Business Overview

Runway Growth Finance Corp. (NASDAQ:RWAY) is a specialty finance company focused on providing senior secured loans to high growth-potential companies in technology, life sciences, healthcare information and services, business services, financial services, select consumer services and products, and other high-growth industries. The company's investment objective is to maximize its total return to stockholders primarily through current income on its loan portfolio, and secondarily through capital gains on its warrants and other equity positions.

Runway Growth Finance Corp. was formed in 2015 and elected to be regulated as a business development company (BDC) under the Investment Company Act of 1940. The company has also elected to be treated as a regulated investment company (RIC) under Subchapter M of the Internal Revenue Code. Runway Growth Finance Corp. is externally managed by Runway Growth Capital LLC, an investment adviser that has registered with the SEC under the Investment Advisers Act of 1940.

Runway Growth Finance Corp. is a specialty finance company that provides senior secured loans to high growth-potential companies. The company's target portfolio companies are typically in the technology, life sciences, healthcare information and services, business services, financial services, select consumer services and products, and other high-growth industries. Runway Growth Finance Corp. aims to create significant value for its stockholders by providing flexible hybrid debt and equity financing solutions to the entrepreneurs it supports.

The company's investment strategy is focused on maximizing its total return to stockholders primarily through current income on its loan portfolio, and secondarily through capital gains on its warrants and other equity positions. Runway Growth Finance Corp. seeks to achieve this objective by investing in senior secured loans that generally fall into two strategies: Sponsored Growth Lending and Non-Sponsored Growth Lending.

Financials

For the full year 2023, Runway Growth Finance Corp. reported annual net income of $44,341,000, annual revenue of $145,822,000, annual operating cash flow of $56,559,000, and annual free cash flow of $56,559,000.

In the first quarter of 2024, the company generated total investment income of $40,009,000 and net investment income of $18,664,000, representing increases of approximately 2% from the prior year period. Runway Growth Finance Corp.'s weighted average portfolio risk rating increased slightly in Q1 2024, with 2 loans on non-accrual status as of March 31, 2024.

The company's total investment portfolio had a fair value of approximately $1,016,332,000, excluding treasury bills, as of March 31, 2024, a decrease of 1% from $1,067,009,000 in the fourth quarter of 2023 and a decrease of 10% from $1,130,316,000 for the comparable prior year period. Runway Growth Finance Corp.'s portfolio continues to be concentrated in first lien senior secured loans.

As of March 31, 2024, the company had net assets of $529,469,000, decreasing from $547,071,000 at the end of the fourth quarter of 2023. NAV per share was $13.36 at the end of the first quarter compared to $13.50 at the end of the fourth quarter of 2023.

Liquidity

Runway Growth Finance Corp. had $319,900,000 in available liquidity as of March 31, 2024, including $6,915,000 in cash and cash equivalents, and approximately $313,000,000 available under its Credit Facility, subject to borrowing base capacity. The company's leverage ratio and asset coverage were 0.91 and 2.09x, respectively, as of March 31, 2024, compared to 0.95 and 2.05x at the end of the fourth quarter.

During the first quarter of 2024, Runway Growth Finance Corp. funded $19,700,000 in one new portfolio company and $5,000,000 in one existing portfolio company, net of upfront loan origination fees and refinances. The company also received $34,400,000 in loan prepayments from two portfolio companies and $400,000 in scheduled principal payments from one portfolio company.

Outlook

Runway Growth Finance Corp. is seeing heightened pipeline activity and expects to see an acceleration in origination momentum building into the third and fourth quarters of 2024. The company believes its low leverage ratio and ample dry powder position it well to take advantage of opportunities that meet its high credit standards.

The company remains focused on its credit-first philosophy and is committed to upholding its underwriting rigor as it evaluates future investment opportunities. Runway Growth Finance Corp. is confident in its ability to source, originate, and underwrite deals that align with its standards, which it believes will fund its future dividends.

Geographic Breakdown

Runway Growth Finance Corp.'s investment portfolio is geographically diversified. The company has investments located in various regions of the United States, including the Western, Northeastern, Midwestern, South Central, Northwestern, and Southeastern United States as of March 31, 2024. The company also has 14.61% of its investments located in the United Kingdom, 7.18% in Germany, and 2.76% in Canada.

Risks and Challenges

Runway Growth Finance Corp. faces several risks and challenges, including:

1. Market Conditions: The company's performance is subject to changes in political, economic, or industry conditions, as well as interest rate fluctuations, which could impair its portfolio companies' ability to continue operating and lead to losses on the company's investments.

2. Competition: Runway Growth Finance Corp. competes with other entities, including its affiliates, for investment opportunities, which could impact its ability to find suitable investments or result in lower returns.

3. Illiquid Investments: The company's investments are generally illiquid, which could make it difficult to exit investments or realize their full value.

4. Leverage: Runway Growth Finance Corp. uses borrowed money to finance a portion of its investments, which could increase the volatility of its returns and expose the company to the risk of losses.

5. Key Personnel: The loss of key personnel, including members of the company's management team, could adversely affect its business prospects and operations.

Conclusion

Runway Growth Finance Corp. is a specialty finance company that has demonstrated a disciplined lending approach focused on providing senior secured loans to high growth-potential companies. The company's investment strategy, geographic diversification, and liquidity position it well to navigate the current market environment and capitalize on attractive investment opportunities that align with its high credit standards.

Despite the challenges and risks facing the company, Runway Growth Finance Corp.'s management team has a proven track record of successfully navigating economic cycles and maintaining a focus on preserving capital and generating consistent returns for its stockholders. As the company continues to execute on its strategy, investors can expect Runway Growth Finance Corp. to remain a reliable partner for high-growth companies seeking flexible financing solutions.