Earnings Call Transcript - RWAY Q2 FY2025

Operator

Ladies and gentlemen, thank you for standing by and welcome to the Runway Growth Finance Second Quarter 2025 Earnings Conference Call. Please be advised that today's conference is being recorded. I would like now to hand the conference over to Quinlan Abel, Assistant Vice President, Investor Relations. Please go ahead.

Quinlan Abel, Head of Investor Relations

Thank you, Operator. Good evening, everyone, and welcome to the Runway Growth Finance Conference Call for the quarter ended June 30th, 2025. Joining us on the call today from Runway Growth Finance are David Spring, Chief Executive Officer, Greg Greifeld, Chief Investment Officer of Runway Growth Capital LLC, our Investment Advisor, and Tom Ratterman, Chief Financial Officer and Chief Operating Officer. Runway Growth Finance's second quarter 2025 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 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 statement, including, without limitation, market conditions caused by uncertainty surrounding interest rates, 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 Spreng, CEO

David. Thank you, Quinlan, and thanks everyone for joining us this evening to discuss our second quarter 2025 financial results today i'll discuss our second quarter financial highlights reflect on the first half of the year operationally and share our outlook for the remainder of 2025 then greg will provide an update on the venture landscape and to conclude tom will dive deeper into our financial performance for the second quarter runway delivered total investment income of 35.1 million and net investment income of 13.9 million the second quarter posed economic uncertainty due to evolving tariff policy and the potential knock-on effect to our portfolio companies overall the bdc sector proved resilient and we believe our portfolio has demonstrated its ability to perform throughout all economic cycles. Amidst this macro backdrop, our focus has continued to be on driving shareholder value through our enhanced positioning as part of the BC Partners Credit Platform. This focus has been pivotal as we navigate the current venture debt environment and continue to be the best partner possible for our underlying portfolio investments. As part of the BC Partners platform, Runway is benefiting from broadened origination channels and an expanded set of financing solutions that we have already put into action in the second quarter. Our integration within the BC Partners ecosystem empowers Runway growth capital at the firm level to continue to make our target investments between $30 and $150 million overall. That said, our ability to partner with BC Partners on these deals increases our optionality and allows us to allocate the right investment size to our BDC. We believe our sweet spot is a check size between $20 and $45 million for the BDC. Overall, these strategic imperatives allow us to focus on three main objectives. First, to further optimize our portfolio through diversification of investment size. Second, to expand the financing solutions we offer. And third, to maximize our existing commitments through consistent monitoring and diligent risk mitigation. With these pillars in place, we are confident in our ability to move opportunistically when new investments that meet our high credit bar are sourced. We can be nimble in our execution while leveraging the backing of BC Partners' fully scaled $9 billion credit platform. Our second quarter investment activity demonstrates our ability to execute against our portfolio optimization initiatives while continuing to maximize our existing portfolio. In the second quarter, we executed on three investments in new and existing portfolio companies across the high-growth verticals of technology, healthcare, and select consumer sectors, representing $37.8 million in funded loans. We completed a $40 million commitment in autobooks, an accounting and bookkeeping solution, funding $27 million at close. During the quarter, we also completed a new $20 million commitment in Swing Education, an online marketplace that connects schools with qualified substitute teachers, funding $8 million at close. $10 million of this commitment to Swing Education is a revolving line of credit, further reflecting the expanded solutions upon which we are executing. Finally, we completed a $2.8 million commitment in our existing portfolio company, Marley Spoon. Subsequent to quarter end, we announced a new $10 million co-investment with BC Partners in Federal Hearings and Appeal Services, or FHAS, funding $7.5 million at close. FHAS is a trusted national leader in providing business processing and outsourcing services to federal and state government agencies. Additionally, last week we made a new $10 million investment in DigiCert, Inc., funding $9.2 million at close. DigiCert is a leader in offering high-assurance digital certificates, certificate management solutions, and public key infrastructure solutions, which provide companies a better way to authenticate information on the Internet. Looking ahead, we are pleased with our pipeline and remain hyper-focused on our efforts to provide superior risk-adjusted returns for our shareholders. With that, I'll turn it over to Greg to provide a deeper look at our portfolio activity and outlook on the venture debt landscape.

