Golub Capital BDC, Inc.

Hello, everyone, and welcome to GBDC's earnings call for the fiscal quarter end of December 31st, 2023. Before we begin, I'd like to take a moment to remind our listeners that remarks made during this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Statements other than statements of historical facts made during this call may constitute forward-looking statements and 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 from time to time in GBDC's SEC filings. For materials we intend to refer to on today's earnings call, please visit the Investor Resources tab of the homepage of our website, which is www.gollupcapitalbdc.com, and click on the Events Presentations link. Our earnings release is also available on our website in the Investor Resources section. As a reminder, this call is being recorded. With that, I'm pleased to turn the call over to David Golub, Chief Executive Officer of GBDC.

Hello, everybody, and thanks for joining us today. I'm joined by Chris Erickson, our CFO, and Matt Benton, our Chief Operating Officer. For those of you who are new to GBDC, let me review quickly our investment strategies. It's today and since inception has been to focus on providing first lien senior secured loans to healthy, resilient middle market companies that are backed by strong partnership-oriented private equity sponsors. Yesterday, we issued our earnings press release for the quarter ended December 31, and we posted an earnings presentation on our website. We'll be referring to that presentation during the call today. I'm going to start as usual with headlines and with a summary of performance for the quarter. Then Matt and Chris are going to go through our financial results for the quarter in more detail. And finally, I'll wrap up with an outlook for the coming period and with some Q&A. The headline is that GBDC had an excellent fiscal first quarter. GBDC's results for the quarter were right in line with the prelim results the company filed on January 17th. Adjusted net investment income per share was 50 cents. That was tied with fiscal Q4 2023 for the company's highest ever adjusted NII per share. It corresponds to an adjusted NII return on equity of 13.3 percent on an annualized basis. Adjusted earnings per share came to 45 cents, and this corresponds to an adjusted return on equity of 11.8 percent on an annualized basis. We had a small net realized and unrealized loss for the quarter of $0.05 per share, but overall credit results were very strong. We saw no new defaults. We saw a decrease in what was an already low percentage of non-accruals, and we saw stable internal performance ratings. We'll talk about all three of these in more detail later in this call. Finally, NAV per share increased by a penny quarter over quarter to $15.03 as of December 31st. While we're proud of GBDC's results for the first fiscal quarter, we're even more excited about the two strategic announcements that we made in connection with the earnings pre-release. To refresh your recollection, first, GBDC announced that it entered into a definitive merger agreement with Golub Capital BDC3 Inc., or what we call GBDC3, with GBDC as the surviving company subject to certain stockholder approvals and customary closing conditions. Second, GBDC's investment advisor agreed to reduce GBDC's income incentive fee and capital gain incentive fee from 20% to 15% in connection with and in support of the proposed merger. The reduction in incentive fees was made effective as of January 1, 2024, and it will be in effect during the pendency of the proposed merger. It will become permanent upon closing of the merger. You'll recall that GBDC's investment advisor previously announced the permanent reduction of the company's base management fee from 1.375% to 1% effective July 1, 2023. With a 1% management fee, a 15% incentive fee, an 8% hurdle rate, and a cumulative since inception incentive fee cap, we believe GBDC has set a new gold standard for shareholder alignment among publicly traded BDCs. I'd encourage you to look at the investor presentation on GBDC's website and the announcements to learn more about why we think these are so exciting and important. With that, let me hand the floor to Matt to walk through our results for this quarter in more detail.

