Earnings call transcript: Carlyle Secured Lending Q4 2024 beats EPS forecast

Carlyle Secured Lending Inc. (CGBD) reported its fourth-quarter 2024 earnings, surpassing analyst expectations with an earnings per share (EPS) of $0.48 against a forecast of $0.4437. The company also exceeded revenue projections, posting $56.35 million compared to the anticipated $50.59 million. Following the earnings release, Carlyle’s stock rose by 2.74% in after-hours trading, closing at $17.52. According to InvestingPro data, the company maintains a "GREAT" financial health score of 3.14, with particularly strong performance in cash flow and profitability metrics.

Key Takeaways

• Carlyle Secured Lending beat both EPS and revenue forecasts for Q4 2024.
• The stock price increased by 2.74% post-earnings announcement.
• The company plans a strategic merger with Carlyle Secured Lending III by March 31.
• Carlyle issued its first institutional bond of $300 million at a fixed rate of 6.75%.
• The company maintains a strong position in the private credit market.

Company Performance

Carlyle Secured Lending’s performance remained robust in the fourth quarter, driven by stable investment income and strategic initiatives. Total (EPA:TTEF) investment income held steady at $56 million, while net investment income reached $54 million, translating to $0.47 per share. The company’s strategic focus on senior secured loans and diversification across more than 25 industries bolstered its competitive position.

Financial Highlights

• Revenue: $56.35 million, up from a forecast of $50.59 million.
• Earnings per share: $0.48, exceeding the forecast of $0.4437.
• Dividend: $0.45 per share, with a base of $0.40 plus a supplemental $0.05.
• Total expenses: $31 million, consistent with the previous quarter.
• Dividend yield: Approximately 10%.

Earnings vs. Forecast

Carlyle Secured Lending’s actual EPS of $0.48 outperformed the forecast of $0.4437 by 8.2%. This positive surprise reflects the company’s effective cost management and strong income generation. Revenue also surpassed expectations by 11.4%, indicating healthy demand and operational efficiency.

Market Reaction

Following the earnings announcement, Carlyle’s stock price increased by 2.74%, reflecting investor optimism. The stock’s rise positions it closer to its 52-week high of $18.74. This positive market sentiment aligns with the broader trend of strengthening private credit markets.

Outlook & Guidance

Looking ahead, Carlyle Secured Lending anticipates completing its merger with Carlyle Secured Lending III by March 31, which is expected to enhance scale and liquidity. The merger aims to achieve cost reductions and operational efficiencies, potentially increasing earnings and net asset value per share. The company also plans to boost origination activity.

Executive Commentary

CEO Justin Plough emphasized the company’s strategic priorities, stating, "We continue to seek quality at the top of the capital structure." He also highlighted the robust demand for private credit, saying, "Market demand for private credit remains strong." Plough affirmed the company’s commitment to providing stable cash flows to investors.

Risks and Challenges

• Market volatility could impact investment valuations and returns.
• Economic downturns may affect borrowers’ ability to meet obligations.
• Regulatory changes could alter the competitive landscape.
• Interest rate fluctuations may influence borrowing costs and investment yields.
• Integration risks associated with the upcoming merger with CSL (OTC:CSLLY) III.

Q&A

During the earnings call, analysts inquired about the company’s joint venture strategy and asset capacity. Management clarified fee income and investment yields, while also addressing potential growth plans and emphasizing the current merger process.

Full transcript - Carlyle Secured Lending Inc (CGBD) Q4 2024:

Conference Operator: Good day and thank you for standing by. Welcome to Carlisle Secured Lending Inc. Fourth Quarter twenty twenty four Earnings Call. At this time, all participants are in a listen only mode. Please be advised that today’s conference is being recorded.

I would now like to hand the conference over to your speaker today, Nishal Mehta, Head of Shareholder Relations. Please go ahead.

Nishal Mehta, Head of Shareholder Relations, Carlisle Secured Lending Inc.: Good morning, and welcome to Cardas Accurate Lending’s conference call to discuss the earnings results for the fourth quarter twenty twenty four. I’m joined by Justin Bluff, our Chief Executive Officer and Tom Hennigan, our Chief Financial Officer. Last night, we filed our Form 10 K and issued a press release with a presentation of our results, which are available on the Investor Relations section of our website. Following our remarks today, we will hold a question and answer session for analysts and institutional investors. This call is being webcast and a replay will be available on our website.

