Logan Ridge Finance Q2 2023 Earnings Report

Logan Ridge Finance EPS Results

• Actual EPS: $0.39
• Consensus EPS: N/A
• Beat/Miss: N/A
• One Year Ago EPS: N/A

Logan Ridge Finance Revenue Results

• Actual Revenue: $5.34 million
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Logan Ridge Finance Announcement Details

• Quarter: Q2 2023
• Date: 8/9/2023
• Time: N/A
• Conference Call Date: Thursday, August 10, 2023
• Conference Call Time: 10:00AM ET

Logan Ridge Finance (NASDAQ:LRFC), formerly known as, Capitala Finance Corp. is a Business Development Company specializing in senior subordinated debt and unitranche debt, unitranche loan, first-lien and second-lien loans, lower middle market and middle market, equity co-investment in sponsored companies. The fund targets companies in the Aerospace, defense, business services, education, food and beverage, Industrial & Environmental Services, logistics, distribution, media, telecommunication, manufacturing, consumer goods and health-care industries. It typically considers investments in the United States. The fund invests $5 million and $50 million per transaction in companies with EBITDA between $5 million to $50 million and enterprise value less than $250 million. The fund makes minority equity co-investments, alongside management or financial sponsors.

Logan Ridge Finance Q2 2023 Earnings Call Transcript

[Operator]

Good morning, and welcome to Logan Ridge Finance Corporation's 2nd Quarter Ended June 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 Earnings presentation is available on the company's website at www.loganridgefinance.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 and 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 Goldor, 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 Colthorpe, Chief Executive Officer of Logan Ridge Finance Corporation. Please go ahead. Ted?

[Speaker 1]

Good morning, and welcome to our Q2 2023 earnings call. I'm joined today by our Chief Financial Officer, Jason Roos 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 the Q2 of 2023 was Logan Ridge's Strongest quarter to date since we took over managing the company just 2 years ago and largely a continuation of the performance trajectory Logan has been on since the middle of 2022. As the company's exposure to legacy equity portfolio has continued to decline and its exposure to credits With that in mind, I will keep my prepared remarks brief today and limit it to a few key highlights, which Patrick and Jason will provide more detail on shortly.

[Speaker 1]

1st and foremost, as a result of the company's strong financial performance, the Board of Directors approved an 18% increase in the quarterly distribution, bringing it to $0.26 per share compared to $0.22 per share last quarter. Since we've turned the quarterly dividend back on in early 2023, as compared to the prior quarter. We reported our 4th straight quarter of positive net investment income, which amounted to $1,000,000 or $0.38 per share for this quarter. 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 monetizing the non yielding legacy portfolio and redeploying that into income generating names. Deployment for the quarter remained positive with $4,800,000 in new investments and $4,400,000 in repayments and sales, leaving us with net deployment of approximately $400,000 As of quarter end, the portfolio consisted of investments in Finally, during the quarter, we continued repurchasing shares under our share repurchase program that was established in late March.

[Speaker 1]

As of June 30, we had repurchased approximately 14,000 shares for an aggregate cost of approximately $290,000 which was accretive to NAV by approximately $0.08 per share. Looking ahead, we remain cautiously optimistic for the second half of twenty And we continue to believe that 2023 will prove to be a very attractive private credit vintage. With that, will turn the call over to Patrick Schaeffer, our Chief Investment Officer.

[Speaker 2]

Thanks, Ted. As of June 30, 2023, fair value of Logan's portfolio was approximately $206,600,000 with exposure to 62 portfolio companies. This compares 59 portfolio companies with fair value of approximately $203,300,000 in the prior quarter. During the second quarter, We continue to judiciously deploy capital. Specifically, the company made approximately $4,800,000 of investments Approximately $4,400,000 in repayments and sales, resulting in net deployment of approximately $400,000 for the quarter.

[Speaker 2]

Compared to a year ago, Logan's portfolio growth and increased diversification is even more impressive as the company had just 44 portfolio companies with a fair value of $175,900,000 As of June 30, 2023, More than half of the company's investment portfolio at fair value was invested in assets originated by the BC Partners Credit Platform. As we have consistently demonstrated since we were Appointing to serve as the company's investment advisor, we've been extremely thoughtful with your capital, initially laser focused on derisking the portfolio And now ensuring underwriting remains prudent and disciplined as we look to selectively take advantage of this lender friendly market. Moving on to our portfolio composition. At quarter end, our debt investment portfolio consisted represented 82.2% of the total portfolio at fair value This compares to a debt investment portfolio, which represented 83.2% of our total portfolio at fair value With a weighted average annualized yield of approximately 10.7 percent, excluding income from non accruals and collateralized loan obligations, as of the prior quarter. This decrease in our debt portfolio relative to the prior quarter was largely driven by the strong performance of our equity portfolio during the quarter.

