What Runway Growth Finance (RWAY) Said on Its Q3 Earnings Call

Key Points

• Net investment income was $0.38 per share, including about $0.10 per share of nonrecurring income; Runway declared its $0.33-per-share base dividend for the fourth quarter and expects to cover it near term.
• Repayments, including a $72.3 million loan payoff, shrank the portfolio to $1.1 billion and reduced debt-to-equity leverage to 1.10 times, back within management’s target range. Management expects elevated repayments to continue, which may delay portfolio growth.
• The board expanded the share repurchase program to $30 million through September 2027, with $22.1 million remaining at the time of the call. A $10.8 million Marley Spoon write-down weighed on results as Runway amended the facility and provided bridge financing while seeking to maximize recovery.

Runway Growth Finance NASDAQ: RWAY reported third-quarter net investment income of $0.38 per share and expanded its share repurchase program, as loan repayments outpaced new investments and management worked to reduce leverage and portfolio concentration.

The business development company generated $15.9 million in net investment income for the quarter ended September 30, down from $18.2 million in the second quarter, even as total investment income rose to $40.6 million from $37 million. Net asset value increased to $11.94 per share from $11.91, helped by repurchases and loan repayments but partly offset by a further write-down on Marley Spoon.

Co-Chief Executive Officer David Spreng said Runway had deliberately moderated originations while emphasizing capital returns. The board expanded the share repurchase program to $30 million through September 30, 2027. The company repurchased $4.8 million of shares during the third quarter and had $22.1 million remaining under the program as of the call.

Repayments Reduce Portfolio and Leverage

Runway’s investment portfolio declined to $1.1 billion at fair value from $1.2 billion in the prior quarter, primarily because of repayments. The company recorded $140 million in liquidity events, including $130.7 million from four full loan repayments, while making $8.5 million of follow-on investments in four existing portfolio companies.

The largest repayment was a $72.3 million loan to 3PL, also known as Extensiv, after its acquisition by Descartes. Co-CEO Michael Rovner said the payoff reduced concentration and helped lower the portfolio’s weighted average risk rating to 2.26 from 2.33 in the second quarter. On Runway’s five-point scale, one is the most favorable rating.

Debt-to-equity leverage fell to 1.10 times from 1.36 times in the second quarter, when Runway used debt to help fund its acquisition of SWK. Rovner said leverage was back within the company’s target range.

Management expects elevated prepayments to continue in the fourth quarter, although some could move into later periods. Rovner said fourth-quarter repayments were on pace to match or exceed those in the third quarter, but that it was too early to predict the final amount. He added that net portfolio growth could take some time given the size of repayments.

Dividend Outlook and Nonrecurring Income

Runway paid a $0.33-per-share base dividend for the third quarter and declared a distribution at the same level for the fourth quarter. Chief Financial Officer Carmela Thomson said the company expects to cover its base dividend in the following quarter and for the full year, but that the 2027 outlook depends on repayment timing, new lending and share repurchases.

Third-quarter net investment income benefited from prepayment fees and other nonrecurring income. Thomson said the reported $0.38 per share included $0.10 in nonrecurring income, comprising $0.08 in prepayment fees and $0.02 in other fees. She estimated the net one-time impact at approximately $0.06 per share when prepayment fees and a $0.02 one-time debt expense were considered.

The debt portfolio’s dollar-weighted average annualized yield rose to 15.8% from 14.2% in the second quarter. Thomson said the latest figure included nonrecurring fees and put the core portfolio yield at 14%.

Marley Spoon and SWK Updates

Runway recorded a $10.8 million write-down on its investment in Marley Spoon, contributing to a $5.2 million net change in unrealized losses for the quarter. Gains elsewhere in the portfolio partly offset that write-down.

Rovner said Runway amended its Marley Spoon facility to eliminate approximately $28.9 million in unfunded commitments. The company had provided access to a roughly $9.6 million bridge loan by quarter end and increased the facility by approximately $4.1 million afterward. The bridge is intended to preserve value while Marley Spoon pursues a revised operating plan, he said, adding that Runway is evaluating ways to maximize its recovery.

Runway said its second-quarter acquisition of SWK increased its exposure to healthcare and life sciences and helped reduce average loan size. Since the deal closed, the company has increased loans to three SWK borrowers by a combined $34 million and realized a $3.4 million gain on $10 million in proceeds from Eton warrants, Rovner said.

After quarter end, Runway also issued 7.75% baby bonds with net proceeds of approximately $43.7 million. It primarily used the proceeds to redeem $33 million of 9% SWK notes due in January 2027, Thomson said.

About Runway Growth Finance (NASDAQ:RWAY)

Runway Growth Finance Corp. is a business development company (BDC) that provides financing to growth-oriented companies, primarily in the technology, life sciences, healthcare, products and services sectors. The company seeks to support businesses that may have limited access to traditional bank financing or require capital to fund expansion, acquisitions, product development and other strategic initiatives.

Its investment activity is centered on senior secured loans, including term loans and other structured debt investments.

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