Runway Growth Finance (RWAY) - 2023 Q4 - Annual Results

Executive Summary & Highlights Runway Growth reported strong Q4 and FY2023 financial results, featuring significant investment income, a $1.0 billion portfolio, and consistent Q1 2024 dividends Fourth Quarter 2023 Highlights Runway Growth Finance Corp. reported total investment income of $39.2 million and net investment income of $18.3 million ($0.45 per share) for Q4 2023. The dollar-weighted annualized yield on debt investments was 16.9%. The company completed eight investments, funding $154.6 million in loans, and received $63.4 million from principal prepayments Fourth Quarter 2023 Highlights | Metric | Value | | :-------------------------------- | :---------------- | | Total investment income | $39.2 million | | Net investment income | $18.3 million | | Net investment income per share | $0.45 | | Dollar-weighted annualized yield on debt investments | 16.9% | | Funded loans and other investments | $154.6 million | | Proceeds from principal prepayments | $63.4 million | 2023 Fiscal Year Highlights For the full fiscal year 2023, Runway Growth achieved net investment income of $78.3 million ($1.93 per share) and maintained an investment portfolio of $1.0 billion at fair value. Total investment fundings reached $259.2 million, with a low credit loss ratio of 14 basis points gross and 11 basis points net 2023 Fiscal Year Highlights | Metric | Value | | :-------------------------------- | :---------------- | | Net investment income | $78.3 million | | Net investment income per share | $1.93 | | Total investment portfolio (fair value) | $1.0 billion | | Total investment fundings | $259.2 million | | Credit loss ratio (gross) | 14 basis points | | Credit loss ratio (net) | 11 basis points | First Quarter 2024 Distributions The company declared a regular dividend of $0.40 per share and a supplemental dividend of $0.07 per share for the first quarter of 2024 First Quarter 2024 Distributions | Dividend Type | Amount Per Share | | :-------------------- | :--------------- | | Regular Dividend | $0.40 | | Supplemental Dividend | $0.07 | Management Commentary Greg Greifeld, Acting CEO, highlighted Runway Growth's focus on shareholder return and measured portfolio management in 2023, leading to expanded return on equity by 33 basis points. He emphasized the team's due diligence, consistent borrower partnership, and commitment to generating shareholder value through strong dividends - In 2023, Runway Growth drove shareholder return while taking a measured approach to portfolio management as we preserved industry-leading credit quality[6] - Over the course of the year, Runway Growth expanded its return on equity by 33 basis points and ended the fourth quarter with eight investments in new and existing portfolio companies[6] - Runway Growth is committed to generating shareholder value, which is reinforced by our strong and consistent base dividend and ongoing supplemental distributions[6] Financial Performance Q4 2023 saw increased investment income but stable net investment income, with NAV per share and total net assets decreasing from realized and unrealized losses Fourth Quarter 2023 Operating Results Total investment income for Q4 2023 increased to $39.2 million from $36.5 million in Q4 2022. Net investment income remained stable at $18.3 million ($0.45 per share). Operating expenses rose to $20.9 million due to higher interest rates and financing expenses. The company reported a net realized loss of $17.2 million and a net change in unrealized loss of $5.9 million Fourth Quarter 2023 Operating Results | Metric | Q4 2023 (million) | Q4 2022 (million) | Change | | :-------------------------------- | :---------------- | :---------------- | :----- | | Total investment income | $39.2 | $36.5 | +$2.7 | | Net investment income | $18.3 | $18.4 | -$0.1 | | Net investment income per share | $0.45 | $0.45 | 0 | | Total operating expenses | $20.9 | $18.1 | +$2.8 | | Net realized loss on investments | $17.2 | $2.0 | +$15.2 | | Net change in unrealized gain (loss) | -$5.9 | +$2.1 | -$8.0 | - The increase in operating expenses was driven by higher interest rates and increased financing expenses on borrowings[9] Net Asset Value (NAV) As of December 31, 2023, NAV per share was $13.50, a decrease from $14.22 in the prior year. Total net assets declined 5.0% to $547.1 million from $576.1 million. The net decrease in net assets from operations for Q4 2023 was $4.8 million ($0.12 per share), compared to a net increase of $18.5 million ($0.46 per share) in Q4 2022 Net Asset Value | Metric | Dec 31, 2023 | Dec 31, 2022 | Change | | :---------------- | :----------- | :----------- | :----- | | NAV per share | $13.50 | $14.22 | -$0.72 | | Total net assets | $547.1 million | $576.1 million | -5.0% | Net Increase (Decrease) in Net Assets from Operations | Metric | Q4 2023 (million) | Q4 2022 (million) | Change | | :-------------------------------- | :---------------- | :---------------- | :----- | | Net