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Carlyle Secured Lending, Inc. (CGBD)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 was steady but softer: NII per share was $0.40 (Adjusted NII $0.41) as lower base rates, tighter spreads, and a modest uptick in non-accruals weighed on earnings; total investment income (TII) was $54.864M, and NAV/share declined 1.0% q/q to $16.63 . Versus S&P Global consensus, EPS of $0.40 was below $0.43* and TII of $54.864M was below $55.5M* (small misses) [functions.GetEstimates].
  • Strategic scale-up: Closed the CSL III merger (Mar 27), issuing ~18.9M shares and adding ~$485.7M FV of assets; Carlyle exchanged its preferred into 3.0M common at NAV and covered $5M of merger costs, eliminating a dilutive overhang and lowering expense drag . Portfolio FV rose to $2.246B and statutory leverage was 1.04x; liquidity was $858.5M (cash + undrawn) as of 3/31/25 .
  • Dividend and outlook: Base dividend of $0.40 was declared for Q2 2025; management expects Q2 NII/share to be “in the same range as Q1,” supported by $0.85/share spillover income built over five years .
  • Risk and catalysts: Non-accruals increased to 1.6% of FV (2.2% cost) vs 0.6% prior quarter; management sees minimal direct tariff exposure (<5% of portfolio) but continued tight spreads as a headwind—execution on originations and JV optimization are near-term catalysts .

What Went Well and What Went Wrong

What Went Well

  • Closed CSL III merger and removed dilution: “The merger increased our scale and eliminated the CGBD preferred stock dilution overhang…Carlyle provided $5 million of merger-related expense coverage” . Equity-for-preferred exchange converted into 3.0M common at NAV, removing the 12/31/24 $8.87 conversion overhang .
  • Strengthened capital structure and liquidity: Upsized the credit facility by $145M to $935M (maturity to 2030) and established an ATM for up to $150M of equity, ending with $858.5M total liquidity at 3/31/25 .
  • Portfolio scale and seniority improved: Portfolio FV grew to $2.246B; first-lien mix rose to 83.4%, and senior secured exposure was 94.4% post-merger, supporting credit positioning .

What Went Wrong

  • Earnings pressure from rates/spreads and non-accruals: EPS (NII/share) fell to $0.40 from $0.47 in Q4 2024 as lower base rates, tight spreads, and a modest uptick in non-accruals weighed on results; non-accruals rose to 1.6% FV and 2.2% cost (from 0.6% and 1.0%) .
  • Small misses vs consensus: Q1 EPS of $0.40 trailed the $0.43* consensus; TII of $54.864M missed the $55.5M* consensus as yields compressed and JV dividends normalized from Q4’s elevated level [functions.GetEstimates] .
  • YoY top-line and margin compression: TII declined vs Q1 2024 ($54.864M vs $62.007M), and NII margin contracted with higher interest expense from a larger average debt balance and lower average portfolio yields .

Financial Results

MetricQ1 2024Q3 2024Q4 2024Q1 2025
Total Investment Income ($ USD Millions)$62.007 $55.965 $56.354 $54.864
Net Investment Income ($ USD Millions)$27.574 $24.009 $24.171 $20.803
NII per Share ($)$0.54 $0.47 $0.47 $0.40
Adjusted NII per Share ($)$0.54 $0.49 $0.47 $0.41
Net Income per Share ($)$0.56 $0.37 $0.40 $0.25
NII Margin (%)44.5% (calc from NII/TII) 42.9% (calc) 42.9% (calc) 37.9% (calc)
NAV per Share ($)$17.07 $16.85 $16.80 $16.63

Estimates vs Actuals (S&P Global consensus)

MetricConsensusActualSurprise
EPS (NII/share)$0.43*$0.40 Miss
Total Investment Income ($M)$55.50*$54.86Miss

Values marked with * are from S&P Global consensus (Values retrieved from S&P Global).

KPIs and Balance Sheet

KPIQ3 2024Q4 2024Q1 2025
Portfolio FV ($ USD Billions)$1.710 $1.804 $2.246
Companies (count)128 135 138
Weighted Avg Yield on Income-Producing (Amortized Cost)11.9% 11.7% 10.9%
First Lien (% FV)72.2% 73.4% 83.4%
Senior Secured Exposure93.7% 93.5% 94.4%
Statutory Leverage (Debt/Equity)1.05x 1.20x 1.04x
Non-accruals (% FV / % Cost)0.6% / 1.2% 0.6% / 1.0% 1.6% / 2.2%
Liquidity (Cash + Undrawn)$354.8M $565.7M $858.5M

Portfolio Mix by Asset Type (% FV)