Any forward looking statements made today do not guarantee future performance and any undue reliance should not be placed on them. Today’s conference call may include forward looking statements reflecting our views with respect to, among other things, the timing or likelihood of the closing of the proposed merger, the expected synergies associated with the proposed merger, the ability to realize the anticipated benefits of the proposed merger and our future operating results and financial performance. These statements are based on current management expectations and involve inherent risks and uncertainties, including those identified in the Risk Factors sections of our 10 K. These risks and uncertainties could cause actual results to differ materially from those indicated. CGPD assumes no obligation to update any forward looking statements at any time.

During this conference call, the company may discuss certain non GAAP measures as defined by SEC Regulation G, such as adjusted net investment income or adjusted NII. The company’s management believes adjusted net investment income, adjusted net investment income per share, adjusted net income and adjusted net income per share are useful to investors as an additional tool to evaluate ongoing results and trends for the company without giving effect to one time or non recurring events and are used by management to evaluate the economic earnings of the company. A reconciliation of GAAP net investment income per share, the most directly comparable GAAP financial measure to adjusted NII, can be found in the accompanying slide presentation for this call. In addition, reconciliation of these measures may also be found in our earnings release filed last night with the SEC on Form eight K. With that, I’ll turn the call over to Justin, CGBD’s Chief Executive Officer.

Justin Plough, CEO, Deputy CIO, Carlyle BDCs, Carlyle Global Credit: Thanks, Nishal. Good morning, everyone, and thank you all for joining. I’m Justin Plough, the CEO of the Carlyle BDCs and Deputy CIO for Carlyle Global Credit. On today’s call, I’ll give you an overview of our fourth quarter and full year ’20 ’20 ’4 results, including the quarter’s investment activity and portfolio positioning. I will then hand the call over to our CFO, Tom Hennigan.

In the fourth quarter, CGPD continued to benefit from stable credit performance and a higher base rate environment. During the quarter, we generated net investment income of $0.47 per share, which represents an annualized yield of over 11% based on our twelvethirty one NAV. Our Board of Directors declared a total fourth quarter dividend of $0.45 per share consisting of our base dividend of $0.4

Tom Hennigan, CFO, Carlisle Secured Lending Inc.: plus a $0.05

Justin Plough, CEO, Deputy CIO, Carlyle BDCs, Carlyle Global Credit: supplemental dividend. Our net asset value as of December 31 was 16.8 per share compared to $16.85 per share as of September 30. Our direct lending platform achieved record highs for deployment in both the fourth quarter and the full year of 2024. CGPD was a beneficiary of this activity, growing its portfolio by about $100,000,000 in the quarter. Overall, we continue to remain selective in our underwriting approach, evidenced by a close rate of approximately 5% on new deals over the last twelve months.

We continue to seek quality at the top of the capital structure with 94 of our 2024 originations in first lien investments and an average loan to value under 40%. Over the course of 2024, we made significant strides to deliver short and long term value to investors. First, we proposed a strategic affiliate merger with Carlyle Secured Lending III or CSL III. We expect the merger to deliver increased scale and liquidity, eliminate the CGPD preferred stock dilution overhang and reduce aggregate costs, all while seamlessly continuing our existing investment strategy. Next (LON:NXT), we obtained investment grade ratings from both Fitch and Moody’s, allowing us to issue our first ever institutional bond deal.

Finally, we took steps in the first quarter of twenty twenty five to optimize the long term earnings power and capacity of our joint ventures, which Tom will discuss later in greater detail. To start 2025, we have focused on increasing our origination activity, while continuing to prioritize overall credit performance and maintaining a highly diversified portfolio. As of December 31, our portfolio was comprised of 189 investments in 135 companies across more than 25 industries. The average exposure in any single portfolio company is less than 1% of total assets and 93% of our investments are in senior secured loans. The median EBITDA across our portfolio was $88,000,000 As always, discipline, consistency drove performance in the fourth quarter and we expect these tenants to drive performance in future quarters.

I’ll now hand the call over to our CFO, Tom Pennington.

Tom Hennigan, CFO, Carlisle Secured Lending Inc.: Thank you, Justin. Today, I’ll begin with an overview of our fourth quarter financial results, then I’ll discuss portfolio performance before concluding with detail on our balance sheet positioning. CGPD had another strong quarter on the earnings front. Total investment income for the fourth quarter was $56,000,000 in line with prior quarter due primarily to higher average portfolio balance and increased dividends from the JVs offset by a lower weighted average yield. Total expenses of $31,000,000 were flat versus prior quarter as a higher average outstanding debt balance offset lower interest rates.

