Monroe Capital(US:MRCC)2022-05-04 18:26Financial Data and Key Metrics Changes - Adjusted net investment income for Q1 2022 was $5.4 million or $0.25 per share, unchanged from the previous quarter [18] - Net asset value (NAV) decreased to $244.9 million or $11.30 per share, down from $249.5 million or $11.51 per share as of December 31, 2021, primarily due to a one-time book loss and net unrealized losses [8][19] - Debt-to-equity leverage slightly decreased from 1.35 times to 1.30 times, driven by a reduction in portfolio size due to syndication and repayment activities [9] Business Line Data and Key Metrics Changes - The investment portfolio totaled $546 million, down from $561.7 million, consisting of debt and equity investments in 97 portfolio companies [14] - New investments included three new portfolio companies with loan funding of $5.6 million and revolver add-ons totaling $16 million [15] - Total investment income for Q1 was $12.5 million, down from $13 million in the previous quarter due to lower fee income and reduced pre-payment gains [22] Market Data and Key Metrics Changes - Non-accruals approximated 2.2% of the portfolio at fair value, down from 2.6% at the end of the previous quarter [23] - The effective yield on the debt and preferred equity portfolio remained at 8%, unchanged from the previous quarter [24] - LIBOR rates increased, with three-month LIBOR at approximately 95 basis points as of March 31, 2022, compared to 21 basis points at the end of the previous quarter [24] Company Strategy and Development Direction - The company aims to focus on making new investments with attractive risk-return dynamics while managing its portfolio proactively [10] - The strategic advantage lies in being affiliated with a leading middle market private credit asset management firm, managing approximately $13.5 billion in assets [12] - The company plans to continue its conservative underwriting model, funding less than 5% of all deals reviewed annually [31] Management's Comments on Operating Environment and Future Outlook - Management noted that the M&A and financing markets slowed in Q1 2022 due to increased risk premiums and volatility, influenced by inflation concerns and geopolitical unrest [5] - The company remains confident in its ability to deliver differentiated risk-adjusted returns despite market uncertainties [31] - Management expressed optimism about the investment portfolio and the potential for continued growth in adjusted net investment income [32] Other Important Information - The repayment of SBA debentures is expected to positively impact net investment income going forward [28] - The company has a strong pipeline of quality financing opportunities despite the uncertain market backdrop [7] Q&A Session Summary Question: Thoughts on capital structure and potential share repurchase - Management is considering all options to increase shareholder value, including fixed-rate notes and share repurchases [36] Question: Asset quality improvements and non-accruals - Management is focused on collecting underperforming assets and anticipates continued progress in reducing non-accruals [37][39] Question: Origination activity tracking in Q2 - Management noted a fair amount of demand but expects a slight drop-off in Q2 due to rising interest rates and market uncertainty [41] Question: Attractive industries for investment - Management highlighted a preference for recurring revenue models, particularly in data, iCloud, and subscription-based businesses [46] Question: Positioning in recurring revenue loans - The company focuses on the fragmented middle market for SaaS lending, underwriting smaller transactions compared to larger platforms [60]