Earnings call transcript: WhiteHorse Finance Q2 2025 misses expectations

WhiteHorse Finance reported its Q2 2025 earnings, revealing a significant shortfall compared to analysts’ expectations. The company posted an earnings per share (EPS) of $0.10, falling short of the forecasted $0.3079, marking a 67.52% negative surprise. Revenue also missed expectations, coming in at $18.84 million against a forecast of $19.44 million, a 3.09% shortfall. The company’s stock closed at $8.52, down 2.96% following the announcement. According to InvestingPro data, four analysts have recently revised their earnings estimates downward for the upcoming period, suggesting continued challenges ahead.

Key Takeaways

• WhiteHorse Finance’s EPS and revenue both missed analyst forecasts.
• The company’s Net Asset Value (NAV) per share decreased by 2.4% from the previous quarter.
• Stock price fell by nearly 3% in response to the earnings miss.
• The company maintained its quarterly distribution at $0.385 per share.
• Market competition and tariff uncertainties continue to challenge operations.

Company Performance

WhiteHorse Finance’s performance in Q2 2025 was marked by a decline in key financial metrics. The company’s GAAP Net Investment Income fell to $6.6 million, down from $6.8 million in Q1 2025. The decrease in NAV per share to $11.82 underscores the challenges faced in a competitive lending market. Despite these setbacks, the company maintained its focus on strategic investments, with significant capital deployments and a strong yield on its debt portfolio.

Financial Highlights

• Revenue: $18.84 million, down 3.09% from forecast
• Earnings per share: $0.10, below the forecast of $0.3079
• Net Asset Value per share: $11.82, a 2.4% decrease from the previous quarter
• Total investments decreased by $21.7 million to $629.3 million

Earnings vs. Forecast

WhiteHorse Finance’s Q2 2025 earnings report revealed a substantial miss on both EPS and revenue. The EPS of $0.10 was significantly below the forecast of $0.3079, resulting in a 67.52% negative surprise. Revenue also fell short, coming in at $18.84 million compared to the expected $19.44 million, a 3.09% shortfall. This performance marks a notable deviation from the company’s historical trend of meeting or slightly exceeding expectations.

Market Reaction

Following the earnings announcement, WhiteHorse Finance’s stock price dropped by 2.96%, closing at $8.52. This decline places the stock near its 52-week low of $8.44, reflecting investor disappointment with the company’s earnings miss. The broader market trends also indicate increased volatility, with WhiteHorse’s performance aligning with sector challenges.

Outlook & Guidance

Despite the earnings miss, WhiteHorse Finance remains optimistic about its strategic initiatives. The company continues to focus on non-sponsor market opportunities and has maintained its quarterly distribution at $0.385 per share. The balance sheet is nearly fully deployed, and the joint venture portfolio has additional capacity for growth. These factors, coupled with ongoing evaluations of distribution based on core earnings power, suggest a cautious yet hopeful outlook.

Executive Commentary

"The BDC balance sheet is expected to be fully deployed this quarter," stated CEO Stuart Aronson, emphasizing the company’s strategic focus. Aronson also highlighted the company’s commitment to the non-sponsor market, saying, "We continue to focus significant resources on the non-sponsor market." CFO Joyson Thomas added, "The reinvestment period is through 05/25/2029," indicating long-term strategic planning.

Risks and Challenges

• Tariff uncertainties impacting approximately 10% of the portfolio.
• Intense competition in the lending market, affecting pricing and leverage.
• Potential supply chain adjustments required due to market pressures.
• Exposure to macroeconomic fluctuations and interest rate changes.
• Maintaining NAV amidst decreasing investment values.

Q&A

During the earnings call, analysts raised concerns about the impact of tariffs on the portfolio. The management acknowledged moderate exposure but noted efforts to explore price pass-through and supply chain adjustments. Additionally, the potential for a special dividend was discussed, contingent on undistributed taxable income.

Full transcript - WhiteHorse Finance (WHF) Q2 2025:

Beau, Conference Operator: Good afternoon, everyone. My name is Beau, and I will be your conference operator today. At this time, I would like to welcome everyone to the WhiteHorse Finance Second Quarter twenty twenty five Earnings Conference Call. Our hosts for today are Stuart Aronson, Chief Executive Officer and Joyson Thomas, Chief Financial Officer. Today’s call is being recorded and will be made available for replay beginning at four p.

M. Eastern Time today. The replay dial in number is (402) 220-6986. No passcode is required. At this time, all participants have been placed in a listen only mode and the floor will be open for your questions following the presentation.

It is now my pleasure to turn the floor over to Robert Brinberg of Rose and Company. Please go ahead, sir.

