Capital Southwest Corporation

Thank you for joining today's Capital Southwest second quarter, this year 2025 earnings call. Participating on the call today are Bowen Deal, chief executive officer, Michael Sarner, chief financial officer, Josh Weinstein, chief investment officer, and Chris Reberger, executive vice president of finance. I will now turn the call over to Chris Reberger.

Thank you. I would like to remind everyone that in the course of this call, we will be making certain forward looking statements. These statements are based on current conditions, currently available information, and management's expectations, assumptions, and beliefs. They are not guarantees of future results and are subject to numerous risks, uncertainties, and assumptions that could cause actual results to differ material from such statements. For information concerning these risks and uncertainties, see Capital Southwest publicly available filings with the SEC. The company does not undertake any obligation to update or revise any forward looking statements, whether as a result of new information, future events, changing circumstances, or any other reason after the date of this press release, except as required by law. I will now hand the call off to our chief executive officer, Bowen Deal.

Thanks Chris, and thank you everyone for joining us for our second quarter, physical year, 2025 earnings call. We are pleased to be with you this morning, and look forward to giving you an update on the performance of our company and our portfolio as we continue to diligently execute our investment strategy as stewards of your capital. Throughout our prepared remarks, we will refer to various slides in our earnings presentation, which can be found in the investor relations section of our website at www.capitals southwest.com. You will also find our quarterly earnings release issued last evening on our website. We'll now begin on slide six of the earnings presentation where we have summarized some of the key performance highlights for the quarter. During the quarter, we generated pre-tax net investment income of 64 cents per share, which fully covered our regular dividend of 58 cents per share and our supplemental dividend of six cents per share paid during the quarter. Profile earnings continue to be strong, and as of the end of the quarter, we estimate that our undistributed taxable income was 64 cents per share. As we look forward to the December quarter, we are pleased to announce that our board of directors has declared a regular dividend of 58 cents per share for the quarter ended December 31, 2024. Our board has also declared a supplemental dividend of five cents per share, bringing total dividends declared for the December quarter to 63 cents per share. Deal flow in the lower middle market continues at a healthy pace this quarter, while competition in the market for both bank and non-bank lenders for quality deals continue to be fierce. This has resulted in tighter spreads on quality new deals, as well as slower net portfolio growth over the last two quarters for Capital Southwest, as we have maintained our credit discipline. That said, our current backlog of deals in which we have either signed up or have received an indication that we are likely to win would indicate that net portfolio growth should be very strong in the December quarter. The deals we are currently underwriting continue to have loan to value levels ranging from 35% to 50%, resulting in significant equity capital cushion below our debt and reasonable leverage levels in around three times debt even though. Deal closings in the lower middle market have always been lumpy from quarter to quarter, and that is certainly the case these past few quarters. Over the past decade, our team has done an excellent job generating attractive returns for our shareholders in all competitive environments, and I am highly confident we will continue our track record in the current environment. Josh Weinstein will provide additional color on the market, our investment activity, and the performance of our portfolio later in our prepared remarks. Portfolio activity during the quarter consisted of 89.8 million in new commitments to four new portfolio companies and 11 existing portfolio companies, as add-on financing continues to be an important and highly attractive source of originations for us. Portfolio growth for the quarter was offset by 45.2 million in proceeds from four debt prepayments, which generated a weighted average realized IRR of 14.5%. On the capitalization front during the quarter, we increased our IMG-led corporate credit facility to 485 million from 460 million with the addition of one new bank lender. Additionally, we raised approximately 21 million in gross equity proceeds during the quarter through our Equity ATM program at a weighted average share price of $24.49 per share or 148% of the prevailing NIV per share. We have remained diligent in ensuring that we have strong balance sheet liquidity while also funding a meaningful portion of our investment activity with the creative equity issuances. We continue to maintain a conservative mindset to both BD2 leverage and balance sheet liquidity. Balance sheet liquidity at Capital Southwest remains robust, which Michael will provide additional commentary on in a moment. Managing leverage to the lower end of our target range while ensuring strong balance sheet liquidity affords us the ability to continue to invest in new platform companies as well as provide financing for both growth capital and add-on acquisition for our existing portfolio companies. We believe this strategy allows us to continue to grow our balance sheet through any capital markets environment while also maintaining the flexibility to opportunistically repurchase our stock if it were to trade meaningfully below NAV. On slide seven and eight, we illustrate our continued track record of producing steady dividend growth consistent dividend coverage and solid value creation. Since the launch of our credit strategy almost 10 years ago, we have increased our quarterly dividend, regular dividend 29 times and have never cut the regular dividend all while maintaining strong coverage of our regular dividend with pre-tax net investment income. In addition, over the same period, we have paid or declared 26 special or supplemental dividends totaling $4.06 per share, all generated from excess earnings and realized gains from our investment portfolio. Dividend sustainability, strong credit performance and continued access to capital from multiple capital sources are all core to our overall business strategy. Our track record in all these areas demonstrates the strength of our investment and capitalization management strategies as well as the absolute alignment of all our decisions with the interest of our fellow shareholders. As a reminder, slide nine lays out the core tenets of our investment strategy in lending and investing in the role of the market. The vast majority of our portfolio and deal activity is in personally and senior secured loans to companies backed by private equity firms. Currently, approximately 93% of our credit portfolio is backed by private equity firms, which provide important guidance and leadership to the portfolio companies, as well as the potential for junior capital support if needed. In the low and low market, we often have the opportunity to invest on a minority basis in the equity of our portfolio companies parity pursued with the private equity firm when we believe the equity thesis is compelling. As of the end of the quarter, our equity co-investment portfolio consisted of 72 investments with a total fair value of 134 million, representing 9% of our total portfolio fair value. Our equity portfolio was marked at 132% of our costs, representing 32.5 million in embedded unrealized appreciation or 68 cents per share. Our equity portfolio continues to provide our shareholders participation in the attractive upside potential of these growing lower than a market businesses, often resulting from the institutionalization of the businesses by experienced private equity firms, as well as the significant value accretion potential of strategic add-on acquisition. Equity co-investments across our portfolio provide our shareholders with the potential for asset value appreciation, as well as equity distributions to capital southwest over time. As illustrated on slide 10, our on-balance sheet credit portfolio ended the quarter at 1.4 billion, representing -over-year growth of 17% from the 1.2 billion as of September 2023. For the current quarter, 100% of the new portfolio company debt originations were firstly in senior security. As of the end of the quarter, 98% of the credit portfolio was firstly in senior security, with weighted average exposure per company remaining at 1%. We believe our portfolio granularity speaks to our continued investment discipline of maintaining a conservative posture to overall risk management as we grow our balance sheet. We expect this metric will continue to improve in our asset-based growth. I want to now hand the call over to Josh to review more specifics of our investment activities, the market environment, and the performance of our portfolio for the quarter.

