Monroe Capital Q1 2025 Earnings Report

Monroe Capital EPS Results

• Actual EPS: $0.19
• Consensus EPS: $0.27
• Beat/Miss: Missed by -$0.08
• One Year Ago EPS: N/A

Monroe Capital Revenue Results

• Actual Revenue: $11.64 million
• Expected Revenue: $13.81 million
• Beat/Miss: Missed by -$2.17 million
• YoY Revenue Growth: N/A

Monroe Capital Announcement Details

• Quarter: Q1 2025
• Date: 5/7/2025
• Time: After Market Closes
• Conference Call Date: Thursday, May 8, 2025
• Conference Call Time: 11:00AM ET

Monroe Capital (NASDAQ:MRCC) is a business development company specializing in customized financing solutions in senior, unitranche and junior secured debt, subordinated debt financing and to a lesser extent, unsecured debt and equity, including equity co-investments in preferred and common stock and warrants. It also provides financing primarily to leveraged buyouts in lower middle-market companies. It focuses to invest in the United States and Canada. The fund prefers to invest in companies with EBITDA between $3 and $35 million. Its makes minority equity investments.

Monroe Capital Q1 2025 Earnings Call Transcript

Key Takeaways

• Declared a $0.25 per share dividend in Q1 2025, representing a 14.3% annualized yield, supported by $0.53 per share of undistributed spillover income for distribution stability.
• Reported adjusted net investment income of $0.19 per share, NAV of $8.63 per share and reduced balance sheet leverage to 1.45× debt-to-equity as of March 31, 2025.
• Exited seven legacy investments totaling $37.6 million during the quarter and intend to redeploy proceeds into attractive vintages and high-performing existing portfolio companies via add-ons and delayed draw funding.
• Reiterated a senior secured, lower middle market direct lending strategy emphasizing conservative structuring, covenant protections and hands-on engagement with asset-light borrowers to drive downside protection.
• Completed the partnership between Monroe Capital and France’s Wendell Group on March 31, 2025, while maintaining autonomous investment process, strategy and operations under the new alliance.

Presentation

[Operator]

Welcome to Monroe Capital Corporation's First Quarter twenty twenty five Earnings Conference Call. Before we begin, I would like to take a moment to remind our listeners that remarks made during this call today may contain certain forward looking statements, including statements regarding our goals, strategies, beliefs, future potential, operating results and cash flows. Although we believe these statements are reasonable based on management's estimates, assumptions and projections as of today, 05/08/2025. These statements are not guarantees of future performance. Further, time sensitive information may no longer be accurate as of the time of any replay or listening.

[Operator]

Actual results may differ materially as a result of risk, uncertainty or other factors, including, but not limited to, to risk factors described from time to time in the company's filings with the SEC. Moonbrow Capital takes no obligation to update or revise these forward looking statements. I will now turn the conference call over to Ted Koenig, Chief Executive Officer of Monroe Capital.

[Theodore Koenig, Chairman & CEO at Monroe Capital]

Good morning, and thank you to everyone who has joined us today. Welcome to our first quarter twenty twenty five earnings call. I am here with Mick Salamini, our CFO and Chief Investment Officer and Alex Parmasek, our Deputy Portfolio Manager. Last evening, we filed our 10 Q with the SEC and issued our first quarter twenty twenty five earnings press release. On today's call, I'll begin by providing an overview of our financial results and then share some relevant thoughts around our current positioning in this uncertain and volatile market environment.

[Theodore Koenig, Chairman & CEO at Monroe Capital]

I am pleased to report that we declared and paid a $0.25 per share dividend in the first quarter of twenty twenty five, representing an annualized dividend yield of 14.3% based on our 05/06/2025 closing share price. Our first quarter dividend of $0.25 per share was supported in part by our accumulated spillover income, which we've intentionally preserved from prior strong performance to provide stability during quarters of lower investment income. As of 03/31/2025, we retained approximately $0.53 per share of undistributed spillover income, which continues to offer a cushion for future distributions. This disciplined approach allows us to manage through income variability, while continuing to deliver consistent returns to our shareholders. In the face of a constantly evolving market environment, our approach remains centered on prioritizing asset quality and positioning the portfolio for long term performance.

