Golub Capital BDC, Inc.

Hello, everyone, and welcome to GBDC's earnings call for the fiscal quarter ended March 31st, 2024. 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 on the homepage of our website, which is www.gollubcapitalbdc.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, our investment strategy is focused on providing first lien senior secured loans to healthy, resilient middle market companies that are backed by strong private equity firms with a partnership orientation. This is the same strategy we've had since our IPO 14 years ago. Yesterday, we issued our earnings press release for the quarter ended March 31st, and we posted an earnings presentation on our website. We'll be referring to this 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 financial results for the quarter in more detail. And finally, I'll wrap up with our outlook for the coming period and with some questions and answers. The headline is that GBDC had an excellent quarter. GBDC's results were right in line with the preliminary results that the company filed on April 22nd. Adjusted net investment income per share was 51 cents. That's the company's highest ever quarterly adjusted NII per share. It corresponds to an adjusted NII ROE of 13.5% on an annualized basis. Adjusted earnings per share came to 55 cents. This corresponds to an adjusted ROE of 14.6% on an annualized basis. Overall credit results were strong. We had a small net realized and unrealized gain for the quarter of $0.04 per share. We saw no new defaults. We saw a decrease in an already low percentage of non-accruals, and we saw stable internal performance ratings. NAV per share increased by $0.09 quarter over quarter to $15.12 as of March 31st. While we're really proud of GBDC's results for the quarter, we're even more excited about two strategic announcements that GBDC made in January. To refresh your recollection on these two announcements, first, GBDC announced that it entered into a definitive merger agreement with Golub Capital BDC3. We sometimes call that GBDC3, with GBDC as the surviving company, subject to certain shareholder 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 by waiver as of January 1, 2024, and it's going to continue to be effect during the pendency of the proposed merger. It will become permanent upon closing of the merger. We recently distributed proxy materials related to the merger, and we anticipate that the merger will close in the second calendar quarter of 2024. You'll recall GBDC's investment advisor previously announced the permanent reduction of the company's base management fee from 1.375% to 1% per annum, 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, GBDC has set a new gold standard for shareholder alignment among publicly traded BDCs. I'd encourage you to review the proxy and the investor presentation on GBDC's website to learn more about why we think these two announcements are so exciting and so important. And with that, let me hand the floor to Matt to walk through our results in more detail.

Thanks, David. I'm going to start on slide four. As David just previewed, GBDC's earnings for the 3-31-24 quarter were excellent. Adjusted NII per share was 51 cents, corresponding to an adjusted NII ROAE of 13.5%. Adjusted NII per share this quarter outpaced the 9-30 and 12-31-23 quarters as GBDC's highest ever. And compared to fiscal Q2 of 2023, GBDC's adjusted NII per share increased by $0.09 year-over-year, or about 21%. Adjusted earnings per share was $0.55, corresponding to an adjusted ROAE of 14.7%. GBDC's strong profitability was driven by three key factors. First and foremost, strong credit performance. I'll go into more detail in a moment. Second, high base rates consistent with recent quarters. And third, sustainably lower expenses due to the reduction in GBDC's base management fee, which took effect in July of 2023, and the reduction in incentive fee that David highlighted earlier from 20% to 15%, which took effect for the first time this quarter. Let me briefly summarize portfolio and balance sheet changes. Net funds declined by $48.7 million sequentially. This was intentional. We constrained GBDC's pace of new investments to bring down GBDC's leverage. GBDC ended the quarter with a gap debt-to-equity ratio, net of unrestricted cash of once about one-five times, right in line with our targeted range. The overall credit performance of GBDC's investment portfolio remains strong. First, we saw a reduction in non-accruals. As a percentage of total debt investments at fair value, non-accruals decreased to 0.9% at March 31, 2024, from 1.1% at December 31, 2023. Second, internal performance ratings remained strong. Investments in rating categories 1 and 2 represented just 50 basis points of the total portfolio at fair value. NAV per share increased by 9 cents on a sequential basis to $15.12. NAV per share is now 265 basis points higher than the prior year, even as GBDC delivered higher distributions to shareholders during this period. Let's turn to distributions now. The Board approved 45 cents per share of distributions, a regular quarterly distribution of 39 cents per share, and a fiscal Q2 supplemental distribution of 6 cents per share. Taken together, these distributions correspond to an annualized dividend yield of 11.9% based on GBDC's NAV per share as of March 31, 2024. As a reminder, we previously announced that the Board increased the company's regular quarterly distribution from $0.37 per share to $0.39 per share in conjunction with the proposed merger announcement and corresponding reduction in incentive fees. Adjusted NII per share significantly exceeded the company's regular quarterly distribution, resulting in a distribution coverage ratio of 131% on the increased regular quarterly distribution of $0.39 per share. The Board also authorized the supplemental distribution of $0.06 per share based on the company's variable supplemental distribution framework. You'll recall that this 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 of SQL 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 Q2 distributions on page 22 of the earnings presentation and about the variable supplemental distribution framework on page 23. I'm going to turn it over to Chris now to provide more detail on our results.