Runway Growth (RWAY) Q1 2026 Earnings Transcript

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Date

Thursday, May 7, 2026 at 5:00 p.m. ET

Call participants

• Chief Executive Officer and Chief Investment Officer — David Spreng
• Chief Financial Officer and Chief Operating Officer — Thomas B. Raterman
• Senior Vice President, Finance and Accounting — Carmela Thompson

Takeaways

• Total Investment Income -- $29.5 million, compared to $30 million in 2025.
• Net Investment Income -- $10.6 million, versus $11.6 million in 2025.
• Net Asset Value (NAV) Per Share -- $12.13 at period end, representing a 9.6% decline from $13.42 at prior year-end.
• Portfolio Fair Value -- $886.3 million, down 4.4% from $927.4 million in 2025.
• SWK Holdings Acquisition -- Closed after the quarter, adding diversification and lifting pro forma portfolio to $1.1 billion.
• Healthcare and Life Sciences Allocation -- Now comprises 32% of the portfolio by fair value and 30% of the debt portfolio post-acquisition.
• Base Dividend -- $0.33 per share declared; net investment income per share was $0.29.
• New and Follow-on Investments -- Four funded deals totaling $17.6 million, plus a $46.3 million debt commitment to a fragrance brand (partially funded in 2026).
• Nonaccrual Loan Activity -- Marley Spoon and BlueShift loans moved to category five; full-quarter impact on earnings will be $0.06 per share in Q2.
• Weighted Average Portfolio Risk Rating -- Increased to 2.67 from 2.45, primarily due to the nonaccrual adjustments.
• Portfolio Concentration -- Top 10 investments now represent 43% of the portfolio, down from 54% pre-acquisition.
• Share Repurchase Authorization -- $15 million program announced, expiring May 7, 2027. Repurchases to be partly funded by loan repayments.
• Spillover Income -- Approximately $0.65 per share at quarter end.
• Leverage and Liquidity -- Leverage ratio of 0.98 and total available liquidity of $372.3 million at quarter end; pro forma leverage post-acquisition increases to 1.20 and liquidity declines to $231.8 million.
• Weighted Average Annualized Yield -- Debt portfolio yield was 14.2%, in line with 2025 but lower than 15.4% from early 2025.
• Unfunded Commitments -- $179.2 million outstanding; $156.3 million for debt, $22.8 million for equity; $23.3 million eligible for draw based on milestones.
• Operating Expenses -- $18.8 million in the quarter, up slightly from $18.4 million in 2025.
• Nav Impact of SWK Closing -- Transaction costs of $7.7 million drove pro forma NAV per share to $11.93 after quarter end.

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Risks

• Rising Credit Risk -- CFO Thomas B. Raterman stated, "Our weighted average risk rating changed primarily as a result of moving two loans, Marley Spoon and BlueShift, to category five in nonaccrual status."
• Negative Impact on Earnings from Nonaccruals -- CFO Raterman said, "The full-quarter earnings impact of these new nonaccruals of $0.06 per share will be reflected in Q2."
• Declining NAV -- NAV per share decreased 9.6% to $12.13 due to market multiple declines and legacy watch list names, with additional transaction costs of $7.7 million lowering pro forma NAV to $11.93.
• Loan Workout Complexity -- Raterman described Marley Spoon as "very complex" and noted workouts "can take time to fully resolve."

Summary

Runway Growth Finance Corp. (NASDAQ:RWAY) reported lower net investment income and decreased net asset value per share due to legacy watch list loan issues and market multiples, while closing the SWK Holdings acquisition created a more diversified portfolio and altered sector composition. The company's leverage and available liquidity increased and decreased respectively following the transaction, with new leadership appointments announced for finance, credit, and healthcare. The board approved a $15 million share repurchase program and affirmed the base dividend, supported by robust spillover income and expectations for future contributions from the SWK portfolio.

• CFO Thomas B. Raterman clarified, "There was about $0.02 or $0.03 related to the early redemption of our baby bonds," with no direct SWK transaction expenses included in quarterly operating costs.
• Management expects SWK to start contributing to EPS in Q2 and to be "fully accretive in Q3," given the April 6 closing.
• Raterman indicated every material software investment underwent third-party valuation review in the quarter to validate marks.
• More than half the overall portfolio and 62% of the software investments are cash flow positive, with 100% of software loans containing financial covenants and 94% being sponsor-backed.
• Repayments and amortization totaled $16.9 million in the quarter, and $2.5 million was realized from equity proceeds.

