Core Insights - The optimism surrounding Donald Trump's second term led to a surge in trading activities, resulting in record trading revenues for major U.S. banks, which increased by $10 billion year-over-year to reach $71 billion in the first half of the year [1][4] - Despite the increase in trading revenues, investment banking revenues only saw a slight increase of less than $1 billion and remain nearly 40% lower than the peak in 2021 due to market volatility affecting M&A and IPO activities [1][4] Group 1: Market Reactions and Trading Activities - The announcement of tariffs by Trump in April caused significant market volatility, which initially hindered M&A activities but later stimulated trading activities, leading to record revenues for major financial institutions in Q2 [3][4] - Major banks like Bank of America, Goldman Sachs, Morgan Stanley, and Citigroup reported strong trading performances, with Goldman Sachs achieving the highest revenue in its history for stock trading [3][4] - Bank of America’s trading division saw a robust performance in fixed income, rates, and foreign exchange products, while equity trading volumes also increased [4] Group 2: Investment Banking Recovery - There are signs of recovery in investment banking, with JPMorgan and Citigroup reporting better-than-expected performance in their investment banking divisions, with fees increasing by 7% and 13% respectively [4][5] - Morgan Stanley noted a recovery in investment banking activities in June, as boards became more open to navigating ongoing uncertainties, despite a 5% decline in investment banking fees [5] - The second quarter was characterized by two distinct phases: initial uncertainty due to trade policies followed by increased market participation and a steady recovery in capital markets [5]

Financial Data and Key Metrics Changes - The company reported net investment income of $37 million for the quarter, corresponding to an annualized return on equity (ROE) of 9.8% [6] - GAAP net income per share was $0.32, reflecting an annualized ROE of 8.7% [6] - NAV per share decreased to $14.93, down $0.05 or approximately 30 basis points [6] - Total investment income for the quarter was approximately $78.7 million, down $3.5 million or 4.2% compared to the prior quarter [36] - Net investment income per share was $0.37, with a net loss of approximately $4 million or $0.05 per share [40][41] Business Line Data and Key Metrics Changes - The portfolio had a fair value of $3.19 billion, invested in 240 companies across 49 different industries [23] - Direct origination and other represented 92% of the total portfolio, up from 90% in the previous quarter [23] - The weighted average yield at cost of the direct origination portfolio was 10.7%, down from 11% in the previous quarter [25] - The weighted average net leverage on new commitments was 4.2x, down from 4.3x in the prior quarter [21] Market Data and Key Metrics Changes - The company made $376 million of new commitments during the quarter, with a weighted average spread of 513 basis points across 33 different companies [20] - The non-direct origination assets onboarded from mergers represented just 2% of the total portfolio at fair value [9] - MidCap Financial closed approximately $6.5 billion of commitments during the quarter, despite muted sponsor M&A activity [10] Company Strategy and Development Direction - The company focuses on building a diversified portfolio of first lien floating rate direct corporate loans in less cyclical industries [7][26] - The management believes the core middle market offers attractive opportunities across cycles and does not compete directly with the broadly syndicated market or the high yield market [11] - The company is actively deploying capital from mergers and has a robust pipeline for future investments [22] Management's Comments on Operating Environment and Future Outlook - Management noted that the current uncertainty stemming from trade tariffs could pose challenges, but the impact is expected to be limited [8] - The company is monitoring the speed of confidence restoration among consumers and corporates, which is crucial for economic recovery [16] - Management expressed confidence in the portfolio's stability, with no signs of general credit weakness observed [30] Other Important Information - The company declared a quarterly dividend of $0.38 per share, payable on June 26, 2025 [19] - The company repurchased approximately 477,000 shares at a weighted average price of $12.75, which had an accretive impact on NAV per share [42] Q&A Session Summary Question: Can you discuss the strong fundings in Q2 despite cautious commentary? - Management indicated that strong deployment in Q1 was a result of activity that commenced earlier, and they expect fewer auctions in the latter half of the year [47] Question: What is the sustainability of the dividend relative to NII? - Management expressed comfort in their earnings power and capital plan, noting that prepayment income can fluctuate [50] Question: How dependent is MFIC on M&A activity for new originations? - Management clarified that MFIC is not completely reliant on M&A activity, as there are existing portfolios and opportunities for growth [55] Question: What is the exposure to government contracts in the portfolio? - Management stated that they have limited exposure to government payments and have always assessed such risks in their underwriting [70] Question: What is the meaningful exposure to tariff-affected countries? - Management indicated that the exposure is in single digits and emphasized their focus on U.S. companies with less complex supply chains [74] Question: What are the trends in amendment activity? - Management noted that amendment activity was relatively flat quarter over quarter, with no significant changes observed [77]

