Earnings call transcript: Cion Investment Q2 2025 misses EPS, shares rise

Cion Investment Corporation reported Q2 2025 earnings that fell short of analyst expectations, with an EPS of $0.32 compared to the forecasted $0.3333. Revenue also missed, reaching $52.24 million against a forecast of $53.42 million. Despite these misses, the company’s stock rose 4.66% to $10.10 in pre-market trading, driven by strategic operational updates and maintained dividends. According to InvestingPro data, the company maintains a significant 14.91% dividend yield, though 2 analysts have recently revised their earnings expectations downward for the upcoming period.

Key Takeaways

• Cion Investment’s EPS and revenue fell short of forecasts, with negative surprises of 3.99% and 2.21%, respectively.
• The company’s stock rose 4.66% in pre-market trading, indicating investor optimism.
• Net Asset Value (NAV) increased by 1.5% to $14.50 per share, reflecting strong asset management.
• Dividend was maintained at $0.36 per share, supporting investor confidence.
• The company focused on first lien loans, maintaining a defensive portfolio strategy.

Company Performance

Cion Investment’s overall performance in Q2 2025 showed a decline in net investment income and total investment income compared to Q1. Despite these challenges, the company successfully increased its Net Asset Value by 1.5%, signaling effective asset management. The focus on first lien loans, which comprised over 99% of investments, underscores a cautious and defensive strategy in a volatile market environment.

Financial Highlights

• Revenue: $52.24 million, down 7% quarter-over-quarter
• Earnings per share: $0.32, down from $0.36 in Q1
• Net Asset Value: $14.50 per share, up 1.5%
• Total Assets: $1.9 billion
• Total Equity: $759 million
• Total Debt: $1.1 billion

Earnings vs. Forecast

Cion Investment’s EPS of $0.32 missed the forecast by 3.99%, while revenue of $52.24 million was 2.21% below expectations. This marks a challenging quarter, contrasting with the previous period’s higher net investment income.

Market Reaction

Despite missing earnings expectations, Cion Investment’s stock increased by 4.66% in pre-market trading, closing at $10.10. This positive movement suggests investor confidence in the company’s strategic initiatives and dividend stability. The stock remains within its 52-week range, indicating a stable market position.

Outlook & Guidance

Looking forward, Cion Investment anticipates positive impacts from portfolio company restructuring in Q3. The company remains cautious about the potential effects of a SOFR rate reduction on investment spreads but is hopeful to return to net investment income covering dividends in the coming quarter.

Executive Commentary

"We are keeping our dividend steady at this time," stated Michael Reisner, Co-CEO, reflecting confidence in the company’s financial strategy. Greg Bresner, President and CIO, added, "We believe our continued investment selectivity and proportional deployment levels helped us to invest in first lien loans at higher spreads."

Risks and Challenges

• Potential revenue challenges due to decreased net investment and total investment income.
• Impact of SOFR rate reductions on investment spreads, affecting future profitability.
• Market volatility and lower coupon spreads could limit new investment opportunities.
• Macroeconomic pressures and potential changes in regulatory environments.
• Dependence on the performance of portfolio companies for future income stability.

Q&A

During the earnings call, analysts raised concerns about the pipeline uncertainty for Q3 originations and the potential net investment income challenges with SOFR rate reductions. The company’s share repurchase strategy and market dynamics were also discussed, highlighting the strategic focus on maintaining shareholder value.

Full transcript - Cion Investment Corp (CION) Q2 2025:

Conference Operator: Greetings, and welcome to the Scion Investment Corporation Second Quarter twenty twenty five Earnings Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. And as a reminder, this conference is being recorded. It is now my pleasure to introduce to you Charlie Arestia, Managing Director and Head of IR.

Thank you, sir. You may begin.

Charlie Arestia, Managing Director and Head of IR, Scion Investment Corporation: Good morning, and welcome to Scion Investment Corporation’s Second Quarter twenty twenty five Earnings Conference Call. An earnings press release was distributed earlier this morning before market opened. A copy of the release along with the supplemental earnings presentation is available on the company’s website at www.scionbdc.com in the Investor Resources section. It 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. 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. Joining me on today’s call will be Michael Reisner, Scion Investment Corporation’s Co Chief Executive Officer Greg Bresner, President and Chief Investment Officer and Keith Frans, Chief Financial Officer. With that, I would like to now turn the call over to Michael Reisner. Please go ahead, Michael.

