Runway Growth Finance Corp. (RWAY) Earnings

Management highlights

- Leadership Changes and Strategic Platform Expansion * Appointed Mike Rovner as Co-Chief Executive Officer and Co-Chief Investment Officer, leveraging his 30+ years of experience in technology, venture capital, and private credit gained via BC Partners' acquisition of Ovation Partners. The appointment aligns with the firm's post-BC Partners partnership goal of building a stronger, more diversified platform, and brings aligned underwriting philosophy focused on high-conviction opportunities. * Completed the acquisition of SWK Holdings on April 6, 2026, which has meaningfully improved portfolio diversification by industry and loan size, reduced average loan size as a percentage of total portfolio cost by approximately 28% since June 30, 2025, and expanded origination sourcing capabilities. - Capital Allocation Strategy * BC Partners and its affiliates committed to purchase up to 10% of outstanding common stock over the next two years while shares trade below 70% of net asset value (NAV), demonstrating alignment with shareholder value. Runway Growth Finance also maintains that disciplined share repurchases are an attractive use of capital when shares trade at a discount to intrinsic value, and will implement a new Rule 10b-5-1 repurchase plan after the August 11, 2026 trading blackout ends. * Balances capital use between selective new originations, selective share repurchases, and debt paydown to maintain leverage within target ranges, while prioritizing long-term total shareholder return and preserving earnings capacity to support dividends. - Portfolio Activity and Diversification * Q2 2026 origination activity increased meaningfully from Q1 2026 (after slowing in Q1 to focus on the SWK close), with $85.8 million in total funding across 4 new investments and 6 follow-on investments, plus an additional $239.6 million in funding for assets acquired from SWK. Focused on diversifying into healthcare, life sciences, and select consumer sectors. * Completed restructurings for two problem portfolio positions (BlueShift and Marley Spoon) during the quarter: BlueShift was sold to Buconic resulting in a $16.5 million realized loss (already marked as an unrealized loss in Q1, leading to a small Q2 benefit), and Marley Spoon was restructured with a $31.3 million realized loss (also already marked as an unrealized loss in Q1). - Credit and Valuation Framework * Uses a proactive risk-rating framework where Category 3 designation indicates enhanced monitoring rather than credit impairment; 94% of the portfolio had a weighted average risk rating of 3 or better as of Q2 end, with 76% rated Category 1 or 2, and the weighted average portfolio risk rating improved to 2.34 from 2.67 in Q1 2026. 54% of all portfolio companies are cash flow positive. * Employs independent third-party valuation for high-exposure and high-risk positions, with backtesting showing fair value marks have exceeded 97.5% accuracy relative to realized exit values over the four quarters prior to realization.

Guidance

- Maintains a stable 2026 dividend outlook of $0.33 per share quarterly distribution (declared for Q3 2026), with full-year dividend coverage expected to exceed 100%. - SWK is expected to continue delivering approximately $0.05 per share quarterly accretion to net investment income on an ongoing go-forward basis, with minor adjustments as loans repay over time. - Management expects the current disciplined capital allocation strategy (affiliate purchases, company repurchases, selective originations) will reduce the current large discount to NAV over time, while preserving portfolio quality and earnings capacity to deliver long-term total shareholder returns.

Segment performance

Runway Growth Finance operates as a single business development company (BDC) focused on venture growth lending, with the portfolio expanded via the Q2 2026 acquisition of SWK Holdings. As of June 30, 2026, the total fair value of the investment portfolio was $1.2 billion, a 35% increase from $886.3 million in Q1 2026. The core venture lending portfolio benefited from the SWK acquisition, which added 26% growth in yielding assets, contributed $0.05 per share accretion to Q2 2026 net investment income, and generated $3.4 million in realized gains during the quarter. Total investment income for Q2 2026 was $37.0 million, and net investment income (NII) was $18.2 million ($0.43 per share), up from $29.5 million and $10.6 million respectively in Q1 2026. The dollar-weighted average annualized portfolio yield for Q2 2026 was 14.2%, which would have been 15% excluding non-accrual status for Marley Spoon and BlueShift, with high-yielding SWK assets offsetting the impact of those non-accruals.

Risks & headwinds

- Current share price reflects a more than 49% discount to Q2 2026 NAV, implying an expected level of credit losses that far exceeds the portfolio's underlying fundamentals and historical loss experience. For the implied loss level to be realized, approximately 10 investments in higher risk categories would need to default with 0% recovery, which is inconsistent with the firm's historical 76% recovery rate on defaulted loans. - Operating environment remains challenging, with heightened credit scrutiny, evolving interest rate expectations, and cautious market sentiment toward the software sector weighing on BDC sector valuations. - Leverage ratio increased to 1.36x at Q2 end, which is at the upper end of the firm's target range, requiring careful balancing of repayments, debt paydown, new originations, and share repurchases.

Analyst Q&A

• Q: How does the company prioritize share repurchases relative to debt paydown and new investment, now that leverage is at the top end of the target range? /

  A: Management will balance all three priorities. As loan repayments are received, a portion will be used to pay down outstanding debt to reduce leverage back within the target range, while remaining capital will be allocated opportunistically to both share repurchases and selective high-quality new originations. Full loan repayments can negatively impact leverage and coverage ratios, so this balance is necessary to maintain compliance and flexibility.

• Q: What is the current composition of the new investment pipeline between legacy Runway, BC Partners, and SWK, and will this mix stabilize over time? /

  A: It is too early to set a fixed mix. BC Partners is already a strong source of deal flow, with 9 completed joint investments to date, and provides additional due diligence support for new opportunities. SWK has already provided 2 funded opportunities, with additional room to upsize and refinance existing SWK portfolio loans. General market deal flow remains strong, with particularly attractive terms and wider spreads in software currently, so the firm is leaning into software originations at this time.

• Q: How has the software portfolio performed recently, given broad market anxiety about the sector? /

  A: Runway's software portfolio companies have continued to perform in line with internal expectations, and no software positions have moved to non-accrual or seen dramatic negative shifts in risk rating over the past year. The team monitors software exposures more closely given current market sentiment, but underlying portfolio fundamentals remain solid.

• Q: What is the expected cadence of BC Partners' 10% share purchase program over the two-year window? /

  A: Purchases will be opportunistic, similar to the company's own repurchase programs. More purchases will be executed when the discount to NAV is larger, but the firm will preserve dry powder over the full two-year program to support the share price throughout the period, balancing near-term opportunity with long-term availability of capital for purchases.