Robert Brinberg, Investor Relations, Rose and Company: Thank you, Bo, and thank you, everyone, for joining us today to discuss WhiteHorse Finance’s second quarter twenty twenty five earnings results. Before we begin, I’d like to remind everyone that certain statements, are not based on historical facts made during this call, including any statements relating to financial guidance, may be deemed forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Before these forward looking I’m sorry, because these forward looking statements involve known and unknown risks and uncertainties, these are important factors that could cause actual results to differ materially from those expressed or implied by these forward looking statements. WhiteHorse Finance assumes no obligation or responsibility to update any forward looking statement. Today’s speakers may refer to material from the WhiteHorse Finance second quarter twenty twenty five earnings presentation, which was posted on our website this morning.

With that, allow me to introduce WhiteHorse Finance’s CEO, Stuart Aronson. Stuart, you may begin.

Stuart Aronson, Chief Executive Officer, WhiteHorse Finance: Thank you, Rob. Good afternoon, everyone. Thank you for joining us today. As you’re aware, we issued our earnings this morning before the market opened. I hope you’ve had a chance to review our results for the period ended 06/30/2025, which can also be found on our website.

On today’s call, I will begin by addressing our second quarter results and current market conditions. Joyson Thomas, our Chief Financial Officer, will then discuss our performance in greater detail, after which we will open the floor for questions. Our results for the 2025 were disappointing as our investment portfolio declined this quarter due to net realized and unrealized losses, which impacted our financial performance. Q2 GAAP net investment income and core NII was $6,600,000 or $0.02 $82 per share compared with a quarterly distribution of $0.03 $85 per share and was below the Q1 GAAP and core NII of $6,800,000 or $0.02 $94 per share. NAV per share at the end of Q2 was $11.82 representing a 2.4 decrease from the prior quarter.

NAV per share was impacted by net realized and unrealized losses in our portfolio that totaled $4,300,000 Turning to our portfolio activity in Q2, we had gross capital deployments of $39,000,000 which was partially offset by total repayments and sales of $36,200,000 resulting in net deployments of $2,800,000 Gross capital deployments consisted of three new originations totaling $33,100,000 and the remaining $5,900,000 was used to fund three add ons to existing investments. In addition, there was $300,000 in net fundings made on revolver commitments. Of our three new originations in Q2, one was non sponsor and two were sponsor deals with an average leverage of approximately 4x EBITDA. All of our Q2 deals were first lien loans at an average spread of five sixty basis points and an average all in rate of 9.9% compared to 9.6% in the 2025. Total repayments and sales were 36,200,000.0 primarily driven by complete realizations in our positions in Clean Choice and Flexitallic.

At the end of Q2, 99.3% of our debt portfolio was first lien, senior secured and our portfolio mix was approximately two thirds sponsor and one third non sponsor. During the quarter, the transferred three new deals and one existing investment to the STRS JV. At the end of Q2, the STRS JV total portfolio had an aggregate fair value of $330,000,000 at an average effective yield on the JV’s portfolio of 10.6% compared to 10.8% in Q1. Leverage for the JV at the end of Q2 was 1.16x compared with 0.98x at the end of the first prior quarter. We continue to successfully utilize the JV and believe WhiteHorse’s equity investment in the JV continues to provide attractive returns for our shareholders.

After net deployment, JV transfers and net realized and unrealized losses, total investments decreased by $21,700,000 from the prior quarter to $629,300,000 This compares to our portfolio’s fair value of $651,000,000 at the end of Q1. The weighted average effective yield on our income producing debt investments decreased to 11.9% at the end of Q2 compared to 12.1% in the 2025. The weighted average effective yield on our overall portfolio increased slightly to 9.8% at the end of Q2 compared to approximately 9.6% at the end of Q1, primarily driven by Telestream returning to accrual status and the realization of American Crafts. During the quarter, we took net write downs of $3,600,000 primarily driven by write downs in Honors Holdings and Aspect Software. As I mentioned earlier, American Crafts has now been fully resolved, eliminating any further downside from that investment.

No credits were placed on nonaccrual in Q2, and nonaccrual investments totaled 4.9% of the debt portfolio, an improvement compared with 8.8 of the debt portfolio at fair value in the prior quarter. As I mentioned earlier, Telestream returned to accrual status this quarter, which will benefit the BDC’s earning capacity going forward. We also expect that a portion of MSI Information Services will likely go back on accrual in the third quarter, subject to a successful restructuring of the debt. Other deals on nonaccrual are likely to remain that way for some period of time. We are continuing to actively work on getting deals off nonaccrual, leveraging the expertise of our five person dedicated restructuring team and the resources of HIG Capital.

