Oxford Lane Capital Corp (OXLC) reported its first fiscal quarter earnings for 2025, with a net asset value per share of $4.91, a slight increase from the previous quarter's $4.90. The company saw its GAAP total investment income rise to approximately $89.8 million, an increase of about $7.1 million from the prior quarter.
GAAP net investment income stood at approximately $56 million, or $0.22 per share, consistent with the previous quarter. Core net investment income was notably higher at approximately $107.2 million, or $0.41 per share. The quarter also featured net unrealized depreciation on investments of roughly $14.4 million and net realized gains of about $6.1 million. The company declared monthly common stock distributions of $0.09 per share for the months ending October, November, and December of 2024.
Key Takeaways
- Net asset value per share increased slightly to $4.91.
- GAAP total investment income rose to approximately $89.8 million.
- GAAP net investment income remained steady at $56 million or $0.22 per share.
- Core net investment income increased to approximately $107.2 million or $0.41 per share.
- Monthly common stock distributions of $0.09 per share declared for the last quarter of 2024.
- Issued approximately 45.9 million shares, resulting in net proceeds of about $242.1 million.
Company Outlook
- The company plans to continue utilizing its opportunistic and unconstrained CLO investment strategy.
- Aims to maximize long-term total return through active management and strategic investments.
Bearish Highlights
- Net unrealized depreciation on investments was approximately $14.4 million.
- The weighted average effective yield of CLO equity investments slightly decreased.
- Distress ratio increased to 4.4% from 3.5% at the end of the previous quarter.
Bullish Highlights
- The weighted average yield of CLO debt investments increased to 17.4%.
- The cash distribution yield of CLO equity investments rose to 26.9%.
- Net increase in net assets resulting from operations was approximately $47.7 million.
Misses
- The median U.S. CLO equity net asset values decreased by approximately 2 points due to a decrease in U.S. loan prices.
Q&A Highlights
- The increase in CLO cash yields was attributed to a lag in repricing impact and first-time payments.
- The company's leverage is primarily based on pricing considerations, with no specific target leverage shared.
- The increase in expenses is likely due to the growth of the fund.
- No significant stress or weakness observed in the portfolio outside of mainstream economic concerns.
This earnings call provided insight into Oxford Lane Capital Corp's performance and strategic direction, with a focus on maintaining an actively managed portfolio for long-term returns. The company's steady performance and strategic investments position it to navigate the current market environment.
InvestingPro Insights
Oxford Lane Capital Corp (OXLC) has demonstrated a commitment to shareholder returns, maintaining dividend payments for 14 consecutive years, a fact that aligns with the company's latest declaration of monthly common stock distributions of $0.09 per share. This consistency is underscored by a substantial dividend yield, which stood at a notable 19.57% as of the last recorded date, reflecting a strong income-generating potential for investors.
From a valuation standpoint, OXLC's P/E ratio is relatively low at 5.68, potentially indicating an attractive entry point for value investors. This metric, coupled with a solid performance over the last three months, which saw a price total return of 16.0%, suggests that the company's stock has been resonating well with the market.
InvestingPro Data further reveals that OXLC has experienced robust revenue growth, with a 16.98% increase in the last twelve months as of Q4 2024, and a quarterly growth of 20.72% in Q4 2024. Such growth rates, along with a gross profit margin of 100%, could be indicative of the company's strong financial health and efficient operations.
InvestingPro Tips highlight that while OXLC pays a significant dividend to shareholders, it's also important to note that short-term obligations exceed liquid assets, which may require careful financial management. Additionally, the company's valuation implies a poor free cash flow yield, which investors should consider when evaluating the stock's long-term growth prospects.
For those looking to delve deeper into Oxford Lane Capital Corp's financials and strategic insights, there are additional InvestingPro Tips available at https://www.investing.com/pro/OXLC. Using the coupon code PRONEWS24, readers can get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription, gaining access to a comprehensive list of 6 additional InvestingPro Tips that could further inform investment decisions.
Full transcript - Oxford Lane Capital Co (OXLC) Q1 2025:
Operator: Hello all, and welcome to Oxford Lane Capital Corp's First Fiscal Quarter Earnings Call. My name is Lydia, and I will be your operator today. After the prepared remarks, there will be an opportunity to ask questions. [Operator Instructions]. I'll now hand you over to Jonathan Cohen, CEO, to begin.
Jonathan Cohen: Good morning, everyone, and welcome to the Oxford Lane Capital Corp. First Fiscal Quarter 2025 Earnings Call. I'm joined today by Saul Rosenthal, our President; Bruce Rubin, our Chief Financial Officer; and Joe Kupka, our Managing Director. Bruce, could you open the call with a disclosure regarding forward-looking statements.