Thanks, Bowen. On slide 11, we detailed an 89.8 million of capital invested in and committed to portfolio companies during the quarter. Capital committed during the quarter includes 72 million in firstly in senior security debt across four new portfolio companies, in which we also invested a total of 975,000 in equity. In addition, we closed add-on financing for 11 existing portfolio companies, consisting of 16 million in firstly in senior security debt and 815,000 in equity. We are pleased with the strong market position that our team has established as a premier lender to the lower middle market. This is evident by the broad array of relationships across the country from which our team is sourcing quality opportunities. As a point of reference, currently there are more than 70 different private equity firms represented across our investment portfolio. Additionally, in the last year, we closed 10 new platforms with financial sponsors with which we had not previously closed the deal, showing our continued penetration in the market. Since the loss of our credit strategy back in January 2015, we have completed transactions with over a hundred different private equity firms across the country, including over 20%, with which we have completed multiple transactions. As Bowen mentioned, competition in the lower middle market over the last six months has been quite strong. This has resulted in tight loan pricing for high quality opportunities. Due to the depth and strength of the relationships our team has cultivated over the years, we continue to source and win opportunities with attractive risk return profiles, and we are very pleased with the current backlog of transactions that should close between now and the end of the year. Turning to slide 12, we continued our track record of strong returns on our exits with four debt prepayments during the quarter. In total, these exits generated 45.2 million in total proceeds, generating a weighted average IRR of 14.5%. During the quarter, the prepayment activity was driven by the robust financing market, as all four prepayments were refinancing transactions of portfolio companies with EBITDA in excess of 15 million. Two of the companies, ABS Tactical and WIS, were large syndicated credits formerly held at I-45, which were paid off at par. Over the past 10 years, we have realized 86 portfolio company exits, representing over 1.1 billion in proceeds that have generated a cumulative weighted average IRR of 13.9%. On slide 13, we detailed key statistics for our portfolio as of the end of the quarter. The total portfolio consisted of 118 unique companies with a fair value as of the end of the quarter, weighted .2% to first-line senior secure debt, .8% to second-line senior secure debt, .1% to subordinated debt, and .9% to equity co-invest. The credit portfolio had a weighted average yield of .9% and weighted average leverage through our security of 3.8 times EBITDA. Overall, we are pleased with the operating performance across our loan portfolio. In fact, as shown on slide 14, the portfolio upgrade will mean more than the downgrade to this quarter. As a reminder, all loans upon origination are initially assigned an investment rating of two on a four-point scale, with one being the highest rating and four being the lowest rating. We had five loans representing 80 million in fair value upgraded during the quarter, while having only one loan representing approximately 12 million in fair value downgraded during the quarter. The portfolio remains healthy with .5% of the portfolio at fair value, rated in one of the top two categories, a one or a two, and only .5% of the portfolio in the three or four categories. Cash flow coverage of debt service obligations across the portfolio remained at a healthy 3.4 times, despite the higher base rate environment, with our loans across our portfolio averaging approximately 43% of the portfolio company enterprise value. Quarter over quarter revenue in EBITDA growth on a weighted average basis was 2% and 1% respectively. As seen on slide 15, our portfolio continues to be broadly diversified across industry with an asset mix which provides strong security for our shareholders' capital. In addition to industry diversification, our average exposure for companies is 1% of assets, which gives us great comfort in the overall risk profile of our portfolio. Our investment committee members utilize our cumulative experiences navigating through various economic cycles to continually assess risk for our company by company basis, as well as on the portfolio. I will now hand the call to Michael to review the specifics of our financial performance for the quarter.

