Good morning, and welcome to the Earnings Conference Call for the period ended March 31, 2025, for MidCap Financial Investment Corporation. At this time, all participants have been placed in a listen-only mode. The call will be opened for a question-and-session following the speakers prepared remarks. [Operator Instructions] I will now turn the call over to Elizabeth Besen, Investor Relations Manager for MidCap Financial Investment Corporation.

Thank you, operator, and thank you everyone for joining us today. We appreciate your interest in MidCap Financial Investment Corporation. Speaking on today's call are Tanner Powell, Chief Executive Officer; Ted McNulty, President; and Greg Hunt, Chief Financial Officer. Howard Widra, Executive Chairman is on the call and available for the Q&A portion of today's call. I'd like to advise everyone that today's call and webcast are being recorded. Please note, that they are the property of MidCap Financial Investment Corporation and that any unauthorized broadcast in any form is strictly prohibited. Information about the audio replay of this call is available in our press release. I'd also like to call your attention to the customary safe harbor disclosures in our press release regarding forward-looking information. Today's conference call and webcast may include forward-looking statements. You should refer to our most recent filings with the SEC for risks that apply to our business and that may adversely affect any forward-looking statements we make. We do not undertake to update our forward-looking statements or projections unless required by law. To obtain copies of our SEC filings, please visit either the SEC's website at www.sec.gov or our website at www.midcapfinancialic.com. I'd also like to remind everyone that we've posted a supplemental financial information package on our website, which contains information about the portfolio as well as the company's financial performance. Throughout today's call, we will refer to MidCap Financial Investment Corporation as either MFIC or the BDC, and we will use MidCap Financial to refer to the lender headquartered in Bethesda, Maryland. At this time, I'd like to turn the call over to Tanner Powell, MFIC's Chief Executive Officer.

Thank you, Elizabeth. Good morning, everyone, and thank you for joining us for MFIC's first quarter earnings conference call. I will begin today's call by providing an overview of MFIC's first quarter results and sharing our perspective on the current volatile and evolving market environment. I will then turn the call over to Ted, who will discuss our investment activity and provide an update on the investment portfolio, including some comments on the impact of tariffs. Greg will then review our financial results and capital position in more detail. Yesterday after market close, we reported solid first quarter results, including a healthy level of earnings and strong portfolio growth with net investment income or NII per share of $0.37 for the March quarter, which corresponds to an annualized return on equity or ROE of 9.8%. GAAP net income per share was $0.32 for the quarter, which corresponds to an annualized ROE of 8.7%. NAV per share was $14.93 at the end of March, down $0.05 or approximately 30 basis points. NAV per share benefited by approximately $0.01 from stock repurchases below NAV made during the quarter. We continue to observe stable credit quality trends in our portfolio. During the quarter, we saw sequential improvements in several credit metrics, including a decline in investments on non-acquired status, a decline in PIK income, and a decline in the weighted average leverage of our borrowers. MFIC has built a well-diversified portfolio of true first lien floating rate direct corporate loans invested in less cyclical industries with granular position sizes. At the end of March, 99% of our direct origination portfolio was first lien, and our average direct lending position was approximately $13.1 million or 0.5% of the total direct lending portfolio. These figures are at fair value. We believe the current uncertain and…

Thank you, Tanner. Good morning, everyone. I'm going to spend a few minutes reviewing our first quarter investment activity and then provide some details on our investment portfolio, including some comments on the analysis we've done with respect to tariff-related risks. In the March quarter, we continued to prudently deploy the capital acquired from the mergers into assets with what we believe to be strong credit attributes. As mentioned, MFIC's new commitments in the March quarter totaled $376 million with a weighted average spread of 513 basis points across 33 different companies. Although we observed the decline in spreads on new commitments compared to the previous quarter, we also observed a slight decline in the net leverage on new commitments. The weighted average net leverage on new commitments was 4.2 times in the March quarter, down from 4.3 times in the prior quarter. Our fee structure, which is one of the lowest among listed BDCs, allows us to produce attractive ROEs even at current spreads. For the March quarter, gross funding totaled $357 million, excluding revolvers. Sales and repayments, excluding revolvers, totaled $192 million, including $44 million of liquid assets acquired from the mergers. Net revolver fundings were approximately $3 million. In total, net fundings for the quarter were $170 million. Given commitments closed so far in the June quarter and our robust pipeline for MidCap Financial, we expect fundings for the June quarter to be strong. Turning to our investment portfolio, at the end of March our portfolio had a fair value of $3.19 billion and was invested in 240 companies across 49 different industries. Please note, we have transitioned our industry classification from the Moody's industry system to the Global Industry Classification System, or GICS, beginning this quarter. Direct origination and other represented 92% of the total portfolio,…