[Theodore Koenig, Chairman & CEO at Monroe Capital]

In the first quarter of twenty twenty five, our adjusted net investment income was $4,200,000 or $0.19 per share. At 03/31/2025, we reported NAV of $186,900,000 or $8.63 per share and MRCC's leverage was 1.45 times debt to equity. We ended the quarter with reduced balance sheet leverage and continue to focus on managing the investment portfolio while remaining selective with new investment opportunities. During the quarter, our portfolio companies reported solid revenue and EBITDA growth, which with a lower interest rate environment continue to support the portfolio's interest coverage ratio. Our portfolio management team continues to focus on maintaining the asset quality of the portfolio, which has demonstrated stability over the last several quarters.

[Theodore Koenig, Chairman & CEO at Monroe Capital]

We rely on active portfolio management approach to work through underperforming investments. This ultimately allows us to proactively assess and mitigate potential risks for borrowers so that we can successfully drive outcomes. Over the last several quarters, we have successfully exited several investments that were previously on our credit watch list. Going forward, we will look to utilize proceeds from portfolio exits to strategically redeploy into an increasingly attractive vintage where credit conditions are tightening and risk adjusted returns are compelling. Amid the recent market volatility, we believe MRCC's lower middle market direct lending approach with a focus on U.

[Theodore Koenig, Chairman & CEO at Monroe Capital]

S. Centric asset light businesses is well positioned. Our senior secured positioning with lower leverage attachment points, conservative structuring and covenant protections and hands on engagement with our borrowers are several features that drive downside protection and the ability to actively manage outcomes. We have spoken with every borrower and sponsor within the portfolio regarding their direct exposure to potential tariffs. Through those discussions, we have found that our portfolio, which was designed defensively, relatively insulated from potential tariff impacts and its composition were heavily weighted to services oriented companies and minimal exposure to consumer goods and manufacturing.

[Theodore Koenig, Chairman & CEO at Monroe Capital]

While trade policies and their economic effects remain highly dynamic, we only have a small number of borrowers in the portfolio that we believe are directly exposed to potential tariffs. In volatile markets, with uncertain macroeconomic backdrops, it is important for us to be thoughtful and selective with our investment activity rather than to reach for risk. Thus, we will lean into incumbency lending opportunities with high performing existing portfolio companies that have demonstrated resiliency during challenging operating environments. The companies that we have recently invested in, both new portfolio companies and existing portfolio companies operate in recession resistant industries and are well insulated from the uncertain tariff environment. We also believe that supporting existing portfolio companies will be an important strategy to employ in light of a slower than expected M and A environment in the near term.

[Theodore Koenig, Chairman & CEO at Monroe Capital]

Deploying capital into existing portfolio companies that we know well has proven to reduce underwriting risk and has historically generated some of our most attractive risk adjusted returns. Consistent with the past several quarters, incremental and follow on investments made to our existing portfolio companies have accounted for a majority of MRCC's capital deployment, a trend we anticipate continuing throughout the first half of twenty twenty five. Finally, Monroe Capital, the owner of MRCC's external advisor completed its partnership with Wendell Group, a French investment company and one of Europe's leading listed investment firms on 03/31/2025. Monroe, and by extension our advisor, continues to operate autonomously and independently and its investment process, strategy and operations will remain the exact same. We believe that this was an important step in driving value for our shareholders and are excited to move forward under this new partnership.

[Theodore Koenig, Chairman & CEO at Monroe Capital]

With that, I am now going to turn the call over to Mick, who's going to walk you through MRC's financial results in greater detail.

[Mick Solimene, CFO & CIO at Monroe Capital]

Thank you, Tad. At the end of the first quarter of twenty twenty five, our investment portfolio totaled $430,600,000 a twenty six point four million dollars decrease from $457,000,000 at the end of the fourth quarter of twenty twenty four. Our investment portfolio consisted of debt and equity investments in 85 portfolio companies compared to 91 portfolio companies at the end of the prior quarter. Middle market LBO and M and A activity has slowed down from the highly active fourth quarter of twenty twenty four in January of twenty five. According to LSEG LTC's first quarter twenty twenty five middle market analysis, middle market direct lending volume in the first quarter of twenty twenty five was down 22% from the fourth quarter of twenty twenty four, but was up 16% year over year.