Greg Greifeld, CEO

Thanks, David, and good evening, everyone. I want to share a little more about our progress in optimizing the portfolio and what we're seeing across the venture debt market. During the second quarter of 2025, Runway completed two investments in new portfolio companies and one investment in an existing portfolio company, representing $37.8 million in funded loans. I want to take a moment to highlight our investment in Swing, which David touched on earlier. We are providing a $20 million senior secured loan to the company, $10 million of which is a revolving line of credit, marking our first of such arrangement. This opportunity is significant for a few reasons. First, swing is an ideal check size to help diversify our portfolio. Second, the delayed draw enables us to grow with the company, allowing us to be an effective partner at this stage in its life cycle. And third, we believe education technology is a high-growth sector that is insulated from many of the macro headwinds we are experiencing today. As our funnel widens and our pipeline grows, we believe there will be more opportunities like Swing that allow us to flex our newly added platform scale and growing solution set. We look forward to updating you on our expanded offerings in the quarters to come. Turning to credit quality, our weighted average portfolio risk rating remained at 2.33 in the second quarter of 2025, consistent with the first quarter of 2025. five. Our rating system is based on a scale of one to five, where one represents the most favorable credit rating. As with previous quarters, we calculated the loan-to-value ratio for loans in our portfolio at the end of the first quarter and at the end of the second quarter. We found that our dollar-weighted loan-to-value ratio increased slightly from 29.0% to 29.8%. percent our total investment portfolio had a fair value of 1.02 billion dollars an increase of 2.1 percent from 1 billion dollars in the first quarter of 2025 our loan portfolio is comprised of 97 floating rate assets to reiterate we have structured our portfolio to be comprised almost exclusively of first lien senior secured loans reflecting our focus on risk mitigation and the diligence with which we manage our investments as david mentioned we faced a muted operating environment in the second quarter but we're pleased to see consistent origination activity and leverage turning now to our outlook on the market as we discussed on our first quarter 2025 earnings call amidst a strained deal environment we've observed a fundamental shift among venture backed companies who we believe are compelled to demonstrate growth in order to attract investment or achieve a successful exit. Despite some encouraging signs of life in the IPO market, we do not expect a significant increase in M&A for our target sectors for the balance of the year. The management teams we are speaking with today are prepared for an exit, whether that's an IPO or M&A, but have the flexibility to be selective due to their ongoing strong financial performance. This ties back to our focus on the highest quality late and growth stage companies within technology, healthcare, and select consumer products and services industries. We believe our investors benefit from exposure to the venture ecosystem through a portfolio of assets at the top of the capital stack. Taking a closer look at the BDC sector and venture debt in particular, the market continues to navigate the ongoing headwinds of constrained equity allocations. Additionally, as exits halted in the aftermath of tariff announcements during the second quarter, companies are focusing on preserving optionality to safeguard against macro turbulence. According to PitchBook's latest Venture Monitor report, companies are opting for larger raises to extend runway and defer fundraising in an increasingly competitive environment. As we've observed in prior quarters, fundraising momentum in the second quarter was concentrated among select AI deals, with PitchBook reporting that AI represented 64% and 36% of first half of 2025 deal value and count respectively. We believe this will remain the state of play in the coming quarters, but we are confident in the pipeline we are building. Further, our fundamental investment philosophy continues to generate consistent originations as we focus on portfolio optimization. With the backing of a world-class platform in BC Partners, our combined deal teams are positioned to execute on opportunities that meet our high credit bar and offer purposeful diversification for the benefit of shareholders. Now, I want to turn the call over to Tom to share more on financial results.

