MidCap Financial Investment (MFIC) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Net investment income (NII) per share for Q4 2025 was $0.39, while GAAP net loss per share was $0.14, which excludes one-time financing-related expenses, resulting in a net loss per share of $0.10 [6][7] - NAV per share decreased by 3.3% to $14.18 at the end of December compared to the prior quarter [7] - Total investment income for the December quarter was approximately $78.4 million, a decline of 5.1% from the prior quarter [20] Business Line Data and Key Metrics Changes - New commitments in the December quarter totaled $141 million across 26 transactions, with a weighted average spread of 497 basis points [12] - The weighted average yield at cost of the direct origination portfolio was 10%, down from 10.3% in the previous quarter [14] - Investments on non-accrual status declined to 2.6% of the portfolio at fair value, down from 3.1% at the end of the prior quarter [16] Market Data and Key Metrics Changes - The servicing business represented approximately 29% of the total value of Merx at the end of December [9] - The weighted average net leverage on new commitments was 4 times in the December quarter [12] - The average funded position in the portfolio was $12.8 million, with a median EBITDA of approximately $50 million [13] Company Strategy and Development Direction - The company plans to aggressively utilize a new $100 million stock repurchase plan to capitalize on perceived undervaluation [10] - The board has adjusted the dividend to $0.31 per share, reflecting reassessment of long-term earning power [11] - The focus remains on first lien positions with cautious usage of PIK and low software exposure, positioning the company well in the current market [7][10] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the intrinsic value of the investment portfolio, despite current market prices not reflecting this value [10] - The company anticipates that the current discount on shares may persist, but remains committed to maximizing shareholder value [27][28] - Management noted that the earnings power has been influenced by lower base rates and asset spread compression [38] Other Important Information - The company recorded a realized loss of approximately $3.4 million related to financing activities during the quarter [22] - The cost of debt for the quarter declined to 5.95%, down from 6.37% in the prior quarter [23] Q&A Session Summary Question: Future strategies regarding stock buybacks - Management indicated they will consider all options to ensure shareholders receive their true returns, acknowledging persistent discounts in the market [26][28] Question: Clarification on the new $100 million repurchase plan - The new repurchase plan is discretionary and will be implemented during quiet periods using a 10b5-1 plan to maximize share purchase activity [34][35] Question: Sustainability of the new dividend level - Management stated that the new dividend level of $0.31 was deemed appropriate based on earnings power assessments and expected repayments from Merx [36][38] Question: Concerns about software exposure and leverage - Management explained that their software exposure is lower than industry average and focused on companies with consistent performance and financial covenants [41][42] Question: Common issues among underperforming credits - Management clarified that the underperforming credits are older investments that have been monitored over time, with idiosyncratic issues contributing to their current status [50][55]