Logan Ridge Finance Corporation (NASDAQ:LRFC) Q1 2024 Earnings Call Transcript May 9, 2024
Logan Ridge Finance Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning, and welcome to Logan Ridge Finance Corporation’s First Quarter ended March 31, 2024 Earnings Conference Call. An earnings press release was distributed yesterday May 08 after the close of the market. A copy of the release along with a supplemental earnings presentation is available on the company’s website at www.loganridgefinance.com in the Investor Resources section and should be reviewed in conjunction with the company’s Form 10-K filed with the SEC. As a reminder, this conference call is being recorded for replay purposes. Please note that today’s conference call may contain forward-looking statements, which are not guarantees of performance or results and involve a number of risks and uncertainties.
Actual results may differ materially from those in the forward-looking statements as a result of a number of factors, including described in the company’s filings with the SEC. Speaking on today’s call will be Ted Goldthorpe, Chief Executive Officer, President and Director of Logan Ridge Finance Corporation; Brandon Satoren, Chief Accounting Officer; and Patrick Schafer, Chief Investment Officer. With that, I would like to turn the call over to Ted Goldthorpe, Chief Executive Officer of Logan Ridge Finance Corporation. Please go ahead, Ted.
Ted Goldthorpe: Thank you. Good morning and welcome to our first quarter 2024 earnings call. As mentioned, I am joined today by my Chief Financial Officer, Brandon Satoren, and our Chief Investment Officer, Patrick Schafer. Following my open remarks, Patrick will provide additional details on our investment activity to date and Brandon will walk through our financials. While I will keep my prepared remarks brief today and limited to a few key highlights, which Patrick and Brandon provide more detail on shortly, I would like to emphasize that during the first quarter of 2024, we continue to build upon record financial results we have generated in 2023. The first quarter results are highlighted by the quarter-over-quarter increases in net investment income and net asset value of 63% and 1%, respectively.
Following the strong earnings we saw in 2023, Logan Ridge is off to a solid start in 2024, ending the first quarter with net deployment of $8.9 million and a robust pipeline. As the company’s exposure to the legacy equity portfolio has continued to decline and its exposure to credits originated by the BC Partners credit platform have increased, the benefit to shareholders has been clear and is being reflected through Logan’s strong financial results. Furthermore, as a result of the company’s strong financial performance during the quarter, the company declared a second quarter distribution of $0.33 per share, or a 3% increase to the company’s quarterly distribution compared to the prior quarter. This is the company’s fifth consecutive quarterly increase and represents an 83% increase from the $0.18 per share distribution we declared in the first quarter of 2023.
Finally, during the quarter, the company repurchased 21,867 shares, which was accretive to NAV by approximately $0.08 per share. Looking forward to the rest of 2024, our pipeline remains robust and we continue to see attractive investment opportunities in the market. Over the course of 2023, private equity firms were sitting on record amounts of dry powder while at the same time are being pushed by LPs to return capital. Although expectations for future rate hikes have diminished toward the end of the first quarter and the beginning of the second quarter, we believe the aforementioned fundamentals combined with positive economic outlook and sentiment should continue to fuel new deal activity in our private credit space over the course of 2024.
We remain focused on increasing shareholder value by leveraging the company’s stronger balance sheet and we believe our platform remains well equipped to take advantage of current market conditions. Specifically at Logan Ridge and more generally across the BC Partners credit platform, we continue to find attractive opportunities both through our sponsor relationships and our focus on sponsor and non-sponsor backed companies and continue to win transactions based on our ability to custom tailor capital solution for the borrower and the borrower’s belief that our platform can add value to their business above and beyond just being a capital provider. With that being said, I will turn the call over to Patrick Schaefer, our Chief Investment Officer.
Patrick Schaefer: Thanks, Ted, and hello, everyone. As of March 31st, 2024, the fair value of Logan’s portfolio was approximately $200.1 million with exposure to 62 portfolio companies. This compares to 60 portfolio companies with fair value of approximately $189.7 million as of the prior quarter and 59 portfolio companies with a fair value of $203.3 million as of March 31st, 2023. During the quarter ended March 31st, 2024, we continue to deploy capital in new and existing portfolio companies. Specifically, the company made approximately $9.8 million in new and existing investments and had approximately $0.9 million in repayments and sales, resulting in net deployment of approximately $8.9 million for the quarter. While we continue to be prudent and disciplined underwriters, we believe that the loans originated in the current environment will prove to be an attractive vintage.