[Mick Solimene, CFO & CIO at Monroe Capital]

LLPG's report also indicated that add ons and recapitalizations accounted for a greater share of direct lending volume relative to LDM transactions in the first quarter. As such, delayed draw term loan fundings often used to support existing investments accounted for a greater percentage of overall loan volumes, yet continued to increase meaningfully so far in early twenty twenty five. With M and A activity slower than originally anticipated, many companies have continued to focus on executing strategic growth initiatives to drive enterprise value and ultimately position themselves for an exit during a more attractive M and A environment. Investment activity across our platform and at MRCC continues to be consistent with those industry dynamics. Over the last several quarters, incremental investments in the form of add ons or delayed draw term loan fundings made to our existing portfolio companies have accounted for a majority of our investment activity.

[Mick Solimene, CFO & CIO at Monroe Capital]

During the first quarter of twenty twenty five, we invested $7,600,000 in one new portfolio company, while we invested $8,800,000 in delayed draw fundings and add ons to existing portfolio companies. While M and A activity has been slower than expected, MRCC still rotated out of seven legacy assets that amounted to $37,600,000 of payoffs during the quarter. Several of those portfolio companies that were successfully exited were at one point in buying on our credit watch list. Additionally, these successful exits allowed us to end the quarter with more conservative balance sheet leverage, providing us with additional dry powder through redeploying to assets as well as into existing portfolio company relationships. Although we will continue to be selective with our investment approach, we believe that this lending environment where spreads have begun to widen and lender firms remain favorable is a particularly compelling opportunity for direct lending.

[Mick Solimene, CFO & CIO at Monroe Capital]

During this quarter, our debt outstanding decreased by $22,700,000 At 03/31/2025, we had total borrowings of $271,200,000 including $141,200,000 outstanding under our floating rate revolving credit facility and $130,000,000 of our 4.75% fixed rate 2020 '6 notes. At quarter end, our leverage was 1.45 times debt to equity compared to 1.53 times debt to equity at the end of twenty twenty four. At 03/31/2025, the revolving credit facility had 113,800,000 of availability subject to borrowing base capacity. Now turning to our financial results. Adjusted net investment income, a non GAAP measure, was $4,200,000 or $0.19 per share this quarter compared to $6,200,000 or $0.29 per share in the prior quarter.

[Mick Solimene, CFO & CIO at Monroe Capital]

Excluding the impact of incentive fee limitations of $252,000 and $1,200,000 for the quarters ended 03/31/2025 and 12/31/2024, respectively, adjusted net investment income would have totaled $3,900,000 or $0.18 per share this quarter and $5,000,000 or $0.23 per share in the prior quarter. The decrease of $1,100,000 or $05 per share in adjusted net investment income after removing the impact of the settlement income taxes was driven by a lower average effective yield, reflecting lower interest rate environment, select asset specific performance, and a decrease in the average size of the portfolio. These impacts are consistent with the market dynamics that we've seen across private credit space and are not indicative of any structural change to portfolio quality. In addition, as a result of the shareholder friendly total return requirement within MRCC's incentive fee calculation, we currently expect at least partial limitations on our incentive fees to persist throughout the next quarter. The weighted average effective yield on the portfolio's debt and equity investments was 9.2% at 03/31/2025, compared to 10.2% at 12/31/2024.

[Mick Solimene, CFO & CIO at Monroe Capital]

The decline in effective yield was largely due to lower spreads on certain assets and declining interest rates. As of 03/31/2025, our NAV was $186,900,000 down from $191,800,000 as of 12/31/2024. Our corresponding NAV per share decreased by zero two two dollars from $8.85 per share to $8.63 per share. The decline in NAV this quarter was primarily the result of net unrealized losses associated with certain portfolio companies and the first quarter dividend being in excess of MRCC's net investment income for the quarter. As of 03/31/2025, MRCC had an estimated $11,500,000 or $0.53 per share of undistributed spillover income.

