Logan Ridge Finance Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 9, 2023

There are 5 speakers on the call.

Operator

Thank you for standing by, and welcome to Logan Ridge Finance Corporation's 3rd Quarter Ended September 30, 2023 Earnings Conference Call. An earnings press release was distributed yesterday after the close of the market. A copy of the release, along with a supplemental earnings presentation, is available on the company's website at www.loganrichfinance.com in the Investor Resources section and should be reviewed in conjunction with the company's Form 10 Q filed with the SEC. As a reminder, this conference call is being recorded for replay purposes. Please note that today's conference call may contain forward looking statements, which are not guarantees of future performance or results and involve a number of risks and uncertainties.

Operator

Actual results may differ materially from those in the forward looking statements as a result of a number of factors, including those described in the company's filings with the SEC. Speaking on today's call will be Ted Goldthorpe, Chief Executive Officer, President and Director of Logan Ridge Finance Corporation Jason Roos, Chief Financial Officer and Patrick Schaeffer, Chief Investment Officer. With that, I would now like to turn the call over to Ted Goldthorpe, Chief Executive Officer of Logan Ridge Finance Corporation. Please go ahead, Ted.

Speaker 1

Good afternoon. Welcome to our Q3 2023 earnings call. As mentioned, I'm joined today by our Chief Financial Jason Ruz and our Chief Investment Officer, Patrick Schaeffer. Following my opening remarks, Patrick will provide additional detail on our investment activity to date and Jason will walk through the financials. I'd like to start by highlighting that Logan Ridge once again reported another strong quarter, generating the highest Net investment income since we began managing the company a little over 2 years ago.

Speaker 1

This success is largely a continuation of the performance Quarter ending September 30, 2022. As the company's exposure to the legacy equity portfolio has continued to decline And as exposure to credits originated by the BC Credit BC Partners Credit platform has increased, the benefit to shareholders has been clear and is being reflected through Logan Ridge's financial results. With that in mind, I will keep my prepared remarks brief today and limited to a few key highlights, which Patrick and Jason can provide more detail on shortly. 1st and foremost, as a result of the company's strong financial performance, The Board of Directors approved a 15% increase in the quarterly distribution, bringing it to $0.30 per share compared to $0.26 per share last quarter. Since we've turned the quarterly dividend back on in early 2023, we've steadily increased it each quarter.

Speaker 1

Including this distribution, Total distributions declared in 2023 is $0.96 per share. We reported our 5th consecutive quarter of positive net investment income, which amounted to $1,200,000 or $0.43 per share for this quarter. Compared to the prior quarter, Compared to the same quarter in the prior year, our net investment income is up $1,000,000 from $200,000 or $0.07 per share in the Q3 of 2022. This trend illustrates the enhanced earnings power of our portfolio driven by the reworked capital structure we refinanced in 2022 and The success we've had in monetizing the non yielding legacy portfolio and redeploying that capital into income generating names originated by the BC Partners Credit Platform. I'm incredibly proud of this achievement.

Speaker 1

Deployment for the quarter remains strong with the company funding $6,100,000 in

Speaker 2

new and

Speaker 1

follow on investments. However, repayments and sales were elevated at $23,200,000 leaving us with net repayment and sales of $17,100,000 for the quarter. As of quarter end, the portfolio consisted of 58 consists of investments in 58 companies. Finally, during the quarter, we continued Repurchasing shares until our share repurchase program that was established in late March. Since the inception of the program and through September 30, 2023, The company has repurchased over 31,000 shares for an aggregate cost of approximately $700,000 which is accretive to NAV by approximately $0.08 per share for the quarter and $0.16 per share since the introduction of the program.

Speaker 1

As we enter the final quarter of the year, M and A activity is rebounding and our Pipeline is strong and thus we are expecting a solid Q4 for deployment. We continue to believe that 2023 will Proved to be very attractive private credit vintage and I am very optimistic on the company's future. With that, I will turn the call over to Patrick Schaeffer, our Chief Investment Officer.

Speaker 2

Thanks, Ted. As of September 30, 2023, The fair value of Logan's portfolio was approximately $187,100,000 with exposure to 58 portfolio companies. This compares to 62 portfolio companies with a fair value of approximately $206,600,000 as of the prior quarter and 54 portfolio companies with fair value of $193,100,000 as of the Q3 2022. During the Q3, we continue to judiciously deploy capital. Specifically, the company made approximately $6,100,000 in new and follow on investments at approximately $23,200,000 in repayments and sales, resulting in net repayments and sales of approximately $17,100,000 for the quarter.

