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Monroe Capital Corporation (MRCC) reported its fourth-quarter 2024 earnings, revealing a mixed financial performance. The company posted an earnings per share (EPS) of $0.28, slightly surpassing the forecast of $0.272. However, revenue fell short at $14.02 million compared to the anticipated $14.94 million. The stock reacted negatively, declining by 2.84% to $8.56, reflecting investor concerns over the revenue miss despite the EPS beat. According to InvestingPro data, MRCC maintains a GOOD overall financial health score of 2.91, with particularly strong momentum and cash flow metrics. For comprehensive analysis of MRCC’s financial health and growth potential, investors can access the detailed Pro Research Report, available exclusively to InvestingPro subscribers.
Key Takeaways
- EPS exceeded expectations, but revenue fell short.
- Stock price dropped by 2.84% following the earnings release.
- Net Asset Value and investment portfolio decreased from previous quarters.
- Continued focus on conservative, resilient investment strategies.
- Strategic partnership with Wendell Group for future growth.
Company Performance
Monroe Capital’s performance in Q4 2024 highlighted mixed results. The company achieved a slight EPS beat but faced challenges with revenue, which did not meet market expectations. InvestingPro analysis reveals that MRCC has maintained dividend payments for 13 consecutive years, with a current yield of 11.35%. The company’s strong liquidity position is evidenced by a current ratio of 4.69, indicating robust ability to meet short-term obligations. Despite the revenue miss, Monroe Capital continued to focus on investments in resilient industries. The company also increased its leverage slightly, with a debt-to-equity ratio rising to 1.53x.
Financial Highlights
- Revenue: $14.02 million, below forecast.
- Earnings per share: $0.28, above forecast.
- Net Asset Value: $191.8 million, down 3.6% from $198.9 million.
- Total (EPA:TTEF) Investment Portfolio: $457 million, decreased by $17.3 million.
Earnings vs. Forecast
Monroe Capital reported an EPS of $0.28, beating the forecast of $0.272 by a small margin. However, revenue fell short at $14.02 million against the forecast of $14.94 million, marking a significant miss. The EPS beat indicates efficient cost management, but the revenue miss raises concerns about growth prospects.
Market Reaction
Following the earnings announcement, Monroe Capital’s stock price decreased by 2.84%, closing at $8.56. This decline suggests investor apprehension about the company’s revenue performance despite the EPS beat. InvestingPro data shows the stock is trading near its 52-week high of $8.85, with an impressive one-year total return of 39.46%. The stock’s strong performance and proximity to its peak suggest market confidence in MRCC’s long-term prospects. Want deeper insights? InvestingPro offers exclusive access to advanced valuation metrics and comprehensive financial analysis for over 1,400 US stocks.
Outlook & Guidance
Looking ahead, Monroe Capital expects a sustainable and active deal environment in 2025. The company plans to selectively redeploy capital from legacy investments and has formed a strategic partnership with Wendell Group, which will purchase majority ownership and commit $1 billion in seed capital.
Executive Commentary
CEO Ted Koenig expressed optimism about future growth, stating, "We’re working on a couple of internal plans right now to do that. And I think you’ll see some effort to grow the portfolio here and to do some interesting things over 2025." CFO Mick Salomoni added, "We are actively working on our non-accrual names to rotate them out of the portfolio to put our cash into more accretive newer vintage assets."
Risks and Challenges
- Revenue growth remains a concern following the Q4 miss.
- Slight increase in leverage could pose financial risks.
- Non-accrual investments represent 3.4% of the portfolio, requiring resolution.
- Market volatility and economic conditions may impact future performance.
Q&A
During the earnings call, analysts inquired about Monroe Capital’s portfolio growth strategy. Management indicated plans to "play offense" and expand the portfolio in 2025. Questions also focused on the resolution of non-accrual investments and the diversification of credit facility sources.
Full transcript - Monroe Capital Corp (NASDAQ:MRCC) Q4 2024:
Conference Call Operator: Welcome to Monroe Capital Corporation’s Fourth Quarter and Full Year twenty twenty four 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, 03/03/2025, 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. Actual results may differ materially as a result of risks, uncertainty or other factors, including but not limited to the risk factors described from time to time in the company’s filings with the SEC.
Monroe 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 Corporation.