[Mick Solimene, CFO & CIO at Monroe Capital]

I will now turn it over to Alex, who will provide more details on our first quarter operating performance.

[Alex Parmacek, MD & Deputy Portfolio Manager at Monroe Capital]

Thank you, Mick. Now looking to our statement of operations. Investment income totaled $11,600,000 during the first quarter of twenty twenty five, down from $14,000,000 in the fourth quarter of twenty twenty four. The $2,400,000 decline this quarter was due to a lower effective yield on the portfolio and a decrease in average invested assets.

[Alex Parmacek, MD & Deputy Portfolio Manager at Monroe Capital]

Throughout most of 2024, the middle market saw loan spreads compress, while a series of buybacks amounted to nearly 120 basis point base rate decline. Although spreads have slowly shown signs of widening in early twenty twenty five, the declining interest rate dynamic has put pressure on interest yields for direct lenders. While these factors have contributed to a modest short term headwind, we view this as transitory. The portfolio continues to demonstrate solid underlying fundamentals. We are actively positioning for attractive deployment opportunities as credit spreads and lender terms improve.

[Alex Parmacek, MD & Deputy Portfolio Manager at Monroe Capital]

As Ted mentioned earlier, credit quality is generally stable in the quarter. There were no new investments placed on nonaccrual status, and our total investments on nonaccrual represented 3.4% of the portfolio fair market value, consistent with our nonaccrual rate at the end of last quarter. Further, we experienced favorable portfolio quality migration within our internal risk rating distribution during the quarter. The strength of our platform, including the depth and experience of our portfolio management team, is especially critical for successful exits in the current market environment. Rating upgrades with our internal risk rating system, such as those that occurred during the first quarter of twenty twenty five, are indications that we are seeing improved performance in some of our underperforming portfolio companies.

[Alex Parmacek, MD & Deputy Portfolio Manager at Monroe Capital]

It is important to note that the challenges we've seen in portfolio so far have been mostly due to idiosyncratic factors of specific borrowers and are not indicative of a broader pattern or stress within the portfolio. Now shifting over to the expense side. Total expenses for the quarter ended 03/31/2025, were $7,600,000 compared to $8,000,000 of total expenses for for the fourth quarter of twenty twenty four. Excluding the impact of incentive fee limitations of $252,000 and $1,200,000 in this quarter and in the prior quarter, respectively, total expenses decreased by $1,300,000 The decrease in expenses was primarily due to a decline in our interest expense resulting from a lower interest rate environment and a decrease in our average debt outstanding, as well as a decline in our incentive fees resulting from the lower net investment income during the quarter. The net loss on the portfolio for the quarter was $3,600,000 compared to a net loss of $7,700,000 for the prior quarter.

[Alex Parmacek, MD & Deputy Portfolio Manager at Monroe Capital]

These net losses for the quarter ended 03/31/2025, were driven primarily by unrealized mark to market losses from a few specific legacy portfolio companies that continue to be impacted by macroeconomic and idiosyncratic challenges as well as the company's investment in MRCC, Senior Loan Fund I, SLF. The decrease in value in SLF was driven by unrealized mark to market net losses on SLF investments, which are loans to traditional upper middle market borrowers. The average mark on the portfolio decreased by approximately 1.1% from 92.2% of costs at 12/31/2024 to 91.1% of costs at 03/31/2025. Despite the slight increase in the overall average mark, portfolio companies rated two on our internal risk rating scale accounted for over 81% of the fair value, consistent with the last several quarters and in line with our trailing eight quarter average. Turning back now to SLS.

[Alex Parmacek, MD & Deputy Portfolio Manager at Monroe Capital]

As of 03/31/2025, SLS had total assets of $86,000,000 including investments in 30 different borrowers aggregating $78,400,000 at fair value. SLS underlying investments are loans to middle market borrowers that are generally larger and more sensitive to market spread movements than the rest of MRCP's portfolio, which is focused on lower middle market companies. In the quarter, the average mark on the SLF portfolio decreased from 86.8% of amortized costs as of 12/31/2024 to 82.8% of amortized costs as of 03/31/2025. Consistent with the prior quarter, MRCC received income distributions from SLF of $900,000 As of 03/31/2025, SLF had borrowings under its nonrecourse credit facility of $21,800,000,000 At this point, I will turn the call back to Ted for some closing remarks before we open up the line for questions.