Michael Reisner, Co-Chief Executive Officer, Scion Investment Corporation: Thank you, Charlie, and good morning, everyone. Thank you all for joining our call today. This morning, CYON reported $0.32 in quarterly net investment income for the second quarter, mainly impacted by two positions, including a restructuring of Anthem Entertainment, which we discussed in the prior quarter and the exit of our position in several hospital loans, which Greg will discuss. Excluding this onetime impact, our quarterly net investment income would have exceeded our base dividend level of $0.36 per share. As I will touch upon in a bit, we are keeping our dividend steady at this time.

Our net asset value increased 1.5% quarter over quarter to $14.5 up from $14.28 in the first quarter, driven by fair value increases in our equity positions in Longview Power, David’s Bridal and several other smaller positions. We also continued to repurchase shares in the open market during the quarter, which remains accretive to our NAV. Longview Power is our second largest equity position and saw improved valuation this quarter due to better than expected financial performance and strong capacity auction results. As we have noted on prior calls, we expect some quarterly volatility in the fair value marks of our equity positions in DAVIDsBridal given the relative size of the position and the nature of its business. This quarter, our positions in DAVIDs were marked higher due to improved trading performance of comparable companies, increased clarity around potential impact of tariffs and the continued growth of its higher multiple Pearl digital marketplace.

We are pleased with the continued credit performance of our portfolio as underlying fundamentals remain encouraging. We are seeing weighted average adjusted EBITDA growth at the portfolio company level in the mid single digits on an LTM basis, reflecting sustainable growth and healthy operations. Following our quarterly valuation process, we downgraded investments in seven portfolio companies on our internal risk rating scale and upgraded investments in four portfolio companies. Several of our rating upgrades were due to anticipated repayments subsequent to the quarter following portfolio company sales or other transactions where we have received notification of a pending payoff. Investments risk rated four or five represent less than 2% of the portfolio at fair value, similar to the prior quarter.

Overall, non accruals remain low at 1.37% of the portfolio at fair value. Capital markets were especially volatile in early Q2, and our share buyback activity accelerated as a result. We repurchased approximately 699,000 shares of our common stock at an average price of $9.37 during the quarter. We are excited to announce that our Board has authorized a $20,000,000 upsize to our share repurchase program, which was renewed at our quarterly Board meeting earlier this week. We continue to believe that our share buyback preserves strong alignment with our shareholders along with our insider purchasing and remains a prudent use of capital as long as it is accretive to NAV.

When we spoke with you last quarter, investors were attempting to digest a whirlwind of macroeconomic challenges, including the initial wave of steep tariff declarations on various trading partners around the globe. Since then, improved clarity around both the strategy behind the tariffs as well as negotiated deals has led to a broader market rally and stronger sentiment. While it is too soon to say whether this trend will continue into the back half of the year, initial discussions with our portfolio companies remain positive. Repayments accelerated this quarter and we expect additional repayments in the third quarter, which should allow us to deploy into our forward pipeline while balancing our overall leverage profile. Overall, we are pleased with our growth in NAV and continued steady credit performance in our portfolio.

Regarding earnings, I want to share some incremental context around our dividend policy, given our net investment income for the period. We are maintaining our dividend at $0.36 per share for a couple of reasons. The first, what we believe is the nonrecurring nature of the impact to our earnings this quarter as a result of the two positions I mentioned. And second, we are currently leading the recapitalization of one of our larger portfolio companies in a transaction that we expect to close in the third quarter, which we believe will be highly accretive to both earnings and NAV. As we have mentioned in the past, we encourage investors not to overly focus on any particular ninety day window when evaluating our performance as this does not reflect how we manage our investment and portfolio management processes.

As we outlined at our Investor Day earlier this year, we see our opportunistic investing strategy as a strong complement to our core direct lending strategy, allowing Scion to enhance shareholder returns while remaining focused on a conservative first lien position. While we acknowledge that this can introduce some volatility into our earnings on a quarter to quarter basis, we believe this volatility tends to skew meaningfully to the upside and thus should be evaluated on a longer term perspective. With that, I’ll now turn the call over to Greg to discuss our portfolio and investment activity during the quarter.