Thanks, Josh. Specific to our performance for the quarter, as summarized on slide 16, pre-tax net investment income was $30 million, or 64 cents per share, as compared to $31.3 million, or 69 cents per share, in the prior quarter. Net investment income after tax was $31.2 million, or 66 cents per share for the quarter. The main driver of the tax benefit this quarter was 1.5 million in deferred taxes related to our taxable subsidiary, CSCI, which holds the majority of our equity investments. For the quarter, total investment income decreased to $48.7 million from $51.4 million in the prior quarter. The decrease was driven primarily by a $1.8 million reduction in one-time cash dividends from equity investments in the prior quarter, as well as a decrease of approximately 800,000 in fee revenue quarter over quarter. The decrease in cash dividend income was the result of three non-recurring dividend recap transactions which occurred in the prior quarter. As at the end of the quarter, our loans on non-accrual represented .5% of our investment portfolio at fair value, and the weighted average yield in the portfolio on all investments was 12.7%. During the quarter, we paid out a 58 cents per share regular dividend and a 6 cents per share supplemental dividend. As mentioned earlier, our board has declared a regular dividend of 58 cents per share and a supplemental dividend of 5 cents per share for the December quarter. Management and the board has spent significant time contemplating the impact of a lower interest rate environment on future earnings. We have consistently maintained that setting a regular dividend at a level that we believe will never be cut in any foreseeable interest rate environment is key to generating stable, attractive shareholder returns over the long term. We continued our strong track record of regular dividend coverage with 119% coverage for the 12 months ended September 30th, 2024, and 111% cumulative coverage since the launch of our credit strategy in January 2015. As a reminder, our intent is to continue to distribute to our shareholders the excess of our quarterly pre-tax NII over our regular dividend in a quarterly supplemental dividend. We are confident in our ability to continue to distribute quarterly supplemental dividends for the foreseeable future based upon our current UTI balance of 64 cents per share and the expectation that we will harvest gains over time from existing 68 cents per share and unrealized appreciation on the equity portfolio. As seen on slide 17, LTM operating leverage ended the quarter at 1.7%, which improves slightly quarter over quarter. Our operating leverage of .7% continues to compare favorably to the BDC industry average of approximately 2.8%. We believe this metric speaks to the benefits of the internally managed BDC model and our absolute alignment with shareholders. The internally managed model has and will continue to produce real fixed cost leverage while also allowing for significant resources to be invested in people and infrastructure as we continue to build and manage a best in class BDC. Turning to slide 18, the company's NAD per share at the end of the quarter decreased slightly by 1 cent per share to $16.59 per share. The primary drivers of the NAD per share decrease for the quarter were net realized and unrealized appreciation on our investment portfolio offset by accretion from the issuance of common stock at a premium to NAD per share. Turning to slide 19, we're pleased to report that our balance sheet liquidity is robust with approximately 475 million in cash and undrawn leverage commitments on our two credit facilities and our SBA dense to venture commitments, which altogether represent 3.6 times the 133 million of unfunded commitments we had across our portfolio as at the end of the quarter. During September quarter, commitments for the IMG-Lake corporate credit facility increased to 485 million, but from 460 million in the prior quarter, with the addition of one new bank lender. In addition, based on the current bar on base, we have access to the full 485 million in total commitment. This facility has an accordion feature allowing for the further increase in total commitments up to an aggregate of $750 million, allowing us to continue to grow our revolver capacity in lockstep with the growth of our overall balance sheet. As a reminder, in March, 2024, we submitted a MAC application to the SBA, which began the process towards a second SBIC license. We are actively working with the SBA and we continue to be optimistic that we will complete this process by the end of this calendar year. Finally, as at the end of the September quarter, 46% of our capital structure liabilities were in unsecured covenant-free bonds with our earliest debt maturity in January, 2026. Our regulatory leverage, as seen on slide 20, ended the quarter at a debt to equity ratio of 0.8 to one, up from 0.75 to one as of the prior quarter. While our optimal target leverage continues to be within the 0.8 to 0.95 range, we are weighing the impact of future-based rate reductions and maintaining adequate cushion levels to allow us the flexibility to potentially increase leverage to support future earnings and dividend growth. We will continue to methodically and opportunistically raise secured and unsecured debt capital, as well as equity capital through our ATM program to ensure we maintain significant liquidity and conservative balance sheet leverage with adequate covenant cushions. From a capital market perspective, BDCs have been very active in the unsecured debt market as investors remain constructive on new bond issuers. Despite not having any maturity within our debt structure until 2026, we are actively evaluating financing transactions to mitigate future capital market volatility, while also being mindful of the current interest rate environment. I will now stand the call back to Bowen for some final comments.