Tom Raterman, CFO

Thanks, Greg, and good evening, everyone. we generated total investment income of $35.1 million and net investment income of $13.9 million in the second quarter of 2025, a decrease compared to $35.4 million and $15.6 million in the first quarter of 2025. Our overall decrease can be attributed to increased interest expense and the acceleration of certain deferred financing costs associated with the refinancing of our senior unsecured notes, which was required as a result of the BC Partners transaction with our advisor. Importantly, on a per share basis, we delivered $0.38 of NII in the second quarter, which covered our base dividend. Our debt portfolio generated a dollar-weighted average annualized yield of 15.4% for the second quarter of 2025, holding flat quarter over quarter and increasing from 15.1% for the comparable period last year. Moving to our expenses, total operating expenses were $21.2 million for the second quarter of 2025, an increase from $19.8 million for the first quarter of 2025. We recorded a net realized loss on investments of $1.5 million in the second quarter of 2025 compared to a net realized gain on investments of $6.1 million in the first quarter of 2025. During the second quarter, we experienced one prepayment totaling $25 million and scheduled amortization of $4.2 million. As of June 30, 2025, we had only one loan on non-accrual status to mingle health care. This loan has a cost basis of $4.8 million and fair market value of $2.4 million, or 50% of cost, representing just 0.2% of the total investment portfolio at fair value as of June 30, 2025. We'd like to recognize that Mingle is making cash interest payments on its loan. We're confident that our thoughtful portfolio management and ability to address potential issues that may arise, combined with our ongoing commitment to supporting borrowers throughout the entire loan life cycle, will enable us to achieve beneficial outcomes for all parties involved. As of June 30th, 2025, Runway had net assets of $498.9 million, decreasing from $503.3 million at the end of the first quarter of 2025. NAB for share was $13.66 at the end of the second quarter, an increase of 1.3 percent compared to $13.48 at the end of the first quarter of 2025. At the end of the second quarter of 2025, our leverage ratio and asset coverage were 1.05 and 1.95 times respectively, compared to 0.99 and 2.01 times respectively at the end of the first quarter of 2025. As of June 30, 2025, our total available liquidity was $297 million, including unrestricted cash and cash equivalents. We had borrowing capacity of $291 million. As previously discussed, during the second quarter, we restructured our privately placed senior unsecured notes as a result of the triggering of the change in control provision applicable to the company's external advisor. This required us to make an offer to repurchase our senior unsecured notes, resulting in a prepayment of the August 2027 notes, along with an exchange and upsize of our December 2026 notes. Our total unsecured notes, excluding baby bonds, increased from $115 million to $132 million. As of June 30, 2025, we had a total of $164.9 million in unfunded commitments, which was comprised of $135.5 million to provide debt financing to our portfolio companies and $29.4 million to provide equity financing to our JV with CADMA. approximately 35.7 million of our unfunded debt commitments are eligible to be drawn based on achieved milestones we continue to believe we have sufficient liquidity to support existing unfunded commitments selective portfolio growth and potential share repurchases on may 7th 2025 our board of directors approved a new stock repurchase program of 25 million which will expire on May 7, 2026, or earlier if we repurchase the total amount of the stock authorized for repurchase under the program. During the second quarter, we repurchased 815,408 shares. Finally, on August 6, 2025, our Board of Directors declared total distributions for the third quarter of $0.36 per share, comprised of a $0.33 regular dividend and a $0.03 supplemental dividend. We continue to believe Runway presents a great opportunity for prospective investors that are seeking exposure to a high-quality venture and growth lending portfolio with attractive yield characteristics. Management has deep conviction that Runway offers the right combination of excellent credit quality, institutional scale, and a clear opportunity for equity upside in the quarters to come. With that, Operator, please open the line for questions.

Operator

Thank you. To ask a question, please press star 1-1 on your telephone and wait for your name to be announced. If your question has been answered, to withdraw, you would please press star 1-1 again. And the first question will come from Doug Harder with UBS. Your line is open.