[Theodore Koenig, Chairman & CEO at Monroe Capital]

Thank you, Alex. As we look to the future, we remain committed to develop delivering long term value for our stockholders leveraging our deep credit expertise, rigorous underwriting standards and time tested portfolio management playbook. Our predominantly first lien portfolio continues to produce strong risk adjusted returns resulting in a 14.3% annualized dividend yield. MRCC enjoys a strong strategic advantage in being affiliated with an award winning best in class middle market private credit manager with over $20,000,000,000 in assets under management supported by a team consisting of over two eighty employees including one of our 120 dedicated investment professionals as of 04/01/2025. We remain confident in the resilience of our portfolio and our ability to navigate near term income volatility.

[Theodore Koenig, Chairman & CEO at Monroe Capital]

With a strong balance sheet, ample spillover income and a conservative credit posture, we believe that we are well positioned to continue delivering long term value to our shareholders. Thank you all for your time today. And this concludes our prepared remarks. I'm going to ask the operator to open the call now for questions. Thank

[Operator]

you. We will now begin the question and answer session. At this time, I would like to remind everyone in order to ask a question, And your first question comes from the line of Christopher Nolan with Ladenburg Thalmann. Please go ahead.

[Christopher Nolan, Senior VP - Equity Research at Ladenburg Thalmann & Co. Inc]

Hey, guys. My question sort of centers on sustainability of the dividend. And quite to your credit, you've stood by the $0.25 quarterly dividend for a long time, but the portfolio continues to contract in size and thus generating less income to support the dividend. Should we expect some sort of change in that contraction trajectory? Otherwise, should we assume at some point the dividend will be cut?

[Mick Solimene, CFO & CIO at Monroe Capital]

Hi, Chris. Thank you for that question. We are continuing to evaluate our dividend in light of today's earning level. As you know, we don't provide on future dividends, but based the current rate environment and our current portfolio composition, at least in the short run, we anticipate that the NII will be shot shy of our current dividend levels. Based on that, we've decided to support the dividend through previously accumulated spillover dividend, spillover income, which today totals about $0.53 per share of about $11,500,000 We used around $06 of spillover income this quarter to support our dividend.

[Mick Solimene, CFO & CIO at Monroe Capital]

And would anticipate having access to that spillover income in the near term for sure.

[Christopher Nolan, Senior VP - Equity Research at Ladenburg Thalmann & Co. Inc]

Okay, and as a follow-up, given where the stock is trading right now and the dividend yield where it is, why aren't you buying back more stock?

[Mick Solimene, CFO & CIO at Monroe Capital]

That's another fair question, Chris. We historically have not been in the market to support our stock. Our focus, given especially where our leverage is, has been to use our capital to support a portfolio of companies and maintain our leverage at current levels. But we, given where the stock is trading, are certainly cognizant of all strategic options, including where the stock is trading relative to NAV.

[Christopher Nolan, Senior VP - Equity Research at Ladenburg Thalmann & Co. Inc]

Okay. Thank you.

[Operator]

And your next question comes from the line of Robert Todd with Raymond James. Please go ahead.

[Robert Dodd, Director - Finance at Raymond James Financial]

Hi, guys. Just just first one, set my follow on to to Chris's. I mean, in the past, the manager, has been, very supportive of the BDC in terms of waiving fees in order to to, allow NII to meet the the dividend even if, you know, while we were going through some transition periods before. So I I take it from the the commentary here that that we should know or investors should no longer expect the manager to waive fees, to make that and it's it's just going to be the spillover issue and and no fee waivers to be expected in voluntary fee waivers. Obviously, there's look backs and there's catch ups and there's various other things, but is that a reasonable conclusion to your comments?

[Theodore Koenig, Chairman & CEO at Monroe Capital]

Good question, Robert. I don't think that's a good reasonable conclusion. We've done it in the past. We've done it, we continue to do that. You look, we've waived any incentive fees this quarter and we've done it in the prior quarters.