increase (decrease) in net assets from operations | -$4.8 | +$18.5 | -$23.3 | | Per share | -$0.12 | +$0.46 | -$0.58 | Investment Portfolio & Activity Runway Growth maintained a $1.0 billion investment portfolio, primarily senior secured term loans, with Q4 2023 funding $154.6 million in loans and overall 2023 fundings decreasing Portfolio Overview As of December 31, 2023, Runway Growth's investment portfolio had a fair value of approximately $1.0 billion, primarily consisting of $978.5 million in senior secured term loans (98.5%) and $46.5 million in warrants and other equity-related investments across 52 portfolio companies Investment Portfolio Overview | Asset Type | Fair Value (million) | Percentage | | :-------------------------------- | :------------------- | :--------- | | Total Investment Portfolio | ~$1.0 billion | 100% | | Term Loans (Senior Secured) | $978.5 | 98.5% | | Warrants and Other Equity-Related Investments | $46.5 | N/A | | Number of Portfolio Companies | 52 | N/A | Investment Activity Details During Q4 2023, Runway Growth completed eight investments, funding $154.6 million in loans. For the full year 2023, total investment fundings were $200.464 million, a significant decrease from $622.719 million in 2022. Sales and prepayments of investments also increased substantially in 2023 to $289.078 million from $159.144 million in 2022 - During the fourth quarter of 2023, Runway Growth completed eight investments in new and existing portfolio companies, representing $154.6 million in funded loans[12] Investment Activity | Metric | 2023 (thousands) | 2022 (thousands) | Change | | :-------------------------------- | :--------------- | :--------------- | :----- | | Purchases of investments | $200,464 | $622,719 | -$422,255 | | Sales and prepayments of investments | $289,078 | $159,144 | +$129,934 | | Net realized gain (loss) on investments | $(18,387) | $(1,061) | -$17,326 | | Net change in unrealized gain (loss) on investments | $(15,547) | $(26,485) | +$10,938 | Capital Management & Liquidity The company maintained $281.0 million in liquidity with a 95% core leverage ratio, declared Q1 2024 dividends, and approved a $25.0 million share repurchase program Liquidity and Capital Resources As of December 31, 2023, the Company had $281.0 million in available liquidity, comprising $3.0 million in cash and $278.0 million in available borrowing capacity. The core leverage ratio increased to approximately 95% from 79% in the prior quarter Liquidity and Capital Resources | Metric | Value (million) | | :-------------------------------- | :-------------- | | Total available liquidity | $281.0 | | Unrestricted cash and cash equivalents | $3.0 | | Available borrowing capacity | $278.0 | | Core leverage ratio | 95% | - The Company ended the quarter with a core leverage ratio of approximately 95%, compared to 79% for the quarter ended September 30, 2023[15] Distributions On February 1, 2024, the board declared a regular quarterly distribution of $0.40 per share and a supplemental dividend of $0.07 per share for Q1 2024, payable on February 28, 2024 Distributions Declared | Distribution Type | Amount Per Share | Payment Date | Record Date | | :-------------------- | :--------------- | :----------- | :---------- | | Regular Quarterly | $0.40 | Feb 28, 2024 | Feb 12, 2024 | | Supplemental Dividend | $0.07 | Feb 28, 2024 | Feb 12, 2024 | Share Repurchase Program On November 2, 2023, the board approved a share repurchase program authorizing the company to repurchase up to $25.0 million of its outstanding common stock - On November 2, 2023, the Company's board of directors approved a share repurchase program under which the Company may repurchase up to $25.0 million of its outstanding common stock[17] Recent Developments Subsequent to year-end, Runway Growth placed a $4.3 million loan to Mingle Healthcare Solutions, Inc. on non-accrual status. The company also received a partial prepayment of $7.1 million from MarleySpoon SE. Additionally, Runway Growth entered into a joint venture with Cadma Capital Partners LLC to co-manage Runway-Cadma I LLC, which will invest in various secured term loans and credit facilities - Effective January 1, 2024, the Company placed one loan to Mingle Healthcare Solutions, Inc. on non-accrual status, representing an outstanding principal of $4.3 million at a fair market value of $3.8 million as of December 31, 2023[19] - On February 14, 2024, the Company received a partial prepayment of $7.1 million from MarleySpoon SE on its senior secured loan[19] - On March 7, 2024, the Company and Cadma Capital Partners LLC entered into a Limited Liability Company Agreement to co-manage Runway-Cadma I LLC (the "Joint Venture"), which is expected to invest in various types of investments, including first and second lien senior secured term loans and secured revolving credit facilities[20] Company Information Runway Growth Finance Corp. is a specialty finance BDC, with the report including forward-looking statements, important