Corey Johnson, Analyst — UBS

All right. Thank you. This is actually Corey Johnson on tour, Doug. So I had a question. So, you know, non-accruals have been pretty – they're very low. But I noticed that, I guess, PIC as a percent of the, you know, total investment income has been increasing over, you know, the last several quarters. I just wanted to know, like, how much of that is sort of, like, force pick versus perhaps, like, just companies using that optionality. I think, you know, earlier you sort of mentioned that companies are sort of preparing for, like, possible, like, downturn or difficult situation. So I just want to see how much of that might be just related to optionality versus being forced into pick.

Tom Raterman, CFO

So the PIC is, we use it in our portfolio, is really, as you know, for two reasons. One, we use it for offensive and secondly, for defensive reasons. So we'll use it to help get ahead of an issue that a borrower might have from a short-term cash flow perspective. But we'll also use it to help win transactions. And as rates have remained relatively high for a period of time, we've seen more transactions were baked in up front, there was some interim period of PIC, and we had one loan in the fourth quarter that we closed on that has that PIC provision,

Greg Greifeld, CEO

and that's really the change there. Yeah, I would add to that, to really echo what Tom said, it's something that we, you know, folks typically think of it from a defect defensive perspective in terms of supporting your portfolio. But, you know, as we look not only in terms of keeping deals in our portfolio, but also ability to win new deals, it's definitely a tool we have in our toolkit and something we try to use judiciously, but definitely something that we try to do to either keep the best loans in our portfolio or win new deals. Great. Thanks. And just one final

Corey Johnson, Analyst — UBS

question um and just uh in regards to the share repurchase um just wondering like you know how do you think that um your repurchase program might play out um from here going going forward over the next few quarters um do you plan on you know being more aggressive with it or is it sort of just like programmatic depending on where the um with the stock price is at well when we establish

Tom Raterman, CFO

the the execution plan for the share repurchase program we do it through a 10b51 and we set up a rubric that's based on where the stock trades is as a percent of NAV. So we really don't obviously disclose those marks. But to answer your question directly, we use it more aggressively at a higher discount to NAV because it's more accretive. And we use it less aggressively when that discount diminishes. Great. Thank you. And the next question will come from Melissa

Operator

Whittle with J.P. Morgan. Your line is open. Good afternoon. Thanks for taking my questions today.

Melissa Whittle, Analyst — J.P. Morgan

First one, I wanted to touch on some of the refinancing that was done and changes to facilities during the quarter. I apologize if I missed it. Were there any sort of one-time costs associated with that that we should be aware of yeah thanks for the

Tom Raterman, CFO

question Melissa and it's a good one so in the quarter itself in Q2 we had about four cents a share that was related to increased interest expense about a penny and a half of that four cents was one-time costs associated with the acceleration of the deferred financing costs on the existing secured notes, and then about two and a half cents is really an ongoing increase to interest expense related to taking out four and a quarter percent notes with seven, you know, plus percent

Melissa Whittle, Analyst — J.P. Morgan

Okay, great. That's very helpful. Wanted to also go back to your comment about, I believe it was 35 million of unfunded commitments that are eligible to be drawn based on certain milestones that have been achieved. I'm sure this varies over time, but in an environment like this one, how much of that $35 million might you expect to be drawn down, and how quickly might that happen?

Tom Raterman, CFO

It obviously depends on the economic environment, but the performance of the companies are pretty good, And those milestones are achieved usually because the companies are performing at or above plan, which oftentimes means that they're generating more cash or they've crossed into that cash flow positive territory. So it does somewhat reduce the chance that it'll be drawn. But I would say historically, it's probably about 50-50. We've looked at the amount of unused commitments that expire without use, and it's a pretty significant number. It's over 50%.

Greg Greifeld, CEO

And I just tack onto that to take a moment to highlight the quality of the credits in the book. You know, as we said, the rating remains pretty static, which, you know, we feel good about it. and the number of companies that are eligible to draw based on the milestones is a good percentage.

Melissa Whittle, Analyst — J.P. Morgan

It did jump out a little bit at me that that might be the case. Just related to that, if I'll tack on one more question, you mentioned a few post-quarter end deals that have been announced previously, and then I think you added some today. In terms of repayment activity, is there anything that you have line of sight on that we should be aware of for 3Q? Thanks so much.

