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RG

Runway Growth Finance Corp. (RWAY)·Q1 2024 Earnings Summary

Executive Summary

  • Q1 2024 total investment income was $40.0M and net investment income (NII) was $18.7M ($0.46 per share), modestly up year over year; NAV per share declined to $13.36 as net unrealized losses rose to $6.6M .
  • Credit remained largely stable but two loans moved to nonaccrual (Mingle Health Care and Snagajob), representing 3.8% of the portfolio at fair value; management emphasized disciplined underwriting and active remediation .
  • Liquidity increased to $319.9M with leverage at 0.91x; Q2 2024 dividends were declared at $0.40 base and $0.07 supplemental, with confidence in coverage via prepayments and spillover income .
  • Cadma JV launched to expand deal sourcing and capacity; management expects origination momentum and lender‑friendly structures in 2H 2024, setting up potential accelerated income from prepayment fees and OID .

What Went Well and What Went Wrong

What Went Well

  • NII per share held steady at $0.46 with total investment income of $40.0M, reflecting resilient earnings power despite market choppiness .
  • Strong liquidity of $319.9M and lower core leverage (0.91x), providing ample dry powder to deploy into higher-quality opportunities and support dividends .
  • Strategic positioning and JV: “We are not a lender of last resort… we aim to preserve our ability to serve the broader portfolio and deliver value for our shareholders through disciplined underwriting” (David Spreng) ; JV with Cadma broadens sourcing and capacity .

What Went Wrong

  • NAV per share decreased to $13.36 (from $13.50 in Q4) primarily due to net unrealized losses of $6.6M; equity and certain debt marks weighed on NAV .
  • Two nonaccruals (Mingle Health Care and Snagajob); Snagajob has uncertain timeline, reflecting sector headwinds and requiring intensive engagement with sponsors and operating partners .
  • Slight deterioration in portfolio risk metrics: weighted average portfolio risk rating rose to 2.44 from 2.39 sequentially, with three investments downgraded one category each .

Financial Results

MetricQ3 2023Q4 2023Q1 2024
Total Investment Income ($USD Millions)$43.8 $39.2 $40.0
Net Investment Income ($USD Millions)$22.0 $18.3 $18.7
NII per Share ($)$0.54 $0.45 $0.46
Dollar-Weighted Annualized Yield on Debt (%)18.3% 16.9% 17.4%
Total Operating Expenses ($USD Millions)$21.7 $20.9 $21.3
Net Realized Gain/(Loss) ($USD Millions)$0.0 $(17.2) $0.0
Net Change in Unrealized Gain/(Loss) ($USD Millions)$(7.2) $(5.9) $(6.6)
NAV per Share ($)$14.08 $13.50 $13.36

KPIs (Q1 2024)

KPIQ1 2024
Available Liquidity ($USD Millions)$319.9
Cash and Equivalents ($USD Millions)$6.9
Borrowing Capacity ($USD Millions)$313.0
Core Leverage Ratio (x)0.91
Asset Coverage (x)2.09
Portfolio Fair Value ($USD Billions)$1.02
Term Loans ($USD Millions)$969.6
Senior Secured Loans (%)98.5%
Warrants & Equity ($USD Millions)$46.8
Prepayments ($USD Millions)$34.4
Scheduled Amortization ($USD Millions)$0.4
NonaccrualsMingle Health Care ($4.3M principal; $3.2M FMV) and Snagajob ($42.3M principal; $35.5M FMV), totaling 3.8% of portfolio FV
Dividends Declared (Q2 2024)Base $0.40; Supplemental $0.07

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Base DividendQ1 2024 → Q2 2024$0.40 per share declared for Q1 2024 $0.40 per share declared for Q2 2024; management prioritizes maintaining base dividend Maintained
Supplemental DividendQ1 2024 → Q2 2024$0.07 per share declared for Q1 2024 $0.07 per share declared for Q2 2024; management aims to maintain through year via spillover and prepayments Maintained
Leverage TargetOngoingRange 0.8x–1.25x; aim to operate 1.0x–1.2x depending on conditions Same; currently at 0.91x; desire to be slightly over 1.0x by year-end without compromising standards Maintained (timing clarified)
Prepayment Activity2024Expected to build significantly in 2H 2024 Timing reiterated: mid- to late Q3 and Q4; expects accelerated income from fees/OID in 2H Maintained (timing specified)
Net Originations Trajectory2024Portfolio flat to slightly up; leverage slightly over 1.0x by year-end subject to credit standards Q2 likely flat/slightly up; momentum in Q3/Q4 to offset prepayments Maintained
Share Repurchase Program2024$25M authorization; no repurchases in Q4 2023 Repurchased ~887k shares in Q1 2024 and 183,702 shares subsequent to quarter end; activity driven by discount to NAV rubric Increased usage