Industry glossary

• Nonaccrual Status: Classification for loans where the lender stops accruing interest because collection is uncertain, typically a sign of significant credit deterioration.
• Spillover Income: Undistributed net investment income available for future distributions that supports dividend stability.
• First-Lien Exposure: Debt investments that are secured by the highest-priority claim on collateral, reducing risk in case of default.
• Watch List: Portfolio loans identified for heightened monitoring due to elevated risk, often tied to deteriorating fundamentals or performance.

Full Conference Call Transcript

David Spreng, chief executive officer and chief investment officer of Runway Growth Capital LLC, our investment adviser, Thomas B. Raterman, chief financial officer and chief operating officer, and Carmela Thompson, our senior vice president, finance and accounting. Runway Growth Finance Corp.'s first quarter 2026 financial results were released just after today's market close and can be accessed from Runway Growth Finance Corp.'s investor relations website at investors.runwaygrowth.com. We have arranged for a replay of the call to be available on the Runway Growth Finance Corp. web page. During this call, I want to remind you that we may make forward-looking statements based on current expectations. The statements on this call that are not purely historical are forward-looking statements.

These forward-looking statements are not a guarantee of future performance and are subject to uncertainties and other factors that could cause actual results to differ materially from those expressed in the forward-looking statements, including, without limitation, market conditions caused by uncertainties surrounding interest rates, changing economic conditions, and other factors we identify in our filings with the SEC. Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions can prove to be inaccurate, and as a result, the forward-looking statements based on those assumptions can be incorrect. You should not place undue reliance on these forward-looking statements.

The forward-looking statements contained on this call are made as of the date hereof, and Runway Growth Finance Corp. assumes no obligation to update the forward-looking statements or events. To obtain copies of SEC-related filings, please visit our website. With that, I will turn the call over to David.

David Spreng: Thank you, Quinlan, and thank you, everyone, for joining us this evening to discuss our first quarter 2026 results. Today, I will highlight notable developments from the quarter, provide an update on recent leadership appointments, and offer additional color on our approach to software investments. Then Thomas will take a deeper dive into our financial performance and portfolio metrics. I want to start by saying I am truly excited about the closing of the SWK transaction last month. It is a milestone moment for our investors and our team.

In tandem with the closing of the deal, we are pleased to welcome JD Thomas as a managing director of health care and life sciences investing, where he will leverage his extensive expertise to further strengthen our investment platform. This acquisition has already strengthened our position in health care and further diversified our portfolio. JD's appointment is both a logical progression and a great opportunity as we further optimize our portfolio in the coming quarters. I would also like to congratulate Avisha Kubani on her promotion to chief credit officer of our investment adviser Runway Growth Capital.

Since joining Runway in 2018, she has held a range of roles across portfolio monitoring and management analytics and valuation, bringing a deep understanding of our portfolio and credit discipline to this position. In addition, we are announcing today that Thomas B. Raterman, our CFO and COO, who joined me shortly after I started the firm, will become vice chairman of Runway Growth Capital effective 06/30/2026. He will be stepping back from his day-to-day roles at the BDC, including as CFO and COO, to focus on strategic initiatives that include portfolio optimization, platform-level M&A, capital market transactions, and capital formation.

Thomas will continue to play an integral role for the BDC serving on our investment committee and assisting with special situation assets. In tandem with this news, we are very pleased to share that Carmela Thompson, our SVP finance and accounting, will become CFO at that time. Carmela joined our firm in June 2021 from KPMG and played an integral role in our IPO later that year. Since then, Carmela has contributed meaningfully to our financial reporting processes and capital raising efforts and has managed important aspects of portfolio accounting and operations. Carmela's experience and expertise give her a strong understanding of Runway's financial strategy, capital structure, and portfolio construction as we enter our next phase.

Lastly, I am energized to be returning to the role of chief investment officer of our adviser. Our efforts since joining the BC Partners Credit platform have put the right pieces on the chessboard, and now we are going to work with this refreshed team to maximize returns for our shareholders. To that end, I would like to thank Greg Greifeld for his dedication over the years at Runway and wish him well in his future endeavors. We are confident in this experienced leadership team and the contributions JD, Avisha, and Carmela will make strengthening our origination and investment capabilities and financial operations and supporting our ability to deliver superior risk-adjusted returns.

Turning to our portfolio activity for the quarter, it is important to note that as we worked to close the SWK transaction, we temporarily slowed our evaluation of new opportunities in the pipeline to focus on integrating the SWK portfolio and post-transaction balance sheet. With the transaction now behind us, we are positioned to be very selective in capitalizing on a robust pipeline moving forward. We are even more confident in our ability to source high-quality investments across our core sectors: technology, health care, and select consumer products and services. In the first quarter, Runway delivered total investment income of $29.5 million and net investment income of $10.6 million.

