Runway Growth Finance Corp. Delivers Solid Financial Performance

Runway Growth Finance Corp. (the “Company”) is a specialty finance company that provides senior secured loans to high growth-potential companies in technology, healthcare, business services, and other industries. The Company has reported its financial results for the three and nine months ended September 30, 2024, showcasing its ability to generate consistent income and navigate a challenging economic environment.

Portfolio Composition and Investment Activity

As of September 30, 2024, the Company had investments in 57 portfolio companies, representing a diverse mix of debt, equity, and warrant positions. The fair value of the Company’s total investment portfolio, including U.S. Treasury Bills, was $1.07 billion.

The Company’s debt investment portfolio had a dollar-weighted annualized yield of 15.9% and 15.5% for the three and nine months ended September 30, 2024, respectively. This compares to 18.3% and 16.0% for the same periods in the prior year. The decrease in yield was primarily due to falling interest rates and a decrease in the average outstanding principal on interest-earning debt investments as a result of loan repayments and two loans being placed on non-accrual status.

During the nine months ended September 30, 2024, the Company funded $174.0 million in new and existing portfolio companies and received $147.0 million in sales, prepayments, and scheduled repayments. This compares to $105.5 million in new and follow-on investments and $232.7 million in sales and repayments during the same period in 2023.

Asset Quality and Non-Accrual Investments

The Company uses a five-level investment rating system to monitor the quality of its debt investment portfolio. As of September 30, 2024, 59.6% of the portfolio was rated as “2,” indicating the investments were performing at or reasonably close to plan, while 30.9% was rated as “3,” meaning the investments were performing below plan. The Company had two loans, representing 3.7% of the total investment portfolio, on non-accrual status as of September 30, 2024.

Results of Operations

For the three months ended September 30, 2024, the Company reported total investment income of $36.7 million, compared to $43.8 million for the same period in 2023. The decrease was primarily due to falling interest rates and a decrease in the average outstanding principal on interest-earning debt investments.

Operating expenses for the three months ended September 30, 2024 were $20.8 million, compared to $21.7 million for the same period in 2023. The decrease was primarily due to a reduction in performance-based incentive fees and management fees, partially offset by an increase in interest and other debt financing expenses.

Net investment income for the three months ended September 30, 2024 was $15.9 million, or $0.41 per share, compared to $22.0 million, or $0.54 per share, for the same period in 2023. The decrease was primarily due to the lower investment income.

For the nine months ended September 30, 2024, the Company reported total investment income of $110.9 million, compared to $125.0 million for the same period in 2023. Operating expenses for the nine months ended September 30, 2024 were $61.7 million, compared to $65.0 million for the same period in 2023. Net investment income for the nine months ended September 30, 2024 was $49.1 million, or $1.25 per share, compared to $60.0 million, or $1.48 per share, for the same period in 2023.

The Company did not record any net realized gains or losses on investments for the three months ended September 30, 2024, compared to no net realized gains or losses for the same period in 2023. For the nine months ended September 30, 2024, the Company did not record any net realized gains or losses on investments, compared to a net realized loss of $1.2 million for the same period in 2023.

The net change in unrealized gain on investments was $9.2 million for the three months ended September 30, 2024, compared to a net change in unrealized loss of $7.2 million for the same period in 2023. For the nine months ended September 30, 2024, the net change in unrealized loss on investments was $3.7 million, compared to a net change in unrealized loss of $9.7 million for the same period in 2023.

Overall, the Company reported a net increase in net assets resulting from operations of $25.0 million for the three months ended September 30, 2024, compared to a net increase of $14.8 million for the same period in 2023. For the nine months ended September 30, 2024, the Company reported a net increase in net assets resulting from operations of $45.4 million, compared to a net increase of $49.1 million for the same period in 2023.

Liquidity and Capital Resources

As of September 30, 2024, the Company had $251.6 million in available liquidity, including $3.6 million in cash and cash equivalents and $248.0 million available under its Credit Facility. The Company had $302.0 million of secured debt outstanding under its Credit Facility and $247.3 million of unsecured debt outstanding under the 2026 and 2027 Notes.

The Company’s asset coverage ratio, a measure of its ability to cover debt with assets, was 192% as of September 30, 2024, well above the regulatory minimum of 150%. This provides the Company with ample financial flexibility to support its investment activities and meet its obligations.

Commitments and Obligations

As of September 30, 2024, the Company had $549.3 million in total debt outstanding, with none due within the next year, $497.5 million due within 1 to 3 years, and $51.8 million due beyond 3 years. The Company also had $11.8 million in deferred incentive fees, with $1.7 million due within the next year, $7.6 million due within 1 to 3 years, and $2.6 million due beyond 3 years.

In addition, the Company had $260.4 million in unfunded commitments to provide debt and equity financing to its portfolio companies and joint venture. The Company maintains sufficient liquidity to fund these commitments as needed.

Repurchase Program and Distributions

During the nine months ended September 30, 2024, the Company repurchased 644,763 shares of its common stock for an aggregate purchase price of $6.7 million under its Third Repurchase Program. The Company has also declared and paid regular quarterly distributions to its stockholders, totaling $54.9 million for the nine months ended September 30, 2024.

Outlook and Conclusion

Runway Growth Finance Corp. has demonstrated its ability to navigate the current economic environment and deliver solid financial performance. The Company’s diverse investment portfolio, disciplined underwriting, and prudent capital management have positioned it well to continue supporting high-growth companies and generating returns for its shareholders.

Despite the challenges posed by falling interest rates and the impact of certain non-accrual loans, the Company has maintained a strong balance sheet and ample liquidity to fund new investments and meet its obligations. The Company’s focus on senior secured lending to high-growth companies, coupled with its ability to generate income from warrants and equity positions, has been a key driver of its success.

Looking ahead, Runway Growth Finance Corp. remains committed to its investment strategy and is well-positioned to capitalize on future growth opportunities. The Company’s experienced management team, robust risk management practices, and flexible financing structure provide a solid foundation for continued success in the dynamic specialty finance market.