Asset TypeQ4 2024Q1 2025
First Lien Debt73.4% 83.4%
Second Lien Debt6.4% 5.8%
Equity6.5% 5.4%
Investment Funds13.7% 5.4%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Base Dividend per ShareQ2 2025$0.40 base + $0.05 supplemental (Q1 2025 declared) $0.40 base (payable Jul 17; record Jun 30) Base maintained; supplemental not declared
NII per Share OutlookQ2 2025N/AExpect “in the same range as Q1” per CFO commentary Qualitative maintenance
Capital/ATMOpen-endedN/AATM program up to $150M established Added flexibility/liquidity

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2024, Q4 2024)Current Period (Q1 2025)Trend
Tariffs/MacroNot highlighted in press materials Minimal direct exposure (<5%); monitoring broader effects; tight spreads a headwind New headwind; managed exposure
Credit Quality/Non‑accrualsVery low non‑accruals (0.6% FV) Non‑accruals rose to 1.6% FV; active workout posture Deteriorated modestly
Capital StructureIssued $300M 2030 notes; pro forma debt ladder Upsized revolver to $935M; ATM program added Improved flexibility
Merger/ScaleCSL III merger pending CSL III merger closed; $485.7M FV added; preferred converted; $5M costs covered Completed; scale benefits
Yields/SpreadsYields trending lower into Q4 (11.9%→11.7%) Weighted avg yield 10.9%; tighter spreads and lower base rates pressured earnings Continued compression

Management Commentary

  • CEO (prepared remarks): “We generated GAAP net investment income of $0.40 per share and adjusted net investment income of $0.41 per share… While sponsor M&A activity was muted, CGBD added ~$180 million in organic originations… we see minimal potential direct risk from tariffs… spreads remain near historically tight levels, presenting a potential headwind to near-term earnings” .
  • CFO: “Total investment income was $55 million, generally in line with prior quarter due to a higher average portfolio balance, offset by lower weighted average yields and lower JV dividends… GAAP NII was $0.40 per share; adjusted $0.41… we expect Q2 earnings power of the combined portfolio with NII per share in the same range as Q1” .
  • Strategic/capital: “In March, we upsized and extended our primary revolver to $935 million… Carlyle exchanged its preferred stock for common at NAV… and provided $5 million of expense coverage. We also set up an ATM equity program for incremental dry powder” .

Q&A Highlights

  • JV/ROE trajectory: Management expects JV dividend contribution to be roughly flat near term on a lower capital base but with higher ROE; structure resembles a bank-like facility with CLO-like tests to achieve attractive pricing .
  • Asset rotation post-merger: CSL III’s book is 99% first lien and slightly lower yielding; combined yield impact about −15 bps; plan to rotate lower-spread assets into the JV to improve returns .
  • Leverage path: Targeting a return to the preferred leverage zone over the next ~two quarters, supported by strong Q2 originations pipeline and slower repayments .
  • Dividend durability and spillover: Management highlighted $0.85/share spillover income and multiple levers (JV ramp, potential spread normalization), while acknowledging SOFR path as a headwind; intention is to maintain the base dividend .

Estimates Context

  • S&P Global consensus for Q1 2025: EPS $0.43* (3 est.) vs actual $0.40; TII $55.5M* (2 est.) vs actual $54.864M—both modest misses, driven by yield compression, lower base rates, and higher interest expense on a larger average debt balance [functions.GetEstimates] . Values retrieved from S&P Global.
  • Implications: Near-term estimate risk is modestly negative if base rates drift lower and spreads stay tight; however, management’s expectation for Q2 NII/share to remain in the Q1 range and portfolio scale/capital flexibility may stabilize revisions .

Key Takeaways for Investors

  • Near-term earnings resilience, but modest pressure: NII/share at $0.40 with mgmt guiding Q2 in-range; watch rate/spread dynamics and non‑accruals (1.6% FV) for incremental pressure or relief .
  • Scale and mix are improved: Post-merger portfolio is larger ($2.246B FV) and more first-lien/senior-secured (83%/94%), supportive of downside protection .
  • Balance sheet optionality: $935M revolver, ATM program, and $858.5M liquidity give capacity to lean into originations and rotate assets/JV to defend NII/share .
  • Dividend appears supported: Base dividend maintained at $0.40 with $0.85/share spillover as a cushion; absence of supplemental for Q2 reflects prudent stance amid spread/rate headwinds .
  • Watch the catalysts: Execution on asset rotation to JV, originations ramp in Q2, and any broadening of spreads could support earnings; further non‑accrual migration or faster rate cuts would be the key risks .