RWAY.NASDAQRunway Growth Finance CORP

10-Q: Runway Growth Finance Corp. Reports Third Quarter 2024 Results

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Quarterly Report

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Runway Growth Finance Corp. reports a net increase in net assets resulting from operations of $45.4 million for the nine months ended September 30, 2024.

Worse than expectedThe company's net investment income decreased for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 primarily due to a decrease in investment income related to the decrease in the average outstanding principal on interest-earning debt investments, falling interest rates, and our loans to Snagajob, Inc., and Mingle Healthcare Solutions, Inc. moving to non-accrual status.

Summary

  • Runway Growth Finance Corp. reported a net increase in net assets resulting from operations of $45.4 million for the nine months ended September 30, 2024.
  • The company's investment portfolio was valued at $1,066.1 million, excluding U.S. Treasury Bills, as of September 30, 2024.
  • The company's net asset value per share was $13.39 as of September 30, 2024.
  • The company's total investment income for the nine months ended September 30, 2024 was $110.9 million.
  • The company's total operating expenses for the nine months ended September 30, 2024 were $61.7 million.
  • The company's net investment income for the nine months ended September 30, 2024 was $49.1 million.
  • The company's net realized and unrealized loss on investments for the nine months ended September 30, 2024 was $3.7 million.
  • The company's weighted average cost of debt was 8.91% for the nine months ended September 30, 2024.
  • The company's portfolio turnover rate was 14.20% for the nine months ended September 30, 2024.

Sentiment

Score: 5

Explanation: The document presents a mixed picture with some positive aspects like the size of the investment portfolio and net assets, but also negative aspects like the decrease in net investment income and net realized and unrealized loss on investments. The overall sentiment is neutral to slightly negative.

Positives

  • The company's investment portfolio was valued at $1,066.1 million, excluding U.S. Treasury Bills, as of September 30, 2024.
  • The company's net assets totaled $507.4 million as of September 30, 2024.

Negatives

  • The company's net realized and unrealized loss on investments for the nine months ended September 30, 2024 was $3.7 million.
  • The company's net investment income decreased for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 primarily due to a decrease in investment income related to the decrease in the average outstanding principal on interest-earning debt investments, falling interest rates, and our loans to Snagajob, Inc., and Mingle Healthcare Solutions, Inc. moving to non-accrual status.

Risks

  • The company's investments may not have a readily available market price, and the fair value of these investments may fluctuate from period to period.
  • Changes in interest rates may affect both the company's cost of funding and its interest income from portfolio investments.
  • The company is subject to credit risk to the extent that any financial institution with which it conducts business is unable to fulfill contractual obligations on its behalf.
  • The company is subject to credit risk to the extent that any portfolio company fails to perform according to the terms of their loan agreement.

Future Outlook

The Company intends to continue to operate in order to generate cash flows from operations, including income earned from investments in our portfolio companies. Our primary use of funds will be investments in portfolio companies and cash distributions to holders of our common stock.

Industry Context

The company operates in the specialty finance sector, providing senior secured loans to high-growth potential companies in technology, healthcare, business services, financial services, select consumer services and products and other high-growth industries. The company's performance is influenced by factors such as interest rate fluctuations, economic conditions, and the performance of its portfolio companies.

Comparison to Industry Standards

  • The company's weighted average cost of debt of 8.91% for the nine months ended September 30, 2024 is within the range of other BDCs with similar investment strategies.
  • The company's portfolio turnover rate of 14.20% for the nine months ended September 30, 2024 is relatively low compared to other BDCs with more active trading strategies.
  • The company's net investment income of $49.1 million for the nine months ended September 30, 2024 is comparable to other BDCs with similar asset sizes and investment strategies.

Related Party Transactions

  • The Company has entered into a joint venture agreement with Cadma Capital Partners LLC to create and co-manage Runway-Cadma I LLC.
  • The Company has entered into a license agreement with RGC pursuant to which RGC has granted the Company a personal, non-exclusive, royalty-free right and license to use the name Runway Growth Finance.
  • The Company reimburses the Administrator for the allocable portion of overhead expenses incurred by the Administrator in performing its obligations under the amended and restated administration agreement with the Administrator.

Stakeholder Impact

  • Stockholders may be impacted by the decrease in net investment income and net realized and unrealized loss on investments.
  • Stockholders may be impacted by the change in the investment advisory agreement with RGC.
  • Portfolio companies may be impacted by the company's investment decisions and funding commitments.

Next Steps

  • The Company will seek stockholder approval of the New Advisory Agreement at a special meeting planned for December 13, 2024.
  • The Company will continue to monitor its portfolio companies and make investment decisions based on market conditions and company performance.

Key Dates

DateDescription
August 31, 2015Runway Growth Finance Corp. was formed.
December 15, 2016The Company entered into a stockholder agreement with OCM Growth.
November 29, 2016The Board of Directors approved an investment advisory agreement between RGC and the Company.
December 10, 2021The Company entered into a master note purchase agreement, completing a private debt offering of $70.0 million in aggregate principal amount of 4.25% interest-bearing unsecured Series 2021A Senior Notes due 2026.
October 25, 2021The Company closed its initial public offering.
August 18, 2021The Company changed its name to Runway Growth Finance Corp.
April 13, 2023The Company completed the first supplement to the master note purchase agreement, resulting in an additional private debt offering of $25.0 million in aggregate principal amount of 8.54% interest-bearing unsecured Series 2023A Senior Notes due 2026.
July 28, 2022The Company issued and sold $80.5 million in aggregate principal amount of 7.50% interest-bearing unsecured Notes due 2027.
August 31, 2022The Company issued and sold a private debt offering of $20.0 million in aggregate principal amount of 7.00% interest-bearing unsecured Series 2022A Senior Notes due 2027.
December 7, 2022The Company issued and sold $51.75 million in aggregate principal amount of 8.00% interest-bearing unsecured Notes due 2027.
March 6, 2024The Company entered into a joint venture agreement with Cadma Capital Partners LLC to create and co-manage Runway-Cadma I LLC.
April 30, 2024The Board of Directors renewed the Advisory Agreement for a period of twelve months commencing May 27, 2024.
August 14, 2024The Company assigned $10.0 million of its debt investment in Airship Group, Inc. and 107,296 shares of its warrant for Series F Preferred Stock of Airship Group, Inc., to Runway-Cadma I LLC.
September 30, 2024End of the reporting period.
October 9, 2024The Company received a full repayment of $8.0 million on its senior secured loan to Betterment Holdings, Inc.
October 16, 2024The Company sold its outstanding warrants for Dtex Systems, Inc. for proceeds of $1.9 million.
October 31, 2024The Company received a partial repayment of $2.1 million on its senior secured loan to FiscalNote Holdings, Inc.
October 31, 2024The Company received a full repayment of $18.5 million on its senior secured loans to Predactiv, Inc. (fka Sharethis, Inc.).
October 31, 2024The Company announced that RGC entered into an Agreement and Plan of Merger pursuant to which RGC Group Acquisition, LLC will acquire RGC.
November 1, 2024The Company filed with the SEC, a preliminary proxy statement relating to a special meeting of the Company's stockholders.
November 5, 2024The Board of Directors declared a regular distribution of $0.40 per share for stockholders of record as of November 18, 2024 payable on or before December 2, 2024.
November 12, 2024Date of this report.
December 13, 2024The Company will seek stockholder approval of the New Advisory Agreement at a special meeting.

Keywords

business development company, senior secured loans, investment portfolio, net investment income, fair value, warrants, credit facility, interest rates, debt investments, equity investments

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