INTRODUCTION

We’re going to join in the ever growing debate about Artificial Intelligence (AI) in one tiny corner of the financial world that affects BDC analysis: earnings conference call summaries. Seeking Alpha – amongst others – has begin to publish “AI-Generated Earnings Calls Insights“. These are relatively short summaries of what was discussed on a conference call, including both management’s prepared remarks and the Q&A session that typically follows. Included in the Insights is “sentiment analysis” which seeks to paint a picture of both management and the analysts tone.

We’re both intrigued and worried by these AI summaries. In regards to the former, we like the idea that we can cover a great deal of ground in a short summary. A 30 minute conference call can be encapsulated in a summary that only a few minutes to read, or listen to. When you’re reviewing 200 or so conference calls a year – as is the case with the BDC Reporter – that promise of time saved is enticing.

However, our other forays into BDC research using AI have often left us underwhelmed. The responses generated from our queries are usually too wordy, un-focused and – worst of all – sometimes factually incorrect. As a result, we rarely jump onto to Perplexity or any of the other AI platforms when undertaking our research nor are any of our articles in any way using this technology.

Nonetheless, we keep an open mind and – at first blush – the “AI-Generated Earnings Calls Insights” we’ve read have seemed to be useful and accurate. We decided to dig a little deeper and undertake a comparison of an actual recent earnings conference call and its briefer Insights summary. Randomly, we chose Runway Growth’s (RWAY) IVQ 2024 earnings conference call, which occurred on March 20, 2024.

SOURCE MATERIAL

Here is a link to the full transcript as published on Seeking Alpha, which includes an audio file that lasts 41 minutes.

Below is the full text of the AI-Generated Earnings Calls Insights to compare against:

Management View

• CEO David Spreng highlighted the transformative impact of the acquisition of Runway Growth Capital by BC Partners Credit, which now manages over $10 billion in assets. He emphasized that the integration would enhance origination channels, expand product offerings, and accelerate pipeline growth while maintaining strategic focus on a $20 million to $45 million allocation range for the BDC.
• The company recorded total investment income of $33.8 million and net investment income of $14.6 million for the quarter. Spreng noted, “We remain focused on a credit-first investment philosophy and disciplined underwriting practices.”
• CFO Tom Raterman reported that the company’s NAV per share increased to $13.79, up 3% sequentially. He also highlighted a weighted average portfolio risk rating decrease to 2.33 from 2.48 in the previous quarter, reflecting improved credit quality.
• CIO Greg Greifeld detailed the benefits of the BC Partners platform, mentioning larger deal participation and examples such as the VertexOne transaction, which provided $131 million in growth capital, with $41 million allocated to the BDC.

Outlook

• CEO Spreng mentioned plans to grow originations in the total loan size range of $30 million to $150 million, with an ideal BDC allocation of $20 million to $45 million. He stated that this strategy aims to diversify the portfolio and mitigate risks.
• The company is optimistic about the venture debt market’s growth, citing a 2024 deal value increase to over $53 billion, supported by trends in AI-related financings.

Financial Results

• Investment income for Q4 2024 was $33.8 million, compared to $36.7 million in Q3 2024. Net investment income stood at $14.6 million.
• The total portfolio fair value was $1.08 billion at year-end, up from $1.07 billion in the prior quarter. Two loans, Mingle Healthcare and Snagajob, remained on non-accrual status, with minimal impact on the portfolio.
• Operating expenses decreased to $19.2 million from $20.8 million in the prior quarter.
• The company experienced $152.6 million in principal prepayments, a significant increase from $75 million in Q3 2024, which CFO Raterman attributed to strong underwriting and portfolio health.

Q&A

• Casey Alexander, Compass Point Research & Trading: Questioned the lower originations in Q1 2025 so far. CIO Greg Greifeld responded that originations are often back-ended and ongoing discussions with companies could push deals into the next quarter.
• Finian O’Shea, Wells Fargo: Asked about the impact of Fed rate cuts on portfolio yields. CFO Raterman explained that recent reductions in accounting yield were due to lower prepayment fees and base rate adjustments, emphasizing stability in the short term.
• Melissa Wedel, JPMorgan: Inquired about expanded origination opportunities under BC Partners. CIO Greifeld highlighted the ability to structure more complex instruments, including revolvers and second-lien deals, while maintaining return targets.

Sentiment Analysis

• Analysts exhibited cautious optimism, focusing on origination trends and the dividend adjustment. Questions reflected interest in the strategic benefits of the BC Partners acquisition and near-term financial impacts.
• Management maintained a confident tone, emphasizing the strategic alignment with BC Partners, strong credit quality, and disciplined underwriting as key strengths.
• Compared to Q3 2024, management’s tone was more forward-looking and focused on opportunities for scaling and diversification under the new partnership.

Quarter-over-Quarter Comparison

• Investment income decreased from $36.7 million in Q3 to $33.8 million in Q4, while NAV per share grew by 3%.
• Portfolio risk rating improved, moving from 2.48 to 2.33, indicative of better credit quality.
• Principal prepayments nearly doubled, highlighting enhanced portfolio activity.
• The strategic focus shifted further towards leveraging BC Partners’ platform for expanded deal flow and diversification.

Risks and Concerns

• Management acknowledged macroeconomic uncertainties, including evolving interest rate trends and regulatory changes, as potential factors influencing portfolio performance.
• Two non-accrual loans, Mingle Healthcare and Snagajob, were highlighted as representing a minimal portion of the portfolio; management outlined plans to preserve NAV.
• Analysts raised questions about the sustainability of originations and dividend adjustments under the new BC Partners framework.