The result was net investment income for the fourth quarter of ’20 ’4 million dollars or $0.47 per share, flat compared to GAAP net investment income and down $0.02 per share compared to adjusted net investment income in the prior quarter. Our Board of Directors declared the dividends for the first quarter of twenty twenty five at a total level of $0.45 per share. That’s comprised of the $0.4 base dividend plus a $0.05 supplemental dividend, which is payable to stockholders of record as of the close of business on March 24. This total dividend level reflects our variable supplemental dividend policy of paying out at least 50% of excess earnings, which allows us to be flexible as the portfolio evolves and base rates fluctuate. Our base dividend coverage of 118% for the quarter remains in line with the BDC peer set average.

At the same time, the total dividend level also represents an attractive yield of about 10% based on the recent share price. On valuations, our total aggregate realized and unrealized net loss was about $4,000,000 for the quarter. The largest contributor was a markdown on our investment in Aimbridge, partially offset by markups in the value of the MMCF one JV and our equity position in SPF, formerly known as Durham Grove. Turning to credit performance, we continue to see overall stability in credit quality across the portfolio. There was little change during the quarter in risk rating distribution and non accruals were largely flat at 0.6% of total investments at fair value.

During the quarter, we completed the restructuring of JEGS Automotive, which remained on non accrual status as of twelvethirty one and our team has been dedicating significant resources to Maverick, working closely with the sponsor and management team to best position that company for improved financial performance. And while our non accrual rates may fluctuate from period to period, we’re confident in our ability to leverage the broader Carlyle network to achieve maximum recoveries for underperforming borrowers. Now moving on to the credit funds, we took steps over the last couple of months to optimize our joint ventures. First, we consolidated MMCF II onto CGBD’s balance sheet to address the static nature of that vehicle. Additionally, we’re in the process of extending the investment period of MMCF one by three years and also closing a new credit facility, which should materially improve ROE.

Both these transactions enhance the earnings profile of the broader portfolio while increasing our non qualifying asset capacity, thereby providing greater flexibility for complementary transactions and other strategic partnerships. I’ll finish by touching on our financing facilities and leverage. We strengthened and diversified the right side of our balance sheet throughout 2024, most notably with the issuance of our inaugural institutional bond in October, dollars ’3 hundred million of unsecured notes with a 6.75% fixed rate. In September, we successfully received investment grade ratings from both Moody’s and Fitch. And as a reminder, in early July, we closed a reset of the twenty fifteen-one CLO, extending both the reinvestment period and maturity date by four years and reducing the cost of debt by more than 20 basis points within that vehicle.

These transactions provided additional diversification to our financing sources, repaid the 2024 unsecured notes and provided additional capital to fund new investment opportunities. At quarter end, statutory leverage was about 1.2 times and net financial leverage was right about one turn. With leverage comfortably within our target range of 0.9 times to 1.25 times, we have capacity to deploy capital into attractive opportunities in what we believe will be an accelerating deal environment in 2025. With that, I’ll turn the call back over to Justin.

Justin Plough, CEO, Deputy CIO, Carlyle BDCs, Carlyle Global Credit: Thanks, Tom. As a final point, I’d like to reiterate that the merger between CGPD and Carlyle Secured Lending3 remains on track to close by March 31, subject to approval from CGPD stockholders and satisfaction or waiver of other customary closing conditions. We distributed approximately share related to the merger in January and urge all stockholders to vote their shares in advance of our special meeting of stockholders on March 26. We continue to have high conviction in the strategic benefits that the transaction will provide to CGBD, including an increase in scale and liquidity, a reduction in aggregate costs from operational efficiencies and accretion to both earnings and NAV per share. As a reminder, Carlisle has agreed to exchange its existing convertible preferred shares for common stock at a price of NAV rather than the existing dilutive conversion price of $8.87 We believe that the preferred stock exchange is stockholder friendly and demonstrates Carlyle’s support for the ongoing success of CGBD.

As we approach the end of the first quarter, market demand for private credit remains strong. We continue to focus on sourcing transactions with significant equity cushions, conservative leverage profiles and attractive spreads relative to market levels. With a growing pipeline of new originations, a stable portfolio and low non accruals, CGBD stockholders are benefiting from the continued execution of our strategy. As always, we remain committed to delivering resilient stable cash flow stream to our investors through consistent income and solid credit performance. I’d like to now hand the call over to the operator to take your questions.

Thank you.

Conference Operator: Thank Our first question comes from the line of Finian O’Shea from Wells Fargo (NYSE:WFC).

Finian O’Shea, Analyst, Wells Fargo: Hi, everyone. Good morning. Just a question on the JV. I think, Tom, you said it will free the unqualified asset bucket capacity. Are you suggesting you might do something else there?

Or should we expect a re ramp of the first JV or perhaps a new similar one like will that be replaced with a similar thing with nothing or with something else?

