Monroe Capital Corporation

Corporations First Quarter 2025 Earnings Conference Call. Before we begin, I would like to take a moment to remind our listeners that remarks made during this call today may contain turning forward looking statements, including statements regarding our goals, strategies, beliefs, future potential, operating results, and cash flows. Although we believe these statements are reasonable based on management estimates, assumptions, and projections as of today, May 8, 2025. These statements are not guarantees of future performance. Further, time-sensitive information may no longer be accurate as of the time of any replay or listening. Actual results may differ materially as a result of risk, uncertainty, or other factors including but not limited to service factors described from time to time in the company's filings with the SEC. Moonwell Capital takes no obligation to update or revise these forward-looking statements. I will now turn the conference call over to Ted Koenig, Chief Executive Officer of Monroe Capital.

Good morning, and thank you to everyone who has joined us today. Welcome to our first quarter 2025 earnings call. I am here with Nick Salamini, our CFO and Chief Investment Officer, and Alex Parmasek, our Deputy Portfolio Manager. Last evening, we filed our 10-Q with the SEC and issued our first quarter 2025 earnings press release. On today's call, I'll begin by providing an overview of our financial results and then share some relevant thoughts around our current positioning in this uncertain and volatile market environment. I am pleased to report that we declared and paid a 25 cent per share dividend in the first quarter of 2025 representing an annualized dividend yield of 14.3 percent based on our May 6, 2025 closing share price. Our first quarter dividend of 25 cents per share was supported in part by our accumulated spillover income, which we've intentionally preserved from FHIR's strong performance to provide stability during quarters of lower investment income. As of March 31, 2025, we retain approximately 53 cents per share of undistributed spillover income, which continues to offer a cushion for future distributions. This disciplined approach allows us to manage through income variability while continuing to deliver consistent returns to our shareholders. In the face of a constantly evolving market environment, our approach remains centered on prioritizing asset quality and positioning the portfolio for long-term performance. In the first quarter of 2025, our adjusted net investment income was $4.2 million, or 19 cents per share. At March 31st, 2025, we reported NAV of $186.9 million, or $8.63 per share, and MRCC's leverage was $1.45 times debt to equity. We ended the quarter with reduced balance sheet leverage and continue to focus on managing the investment portfolio while remaining selective with new investment opportunities. During the quarter, our portfolio companies reported solid revenue and EBITDA growth, which, with a lower interest rate environment, continued to support the portfolio's interest coverage ratio. Our portfolio management team continues to focus on maintaining the asset quality of the portfolio, which has demonstrated stability over the last several quarters. We rely on active portfolio management approach to work through underperforming investments. This ultimately allows us to proactively assess and mitigate potential risks for borrowers so that we can successfully drive outcomes. Over the last several quarters, we have successfully exited several investments that were previously on our credit watch list. Going forward, we will look to utilize proceeds from portfolio exits to strategically redeploy into an increasingly attractive vintage where credit conditions are tightening and risk-adjusted returns are compelling. Amid the recent market volatility, We believe MRCC's lower middle market direct lending approach with a focus on U.S.-centric asset light businesses is well positioned. Our senior secured positioning with lower leverage attachment points, conservative structuring, and covenant protections and hands-on engagement with our borrowers are several features that drive downside protection and the ability to actively manage outcomes. We have spoken with every borrower and sponsor within the portfolio regarding their direct exposure to potential tariffs. Through those discussions, we have found that our portfolio, which was designed defensively, relatively insulated from potential tariff impacts and its composition were heavily weighted to services-oriented companies and minimal exposure to consumer goods and manufacturing. While trade policies and their economic effects remain highly dynamic. We only have a small number of borrowers in the portfolio that we believe are directly exposed to potential tariffs. In volatile markets with uncertain macroeconomic backdrops, it is important for us to be thoughtful and selective with our investment activity rather than to reach for risk. Thus, we will lean into incumbency lending opportunities with high-performing existing portfolio companies that have demonstrated resiliency during challenging operating environments. The companies that we have recently invested in, both new portfolio companies and existing portfolio companies, operate in recession-resistant industries and are well insulated from the uncertain tariff environment. We also believe that supporting existing portfolio companies will be an important strategy to employ in light of a slower than expected M&A environment in the near term. Deploying capital into existing portfolio companies that we know well has proven to reduce underwriting risk and has historically generated some of our most attractive risk-adjusted returns. Consistent with the past several quarters, incremental and follow-on investments made to our existing portfolio companies have accounted for a majority of MRCC's capital deployment, a trend we anticipate continuing throughout the first half of 2025. Finally, Monroe Capital, the owner of MRCC's external advisor, completed its partnership with Wendell Group, a French investment company and one of Europe's leading listed investment firms on March 31st, 2025. Monroe, and by extension our advisor, continues to operate autonomously and independently, and its investment process, strategy, and operations will remain exact same. We believe that this was an important step in driving value for our shareholders and are excited to move forward under this new partnership. With that, I am now going to turn the call over to Mick, who is going to walk you through MRC's financial results in greater detail.