Thank you, Michael, and thank you, Josh. And again, thank you everyone for joining us today. As always, we appreciate the opportunity to provide you with an update on our business, our portfolio and the market environment. Our company and portfolio continue to demonstrate strong performance and we continue to be impressed by the job our team is doing in building a robust asset base, deal origination and portfolio management capability, as well as a flexible capital structure. We believe we have prepared our company well for future growth and performance. The overall health and security of our portfolio is strong. Our credit portfolio is predominantly made up of firstly and senior secured loans, allocated across a broad array of companies and industries, with weighted average exposure per company of only 1%. The vast majority of our portfolio is backed by private equity firms. Interest coverage of the debt obligations across our portfolio is a strong 3.4 times, with strong equity cushion and support below our debt investments. Additionally, our equity co-investment portfolio gives our shareholders participation in the equity upside of many of these growing lower middle market businesses, providing further enhancement to our long-term shareholder returns. Last but not least, we have a very well capitalized balance sheet with multiple capital sources and significant balance sheet liquidity, all of which provides our company an exciting runway to continue to grow and generate strong shareholder returns for years to come. This concludes our prepared remarks. Operator, we are ready to open the lines for Q&A.

Certainly, as a reminder, to ask a question, please press star 1-1 on your telephone and wait for your name to be announced. To withdraw your question, please press star 1-1 again. And one moment for our first question. Our first question will be coming from Brian McKenna of CitizensGMP, your line is open.

Okay, great, thanks, good morning everyone. So I heard the commentary around some deals that got pushed into calendar 4Q. Is there any way to quantify this? And then it's great to hear that the pipeline is also robust, so how should we think about the magnitude of net portfolio growth into year end and then also into calendar year 2025 as well?