Aside from credits on nonaccrual, our portfolio is performing well. We have performed subsequent tariff analysis across the portfolio, and we believe that less than 10% of the portfolio is either heavily or moderately exposed to tariffs. Turning to the lending market. M and A activity remains pretty subdued due in part to tariff uncertainty, and this has led to reduced supply of new financing deals in the market. At the same time, there is plenty of capital available from other lenders.

This has created unprecedented competition for companies doing financings, particularly for companies that are noncyclical and do not have meaningful international sales exposure. In the upper mid cap and large cap markets, deals are typically pricing at SOFR $4.25 to SOFR 4.75 and in many cases, on highly adjusted EBITDA levels. Leverage multiples in that sector are between six and 8x, and deals are getting structured with partial pick to make the cash flows work on the deals. That is not nearly as true in the middle market, where we focus, where pricing is 50 basis points higher at between SOFR $4.75 to SOFR $5.25 Most of the deals we see are getting done at leverage of between four to 6x, and most deals still have covenant protection. In the lower mid market, pricing is very similar to the mid market, with pricing starting at circa $475 more often being at $500 or $5.25 and extending to as high as $5.75 for more complex or cyclical credits.

These prices and structures are for the sponsor market. The non sponsor market remains much less competitive. We continue to focus significant resources on the non sponsor market, where there are better risk returns in many cases and much less competition than what we’re seeing in the new on the run sponsor market. We currently have 24 originators covering 13 local regional markets. Given market conditions, these originators are primarily focused on sourcing off the run sponsor deals for smaller private equity firms and non sponsor deals as we look for value in the market where there is limited deal flow and a lot of aggressiveness.

To put the attractiveness of the non sponsor market in context, our non sponsor mandates are still levered only three to 4.5 times, And the highest priced deal we have priced recently is at silver 700 with all the other deals being silver 600 or better. Subsequent to quarter end, the BDC has closed two new investments of $14,400,000 and had one full repayment totaling $9,600,000 There were two existing investments fully transferred to the JV totaling $8,000,000 Following net deployment activity in Q2 and pro form a for several transactions that have closed or that we expect to close in 2025, the BDC balance sheet has very little capacity for new assets. The JV, on the other hand, has approximately $20,000,000 of capacity, supplementing the BDC’s existing capacity. Our overall sourcing is being impacted by the muted M and A activity, and our pipeline is lower than normal for this time of year. We currently have six new mandates and are working on two add ons to existing deals.

Our six mandates comprise three sponsor deals and three non sponsor deals. While there can be no assurance that any of these deals will close, all of these deals should fit into the BDC or our JV should we elect to transact. With that, I’ll turn the call over to Joyson for additional performance details and a review of our portfolio composition. Joyson, go ahead.

Joyson Thomas, Chief Financial Officer, WhiteHorse Finance: Thanks, Stuart, and thanks, everyone, for joining today’s call. During the quarter, we recorded GAAP net investment income and core NII of $6,600,000 or $0.02 $82 per share. This compares with Q1 GAAP NII and core NII of $6,800,000 or $0.02 $94 per share, as well as our previously declared quarterly distribution of $0.03 $85 per share. Fee income of approximately $800,000 in Q2 was primarily due to prepayment fees earned on the full repayment in Clean Choice Energy as well as from other amendment fees. For the quarter, we reported a net increase in net assets resulting from operations of 2,300,000.0 Our risk ratings during the quarter showed that approximately 76.8% of our portfolio positions either carried a one or two rating, slightly higher than the 74.1% reported in the prior quarter.

As a reminder, a one rating indicates that a company has seen its risk of loss reduced relative to initial expectations, and a two rating indicates the company is performing according to such initial expectations. Regarding the JV specifically, we continue to grow our investment. As Stuart mentioned earlier, in the second quarter, we transferred three new deals and one existing investment to the SRS JV, totaling 22,800,000.0 As of 06/30/2025, the JV’s portfolio held positions in 43 portfolio companies with an aggregate fair value of 330,200,000 compared to 41 portfolio companies with an aggregate fair value of $310,200,000 as of 03/31/2025. The investment in the JV continues to be accretive for the BDC’s earnings, generating a mid teens return on equity. During Q2, income recognized from our JV investment aggregated to approximately $3,400,000 a slight decline from $3,700,000 in Q1.