During the quarter, we completed four investments in new and existing portfolio companies representing $17.6 million in funded investments. We also completed an additional debt commitment of $46.3 million, which will be partially funded during 2026. These investments included the following: First, the completion of a new $7.5 million investment to HR Pharmaceuticals, a founder-owned medical products platform specializing in the development, manufacturing, and supply of branded consumable products serving the acute and home care markets. We funded $5.5 million at close along with $2 million of preferred equity financing. Second, we completed an additional debt commitment of $46.3 million to [inaudible], a digitally native fragrance brand, which we expect will be partially funded during 2026.

Finally, we completed three follow-on investments with an aggregate amount of $10.1 million to three existing portfolio companies. Subsequent to the first quarter, we continue to evaluate compelling opportunities that meet our high standards while strategically increasing our exposure to innovative health care and life science companies with durable long-term business models. We look forward to updating you on these opportunities in further detail as appropriate. Turning to the ongoing market dynamics facing the sector, as discussed during our fourth quarter 2025 earnings call, the recent debate around software and AI disruption has contributed to increased scrutiny of private credit and has been further compounded by headlines around elevated redemptions in evergreen funds.

While media coverage has leaned into this narrative, it has failed to recognize the resilience of actual credit performance despite macro and rate headwinds over the last few years. Underlying fundamentals remain solid with default rates at manageable levels and broader credit metrics showing stability rather than stress. In terms of the venture market specifically, PitchBook/NVCA finds that activity remains modest overall and robust at the top end of the market with record levels of capital deployed. The data also points to resilience in early-stage investing and sustained interest in high-growth areas like AI. This suggests that while the market is selective, there are clear pockets of strength and opportunity underpinning venture activity.

Overall, we believe we are well positioned for strong long-term performance despite the current sentiment, supported by our rigorous investment approach and our seasoned leadership team which brings decades of venture capital experience. Our confidence is supported by our expanded platform which is supported by the expertise of BC Partners Credit and further enhanced by the acquisition of SWK Holdings. With the closing of the SWK acquisition, we have meaningfully reconstructed our portfolio with attractive diversification in key sectors like health care, with stronger future earnings power. Today, we have a more diversified, balanced, and enhanced portfolio with the health care and life sciences sector comprising 32% of the portfolio at fair value.

This transformation is an important context as we discuss the quarter's results. With respect to our software portfolio and approach to software investing, we maintain our long-term thesis on software and technology, our diligent approach to portfolio construction, and emphasis on risk mitigation. Across multiple economic cycles and market dislocations, our focus on high-quality late-stage companies with proven fundamentals has contributed to the resilience of our portfolio over time. We remain confident in our existing software positions and continue to evaluate compelling opportunities in the sector. Our software investments are high-quality, late-stage businesses characterized by mission-critical functions, long diligence and implementation cycles, and strong competitive moats, which include deep domain expertise, high switching costs, and diversified customer bases.

We believe these attributes position our portfolio companies to not only coexist with AI but to leverage it to optimize operations and accelerate market penetration. We apply the same exceptional level of diligence and rigor in underwriting our software investments that we do to our portfolio at large. We remain confident in our pipeline and optimistic about the year as we realize the benefits of integrating the SWK portfolio and drive stronger outcomes for both our borrowers and our shareholders. Now, Thomas, over to you.

Thomas B. Raterman: Thank you, David. In the first quarter, we generated total investment income of $29.5 million and net investment income of $10.6 million, a decrease compared to $30 million and $11.6 million in 2025. Our weighted average portfolio risk rating increased to 2.67 in 2026 compared to 2.45 in 2025. Our weighted average risk rating changed primarily as a result of moving two loans, Marley Spoon and BlueShift, to category five in nonaccrual status. Our weighted average risk rating calculated without these two specific loans moved from 2.67 to 2.37. Our rating system is based on a scale of one to five where one represents the most favorable credit rating.

Our total investment portfolio had a fair value of $886.3 million, a decrease of 4.4% from $927.4 million in 2025. As of 03/31/2026, Runway Growth Finance Corp. had net assets of $438.2 million, decreasing from $485 million in 2025. NAV per share was $12.13, a decrease of 9.6% compared to $13.42 as of 12/31/2025. The NAV per share disclosed subsequent to quarter end in connection with the SWK closing of $11.93 primarily reflected estimated transaction costs of $7.7 million. In discussing our NAV for the quarter, it is important to contextualize our go-forward portfolio and the financial benefits of the SWK acquisition.

