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RG

Runway Growth Finance Corp. (RWAY)·Q2 2024 Earnings Summary

Executive Summary

  • Q2 2024 total investment income was $34.2M and net investment income was $14.6M ($0.37 per share), down sequentially from Q1 ($40.0M TII, $18.7M NII, $0.46) and year-over-year from Q2 2023 ($41.9M TII, $19.7M NII, $0.49) .
  • Portfolio yield compressed to 15.1% (from 17.4% in Q1), as average earning assets dipped due to early-quarter prepayments; PIK interest declined to 6.8% of interest income (from 10.5% in Q1), signaling improved cash mix .
  • Credit headwinds: net unrealized loss of $6.3M driven largely by a $5.9M markdown on Snagajob; two loans on nonaccrual (Snagajob and Mingle Healthcare) represented 3.1% of portfolio fair value .
  • Capital return and liquidity: Q3 regular dividend maintained at $0.40 with supplemental reduced to $0.05; $15M new buyback authorized; available liquidity $249.8M and core leverage rose to 1.10x (from 0.91x in Q1), with management expecting elevated prepayments and related income ($0.20/share) in 2H 2024, a near-term support for distributions and redeployment .

What Went Well and What Went Wrong

What Went Well

  • Origination momentum: two new investments late in the quarter totaling $75.5M funded (Airship Group $58.4M; ONWARD Medical $17.1M) aligned with focus on high-quality tech and healthcare borrowers; “our pipeline is strong” .
  • Improved cash yield quality: PIK interest share fell to 6.8% from 10.5% Q/Q, while management reiterated confidence in dividend coverage given anticipated prepayment fee inflows and growing deployments .
  • Shareholder returns: maintained base dividend ($0.40) with supplemental for Q3 ($0.05) and reloaded repurchase capacity ($15M); management views buybacks opportunistically when trading at discounts to NAV .

What Went Wrong

  • Earnings pressure: sequential declines in total investment income ($34.2M vs $40.0M) and NII ($14.6M vs $18.7M), and NII/share ($0.37 vs $0.46), largely due to early-quarter prepayment lowering interest income by ~$0.05/share .
  • Credit marks and risk: net unrealized loss of $6.3M chiefly from Snagajob ($5.9M markdown); portfolio risk rating deteriorated to 2.47 from 2.44; loan-to-value rose to 27.3% from 25.8% sequentially .
  • Rising leverage and lower liquidity: leverage increased to ~1.10x (from 0.91x), borrowing capacity fell to $241.0M (from $313.0M in Q1), and NAV/share declined to $13.14 (from $13.36 in Q1) .

Financial Results

MetricQ2 2023Q4 2023Q1 2024Q2 2024
Total Investment Income ($USD Millions)$41.9 $39.2 $40.0 $34.2
Net Investment Income ($USD Millions)$19.7 $18.3 $18.7 $14.6
NII per Share ($)$0.49 N/A$0.46 $0.37
Total Operating Expenses ($USD Millions)$22.2 $20.9 $21.3 $19.6
Portfolio Yield (Dollar-weighted, %)16.7 16.9 17.4 15.1
Net Change in Unrealized Gain/Loss ($USD Millions)+$2.6 -$5.9 -$6.6 -$6.3
Net Increase in Net Assets per Share ($)$0.55 N/A$0.30 $0.21
KPIQ4 2023Q1 2024Q2 2024
PIK Interest % of Total Interest IncomeN/A10.5% 6.8%
Leverage Ratio (Core)0.95x 0.91x ~1.10x
Asset Coverage (x)2.05x 2.09x 1.91x
NAV per Share ($)$13.50 $13.36 $13.14
Total Net Assets ($USD Millions)$547.1 $529.5 $506.4
Available Liquidity ($USD Millions)$281.0 $319.9 $249.8
Borrowing Capacity ($USD Millions)$278.0 $313.0 $241.0
Portfolio CompositionQ1 2024Q2 2024
Total Investments at Fair Value ($USD Millions)$1,016.3 $1,063.3
Term Loans (FV, $USD Millions)$969.6 ~$1,020.0
First Lien % of Term Loans98.5% 98.6%
Warrants & Equity-related ($USD Millions)$46.8 $48.2
Portfolio Companies (Count)53 55
Unfunded Commitments ($USD Millions)$235.8 $254.2
Eligible to be Funded ($USD Millions)$42.0 $42.0
Principal Prepayments ($USD Millions, quarter)$34.4 $25.3
Scheduled Amortization ($USD Millions, quarter)$0.4 $1.3
Loans on Nonaccrual (Count)1 (Mingle, subsequent) 2 (Mingle, Snagajob)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Regular Dividend per ShareQ3 2024$0.40 (Q2 2024) $0.40 Maintained
Supplemental Dividend per ShareQ3 2024$0.07 (Q2 2024) $0.05 Lowered
Prepayment Activity2H 2024Not quantified previously$200M–$300M expected Introduced
Prepayment-Related Income2H 2024Not quantified previously~$0.20/share from fees/accretion Introduced
Leverage TargetNear termOperate ~1.0–1.2x ideally Expect to “come back up” toward ~1.25x Aiming higher
Share Repurchase AuthorizationThrough 2025~$1.5M remaining on $25M program New $15M program approved Raised capacity