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2023, Q4 2023)Current Period (Q1 2024)Trend
Pipeline & OriginationHealthy pipeline; high underwriting bar (Q3) ; Transitional market; actionable pipeline strong (Q4) “Heightened pipeline activity” with disciplined selectivity; expect acceleration in deal closures; Q2 flat/slightly up, stronger in Q3/Q4 Improving quality; volume steady; timing back-half weighted
Credit Quality & NonaccrualsNo loans on nonaccrual at 12/31/23; Mingle placed on nonaccrual effective 1/1/24 Two nonaccruals (Mingle Health Care, Snagajob); active remediation; timeline uncertain Moderately pressured; proactive management
Interest Rates & StructureLate-stage deals at smaller values; tighter covenants emerging (Q4) “Higher for longer”; structure/covenants improving on tech side; floors intact; rate sensitivity slide removed Stabilizing rate environment; better lender terms
Capital & LeverageLow leverage; dry powder; desire to operate 1.0x–1.2x Leverage 0.91x; target range reiterated; maintain dry powder Conservative near-term; aim modestly higher later
Dividends & BuybacksBase and supplemental maintained; no Q4 buybacks Q2 dividends declared; confidence in coverage via spillover/prepayments; stepped-up buybacks based on NAV discount rubric Supportive distributions; opportunistic buybacks
JV & SourcingJV announced post-Q4 with Cadma/Apollo; $70M equity, financing to ~$200M JV operational; expected incremental deal flow; allocation to optimize revolver and diversification Enhancing origination channels and capacity

Management Commentary

  • “We are not a lender of last resort… we aim to preserve our ability to serve the broader portfolio and deliver value for our shareholders through disciplined underwriting” – David Spreng .
  • “We believe runway’s value proposition amid the current market backdrop remains clear. Companies will continue to seek minimally dilutive capital…” – Greg Greifeld .
  • “We remain confident… low levels of nonaccruals coupled with generally healthy credit performance. As of March 31, 2024, we had 2 loans on nonaccrual status.” – Thomas Raterman .
  • “Second quarter will be closer to net originations flat, maybe slightly up… flywheel building into quarters 3 and 4 with greater net origination… expect accelerated income… prepayment fees and some OID in Q3 and Q4.” – Thomas Raterman .
  • “Ideally, we want to operate between 1 and 1.2 [times leverage]… when uncertainty rises, we want to be at the lower end to leave dry powder.” – David Spreng .

Q&A Highlights

  • Pipeline visibility and timing: management expects deal acceleration and lender‑friendly structures, with Q3/Q4 stronger origination and accelerated income from prepayment fees/OID .
  • Nonaccruals: Snagajob remediation is fluid with multiple potential paths; timeline uncertain; active involvement with sponsors and operating partners; Mingle on nonaccrual at quarter end .
  • JV rationale: capacity for larger later-stage holds while maintaining BDC diversification; initial $35M equity from each partner, financing to ~$200M; enhances sourcing and capital access .
  • Dividend coverage and buybacks: confident in maintaining base and supplemental dividends via spillover/prepayments; repurchases guided by NAV discount rubric; continued usage if discount is deep .
  • Leverage philosophy: operate 1.0x–1.2x in robust conditions; remain lower when uncertainty is higher; dry powder prioritized .

Estimates Context

  • Wall Street consensus via S&P Global for Q1 2024 EPS and revenue was unavailable due to data access limitations at time of retrieval; therefore, beat/miss versus estimates cannot be assessed. Values retrieved from S&P Global were not available due to request limits.
  • Given management’s expectation of elevated prepayment fees and origination momentum in 2H 2024, future quarters (Q3/Q4) may see estimate revisions for NII and total investment income as accelerated income materializes .

Key Takeaways for Investors

  • Earnings resilient: $40.0M TII and $18.7M NII ($0.46/sh) underscore stable earnings power amid a choppy venture backdrop .
  • Credit watchlist manageable: two nonaccruals (3.8% of FV); active remediation and strict underwriting should limit contagion risk .
  • Balance sheet optionality: $319.9M liquidity and 0.91x leverage provide capacity to lean into lender‑friendly structures and support dividends .
  • Distributions supported: Q2 base and supplemental declared; management points to spillover and prepayment fees as coverage pillars .
  • Cadma JV enhances origination and capacity for larger late‑stage loans, optimizing revolver usage and diversification .
  • Setup for 2H catalysts: prepayment activity and back-half origination could drive accelerated income and narrative strength into Q3/Q4 .
  • Execution focus: management reiterates selectivity and covenant discipline, prioritizing durable ROE and NAV protection over near-term growth .

Appendix: Additional Context from Prior Two Quarters

  • Q4 2023: TII $39.2M, NII $18.3M ($0.45/sh), NAV $13.50; realized loss $(17.2)M and unrealized loss $(5.9)M; liquidity $281.0M; leverage 0.95x; Mingle placed on nonaccrual effective Jan 1, 2024 .
  • Q3 2023: TII $43.8M, NII $22.0M ($0.54/sh), NAV $14.08; yield 18.3%; liquidity $311.9M; leverage 0.79x .