[Speaker 2]

As of June 30, 2023, 83.2 percent of our debt investment portfolio at fair value was bearing interest at a floating rate compared to 83.4% as of March 31, 2023. Further, as of June 30, 2023, 1st lien debt represented 66.1% and 66.8% of our portfolio on a cost and fair value basis, respectively. This compares to 1st lien debt representing 65.4% and 67.7% of our total portfolio on a cost and fair value basis, respectively, as of March 31, 2023, 55.7% 55.4% of our total portfolio on a cost and fair value basis respectively as of June 30, 2022. The non yielding equity portfolio represented 16.5% and 16.4% of the portfolio on a cost and fair value basis, respectively, as of June 30, 2023. This compares to 16.4% 14.6% of the portfolio on a cost and fair is largely driven by the strong performance of our equity book during the quarter.

[Speaker 2]

Moving on to nonaccrual status. During the 3 months ended June 30, 2023, there were no new portfolio companies added to nonaccrual status. However, we did add an additional security to nonaccrual status, Logan's 1st lien term loan to Lucky Bucks LLC. As of June 30, 2023, We had 2 portfolio companies on nonaccrual with an aggregate amortized cost and fair value of $17,100,000 $11,100,000 respectively We're 7.8% and 5.3 percent of the investment portfolio at cost and fair value, respectively. This compares to 2 portfolio companies on non accrual status as of the prior quarter with a cost and fair value of $14,200,000 $10,000,000 respectively, representing 6.4% and 4.9% of the investment portfolios cost and fair value respectively.

[Speaker 2]

And I'll turn the call over to Jason.

[Speaker 3]

Thanks, Patrick. Turning to our financial results for the quarter ended June 30, 2023. For the Q2 of 2023, Logan generated $5,300,000 of investment income, which was flat compared to the prior quarter and increased by $1,900,000 compared to the same quarter 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. Total operating expenses for the Q2 of 2023 slightly increased by approximately 100 and $1,000 to $4,300,000 as compared to $4,200,000 in the Q1 of 2023, primarily due to higher interest and financing expenses as a result of by lower management fees and general and administrative expenses in the current period.

[Speaker 3]

Our net investment income for the quarter was $1,000,000 or $0.38 per share, Marking the 4th consecutive quarter of positive net investment income and a complete turnaround compared to the Q2 of 2022, for which the company reported a net investment loss of $929,000 Our net asset value as of June 30, 20 $23,000,000 was $96,200,000 representing a $2,400,000 increase or 2.6% as compared $8 per share as of June 30, 2023, representing a $1.05 per share increase or 3% as compared to $34.63 per share at the end of the Q1 of 2023. I'd like to highlight that the difference The 2.6% increase in net asset value compared to the 3% increase in net asset value per share is the accretive effect of our share buyback program. The increase in net asset value quarter over quarter was driven by the net investment income in excess of the May 31, 2023 dividend payment, Net realized and unrealized gains on the portfolio during the quarter and 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 increased by $1,200,000 or 1.3%. On a per share basis, net asset value per share increased by $0.64 per share or 1.8 percent from $35.04 as of December 31, 2022.

[Speaker 3]

Again, the difference between the 1.3% and the 1.8% is the accretive effect Logan's shareholders received from the buyback program. The increase in net asset value relative to the prior year was driven by the company out earning its dividend, net realized and unrealized gains on the portfolio during the quarter and the accretive effect on a per share basis of our share repurchase program. Finally, as of quarter end, the company had $6,300,000 in cash and cash equivalents as well as $18,600,000 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 1]

Thank you, Jason. Why don't we open up the call for Q and A, but before that, We're very proud of the continued progress we've made during the Q2 of 2023 and then look forward to increasing shareholder value through the back half of the year.

[Operator]

The floor is now open for your questions. Your first questions come from the line of Christopher Nolan with Ladenburg Thalmann. Your line is now open.

[Speaker 4]

Hey, guys. What was the driver for the increase in diluted share count Q over Q?

[Speaker 3]

Increased in diluted? Well, we had the share buyback program, so you should had an anti dilution effect for the quarter. Oh, got it. So If you're referring to the diluted EPS is related to the Debt that we issued last year that had a conversion feature to it.

[Speaker 4]

Got you. And then, what was the Driver for the appreciation of equity fair values, was there a particular driver?

[Speaker 2]

Yes. The largest driver Was one portfolio company called nthdegree, company continues to form very, very well And they completed a relatively accretive acquisition during the quarter. But just it's mostly driven in 1 company and it's Just continued very strong performance.