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4’23, Q1’24)Current Period (Q2’24)Trend
Macro/higher-for-longer ratesTransitional year; tighter covenants, lower valuations; resilient late-stage activity Rates “higher-for-longer”; borrowers more realistic on terms; covenants improving Improving lender terms
Origination pipeline/selectivityStrong actionable pipeline; JV to broaden sourcing; high credit bar Two new investments; “pipeline is strong”; “thoughtfully accelerate” origination Building selectively
Prepayments/repaymentsElevated Q4 prepayments; expect more in 2024, especially 2H Expect $200M–$300M 2H prepayments; ~$0.20/share income; CloudPay $75M subsequent Elevated near term
Credit quality/nonaccrualsMingle placed on nonaccrual post-Q4 Two nonaccruals (Snagajob, Mingle); $6.3M unrealized loss (Snagajob $5.9M) Deteriorated
Dividend policy/buybacksBase + supplemental maintained; buybacks tied to NAV discount Base maintained; supplemental reduced; $15M buyback approved Cautious but supportive
JV/Cadma & sourcing scaleJV announced; diversify larger late-stage deals JV referenced indirectly via dealflow; continued targeted outreach Expanded funnel

Management Commentary

  • “Heading into the second half of the year our pipeline is strong…we feel confident in our ability to position our shareholders for long-term returns.” — David Spreng, Founder & CEO .
  • “We plan to thoughtfully accelerate origination growth moving forward…confident in our position to deploy capital from our balance sheet and redeploy capital that may come from prepayment activity.” — Greg Greifeld, MD & Deputy CIO .
  • “Deployments are growing, which provides us with line of sight in our ability to cover our dividend distributions in the near term.” — Thomas Raterman, CFO & COO .
  • “For the second half of 2024, we expect probably $200 million to $300 million in prepayments…close to $0.20 a share in income related to prepayment fees and acceleration of accretion.” — Greg Greifeld .

Q&A Highlights

  • Prepayment trajectory: management framed $200M–$300M 2H prepayments, including CloudPay’s $75M repayment; expected elevated prepayment-related income near term, with portfolio rebuild over several quarters .
  • Origination outlook: borrowers more realistic on terms; spreads/covenants improving; Q3 likely modest with back-end weighting as the team remains highly selective amid macro volatility .
  • Capital returns: $15M buyback reloaded; management balances buybacks with dividend continuity and portfolio growth; buyback use calibrated to NAV discount .
  • Dividend stance: prioritize maintaining the base dividend; supplemental continuation desired but paced by originations and spillover income .
  • Leverage: anticipate leverage to drop on prepayments short term with ample dry powder to move back up toward ~1.25x over time .

Estimates Context

  • S&P Global consensus for Q2 2024 EPS and revenue could not be retrieved due to system limits; therefore, a beat/miss comparison versus Wall Street estimates is unavailable at this time. Values retrieved from S&P Global.*
MetricQ2 2024 ConsensusActual
EPS (NII per share)Unavailable*$0.37
Revenue (Total Investment Income)Unavailable*$34.2M

Key Takeaways for Investors

  • Near-term income tailwind: management expects ~$0.20/share from prepayment fees/accretion in 2H 2024, supporting dividends and redeployment; monitor timing and magnitude of repayments .
  • Earnings reset: sequential declines in TII/NII and yield reflect early-quarter prepayments; watch Q3/Q4 origination ramp to offset earnings power erosion .
  • Credit vigilance: two nonaccruals and Snagajob markdown drove unrealized losses; track risk rating (2.47), LTV (27.3%), and any incremental marks that could pressure NAV .
  • Liquidity and leverage: liquidity at $249.8M with leverage ~1.10x; prepayments likely reduce leverage near term and increase redeployment capacity; target leverage back toward ~1.25x over time .
  • Capital return balance: base dividend maintained; supplemental lowered to $0.05; $15M buyback reload provides optionality if shares trade at discounts to NAV .
  • Origination quality over quantity: strong pipeline but cautious underwriting; expect less linear portfolio expansion with focus on covenants and top-of-stack security .
  • Watch subsequent events: CloudPay’s $75M prepayment adds to fee income and redeployment capacity; subsequent portfolio actions could be catalysts .