WhiteHorse Finance, Inc. 2026 Q2 Earnings Call

Please go ahead, sir. Thank you, Beau, and thank you everyone for joining us today to discuss WhiteHorse Finance's second quarter 2026 earnings results.

Before we begin, I'd like to remind everyone that certain statements which are not based on historical facts made during this call, including any statements relating to financial guidance, may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Because these forward-looking statements involve known and unknown risks and uncertainties, these are important factors that could cause actual results to differ materially from those expressed or implied by these forward-looking statements. WhiteHorse Finance assumes no obligation or responsibility to update any forward-looking statements. Today's speakers may refer to material from the WhiteHorse Finance second quarter 2026 earnings presentation, which was posted on our website yesterday. With that, allow me to introduce WhiteHorse Finance's CEO, Stuart Aronson.

Stuart, you may begin. Thank you, Rob.

Good afternoon, everyone, and thank you for joining us today. As you are aware, we issued our earnings yesterday after market close, and I hope you have had a chance to review our results for the period ending June 30, 2026, which can also be found on our website. On today's call, I will begin by addressing our second quarter results and current market conditions. Joyson Thomas, our Chief Financial Officer, will discuss our performance in greater detail. After which we will open the floor for questions. At a high level, our second quarter results reflect three main themes. One, net asset value per share increased, primarily driven by unrealized gains in one of our existing workout accounts. Two, share repurchases during the quarter, again, providing a meaningful benefit to NAV per share accretion.

Three, core earnings moderated relative to the prior quarter, reflecting a portfolio yield that was impacted as a result of a smaller average portfolio size, as well as our loan investment in Outward Hound going on to non-accrual status in the first quarter. Touching more specifically on unrealized appreciation in the portfolio and following the markdowns that weighed on the first quarter's results that we had previously flagged, our portfolio marks turned net positive for this quarter. Gross unrealized depreciation of $7.1 million was offset by just $1.4 million of gross depreciation, with the substantial majority of the portfolio unchanged quarter-over-quarter. Net markups were led by our position in Starco, also known as Chase Products or Pressurized Holdings, where the markup on our equity investment contributed approximately $4.8 million or roughly $0.22 a share.

I will provide more detail on the markup in Chase, as well as provide an update on a number of other investments in our portfolio later in this call. Turning to our financial results, Q2 GAAP net investment income and core NII were each $4.7 million or $0.217 per share, compared with Q1 GAAP net investment income and core NII of $5.6 million or $0.253 per share last quarter. NAV per share at the end of Q2 was up to $11.77, compared with $11.47 at the end of Q1, an increase of approximately 2.6%.

The change in NAV reflected net realized and unrealized gains of approximately $0.265 per share in the aggregate, as well as share repurchases that were accretive to NAV by more than $0.06 per share, partially offset by the approximate $0.033 per share NII shortfall as a result of the distribution paid during the quarter that exceeded the net investment income for the period. A detailed bridge of the quarter-over-quarter change in the NAV per share is provided on slide 15 of our earnings presentation. Even though our NII this quarter was below the quarterly distribution rate, as I have shared in the past, we have a number of restructured credits that have been equitized that are not producing NII, but are likely to be realized either later this year or in 2027. Those realizations should add to the BDC's NII-generating capability.

Turning to shareholder value, our shares have continued to trade at a meaningful discount to NAV, and both management and the board remain focused on actions that we believe can help enhance shareholder value over time. So far, that focus has included disciplined portfolio repositioning, selective capital deployment, accretive share repurchases, and steps to support distributable earnings. Management and the board continue to explore other options as well. We remained active under the board's expanded share repurchase program through the first two months of the second quarter, and those repurchases were accretive to NAV, as I mentioned earlier. We paused repurchase activity in late May.

That decision reflects the balance we look to strike between buying back shares at a meaningful discount to NAV, which is accretive, and the corresponding reduction in equity, which raises our leverage ratio levels and competes with the capital we can put in to newly originated investments. Capacity remains available under the repurchase program, and we will continue to assess recommending repurchases as a part of our broader strategy of seeking ways to create shareholder value. Joyson will provide additional detail on the quarter's repurchase activity. In addition, the advisers agreed to extend the temporary voluntary incentive fee waiver for the third quarter of 2026, reducing the applicable rate from 20% to 17.5%. We view the fee waiver as a constructive step to support distributable earnings and shareholder value.

As we have said previously, this fee waiver is temporary, and any decision regarding future periods will be revisited based on the then current conditions and in consultation with the board. We have also been encouraged by the alignment shown through continued open market purchases by our officers and directors during the second quarter, as disclosed on Form 4 filings. We believe that reflects our confidence in the underlying value of WhiteHorse Finance. Turning to portfolio activity, we had gross capital deployments of $25.4 million in Q2. Repayments and sales were muted during the quarter and offset gross deployments by approximately $2.2 million, resulting in net deployments of approximately $23.2 million before the effects of transferring assets into the STRS JV. Gross capital deployments consisted of three new originations totaling $23.1 million, with the remaining amount deployed to fund add-ons to five existing portfolio companies.

The three new originations were headlined by two former WhiteHorse borrowers, Empire Office for $10.1 million and Intermedia Cloud Communications for $6.6 million, as well as one new portfolio company borrower, Vibration Mountings & Controls, for $6.4 million. Of our three new originations in Q2, one was non-sponsor and two were sponsor. The sponsored deals are targeted to be transferred to the STRS JV. Our new originations in Q2 had an average leverage of approximately 4.2x EBITDA and were all first-lien loans. Total repayments and sales of $2.2 million were driven by partial paydowns, with no full realizations during the quarter. During the quarter, the BDC transferred two new deals to the STRS JV totaling $7.8 million. The transfers were headlined by Industrial Service Solutions at $5.1 million and Trimlite at $2.7 million.

We continue to successfully utilize the STRS JV and believe that WhiteHorse Finance's equity investment in the JV continues to provide attractive returns to our shareholders. After net deployments and JV transfer activity, as well as net realized and unrealized gains recognized during the quarter, total investments increased from the prior quarter by $26.2 million to $569.2 million. This compares to our portfolio's fair value of $543 million at the end of Q1. During the quarter, we recognized approximately $0.1 million in net realized losses and approximately $5.8 million of net unrealized gains for aggregate net realized and unrealized gains of approximately $5.7 million or approximately $0.265 per share. The net mark-to-market gains were driven primarily by a $4.8 million markup on Chase, a $0.4 million markup on PlayMonster, and approximately $0.5 million of other net markups across the portfolio.