As we have noted in prior calls, the yield on our investment in the JV fluctuate period over period as a result of a number of factors, including the timing and amount of additional capital investments, the changes in asset yields in the underlying portfolio as well as the overall credit performance of the JV’s investment portfolio. Turning to our balance sheet. We had cash resources of approximately $33,300,000 at the end of Q2, including $22,700,000 in restricted cash and approximately $100,000,000 of undrawn capacity available under our revolving credit facility. During the second quarter, we completed a CLO term debt securitization and issued 174,000,000 in debt, which bears interest at three month term SOFR plus 1.7%. The reinvestment period for this new term debt securitization runs through 05/25/2029, with a term debt having a maturity date of 05/25/2037.

In connection with the CLO financing transaction, all amounts outstanding under our revolving credit facility were repaid, following which we also reduced the maximum size of the revolving credit facility to $100,000,000 This debt optimization reduced our borrowing costs, extended our debt maturity profile and enhanced our ability to access the debt capital markets, complementing the more traditional channels we’ve accessed and utilized in the past. We expect this optimization to result in cost savings of between $01 to $0.15 per share per quarter. As of 06/30/2025, the company’s asset coverage ratio for borrowed amounts as defined by the 1940 Act was 174.6%, which was above the minimum asset coverage ratio of 150%. Our Q2 net effective debt to equity ratio after adjusting for cash on hand was approximately 1.22x compared with 1.23x from the prior quarter. Before I conclude and open up the call to questions, I’d like to again highlight our distributions.

This morning, we announced that our Board declared a third quarter distribution of $0.03 $85 per share, which is consistent with the prior quarter. The upcoming regular distribution, the fifty second consecutive quarterly distribution paid since our IPO in December 2012, with all distributions at or above a rate of $0.03 $55 per share per quarter will be payable on 10/03/2025 to stockholders of record as of 09/19/2025. As we said previously, we will continue to evaluate our quarterly distribution both in the near and medium term based on the core earnings power of our portfolio in addition to other relevant factors that may warrant consideration. In assessing distributions, we also consider our taxable income relative to amounts that we have distributed during the year when setting our overall dividend. After accounting for and including the distribution of approximately $8,900,000 paid on 07/03/2025, Our remaining amount of undistributed taxable income related to the 2024 annual period, sometimes referred to as our prior year spillover, is approximately $9,700,000 With that, I’ll now turn the call back over to the operator for your questions.

Operator?

Beau, Conference Operator: Thank you, Mr. Thomas. We’ll go first this afternoon to Christopher Nolan of Ladenburg Thalmann. Please go ahead.

Christopher Nolan, Analyst, Ladenburg Thalmann: Hi. Thank you for taking my questions. I guess, on American Crafts, is it correct that that was an exit or was it a restructuring?

Stuart Aronson, Chief Executive Officer, WhiteHorse Finance: It was a sale of the remaining piece of the company, and that sale yielded very little in terms of proceeds. So we have resolved that, taken the write down, and there is no further downside on that account.

Christopher Nolan, Analyst, Ladenburg Thalmann: Gotcha. And on the CLO, Joyceann was going through some of the details helpful, but what is the term of it before the, for the reinvestment period?

Joyson Thomas, Chief Financial Officer, WhiteHorse Finance: Reinvestment period is through 05/25/2029.

Christopher Nolan, Analyst, Ladenburg Thalmann: Great. That’s it for me. Thank you.

Stuart Aronson, Chief Executive Officer, WhiteHorse Finance: Thank you, Chris.

Beau, Conference Operator: Thank you. We’ll go next now to Melissa Wedel of JPMorgan.

Melissa Wedel, Analyst, JPMorgan: Good afternoon. Thanks for taking my questions. Appreciate the reminder on the portion of the portfolio where companies are facing tariff pressure. I’m wondering if you can expand on that a little bit. I’m curious if there are the extent to which any mitigating actions can be taken or have been taken.

Can you elaborate on I assume some of it’s supply chain pressure. If not, could you explain a bit more on that? Thanks.

Stuart Aronson, Chief Executive Officer, WhiteHorse Finance: Yeah. I mean, it varies company by company. In some cases, the companies are actively negotiating to have their suppliers absorb a portion of the tariff amount. We’re seeing in a decent number of cases, about half the tariff amount is being absorbed. In some of the cases, the tariff amounts are still not clear based on ongoing negotiations and changes week to week.

And then in some other cases, particularly where we’ve had companies that source out of China, they have been moving their sourcing. One of our companies is in the toy business, and they’ve moved a lot of their sourcing from China to Vietnam. So people are taking the information that exists in the market, trying to optimize based on whatever is going on. But as we all recognize, the tariff situation changes every week and, in some cases, every day. So people are having to be nimble to, keep up with what’s going on, Melissa.

