Runway Growth Finance Corp. — Q1 2024 Form 10-Q
Reporting period: Three months ended March 31, 2024. Runway is an externally managed business development company (BDC) and regulated investment company (RIC) that primarily lends to growth-stage companies. Financial amounts below are in U.S. dollars; balance-sheet and income-statement amounts are converted from thousands to millions where appropriate.
Key financial metrics
| Metric | Q1 2024 / March 31, 2024 | Comparable period / prior year-end |
|---|---|---|
| Investment income | $40.0 million | $39.3 million in Q1 2023 |
| Operating expenses | $21.3 million | $21.1 million in Q1 2023 |
| Net investment income (NII) | $18.7 million; $0.46 per share | $18.2 million; $0.45 per share in Q1 2023 |
| Net realized investment gain (loss) | No realized gain or loss | $1.2 million loss in Q1 2023 |
| Net change in unrealized investment value | $6.6 million loss | $5.1 million loss in Q1 2023 |
| Increase in net assets from operations | $12.0 million; $0.30 per share | $12.0 million; $0.30 per share in Q1 2023 |
| Total assets / investments at fair value | $1,030.9 million / $1,016.3 million | $1,079.2 million / $1,067.0 million at December 31, 2023 |
| Net assets / NAV per share | $529.5 million / $13.36 | $547.1 million / $13.50 at December 31, 2023 |
| Cash and cash equivalents | $6.9 million | $3.0 million at December 31, 2023 |
| Debt outstanding, principal | $484.3 million; $475.9 million carrying value net of deferred debt costs | $519.3 million principal at December 31, 2023 |
| Operating cash flow | $68.6 million provided | $18.5 million used in Q1 2023 |
Changes and portfolio developments
- Investment income increased about 1.8% year over year and NII rose about 2.3%; expenses increased about 1.3%. Management attributed the income increase mainly to higher PIK interest activity, fee income and prepayment-related income.
- The $6.6 million unrealized loss was attributed primarily to lower valuations for CareCloud preferred stock, loans to Snagajob, Mingle Healthcare and FiscalNote, and Coginiti common stock. Net assets and NAV per share declined from year-end despite positive operating results, reflecting distributions, share repurchases and investment valuation changes.
- The portfolio comprised 53 companies at quarter-end, compared with 52 at year-end. Debt investments were predominantly senior secured and floating rate; the reported annualized dollar-weighted yield on debt investments was 17.4%, versus 15.2% in Q1 2023. This is a portfolio yield, not an investor return, and includes loans on non-accrual.
- Two loans were on non-accrual at March 31: Mingle Healthcare, with $5.0 million cost and $3.2 million fair value, and Snagajob, with $42.7 million cost and $35.5 million fair value. Together they represented 3.8% of the investment portfolio. There were no loans on non-accrual at December 31, 2023.
- PIK interest represented approximately 10.5% of investment income, up from 9.7% in Q1 2023. PIK is non-cash income and may not be collected until repayment; it nevertheless affects taxable income and distribution requirements.
Liquidity, leverage and capital returns
- Reported available liquidity was $319.9 million: $6.9 million of cash and approximately $313.0 million available under the credit facility, subject to borrowing-base capacity. The facility had $237.0 million outstanding against $550.0 million of commitments.
- Asset coverage was 209% at March 31, compared with 205% at December 31; the filing states the statutory minimum is 150%. The weighted-average cost of debt was 9.01% in Q1, compared with 7.86% in Q1 2023.
- Cash from operating activities was $68.6 million, while financing activities used $64.7 million. The filing attributes the operating cash-flow improvement over Q1 2023 largely to lower investment and Treasury bill purchases and higher sales, repayments and Treasury bill maturities.
- Quarterly distributions totaled $19.0 million, or $0.47 per share, including the regular $0.40 and supplemental $0.07 distribution. NII was $0.46 per share. The board determines distributions, which are not guaranteed.
- During Q1, the company repurchased 887,096 shares for $10.6 million under its $25 million repurchase program. It repurchased a further 183,702 shares between March 31 and May 7, 2024.
- Unfunded commitments were $235.8 million, including $200.8 million of portfolio-company debt commitments and $35.0 million committed to the Runway-Cadma joint venture. Approximately $42.0 million of portfolio-company commitments were eligible to be drawn based on milestones, in addition to the JV commitment.
Outlook, risks and other notable items
- Management stated it believes liquidity is sufficient for near-term capital requirements. The filing provides no numerical earnings, yield or distribution guidance.
- Interest-rate exposure is material: 100% of performing debt investments were floating rate, while credit-facility borrowings also float and other outstanding debt is fixed rate. A hypothetical 200-basis-point rate increase could raise annual investment income by up to $18.3 million; a decrease could reduce it by up to $15.9 million, before considering all potential offsets and effects.
- Valuations are a key risk: most investments are Level 3 and rely on unobservable inputs and board-approved estimates. Changes in portfolio-company performance, market spreads, interest rates or valuation assumptions could materially affect fair values.
- The company formed Runway-Cadma I LLC with Cadma Capital Partners, each committing $35 million. The JV had no investments or contributed capital at quarter-end; Runway’s $35 million commitment was unfunded.
- Subsequent events: Echo360 prepaid its $25.3 million senior secured loan on April 26. On April 30, the board declared another $0.40 ordinary and $0.07 supplemental distribution, and reinstated CEO R. David Spreng following temporary medical leave. The board also renewed the advisory agreement for 12 months.
- The filing reports no material legal proceedings, no defaults on senior securities, and no material changes to the risk factors in the 2023 Form 10-K. Key risks include portfolio-company credit deterioration, illiquid and uncertain valuations, leverage and interest-rate exposure, funding access, regulation, and maintaining RIC and BDC status.
Important facts for investors to verify
- Track the performance and recovery prospects of Snagajob and Mingle, both on non-accrual, and the effect of any further deterioration on income and NAV.
- Review the proportion of investment income attributable to PIK and non-recurring fees, and whether reported earnings translate into cash collections sufficient to support distributions.
- Assess Level 3 valuation assumptions and the principal portfolio-company exposures; the five largest debt investments represented 36.1% of debt fair value.
- Confirm credit-facility borrowing-base availability, covenants and refinancing needs, including the facility’s April 2025 end of availability period, alongside unfunded commitments and distributions.
- Monitor NAV, asset coverage and share repurchases relative to the market price, and whether distributions remain supported by NII and taxable income.