Logan Ridge Finance Corporation (NASDAQ:LRFC) Q4 2024 Earnings Call Transcript

Logan Ridge Finance Corporation (NASDAQ:LRFC) Q4 2024 Earnings Call Transcript March 14, 2025

Operator: Good morning, and welcome to Logan Ridge Finance Corporation’s fourth quarter and full year ended December 31, 2024, earnings conference call. An earnings press release was distributed yesterday, March 30, 2025, 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 investors.loganridgefinance.com in the Investor Resources section. It 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 future 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 those 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 Financial Officer; and Patrick Schafer, Chief Investment Officer. With that, I would now like to turn the call over to Ted Goldthorpe, Chief Executive Officer of Logan Ridge Finance Corporation. Please go ahead, Ted.

Ted Goldthorpe: Good morning, and welcome to our fourth quarter and full year 2024 earnings call. As mentioned, I am joined today by our Chief Financial Officer, Brandon Satoren, and our Chief Investment Officer, Patrick Schafer. Following my opening remarks, Patrick will provide additional details on our investment activity to date, and Brandon will walk through the financials. 2024 was a profoundly transformative year for Logan Ridge, as we continued to build upon the record results seen in 2023 and made significant strides to the rotation out of our legacy equity portfolio. This is the strongest year of financial performance for Logan Ridge since Mount Logan Management took over as the company’s investment adviser in July of 2021.

2024’s results were highlighted by the highest total investment income and net investment income in our history, at $20.9 million, $4.2 million, and $1.56 per share, respectively. The hallmark of 2024, however, was our successful sale of our largest equity position, Nth Degree, for $17.5 million in cash, which was a significant catalyst for the accretive combination with Portman Ridge announced in January. This exit was a major achievement in our long-term strategy to rotate out of our legacy equity portfolio, which has been a central focus to the turnaround strategy for Logan Ridge. Further building on our success, I am very pleased to announce that in February of 2025, we exited our second largest non-yielding equity investment in GA Communications.

We also ended the year with no new non-accruals during the fourth quarter of 2024. Additionally, during 2024, we further strengthened our balance sheet by successfully amending and extending our revolving credit facility with KeyBanc. The amendment further turned out our debt capital structure, reduced our cost of financing, while also increasing our financial flexibility. The combination of these collective achievements paved the way for a combination with Portman Ridge Finance Corporation, which the board approved in January. The successful combination of the two companies will be a significant milestone for BC Partners Credit Platform, we believe, will be accretive for both sets of shareholders. We believe this combination has the potential to provide greater scale, improved operating efficiencies, increased trading volume in the stock, all of which should create incremental value for shareholders.

The next step towards the completion of the merger is a special meeting of shareholders where investors will be asked to vote to approve the merger after the N-14 is declared effective by the SEC. We invite our shareholders to vote for the merger when they receive their proxy card. Both Portman and Logan’s board of directors have unanimously recommended that shareholders vote for the merger. Due to the strong financial and operational performance seen in 2024, the board of directors approved a dividend of $0.36 per share for the fourth quarter of 2024, which remains flat to the prior quarter. Up to the year, we are incredibly proud of what we were able to accomplish. Looking ahead, we expect to remain active in the market, with a healthy deployment pipeline, our disciplined and proven investment strategy, and our experienced management team, we believe we are well-positioned to continue delivering meaningful returns towards our stakeholders.

With that, I will turn the call over to Patrick to discuss our portfolio and investment activities.

Patrick Schafer: Thanks, Ted, and hello, everyone. As of December 31, 2024, the fair value of Logan’s portfolio was approximately $172.3 million, with exposure to 59 portfolio companies. This compares to 59 portfolio companies with a fair value of $75.6 million as of the prior quarter, and 60 portfolio companies with a fair value of $189.7 million as of December 31, 2023. The year ended December 31, 2024, we continued to be selective in our investment strategy. We deployed approximately $38.3 million in new and existing investments and had approximately $55 million in repayments and sales, resulting in net repayments and sales of approximately $16.7 million for the year. Of note, deployments reflect the $17.5 million of proceeds from Nth Degree received in late Q3 and $5.3 million of repayment from Critical Nurse, which was received on the last day of the year.

Now on to portfolio composition. As of December 31, 2024, 66.7% of the company’s investment portfolio at fair value was invested in assets originated by the BC Partners Credit Platform, up from 65.4% at the end of last year. Also, as of December 31, 2024, our debt investment portfolio represented 83.3% of the total portfolio at fair value, with a weighted average annualized yield of approximately 10.7%, excluding income from non-accruals and collateralized loan obligations. An 87.9% of our debt investment portfolio at fair value was bearing interest at a floating rate. Additionally, as of December 31, 2024, first lien debt represented 64.4% and 64.7% of our total portfolio on a cost and fair value basis, respectively. The equity portfolio represented 13.4% and 13.8% of the portfolio on a cost and fair value basis, respectively, as of December 31, 2024.

Moving on to non-accrual status, as of December 31, 2024, the company had four debt investments across three portfolio companies on non-accrual status with an aggregate amortized cost and fair value of $17.2 million and $7.9 million, respectively, or 9.0% and 4.6% of the investment portfolio at cost and fair value, respectively. This has remained relatively stable since the third quarter of 2024, with four debt investments in three portfolio companies, a cost and fair value of $17.2 million and $8.2 million, respectively, or 8.8% and 4.6% of the investment companies’ investment portfolios 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 December 31, 2024. For the quarter ended December 31, 2024, Logan Ridge generated $5.4 million of investment income, a $0.3 million increase as compared to $5.1 million reported for the quarter ended September 30, 2024. The increase in investment income compared to the prior quarter was primarily due to the receipt of $0.3 million of non-recurring other income as well as an increase of $0.1 million in distributions received from our Great Lakes Joint Venture. For the quarter ended December 31, 2024, Logan Ridge had $3.9 million of total expenses, which decreased by $0.3 million from $4.2 million of total expenses reported in the prior quarter.

