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MF

MidCap Financial Investment Corp (MFIC)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 NII/share was $0.37, a slight miss versus S&P Global consensus $0.383*, as lower base rates and lighter fee/prepayment income offset portfolio growth; total investment income (revenue) was $78.7M, below the $82.5M* consensus. NAV/share declined modestly to $14.93 (-0.3% q/q).
  • Credit quality improved: non‑accruals fell to 0.9% of portfolio FV (from 1.3% in Q4), PIK income declined to 4.5% of total investment income, and borrower net leverage moderated; management highlighted “stable” portfolio trends.
  • Originations were strong (new commitments $376M; gross fundings $357M; net fundings $170M), with direct origination first‑lien concentration at 99%; net leverage moved up to 1.31x, progressing toward the ~1.4x target.
  • Dividend maintained at $0.38/share (payable June 26, 2025); additional capital structure optimization via a $529.6M middle‑market CLO (A‑tranche at +161 bps) replaced $350M 5.25% notes. Potential near‑term catalysts: accelerated deployments, Merx asset reduction, and fee income normalization; watch tariff‑driven macro.

What Went Well and What Went Wrong

What Went Well

  • Improved credit metrics: non‑accruals down to 0.9% of FV; PIK income as a percent of total investment income declined to 4.5%; borrower weighted average net leverage decreased. “We continue to observe stable credit quality trends… a reduction in non‑accruals… and a decline in the weighted average leverage of our borrowers.”
  • Robust origination engine and portfolio growth: $376M of new commitments across 33 companies at a weighted average spread of 513 bps; gross fundings $357M; net fundings $170M; direct origination 99% first lien.
  • Capital actions accretive and supportive: 476,656 shares repurchased at $12.75 (~$6.1M), adding ~$0.01 to NAV/share; $529.6M CLO placed with A‑tranche at +161 bps; partial insurance recoveries at Merx progressed.

What Went Wrong

  • Small headline misses vs Street: NII/share of $0.37 vs $0.383*; revenue $78.7M vs $82.5M*, driven by lower base rates and lighter fee/prepayment income (fee + prepayment $0.95M vs $2.3M in Q4).
  • Spread compression and lower asset yields: direct origination average yield fell to 10.7% (from 11.0%); management cited base rate declines and competitive pressures.
  • GAAP net loss items persisted: net realized/unrealized loss of ~$4.0M (‑$0.05/share) concentrated in certain positions; NAV ticked down 0.3% q/q.

Financial Results

Core P&L, Balance Sheet, and Credit Metrics

MetricQ3 2024Q4 2024Q1 2025
Total Investment Income (Revenue, $USD Millions)—$82.2 $78.7
Net Investment Income ($USD Millions)——$34.3
NII per Share ($)$0.44 $0.40 $0.37
GAAP EPS ($)$0.31 $0.26 $0.32
NAV per Share ($)$15.10 $14.98 $14.93
Portfolio FV ($USD Billions)$3.03 $3.01 $3.19
Net Leverage (x)1.16x 1.16x 1.31x
Debt-to-Equity (x)1.25x 1.25x 1.39x
Non‑Accruals (% of FV)1.8% 1.3% 0.9%
Weighted Avg Yield (Direct Origination, %)11.6% 11.0% 10.7%
Weighted Avg Interest Coverage (x)1.9x 2.1x 2.1x (Dec data; flat q/q)

Actuals vs S&P Global Consensus (Street)

MetricQ4 2024 ActualQ4 2024 ConsensusQ1 2025 ActualQ1 2025 Consensus
NII/EPS ($)$0.40 $0.401*$0.37 $0.383*
Revenue ($USD Millions)$82.16 $86.28*$78.70 $82.49*

Values marked with * retrieved from S&P Global.

Portfolio Composition (Fair Value)

CompositionSep 30, 2024Dec 31, 2024Mar 31, 2025
First Lien Secured Debt91% 92% 93%
Second Lien Secured Debt1% 1% 0%
Total Secured Debt92% 93% 93%
Structured Products & Other2% 1% 1%
Preferred Equity1% 1% 1%
Common Equity/Interests & Warrants5% 5% 5%
Floating Rate (% of total)99% 99% 99%