Greg Bresner, President and Chief Investment Officer, Scion Investment Corporation: Thank you, Michael, and good morning, everyone. We remained highly selective with new investments in Q2 as we were effectively at full investment during most of the quarter and worked to maintain our targeted net leverage level as we balanced the timing of expected investment pipeline investments versus repayment amounts. During the quarter, we passed on a historically higher percentage of potential investments in new portfolio companies based on credit and pricing considerations as the continued hangover of record 2024 private debt fundraising still translated into lower coupon spreads, higher leverage levels and looser credit documents for potential transactions. As Michael discussed in his remarks, market conditions rebounded in Q2 as stronger economic indicators and reduced concerns regarding tariffs have boosted overall economic sentiment and equity markets. We focused our Q2 activities on incremental investments with our portfolio companies, particularly for strategic add on acquisitions, business development and other corporate initiatives.

We believe our continued investment selectivity and proportional deployment levels helped us to invest in first lien loans at higher spreads when compared to the overall private and public loan markets during the quarter. The weighted average yield for our total funded first lien debt investments for the quarter based on our investment costs was the equivalent of SOFR plus 6.96%. As we discussed in previous quarters, the majority of our annual PIK income is strategically derived from highly structured first lien investments or where PIK income is incremental to our cash coupon. For example, we invest in litigation finance portfolios where we are first lien lender against a diverse mix of thousands of mass tort or single event cases. We are able to attain higher yields with attractive loan to value structures by matching flexible PIC timing features with strict cash flow sweeps upon collections from settlements.

These investments represent approximately 17% of our PIC income. We have begun to experience increasing repayments from our litigation portfolios as the long court docket delays from COVID are starting to thaw and cases are being resolved, settled and distributed. Recent higher profile cases that have settled include Gilead, Zantac and AstroWorld. Approximately 68% of our PIK investments are in portfolio companies risk rated either one or 296% risk rated three or better. As a result, we believe this PIK income may not compare to restructured PIK driven by a deterioration in credit.

Turning now to our Q2 investment and portfolio activity. Our Q2 investment activity consisted of add on investment commitments and secondary purchases in existing portfolio companies, including American Clinical, Anthem Sports, Aspira, Abyss and Young, Brill Litz, Carestream Health, Community Tree Services, David’s Bridal, Juice Plus and Securus Eventive. During Q2, we made a total of approximately $41,000,000 in investment commitments across 10 existing portfolio companies, of which $29,000,000 was funded. Over 99% of the investment commitments were in the form of first lien loans. We also funded a total of $10,000,000 of previously unfunded commitments.

We had sales and repayments totaling $88,000,000 for the quarter, which consisted of the full repayment of the first lien loans for American Lawyer Media, Manas Bio and Vimeo. We expect Q3 repayment activity to be consistent with or greater than the level we received in Q2 as we have already received the full repayments of H. W. Lochter and Rogers Mechanical in early Q3 and expect several other companies to fully repay prior to the end of Q3. As a result of all of these activities, our net funded investments decreased by approximately $49,000,000 during the quarter.

As Michael referenced, our NAV increase during the quarter was driven primarily by net increases in the unrealized mark to market value of the portfolio as improved market conditions and reduced tariff concerns positively impacted comparable public company valuations and the overall projected macroeconomic outlook. Four notable portfolio companies for the quarter were Longview Power, David’s Bridal, Four Wall Entertainment and our residual secured loans in two regional hospitals. Our equity investment in Longview Power increased primarily due to strong financial outlook, higher baseload capacity auction pricing and a projected stronger multiyear demand outlook for power production driven by data centers, AI and other consumer consumption. As we mentioned on previous quarterly calls, we expect to see significant quarter to quarter volatility in the marks of DAVIDsBridal equity due to the larger overall relative size of our investment as well as the highly seasonal nature of the company’s operations. The mark to market increase in DAVIDsBridal for the quarter was driven primarily by improved comparable public trading multiples and the continued growth in DAVIDsPearl Marketplace business as a percentage of the total business mix.