Ted Koenig, Chief Executive Officer, Monroe Capital Corporation: Good morning, and thank you to everyone who has joined us today. Welcome to our fourth quarter and full year twenty twenty four earnings call. I am here with Mick Salomini, our CFO and Chief Investment Officer and Alex Parmasek, our Deputy Portfolio Manager. Last Friday, we filed our 10 ks with the SEC and this morning we issued our fourth quarter and full year twenty twenty four earnings press release. On today’s call, I’ll begin by providing an overview of our financial results and then share some commentary on the current market environment and provide an update on Monroe’s partnership with the Wendell Group.
I am pleased to report that our adjusted net investment income covered our $0.25 per share dividend for the quarter. MRCC delivered a total annualized dividend yield on our trading price of 11.4% using our 02/28/2025 closing share price. We are proud of our long standing track record of delivering attractive risk adjusted returns to our shareholders across a variety of economic landscapes and market environments. In the fourth quarter of twenty twenty four, our adjusted net investment income was $6,200,000 or $0.29 per share, which was a slight decrease from $6,600,000 or $0.31 per share last quarter. We reported NAV of $191,800,000 or $8.85 per share as of 12/31/2024, compared to NAV of $198,900,000 or $9.18 per share as of 09/30/2024.
A 3.6% decline in NAV this quarter was primarily the result of net unrealized losses attributable to a specific portfolio company, partially offset by net investment income in excess of the dividend paid during the quarter. MRCC’s leverage increased from 1.50x debt to equity at 09/30/2024 to 1.53x at 12/31/2024. The increase was due to the timing of certain quarter end portfolio company pay downs that were not applied to reduce the outstanding borrowings on our revolving credit facility until after year end. As market conditions continue to evolve, we remain dedicated to prudent portfolio management of our predominantly first lien portfolio and are maintaining a highly selective investment of Coach (NYSE:TPR). Our portfolio companies have benefited from a positive economic backdrop coupled with declining interest rates and steadying inflation.
In the fourth quarter and throughout 2024, our portfolio companies demonstrated healthy revenue and EBITDA growth trends, further increasing the portfolio’s sound interest coverage ratio. Our portfolio management team continues to focus on maintaining the asset quality of the portfolio. In the second half of twenty twenty four, we successfully exited several investments that were previously on our credit watch list. We believe that MRCC’s portfolio companies are positioned well to benefit from a favorable market outlook. In 2024, we invested in seven new portfolio companies.
These new portfolio companies operate in resilient industries and the transactions were executed at compelling spreads as well as that conservative loan to value attachment points. However, our ability to grow with our existing portfolio companies is what allows us to remain highly selective with new investments as well as provides us with attractive incumbency lending opportunities. 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. In a year where middle market experienced significant spread compression, incremental and follow on investments made to our existing portfolio companies at attractive spreads accounted for over 65% of MRCC’s capital deployment. The lower interest rates, improved economic outlook and accelerated sponsor M and A activity are dynamics that we expect to support a sustainable and highly active deal environment throughout 2025.
We will continue to lean on our leading in house originations platform and rigorous underwriting standards to capitalize on private credit and middle market lending tailwinds. We will be focused on selectively redeploying capital from legacy investment payoffs into attractive new and existing portfolio company relationships. Before I turn the call over to Mick and Alex, I want to provide a quick update on the strategic partnership with Lindell Group that Monroe announced late last year. As you may recall, Monroe, the owner of MRCC’s external advisor, plans to partner with the Wendell Group, a French investment company at one of Europe’s leading investment firms. Wendell is purchasing a majority ownership interest in Monro and will commit $1,000,000,000 of new seed capital to support new and existing investment strategies of the Monro platform.
On 02/21/2025, MRCC shareholders approved the new investment advisory and management agreement that was required for consummation of the transaction. While the approval of the new investment advisory management agreements by shareholders was required as a result of the transaction, there are no changes to the terms, including fee structure and services provided. Monroe and by extension, our external advisor will continue to operate autonomously and independently and its investment process strategy and operations will remain the exact same. Wendell will not have a role in the Monroe investment process. On behalf of Monroe and the MRCC Board, I would like to thank our shareholders for your voting participation and the strong support that we received in approving the new investment advisory management agreement.
We believe that this is an important step in driving value for our shareholders. The transaction is expected to close later in the first quarter of twenty twenty five. I am now going to turn the call over to Mick, who is going to walk you through MRCC’s financial results in greater detail.
