Runway Growth Finance (RWAY) - 2025 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Total investment income for Q3 2025 was $36.7 million, up from $35.1 million in Q2 2025, while net investment income increased to $15.7 million from $13.9 million [15][16] - The weighted average portfolio risk rating rose to 2.42 in Q3 2025 from 2.33 in Q2 2025 [15] - The dollar-weighted loan-to-value ratio increased from 29.6% to 31.4% [15] - The total investment portfolio's fair value decreased by 7.7% to $946 million from $1.02 billion [16] - NAV per share decreased by 1.9% to $13.55 from $13.66 [18] Business Line Data and Key Metrics Changes - The company completed 11 investments totaling $128.3 million in Q3 2025, focusing on technology, healthcare, and select consumer sectors [7][10] - The acquisition of SWK Holdings is expected to scale the portfolio by approximately $242 million, increasing exposure in healthcare and life sciences from 14% to 31% [9][11] Market Data and Key Metrics Changes - The company noted a competitive environment in private markets, with increased competition affecting pricing and origination activity [9][34] - The venture debt space is experiencing spread compression, although not as severe as in broader markets [34] Company Strategy and Development Direction - The company aims to enhance its portfolio through both organic and inorganic growth, with a focus on diversification and risk mitigation [8][9] - The acquisition of SWK Holdings is seen as a strategic move to enhance earnings power and diversify the asset base [9][20] - The company is committed to maintaining a disciplined approach to growth while leveraging the BC Partners credit platform for sourcing opportunities [8][10] Management's Comments on Operating Environment and Future Outlook - Management expects a muted repayment activity in Q4 2025 compared to Q3, with origination opportunities being actively pursued [25] - The integration of SWK is anticipated to enhance the company's financial profile and shareholder value, with expected accretion in earnings [20][55] - The ongoing government shutdown may delay SEC regulatory approval for the merger, with a projected close in early 2026 [22][55] Other Important Information - The company repurchased 397,983 shares during the third quarter under a $25 million stock repurchase program [22] - A regular distribution of $0.33 per share was declared for Q4 2025 [23] Q&A Session Summary Question: Expected closing date of the SWK merger and origination activity in Q4 - Management indicated that repayments would be muted in Q4, with origination activity utilizing the existing pipeline and BC Partners credit platform [25] Question: Integration of SWK portfolio and yield profile - The SWK portfolio is expected to have a slightly higher yield than Runway's existing portfolio, with plans to explore upsizing the best loans post-merger [27][29] Question: Drivers of realized loss and unrealized portfolio depreciation - Losses were primarily in the equity portfolio, with no specific sector theme identified [30] Question: Prepayment activity and expectations for next year - Prepayment activity is driven by M&A and refinancing options, with expectations for normal prepayment rates moving forward [31] Question: Competitive dynamics in venture debt space - Management noted spread compression in the venture debt space, but not as severe as in other markets [34] Question: Integration of SWK team post-merger - The SWK team will assist with the transition and new originations during the integration period [35] Question: Dividend declaration and earnings power - The board's decision on the dividend was based on anticipated prepayment activity and the need to cover the base dividend with Q4 earnings [38][40] Question: Characteristics of loans added to the Kadma JV - Loans added to the Kadma JV are growth loans, suited for that vehicle due to specific characteristics [46] Question: Accretion from the SWK merger - The merger is expected to be accretive in the first full quarter after closing, with potential for OID accretion [55][56]