Thank you, Ted, and good morning, everyone. Starting with our operating results, total investment income for the March quarter was approximately $78.7 million, down $3.5 million or 4.2% compared to the prior quarter. This decline was primarily due to lower fee and prepayment income, as well as the decline in asset yield due to the impact of lower base rates on interest income, partially offset by the growth in the size of the portfolio. Fee income and prepayment income for the March quarter totaled $950,000, down from $2.3 million last quarter. Dividend income was approximately $250,000, essentially flat quarter-over-quarter. As a reminder, there's a lag effect between changes in base rates and their impact to interest income depending on the frequency of loan resets. During the December and March quarters, three months SOFR declined by approximately 28 basis points and 2 basis points respectively, while one month SOFR declined by 52 basis points and 1 basis point, respectively. MFIC's investments are linked to both one-month and three-month SOFR rates, with a great proportion tied to three months SOFR. In short, the decline in base rates during the December quarter was a contributor to the decline in interest income recorded in the March quarter. The average yield at cost on our direct originated portfolio was 10.7% on average for the March quarter, down from 11% last quarter, largely due to lower base rates. Net expenses for the quarter were $44.4 million, down from $45.1 million last quarter. This decline was driven by lower management fees, interest expenses, and G&A expenses, partially offset by a higher incentive fee. Interest expense benefited from the same base rate decline mentioned earlier, partially offset by a higher average debt balance, as well as the impact of the CLO, which closed during the quarter. As mentioned…

Thank you. [Operator Instruction] We'll take our first question from Mark Hughes with Truist. Please go ahead.

Yes, thank you very much. Good morning.

Good morning.

Good morning. Mark.

The fundings in 2Q, I think you said they're strong so far. Kind of interesting to hear, given the kind of cautious commentary from you and others around the overall backdrop. Could you talk a little bit more about that, where you're seeing opportunity, what's driving that? And then any comment on the spread trajectory here in 2Q so far, relative to 1Q?

Yes, sure. Thanks, Mark. And what we say oftentimes about [Technical Difficulty] lag. And so the activity and we had a very strong deployment in Q1, the $376 million of new commits we made, and then the strength that we've seen in the quarter to date period reflects that level of activity that frankly was, in many cases, commenced before the end of the year or early in the year, kind of prior to some of the April volatility. And so, it really is more just a function of that which was already in the pipeline ultimately being brought to a conclusion. And what you're seeing, and this is how we square the seemingly contradictory results as you alluded to, is that, there's less -- there's reason to believe that there's less auctions to be launched in the back half of the year or even in the back half of the second quarter. And so, you'll start to see that -- you should start to see that show up. But again, the relatively strong activity that we've seen is really just a holdover from that which was commenced earlier this year. In terms of spreads, our Q1 spreads declined to [5.13] (ph) down from Q4. We've definitely seen some stabilization in more recently in where we're indicating and where our peers are indicating and then from here, it's that tension with the technical, Mark, acknowledging that there's a lot of capital for private transactions out there, as well as also it's likely to be a muted investment opportunity -- muted M&A environment creating fewer credit creation opportunities, and thus, notwithstanding some volatility, it'll be the interplay of those and we would expect some reprieve from that which we saw in Q1 or some widening, but not materially and more just stabilization and less deals getting done in the fours in the broader market.

Very good. And then could you talk about the dividend relative to NII kind of the sustainability. How you think that will -- the underlying trend versus current dividend as the year progresses. And you're obviously making a lot of updates, changes in the portfolio. What about sustainability?