We experienced a mark to market decline in our first lien debt investment in four wall entertainment, a leading full service lighting, video and rigging company to the live entertainment and TV film production sectors. The decline was driven primarily by lower trailing earnings performance from the far reaching industry effects of the twenty twenty three Writers Guild strike and LA fire activity that greatly impacted TV and film production activities. The company expects rebounding trends to continue into 2026. Lastly, we exited our residual secured loans to two hospitals within the CarePoint system. In conjunction with CarePoint’s bankruptcy process, our lender group agreed to forward sell our remaining first lien interest at a discount to par plus accrued interest in exchange for an expedited cash payment as opposed to restructuring into new relatively small tranches with long term maturities.

From a portfolio credit perspective, our nonaccruals increased from 1.2% of fair value in Q1 to 1.37% in Q2. This increase was due to the initial classification of our new term loan C investment in the Anthem Sports to nonaccrual this quarter. During the quarter, Anthem Sports completed a significant acquisition where Scion co led a new financing tranche. In conjunction with the acquisition, Anthem recapitalized its debt structure by the exchange and bifurcation of its previous term loans into new B and C tranches. The contractual interest component of the new tranche C consists of a nominal PIK payment and a MOAK to be paid upon exit or refinance.

Given the deferred payment profile of the tranche C, we have elected to initially place the investment on nonaccrual immediately at the closing of the transaction and intend to reevaluate based on the accreted value level of the tranche over time. On an absolute basis, nonaccruals continue to be largely in line with historical experience, and we are pleased with the continued credit performance of our portfolio, particularly in the current interest rate environment. Overall, our portfolio remains defensive in nature with approximately 85% in first lien investments. Over 98% of our portfolio remains risk rated three or better. Our risk rated three investments, which are investments where we expect full repayment but are either spending more engagement time and or have seen increased risk to the initial asset purchase increase from approximately 10.3% in Q1 to 11.6 in Q2, driven primarily by increased engagement time in several names due to transaction related activity.

I will now turn the call over to Keith. Okay.

Keith Frans, Chief Financial Officer, Scion Investment Corporation: Thank you, Greg, and good morning, everyone. During the second quarter, net investment income was $16,900,000 or zero three two dollars per share compared to $19,300,000 or $0.36 per share reported in the first quarter. Total investment income was $52,200,000 during the second quarter as compared to $56,100,000 reported during the first quarter. This is a decrease of $3,900,000 or a decrease of about 7% quarter over quarter. The decrease in total investment income was driven primarily by a decrease in interest income as a result of certain investments being restructured during the quarter, as well as lower transaction fees earned from origination and amendment activity when compared to the prior quarter.

On the expense side, operating expenses were $35,300,000 compared to $36,800,000 reported in the first quarter. The decrease in operating expenses was primarily driven by lower advisory fees, a decrease in interest expense on our debt due to the benefits of repositioning our debt capital during the prior quarters and slightly lower G and A costs during the second quarter. At June 30, we had total assets of approximately $1,900,000,000 and total equity or net assets of $759,000,000 with total debt outstanding of $1,100,000,000 and 52,300,000.0 shares outstanding. Our portfolio at fair value ended the quarter at $1,800,000,000 and the weighted average yield on our debt and other income producing investments and amortized cost was 12.4% at June 30, which is up 22 basis points from the first quarter. At June 30, our NAV was $14.5 per share as compared to $14.28 per share at the March.

The increase of $0.22 per share or 1.5% was primarily due to mark to market price increases in our portfolio, mostly due to price volatility from our equity book and the accretive nature of our share repurchase program during the quarter. We ended the second quarter with a strong and flexible balance sheet with over $1,000,000,000 in unencumbered assets, a strong debt servicing capacity and interest coverage ratio of about two times and solid liquidity. We had over $65,000,000 in cash and short term investments and over $100,000,000 available under our credit facilities to further finance our investment pipeline and continue to support our existing portfolio companies. At June 30, we continue to have a healthy debt mix with about 62% in unsecured debt and 38 in senior secured with about 75% in floating rate. At the end of the quarter, our net debt to equity ratio was unchanged at 1.39 times and the weighted average cost of our debt capital was about 7.5%, which is also unchanged from the first quarter as SOFR rates remained relatively flat.

The benefits of repositioning our debt capital during the prior quarters and the increase in the unsecured debt mix to over 60% of our total debt capital with about 75% in floating rate continues to bring additional strength and flexibility to our balance sheet, while also creating a natural hedge to our overall market interest rate risk. Now turning to distributions. During the second quarter, we paid a base distribution to our shareholders of $0.36 per share, which is the same as the first quarter base distribution. The trailing twelve month distribution yield through the second quarter based on the average NAV was about 10% and the trailing twelve month distribution yield based on the quarter end market price was 15.6%. As announced this morning, we declared our third quarter base distribution of $0.36 per share, which is the same as the second quarter.