On a pro forma basis, our portfolio is $1.1 billion, more than offsetting the impact of repayments in the Runway portfolio during 2025. It also drives diversification in terms of both industry exposure and the reduction of average loan size by 11%. Health care and life sciences will now account for 32% of our portfolio and 30% of our debt portfolio compared to [inaudible], respectively, at the end of the first quarter, and we expect to see a positive contribution to the portfolio's return profile over the balance of the year. Beyond financial contributions, our strengthened origination capabilities enhance our ability to source high-quality investments and selectively upsize existing commitments.

Moving back to the quarter, we delivered $0.29 per share of net investment income and a base dividend of $0.33 per share. At quarter end, we had spillover income of approximately $0.65 per share. Net investment income this quarter was impacted by the acceleration of one-time deferred debt costs as well as a smaller average portfolio size due to elevated prepayments in 2025, the effects of which were further compounded by slower originations ahead of the deal close as we described earlier. Looking ahead to next quarter, we expect contributions from the fully integrated SWK portfolio and a lag in associated management fees to benefit NII by approximately $0.03 per share.

However, we expect this benefit will be more than offset by the impact of Marley Spoon and BlueShift being placed on nonaccrual late in Q1. The full-quarter earnings impact of these new nonaccruals of $0.06 per share will be reflected in Q2. We are actively working with the management teams at Marley Spoon, BlueShift, and Mingle Healthcare and seek to achieve optimal outcomes for the portfolio. These situations are dynamic, and in the case of Marley Spoon, very complex, and as we have seen in the past, can take time to fully resolve. We do not see any thematic drivers to these recent credit downgrades.

These are situations we have been monitoring and decided this was the prudent course of action to take at this time. Although our team puts maximum effort into avoiding these situations, some level of defaults are unavoidable, and we are working diligently to resolve them. With respect to the dividend, we believe that it is currently set at an appropriate level. We are committed to delivering for our shareholders, and our Board continues to evaluate future distributions with the goal of maintaining consistency while maximizing returns. Our debt portfolio generated a dollar-weighted average annualized yield of 14.2% for 2026, consistent with 14.2% in 2025 and declining from 15.4% in the same period last year.

Moving on to expenses, total operating expenses were $18.8 million, an increase from $18.4 million in 2025. We recorded a net realized gain on investments of $1.3 million during 2026 compared to a realized loss on investments of $380,000 during 2025. During the first quarter, we experienced one full repayment and one partial repayment totaling $15 million, scheduled amortization of $1.9 million, and $2.5 million in equity proceeds. We remain focused on maximizing value over both the short and long term and continue to monitor the portfolio closely. Overall, we believe that downside risk is manageable and that our portfolio is well positioned to deliver stable results.

Our confidence in the portfolio is supported by several key metrics which support a more balanced and right-sized mix of investments. Prior to the closing of the SWK transaction, our top 10 investments accounted for 54% of the portfolio and now account for only 43%. Looking at the breakdown of verticals within the portfolio, they are now more balanced across technology, financials, health care, and select consumer products and services, and over half of our portfolio companies are cash flow positive, underscoring the strong fundamentals our portfolio is built on.

Within our software portfolio specifically, 62% of the companies are cash flow positive, 100% of our loans have financial covenants, and the weighted average fair value as a percent of cost, excluding nonaccruals, was 97%, and 94% of the loans in our software portfolio are sponsored. Each position in our portfolio undergoes a comprehensive evaluation process internally on a quarterly basis and periodically by a third party. For perspective, every material software investment in our portfolio was reviewed by a third-party valuation specialist in Q1. The portfolio was constructed intentionally with 98% first-lien exposure and well-diversified exposure across end markets. These results underscore the strength of our software portfolio and the diligence we apply to loans in the space.

Please refer to our earnings presentation for additional detail on our software. As of 03/31/2026, our leverage ratio and asset coverage ratio were 0.98 and 2.02, respectively, compared to 0.90 and 2.11, respectively, at the end of 2025. Our total available liquidity was $372.3 million, including unrestricted cash and equivalents. We have borrowing capacity of $370 million under our KeyBank credit facility. On a pro forma basis, immediately following the SWK transaction close, our leverage ratio, asset coverage ratio, and total available liquidity were approximately 1.20, 1.84, and $231.8 million, respectively.