Final Takeaway

Runway Growth Finance Corp. emphasized its strategic alignment with BC Partners, leveraging the expanded platform to diversify its portfolio and improve deal flow. Despite a slight dip in investment income, the company demonstrated strong credit quality enhancements and maintained a disciplined approach to underwriting. Management’s forward-looking focus on venture debt opportunities and portfolio growth positions the company for continued value creation in 2025.

ANALYSIS

Back And Forth

We spent a good deal of time comparing the longer and shorter versions of the two documents and occasionally dipped into the 10K – which was published contemporaneously – to check for accuracy and to better understand what was being discussed and summarized.

Always Look On The Bright Side

Here are our main positive findings:

Factual Accuracy: About two dozen metrics are quoted in the Summary and all were correct. Moreover, the AI properly represented which analysts asked what questions and which RWAY manager responded. This is Job 1 of journalism and the Summary performed as one would have hoped.

Sentiment Accuracy: The Summary also did a good job in getting the tone adopted by the participants on the conference call right, even though that might be in the ear of the beholder.

Categorization: The Summary include catch-all categories that are of interest to most readers such as “Outlook”; “Risks & Concerns: and “Final Take-Away”. What was said in each category necessarily mostly reflected what management wanted to emphasize – a reminder that conference calls are as much marketing opportunities as anything else. Nonetheless, the categories used and the conclusions drawn might be helpful to anyone interested in getting a 36,000 foot perspective on what occurred on the call.

Nobody’s Perfect

Nothing in this world is black and white, though, and this is no exception. Here are the less favorable findings:

Missing Key Take-Aways: The problem in any summary is what to keep in and what to leave out. In this case – and in our opinion – there were important omissions in the AI version:

Dividend Cut

BDC investors are very interested in the payouts they will receive both in the short and medium term. In this case, RWAY has been paying out a steady $0.40 quarterly dividend for the last 8 quarters, with equally consistent “”Supplemental” dividends, as this chart from the 10-K shows:

All of that is changing from the IQ 2025:

On March 20, 2025, the Company’s board of directors (the “Board of Directors”) declared a regular quarterly distribution of $0.33 per share and a supplemental distribution of $0.03 per share for the first quarter of 2025, each payable on April 14, 2025, to stockholders of record as of March 31, 2025.

Not only has RWAY reduced its regular distribution by (17.5%) but even the basis for the “Supplemental” has altered:

Subject to Board approval, we expect that going forward, the company will continue to pay a quarterly base dividend of $0.33 per share and a targeted supplemental dividend that we expect will be up to 50% of the delta that our NII per share exceeds the base dividend.

In this regard, RWAY is joining the bandwagon of BDCs setting an arbitrary limit for its regular dividend and using a pre-determined formula for the “Supplemental”. This is a popular – but controversial approach – that reflects the uncertain interest rate and earnings environment and leaves shareholders to guess what their total payout might look like.

There was no mention of the new dividend level or the change in payout policy by the Board in the Summary – an important omission.

There were other items covered in the earnings call that got little or no mention that we thought were important such as the discussion about how many of RWAY’s loans are priced at or above their (very high) floors. Management did not provide a very satisfying answer.

Contradictions: The AI is not very good at highlighting contradictory statements made within the conference call. On the one hand, RWAY was touting the huge increase in the value of VC deals in 2024 over 2023: from $27bn to $53mn, and calling this “we view this growth as a green shoot for the venture debt space writ large”.

Yet, in all of 2024, RWAY’s portfolio at cost dropped slightly in size and only increased by 5% at FMV due to an increase in valuations – mostly from one company. Also, there were only two new portfolio companies booked in the IVQ 2024 and little happening in 2025 to date – as one analyst mentioned.

So is the VC market buoyant – as RWAY’s management suggests – or still stuck in neutral as has been the case for the last 3 years? We ask this question only to point out that the AI does not. The technology can do a great deal but calling out contradictions is beyond its ambit.

Context: The AI – focused as it is on squeezing down the conference call to its most critical nuggets – does nothing to create context. This includes no comparisons of metrics with similar BDCs, or offering up data points from the BDC’s own history. Is a 2.48 portfolio risk rating – as announced this quarter – better, worse or the same as – say – one year ago or three years ago? Yes, NAV Per Share (NAVPS) is up in the IVQ 2024 but what are the longer term trends? The BDC NAV Change Table shows that since 2020 – and this quarter’s NAV boost notwithstanding – NAVPS is down (7%) while Hercules Capital (HTGC) – also a venture debt BDC – is up 4% in the same period and Horizon Technology Finance (HRZN) is down (24%).

CONCLUSION

Whew!

AI is not about to put the BDC Reporter out of business where analysis is concerned and even just the plain reporting of the facts may result in important data being missed by those with an interest in such things.

We would not recommend anyone undertaking their own research to rely too heavily on these summaries either unless one has only a passing interest in the content.

This may not be a popular message but there is no short cut yet available for in-depth BDC analysis on which one can rely to make the right investment decision.

As before – and as always – one has to read all the BDC’s filings, including the entire transcript of the conference call – to get a full picture of strengths, weaknesses and opportunities.

Furthermore – and the reason we launched our sister publication – the BDC Credit Reporter – its important to identify the BDC portfolio companies that might cause credit and income losses down the road – a subject barely touched on during these conference calls.