The third quarter base distribution will be paid on September 16 to shareholders of record as of September 2. Okay. With that, I will now turn the call back to the operator who will open the line for questions.

Conference Operator: Thank you, sir. We will now be conducting a question and answer session. And the first question comes from the line of Eric Zwick with Lucid Capital Markets. Please proceed with your question.

Eric Zwick, Analyst, Lucid Capital Markets: Thanks. Good morning, everyone. Wanted to start with a question, I guess, on the pipeline and your expectation for originations in 3Q and kind of really matching that up against just your commentary that repayments in 3Q could be equal or greater to 2Q. So just trying to get a sense of whether we might see the portfolio move a little bit lower in the 3Q or if you have some insight that potential for originations could offset those repayments?

Greg Bresner, President and Chief Investment Officer, Scion Investment Corporation: Eric, it’s Greg. I would say it’s too early to tell, we have a number of investment opportunities in the pipeline. I think it’s a question of whether some of that slips over into Q4. It’s always hard to judge when we’re going to close things, but we are seeing some significant opportunity pipeline. So it will depend on the timing of both sides of the repayments plus the new investments.

So it’s hard to give you exact estimate right now.

Eric Zwick, Analyst, Lucid Capital Markets: No, I appreciate that. And I know it’s hard to have 100% clarity. So maybe kind of given that and just to kind of be looking at the earnings run rate here in 2Q, and I know you mentioned you expect some positive benefits in 3Q from the restructuring, but there are some, I guess, headwinds from the smaller investment portfolio. And if we look at the SOFR curve, it suggest 100 basis points of compression from the rate environment over the next twelve months or so. And I believe about 90%, 91% of your portfolio subject to floating rate.

So maybe just kind of help me understand the path back to NII per share covering the declared dividend rate.

Greg Bresner, President and Chief Investment Officer, Scion Investment Corporation: Sure. So it’s a combination of things. When you see SOFR we’re looking at the same curves. I think in an environment where SOFR is going down, we typically see spreads widen. They usually run inverse to each other.

And also when there is more activity, so if there are more refinancings or more M and A activity picks up, we tend to generate significantly more investment income upfront in the form of fees and transaction fees and origination fees. So in the past, those two have historically have offset each other, at least in the directions they run. So we believe any cut in SOFR, we will see activity, both uptick in fees, and then there’s typically an uptick in spreads.

Eric Zwick, Analyst, Lucid Capital Markets: Got it. So then it sounds like it may be kind of maybe a multi quarter path to get back to NII covering the dividend? Or do think you can get back there in 3Q?

Michael Reisner, Co-Chief Executive Officer, Scion Investment Corporation: Yes, I think based on my prepared comments, the activity we’re doing in Q3, we’re hopeful we can get there this quarter. There comes a time that we don’t think we’re going to get back there, that’s when we consider cutting the dividend.

Eric Zwick, Analyst, Lucid Capital Markets: Thanks. And one last one, I’ll step aside and jump back in the queue. Just in terms of the share repurchase, the activity was quite a bit stronger in 2Q than we had seen previously. And I know you’ve got the increased authorization. So just how should I think about your appetite or the pace of buyback over the next quarter or two?

Michael Reisner, Co-Chief Executive Officer, Scion Investment Corporation: Yes, I think as alluded to, this was a big quarter because of what we saw after tariffs were announced. I think, listen, the programmatic buyback we have in place is meant to support the stock and we buy more, the more accretive it is as it trades down. We are hopeful that as we get our story out there, the stock will start to gain momentum and you hopefully will not see as much buyback this quarter, but that just depends on the market.

Conference Operator: There are no further questions at this time. And I would like to turn the floor back over to Michael Reisner for any closing remarks.

Michael Reisner, Co-Chief Executive Officer, Scion Investment Corporation: Great. We just hope thank everyone for joining us today. Hope everyone enjoys the rest of the summer, we look forward to coming back to you next quarter. Thank you, everyone.

Conference Operator: Thank you. This does conclude today’s teleconference. We thank you for your participation. You may disconnect your lines at this time.

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