Mick Salomoni, CFO and Chief Investment Officer, Monroe Capital Corporation: Thank you, Ted. At year end, our investment portfolio totaled $457,000,000 a 17,300,000 decrease from $474,300,000 at the end of the last quarter. Our investment portfolio consisted of debt and equity investments in 91 portfolio companies compared to 94 portfolio companies at the end of the prior quarter. In the fourth quarter of twenty twenty four, we saw middle market loan volumes continue to rise, primarily driven by increased private equity sponsor activity. According to LSEG LPC’s fourth quarter twenty twenty four middle market analysis, middle market direct lending M and A volumes in the fourth quarter of twenty twenty four represented the strongest quarterly results since the fourth quarter of twenty twenty one.
This led to an 85% year over year increase in sponsored direct lending volumes in 2024, a new record for annual growth. Direct lenders such as Monroe continue to play a critical role in supporting sponsored middle market transactions, offering sponsors compelling capital solutions that can be used to support strategic initiatives for existing portfolio companies and to ultimately position those companies for exits. In 2024, private credit middle market deal issuance was 2.9 times greater than syndicated deal lending. LSEG’s report further indicated that much of this growth in issuance was driven by delayed draw term loan funding volumes to support existing investments. Delayed draw term loan fundings were 2.4 times greater in 2024 than in 2023, which was also a new annual record.
Investment activity across our platform and at MRCC has been generally reflected of those industry dynamics. MRCC’s affiliation with a best in class scaled platform in Monroe Capital allows us to remain competitive and commit to portions of transactions in acquisitive and growing portfolio companies with strong private equity sponsors. Further, incremental investments made to our existing portfolio companies accounted for much of our investment activity in the fourth quarter and throughout 2024. During the year, we invested $30,400,000 in seven new portfolio companies and $57,600,000 to existing portfolio companies. During the fourth quarter, we invested $2,200,000 in one new portfolio company and $14,200,000 to existing portfolio companies.
A more active deal environment will allow MRCC to rotate out of legacy assets and redeploy capital into new assets from more attractive vintages as well as into higher performing existing portfolio companies that are seeking to execute on key strategic initiatives. Throughout 2024, MRCC had $115,000,000 in aggregate sales and repayments, up from $103,000,000 in 2023. In the fourth quarter, we received five full payoffs aggregating to $14,500,000 and incurred partial and normal course pay downs totaling $14,500,000 At 12/31/2024, we had total borrowings of $293,900,000 including $163,900,000 outstanding under our floating rate revolving credit facilities and $130,000,000 of our 4.7% fixed rate twenty twenty six notes. At 12/31/2024, our leverage was 1.53x debt to equity, a slight increase from 1.50x debt to equity at 09/30/2024. However, in the January in the January 2025, we used excess cash on hand for payoffs that occurred at the end of the quarter to pay down debt.
At year end, the revolving credit facility had $91,100,000 of availability subject to borrowing base capacity. Now turning to our financial results. Adjusted net investment income, a non GAAP measure, was $6,200,000 or $0.29 per share this quarter compared to $6,600,000 or $0.31 per share in the prior quarter. Excluding the impact of incentive fee limitations of $1,200,000 and $700,000 for the fourth quarter and third quarters respectively, adjusted net investment income would have been $5,000,000 or $0.23 per share in quarter ended 12/31/2024 and $5,900,000 or $0.27 per share in the quarter ended 09/30/2024. The decrease of $900,000 or $0.04 per share in adjusted net investment income was primarily due to a decline in effective interest rates driven by base rate decreases, as well as a decline in the average size of the portfolio and lower other income.
As a result of the shareholder friendly total return requirement within MRCC’s incentive fee calculation, we currently expect limitations on our incentive fees to persist throughout the next quarter. The weighted average effective yield on the portfolio’s debt and preferred equity adjustments was 10.2%, which compares to 11% a quarter ago. The decline in effective yield was largely due to the decline in base rates during the quarter, as well as the addition of one time investment of one investment to non accrual status. As of 12/31/2024, our NAV was 191,800,000 which decreased by 3.6% from $198,900,000 as of 09/30/2024. Our corresponding NAV per share decreased by $0.33 from $9.18 per share to $8.85 per share.
