Runway Growth Finance (RWAY) - 2024 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Consolidated Financial Statements This section presents the unaudited consolidated financial statements for Runway Growth Finance Corp. as of March 31, 2024, including statements of assets, operations, cash flows, and detailed investment schedules Consolidated Statements of Assets and Liabilities Total assets decreased to $1.03 billion from $1.08 billion, with net assets at $529.5 million and NAV per share at $13.36 Consolidated Statements of Assets and Liabilities Summary | Financial Metric | March 31, 2024 (Unaudited, in thousands) | December 31, 2023 (in thousands) | | :--- | :--- | :--- | | Total Investments at Fair Value | $1,016,332 | $1,067,009 | | Total Assets | $1,030,938 | $1,079,153 | | Total Debt, less unamortized costs | $475,914 | $510,078 | | Total Liabilities | $501,469 | $532,082 | | Total Net Assets | $529,469 | $547,071 | | Net Asset Value per Share | $13.36 | $13.50 | Consolidated Statements of Operations Q1 2024 total investment income increased to $40.0 million, with net investment income rising to $18.7 million and net assets from operations at $12.0 million Consolidated Statements of Operations Summary | Metric (in thousands, except per share data) | Three Months Ended March 31, 2024 (in thousands) | Three Months Ended March 31, 2023 (in thousands) | | :--- | :--- | :--- | | Total Investment Income | $40,009 | $39,310 | | Total Operating Expenses | $21,345 | $21,064 | | Net Investment Income | $18,664 | $18,246 | | Net Realized and Unrealized Gain (Loss) | $(6,617) | $(6,262) | | Net Increase in Net Assets from Operations | $12,047 | $11,984 | | Net Investment Income per Share | $0.46 | $0.45 | | Net Increase in Net Assets per Share | $0.30 | $0.30 | Consolidated Statements of Changes in Net Assets Net assets decreased from $547.1 million to $529.5 million in Q1 2024, primarily due to $19.0 million in dividends and $10.6 million in treasury stock acquisitions Consolidated Statements of Changes in Net Assets Summary | Description (in thousands) | For the Three Months Ended March 31, 2024 (in thousands) | | :--- | :--- | | Balances at December 31, 2023 | $547,071 | | Net increase from operations | $12,047 | | Acquisition of treasury stock | $(10,609) | | Dividends paid to stockholders | $(19,040) | | Balances at March 31, 2024 | $529,469 | Consolidated Statements of Cash Flows Operating activities generated $68.6 million in cash, while financing used $64.7 million, resulting in a net cash increase of $3.9 million for Q1 2024 Consolidated Statements of Cash Flows Summary | Cash Flow Activity (in thousands) | For the Three Months Ended March 31, 2024 (in thousands) | For the Three Months Ended March 31, 2023 (in thousands) | | :--- | :--- | :--- | | Net Cash Provided by (Used in) Operating Activities | $68,598 | $(18,526) | | Net Cash (Used in) Provided by Financing Activities | $(64,653) | $16,036 | | Net Increase (Decrease) in Cash | $3,945 | $(2,490) | | Cash and Cash Equivalents at End of Period | $6,915 | $3,271 | Consolidated Schedule of Investments The investment portfolio's fair value was $1.016 billion, primarily senior secured debt (94%), with major concentrations in Health Care Technology and Application Software Investment Portfolio Composition | Investment Type | Fair Value (in thousands) | % of Total Portfolio | | :--- | :--- | :--- | | Senior Secured Term Loans | $955,177 | 93.98% | | Second Lien Term Loans | $14,388 | 1.42% | | Preferred Stocks | $28,810 | 2.83% | | Warrants | $15,093 | 1.49% | | Other | $2,804 | 0.28% | | Total Investments | $1,016,332 | 100.00% | Investment Portfolio Industry Concentration | Industry | % of Net Assets | | :--- | :--- | | Health Care Technology | 34.22% | | Application Software | 32.87% | | Internet Software and Services | 22.47% | | System Software | 21.56% | | Human Resource & Employment Services | 21.49% | Notes to Consolidated Financial Statements Detailed notes cover accounting policies, related-party transactions, investment specifics, fair value measurements, debt structure, and net asset changes - For Q1 2024, approximately 10.5% of total investment income was attributable to non-cash Payment-In-Kind (PIK) interest, compared to 9.7% in Q1 2023[70] - As of March 31, 2024, the company had two loans on non-accrual status with a combined cost basis of $47.7 million and a fair value of $38.7 million, representing 3.8% of the total investment portfolio[75] - The company entered into a 50/50 joint venture, Runway-Cadma I LLC, with Cadma Capital Partners LLC, with an initial equity commitment of $35.0 million from each party to invest in secured loans to growth-stage