Bruce Rubin: Sure, Jonathan. Today's conference call is being recorded. An audio replay of the call will be available for 30 days. Replay information is included in our press release that was issued earlier this morning. Please note that this call is the property of Oxford Lane Capital Corp. Any unauthorized rebroadcast of this call in any form is strictly prohibited. At this point, please direct your attention to the customary disclosure in this morning's press release regarding forward-looking information. Today's conference call includes forward-looking statements and projections that reflect the company's current views with respect to, among other things, future events and financial performance. We ask that you refer to our most recent filings with the SEC for important factors that could cause actual results to differ materially from those indicated in these projections. We do not undertake to update our forward-looking statements unless required to do so by law. During this call, we will use terms defined in the earnings release and also refer to non-GAAP measures. For definitions and reconciliations to GAAP, please refer to our earnings release posted on our website at www.oxfordlanecapital.com. And with that, I'll turn the presentation back over to Jonathan.
Jonathan Cohen: Thank you, Bruce. On June 30, 2024, our net asset value per share stood at $4.91 compared to a net asset value per share of $4.90 as of the prior quarter. For the quarter ended June 30, we recorded GAAP total investment income of approximately $89.8 million, representing an increase of approximately $7.1 million from the prior quarter. The quarter's GAAP total investment income consisted of approximately $84 million from our CLO equity and CLO warehouse investments and approximately $5.7 million from our CLO debt investments and from other income. Oxford Lane recorded GAAP net investment income of approximately $56 million or $0.22 per share for the quarter ended June compared to approximately $51 million or $0.22 per share for the quarter ended March 31. Our core net investment income was approximately $107.2 million or $0.41 per share for the quarter ended June 30 compared with approximately $79.9 million or $0.35 per share for the quarter ended March 31. For the quarter ended June, we recorded net unrealized depreciation on investments of approximately $14.4 million and net realized gains of approximately $6.1 million. We had a net increase in net assets resulting from operations of approximately $47.7 million or $0.18 per share for the first fiscal quarter. As of June 30, the following metrics applied. We note that none of these metrics represented a total return to shareholders. The weighted average yield of our CLO debt investments at current cost was 17.4%, up from 17.1% as of March 31. The weighted average effective yield of our CLO equity investments at current cost was 16.8%, down from 16.9% as of March 31. The weighted average cash distribution yield of our CLO equity investments at current cost was 26.9%, up from 23.5% as of March 31. We note that the cash distribution yields calculated on our CLO equity investments are based on the cash distributions we received or which we were entitled to receive at each respective period end. During the quarter ended June, we issued a total of approximately 45.9 million shares of our common stock pursuant to an at-the-market offering, resulting in net proceeds of approximately $242.1 million. During the quarter ended June, we made additional CLO investments of approximately $216.9 million, and we received approximately $96.3 million from sales and from repayments. On July 25th, our Board of Directors declared monthly common stock distributions of $0.09 per share for each of the months ending October, November and December of 2024. With that, I'll turn the call over to our Managing Director, Joe Kupka. Joe?
Joe Kupka: Thanks, Jonathan. During the quarter ended June 30, 2024, the U.S. loan market price index opened at 96.73%, reaching 96.99% in mid-May before softening in June and ending the quarter at 96.59%. The decrease in U.S. loan prices led to an approximate 2-point decrease in median U.S. CLO equity net asset values. Additionally, due to elevated levels of repricing activity, we observed median weighted average spreads across loan pools within CLO portfolios decreased to 361 basis points compared to 368 basis points last quarter. The 12-month trailing default rate for the loan index decreased to 0.9% by principal amount at the end of the quarter from 1.1% at the end of March 2024. We note that out-of-court restructuring exchanges and subpar buybacks, which are not captured in the side the default rate remain elevated. Additionally, the distress ratio, defined as the percentage of loans with a price below 80% of par, ended the quarter at 4.4% compared to approximately 3.5% at the end of March. CLO new issuance during the quarter totalled approximately $53 billion, an increase of $4 billion from the prior quarter, marking the second highest quarterly volume in CLO market history as CLO liabilities have continued to tighten. Oxford Lane remained active this quarter, trading over 500 million notional CLO equity and junior debt while participating in opportunistic resets and refinancing's. As a function of our overall activity during the quarter, we were able to lengthen the weighted average reinvestment period of Oxford Lane's CLO equity portfolio from July 2026 to November 2026. Our investment strategy during the quarter was to engage in relative value trading and seek to lengthen the weighted average reinvestment period of Oxford Lane's CLO equity portfolio. In the current market environment, we intend to continue to utilize our opportunistic and unconstrained CLO investment strategy across U.S. CLO equity, debt and warehouses as we look to maximize our long-term total return. And as a permanent capital vehicle, we have historically been able to take a longer-term view towards our investment strategy. With that, I'll turn the call back over to Jonathan.
Jonathan Cohen: Thanks, Joe. Additional information about Oxford Lane's first quarter results has been uploaded to our website at www.oxfordlanecapital.com. And with that, the operator will now poll for any questions.
Operator: [Operator Instructions]. Our first question today comes from Mickey Schleien with Ladenburg. Your line is open. Please go ahead.
Mickey Schleien: Yes. Good morning, everyone. Jonathan, there's been a leveraged loan repricing wave with over one-third of the market trading above par and due to higher expectations of a soft landing. That trend can impact loan spreads and I do see that the average spread in your CLO equity portfolio declined 8 basis points, which can pressure the CLO equity arbitrage. And I also see that your average AAA liability spreads were about stable. So what caused your CLO cash yields to increase so much this quarter?
