MONROE CAPITAL Corp (MRCC)·Q2 2025 Earnings Summary

Executive Summary

• Q2 2025 was weak operationally and a major strategic inflection: total investment income fell sequentially, NII/share did not cover the dividend, NAV/share declined, and MRCC announced a NAV‑for‑NAV merger with Horizon Technology Finance (HRZN) plus a pre‑close asset sale to MCIP, pending approvals .
• EPS (Primary) $0.15 vs S&P Global consensus $0.225* and revenue $9.87M vs $12.25M* — broad misses, driven by lower average invested assets, lower effective rates, lower SLF distributions, and negative marks; NAV/share fell to $8.29 from $8.63 .
• Leverage improved materially (debt/equity 1.17x vs 1.45x in Q1) as repayments reduced the revolver; however, portfolio marks fell (avg mark to 88.6% from 91.1%) and non‑accruals edged up to 3.6% FV .
• Dividend held at $0.25; management reiterated support via spillover income ($0.42/share remaining at Q2 vs $0.53/share at Q1), but the coverage gap and declining spillover are key watch items into H2 2025 .

What Went Well and What Went Wrong

• What Went Well

  • De‑leveraging: debt/equity moved to 1.17x from 1.45x as MRCC used sales/payoffs to reduce the revolver, increasing dry powder .
  • Expense control: total expenses fell Q/Q (-$1.0M) on lower average debt outstanding and reduced base management fees amid a smaller asset base .
  • Strategic optionality: announced NAV‑for‑NAV merger with HRZN and pre‑close asset sale to MCIP; CEO: the transaction “will unlock meaningful value... and provide... compelling long‑term upside” via scale/synergies .

• What Went Wrong

  • Broad miss vs estimates: NII/share $0.15 vs $0.225* and revenue $9.87M vs $12.25M* on lower invested assets, lower effective rates, and weaker SLF distributions (down to $0.7M from $0.9M) .
  • Asset quality marks: average portfolio mark fell 2.5 pts to 88.6% of cost; net loss on investments worsened to -$5.2M driving a negative -$0.09/share total return for the quarter .
  • Dividend under‑earned again: $0.25/share paid vs $0.15/share NII; reliance on spillover increased while remaining spillover declined to ~$0.42/share (from $0.53/share at Q1) .

Financial Results

Segment/Portfolio Mix (% of Fair Value)

Key KPIs

Q2 2025 Actuals vs S&P Global Consensus

Values with asterisk (*) retrieved from S&P Global.

Guidance Changes

Earnings Call Themes & Trends

Note: No Q2 2025 earnings call transcript is available in our document set; current period commentary reflects press release disclosures and 8‑K exhibit .

Management Commentary

• “We paid a $0.25 per share dividend during the second quarter… we continued to support the dividend through utilizing the spillover income we have accumulated from prior strong performance.” — Theodore L. Koenig, CEO .
• “We believe that MRCC’s recently announced merger with HRZN, through its NAV for NAV structure, will unlock meaningful value for our shareholders and provide them with compelling long-term upside… synergies and operating leverage as it continues to grow.” .
• On drivers: total investment income decreased by $1.7M Q/Q “primarily due to lower average invested assets and lower effective rates,” plus lower fee income and SLF dividend (to $0.7M from $0.9M) .
• On marks: average portfolio mark declined to 88.6% (from 91.1%), with unrealized losses in certain portfolio companies and at SLF .

Q&A Highlights

• No Q2 2025 Q&A transcript available. Key ongoing analyst topics from Q1’25:
  • Dividend sustainability: CFO said near‑term NII expected to be shy of the dividend, with ~$0.53/share spillover to support payouts .
  • Manager fee waivers: CEO reiterated the adviser has waived incentive fees and “will continue to support MRCC” as needed .
  • SLF strategy: management “not constructive” on upper middle‑market SLF; allowing runoff and deleveraging to continue .
  • Capital structure: facilities diversified; evaluating unsecured if arbitrage attractive (raised in Q4’24) .

Estimates Context

• Q2 2025 results missed consensus: EPS $0.15 vs $0.225*; revenue $9.87M vs $12.25M*; normalized net income $(1.87)M vs $4.87M* . Values with asterisk (*) retrieved from S&P Global.
• Forward consensus (as context):
  • Primary EPS: Q3’25 $0.205*, Q4’25 $0.09*, Q1’26 $0.165*; Revenue: Q3’25 $8.84M*, Q4’25 $7.88M*, Q1’26 $10.99M* — implying near‑term subdued income with a potential rebound into early 2026*. Values retrieved from S&P Global.

Forward Consensus Snapshot (S&P Global)

Values with asterisk (*) retrieved from S&P Global.

Key Takeaways for Investors

• Under‑earning the dividend: With Q2 NII/share at $0.15 vs $0.25 dividend, and spillover down to ~$0.42/share, dividend risk rises if income doesn’t improve; management continues to use spillover and fee waivers historically to bridge the gap .
• De‑risking and dry powder: Leverage is now 1.17x (vs 1.45x), giving flexibility for selective redeployment if deal flow supports better vintages; watch revolver availability vs borrowing base .
• Asset quality/marks are the swing factor: average portfolio marks fell to 88.6% and SLF marks dropped to 77.4%; near‑term P&L sensitivity to unrealized marks remains high .
• SLF a headwind: distributions declined to $0.7M and management remains cautious on upper middle‑market exposure; continued runoff likely to weigh on income unless redeployed effectively .
• Strategic catalyst: HRZN NAV‑for‑NAV merger plus asset sale to MCIP is the dominant stock narrative; outcome, timing, and perceived synergies can drive the spread to NAV and near‑term trading .
• Estimate resets probable: given sizable Q2 misses, consensus may need to move lower/flatten near term; current forward EPS consensus implies muted H2 2025 with a potential early‑2026 improvement*. Values retrieved from S&P Global.
• Focus for H2: watch NII trajectory, redeployment pace, non‑accrual resolution, SLF runoff, and merger milestones — these will shape dividend sustainability and NAV path .

Values with asterisk (*) retrieved from S&P Global.