[Theodore Koenig, Chairman & CEO at Monroe Capital]

The manager has consistently supported MRCC and we will continue to support MRCC in the future. But at this time we made the decision this quarter to use some of the spillover income from prior periods And, you know, I think that was a a quarter decision. I think as we continue here, you know, I'm I'm very committed from a manager standpoint to maintaining and supporting MRCC.

[Robert Dodd, Director - Finance at Raymond James Financial]

Got it. Thank you. I mean, then just just another question. I mean, when I look at the the SLF, it's it's kind of the the amount of assets in it, the borrowing of that vehicle have been have been trending down, fairly significantly, over the last year, call it, you know, eighteen months, and and more pronounced kind of this quarter. Is the SLF type structures, are those expected to be a continued go forward part of the model?

[Robert Dodd, Director - Finance at Raymond James Financial]

Or is that vehicle effectively in rundown at this point?

[Mick Solimene, CFO & CIO at Monroe Capital]

Yeah, Robert, thank you for that question. As we've talked about in previous quarters, we've not been constructive around this end of the market. This was a portfolio that was mostly consistent with upper middle market names that have lower spreads, lower recovery rates. And I've not been very constructive on it. And as you point out, we have allowed this portfolio to decline over the course of the last several quarters to the point where today we have around 30 borrowers in our portfolio down pretty significantly from peak.

[Mick Solimene, CFO & CIO at Monroe Capital]

We are certainly evaluating today whether we're going to continue to allow continuing run off of the portfolio or possibly delever the portfolio. But at the present time, we are not constructive around this end of the asset class. And if you're comfortable in allowing the portfolio to effectively delever.

[Robert Dodd, Director - Finance at Raymond James Financial]

Got it. Got it. Thank you. And then put it in all of those questions. The the deal with Wendell, as you said, closed on on March 31.

[Robert Dodd, Director - Finance at Raymond James Financial]

I mean, Monroe still runs it's it's still independent, operates operates autonomously. Guess, is that the right way to put it? But, I mean, has there given the new partnership and and the expanded you know, potential expanded reach of the the whole platform as a whole, has there been any thought about is is the strategy beyond the things we've already talked about? Is the strategy of the BDC likely, the public BDC likely to evolve over the next couple of years or is what we see, what's likely to stay with the caveat that we talked about the SLF, etcetera?

[Theodore Koenig, Chairman & CEO at Monroe Capital]

Good question, Robert. And I think Christopher probably was going this direction as well. We've got a very dynamic platform. Our firm has grown significantly. We have today probably over $5,500,000,000 close to $6,000,000,000 in kind of, I'll call it, the wealth high net worth channel, which I include the BDC, MRCC in.

[Theodore Koenig, Chairman & CEO at Monroe Capital]

We're going to continue to evolve strategically and do everything we can to create value for our shareholders. And we're constantly looking at ways to do this. But you can assume, I think, that we're going to continue to find strategic ways to create value for our shareholders across the board including MRCC.

[Robert Dodd, Director - Finance at Raymond James Financial]

Understood. Thank you.

[Operator]

And there are no further questions at this time. I will now turn the call back over to Ted Koenig for closing remarks.

[Theodore Koenig, Chairman & CEO at Monroe Capital]

Yeah. Thank you for your time today. We appreciate our analysts, our shareholders. We are working very, very hard to maximize value for our stockholders at MRCC and no more to come. We look forward to talking to you again next quarter.

[Theodore Koenig, Chairman & CEO at Monroe Capital]

Obviously, if there's anything that you would like or any questions you have, please feel free to speak with Mick or Alex in truck hoarder. We welcome those discussions. So thank you.

[Operator]

This concludes today's conference call. Thank you all for joining. You may now disconnect.

Participants

Executives

• Theodore Koenig, Chairman & CEO
• Mick Solimene, CFO & CIO
• Alex Parmacek, MD & Deputy Portfolio Manager

Analysts

• Christopher Nolan, Senior VP - Equity Research at Ladenburg Thalmann & Co. Inc
• Robert Dodd, Director - Finance at Raymond James Financial