Tom Hennigan, CFO, Carlisle Secured Lending Inc.: Hey, Sam, good morning. Thanks for the question. Regarding the two JVs on MNCF2, that’s our second smaller JV, that was the one that we closed in 2020, which is really more of a static type vehicle. So taking those balance sheet those assets back on balance sheet, that’s about $70,000,000 investments that now is a reduction in the non qualifying bucket. The JV1, we do anticipate based on the extending that relationship by three years and inking in the process of inking a very attractive credit facility, we’re going to look to ramp up that facility materially in the future.

Based on the higher leverage profile under that new credit facility, we actually anticipate at least in the near term of having a distribution of equity, so a return of capital from that vehicle as well to create even more capacity. So overall, we’ll look over time to put more equity in that vehicle, but at least in the near term, we’ll actually have a return of capital we should see in the first quarter from both JVs. In terms of the future, we’re always working on different things and there’s nothing in the very near term hopper, but certainly we’ve got the flexibility now as we have very strategic conversations with partners in the marketplace, something we’ve got the flexibility and we’ve got some ideas that we’re working on, but nothing imminent right now.

Finian O’Shea, Analyst, Wells Fargo: Okay, helpful. Thanks. And on the tax line, that dropped a bit in the fourth quarter. Is that sort of a true up thing? And what’s a good quarter to look at for excise tax expense for the rest of the year?

Tom Hennigan, CFO, Carlisle Secured Lending Inc.: Yes, good question. That was GAC. It was a year end true up based on just the year end audit. And we’d anticipate if you look at the prior quarters in that general ballpark, maybe a little bit lower, but I think in the range for the prior quarters.

Finian O’Shea, Analyst, Wells Fargo: Okay. I guess just one final one. You guys are doing well, trading well, like any discussion and idea of growth plans for this BDC?

Justin Plough, CEO, Deputy CIO, Carlyle BDCs, Carlyle Global Credit: Yes. Hey, Fin, it’s Justin. Look, right now, we’re really just focused on putting capital to work and going through the last part of the merger process here. Once we get done with that, certainly we’ll be considering what the future of the fund and any potential growth initiatives look like, but we’re not there yet. So at the moment, nothing imminent.

We’re focused on the merger.

Finian O’Shea, Analyst, Wells Fargo: Great. Thanks so much.

Conference Operator: Thank you. One moment for our next question. Our next question comes from the line of Melissa Weddle from JPMorgan.

Melissa Weddle, Analyst, JPMorgan: Good morning. Thanks for taking my questions. I was curious in the fourth quarter, was there any outsized sort of fee income or prepayment income that we should be aware of?

Tom Hennigan, CFO, Carlisle Secured Lending Inc.: Hey Melissa, it’s Tom. When you look at the combination of fee income and OID acceleration, it was actually probably lower than our historical average by about a $0.01 per share. One thing I’ll note is that in anticipation of winding down or taking that JV2 on balance sheet, you said that we had a pad of an incremental dividend from that JV that runs through the JV income line.

Melissa Weddle, Analyst, JPMorgan: Okay, got it. Thanks for that. And then I was curious, I’m wondering if this is related to the JV2. On Slide seven in the presentation, you’ve always kind of laid out the weighted average yield on debt investments and then the weighted average yield on income producing investments at cost. And usually those are pretty tight, maybe 10 bps different.

There is that was wider this quarter. It was 11.2% versus 11.7%. And I’m just curious what’s I just want to understand that better.

Tom Hennigan, CFO, Carlisle Secured Lending Inc.: Yes. You’ll see going forward that relates exactly to that JV extra dividend. So the second line item is the JVs and then a very small percentage of other record investments. So based on the incremental JV payout for this quarter, that resulted in about a 30 basis points or 40 basis point pop to that 11.7%. So more normalized, that’s probably closer to about 11.3%, eleven point four %.

So you should see next quarter those two numbers be closer.

Melissa Weddle, Analyst, JPMorgan: Got it. Thank you so

Conference Operator: much. Thank you. At this time, I am showing no further questions. I would pardon me, I am showing one more question. One moment.

Our next question comes from the line of Derek Hewitt from Bank of America.

Tom Hennigan, CFO, Carlisle Secured Lending Inc.: Good morning, everyone. What was the dollar amount of that incremental dividend related to the joint venture to in anticipation of the wind down? Thank you. Hey, Jeff. It was about $1,200,000 So net impact on NII about $0.02 per share for the quarter.

Thank you.

Conference Operator: Thank you. At this time, I would now like to turn the conference back over to Justin Plouffe for closing remarks.

Justin Plough, CEO, Deputy CIO, Carlyle BDCs, Carlyle Global Credit: Thanks everyone for joining the call today. Appreciate your engagement with us and we look forward to working with you going forward. Have a great day. Thank you.

Conference Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.