Financial Data and Key Metrics Changes - The company reported total portfolio investments of nearly $18 billion, total net assets of nearly $8 billion, and total outstanding debt of approximately $10 billion [17] - The first quarter NAV per share was $15.14, down $0.12 from the last quarter, primarily due to changes in credit spreads and write-downs on a small number of high-focus investments [17] - Adjusted net investment income was $0.39 per share, down $0.08 from the prior quarter, reflecting a reduction in one-time income [17][18] - The company declared a supplemental dividend of $0.01 and a second quarter base dividend of $0.37, indicating a 106% dividend coverage [18][19] Business Line Data and Key Metrics Changes - The company recorded $1.2 billion of new investment commitments and $800 million of fundings in the first quarter, with over 90% of direct loan originations consisting of first lien investments [9][10] - The median EBITDA of portfolio borrowers grew slightly to $120 million, and weighted average EBITDA increased to $215 million [10] - The non-accrual rate was 0.8% at fair value and 1.4% at cost, compared to 0.4% and 1.9% in the prior quarter, reflecting two additions and the removal of three positions [12] Market Data and Key Metrics Changes - The company noted that portfolio company revenues and EBITDA increased in the mid to high single digits year over year, approximately double the U.S. GDP growth rate [11] - The average loan-to-value (LTV) ratio was just over 40%, providing significant support underneath the capital [11] - The company highlighted a stable interest coverage ratio of 1.8 times based on current spot rates, benefiting from lower rates [13] Company Strategy and Development Direction - The company aims to capitalize on market volatility by providing support to borrowers and sponsors facing challenges in accessing financing [23][25] - The strategy remains focused on credit quality, with an emphasis on upper middle market companies and diversified portfolios [84] - The company is exploring opportunities to increase exposure to non-traditional lending strategies, aiming to grow this segment from low double digits to around 15% of the portfolio [66] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the portfolio's resilience and the ability to maintain dividend levels despite macroeconomic uncertainties [26] - The company is closely monitoring investments for potential tariff impacts but remains confident in its defensive positioning [14] - Management acknowledged the uncertainty in the M&A environment due to tariffs and indicated that this may continue for a while [32] Other Important Information - The company introduced non-GAAP accounting adjustments due to the merger with OBDE, recognizing an $83 million purchase discount on the assets acquired [15] - The company ended the quarter with over $3 billion of total cash and capacity on its facilities, providing ample liquidity to meet near-term funding needs [21] Q&A Session Summary Question: Perspective on macroeconomic developments and M&A activity - Management noted that the M&A environment remains muted due to uncertainty created by tariffs, impacting deal flow and spreads [30][32] Question: Timeline for public listing of OTF post-merger - Management stated there is nothing specific to disclose regarding the public listing of OTF at this time [39][40] Question: Share repurchase strategy during volatility - Management confirmed that share repurchase programs are regularly evaluated, but recent volatility did not coincide with open windows for repurchases [46][48] Question: Opportunities to rationalize inherited liabilities - Management indicated that there are opportunities to reprice certain dropdown facilities and CLOs inherited from the merger [51][52] Question: Probability of near-term recession and its impact on underwriting - Management acknowledged the need for caution in underwriting due to potential economic changes but noted that their portfolio companies are currently stable [57][58] Question: Operational efficiencies from the merger - Management highlighted ongoing efforts to optimize capital structure and reduce funding costs, with some synergies already realized [72][75] Question: Pipeline mix of new versus incumbent borrowers - Management reported that more than half of the deal flow in the first quarter came from existing borrowers, with a consistent pipeline expected [92][93]

Financial Data and Key Metrics Changes - Revenue increased by 5.9% year over year to $181.9 million, marking the highest quarterly revenue in the company's history [5] - Non-GAAP net income, earnings per diluted share, and EBITDA increased year over year by 11%, 13%, and 11% respectively, each setting a new quarterly record [6] - Consultant headcount decreased by 5% compared to the first quarter of fiscal 2024, remaining flat sequentially [7][18] - Consulting utilization improved year over year to 76% [7] Business Line Data and Key Metrics Changes - Four practices (energy, finance, intellectual property, and life sciences) posted double-digit revenue growth, while the antitrust and competition economics practice achieved a new high for quarterly revenue [6] - Revenue from legal and regulatory services increased by roughly 5%, aligning with broader legal market trends [9] - Management consulting services revenue increased by 10% year over year, driven by strong performance in energy and life sciences practices [13] Market Data and Key Metrics Changes - Worldwide M&A activity reached $885 billion during the first quarter of fiscal 2025, representing a 15% increase compared to the previous year [9] - Total case filings and court judgments increased by 132% compared to the first quarter of fiscal 2024 [9] Company Strategy and Development Direction - The company aims to optimize its service portfolio by reconfiguring teams in targeted areas, affecting approximately 15 individuals [16] - The company is focused on maintaining a strong pipeline of projects and is optimistic about the life sciences practice's growth potential [25][26] Management's Comments on Operating Environment and Future Outlook - Management noted that the journey to a record-setting Q1 was not linear, with a slow start in January followed by increased activity in February and March [23] - The company reaffirmed its full-year financial guidance for fiscal 2025, expecting revenue in the range of $715 million to $725 million and a non-GAAP EBITDA margin of 12% to 13% [17] Other Important Information - The company concluded the quarter with $25.6 million in cash and $85 million in borrowings under its revolving credit facility, resulting in net debt of $59.4 million [20] - The company will celebrate its sixtieth anniversary by ringing the opening bell for NASDAQ on June 2 [67] Q&A Session Summary Question: April activity and guidance confidence - Management observed that trends from March have continued into April, but it is too early to declare sustained success [24] Question: Life sciences pipeline opportunities - The life sciences practice is experiencing success geographically and across business concentration areas, with hopes for continued momentum [26] Question: Headcount growth and retention - The company is focused on optimizing investments and expects headcount growth to align with revenue growth in the medium to long term [30][32] Question: External factors affecting business activity - Management noted that various macro and geopolitical factors create uncertainty, impacting client decisions [41] Question: Industry verticals showing activity - All parts of the portfolio are growing, contributing to strong financial results [44] Question: Return to office trends - There has been no significant shift in office participation, with colleagues averaging just over three days a week in the office [47] Question: Restructuring details - The restructuring affected 15 individuals, aimed at optimizing the portfolio without indicating general health issues in the practices [56] Question: Antitrust demand trends - The antitrust and competition economics practice continues to see strong demand, driven by both merger-related activity and investigations [59] Question: Collaboration across practices - Collaboration across practices and geographies is common and is expected to grow as client needs become more complex [62]