Yeah, so I mean, generally speaking, I mean, we had deals pushed into the fourth quarter and then we, as I said in the commentary, if you look at the deals that we've either signed up, so they're in heavy diligence or we've been told that we're gonna win likely, so the deal has to close, right? But those two things, I mean, it would be very significant net portfolio growth

in the quarter. Yeah, so I'd say also, a little tip to the 930 quarter, our originations were mostly late stage. This quarter, if we were gonna quantify, we'd probably see, I mean, on the conservative side, we'd probably expect to see 150 to 200 million of net portfolio growth for the quarter. And I'd say half of the originations are either half closed or will close shortly, so we expected a pretty strong portfolio growth, both from income as well as balance sheet.

Yeah, okay, got it, that's helpful. And then maybe just a bigger picture question, you know, what are you seeing just within kind of the lower middle markets and then really just the markets more broadly in terms of new deal activity? I think deal flows remain largely stable the last several years and kind of the lower middle markets and broader sponsor M&A has been pretty muted. So I think we've seen some larger players moving down markets, so thinking about sponsor M&A specifically in the larger end of the market, that should be picking up here. So I guess, what does that mean for transactions and yields in your space? And then are you seeing any early signs of some of these larger firms moving back up market a bit?

Yeah, so it's a really interesting question that when we think about and ask other firms about quite often, I think, you know, over the last several years, we've seen an enormous amount of capital being raised, you know, initially in the private equity market and then in the private credit market. When you read about the quantity of capital raised, obviously just that tends to lean more towards the large market, probably for no other reason than that's just a lot more capital. I think we've also heard, and you've read in the papers, et cetera, that Deal Flow, as you just referenced, has been muted in the last year and a half, say. And so what we've heard is, you know, there's two things going on. It doesn't take a whole lot of change in the competitive balance, if you will, between supply and demand of capital in the lower middle market to disrupt pricing. So the Deal Flow in the lower middle market, you know, as you know, is not private equity firms selling businesses to each other, but it's private equity firms buying, controlling interests and founder or family-owned businesses that are aging and want to diversify their holdings. And so the Deal Flow has been relatively, you know, flat. And so when you have decreased Deal Flow in the upper market and relatively flat Deal Flow in the lower middle market, you know, we have seen, you know, certainly the private equity parties that I've talked to have seen some of the increased competition from larger market private equity firms. It's a cascading effect, right? Large market private equity firms starting to justify deals a little bit smaller and then mid-market justifying deals a little bit smaller and it kind of cascades down. And then, you know, as you just referenced, Brian, I mean, that, you know, when Deal Flow picks back up, that should cascade back. Now there's an enormous amount of liquidity in the market. So the speed at which that cascades back is a question mark, but I think it would tend to cascade back up. The other effect is, you know, in our market is we're seeing more competition recently from banks. As we all know, banks come and go. They're here now and they weren't here a year and a half ago in many, you know, and it's a certain handful of regional banks. So, you know, that somewhat disrupts the market from a pricing perspective. We haven't seen a lot of deterioration in credit, like leverage up, you know, covenants worse, you know, a little bit around the edges, but not as much as pricing has changed. And so, you know, I think those two factors, again, it doesn't take a lot to disrupt the pond, if you will, from a pricing perspective.

And we say from a pricing perspective, probably three quarters ago in fact, our spread over SOFR was 750. Two quarters ago, the June 30 quarter, it was 700, and this quarter it was just a shade over 650.

So we've

seen, you know, obviously somewhere in the, you know, 50 to 100 basis points tightening on spread at the moment.

Yep, all right, great. Thank you guys, I'll leave it there.

Thank you, one moment for our next question. And our next question will be coming from Doug Harder of UBS. Your line is open.

Thanks, can you talk about your appetite to continue to raise capital, given the combination of the premium to book and the increased pipeline that you talked about? Sure, so we'll start

by saying we've done a lot of the hard work, you know, coming for due today, we have close to 500 million of capital available either through cash or available at our credit facilities. Now if we try to get where we are, one and a half times book, the ATM is constantly raising capital on a daily basis. We would say that we are always opportunistically looking to raise additional capital, and certainly with an eye towards our funds in 2026, sort of refinance those in time. So I would tell you, yes, we're active there. You'll probably see us increase security capacity a little bit, you certainly should expect over the next six to nine months to see some unsecured activity and raising ATM money will probably look like something in the 20 to $49 million a quarter.

