MidCap Financial Investment Q1 Earnings Call Highlights

Key Points

• MFIC’s first quarter was pressured by portfolio losses and weaker credit quality, with NAV falling 2.5% to $13.82 per share and non-accruals rising to 3.5% of the portfolio from 2.6%. Management said the NAV decline was driven mainly by a $0.67 per share portfolio loss, partly offset by NII above the dividend and gains from buying back shares below NAV.
• Share repurchases were a major capital allocation focus, as MFIC used its full $107.9 million authorization, including $76 million in the quarter and the remaining $31.9 million after quarter-end. Management said the buybacks were intended to narrow the discount to NAV, but leverage rose to 1.55x and future repurchases will wait until leverage moves back toward target.
• Operating income and investment activity softened, with net investment income of $0.38 per share and total investment income down 8.3% quarter over quarter to $71.8 million. MFIC also reported modest new commitments, lower portfolio yield at cost, and said it will repay $125 million of 4.5% notes due in July 2026 using its revolver, which should modestly increase debt costs.

MidCap Financial Investment NASDAQ: MFIC reported first-quarter results for the period ended March 31, 2026, highlighting a mix of solid net investment income, portfolio valuation pressure, and an aggressive share repurchase program that management said was aimed at improving shareholder value while the stock trades at a discount to net asset value (NAV).

Quarterly results and NAV decline

Chief Executive Officer Tanner Powell said net investment income (NII) was $0.38 per share for the quarter, while GAAP net loss was $0.30 per share. NAV ended the quarter at $13.82 per share, down 2.5% from the prior quarter.

Powell attributed the $0.36 per share decline in NAV to a portfolio loss that was partially offset by NII exceeding the dividend and by accretion from repurchasing shares below NAV. Specifically, he said the quarter included a net loss of $0.67 per share on the portfolio, partially offset by $0.07 per share of NII above the dividend and about $0.24 per share of accretion from buybacks executed below NAV.

Powell said the portfolio loss reflected both market and credit factors. “Our net loss was roughly evenly split between market-related factors and credit-related weakness,” he said, citing credit spread widening and multiple compression “particularly within the technology sector, including software,” as well as weakness in certain individual positions. He added that MFIC’s third-party valuation firms incorporate market conditions such as spread widening and heightened volatility into quarterly marks.

Share repurchases, leverage, and dividend

MFIC’s share repurchase activity was a central focus of the call. Powell said the company fully utilized its existing $107.9 million authorization, repurchasing $76 million in the first quarter and the remaining $31.9 million after quarter end in April. He said the authorization was used “more quickly than anticipated” due to increased trading volume, including activity under a 10b5-1 trading plan.

Powell also said that, as a result of the quarter’s net loss and stock buyback activity, net leverage increased to 1.55x at quarter-end. Management said it intends to reduce leverage by de-emphasizing new commitments and through expected repayments. Powell added that subsequent to quarter end the company received net repayments in excess of $100 million.

Asked about future repurchases, Powell said the company does not plan to make a decision on additional buybacks or redeploying capital into new investments until leverage returns to the lower end of its targeted range. He reiterated the company’s stated goal of narrowing the discount between the share price and NAV.

On May 5, 2026, MFIC’s board declared a $0.31 per share quarterly dividend, payable June 25, 2026 to shareholders of record on June 9, 2026, Powell said.

Investment activity and portfolio composition

President Ted McNulty said new investment activity was “relatively modest” during the quarter. MFIC made $50 million of new commitments across eight companies with a weighted average spread of 469 basis points. McNulty said most of those commitments occurred prior to the company’s decision to allocate more capital to stock buybacks.

McNulty reported gross fundings of $68 million (excluding revolvers). Sales and repayments (excluding revolvers and Merx) totaled $181 million, with net revolver fundings of about $1 million. Including a $22 million paydown from Merx, MFIC had net repayments of $142 million in the quarter.

At quarter-end, the investment portfolio had a fair value of $2.97 billion across 236 companies and 45 industries, McNulty said. He added that direct origination and other investments represented 96% of the portfolio at fair value, with Merx representing less than 3%, and liquid positions acquired during 2024 mergers totaling about 1%.