Speaker 2

Included in our repayments and sales for the quarter was a successful exit of the company's legacy portfolio company Jurassic Quest. Specifically, Logan Ridge received $8,200,000 in proceeds to pay off its term loan and preferred equity interest in Jurassic Quest, which generated a realized gain of approximately $200,000 Moreover, while we had some large repayments in sales during the second half of the quarter, as Ted mentioned, our pipeline is strong and we are optimistic that Barring any unexpected large repayments, Logan Ridge will be able to redeploy this capital such that the company is fully invested and backed target leverage ratio by the end of the 4th quarter, which historically has been a strong quarter for deployment across our platform. Now onto portfolio composition. As of September 30, 2023, 55 percent of the company's investment portfolio at fair value was invested in assets originated by the BC Partners platform. At quarter end, our debt investment portfolio represented 82% of the total portfolio at fair value with a weighted average annualized yield of approximately 11% excluding income from non accruals and collateralized loan obligations.

Speaker 2

This compares to a debt investment portfolio, which represents 82.2% of our total portfolio at fair value with a weighted average annualized yield of approximately 10.8% excluding income from non accruals and collateralized loan obligations as of the prior quarter. 1st lien debt represented 63.6% 64.8% of our total portfolio on a cost and fair value basis respectively. This compares to 1st lien debt representing 66.1% and 66.8% of our total portfolio on Cost and fair value basis respectively as of June 30, 2023, 61.2% 61.9 percent of our total Portfolio on a cost and fair value basis respectively as of September 30, 2022. The non yielding equity portfolio represented 17.6% and 16.6% of the portfolio on a cost and fair value basis respectively as of December 30, 2023. This compares to 16.5% 16.4% of the portfolio on a cost and fair value basis as of June 30, 2023.

Speaker 2

The increase in our equity portfolio relative to the prior quarter was largely driven by net repayments and sales in the debt portfolio. As of September 30, 2023, 82.3 percent of our debt portfolio at fair value was bearing interest at a floating rate compared to 83.2% as of June 30, 2023. Moving on to non accrual status, Credit quality remained stable during the 3 months ended September 30, 2023 as there are no new portfolio companies added to nonaccrual status. As of September 30, 2023, we had 2 portfolio companies on non accrual with an aggregate amortized cost and fair value of 16 point $8,000,000 $10,600,000 respectively or 8.3% and 5.7% of the investment portfolio at cost and fair value respectively. This represents a slight decrease as compared to 2 portfolio companies on nonaccrual status as of the prior quarter, with a cost and fair value of $17,100,000 and $11,100,000 representing 7.8% and 5.3 percent of the investment portfolio, cost and fair value respectively.

Speaker 2

I'll now turn the call over to Jason.

Speaker 3

Thanks, Patrick. Turning to our financial results for the quarter ended September 30, 2023. For the Q3 of 2023, Logan Ridge generated $5,200,000 of investment income, which represents a decrease of 100,000 compared to the prior quarter and an increase of $1,500,000 compared to the Q3 in the prior year. The slight decrease in investment income compared to the prior quarter was largely driven by the net repayments and sales Patrick discussed earlier, as well as earning less Non recurring other income during the quarter. Compared to the same period in the prior year, the increase was primarily driven by redeploying proceeds received from exiting the non yielding equity portfolio into interest earning assets originated by the BC Partners Credit platform as well as an increase in base rates.

Speaker 3

Total operating expenses for the Q3 of 2023 decreased by approximately $297,000 to 4,000,000 as compared to $4,300,000 in the Q2 of 2023, primarily due to lower interest and financing as a result of paying down the company's credit facility with the proceeds received from net repayments and sales in the portfolio during the quarter. Compared to the Q3 of 2022, expenses were higher in the current quarter by approximately $442,000 largely driven by higher interest and financing expenses, partially offset by lower management fees and general and administrative expenses in the current period. Our net investment income for the quarter was $1,200,000 or $0.43 per share, marking our 5th consecutive quarter of positive net investment income. This compares to net investment income of $1,000,000 or $0.38 per share in the prior quarter and of particular note Our net asset value as of September 30, 2023 was 93,200,000 representing a $3,000,000 decrease or 3.1 percent as compared to the prior quarter net asset value of $96,200,000 On a per share basis, net asset value was $34.78 per share as of September 30, 2023, representing a $0.90 per share decrease or 2.5% as compared to $35.68 per share at the end of the Q2 of 2023.