The decrease is primarily due to lower average outstanding debt as well as a full quarter’s benefit of a seven basis point spread reduction on the KeyBanc credit facility as part of the August 2024 amendment. Accordingly, net investment income for the fourth quarter was $1.5 million or $0.56 per share, an increase of $0.5 million or $0.19 per share from the third quarter of 2024. Our net asset value as of December 31, 2024, was $85.1 million, representing a $1.2 million decrease or 1.4% compared to the prior quarter net asset value of $86.3 million as of September 30, 2024. On a per share basis, net asset value was $32.04 per share as of December 31, 2024, representing a $0.27 decrease per share or 0.6% as compared to $32.31 per share as of September 30, 2024.

The difference between the decrease of 1.4% and 0.6% is the accretive effect of our buyback program. Finally, as of December 31, 2024, the company had $15 million in cash and cash equivalents, as well as $26.2 million of unused borrowing capacity available for deployment in new investments. With that, I will turn the call back over to Ted.

Ted Goldthorpe: Thank you, Brandon. To our shareholders, thank you so much for your continued support. This concludes our prepared remarks, and we will now turn the call over to the operator for any questions.

Q&A Session

Operator: Thank you. We will now begin the question and answer session. If you are dialed in and would like to ask a question, please press star followed by the number one on your telephone keypad. If you would like to withdraw your questions, simply press star one again. If you are called upon to ask a question and are listening via loudspeaker on your device, please pick up your handset and ensure that your phone is not on mute when asking the question. Once again, that is to press star one if you have any questions. Our first question comes from the line of Christopher Nolan with Ladenburg Thalmann. Please go ahead.

Christopher Nolan: Hey, guys. Congratulations on a good quarter, and I guess looking and a lot of the questions I think were answered in the last call, but looking forward, do you anticipate the Logan portfolio just to be subsumed into Portman Ridge or is it gonna be anything else where you might be, you know, lowering the equity exposure more? How do you see the combined portfolio going forward, I guess is the succinct way to ask?

Ted Goldthorpe: Hey, Chris, I will go first. I mean, I think it is gonna be just a straight merger. Obviously, you know, Patrick had mentioned in his remarks, we were able to exit another equity position this quarter. So I think from our perspective, it is still a big focus of ours, but I do not think there is a big we are not gonna leave behind a Stubco or a CPR or anything like that. I think the intention is just to kind of blend the portfolios together.

Patrick Schafer: Yeah. That is right. I mean, as I said, between Nth Degree, which was during last year and then GA Communications, which we noted is Q1, that equity percentage just of Logan is gonna go down, you know, that much more. And in a pro forma company, it is gonna be, you know, that much smaller. So I think we are still gonna focus, you know, on a go-forward basis of reducing those equity exposures and reinvesting the proceeds. But I do not think we are gonna take a different tact with the equity positions or a general investment thesis on a pro forma basis. I think we would prefer to reduce those as much as possible. And as you have seen more so in Portman than Logan just because there was an existing equity book, you know, we have a number of positions within Portman where we have kind of a mix of a first lien debt and, like, structured preferred equity.

And that is sort of how we kind of use our quote-unquote equity bucket there is something that is, you know, not common. But it is either warrants that we are getting for free or something that is more structured that we think is ultimately kind of a high very, very high double very, very high teens or low twenty percent return over time through structuring as opposed to, you know, through enterprise value creation and dividend. So, you know, I think our Portman business has a bit of different strategy on, you know, how we use a, quote-unquote, equity bucket to try and focus on, you know, yield generating equity position. There is opposed to NAV generating necessarily. So I do not think any of that will change and we will continue to be as active as we can on reducing those equity positions post-closing.

Christopher Nolan: Okay. And then, for the board of directors going forward, I mean, do both companies sort of have significant overlaps in board members or is it gonna be sort of a combination of two different groups?

Ted Goldthorpe: No. The Logan board members are 100% overlap with Portman. There are additional board members on Portman in how we set up the special committees. But all of the Logan board members are existing board members, so that will, you know, effectively kind of go away as doing double director duty.

Christopher Nolan: Okay. And any consideration of given the merger and all the strategic discussions, how about putting the board member compensation purely in stock? I mean, after all, it is a dividend-paying stock and it sort of really aligns interest.

Ted Goldthorpe: We have not talked about that. I mean, historically, the same issue for management because we are getting, you know, obviously, management fees to manage the vehicle. You know, we are not there is a 40 Act rule where we are actually not allowed to pay executives in stock. I actually would assume that applies to the board as well, but I do not know. I mean, historically, we have looked into paying our executives in stock, and you are not allowed to under the 40 Act. Do not know if that is the case for the board, but I would assume it is the same thing. I do not know. I would have to check that.

Christopher Nolan: Okay. Thanks. Bye.

Operator: As there are no further questions at this time, I would now like to turn the call over to Ted Goldthorpe for closing remarks.

Ted Goldthorpe: Great. Well, thank you very much. And everybody have a great weekend. And again, we also we just want to thank our shareholders, one last time. Thank you very much.

Operator: This concludes today’s call. You may now disconnect.