In the directly originated portfolio, McNulty said 99% was first lien and 94% was backed by financial sponsors (fair value basis). The average funded position was $12.6 million, and the median EBITDA was about $51 million. On a cost basis, he said about 94% of positions had one or more financial covenants.

Portfolio yield trends were mixed. McNulty said weighted average yield at cost on the direct origination portfolio was 9.6% in the March quarter, down from 10% in the December quarter, driven by lower base rates and a lower average spread. The weighted average spread on directly originated corporate lending was 538 basis points at quarter-end, down 8 basis points from the end of December.

Software and SOFR exposure; Merx update

McNulty said software represented 11% of MFIC’s portfolio at fair value, which he said is below the BDC industry average. He described the software exposure as “primarily cash pay,” “100% first lien,” and diversified across 28 borrowers with an average position size of $12 million. He also cited an average loan-to-value of 35%, median EBITDA of $50 million, weighted average interest coverage of 2.3x, and weighted average net leverage of 4.4x, down from 4.6x in the prior quarter. The weighted average spread of the “SOFR portfolio” was 533 basis points, which he said was roughly in line with the overall portfolio.

Powell also provided an update on Merx following the quarter’s paydown. MFIC’s investment in Merx totaled about $81 million at fair value at quarter-end, representing 2.7% of the portfolio at fair value. He said MFIC’s remaining investment consists of four aircraft plus value tied to Merx’s servicing platform, which earns remarketing fees on aircraft sales for Navigator, Apollo’s aircraft leasing fund. Powell said that at the end of March, the servicing business represented about 38% of Merx’s total value and would decline over time as servicing income is received.

Credit quality, non-accruals, and expense trends

Credit performance was a key topic during the Q&A. McNulty said investments on non-accrual increased to 3.5% of the portfolio at fair value from 2.6% in the prior quarter, with the two largest contributors being Midwest Vision and Tasty Chick’n. McNulty said underlying portfolio company credit metrics were stable quarter-over-quarter, with borrower net leverage at 5.29x and weighted average interest coverage at 2.3x, both unchanged from the end of December. He also said PIK income represented 4.7% of total investment income for the quarter, down slightly from the prior quarter.

Powell added that Midwest Vision is an ophthalmology physician practice management (PPM) investment and said cost pressures and higher sensitivity to the cost of capital contributed to the credit deterioration. In response to another question, Powell said the non-accruals were from “older vintages.”

Chief Financial Officer Kenneth Seifert said total investment income was $71.8 million, down $6.5 million (or 8.3%) from the prior quarter, driven by lower base rates, fewer accrual days, a smaller portfolio, an increase in non-accruals, and lower fee income. He reported prepayment income of $2.7 million (up from $2.4 million), fee income of about $500,000 (down from $1 million), and dividend income of about $300,000.

Net expenses were $37.6 million, down $4.8 million (or 11.3%) from the prior quarter, which Seifert attributed primarily to lower interest expense from lower base rates and lower administrative service expenses. He also said the “total return feature” in MFIC’s incentive fee calculation eliminated the incentive fee again this quarter.

On the balance sheet, Seifert reiterated quarter-end portfolio fair value of $2.97 billion, total principal debt outstanding of $1.87 billion, and total net assets of $1.18 billion (or $13.82 per share). He said the cost of debt declined to 5.61% from 5.95% in the prior quarter, driven largely by lower base rates and “somewhat” by refinancing activities in the December quarter.

Seifert also addressed MFIC’s $125 million of 4.5% fixed-rate notes maturing in July 2026, saying the company intends to repay the notes using availability under its revolving credit facility. He noted that, at current base rates, the revolving facility has a higher cost than the notes, which is expected to “modestly increase” MFIC’s cost of debt.

About MidCap Financial Investment NASDAQ: MFIC

MidCap Financial Investment Corporation NASDAQ: MFIC is a business development company that provides financing solutions to middle-market companies across the United States. The firm specializes in direct lending and asset-based financing, offering a range of debt instruments designed to support working capital needs, equipment acquisitions, lease financing and corporate recapitalizations. Its focus on senior secured loans, unitranche structures and equipment financings positions it to serve clients in sectors such as manufacturing, healthcare, transportation and energy.

Through its lending platform, MidCap Financial Investment Corporation partners with privately held and sponsor-backed companies that typically generate annual revenues between $25 million and $500 million.

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