Tom Raterman, CFO

Thanks, Melissa, and that's a great question. So, I think as we look ahead into Q3, we believe we've got line of sight into, you know, slightly elevated level of repayments in Q3 that will benefit NII for the quarter. Now, that benefit next quarter will, you know, offset the portion of that, if not all, the negative recurring impact of the increased interest expense, the increase in weighted average cost of debt from those April 28 notes. Now, in subsequent quarters, you know, we'll work to continue to originate additional opportunities and replace those anticipated repayments. Now, that could cause NII to come down in the near term in fourth quarter. And so if you link that back to what we talked about in Q1 and our dividend policy and the planning that we went through around optimizing the book and, you know, perspective interest rate changes, that's really one of the reasons why we reset that dividend to the 33 cent base and how we did the, you know, did the support to determine that base. I think the important thing is we understand and value the importance of delivering consistency of earnings and letting you know where we think they're going to be, and we're working hard to replace those assets that we see coming off the books, and we've got a great capital allocation plan in place, and it's going to cover our base dividend.

Melissa Whittle, Analyst — J.P. Morgan

Very helpful. Thank you.

Operator

And our next question will come from Casey Alexander with Compass Point Research. Your line is open.

Tom Raterman, CFO

Yeah. First of all, I'd like to state how much I'm sure shareholders appreciate the depth of the share repurchase program.

Greg Greifeld, CEO

That was great to see. I know you guys got locked out of the market in the first quarter. In reference to the new originations, particularly to the two new portfolio companies, were either of those larger deals that you shared with the BC platform, or did you take all of those? Because I know that part of the intent of merging with the BC platform was the ability to do larger loans and cut them up. Yeah, thanks, Casey. So the two deals that we announced that were done last quarter, AutoBooks and Swing, those were done exclusively in the BDC. However, the two deals that we announced as subsequent events were portions of larger deals run by BC. So to your point, we're actively keyed into BC's pipeline. We are keenly aware of what does and doesn't fit the mandate of the R-Way vehicle, and we're going to make sure that we get the appropriate allocations of those deals that do fit, as you've seen with these two appropriately sized slugs of deals that happened at subsequent events.

Sean-Paul Adams, Analyst — B. Riley Securities

Okay, great. Thanks. That's my only question. Thank you.

Operator

And our next question will come from Mickey Schleen with ClearStreet. Your line is open.

Mickey Schleien, Analyst — ClearStreet

Yes, good afternoon, everyone. When I look at page 7 of the presentation, it looks like first-half deal flow this year implies a very strong year if we were just to annualize it. But in your preparing remarks, you sounded pretty cautious. Could you help reconcile that for us?

Greg Greifeld, CEO

Yeah, I think that we, in general, feel that the environment is a bit of a mixed bag. There's definitely a good amount of flow out there, but we've been very consistent over the last few quarters, if not years, that we're going to highlight quality more than anything else. So, you know, as you've seen with the four deals that we talked about here, you know, two of which were, as Casey asked, direct deals, and then two were part of the broader BC platform. I think another point, too, just to get everyone on the same page, is diversification is a big theme in terms of our investment outlook and thesis for the next couple of quarters. So, you know, a deal like Swing, definitely on the smaller size relative to the overall portfolio. But, you know, as I said in the prepared remarks, a big reason that we like it is, you know, it's an additional name at a bit of a smaller bite size today, so it helps get us to diversification. But also, you know, $8 million funded of a $20 million overall facility, it allows us to grow our exposure as the company grows and make sure that we have the right loan to the company at the right point in its growth cycle. If I could follow up, is AI also skewing

Mickey Schleien, Analyst — ClearStreet

the numbers that we're looking at in that pitch book data in the sense that there might be some very large AI deals in there that make it look stronger than it actually is? Without a doubt,

Greg Greifeld, CEO

I think that's a big thesis, not only in the venture debt, but the venture equity market. You know, AI is a sector, as with everything else, that we continue to evaluate. But, you know, I would say since we typically play in the latest stage of the venture and growth market, you know, those opportunities might be a couple of years away from being a meaningful part of our book.