companies[62] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q1 2024 financial performance, portfolio composition, investment activity, operating results, liquidity, and capital resources Portfolio Composition and Investment Activity The $1.016 billion investment portfolio, primarily senior secured loans (94%), yielded 17.4% with $24.7 million funded and $34.8 million repaid - The debt investment portfolio had a dollar-weighted annualized yield of 17.4% for Q1 2024, up from 15.2% for Q1 2023[212] Investment Portfolio Activity | Activity (in thousands) | Three Months Ended March 31, 2024 (in thousands) | | :--- | :--- | | Beginning Investment Portfolio | $1,067,009 | | Purchases of investments | $24,642 | | Sales and repayments of investments | $(34,862) | | Sales and maturities of U.S. Treasury Bills | $(42,029) | | Net change in unrealized gain (loss) | $(6,617) | | Ending Investment Portfolio | $1,016,332 | Asset Quality The debt portfolio's asset quality is monitored by a five-level rating system, with 91.6% in top categories and 3.8% on non-accrual status Debt Investment Portfolio Ratings | Investment Rating | Fair Value (in thousands) | % of Total Portfolio | | :--- | :--- | :--- | | 1 | $— | 0.00% | | 2 | $605,452 | 59.57% | | 3 | $325,372 | 32.01% | | 4 | $35,539 | 3.50% | | 5 | $3,202 | 0.32% | | Total | $969,565 | 95.40% | - As of March 31, 2024, two loans were on non-accrual status: Mingle Healthcare Solutions, Inc. (fair value $3.2M) and Snagajob, Inc. (fair value $35.5M), representing a combined 3.8% of the total investment portfolio[217] Results of Operations Q1 2024 total investment income rose to $40.0 million, with net investment income at $18.7 million and net unrealized losses of $6.6 million - Net investment income increased to $18.7 million in Q1 2024 from $18.2 million in Q1 2023, primarily due to growth in payment-in-kind income and fee income[227] - The net change in unrealized loss on investments was $6.6 million for Q1 2024, mainly due to fair value decreases in investments in CareCloud, Inc., Snagajob.com, Inc., Mingle Healthcare Solutions, Inc., FiscalNote, Inc., and Coginiti Corp[229] Financial Condition, Liquidity, and Capital Resources Available liquidity was $319.9 million, with an asset coverage ratio of 209%, sufficient to meet near-term capital requirements including $235.8 million in unfunded commitments - Total available liquidity as of March 31, 2024, was $319.9 million, including cash and available credit facility capacity[237] - The company's asset coverage ratio was 209% as of March 31, 2024, compared to 205% at year-end 2023[238] - As of March 31, 2024, the company had $235.8 million in unfunded commitments, of which approximately $42.0 million was eligible to be drawn by portfolio companies and $35.0 million was committed to the Runway-Cadma I LLC joint venture[242][244] Item 3. Quantitative and Qualitative Disclosures About Market Risk Primary market risks include valuation and interest rate risk, with a 200 basis point rate change potentially impacting annual income by +$18.3 million or -$15.9 million - The company's primary market risks are valuation risk for illiquid investments and interest rate risk on its floating-rate assets and liabilities[255][256] - A hypothetical 200 basis point increase in interest rates could increase annual investment income by a maximum of $18.3 million, while a 200 basis point decrease could reduce it by a maximum of $15.9 million due to interest rate floors[257] Item 4. Controls and Procedures Disclosure controls and procedures were effective as of March 31, 2024, with no material changes to internal controls over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of the end of the period covered by the report[262] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is not currently subject to any material legal proceedings or aware of any threatened against it - The company is not currently subject to any material legal proceedings[266] Item 1A. Risk Factors No material changes to risk factors previously disclosed in the 2023 Annual Report on Form 10-K - There have been no material changes to the risk factors discussed in the company's 2023 Annual Report on Form 10-K[268] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities occurred during the quarter, except through the Dividend Reinvestment Plan - No unregistered sales of equity securities occurred during the reporting period, except as part of the Dividend Reinvestment Plan[270] Item 5. Other Information The company repurchased 887,096 shares under its Rule 10b5-1 plan during Q1 2024, with no new director/officer trading plans - Under its Rule 10b5-1 plan, the company repurchased 887,096 shares during the three months ended March 31, 2024[274]