies, we remain focused on delivering superior credit performance and preserving capital to maximize risk-adjusted returns for our shareholders. With that, operator, please open the line for questions.

[Operator]

Thank you. If you would like to ask a question, please press star one one on your telephone. You will then hear an automated message advising your hand is raised. If you would like to remove yourself from the queue, press star one one again. We also ask that you wait to hear your name and company be announced before proceeding with your question. One moment while we compile the Q&A roster. Our first question for today will be coming from Finian O'Shea of Wells Fargo. Your line is open.

[Finian O'Shea, Director and Senior Research Analyst at Wells Fargo]

Hey, everyone. Good afternoon. Just a question, sort of higher level on the investment style and nonaccruals. So you, you've always described this strategy as growth debt, where you're lending to more so profitable companies that are transitioning or pivoting into something, but which makes them unprofitable, but that there's a core business with franchise value that, you know, mostly covers you. So in the sort of cases that are going wrong, can you touch on, is it more related to the new venture or the core business that sort of, you know, falls off from your underwriting? Thank you.

[Greg Greifeld, Acting CEO at Runway Growth Finance]

Yeah. Hey, hey, this is Greg. Thanks for the question. You know, specifically this quarter, we now have the one name on nonaccrual, Mingle Healthcare, as Tom spoke about on the call. You know, that is a position that has been in our portfolio for quite some time. It is a smaller portfolio to a smaller company, which was in line with our strategy as we were originally building the book. You know, this one has had some bumps along the road, as you can imagine, not only in terms of regulatory headwinds dealing with COVID, but also some just operational issues. We do believe that there is material value here in excess of what we are owed.

[Greg Greifeld, Acting CEO at Runway Growth Finance]

The situation is very fluid right now, but we are working with them to make sure that we get the right security on this company for them to maximize the value.

[Finian O'Shea, Director and Senior Research Analyst at Wells Fargo]

Okay. Thank you. Very helpful. And then also, you know, we're seeing a lot of, you know, broadly challenges in venture. Is this? Can you talk about the sort of high-level backdrop? Is there sort of a headwind on VC fundraising that's, you know, finally working its way through and impacting companies that way, or just more of what we're seeing here is more, you know, run-of-the-mill or idiosyncratic?

[Greg Greifeld, Acting CEO at Runway Growth Finance]

Yeah, I think there definitely are overall, segment headwinds in terms of, funds having less dry powder than they might have anticipated, having to take longer, to raise that next fund than they may have anticipated. And as we said in our prepared remarks, 2023 really was a transitional year as the funds and the companies realized that new normal of less plentiful, and smaller dollar amounts available for them. Which has led to, you know, a lot of internal work, making sure that, cost structures have been, changed to meet the new, normal in terms of actual available to liquidity, as well as, making sure that, they're engaging in R&D and other, look-forward projects that they actually will have the ability to fund through to fruition.

[Greg Greifeld, Acting CEO at Runway Growth Finance]

So in long and short, there definitely are some market headwinds in terms of capital having been less available. However, on the whole, we think that that leads companies to be stronger, having to face this and ramp down their burn.

[Finian O'Shea, Director and Senior Research Analyst at Wells Fargo]

Awesome. All for me. Thanks so much.

[Operator]

Thank you. As a reminder, if you would like to ask a question, please press star one one on your telephone. One moment for the next question. Our next question today will be coming from Melissa Wedel of JP Morgan. Your line, your line is open.

[Melissa Wedel, CFA at JPMorgan]

Thanks for taking my questions today. Wanted to start with Pivot3 in particular. I know this one has been on non-accrual for a while, or had been on non-accrual for a while. But even as of a quarter ago, I think you guys had that marked at, like, 65% about, of cost. Trying to understand how that so quickly unraveled to a full write-down in the fourth quarter?

[Greg Greifeld, Acting CEO at Runway Growth Finance]

... Yeah. So, speaking specifically about that name, as we had mentioned, we are exploring an IP monetization, strategy with them, which we believe, still has, viability and we believe still has, you know, the chance for success. However, just looking at the time frame and potential additional capital required, we realized that, you know, we had less confidence, in that capital being raised in the near term. You know, we've been clear from the beginning that, you know, we're not in the business of, funding, you know, risk capital for IP litigation. You know, we're in the business of recovering capital.

[Greg Greifeld, Acting CEO at Runway Growth Finance]

So, just feedback around the time frame, not the viability, of that has led us to revisit the mark as we have transitioned through a credit bid away from the loan.

[Melissa Wedel, CFA at JPMorgan]

Okay. I also wanted to try to reconcile some of the comments that you were making about expecting elevated prepayment activity, particularly in the back half of 2024, but also noting that, you know, there were a lot of investments that weren't sort of meeting your threshold to make it into the portfolio. Should we be thinking about 2024 as a flat, maybe de-leveraging year for the portfolio?

