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WhiteHorse Finance, Inc. (WHF)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 was challenged: total investment income fell 10.5% QoQ to $18.801M and GAAP/core NII per share declined to $0.294, below the $0.385 dividend and below S&P Global consensus $0.330; revenue also missed consensus $19.97M *.
  • NAV/share decreased 1.6% QoQ to $12.11, driven by $2.6M of net realized/unrealized losses; non‑accruals rose to 8.8% of the debt portfolio (vs. 7.2% in Q4), compromising earnings power near term .
  • Management expects potential accrual restoration at Telestream by quarter-end (would be accretive but at market rates), while the Board is actively evaluating the dividend level amid a $2.1M Q1 coverage shortfall and ~$28.4M spillover entering 2025 .
  • Origination stayed active (7 new, 6 add‑ons; net deployments $26.1M) and STRS JV delivered a 14.3% ROE with ~$35M capacity, partially offsetting weaker yields and higher non‑accruals .

What Went Well and What Went Wrong

  • What Went Well

    • Active deployment and JV contribution: 7 new originations ($40.8M), 6 add‑ons ($4.7M), $26.1M net deployments; STRS JV fair value rose to $310.2M and returned 14.3% on WHF’s investment .
    • Pipeline and footprint: Sourcing is at normal levels with 175 deals in pipeline and a 13th coverage region added (Nashville) to boost non‑sponsor origination .
    • Portfolio risk ratings: 74.1% of positions rated 1 or 2 (vs. 72.5% in Q4), indicating most holdings tracking to or better than underwriting .
    • CEO tone: “By maintaining our focus on credits with solid fundamentals, we believe we are well‑positioned to navigate the current environment and support long‑term value creation” .

  • What Went Wrong

    • Earnings miss and dividend under‑coverage: NII/share $0.294 vs. dividend $0.385 and S&P Global consensus $0.330; revenue $18.801M vs. $19.97M consensus; QoQ TII down 10.5% *.
    • Elevated non‑accruals and write‑downs: Non‑accruals rose to 8.8% (from 7.2%); write‑downs at MSI Information Services (placed on non‑accrual), ABB Optical Group, American Crafts (resolved subsequently) .
    • Yield pressure and NAV decline: Weighted average effective yield on income‑producing assets declined to 12.1% (from 12.5% in Q4), and NAV/share fell 1.6% to $12.11 on $2.6M net losses .

Financial Results

MetricQ3 2024Q4 2024Q1 2025 (Actual)Q1 2025 (Consensus)
Total Investment Income ($USD Millions)$22.851 $21.009 $18.801 $19.970*
Net Investment Income per Share ($)$0.394 $0.343 $0.294 $0.330*
Net Increase (Decrease) in Net Assets from Operations ($USD Millions)($6.858) $3.901 $4.264 N/A
NAV per Share ($)$12.77 $12.31 $12.11 N/A
Weighted Avg Effective Yield (income‑producing) (%)10.6% 12.5% 12.1% N/A

Values retrieved from S&P Global.*

Portfolio composition and scale

  • Portfolio fair value: $651.0M (Q1) vs. $642.2M (Q4); STRS JV investments at fair value: $310.2M (Q1) vs. $295.0M (Q4) .
  • Positions/companies: 134 positions / 74 companies (Q1) vs. 127 / 71 (Q4) .
  • Instrument mix (fair value): First lien 79.4%, Second lien 0.5%, Unsecured 0.2%, Equity 3.5%, STRS JV 16.4% (Q1); First lien 78.2%, Second lien 1.3%, Unsecured 0.2%, Equity 3.6%, STRS JV 16.7% (Q4) .

KPIs and balance sheet

KPIQ4 2024Q1 2025
Non‑accruals (% of debt portfolio, fair value)7.2% 8.8%
Weighted Avg Effective Yield (income‑producing)12.5% 12.1%
Gross Leverage (Debt/Equity)1.24x 1.30x
Net Leverage (Debt‑Cash / Equity)1.15x 1.23x
Cash on Hand ($USD Millions)—$19.6
Asset Coverage Ratio—177.2%

Activity and yields

  • Q1 deployments: 7 new ($40.8M), 6 add‑ons ($4.7M), $0.6M net revolver fundings; repayments/sales $19.4M; 3 new + 1 existing transferred to STRS JV ($17.0M) .
  • New loans: all first lien; average spread ~SOFR + 5.35%; all‑in rate ~9.7% (vs. 9.8% in Q4) .

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Quarterly Dividend per ShareQ1 2025 distribution$0.385 (Q4 2024) $0.385 (payable Jul 3, 2025; record Jun 19) Maintained
Dividend OutlookNear termN/ABoard evaluating dividend level given earnings power and non‑accruals Under Review

No formal quantitative guidance was issued for revenue, margins, operating expenses, OI&E, or tax rate.