Great, appreciate that,

thank you. Thank you, one moment for our next question. And our next question will be coming from Bryce Rowe of B. Riley, your line is open.

Thanks, good morning. Maybe wanted to start around the discussion topic of the portfolio, the robust portfolio, and a couple more questions around that. So Bowen,

and maybe

touch on the mix of the backlog, whether it be kind of newer portfolio companies versus existing portfolio companies, and I'm kind of curious, have you seen incremental spread compression since the end of September with some of the new deal activity that's kind of bled over into the fourth calendar quarter? Yeah, so I mean, the new deal activity

is, what'd you say, two thirds new platform companies,

and about a

third. I was gonna say, yeah, third add-ons, which is kind of in the mix historically the last several quarters, so it's about the same. I'd say spreads have tightened slightly since September, but that's not the biggest item of our concern, that change, it's kind of the same, but it's probably slightly tighter for quality credits.

Okay, that's helpful. And then maybe speak to, I think you guys have talked in the past about how the loan rate resets kind of lag, what we see from a short-term rate perspective. We saw a little bit of yield compression for the portfolio here in the September quarter, maybe Michael or Bowen, can you kind of speak to what percentage of that was non-accrual inflows, what percentage of that was SOFR compression driven, and then what your expectation is for the portfolio yield, given that lag?

Sure, sure. So we saw SOFR come in from essentially .1% in the previous quarter to an effective, I guess, 12 basis points that came in effectively for the nine 30 quarter versus the fixed 30 quarter. Compression on yield came in about 15 basis points, and then there was some compression due to elevated non-accruals during the quarter. So it brought our yield on the debt from 13.3 down to 12.9. For the 12.31 quarter, we're expecting, based on the reset date, which was October 1st, was 4.6%, so down from the 5.1 in the previous quarter. So another 50 basis points anticipated. So that kind of gives you a sense where we are on the compression today.

Yep, okay, helpful. And then maybe just touch on the non-accruals. I mean, obviously you saw the portfolio's weighted average risk rating improve in the quarter, but you did have a couple of non-accruals flow into that non-accrual bucket. Can you give us a little commentary around that, kind of what the expectation is for those particular assets?

Yeah, I mean, it's two new non-accruals. Obviously that's frustrating. It's part of our business. It's frustrating to see both of those names were threes last quarter, so they were already on our watch list. One is a closeout sale company to lower-end consumers, and I think that's my view of that. I think our view of that is that's the lower-end consumer that's affected more acutely by the cost of eggs and gas and milk with inflation, and so that's hurt that business. And then the other one is it serves the... It's the video content that's streamed through Hulu, Netflix, Prime, those types of things, or a video digital editor company, and so that's been affected by the strike. That's over, but the business, the industry is still down, and then it's just the comeback of that business will be a function of quantum of streaming content volume and how fast that recovers. Both non-accruals will most likely be restructured by the end of December. Both are in discussions right now, and I'm pretty confident that they'll be restructured by the end of December, so they'll be off that list anyway, but they'll be companies where we'll own equity in and we'll continue to work with the manager teams and turn around those businesses hopefully.

Yeah, it's gotta be a portion. Just to be clarified, so a portion of the asset will be his debt and a portion will be equity. Some of this will come back on accrual. I can't give you those percentages now, but that's anticipated. Yep, okay.

Last one for me, just a modeling question. Saw the comp line kinda come in, let's call it 40% or so, quarter over quarter. Michael, can you help us think about what that comp line might look like for the balance of the fiscal year?

Yeah, I'll tell you the run rate for compensation, for cash compensation is $3 million. The stock comp number should be about one and a half, so four and a half million for compensation on the normal basis, run rate basis, and then SG&A is another two and a half million on run rates, so total of SG&A at $7 million is the run rate you should be working off of.

Okay, all right, thank

you all.

Next slide. In one moment for our next question. Our next question will be coming from Matthew Hurrit of VP, your line is open.