Yes, sure. So, as we alluded to the activity that we had in the quarter was back half weighted as well as also we were operating below our leverage level. And then furthermore, you know, many of the aspects of our earnings profile are stable but the prepayment income in a given quarter can, can ebb and flow and we were relatively light in this quarter. We also mentioned in our prepared remarks about the level of earnings that we're taking from our Merx investment, which is 5.8% and is only 3.2%. The combination of those gives us a lot of comfort in our ability to increase earnings. And with the caveat, particularly as it relates to prepayment fees that will ebb and flow. And so, we still are very comfortable in our earnings power and how we've slated our capital plan.

Very good. Thank you.

Thank you. [Operator Instructions] We'll take our next question from Kenneth Lee with RBC Capital Markets. Please go ahead.

Hey, good morning. Thanks for taking my question. Just on originations, given the muted outlook for M&A activity there, could you just remind us again the extent of MFIC's dependence on M&A activity for new originations. What's the outlook for potential add on's and other activity from incumbents? Thanks.

This is Howard. Across MidCap, it is not completely reliant at all on M&A activity. First of all, there is an existing portfolio that continues to grow and there's opportunities there. And we see -- we saw that this quarter and we'll continue to see it future quarters. And that also carries on, because some of the reduced M&A activity is even -- is being replaced by continuation funds, which is also sort of like a captive business, which comes out of a portfolio, enables MFIC to sort of step into transactions they weren't in before. And there's some other products as well. So certainly, more M&A activity drives more volume. But like even in the first quarter there was not huge volume in the market and there was $6.5 million of originations at MidCap, which you saw sort of work its way through to MFIC. And so, the answer is, we said this before, I think like if we were a $20 billion BDC, it would be impactful for the amount of assets that MFIC is able to select off what MidCap’s originates. It's not that impactful.

Got you. Very helpful there. And one follow up, if I may. Just on, in terms of the dividend coverage there, could you remind us again of the latest estimate for spillover income and, and then perhaps just a reminder again, what's the overall policy and thoughts around usage of that? Thanks.

Yes. We -- when it comes to spillover income, we have minimal spillover income at this point. We provided our shareholders with a dividend following the closed end funds and Merx still will create, it does create at some points, additional spillover income and we'll evaluate that as we continue to reduce that position and move forward.

Got you, very helpful there. Thanks again.

Thank you. Next, we'll take our question from [Healy Seth] (ph) with Raymond James. Please go ahead.

Hi, good morning. Thanks for the question. So, in your conversations with private equity sponsors and just looking at the current pipeline, what's your sense for M&A recovery and the timeline there, do you guys feel like it's more 2025 back end loaded or going into 2026?

Yes, sure. I think it's; it's going to be path dependent and I think it's very easy to look and survey the sponsor community landscape right now. And it's very hard -- the calculus is very hard to launch an acquisition right now. And that's what we're seeing. As Howard alluded to notwithstanding, we take comfort in MFIC's position as a relatively small balance sheet amongst a bigger ecosystem and having opportunities for follow-ons within our existing portfolio companies. When we look out and it's hard to project specifically whether it's going to be Q4, 2025 or 2026, we and our peers often point to which is objective and demonstrable. This significant level of private equity dry powder as well as also a real pressure to return capital to LPs as -- again, difficult to predict when it will come, but it needs to come to return that capital and or deploy that capital that's already been raised. And then furthermore we have a lot of dynamics here in the US that notwithstanding currently perhaps some sidelined or amidst some volatility, but there's a lot to point to significant capital expenditures and infrastructure spending over the next several years that also will give rise to significant credit opportunities for ourselves and other similarly situated private capital lenders in the market.

Got it. That's helpful. And a quick follow-up. With your new investments this quarter, can you provide any sort of breakout for how many were incumbent borrowers versus new borrowers?

Yes, sure. So, we did 33 new deals, 19 of which were to new companies and 14 of which were to existing companies.

Perfect. Thank you.

We'll take our next question from Melissa Wedel with J.P. Morgan. Please go ahead.

Good morning. Thanks for taking my questions. Following on your comments about the activity levels through to date, sort of second quarter, does it stand to reason that prepayment income and accelerated OID might remain on the lower end in the near term? I'm curious if you're seeing slower repayment activity like we've heard from a lot of teams and if I did miss your comment on that, I apologize. Thank you.

Hi Melissa. Yes, I think consistent with what you're hearing across the industry from our peers, we do expect that given the lack of M&A, that result in fewer prepayments and that's going to result in lower fees.