Melissa Wedel, Analyst, JPMorgan: That certainly makes sense. I I also appreciated the update on, sort of post quarter end activity, and I guess, a couple of things jumped out there. First of all, it seemed like the mandate I’m not sure if you sized it in terms of dollars, but the number of mandates, that you referenced seems to be certainly higher than last quarter, though that might not be too surprising given the volatility last quarter. But given the higher number of mandates, should we be thinking about that as you also having line of sight to some elevated repayment activity given the constraints on leverage within the general portfolio?

Stuart Aronson, Chief Executive Officer, WhiteHorse Finance: We think that we’re right now in a pretty good balance between repayment and new mandates. There are companies that are either in the midst of being sold or expected to be sold in Q4. In the cases where we like those companies, we will attempt to pursue them with the new owners. But I would say, in general, Melissa, the message is that the BDC balance sheet is expected to be fully deployed this quarter based on the mandates that we have now and based on what we’re seeing in terms of repayment activity. And then as I mentioned earlier, the JV has about $20,000,000 of additional capacity, which would be on the average deal allocation about three deals that we could add to the JV, which would create more income.

Melissa Wedel, Analyst, JPMorgan: Well and I guess I’ll sneak in one more follow-up on that in particular given the I’d characterize as fairly limited extra capacity in the JV. Do you have any plans on either upsizing these existing JV or perhaps pursuing additional joint ventures with other partners? Thank you.

Stuart Aronson, Chief Executive Officer, WhiteHorse Finance: No. There there are no plans to increase the JV at this time. If we decide that makes sense, we’ll we’ll certainly let you know. But we think the JV is sized appropriately, And we’re doing our best to keep it as close to full as we can.

Melissa Wedel, Analyst, JPMorgan: Got it. Thank you.

Stuart Aronson, Chief Executive Officer, WhiteHorse Finance: Thank you, Melissa.

Beau, Conference Operator: Thank you. We’ll go next now to Helly Scheth of Raymond James.

Helly Scheth, Analyst, Raymond James: Afternoon. Thanks for the question. In regards to the dividend, I know you mentioned prior year spillover of $9,700,000 Any update on or any idea on thought processes for working down spillover through 2025 and into 2026?

Stuart Aronson, Chief Executive Officer, WhiteHorse Finance: Joyson, can you take that?

Joyson Thomas, Chief Financial Officer, WhiteHorse Finance: Sure. Certainly. Yes, as we mentioned before, the undistributed spillover income related to 2024 that still remains is $9,700,000 And so as we’ve discussed in prior calls, that factors into the dividend distribution for the remainder of this year into next. So I think the way to think about it is thinking about the October distribution that will be paid of approximately $8,900,000 there’s still a small amount less than $1,000,000 that would be undistributed. And so factors to consider there would be a potential special dividend.

Otherwise, that would go undistributed for the year and, roll into tax incurrence for the year. So I think from that standpoint, we’re looking at that undistributed taxable income in combination with other factors related to just the shortfall of the earnings in the current year when we think about the dividend for 2026.

Helly Scheth, Analyst, Raymond James: Got it. Thanks for the color. Appreciate it.

Beau, Conference Operator: Thank you. We go next now to Sean Paul Adams of B. Riley Securities.

Robert Brinberg, Investor Relations, Rose and Company: Hey, guys. Good afternoon. On the portfolio companies that you mentioned were you know, suffering tariff impacts, are you seeing any, you know, incremental bottom line flow through, to just the net consumer? Historically, you know, during the COVID period, it was passed through to the end user, with with with little to no issue after the six to twelve six to twelve month volatility period.

Stuart Aronson, Chief Executive Officer, WhiteHorse Finance: Good afternoon. And the answer is yes. To the extent that tariffs are not being fully absorbed by the suppliers, our companies are raising prices and they are seeing competing companies raise prices as well. So far, what we don’t know is how the consumer will react to those higher prices. And a good example of that is the toy and game company that we’re lending to.

We won’t know the consumer reaction to higher prices until we get through the holiday season and see what the sales look like. But in general, anything not being absorbed by the suppliers is being attempted to be passed through to the final users or consumers.

Christopher Nolan, Analyst, Ladenburg Thalmann: Got it. Thank you.

Beau, Conference Operator: Thank you. And gentlemen, I have no further questions coming in today. So that will bring us to the conclusion of today’s conference call. We would like to thank everyone for joining today’s WhiteHorse Finance Second Quarter twenty twenty five Earnings Call. Again, thanks so much for joining us, everyone, and we wish you all a great afternoon.

Goodbye.

Christopher Nolan, Analyst, Ladenburg Thalmann: Bye bye.

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