Onto portfolio composition, as of March 31st, 2024, 60% of the company’s investments at fair value were invested in assets originated by the BC Partners Credit Platform. As of March 31st, 2024, our debt investment portfolio represented 80.8% of the total portfolio at fair value with a weighted average annualized yield of approximately 11.4%, excluding income from non-accruals and collateralized loan obligations. This compares to a debt portfolio which represented 82.0% of our total portfolio at fair value with a weighted average annualized yield of approximately 11.1%, excluding income from non-accruals and collateralized loan obligations as of the prior quarter, and 83.1% with a weighted average annualized yield of approximately 10.7% as of March 31st, 2023.
The weighted average annualized yield, excluding income from non-accruals and collateralized loan obligations, increased by 30 basis points and 70 basis points compared to prior quarter and prior year, respectively. As of March 31st, 2024, 88.5% of our debt investment portfolio at fair value was bearing interest at a floating rate compared to 86.4% as of December 31st, 2023, and 83.4% as of March 31st, 2023. As of March 31st, 2024, first lien debt represented 66.5% and 65.2% of our total portfolio on a cost and fair value basis, respectively. This compares to first lien debt representing 65.4% of our total portfolio on both a cost and fair value basis as of December 31st, 2023, and 65.4% and 67.7% of our total portfolio on a cost and fair value basis, respectively, as of March 31st, 2023.
The non-yielding equity portfolio represented 15.2% and 18.2% of our portfolio on a cost and fair value basis, respectively, as of March 31st, 2024. This compares to 15.5% and 17.0% of the portfolio on a cost and fair value basis as of December 31st, 2023. Moving on to nonaccrual status, as of March 31st, 2023, the company had three portfolio companies on nonaccrual status with an aggregate amortized cost and fair value of $17.2 million and $10.6 million, respectively, or 8.3% and 5.3% of the investment portfolio at cost and fair value, respectively. This compares to three portfolio companies on nonaccrual status as of the prior quarter with a cost and fair value of $17.2 million and $12.8 million, respectively, or 8.7% and 6.9% of the investment portfolio’s cost and fair value, respectively.
And I’ll turn the call over to Brandon.
Brandon Satoren: Thanks, Patrick. Turning to our financial results for the quarter ended March 31st, 2024. For the quarter ended March 31st, 2024, Logan generated $5 million of investment income, an increase of $0.6 million as compared to $4.4 million in the prior quarter. The increase was largely a result of a one-time reversal of $0.6 million of previously accrued income on a portfolio company that was placed on nonaccrual in Q4 of 2023. Total operating expenses for the first quarter increased by approximately $0.2 million to $4.1 million as compared to $3.8 million for the prior quarter. The increase in operating expenses was primarily driven by higher financing costs as well as higher general and administrative expenses.
Our net investment income for the first quarter was $0.9 million or $0.35 per share, an increase of $0.3 million from $0.6 million or $0.22 per share in the fourth quarter of 2023. As I noted previously, the increase in net investment income was primarily due to reversing $0.6 million or $0.22 per share of previously accrued income on a portfolio company that was placed on nonaccrual status in the prior quarter. Our net asset value as of March 31st, 2024 was $90.2 million, representing a $1 million increase as compared to the prior quarter net asset value of $89.2 million. On a per share basis, net asset value was $33.71 per share as of March 31st, 2024, representing a $0.37 increase as compared to $33.34 at the end of 2023. The increase in net asset value quarter-over-quarter was driven by net realized and change in unrealized gains on the portfolio as well as Logan Ridge out-earning the quarterly dividend payment by $0.1 million.
Finally, as of quarter end, the company had $8.3 million in cash and cash equivalents as well as $23 million of unused borrowing capacity available for deployment and investments originated by the BC Partners Credit Platform. With that, I will turn the call back over to Ted.
Ted Goldthorpe: Thank you, Brandon. To our shareholders, thank you for your continued support. This concludes our prepared remarks and I will now turn the call over to the operator for any questions.
Operator: Thank you. [Operator Instructions] And your first question comes from the line of Christopher Nolan of Ladenburg Thalmann. Please go ahead.
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