[Speaker 4]

Great. And then final question, pardon me if I missed this, but was there a particular driver for the realized Loss as well as the unrealized appreciation?

[Speaker 3]

Yes. So this portfolio had some CLO equity in it. And as a result of markdowns in that portfolio this quarter, we took some impairment on those CLOs.

[Speaker 4]

Got you.

[Speaker 3]

So that realized loss is predominantly CLO?

[Speaker 2]

It flipped from unrealized to realized.

[Speaker 3]

Only a portion of it was a flip, about $400,000 was a flip, but all of that realized was related to CLO impairment.

[Speaker 4]

Yes. And it's a good quarter. And so it looks like you guys are starting to hit your stride on this. Strategically, any ideas in terms of possibly taking on some SBA debt or anything like that?

[Speaker 1]

Yes, it's a good question. I mean, we've explored it. I think it's really difficult for our understanding is it's been it's really hard for BDCs to get New SBIC licenses and obviously we don't have one. So it is something we always think about, but I think it's unlikely that we'll be able to get one.

[Operator]

Our next question comes from the line of Steve Martin with Slater. Your line is now open.

[Speaker 5]

Hi, again, guys. Hi, Steve. So this is the Q1 well, the NAV increase was great, the buyback was great. This is the Q1 where sequentially as opposed to year over year, The NII didn't really go up. If you look at slide what is that?

[Speaker 5]

Slide 4.

[Speaker 1]

Yes.

[Speaker 5]

Investment income was sort of flat, expenses were up a little And you've had a great progression of increasing investment income. So I was wondering what the driver of that was and what we should expect?

[Speaker 2]

Yes. I'd say a couple of things, Steve, which is particularly for the current quarter, well, it's really 2 things, which is Q1 had some kind of non recurring fees in it. So when you actually kind of strip that out and I know we specifically called it out Last quarter as well, but I think there's something in the area of $200,000 of non recurring fee income. But when you kind of strip out the fee income, there is a more material increase quarter over quarter in terms of the Investment income? So that obviously, again, it's a higher quality revenue stream.

[Speaker 2]

And then secondly, we also, as mentioned, we did put an incremental Security on non accrual. So when you again, when you kind of like if you were to normalize for that, organically we are still kind of growing our income base. So those are the 2 biggest factors in what appears to be flat sequentially.

[Speaker 5]

So the prospects for the Q3, If you had normalized Q2 and Q Q1 and Q2, that ramp is occurring and we should expect Something that one of these unusual items you're talking about that that should continue to grow?

[Speaker 3]

Yes, that's right, Steve. So the core earnings are solid. You'll see that growth projection or that growth trend Over the last few quarters, once you strip out these one time items.

[Speaker 5]

Okay. And Ted, the or Patrick, the question I asked earlier, What does the Q3 look like for deployments, repayments? Any chance any more of those equity Securities got monetized and can be rolled into something producing?

[Speaker 2]

Yes. Honestly, I forget exactly where we noted it. But I think it might have been in our earlier press release our earnings deck, but we did monetize a relatively large Position subsequent to quarter end, Jurassic Quest, that was something in the area of $6,500,000 $7,000,000 of debt As well as an equity position there, I think it was about I think we had marked at quarter end at about $650 or so. So not meaningful, But between that and I think that was a relatively under yielding investment as well relative to what our new money is being put out at. But that's like again, call it like $7,500,000 ish between debt and equity that we would expect to sort of redeploy in the quarter.

[Speaker 2]

And I'd say in general, we would expect to be a net deployer of capital as opposed to a net receiver, though obviously Kind of timing dependent on when we receive pay downs. Again, just as talked about in Portland as well, Our pipeline, just private credit is a little bit longer gestation period for pipeline. So just depending on when that stuff would come back to us. But we would think of this vehicle still as a net deployer of capital.

[Speaker 5]

Yes. Sorry for missing that. It's been a little crazy this morning and I got on your call a couple you talk about dividend policy on Logan Ridge as opposed to Portman, I'm sure it's slightly different?

[Speaker 1]

Yes, I mean obviously with every passing quarter we're chopping more wood on the NII side and feeling more and more comfortable Around dividend coverage. So obviously, we increased the dividend in a pretty healthy way, but there's obviously room to continue to increase the dividend. So Barring any kind of negative surprises, we expect the dividend yield to continue to rise.

[Speaker 5]

All right. Thanks a lot.

[Speaker 1]

Thank you.

[Operator]

Since there are no further questions at this time, Mr. Ted Goldthorpe, I turn the call back over to you.

[Speaker 1]

Great. Thank you. Thank you everyone for joining us today. We look forward to speaking to you again in November when we announce our Q3 results. And I want to wish everybody a very happy end to summer.

[Speaker 1]

Thank you very much.