Joe Kupka: Hi Mickey, so a lot of that was due to -- so you're looking at the January versus April payments. So there's a bit of lag in those numbers. So we've seen managers continue to build spread up till this quarter. The July payments did take a dip down from the April payments. So you'll continue to see that repricing wave hit. So there's a lag there. Additionally, we did have some first-time payments come on, which bolstered that cash yield number for this quarter.
Mickey Schleien: Okay. That's helpful. Thank you. And what are your expectations for the remaining ability to refinance or reset liabilities in your CLO equity portfolio to help, defend yields against the loan spread compression we're seeing?
Jonathan Cohen: Sure Mickey. We really don't make public projections or pronouncements about those kinds of forward-looking activities. But certainly, we see the state of the CLO liability market, which looks to be generally constructive still.
Mickey Schleien: Okay. And Jonathan, the ratings agencies haven't seemed to accept the higher odds of the soft landing or the amount of capital available to lower quality borrowers. So the downgrade upgrade ratio is still meaningfully above 1x, which can pressure CCC buckets. So how are your portfolio managers dealing with that trend?
Joe Kupka: Yes. So one data point we've seen is actually just due to the elevated amount of reset activity. Managers have been proactively cleaning up these CCC baskets in anticipation of looking to reset into a cleaner deal. So we've seen CCC baskets in that sense, declining a bit. But you're right, it's going to be a continuing battle for these managers to proactively manage around these CCC baskets, but they do have healthy OC cushions even if they do bump up against the limit, VOC ratios are still remaining relatively healthy.
Mickey Schleien: Yes I saw that. And my last question on the balance sheet. The fund doesn't carry particularly high leverage even with the recent notes offering. So what's your appetite to issue additional debt or preferred shares to help lower your weighted average cost of capital?
Jonathan Cohen: Our appetite Mickey, is at this moment principally predicated on pricing. So to the extent that we think there's a sufficiently robust arbitrage available to us, we would look to add additional -- selectively looked at additional debt, but only at pricing that we found to be compelling.
Mickey Schleien: Okay. Any sort of target leverage that you have in mind, Jonathan?
Jonathan Cohen: Not that we've shared with the world at large no.
Mickey Schleien: Okay. Those are all my questions this morning. Thank you.
Jonathan Cohen: Thank you Mickey very much.
Operator: Our next question is from Erik Zwick with Lucid (NASDAQ:LCID) Capital Markets. Your line is open.
Erik Zwick: Good morning, everyone. I hope you're all doing well. I wanted to start with a question on just -- on the sales and repayment activity during the quarter. Was it the highest that we've seen in over the past 5. So I'm just wondering if that's reflective of market activity or some portfolio specific factors?
Jonathan Cohen: I think it's largely Erik a function -- or significantly a function of just the size of the fund that has grown substantially over the course of the last year or two. So larger scale begets more repayment activity and more sales activity. We have been and remain committed to running an actively managed portfolio which should generate significant trading activity. You saw we did about $500 million worth of notional CLO trading in the quarter, but I wouldn't call that either unusual or necessarily unprecedented.
Erik Zwick: Thanks for the color there. And just with regard to the quarter-over-quarter increase in expenses. Any color you can provide there whether there was anything kind of onetime in nature or just kind of a more kind of normal inflationary creep here?
Jonathan Cohen: Are you referencing a percentage-based increase Erik or a dollar-based increase?
Erik Zwick: A dollar-based increase if I recall correctly I can...
Jonathan Cohen: Just the size of the fund -- most likely just the size of the fund. We raised an enormous amount of capital not only this quarter, but in the immediately preceding quarter. So everything else was constant that would likely lead to that dollar-denominated number being higher.
Erik Zwick: And then a question just on credit. You mentioned that out-of-court restructurings remain elevated. You've seen some increase in this distressed prices in the market as well. Looking at your industry exposure you have a view into a broad slice of the U.S. economy. I guess are there any areas where you're seeing any stress or weakness? It seems like the odds of a soft landing recession are becoming more probable at this point, but there's still I think some concerns in certain areas. So I guess from the ability that you have to look into your portfolio are there any areas where you see some stress at this point and if so how are you seeking to manage that?
Jonathan Cohen: Nothing Erik that is readily apparent outside of sort of the perception in the mainstream right now about economic activity. I think there's continued concern within the U.S. economy about consumer behavior, the state of the consumer. There's an ongoing question mark around certain parts of the economy that we're aware of sensitive to. But in terms of the perspective that we've got on the U.S. economy as a result of the investing that we do, I don't think that we've got an insight that isn't sort of outside of the popular perception.
Erik Zwick: Excellent. That’s all for me today. Thanks for taking my question.
Jonathan Cohen: Thank you Erik very much.
Operator: Thank you. We have no further questions in the queue. So I'll now turn the call back to Jonathan Cohen for any closing comments.
Jonathan Cohen: Thank you all. We appreciate your interest and your time today on this conference call. And we certainly look forward to speaking to you again soon. Thank you all very much for participating.
Operator: This concludes today's call. Thank you for joining. You may now disconnect your lines.
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