Mickey Schleien, Analyst — ClearStreet

I understand that's helpful. My last question relates to the consumer sector. Obviously, the consumer, at least parts of the consumer segment in the U.S., has been pretty challenged this year. And 20% of your portfolio is in that sector. I think it would be a good time to remind us, you know, how do you approach making investments in that sector, which, you know, help reduce its inherent risk and cyclicality?

Greg Greifeld, CEO

Yeah, without a doubt. And I'll take a quick second to remind everyone that we really focus on three main sectors, technology broadly, health care, as well as consumer. And to your point, you know, as we enter and exit different macro environments, we're going to see the allocation between those three sectors shift. You know, this is a market where we're probably focused less on consumer relative to the other two legs of that stool. But I also would like to take a moment to remind everyone that we do like consumer, but the companies that we target are much bigger in terms of scale. We're talking $100 million-plus revenue businesses, real proven track record of why they have a reason to exist, as well as much less tolerance for burn or path to profitability than we might see in technology. So I think that's, you know, while we say, you know, we have the three sectors, as you highlighted, consumers about 20% of the book today, I would say that in this market, it's not a sector that we're trying to expand our position in, but, you know, that's today and tomorrow could be a different situation.

Mickey Schleien, Analyst — ClearStreet

I understand that. That's helpful as well. I appreciate your time this afternoon.

Operator

And the next question will come from Eric Zwick with Lucid Capital Markets.

Sean-Paul Adams, Analyst — B. Riley Securities

your line is open. Thanks. Good afternoon, everyone. Can you just provide an update on the CADMA JV if there's been any new developments there in the last three months or so?

Tom Raterman, CFO

Yeah, the CADMA JV is in place. It is ramping up. We expect to see additional transactions in it between now and the end of the year. It's a good relationship and one that each of us value. At the same time, we've been certainly judicious in our underwriting approach, and so that reduces the opportunities that would potentially go into the JV. But it will probably be a few additional quarters before we start seeing the benefits from an ROE perspective of that JV.

Sean-Paul Adams, Analyst — B. Riley Securities

Thanks. And with regard to the new products that you're offering now, just curious if you could provide any detail into which ones are receiving positive market reaction or the ones that you have had some originations on so far.

Greg Greifeld, CEO

Yeah, I'd say the short good answer is all of the products that we're rolling out are well received by the market. And, you know, we've already done a structured second lien, which could be called, you know, a structured equity investment. You know, as I said in the prepared remarks, we've just done a revolver. You know, this is something where I think is really part of the product expansion and benefit for being part of the broader BC Partners platform. You know, it's not necessarily that, you know, we can't evaluate these businesses. It's just that we're able to lean on their expertise and structuring and administering these newer types of products. And, you know, it definitely is the kind of thing where, you know, you have to, you know, plant the seeds in order to harvest the hay in coming quarters. So it is a bit of a new, I would say, marketing effort where, you know, we're calling the same companies and sponsors that we know and letting them know that our product suite has expanded where now we can do revolvers, we can obviously still do first lien senior secured, we can do second lien, we can do a structured equity, you know, we can do equipment financing. And that's not to say that all of that will be, you know, largely placed in the BDC, but it's definitely a virtuous cycle in terms of more points of call on the same relationships and companies and sponsors. Last one for me, just as I've listened to some

Sean-Paul Adams, Analyst — B. Riley Securities

commentary for some middle market BDCs over the past week, we're hearing that M&A is coming back and, you know, starting to see some activity there. Your comments earlier indicated that you're not really expecting an increase here in the venture market here in the second half of 25. Yeah, so just kind of curious from your seat, from your perspective, you know, why maybe it's a little bit slower for M&A to pick up here in the venture market.

