Runway Growth Finance (US:RWAY)2023-05-09 20:03Investment Portfolio - As of March 31, 2023, the total investments amounted to $1,160,316,000, with a fair value of $1,125,342,000 for portfolio investments [218]. - The company held investments in 49 portfolio companies, with senior secured term loans representing 91.40% of the total portfolio [218]. - The ending investment portfolio value increased to $1,160.3 million as of March 31, 2023, up from $754.3 million as of March 31, 2022, reflecting a growth of approximately 54% [222]. - As of March 31, 2023, the fair value of debt investments rated 2 (performing at or reasonably close to plan) was $963.6 million, representing 83.0% of the total portfolio [223]. - The company had one loan on non-accrual status as of March 31, 2023, with a cost basis of $19.2 million and a fair value of $11.6 million, representing 1.0% of the total investment portfolio [224]. - The company had $302.7 million in unfunded loan commitments as of March 31, 2023, subject to specific contract terms [242]. Financial Performance - Total investment income for Q1 2023 was $39.3 million, a significant increase of 104% compared to $19.2 million in Q1 2022, primarily driven by higher interest income [230]. - Operating expenses rose to $21.1 million in Q1 2023 from $6.8 million in Q1 2022, marking an increase of approximately 210% [231]. - Net investment income for Q1 2023 was $18.2 million, or $0.45 per share, compared to $12.5 million, or $0.30 per share, in Q1 2022 [226]. - The company reported a net increase in net assets resulting from operations of $12.0 million in Q1 2023, compared to a net increase of $2.9 million in Q1 2022 [226]. - Incentive fees for Q1 2023 were $4.6 million, up from $1.3 million in Q1 2022, reflecting an increase in net investment income [232]. - The net realized loss on investments for Q1 2023 was $1.2 million, primarily due to losses in CareCloud, Inc. and Gynesonics, Inc. [234]. - Net change in unrealized depreciation on investments for Q1 2023 was $5.1 million, mainly due to decreases in the fair value of loans to Gynesonics, Inc. [235]. Investment Strategy - The company has a goal to maximize total return primarily through current income on the loan portfolio and secondarily through capital appreciation on warrants and equity positions [212]. - The company aims to provide flexible financing solutions to high growth-potential companies in various sectors, including technology and life sciences [212]. - The company expects to achieve its investment objective by investing in high growth-potential private companies, typically in loans ranging from $10.0 million to $100.0 million [227]. - The company has a diversified investment strategy, including senior secured loans, preferred stocks, and warrants [218]. Valuation and Fair Value - The fair value of portfolio investments is determined quarterly, involving subjective judgments and estimates, particularly for Level 3 assets [256]. - The company primarily invests in high-growth sectors such as technology and life sciences, with these investments classified as Level 3 assets under ASC Topic 820 [260]. - The valuation process includes evaluating the performance of underlying investments and macroeconomic factors that may impact valuations [264]. - The company utilizes a discounted cash flow model to determine the fair value of debt investments, comparing cost basis to market interest rates [263]. - The Audit Committee reviews preliminary valuations and makes recommendations to the Board of Directors regarding fair value determinations [262]. - The company has adopted revisions to its valuation policies to comply with SEC rules effective March 8, 2021 [261]. Dividends and Shareholder Returns - During Q1 2023, the company declared and paid dividends totaling $18.2 million, with $17.5 million distributed in cash and the remainder in shares [250]. - For the year ended December 31, 2022, the total dividends declared and paid amounted to $51.6 million, of which $40.7 million was in cash [250]. - The company has a history of increasing dividends, with the most recent dividend per share declared at $0.45 on February 23, 2023 [252]. - The total dividends per share declared since formation through March 31, 2023, reflect a consistent approach to shareholder returns [251]. Interest Rate and Economic Factors - The company expects that the ongoing impact of inflation and other economic factors may affect its investment portfolio in the future [223]. - The company's net investment income is sensitive to changes in market interest rates, which could materially affect earnings if there is not a corresponding increase in interest income [291]. - The company regularly measures exposure to interest rate risk and manages it by comparing interest rate sensitive assets to liabilities [292]. - Interest rate risk affects both the cost of funding and interest income from portfolio investments, impacting cash flows [288]. - Changes in interest rates can affect the ability to acquire and originate loans and securities, as well as the value of the investment portfolio [288]. - A hypothetical 200 basis point increase in interest rates on variable-rate debt investments could increase investment income by a maximum of $20.9 million annually, while a decrease could reduce it by up to $20.1 million [289]. Management and Structure - The company is structured as a business development company (BDC) and a regulated investment company (RIC), required to distribute at least 90% of taxable income annually [213]. - The company is externally managed by Runway Growth Capital LLC, which provides investment advisory services [215]. - The company intends to maintain its RIC status to avoid U.S. federal income taxes on distributed income and gains [277].