Okay, appreciate that clarification. As a follow up, I appreciate the commentary you've offered about limited direct tariffs exposure in the portfolio. On a different but kind of related note, do you -- have you assessed the exposure in the portfolio from any government contracts or any sort of -- anything susceptible to lower revenues or reimbursements from DOGE cuts or health care spending cuts?

It’s always part of our underwriting. We have limited -- as a general matter for years and years we've limited our exposure to sort of government payments, because of sort of stroke of the dependent risk. Obviously, it's even more volatile now, but we just don't have that much of it. Even our healthcare names are not directly reimbursed by the government and direct government contractors. I don't know if we have any. I don't think we have any. So, always looking at all of those things. But those are sort of underwriting risks regardless of the administration. It's just this one's more tethered.

Got it. Thank you.

We'll take our next question from Paul Johnson with KBW. Please go ahead.

Thanks. Good morning. Thanks for taking my questions. Sorry if I missed it, but I was just wondering kind of what the sort of underlying meaningful exposure that you would call any sort of the tariff countries or anything -- your higher risk tariff classification kind of what that is roughly within the portfolio?

So Paul, single digits. And I think, like we said in our prepared remarks, we have the benefit of -- by statute, we need to focus on US companies and the middle market is far less likely to have real diverse supply chains on top of the fact that you were over indexed to those sectors that are more service related, less capital intensive. And I hope we tried to strike this balance within in the portfolio, that number is more important. But as we think about our underwriting, we -- and I think the market has as well, notwithstanding, we're not looking at those very, very intently and looking at that single digits part of our portfolio in a very -- watching it very closely. But we're really focused on [Technical Difficulty] mentioned confidence and on the part of both corporates and consumers and really looking at that second order effect as being the primary driver for credit performance from here and really occupying the lion's share of our time as we assess the effects of the current environment on our current portfolio.

Got it. Appreciate that. And then just on amendment activity, anything to note there in terms of just trends, frequency, how many amendments were addressed during the quarter in the portfolio?

Yes. So, so amendments were relatively flat quarter-over-quarter, and in particular some of the more involved amendments where you're talking about covenant violations or you're dealing with PIK or forbearance or those types of things, that particular segment was flat quarter-over-quarter.

Yes, I'd make another comment, Paul. This is the second time I'm going to bring up lag on this call, but recall -- so we're reporting March financials and the underlying companies of the amendments that we would otherwise or the performance that we would be assessing within this quarter is Q4 by and large, right? We get monthlies on certain of our borrowers. But the lion's share is quarterly [indiscernible] which is a predictor of amendment activity is from Q4 performance. And so, obviously, a different market, so hard to draw too many conclusions from that number. And we weren't surprised to see that that was flat in the quarter.

Thanks again. Appreciate that. And then just on repurchases going forward, congrats on the repurchases in the quarter. But with leverage kind of around [1.4] (ph) times, stocks still trading a little bit low below the repurchase price during the first quarter. But how are you kind of thinking about that with deployment of capital and where the stock trades today?

Well, we hope that question will be irrelevant after this call is over, but the chances not. I mean, we say we always assess the use of our capital based on sort of the discount in that versus like other choices. And obviously, other choices when we're at our full leverage includes effectively paying down debt and redeploying, so it becomes a higher bogey to buy back shares. But it's always like part of what we do, the incremental investment would be buying back shares when it makes sense, but it's -- and I've said this before in a lot of calls, the window of buying is not that many trading days during the quarter. And so, sometimes when like tracking and people look at how much we're buying back, we're limited by the amount we can buy each day, when we can buy and we're limited the amount of days we can buy. So that also impacts whether we buy back shares in that -- is the timing at a time when the stocks trading at a level we want and our capital opportunities otherwise fit with it.

Thank you. That's all for me.

Thank you. [Operator Instructions] We'll pause for a moment. At this time, we have no further questions. I'll return the call over to management for closing remarks.

Thank you, operator. Thank you, everyone, for listening to today's call. On behalf of the entire team, we thank you for your time today. Please feel free to reach out to us if you have any other questions. Please have a good day.

Thank you. And this does conclude today's program. We thank you for your participation. You may disconnect at any time.