The decline in NAV this quarter was primarily the result of net unrealized losses attributable to a specific portfolio company. While this portfolio company has generally demonstrated solid performance, the fair market value, which is determined via discounted cash flow model was impacted by expected timing related to the monetization of the asset. The mark to market unrealized loss in the quarter was partially offset by net investment income in excess of the dividend paid. I will now turn it over to Alex, who will provide more details on our fourth quarter operating performance. Thank you, Nick.
Looking to our statement of operations, investment income totaled $14,000,000 during the fourth quarter of twenty twenty four, a decrease from $15,700,000 in the third quarter of twenty twenty four. The $1,700,000 decrease in investment income was primarily the result of a decline in interest rate environment, which led to lower base interest rates on our investment portfolio. In the second half of twenty twenty four, the side cuts amounted to nearly a 100 basis point decline in base rates. This coupled with six consecutive quarters of spread compression in the market has continued to put pressure on interest yields for direct lenders. However, in the fourth quarter of twenty twenty four, we saw spreads widen for the first time since the first quarter of twenty twenty three.
While the pricing increase was indeed modest, we believe that the reversal could potentially indicate a leveling off in spreads. In addition to the impact of the decline in interest rate environment, the placement of an additional portfolio company on non accrual status and lower average invested assets during the quarter also contributed to the decrease in investment income. Our total investments on non accrual status represented 3.4% of the portfolio fair market value as of 12/31/2024, a slight increase of 3.1% of the portfolio fair market value as of 09/30/2024. The challenges we have seen in the portfolio have been for the most part due to idiosyncratic factors of specific borrowers that are not indicative of a broader pattern or stress within the portfolio. We will continue to leverage our deep roster of investment professionals and our proven underwriting and portfolio management playbook to maintain a stable asset base in a dynamic market environment.
Now shifting over to the expense side. Total expenses for the fourth quarter of twenty twenty four were $8,000,000 compared to $9,200,000 of total expenses for the third quarter of twenty twenty four. Excluding the impact of incentive fee limitations during both periods, Total expenses decreased by $700,000 during the fourth quarter, primarily due to lower interest and other debt financing expenses, driven by a decrease in our average debt outstanding and decline in base rates on our borrowing under the revolving credit facility. Our net loss on the portfolio for the quarter was $7,700,000 compared to a net loss of $1,500,000 for the prior quarter. These net losses for the quarter ended 12/31/2024 were primarily attributable to an unrealized mark to market loss associated with the change in fair value related to the portfolio company that Nick mentioned earlier in his remarks, while the remainder of the portfolio is generally stable.
The average mark on the portfolio decreased by approximately 1.7 from 93.9% of cost at September 2024, to 92.2% of cost as of 12/31/2024. Despite the slight decrease in the average mark, portfolio companies rated two on our internal risk rating scale, accounted for over 81% of the fair value, consistent with the end of last quarter and relatively in line with our trailing eight quarter average. Turning now to SLF. As of 12/31/2024, the SLF had investments in 36 different borrowers aggregating $98,000,000 in fair value. The SLF underlying investments are loans to middle market borrowers that are generally larger and more sensitive than market spread movements in the rest of MRCC’s portfolio, which is focused on lower middle market companies.
In the quarter, the average mark on the SLF portfolio decreased nominally by approximately 14 basis points from 87% of amortized cost as of 09/30/2024 to 86.9% of amortized cost as of 12/31/2024. Consistent with the prior quarter, MRCC received income distributions from SLF of $900,000 As of 12/31/2024, the SLF had borrowings under its non recourse credit facility of $38,200,000 and $71,800,000 in available capacity, subject to borrowing base availability. At this point, I will turn the call back to Ted for some closing remarks before we open up the line for some questions.
Ted Koenig, Chief Executive Officer, Monroe Capital Corporation: Thank you, Alex. As we focus on 2025, we remain committed to delivering long term value for our stockholders through leveraging our deep credit experience, rigorous underwriting standards and time tested portfolio management playbook. A predominantly first lien portfolio, which carries an effective average yield of over 10.2% continues to produce strong risk adjusted returns, resulting in an 11.4% annualized dividend yield. MRC 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 seventy five employees, including approximately 120 dedicated investment professionals as of 01/01/2025. We believe that Monroe Capital Corporation continues to provide an attractive investment opportunity to our shareholders and to other investors.
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.
Conference Call Operator: Your first question comes from the line of Christopher Nolan with Ladenburg Thalmann. Please go ahead.