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2024)Previous Mentions (Q4 2024)Current Period (Q1 2025)Trend
Non‑accruals / RestructuringsPortfolio stable but with company‑specific challenges Specific challenges continued Non‑accruals up to 8.8%; MSI added; targeting Telestream back to accrual in Q2 Deteriorated, with potential partial improvement near term
Dividend coverage / policyCore NII > dividend NII below dividend; special distribution paid NII below dividend; Board evaluating policy; $28.4M spillover entering year Pressure; policy review ongoing
Origination and pipelineSelective origination; market aggressive Continued origination in non‑sponsor market 175‑deal pipeline; added 13th region; more restructurings; quality lower YoY Stable volumes; quality mixed
JV contribution——JV fair value $310.2M; ~14.3% ROE; ~$35M capacity Supportive
Macro/tariffs——<10% portfolio high/moderate tariff risk; monitoring evolving tariffs Managed risk; monitoring
Pricing/yields——Market spreads ~SOFR + 4.75%–5.75%; WHF new issue ~+5.35% Slight normalization from volatility

Management Commentary

  • CEO opening: “Our first‑quarter results continued to reflect company‑specific challenges that obscure the underlying stability of our broader portfolio… We continue to be active in the non‑sponsor market and have expanded our origination capabilities to a 13th region” .
  • On Telestream: “We now hope to get the restructuring done by the end of May… plan to convert a large portion… back into cash‑paying debt… accretive, but… at a more market rate” .
  • On tariffs: “Less than 10% of our portfolio has either high or moderately high tariff risk… focused on the middle and lower middle market… service companies generally not exposed to tariff risk” .
  • On dividend policy: “The Board is evaluating… what the proper dividend is, whether it’s the current $0.385 or some different level” .
  • On market activity: “M&A activity… muted for the next 60–90 days… Q2 shaping up to be a solid quarter… cautious on Q3 closures” .

Q&A Highlights

  • Telestream timing and NII impact: Targeting completion by end of May; partial accrual restoration would be accretive though at current market rates, not prior SOFR+9.75% .
  • Dividend spillover and coverage: ~$28.4M spillover as of YE 2024; Q1 shortfall ~$2.1M vs. dividend run‑rate; Board assessing dividend level with drivers including deployments, JV income, potential funding cost reductions, and non‑accrual progress .
  • Market/M&A backdrop: Good assets with low tariff/recession risk clearing at high multiples; broader pipeline exists but many deals shelved pending tariff clarity; expect subdued M&A for 60–90 days and slower closure rates into Q3 .
  • Repayment outlook: Visible pipeline currently light; potential repayments tied to a few prospective asset sales; refinancing could pick up in 2H as prepayment penalties roll off .

Estimates Context

  • Q1 2025 vs. S&P Global consensus:
    • EPS: $0.294 actual vs. $0.330 consensus (4 estimates) — miss [GetEstimates Q1 2025]*.
    • Revenue (Total Investment Income): $18.801M actual vs. $19.970M consensus (3 estimates) — miss [GetEstimates Q1 2025]*.
  • Implications: Non‑accruals and markdowns (MSI, ABB Optical, Telestream) pressured earnings and yield; restoration of Telestream to accrual and funding cost optimization could support forward estimate revisions if executed, but elevated non‑accruals argue for cautious near‑term estimate trajectories .

Values retrieved from S&P Global.*

Key Takeaways for Investors

  • Dividend risk elevated: The $0.294 NII/share missed both dividend ($0.385) and consensus ($0.330); Board is actively reviewing dividend policy amid elevated non‑accruals and a $2.1M coverage gap .
  • Near‑term upside hinges on workouts: Potential Telestream accrual restoration by quarter‑end would be accretive; additional progress on MSI and others is needed to rebuild earnings power .
  • STRS JV remains a stabilizer: Mid‑teens ROE and ~$35M capacity provide incremental earnings support and balance sheet flexibility .
  • Credit normalization path matters more than deployment pace: While origination stayed active, lower asset quality in pipeline and muted M&A may slow high‑quality closures near term .
  • Balance sheet within target leverage but tighter capacity: Gross/net leverage ticked up to 1.30x/1.23x with limited headroom at the BDC; management monitoring refinancing opportunities to lower borrowing costs .
  • Tactical positioning: Stock likely sensitive to dividend decisions, Telestream outcome, and any visible improvement in non‑accruals; watch Q2 updates for catalysts .

Appendix: Additional Data Points

  • Summary (Q1 vs. Q4): TII $18.801M vs. $21.009M; NII $6.843M vs. $7.977M; NAV/share $12.11 vs. $12.31; net realized loss ($0.402M) vs. ($12.293M); net unrealized depreciation ($2.177M) vs. +$8.217M .
  • Distribution: $0.385 declared for Q1 2025 (payable Jul 3, 2025; record Jun 19) .
  • Portfolio mix: 99.3% first lien senior secured debt; ~2/3 sponsor / 1/3 non‑sponsor; almost all floating‑rate with floors .

Citations:

  • Q1 2025 press release and 8‑K exhibits ; earnings presentation metrics ; call transcript –; Q4 2024 and Q3 2024 press releases for trend – –.
  • S&P Global consensus (GetEstimates): Q1 2025 EPS/Revenue and estimate counts. Values retrieved from S&P Global.*