As of 03/31/2026, we had a total of $179.2 million in unfunded commitments, which was comprised of $156.3 million to provide debt financing to our portfolio companies and $22.8 million to provide equity financing through our JV with Canma. Approximately $23.3 million of our unfunded debt commitments are eligible to be drawn based on achieved milestones. On 05/05/2026, our Board declared a regular distribution for 2026 of $0.33 per share. While there may be some variability in earnings on a quarter-to-quarter basis, we are confident in the long-term trajectory of our return profile and the strength of our combined portfolio. Finally, today, we are announcing a new share repurchase program for $15 million which will expire on 05/07/2027.

Thoughtful capital allocation remains a priority, and at current levels, we believe Runway Growth Finance Corp.'s common shares present a highly attractive opportunity. We expect repurchases to be partly funded by proceeds from loan repayments in the coming quarters. With that, Operator, we will now open the call for questions.

Operator: Thank you. As a reminder, to ask a question, you will need to press 1-1 on your telephone. To remove yourself from the queue, you may press 1-1 again. Again, that is 1-1 on your telephone to ask a question. Please stand by while we compile the Q&A roster. Our first question comes from the line of Erik Zwick of Lucid Capital Markets. Your question please, Erik.

Erik Edward Zwick: Thanks. Good afternoon, everyone. First, David, you mentioned a lot of personnel changes and promotions, and I know Thomas is on the line. So, Thomas, congratulations on your next position, and congrats to any of those else listening online. One, I wanted to start maybe with a question for Thomas. Just trying to potentially understand the kind of one-time expenses that may have been recorded in the quarter related to both the SWK acquisition and also, I think you mentioned, some accelerated debt expense as well. Just trying to drill down to maybe what a more kind of core run rate might have been.

Thomas B. Raterman: Yes. There was about $0.02 or $0.03 related to the early redemption of our baby bonds. If you recall, in January–February, we did a new baby bond offering, and we redeemed our 8% notes. So that is the number there. There were no SWK expenses directly. Most all of those would be capitalized into the transaction. There could be some modest amount just in terms of allocation of personnel that caused our allocations to the BDC to change a little bit, but it would be a rounding error.

Erik Edward Zwick: Got it. That is helpful. Thanks.

Thomas B. Raterman: Thanks for the congrats.

Erik Edward Zwick: You are welcome. The other one I wanted to ask, just along the lines of the new share repurchase authorization, given BlueShift Labs and Marley Spoon moving to nonaccrual and creating a little bit of earnings headwind, just how do you weigh, in your mind, how you evaluate the use of capital in terms of investing into new portfolio companies that would generate income versus buying back shares?

Thomas B. Raterman: Yes, it is always a tough balancing act between those two because purchasing shares at this level, at this percent of NAV, is immediately accretive. What really guides that is our excess borrowing base, if you will, and our leverage ratio that we calculate. We want to keep those two in check. We want to make sure we maintain adequate dry powder. We will be biased towards the deals that come in for those that have the best risk-return trade-off, choose the higher-yielding ones, probably the smaller-size transactions, all within our stated risk parameters.

Erik Edward Zwick: Great. Thanks for taking my questions.

Operator: Thank you. Once again, to ask a question, you will need to press 1-1 on your telephone. To remove yourself from the queue, you may press 1-1 again. Our next question comes from the line of Christopher Nolan of Ladenburg Thalmann. Your line is open, Christopher.

Christopher Nolan: Hi, and echo congratulations, Thomas, on your next move, and congratulations to everyone who got the step. What was the driver for the unrealized depreciation charges again? I think you addressed it in the comments, but I missed it.

Thomas B. Raterman: So the changes in fair value of the impact on NAV were really related primarily to two buckets. About a third, or just under a third, was related to declines in the market multiples. But the majority of it was related to the watch list names, primarily BlueShift and Marley Spoon.

Christopher Nolan: Great. And I think you mentioned that the drag on earnings from those two would be roughly $0.06 a quarter.

Thomas B. Raterman: That is correct. And our watch list is about six names. A number of them are marked at that 50% range, and we think those are very fair marks. Those workouts will take varying times to sort through. They have different levels of complexity, and so it will take a little bit of time to replace those with earning assets. But there is a game plan for each of them that is being fully adjudicated.

Christopher Nolan: Okay. And then turning to SWK, I know you mentioned earlier that it would be accretive to earnings. Do you have any sort of time frame when you expect it to be accretive to EPS?

Thomas B. Raterman: It should begin to be accretive to EPS in Q2, and then fully accretive in Q3. And the reason I say partially accretive is because it closed on April 6 as opposed to March 31.

Christopher Nolan: Great. Thank you.

Operator: I would now like to turn the call back over to David Spreng for closing remarks. Sir?

David Spreng: Thank you, Operator. And thank you all for joining us today. We look forward to updating you on our second quarter financial results in August.

Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.

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