Christopher Nolan, Analyst, Ladenburg Thalmann: Hi, thanks for taking my question. First of all, congratulations because the share price is almost on par with the NAV per share. So and that’s real improvement. Going forward, given everything that you guys highlighted in terms of the lower portfolio yields slightly decreasing leverage early in the quarter, the first quarter, the smaller portfolio, what is the strategy here to grow earnings, to grow the portfolio? Because you’ve been contracting the portfolio for, I think, almost two years now and just see whether or not there might be a reversal in the cards.
Ted Koenig, Chief Executive Officer, Monroe Capital Corporation: Chris, good question. You’re on top of it. The plan was to put ourselves in a right size place and clean up some of the old legacy portfolio issues, allow the markets to understand that. I think as you mentioned, our stock price right now is very close to our NAV. And I’m hopeful that now we’re in a position to play some offense and step on the accelerator.
We’re working on a couple of internal plans right now to do that. And I think you’ll see some effort to grow the portfolio here and to do some interesting things over 2025.
Christopher Nolan, Analyst, Ladenburg Thalmann: Great. And then I guess you have some non accrual investments, which have been non accrual for a very long time. And could we see some resolutions on some of these larger names in the coming quarters?
Ted Koenig, Chief Executive Officer, Monroe Capital Corporation: Nick, why don’t you take that one?
Mick Salomoni, CFO and Chief Investment Officer, Monroe Capital Corporation: Not sure. So our non accruals, we’ve got circa 10 names on non accrual and includes some legacy assets that have been on our books for a while. Those include a couple of litigation matters that we are in the process of finalizing. Basically, it’s proceeds held in trust and otherwise that we’ve been working on for a while. But we are actively working on our non accrual names to rotate them out of the portfolio to put in our cash into more accretive newer vintage assets.
But I can assure you that we’re kind of actively working on this on these non accruals with our dedicated portfolio management and workout team and hope to make real progress on this during the course of 2025.
Christopher Nolan, Analyst, Ladenburg Thalmann: Great. Final question, you guys are unique among BDCs in terms of you have a heavy reliance on bank credit facilities for your debt structure now. And some of the non bank other non bank lenders, which I cover, but mostly commercial real estate focus are starting to see real headwinds in terms of the commercial real estate valuations. And in turn, that generally is not a good sign for regional banks. And I just want to see in light of this, any consideration in terms of swapping out the bank credit facilities for baby bonds or something?
Ted Koenig, Chief Executive Officer, Monroe Capital Corporation: That’s always a consideration, Chris. We’re not real estate. Real estate is very different than corporate. Right now, I’ve never seen more interest from financial institutions, both regulated and non in providing capital and credit to well diversified middle market, first lien loan portfolios. So I think we’ve got lots of options in that regard, but we’re always looking at unsecured, provided that we think that the arbitrage works.
Christopher Nolan, Analyst, Ladenburg Thalmann: Yes. No, my point being commercial real estate is an area of vulnerability for regional banks, not for you guys. And so if commercial real estate crisis really hits, a wave really hits, then it could have a knock on effect in terms of the availability of your credit facilities. And that’s just something I’m just raising.
Ted Koenig, Chief Executive Officer, Monroe Capital Corporation: It’s a good thought process and we’re always focused on it. And as I said, Mick and Alex are very focused on optimizing our capital structure and we’re always looking at. Good.
Mick Salomoni, CFO and Chief Investment Officer, Monroe Capital Corporation: Yes, that’s the reason. We’re not heavily we’re not really heavily dependent on one regional bank. Our credit facilities are fairly well diversified.
Ted Koenig, Chief Executive Officer, Monroe Capital Corporation: Okay. Okay, thanks guys.
Mick Salomoni, CFO and Chief Investment Officer, Monroe Capital Corporation: Thanks,
Conference Call Operator: Seeing as we do not have any more questions at this time, I will now turn the call back over to Ted Koenig for closing remarks.
Ted Koenig, Chief Executive Officer, Monroe Capital Corporation: Thank you all for joining us today. As I mentioned earlier, we’re excited about prospects for 2025. We’re working on a number of interesting things. And to the extent you have questions that weren’t answered today, please feel free to contact Mick or Alex. We’re always interested and willing to speak about our business.
And I look forward to our next call, next quarter. So thank you and have a good day.
Conference Call Operator: Ladies and gentlemen, that concludes today’s call. Thank you all for joining. You may now disconnect.
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