[Tom Raterman, Acting President, CFO and COO at Runway Growth Finance]

Sure. So I think thanks for the question, Melissa. Nice to hear from you. As we think about the pattern, we look forward, the pattern of prepayments, and when we look forward, we have a sense as to what will come. The theme for this year, really for us, is sticking to our knitting, not changing the standards, focusing on the portfolio that we have in place. There's, you know, obviously a significant number of deals in the pipeline that we could do. We always ask, "Should we do them?" So I think in terms of the portfolio, we'd like it to be flat, at least flat, if not slightly up. We'd like to see our leverage, you know, over, you know, slightly over one by the end of the year.

[Tom Raterman, Acting President, CFO and COO at Runway Growth Finance]

But we're not gonna compromise our credit standards in this environment to get there.

[Greg Greifeld, Acting CEO at Runway Growth Finance]

Yeah, and the only thing I would add to that, completely agree. To add another idiom of beyond sticking to our knitting, you know, we really view the portfolio as a marathon, not a sprint. Our view is to, and goal is to have, liquidity and access to capital to make loans, the best loans to the best companies as the market has the availability for it.

[Melissa Wedel, CFA at JPMorgan]

Thank you.

[Operator]

Thank you. One moment for the next question. Our next question today will be coming from Bryce Roe of B. Riley. Your line is open.

[Bryce Rowe, Senior Equity Research Analyst at B. Riley Securities]

Thanks so much. Good afternoon. Wanted to maybe start around the unrealized depreciation in the quarter beyond what you saw from CareCloud. I think, Greg, you mentioned or maybe it was Tom, you mentioned four companies that went from an internal rating of two to three, and assume that there might have been some fair value mark associated with that. Can you maybe talk about some of that fair value mark process in the quarter, again, away from CareCloud, and I guess, the reversal of the unrealized depreciation that you already had on Pivot3?

[Tom Raterman, Acting President, CFO and COO at Runway Growth Finance]

Sure. Thanks, Bryce. Well, by far, the two largest components were CareCloud and Pivot3. There was also a mark change in the equity portfolio that was roughly a million dollars on our warrant position in Aria. And the rest were really nothing significant, frankly, even in the names that went from two to three. I would say as a whole, we probably adjusted our discount rates up just a bit, which had that impact. But there was nothing that was really monumental or alarming. It was just kind of natural drift outside those three that we talked about by adding the equity piece in Aria.

[Bryce Rowe, Senior Equity Research Analyst at B. Riley Securities]

Okay. That's, that's helpful, Tom. And, maybe, maybe just a question or two around, around the joint venture. Can you talk about maybe the, the type of investment that will go into the joint venture? Is it similar to what you would, what would, what you would put in your own portfolio? And then what, what type of kind of equity debt do you expect, you know, to, to, I guess, as a capital structure for that joint venture?

[Tom Raterman, Acting President, CFO and COO at Runway Growth Finance]

Sure. Well, first of all, I just want to say we are delighted to have this joint venture with Cadma. Cadma is run by, you know, some Silicon Valley veterans who really know the ecosystem and the venture lending market very well. And then, of course, being part of Apollo, the one of the world's largest, you know, alt investment managers, that's quite, you know, quite significant. In terms of the amount that we're putting in, initially, we're each putting in $35 million in equity, and then we've arranged financing to take it up potentially to $200 million or even more. So that's the initial capital structure that we're thinking about. In terms of the focus, it's really largely what we're doing.

[Tom Raterman, Acting President, CFO and COO at Runway Growth Finance]

We view this as an opportunity, you know, particularly, in a situation where you know, we can't, won't go to the equity markets, is an opportunity to continue for us to stay in the market with those late-stage companies where the deals tend to be larger, diversify the portfolio through that JV, through our interest in the JV, and add a new earning stream.

[Bryce Rowe, Senior Equity Research Analyst at B. Riley Securities]

Great. And Tom, in terms of kind of helping us think about how that could ramp, I mean, you-- like, like you said, you all will typically underwrite maybe larger deals, dollar volume deals, and so it theoretically wouldn't take but a few to really ramp that thing up. Am I thinking about that the right way?

[Tom Raterman, Acting President, CFO and COO at Runway Growth Finance]

To some extent. I think, you know, our view is also to build diversification, and Cadma's view, too, is to build diversification within the JV. So I think you should think of it as an equity ramp through the balance of this year. You know, we don't intend to sell any loans from our book into that joint venture at this point, and I don't think that's gonna change. So I would view it as a steady ramp through the year, but keeping diversification, you know, in that JV, you know, relative to the size as it grows.