Hi there, this is Matt Hurwitz from Jeffries. Congrats on the quarter. Just to follow up on the non-accrual list, are you able to provide any detail on some of the NPAs from last quarter, like GAGE, American Nuts, Research Now, or StatonNet?

Yeah, Research Now, I'll start with that, because that's easy, that's gone. That was restructured and sold, and so that's actually the net realized loss this quarter. And then American Nuts, you know, it's kind of flat, the better business. So, and then what was the other one? Yeah, Stat Meds, Stat Meds, yeah, that's our one name, that's a four, and that company continues to kind of struggle.

Okay, that's really helpful, thank you all.

In one moment for our next question. And our next question will be coming from Robert Dodd of Raymond James, your line is open.

Hi guys, on the net deployments, obviously that is not what drives bonus accruals or anything like that, you know, it's just deploying. But I mean, with the number that you're looking at for the December quarter, I mean, and you gave kind of some run rate comp numbers and stock comp numbers, but I mean, should we expect anything unusual in the fourth quarter, given the level of deployments, which is healthy to say the least?

I mean, I would say so, Robert, I think that, you know, from quarter to quarter, we test what the bonus accrual will look like at year end, and then, you know, just to remind everybody, we accrued for the first three quarters, based on what we think the run rate will look like at the end of the year, and then the fourth quarter will be the true up, that's the final bonus payment, that bonuses are only paid at one time at the end of our fiscal year. So, I mean, certainly as, we definitely don't pay people based on origination, so the answer to that question is, it'll depend on what's going on with the company, how's our credit looking, what we think we're able to pay out, first and foremost to our shareholders for dividends for the remainder of the year, but also with the eye of being able to continue to pay out supplemental dividends and build up the UTI bucket. So, I wouldn't expect anything dramatic because that is not how we compensated for you.

Got it, got it, thank you. And then on, so just credit in general, I mean, to your point, I think you said, you know, you've got a low end consumer business that's a non accrual business this quarter, digital, I mean, these are not related industries, obviously, but I mean, is there any, I mean, I would expect the low end consumer and any other exposure that's still being under pressure, but any other areas where there's any kind of emerging sign of weakness, I mean, to your point on the revenue and EBITDA, I mean, EBITDA, I think you said, was up 1% quarter over quarter, so there's gotta be a, not everybody's at 1%, there's gotta be a proportion that are now declining sequentially, and I mean, any themes on where those pressures are and any incremental concerns given low levels of EBITDA growth, which means some portion declining.

Yeah, thanks, Robert, I would say, look, I mean, there's idiosyncratic stories all throughout any portfolio, right? So I would say if I were to zone out and think about what are the economic related or trends or things that show up that would be on an economic general list, I mean, one is the lower end consumer, no question about it, we don't have a lot of businesses in that area, but that's something that we've seen, not necessarily, yes, to our non-accrual, but if you look across the portfolio, another one or two discretionary, low-end consumer type purchases, then it's slowed, not necessarily becoming a credit problem, but you see that in the portfolio. And then the other I would say is just businesses that are serving other businesses, business to business, that decisions are slower to make, slower to make purchase decisions, as candidly probably as much businesses cautious about the future in some ways. And so that, I don't know if that's like material, if you zone out and look at our overall portfolio, but there's definitely narrative out there in that respect. And then I think a step back, I'm like, all right, well, our rating migration, as you and Bryce both referenced, our rating migration, we have significant amount of upgrades, not a lot of downgrades, strong interest coverage in the portfolio, our pick interest this quarter is a percentage of income or is down, so our cash, our income is a higher percentage cash and it's a higher percentage recurring. So you look at that and you feel pretty good about the engine that's paying the dividend and that's benefiting our shareholders, but at the margins, as you referenced there, if you look at negative stories, other than just idiosyncratic, very fixable problems, bad management decisions, all those types of things that show up in any loan portfolio that are very fixable. If you think about what general themes are, those would be the two, kind of the low end consumer and B2B, you know, slower investment decision or slower purchase decisions. Got it, thank you.

And I would now like to turn the conference back to Bowen Deal for closing remarks.

Thanks, operator, and thanks everybody for joining us today. We appreciate the opportunity to give you an update on our company and portfolio and we look forward to keeping you updated on events in the future.

And this concludes today's conference call. Thank you for participating, you may now disconnect.