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MI

MSC INCOME FUND, INC. (MSCF)·Q4 2023 Earnings Summary

Executive Summary

  • Q4 2023 preliminary net investment income (NII) was $0.18–$0.19 per share, covering the accrued quarterly dividend of $0.175 per share; NAV per share increased to $7.75–$7.79 from $7.67 in Q3, driven by net unrealized appreciation and accretive stock repurchases .
  • Annualized return on equity for Q4 was estimated at 13%–14%, reflecting strong portfolio fair value marks and income generation despite realized losses in select positions .
  • Investment activity skewed toward repositioning the private loan book (net decrease in cost basis) while growing lower middle market (LMM) cost basis; middle market exposure modestly reduced, signaling proactive portfolio optimization in a high-rate environment .
  • For 2023, total dividends were $0.70 per share with favorable tax characteristics (approx. 15% qualified dividend income); management indicated further Q4/FY details would be released around March 8, 2024, subsequently confirmed in the 10-K (FY NII of $0.72 per share; year-end NAV of $7.77) .

What Went Well and What Went Wrong

What Went Well

  • NAV per share rose 1.0%–1.6% sequentially (to $7.75–$7.79), driven by net unrealized appreciation and accretive repurchases, with NII exceeding the quarterly dividend accrual .
  • Q4 annualized ROE of 13%–14% showcased resilient earnings power amid higher benchmark rates benefiting floating-rate assets .
  • “MSC Income Fund…is pleased to announce its preliminary operating results for the fourth quarter of 2023…”—management tone underscored constructive quarter and highlighted favorable tax treatment of 2023 dividends for U.S. and non-U.S. holders .

What Went Wrong

  • Private loan portfolio saw realized losses on several positions, contributing to a net decrease in cost basis; middle market portfolio also saw a net decrease in cost basis, indicating credit normalization and exits under pressure in specific names .
  • The Q4 improvement in NAV was partially offset by net tax provision for the quarter, dampening the full uplift from fair value appreciation .
  • No earnings call transcript or consensus estimates were available; the company deferred full Q4 details to March and furnished only preliminary ranges on key metrics, limiting precision of quarter-over-quarter benchmarking .

Financial Results

MetricQ2 2023Q3 2023Q4 2023 (Prelim)
Net Investment Income per Share ($)$0.18 $0.18 $0.18–$0.19
Total Investment Income ($MM)$33.228 $32.351 N/A (prelim ranges only)
NAV per Share ($)$7.67 $7.67 $7.75–$7.79
Quarterly Dividend Accrual per Share ($)$0.175 (company pays quarterly dividends; Q4 accrual cited) $0.175 (company pays quarterly dividends; Q4 accrual cited) $0.175 (accrued in Q4)
Annualized ROE (%)N/AN/A13%–14%

Segment/Portfolio Activity – Q4 2023

Portfolio AreaGross Activity ($MM)Net Cost Basis Change ($MM)
Private Loan$60.1 total investments; realized losses and repayments led to net decrease-$26.6
Lower Middle Market (LMM)$20.4 total investments; repayments and realized loss netted out to increase+$14.4
Middle MarketNet decrease in cost basis-$15.9

KPIs and FY Context

KPIFY 2023
NII per Share ($)$0.72
NAV per Share ($)$7.77
Dividends per Share ($)$0.700 (approx. $0.596 ordinary, $0.104 qualified)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Earnings/RevenueQ4 2023None providedNo formal guidance; preliminary NII and NAV ranges furnishedMaintained “no formal guidance”
DividendsQ4/FY 2023Quarterly dividend practiceFY dividends totaled $0.70; Q4 accrual $0.175 per shareMaintained dividend cadence
Event TimingQ4/FY 2023N/AFull Q4/FY release around March 8, 2024New event date noted

Earnings Call Themes & Trends

TopicPrevious Mentions (Q-2: Q2 2023; Q-1: Q3 2023)Current Period (Q4 2023)Trend
Interest-rate tailwindsHigher investment income vs prior year on floating rates (Q2/Q3) Estimated ROE 13%–14%; NII covers dividend Improving earnings leverage
Portfolio mix/actionsActive origination and repayments (Q2/Q3 schedules) Private loan net cost decrease; LMM net increase; middle market net decrease Portfolio optimization
Dividends/taxQuarterly payment and DRIP; ongoing accruals (Q2/Q3) FY $0.70/share; tax mix disclosed; Q4 accrual $0.175 Stable payout with favorable tax mix
Full Q4 disclosureN/ADeferred to March 8, 2024 timeline Scheduled follow-up

Note: No Q4 2023 earnings call transcript was available in our document set.

Management Commentary

  • “MSC Income Fund…is pleased to announce its preliminary operating results for the fourth quarter of 2023 and the federal tax treatment of its 2023 dividends.”
  • “MSC Income Fund’s preliminary estimate of fourth quarter 2023 net investment income (‘NII’) is $0.18 to $0.19 per share.”
  • “MSC Income Fund’s preliminary estimate of net asset value (‘NAV’) per share as of December 31, 2023 is $7.75 to $7.79…primarily due to net fair value increase…NII…exceeded quarterly dividends…accretive impact of stock repurchases…partially offset by a net tax provision.”
  • “MSC Income Fund estimates that it generated a quarterly annualized return on equity of 13% to 14% for the fourth quarter of 2023.”
  • “MSC Income Fund will announce further details about its fourth quarter and full year 2023 results on or around March 8, 2024.”

Q&A Highlights

  • No Q4 2023 earnings call transcript was available; therefore, there are no Q&A disclosures to summarize [ListDocuments showed 0 for earnings-call-transcript].

Estimates Context

  • Wall Street consensus (S&P Global) for Q4 2023 was unavailable for MSCF due to missing CIQ mapping; thus, no formal beat/miss assessment can be made. Values from S&P Global were unavailable.

Key Takeaways for Investors

  • Dividend coverage and NAV accretion: Preliminary NII matched/exceeded the quarterly dividend accrual, and NAV rose sequentially, signaling healthy earnings power and fair value marks in Q4 .
  • Portfolio repositioning: Net decreases in private loan and middle market cost bases alongside LMM cost basis growth suggest active credit selection and risk management amid tight credit conditions .
  • Return profile: Q4 annualized ROE of 13%–14% reflects constructive earnings leverage to higher rates, albeit with realized losses in specific credits .
  • 2023 capital return: $0.70/share dividends with ~15% qualified dividend component and reported year-end NAV of $7.77 enhance income quality and capital stability optics heading into 2024 .
  • Near-term catalyst: Full Q4/FY details and disclosures were scheduled around March 8, 2024 (subsequently provided in the 10-K), offering clarity on realized losses, non-accruals, and portfolio trajectory .
  • Trading implications: As a non-exchange-listed BDC with a repurchase program and DRIP, near-term investor focus tilts to dividend sustainability, NAV trends, and credit performance markers rather than public market price reactions .

References:

  • Q4 2023 preliminary press release (8-K 2.02, Exhibit 99.1): NII range, NAV range, ROE, portfolio activity, dividends/tax, timing of full results .
  • FY 2023 10-K: investment income, NII per share, year-end NAV, dividends/tax, capital resources .
  • Q2/Q3 2023 10-Qs: quarterly NII per share, NAV per share, investment income, portfolio schedules .