[Bryce Rowe, Senior Equity Research Analyst at B. Riley Securities]

Okay. All right. That's great. Appreciate the answers.

[Tom Raterman, Acting President, CFO and COO at Runway Growth Finance]

Sure thing.

[Operator]

Thank you. If you would like to ask a question, please press star one one on your telephone and wait for your name to be announced before proceeding with your question. The next question is coming from Eric Zwick of Hovde Group. Your line is open.

[Erik Zwick, Equity Research Analyst at Hovde Group]

Good afternoon. Maybe just start with a follow-up on kind of Bryce's question on the JV. Just curious if the partnership with Cadma, and you mentioned kind of relationship with Apollo as well, does that broaden the kind of sourcing funnel at all? Are there any benefits from that partnership as well?

[Tom Raterman, Acting President, CFO and COO at Runway Growth Finance]

Yeah, I mean, it's certainly a strategic partnership for us, and we'd expect to see many benefits beyond just one of expanding sources of capital.

[Erik Zwick, Equity Research Analyst at Hovde Group]

Thanks. And then, just with regard to the current pipeline, can you provide any color in terms of the, the mix, as it kind of pertains to new investments versus add-ons? And, you know, are there any particular industries that you're seeing are, are more active today, in the, in the pipeline?

[Greg Greifeld, Acting CEO at Runway Growth Finance]

Yeah. I'd say the pipeline is definitely, you know, weighted more towards new investments. You know, we always are mining the portfolio to see opportunities to give more money to the best companies, outside of our already scheduled delayed draws. In terms of sector, you know, I think we're seeing a lot of opportunity across the gamut of the three legs of our investing universe, you know, technology, life sciences, as well as consumer, and expect the split to remain consistent throughout this year.

[Erik Zwick, Equity Research Analyst at Hovde Group]

Thanks, Greg. And last one for me. Just curious about your appetite to use the repurchase authorization kind of in 2024 at all.

[Tom Raterman, Acting President, CFO and COO at Runway Growth Finance]

I think that's really a function of where the stock trades. I mean, there are two ways to return capital to shareholders. One is to build the book and continue to grow the dividend, and the other is to repurchase shares. You know, ultimately, we'd like to get to the point where we can raise equity. So if we get trading closer to NAV or at some point hopefully above NAV here, I would expect to see usage under that program to be less significant.

[Erik Zwick, Equity Research Analyst at Hovde Group]

Appreciate that, the thoughts, Tom. Thanks for taking my questions today.

[Tom Raterman, Acting President, CFO and COO at Runway Growth Finance]

Sure thing, Eric.

[Operator]

Thank you. One moment for the next question. Our next question will be coming from Mickey Schleien of Ladenburg Thalmann. Your line is open.

[Mickey Schleien, CFA and Research Analyst at Ladenburg Thalmann]

Hi. Yes, good afternoon, everyone. Not to beat a dead horse, but I, I have a few more questions on the JV. First, Tom, could you repeat what you said was the debt-to-equity target for the JV?

[Tom Raterman, Acting President, CFO and COO at Runway Growth Finance]

Sure. So, and Mickey, thanks for joining today. The initially, it's going to be $70 million in equity, which will be comprised of 50, 50%, so $35 million from each of us. And then, we'll grow to, at least with that equity base, up to $200 million, so another $130 million in debt.

[Mickey Schleien, CFA and Research Analyst at Ladenburg Thalmann]

I understand. And Tom, what is your target return on invested capital on the JV?

[Tom Raterman, Acting President, CFO and COO at Runway Growth Finance]

Yeah, so the asset level returns are really going to be the same as what we're looking at in the core portfolio. They shouldn't vary significantly, so you just apply the leverage, and you know, we would think that you know, we get the you know, very similar return on equity, if not a little greater on that because the-

[Mickey Schleien, CFA and Research Analyst at Ladenburg Thalmann]

I understand.

[Tom Raterman, Acting President, CFO and COO at Runway Growth Finance]

There's more leverage.

[Mickey Schleien, CFA and Research Analyst at Ladenburg Thalmann]

Just want to confirm, Cadma is 100% owned by Apollo. Is that right?

[Tom Raterman, Acting President, CFO and COO at Runway Growth Finance]

That's a question for Apollo, really. But, Cadma is definitely part of Apollo.

[Mickey Schleien, CFA and Research Analyst at Ladenburg Thalmann]

And how does Oaktree feel about Runway working with Apollo, given, you know, Oaktree and Apollo obviously are competitors?

