Sign in

You're signed outSign in or to get full access.

LR

Logan Ridge Finance Corp. (LRFC)·Q2 2024 Earnings Summary

Executive Summary

  • Q2 2024 delivered steady investment income with Total Investment Income of $5.37M and Net Investment Income of $0.75M ($0.28 per share), while GAAP net assets from operations were negative ($0.25 per share) due to $1.3M net realized/unrealized portfolio losses and $0.1M dividend coverage shortfall .
  • Dividend held at $0.33 per share for Q3 2024, signaling confidence in portfolio earnings power despite spread compression and modest NAV decline to $33.13 per share ($88.7M) .
  • Portfolio quality stable: no new non‑accruals; weighted average annualized yield held at ~11.4%; debt mix ~80% of fair value; non‑accruals concentrated in three borrowers (four securities) at $10.1M FV (5.2%) .
  • Street consensus from S&P Global was unavailable for LRFC; therefore, beat/miss vs estimates cannot be assessed (S&P Global consensus not available; estimates mapping missing).

What Went Well and What Went Wrong

What Went Well

  • Total Investment Income increased sequentially to $5.37M (+$0.37M QoQ), supported by higher average debt outstanding and stable portfolio yield ~11.4% .
  • No new non‑accruals; debt investments on non‑accrual remained in three portfolio companies, with non‑accrual FV down slightly to $10.1M, indicating stable credit performance .
  • Management reaffirmed confidence and declared another $0.33 quarterly dividend: “We continue to see attractive opportunities... we will remain opportunistic deployers of capital” .

What Went Wrong

  • Net Investment Income fell to $0.75M ($0.28/share), down from $0.90M ($0.35/share) in Q1, driven by $0.3M non‑recurring professional fees and higher financing costs .
  • NAV per share decreased to $33.13 from $33.71, primarily due to $1.3M net realized/unrealized losses and dividend exceeding NII by ~$0.1M .
  • Unrealized losses were concentrated: American Clinical Solutions (cannabis/hemp testing) and a broadly syndicated Avanti loan marked down, reflecting sector-specific and mark‑to‑market pressures .

Financial Results

MetricQ4 2023Q1 2024Q2 2024
Total Investment Income ($USD Millions)N/A$5.003 $5.370
Total Expenses ($USD Millions)N/A$4.056 $4.620
Net Investment Income ($USD Millions)$0.600 $0.947 $0.750
NII per Share ($)$0.22 $0.35 $0.28
GAAP Net Increase (Decrease) in Net Assets Resulting from Operations ($USD Millions)N/A$1.851 $(0.658)
GAAP EPS (Net Increase/Decrease in Net Assets per Share, Basic) ($)N/A$0.69 $(0.25)
NAV ($USD Millions)$89.2 $90.2 $88.7
NAV per Share ($)$33.34 $33.71 $33.13
Cash and Cash Equivalents ($USD Millions)$3.9 $8.3 $4.3

YoY comparison:

MetricQ2 2023Q2 2024
Total Investment Income ($USD Millions)$5.344 $5.370
Total Expenses ($USD Millions)$4.305 $4.620
Net Investment Income ($USD Millions)$1.039 $0.750
NII per Share ($)$0.38 $0.28

Portfolio composition (fair value):

CategoryDec 31, 2023 ($M / %)Mar 31, 2024 ($M / %)Jun 30, 2024 ($M / %)
First Lien Debt$124.007 / 65.4% $130.377 / 65.2% $125.133 / 64.0%
Second Lien Debt$7.918 / 4.2% $8.308 / 4.2% $8.012 / 4.1%
Subordinated Debt$23.548 / 12.4% $22.910 / 11.4% $23.218 / 11.9%
CLOs$1.600 / 0.8% $1.648 / 0.8% $1.596 / 0.8%
Joint Venture$0.450 / 0.2% $0.396 / 0.2% $0.407 / 0.2%
Equity$32.135 / 17.0% $36.483 / 18.2% $37.187 / 19.0%
Total$189.658 / 100% $200.122 / 100% $195.553 / 100%

Key performance indicators:

KPIQ4 2023Q1 2024Q2 2024
Portfolio Companies (Count)60 62 61
Debt % of Portfolio (FV)82.0% 80.8% 80.0%
Weighted Avg Annualized Yield (Debt)~11.1% ~11.4% ~11.4%
Fixed Rate % of Debt (FV)11.5% (Mar 31) 11.5% 11.9%
Non‑Accruals (Amortized Cost / FV)$17.2M / $12.8M $17.2M / $10.6M $17.2M / $10.1M
Asset Coverage Ratio176% (Dec 31) 176% (Dec 31) 176% (Jun 30)
Net Deployment (Repayments)+$5.6M (Q4) +$8.9M (Q1) $(4.1)M (Q2)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Dividend per ShareQ3 2024N/A$0.33 payable Aug 30, 2024 (record Aug 22) Maintained vs Q2 distribution level
Revenue/Margins/OpEx/OI&E/Tax2024None providedNone providedN/A