Greg Greifeld, CEO

Yeah, and I think, you know, it's a theme that we've highlighted the past couple quarters in terms of when you look at what technology, healthcare, and just venture-backed companies in general have done over the past two or three years, you know, as that venture cycle has slowed down and equity has become less free-flowing than it was, you know, the couple years right after COVID, companies really had to survive and cut burn. And with cutting burn, they cut growth as well. I think now you're starting to see the green shoots not only in terms of opportunities for their sales teams, but also opportunities in terms of additional capital to fund growth. And with those opportunities, I think you're seeing boards that might have been, you know, tired and looking for an exit, you know, even as recently as the end of last year, now see a sense of reinvigoration where they think that there's opportunities for these companies to return to growth. And with that return to growth, they see an opportunity for meaningful increase in exit value. So I think that it's actually a bit of a positive for us where we're seeing less M&A because we're seeing companies look at organic growth, feel confident enough to continue the GOAT alone plan. And I'd also highlight the IPO market, you know, particularly the success of the Figma IPO. You know, people typically think of IPOs as a source of repayment for us. That's typically not the case. You know, as you look at use of proceeds for an IPO, de-leveraging is not typically the best use of inexpensive equity raise for these growth stage businesses. And if anything, similar to what we saw with the SPAC boom, where companies are trying to tie as large of a capital raise as possible together, we do believe that if the IPO window remains open, it's an opportunity for us and other venture lenders to tack on debt raises in combination with those IPOs that's great color thanks for taking my

Operator

questions as a reminder to ask a question please press star one one on your telephone the next question comes from Sean Paul Adams with B Raleigh securities your line is open hey guys good afternoon as a quick follow-up on

Sean-Paul Adams, Analyst — B. Riley Securities

that last question it seems that there's been a couple successive quarters of net portfolio contraction, at least at cost. And you guys mentioned some elevated repayments post-quarter end. Are you looking at the first half of 2026 as the potential time for a turnaround

Tom Raterman, CFO

for larger growth targets? It will take a little time. I do think our outlook is generally brighter for 2026 than it is for the second half of 2025. You know, importantly for us, it's about portfolio optimization right now and that means right-sizing the bite size for the BDC. It means introducing new products, diversifying with products, and it means using our dry powder, which we're comfortable with the amount of dry powder we have judiciously. So do we expect the pipeline will increase over the next several quarters? Yes, it typically increases in fourth quarter, and then you tend to have some cleanup in first quarter, and then it builds back into second quarter, and then soft third quarter, and then another strong. But we do expect to see the benefits of that portfolio optimization and the benefits of what we're doing on the origination side in terms of bringing additional growth into the portfolio. I mean, we're quite comfortable with where we're at now. We have the ability to cover our base dividend. We have good core earnings, So we don't feel pressured to return to growth in what could be deemed, you know, too quick or too reckless of a manner or to jump in too soon.

Greg Greifeld, CEO

Yeah, and I'll just add to that really quick. I do want to underscore that we're definitely comfortable where we are and with the pipeline. And I think to say optimization slightly differently in terms of diversification, you know, we have had a couple loans that are $70 million plus. And as we think about diversification, you know, as those do roll off, we're not going to replace them with other positions of that same size. So, you know, there could be a couple quarter lag in terms of replacing one $75 million loan with three loans. But to echo Tom's point, we're very comfortable where we are. We think that we're in a good place in terms of coverage of the dividend. And just really the theme, and I hope a key takeaway, is that we're trying to optimize and diversify the portfolio.

Sean-Paul Adams, Analyst — B. Riley Securities

Understood. Thank you for the clarity. I appreciate it.

Operator

I show no further questions at this time. I will now turn the call back over to David Spring for closing remarks.

David Spreng, CEO

Thank you, Operator. Our management team is excited to meet with investors in the coming weeks, and we encourage you to reach out to our investor relations team if you're interested in connecting. We look forward to updating you on our strategic progress during our third quarter 2025 earnings call in November.

Operator

This concludes today's conference call, and thank you for participating. You may now disconnect.