Thank you, Ted. At the end of the first quarter of 2025, our investment portfolio totalled $430.6 million a $26.4 million decrease from $457 million at the end of the fourth quarter of 2024. Our investment portfolio consisted of debt and equity investments in 85 portfolio companies compared to 91 portfolio companies at the end of the prior quarter. Middle market LBO and M&A activity has slowed down from the highly active fourth quarter of 2024 to January of 2025. According to LSEG LPC's first quarter of 2025 middle market analysis, middle market direct lending volume in the first quarter of 2025 was down 22% from the fourth quarter of 2024, but was up 16% year over year. LFEG's report also indicated that add-ons and recapitalizations accounted for a greater share of direct lending volume relative to LDO transactions in the first quarter. As such, delayed draw term loan fundings, often used to support existing investments, accounted for a greater percentage of overall loan volumes and have continued to increase meaningfully so far in early 2025. With M&A activities slower than originally anticipated, many companies have continued to focus on executing strategic growth initiatives to drive enterprise value and ultimately position themselves for an exit through a more attractive M&A environment. Investment activity across our platform and at MRCC continues to be consistent with those industry dynamics. Over the last several quarters, incremental investments in the form of add-ons or delayed draw term loan fundings made to our existing portfolio companies have accounted for a majority of our investment activity. During the first quarter of 2025, we invested $7.6 million in one new portfolio company, while we invested $8.8 million in delayed draw fundings and add-ons to existing portfolio companies. While M&A activity has been slower than expected, MRCC still rotated out of seven legacy assets that amounted to $37.6 million of payoffs during the quarter. Several of those portfolio companies that were successfully exited were at one point in line on our credit watch list. Additionally, these successful exits allowed us to end the quarter with more conservative balance sheet leverage, providing us with additional threat power to redeploy into assets as well as into existing portfolio company relationships. Although we will continue to be selective with our investment approach, we believe that this lending environment where spreads have begun to widen and lender firms remain favorable is a particularly compelling opportunity for direct lending. During this quarter, our debt outstanding decreased by $22.7 million. At March 31st, 2025, we had total borrowings of $271.2 million, including $141.2 million outstanding under our floating rate revolving credit facility and $130 million of our 4.75% fixed rate 2026 notes. At quarter end, our leverage was 1.45 times debt to equity compared to 1.53 times debt to equity at the end of 2024. At March 31st, 2025, the revolving credit facility had $113.8 million of availability subject to borrowing-based capacity. Now turning to our financial results, adjusted net investment income in non-GAAP measure was $4.2 million, or 19 cents per share this quarter, compared to $6.2 million, or 29 cents per share in a prior order. Excluding the impact of incentive fee limitations of $252,000 and $1.2 million for the quarters ended March 31st, 2025 and December 31st, 2024 respectively, adjusted net investment income would have totaled $3.9 million or $0.18 per share this quarter and $5 million or $0.23 per share by our quarter. The decrease of $1.1 million, or $0.05 per share, in adjusted net investment income after removing the impact of the 70 locations was driven by a lower average effective yield, reflecting a lower interest rate environment, the lack of asset-specific performance, and a decrease in the average size of the portfolio. These impacts are consistent with the market dynamics that we've seen across private credit and are not indicative of any structural change to portfolio quality. In addition, as a result of the shareholder-friendly total return requirement within MRCC's incentive fee calculation, we currently expect at least partial limitations on our incentive fees to persist throughout the next quarter. The weighted average effective yield on the portfolio's debt and equity investments was 9.2% at March 31, 2025, compared to 10.2% on December 31, 2024. The decline in effective yield was largely due to lower spreads on certain assets and declining interest rates. As of March 31st, 2025, our NAV was $186.9 million, down from $191.8 million as of December 31st, 2024. Our corresponding NAV per share decreased by 22 cents from $8.85 per share to $8.63 per share. The decline in NAV this quarter was primarily the result of net unrealized losses associated with certain portfolio companies and the first quarter dividend being in excess of MRCC's net investment income for the quarter. As of March 31st, 2025, MRCC has an estimated $11.5 million, or 53 cents per share, of undistributed spillover income. I will now turn it over to Alex, who will provide more details on our first quarter operating performance.