Note: LRFC does not issue formal quantitative guidance on revenue, margins, OpEx, OI&E, or tax; dividend policy updates serve as forward indicators .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2023, Q1 2024)Current Period (Q2 2024)Trend
Private credit spreads & syndicated marketSpreads tightened ~50 bps; syndicated markets reopened; loan issuance up; favorable yields >10% Spread compression continued; >$100M EBITDA borrowers tightened ~75 bps; $20–$50M tightened ~50 bps; < $20M ~25 bps Competitive pressure rising, yields stable but spreads compressing
Deployment & pipelineActive pipeline; intention to increase leverage prudently; 2024 deal activity improved Prudent deployment; net repayments in Q2; pipeline remains strong; opportunistic posture Moderating deployment in Q2 after strong Q1
Non‑accruals & credit quality3 non‑accrual companies; stable trend No new non‑accruals; unchanged count; FV down slightly; debt FV non‑accruals $10.1M Stable credit performance
Equity portfolio rotation/monetizationAim to rotate legacy equity; M&A improving; expect progress in 2024 Optimism for equity exits; one small exit; pursuing transactions as market improves Building towards monetizations
Leverage frameworkTarget conceptual net leverage ~1.25–1.4x, conservatively managed due to equity mix Conservative posture maintained; focus on earnings power of balance sheet Holding at lower end until equity monetization
Dividend trajectoryReintroduced in 2023; consecutive increases through Q2 2024 Declared $0.33 for Q3 2024 Sustained payouts

Management Commentary

  • “Second quarter total investment income increased by $400,000 to $5.4 million… underlying credit performance… remained strong, with no new investments being placed on nonaccrual status… the Board of Directors [approved] a dividend of $0.33 per share” — CEO Ted Goldthorpe .
  • “We remain focused on increasing shareholder value through… rotation out of legacy equity… and maximizing the earnings power of the balance sheet” — CEO .
  • “Weighted average annualized yield… ~11.4%… debt portfolio ~80% of total… 88.1% floating rate” — CIO Patrick Schafer .
  • “NII was $0.8M ($0.28/share)… decrease largely due to $0.3M non‑recurring professional fees… NAV down $1.5M… $21.9M of unused borrowing capacity” — CFO Brandon Satoren .

Q&A Highlights

  • Strategic alternatives: Analyst raised potential merger with Portman Ridge; management acknowledged portfolios are increasingly similar and are “thinking about” it, implying ongoing evaluation but no formal action .
  • Drivers of unrealized losses: Concentrated in American Clinical Solutions (sector headwinds pending Florida recreational decision) and mark‑to‑market on Avanti broadly syndicated loan; expectation for potential bounce-back post‑election .
  • Equity portfolio strategy: Small exit completed; management optimistic about exits as M&A improves; conservative marks relative to another holder (Gladstone) .
  • Buybacks: Investor encouraged resumption; management receptive, consistent with prior accretive repurchases .

Estimates Context

  • S&P Global consensus (EPS and revenue) for LRFC Q2 2024 was unavailable in our data pipeline (missing mapping), so beat/miss analysis vs Street cannot be determined at this time. If obtained, compare NII/share ($0.28) and GAAP EPS (−$0.25) to consensus; in absence of consensus, focus on sequential and YoY trends .

Key Takeaways for Investors

  • Earnings quality: Sequential NII decline was primarily due to non‑recurring professional fees ($0.3M, ~$0.10/share); underlying income generation and portfolio yield remained solid (~11.4%) .
  • Dividend sustainability: Q3 dividend maintained at $0.33/share; board’s stance reflects confidence in long‑term earnings power despite spread compression .
  • NAV trajectory and volatility: NAV/share fell to $33.13 on net realized/unrealized losses and slight under‑earn vs dividend; watch equity monetizations to reduce NAV volatility and enable leverage normalization .
  • Credit stability: No new non‑accruals; non‑accrual FV modestly lower; continued discipline in deployment with net repayments in Q2 .
  • Macro dynamics: Syndicated markets reopening and private credit spread compression increase competition; LRFC’s platform and floating‑rate exposure (88.1%) should sustain double‑digit yields but pricing pressure is a headwind .
  • Liquidity and capacity: $21.9M unused borrowing capacity at quarter end; subsequent KeyBank amendment (Aug 21) reduced margins and extended terms, potentially enhancing forward deployment capacity .
  • Near‑term trading lens: Dividend stability and credit quality are supportive; NAV slippage and lack of Street consensus may mute momentum until evidence of equity exits or deployment re‑acceleration emerges .