disclosures, and investor relations details About Runway Growth Finance Corp. Runway Growth is a specialty finance company providing flexible capital solutions to late- and growth-stage companies. It operates as a closed-end investment fund regulated as a business development company (BDC) and is externally managed by Runway Growth Capital LLC - Runway Growth is a growing specialty finance company focused on providing flexible capital solutions to late- and growth-stage companies seeking an alternative to raising equity[22] - Runway Growth is a closed-end investment fund that has elected to be regulated as a business development company under the Investment Company Act of 1940[22] - Runway Growth is externally managed by Runway Growth Capital LLC, an established registered investment advisor that was formed in 2015 and led by industry veteran David Spreng[22] Forward-Looking Statements The report contains forward-looking statements subject to risks and uncertainties, and actual results may differ materially. The company undertakes no duty to update these statements - Statements included herein may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995[23] - Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including those described from time to time in Runway Growth's filings with the Securities and Exchange Commission[23] Important Disclosures The document advises careful evaluation of special risks associated with described strategies and refers readers to the Company's Form 10-K for a more detailed discussion of risk factors - Strategies described involve special risks that should be evaluated carefully before a decision is made to invest[25] - Please see a more detailed discussion of these risk factors and other related risks in the Company's most recent annual Form 10-K report in the section entitled "Risk Factors"[25] Investor Relations & Conference Call Runway Growth held a conference call on March 7, 2024, to discuss Q4 and FY2023 financial results. Details for accessing the webcast and investor relations contacts are provided - Runway Growth will hold a conference call to discuss its fourth quarter and fiscal year ended December 31, 2023, financial results at 2:00 p.m. PT (5:00 p.m. ET) on Thursday, March 7, 2024[21] - A live webcast will be available in the investor section of the Company's website, and will be archived for 90 days following the call[21] - IR Contacts: Stefan Norbom, Prosek Partners, snorbom@prosek.com; Thomas B. Raterman, Acting President, Chief Financial Officer and Chief Operating Officer, tr@runwaygrowth.com[26] Consolidated Financial Statements Consolidated financial statements show decreased total assets and NAV per share, despite increased investment income, due to significant realized and unrealized losses Consolidated Statements of Assets and Liabilities The consolidated statement of assets and liabilities shows total assets decreased from $1,141,766 thousand in 2022 to $1,079,153 thousand in 2023. Total investments at fair value also decreased from $1,126,309 thousand to $1,067,009 thousand. Total net assets declined from $576,052 thousand to $547,071 thousand, resulting in a NAV per share of $13.50 in 2023, down from $14.22 in 2022 Consolidated Statements of Assets and Liabilities | Metric | Dec 31, 2023 | Dec 31, 2022 | Change | | :-------------------------------- | :----------- | :----------- | :----- | | Total investments at fair value | $1,067,009 | $1,126,309 | -$59,300 | | Total assets | $1,079,153 | $1,141,766 | -$62,613 | | Total debt, less unamortized deferred debt costs | $510,078 | $548,957 | -$38,879 | | Total liabilities | $532,082 | $565,714 | -$33,632 | | Total net assets | $547,071 | $576,052 | -$28,981 | | Net asset value per share | $13.50 | $14.22 | -$0.72 | Consolidated Statements of Operations For the year ended December 31, 2023, total investment income increased to $164,209 thousand from $107,751 thousand in 2022. Net investment income also rose to $78,275 thousand from $59,796 thousand. However, the company reported a net realized loss on investments of $18,387 thousand (vs. $1,061 thousand loss in 2022) and a net change in unrealized loss of $15,547 thousand (vs. $26,485 thousand loss in 2022). Net increase in net assets from operations for the full year 2023 was $44,341 thousand Consolidated Statements of Operations | Metric | 2023 (thousands) | 2022 (thousands) | Change | | :-------------------------------- | :--------------- | :--------------- | :----- | | Total investment income | $164,209 | $107,751 | +$56,458 | | Total operating expenses | $85,934 | $47,955 | +$37,979 | | Net investment income | $78,275 | $59,796 | +$18,479 | | Net realized gain (loss) on investments | $(18,387) | $(1,061) | -$17,326 | | Net change in unrealized gain (loss) on investments | $(15,547) | $(26,485) | +$10,938 | | Net increase (decrease) in net assets resulting from operations | $44,341 | $32,250 | +$12,091 | | Net investment income per common share | $1.93 | $1.46 | +$0.47 |