Thanks, David. I'm going to start on slide four. As David just previewed, GBDC's earnings for the quarter ended December 31, 2023 were excellent. Adjusted NII per share was $0.50, corresponding to an adjusted NII ROAE of 13.3%. Adjusted NII per share this quarter was tied with the September 30th quarter as GBDC's highest ever. Compared to fiscal Q1 of 2023, GBDC's adjusted NII per share increased by $0.17 year over year, or about 35%. Adjusted earnings per share was 45 cents, corresponding to an adjusted ROAE of 11.8 percent. GBDC's strong profitability was driven by three key factors. First and foremost, strong credit performance. I'll go into more detail on this in a moment. Second, high base rates consistent with prior quarters. And third, sustainably lower expenses due to the reduction in GBDC's base management fee rate, which took effect in July of 2023. The portfolio and balance sheet updates generally reflect the continuation of trends from the 930 quarter. Net funds declined by $73.2 million sequentially. While we saw an uptick in market-wide deal activity in calendar Q4 relative to the rest of 2023, GBDC's new pace of investments remained measured. This was by design. GBDC's model doesn't depend on fee income from new originations or repayments to drive strong returns. The overall credit performance of GBDC's investment portfolio also remains strong. First, we saw a reduction in non-accruals. As a percentage of total debt investments at fair value, non-accruals decreased to 1.1% at 12-31-2023 from 1.2% at 9-30-2023. Second, internal performance ratings remained strong. Investments in rating categories one and two represented 40 basis points of the total portfolio at fair value. NAV per share increased by one cent on a sequential basis to $15.03. NAV per share is now more than 200 basis points higher than the prior year, even as GBDC delivered higher distributions to shareholders during this period. And turning to financial leverage, net leverage declined modestly to 1.18 times. This is consistent with our plan to reduce leverage gradually to 1.15 times debt-to-equity or lower. Let's turn to distributions now. The Board approved 46 cents per share of distributions, a regular quarterly distribution of 39 cents per share, and a fiscal Q1 supplemental distribution of 7 cents per share. Taken together, these distributions correspond to an annualized dividend yield of 12.2%, based on GBDC's NAV per share as of December 31st, 2023. As a reminder, we previously announced that the Board increased the company's regular quarterly distribution from 37 cents per share to 39 cents per share in conjunction with the proposed merger announcement in corresponding reduction in incentive fee. Adjusted NII per share significantly exceeded the company's regular quarterly distribution resulting in a distribution coverage ratio of 128% on the increased regular quarterly distribution of $0.39 per share. The board also authorized a supplemental distribution of $0.07 per share based on the company's veritable supplemental distribution framework. You'll recall that the framework was introduced in 2023 to help shareholders understand how we plan to balance the likelihood that GBDC will continue to generate excess income, all else equal on the one hand, with our focus on NAV growth and resilience on the other hand. You can find more information about the record dates and payment dates for fiscal Q1 distributions on page 23 of the earnings presentation and about the variable supplemental distribution framework on page 24. Before I hand off to Chris to go through the quarter in detail, I do want to emphasize that GBDC's strong results for fiscal Q1 don't yet reflect the impact of the lower incentive fee rates GBDC is expected to have going forward. The analysis on slide 5 quantifies how much GBDC's earnings power has already increased as a result of its lower base management fee rate and how much incremental earnings power we expect to see from lower incentive fee rates. As you can see by comparing the June 30th, 2023 column with the September 30th, 2023 and December 31st, 2023 columns, lower base management fee rates drove an increase in adjusted NII ROAE of about 80 basis points, or three to four cents per share quarterly. The right column shows GBDC's pro forma results for the quarter ended December 31st, 2023, as if its incentive fee rates were 15% instead of 20%. We estimate GBDC's pro forma adjusted NII per share would have increased from $0.50 to $0.53, representing earnings accretion of approximately 6%. So all else equal, we expect lower incentive rates to increase GBDC's adjusted NII per share going forward by about $0.03 to $0.04 per quarter or about $0.13 annually. This translates to approximately 90 basis points of incremental adjusted NII ROAs. You'll start to see this incremental potential earnings power in GBDC's results for fiscal Q2. GC Advisors is voluntarily waiving incentives in excess of 15% effective January 1, 2024, while the merger remains pending. Assuming the merger closes, the incentive fee rate reductions will become permanent, and GBDC will be set up to permanently benefit from higher earnings power going forward. I'm going to turn it over now to Chris to provide more detail on our results.