[Tom Raterman, Acting President, CFO and COO at Runway Growth Finance]

... Now, Oaktree's, you know, continues to be a very supportive partner, and they understand that we're gonna do things to expand our footprint, our access to capital, and they embrace it. Obviously, Oaktree's on our board, and they were fully supportive of the program, and it's something that we've talked about and has had a fairly meaningful gestation period.

[Mickey Schleien, CFA and Research Analyst at Ladenburg Thalmann]

I understand. And, the JV is not going to be competing with any other part of Apollo, is that correct?

[Tom Raterman, Acting President, CFO and COO at Runway Growth Finance]

That's our objective, yep.

[Mickey Schleien, CFA and Research Analyst at Ladenburg Thalmann]

Okay. And, how will you allocate deal flow between the BDC and the JV?

[Tom Raterman, Acting President, CFO and COO at Runway Growth Finance]

So our goal in the BDC is really to increase our diversification in the portfolio. There are certain limitations under our lending agreements that where it drops out, so there's a series of limitations deals over a certain dollar amount. We lose in our borrowing base for the KeyBank revolver, to the extent we hit concentrations in various industries or maturities, things like that. But those, the JV will pick those up first and allow us to maximize the availability under our revolver and effectively utilize our leverage there. So that's really the focus on the allocation, is making sure that we're using our leverage effectively and using the assets effectively to gain leverage.

[Mickey Schleien, CFA and Research Analyst at Ladenburg Thalmann]

I understand. And just lastly, last quarter, you gave us a little bit of an update on David's, the expectation for David Spreng to return to day-to-day involvement with the company. Anything you can say on that at this time?

[Tom Raterman, Acting President, CFO and COO at Runway Growth Finance]

Yeah, really no change. We expect David to be back later this year. I know he certainly appreciates all the well wishes he's received, and, and Greg and I, you know, speak with David quite, quite frequently.

[Mickey Schleien, CFA and Research Analyst at Ladenburg Thalmann]

Okay. Thanks for that. Those are all my questions. Appreciate it.

[Operator]

Thank you. If you would like to ask a question, please press star one one on your telephone. One moment for the next question. Our next question will be coming from Casey Alexander of Compass. Your line is open.

[Casey Alexander, Managing Director and Senior Equity Analyst at Compass Point Research & Trading]

Yeah, sorry, I missed quite a bit of this call because I had another conference call that started at 4:45, so I apologize for that. I do wanna confirm that if I read the release correctly, in the fourth quarter, you did not repurchase any shares?

[Tom Raterman, Acting President, CFO and COO at Runway Growth Finance]

That's correct.

[Casey Alexander, Managing Director and Senior Equity Analyst at Compass Point Research & Trading]

I'm curious why, after the Oaktree offering in November, when the stock was quite weak, how come you chose not to repurchase some shares in that window?

[Tom Raterman, Acting President, CFO and COO at Runway Growth Finance]

Well, you know, Casey, we looked at how the stock traded. We looked at the opportunities for us to deploy capital, and the stock really moved back, you know, in our opinion, into a trading range where we felt it could stand on its own, and decided to reserve that dry powder, that either in the program itself or the dry powder from on our balance sheet, for a period where there was a greater need.

[Casey Alexander, Managing Director and Senior Equity Analyst at Compass Point Research & Trading]

Okay. All right. Well, I'll get the rest of this from the transcript. I'm sorry, I got here late, and I don't wanna ask you to repeat anything that you've already said.

[Tom Raterman, Acting President, CFO and COO at Runway Growth Finance]

Casey, we're glad to have you.

[Greg Greifeld, Acting CEO at Runway Growth Finance]

Glad to have you, Casey.

[Operator]

Thank you. At this time, there are no more questions in the queue, and I would like to turn the call back over to Greg Greifeld for closing remarks. Please go ahead, sir.

[Greg Greifeld, Acting CEO at Runway Growth Finance]

Thank you, operator. We see immense opportunity for growth in the year ahead and believe we are well positioned to provide essential support for high quality, late stage companies that are faced with a variety of nuanced funding challenges. Thank you all for joining us today. We look forward to updating you on our first quarter 2024 financial results in May.

[Operator]

This concludes today's conference call. Thank you for participating. You may all disconnect.

Participants

Executives

• Greg Greifeld, Acting CEO
• Quinlan Abel, Assistant VP of Investor Relations
• Tom Raterman, Acting President, CFO and COO

Analysts

• Bryce Rowe, Senior Equity Research Analyst at B. Riley Securities
• Casey Alexander, Managing Director and Senior Equity Analyst at Compass Point Research & Trading
• Erik Zwick, Equity Research Analyst at Hovde Group
• Finian O'Shea, Director and Senior Research Analyst at Wells Fargo
• Melissa Wedel, CFA at JPMorgan
• Mickey Schleien, CFA and Research Analyst at Ladenburg Thalmann