KPIs and Activity

KPIQ3 2024Q4 2024Q1 2025
New Commitments ($M)$371 $255 $376
Weighted Avg Spread on New Commitments (bps)533 546 513
Gross Fundings ex Revolvers ($M)$288 $248 $357
Net Fundings ($M)$222 (ex-merger) ($6) $170
Portfolio Companies (count)250 233 240
Share Repurchases——476,656 shares; $6.1M; ~$0.01 NAV accretion
Dividend Declared ($/sh)$0.38 (paid Dec) $0.38 (paid Mar) $0.38 (payable Jun 26)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Dividend/shareQ2 2025 payment$0.38 (Feb 21 declaration for Mar 27) $0.38 payable Jun 26, 2025; record Jun 10 Maintained
Target Net LeverageOngoing~1.4x target reiterated Operating at 1.31x; target ~1.4x unchanged Maintained
Fundings OutlookQ2 2025 (June qtr)—“Expect fundings for the June quarter to be strong” Introduced (positive)
Fee/Prepayment IncomeNear term—Lower near term given muted M&A/prepayments Lowered
G&A Run‑RateRun‑rate—Other G&A ~$1.6M/quarter; admin ~$1.0M/quarter going forward Introduced
Portfolio SpreadsNear termQ4: modest increase on commitments vs Q3 Stabilizing after Q1 compression; modest widening possible Trending stable
Merx ExposureComing quartersExpect decline as sales progress Expect exposure to decline as sales finalize Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2024, Q4 2024)Current Period (Q1 2025)Trend
Tariffs/MacroCautious optimism post rate cuts; monitoring policy risks Tariff uncertainty heightened; first‑order impact “limited” given portfolio mix; focus on second‑order macro effects Deteriorated macro, impact managed
Credit QualityNon‑accruals 1.8% FV; PIK ~3.6% (Q3) → 1.3% FV; PIK 5.7% (Q4) Non‑accruals 0.9% FV; PIK 4.5%; borrower net leverage down; coverage 2.1x Improving
Originations/M&AStrong pipelines; $371M commitments (Q3); $255M (Q4) $376M commitments; 33 deals; 19 new/14 incumbent; Q2 fundings outlook strong Strong
Spreads/YieldsSpreads compressed vs 2023; new commitments 533–546 bps (Q3–Q4) Q1 new commitments 513 bps; stabilization expected from here Stabilizing after compression
Leverage/CapitalFacility extended to 2029; target ~1.4x Net leverage 1.31x; CLO $529.6M at +161 bps Progressing toward target
Merx De‑riskingExpect exposure decline; active sales campaigns (Q3–Q4) Additional insurance recoveries; exposure 5.8% FV; expect decline Ongoing reduction
Dividend CoverageMaintained $0.38; comfortable with coverage (Q4) Maintained; confident in earnings power as leverage rises, Merx rotates Maintained
Fees/PrepaymentsQ3–Q4 prepayment/fees below normal Expect lower near‑term fees given muted prepayments Headwind persists

Management Commentary

  • “We reported solid first quarter results including a healthy level of earnings, a reduction in non‑accruals, and strong portfolio growth.” — Tanner Powell, CEO
  • “We believe the current environment may present opportunities that MidCap Financial and MFIC are well‑equipped to capitalize on.” — Tanner Powell, CEO
  • “The weighted average yield at cost on our direct originated portfolio was 10.7%… down from 11% last quarter, largely due to lower base rates.” — Greg Hunt, CFO
  • “We believe the first‑order impact of the tariffs to our portfolio is limited… we’re underweight businesses heavily dependent on imports/exports.” — Ted McNulty, President
  • “Given commitments closed so far in the June quarter and our robust pipeline… we expect fundings for the June quarter to be strong.” — Ted McNulty, President

Q&A Highlights

  • Pipeline and spreads: Q2 activity reflects pipeline initiated pre‑April volatility; spreads have stabilized after Q1 compression; expect fewer auctions later in Q2 if macro remains cautious.
  • Dividend sustainability: Comfortable with earnings power given back‑half weighted Q1 funding, below‑target leverage, and low‑yield Merx rotation; prepayment fees will ebb/flow.
  • Dependence on M&A: Limited; sizable opportunities from existing portfolio, continuation funds, and other products; MidCap originated ~$6.5B in Q1 despite muted sponsor M&A.
  • Tariffs exposure: Direct tariff‑sensitive exposures in “single digits” of portfolio; monitoring second‑order macro effects; portfolio skewed to U.S. service businesses.
  • Buybacks: Repurchases considered versus alternative uses of capital; windows/limits can constrain activity.

Estimates Context

  • Q1 2025: NII/EPS of $0.37 missed S&P Global consensus of $0.383* by ~$0.01; revenue of $78.7M missed $82.5M* by ~4.6%. Drivers: lower base rates, lighter prepayment/fee income, offset by portfolio growth.
  • Q4 2024: NII/EPS of $0.40 essentially in line with $0.401*; revenue $82.2M below $86.3M*. Values marked with * retrieved from S&P Global.

Key Takeaways for Investors

  • Minor headline miss, but underlying credit improved (non‑accruals/PIK down, leverage and coverage stable), supporting confidence in dividend coverage as leverage increases toward ~1.4x.
  • Deployment remains the near‑term earnings lever; Q2 fundings expected to be strong, while fee/prepayment income likely stays muted industry‑wide. Watch deployment pace vs. spread stabilization.
  • Yield headwinds from base rates and competition are moderating; stabilization in spreads could limit further NII drag if pipelines stay robust.
  • Capital optimization (CLO at +161 bps; unsecured notes repaid) should support net interest margins over time; room remains to add low‑cost secured leverage.
  • Merx de‑risking and redeployment into first‑lien loans (99% floating) should lift earnings mix; continued progress/asset sales are catalysts.
  • Macro/tariff uncertainty is a watch item, but direct first‑order exposure is limited; second‑order demand effects are key risk to monitor.

Values marked with * retrieved from S&P Global.

Citations:

  • Q1 2025 8‑K press release and financial tables
  • Q1 2025 earnings call transcript –
  • Q4 2024 earnings call transcript –
  • Q3 2024 earnings call transcript –