Speaker 3

Per share is the accretive effect of our share buyback program. The decrease in net asset value quarter over quarter was driven by net realized and unrealized Losses on the portfolio during the quarter, partially offset by the company's net investment income exceeding the August 31, 2023 dividend, as well as the accretive effect on a per share basis of our share repurchase program. Compared to the company's prior year net asset value of 95,000,000 Net asset value decreased by $1,800,000 or 1.9 percent. On a per share basis, net asset value per share decreased by 0.26 dollars per share or 0.7 percent from $35.04 as of December 31, 2022. Again, the difference between the 1.9% and the 0.7% is the accretive effect Logan shareholders received from the buyback program.

Speaker 3

The decrease in net asset value relative to the prior year was driven by net realized and unrealized losses on the portfolio during the year, partially offset by the company out earning its dividend and the accretive effect on a per share basis of our share repurchase program. Finally, as of quarter end, the company had $5,100,000 in cash and cash equivalents as well as $39,200,000 of unused borrowing capacity available for deployment and investments originated by the BC Partners Credit Platform. With that, I will turn the call back over to Ted.

Speaker 4

Thank you, Jason.

Speaker 1

We are proud of the continued progress we've made during the Q3 of 2023 and we look forward to updating you on Logan Ridge's continued progress in early 2024. With that, I'll open up the call for questions.

Operator

Thank you, Ted, Jason and Patrick And your first question comes from the line of To Nolan from Ladenburg Thalmann, your line is open.

Speaker 4

Hey, guys. You're getting a lot of bang for the buck in terms of your share repurchases effect on NAV. Why don't just increased share repurchases, so NAV doesn't go down.

Speaker 2

Yes. Hey Chris, it's Patrick. I think what I would say is There are certain limitations as management and company in terms of how much you can buy back and kind of all the rules So it's not necessarily just as simple as increasing the amount of shares that we're buying back in terms of what we can actually practically speaking buy in the market.

Speaker 1

So I mean, yes, we're pretty much in violent agreement with you. It's just where we operate within the constraints that we operate under.

Speaker 4

Understood. And then in terms of over earning the dividend, you guys sort of seem to be taking an incremental increase in the dividend. I mean, should we expect that for coming quarters assuming you're this quarter is a decent run rate? Yes, I

Speaker 2

mean, I think it yes, I mean, the short answer is as you would expect NII to increase, would expect to close that gap. Having said that and we mentioned this on calls before, the actual like absolute dollars are So sometimes can be small and so we want to be very careful on our dividend policy to make sure that we don't have kind of one time unexpected Issues either kind of expenses or fees or something like that impacting the actual dividend coverage. But generally speaking, yes, you could expect our rate to close the gap over time.

Speaker 4

Final question, nth to degree, given that you guys Such a large equity position in it. Any update you can provide given the uncertainty of the economy?

Speaker 2

Yes, good question, Chris. I think and a lot of this is public through various different places. But I think what I can say Generally speaking, the company continues to perform very well. They did an M and A transaction in the summer that we're hopeful We'll be very accretive to enterprise value in terms of the business that they're purchasing and the price at which they purchased it. So I'd say generally speaking, this particular company was hit very, very hard during COVID And has done an exceptional job rebounding and over the last, I don't know what period of time, but a year, 18 months, Whatever you want to call it has well exceeded pre COVID levels of performance.

Speaker 2

So we're generally pretty pleased With the performance so far and haven't seen anything that would suggest the current environment is impacting the business.

Speaker 4

Great. That's it for me. Thank you.

Speaker 1

Thank you everyone for joining us today. We wish everybody a very Happy Thanksgiving and we look forward to speaking to you all again in early March of 2024 We announced our Q4 and full year 2023 results. And as always, please feel free to reach out to any member of management with any questions or considerations. Thank you very much.

Operator

This concludes today's conference call. Enjoy the rest of your day. You may now disconnect.

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Key Takeaways

  • The Board approved a 15% increase in the quarterly distribution to $0.30 per share, raising total 2023 distributions to $0.96 per share.
  • Logan Ridge reported its 5th consecutive quarter of positive net investment income of $1.2 million or $0.43 per share, up from $0.07 per share in Q3 2022.
  • The company funded $6.1 million in new and follow-on investments but saw $23.2 million in repayments and sales, leaving a net repayment balance of $17.1 million; the portfolio fair value stood at $187.1 million across 58 companies.
  • Since March, Logan Ridge repurchased over 31,000 shares for approximately $700,000, accreting NAV by about $0.08 per share this quarter and $0.16 per share since program inception.
  • With M&A activity rebounding and a strong pipeline, management expects to redeploy excess capital and reach target leverage by Q4 close, making 2023 a very attractive private credit vintage.
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Earnings Conference Call
Logan Ridge Finance Q3 2023
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