Golub Capital BDC, Inc.

Hello, everyone, and welcome to GBDC's earnings call for the fiscal year and fiscal quarter ended September 30, 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.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 Chief Financial Officer, and Matt Benton, our Chief Operating Officer. For those of you who are new to GBDC, our investment strategy is to focus on providing first lien senior secured loans for 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 fiscal quarter and for the year ended September 30th. And we posted an earnings presentation on our website. We'll be referring to that presentation during the course of today's call. I'm going to start as usual with headlines and with a summary of performance for the quarter. And then Matt and Chris are going to go through our operating and financial performance for the quarter in more detail. And finally, I'll wrap up with our outlook for the coming period, and I'll take some questions. The headline is that GBDC had a good fourth quarter and a solid fiscal 2024. You'll recall that fiscal 2024 had a number of landmark events that made GBDC's shareholder value proposition more compelling. First, a permanent reduction in the company's incentive fee rate. Second, a new supplemental variable distribution framework. And that distribution framework has led to 29 cents per share of supplemental distributions so far. And third and most importantly, the closing of a second win-win-win affiliate merger with GBDC3. So while we're going to focus today on GBDC's performance for the final quarter of the fiscal year, I think it's important to keep in mind the transformational nature of fiscal 2024 as a whole. With that context, let me touch on a few highlights before I hand it over to Matt and Chris. Adjusted NII per share was 47 cents for the quarter. This corresponds to an adjusted NII return on equity of 12.4 percent. Adjusted NII return on equity for the full fiscal year was 12.9 percent. Adjusted net income per share for the quarter was 36 cents, and that corresponds to an adjusted return on equity of 9.4 percent for the quarter. Adjusted return on equity for the full fiscal year was 10.7 percent. GBDC's results benefited from the continuation of several trends that we've highlighted over the course of recent quarters. First, borrower performance remained generally strong, as you'll see when we talk through key credit metrics. Second, high base rates continued to boost the earnings power of GBDC's portfolio. Third, GBDC's industry-leading fee structure. The fee structure, combined with a voluntary $0.03 per share incentive fee waiver from GBDC's investment manager during the quarter, It meant that shareholders captured more of the value that GBDC created. That said, GBDC also faced some headwinds during the quarter, primarily headwinds from a tale of underperforming borrowers that I think everybody in credit is facing these days. We talked last quarter about how GBDC had negative outcomes on loans to Pluralsight and Imperial Optical. During the September 30th quarter, we worked through restructuring of Pluralsight as well as one other longtime non-accrual credit. And you can see this reflected in realized losses that are in this quarter's P&L. Our focus, as always with underperforming borrowers, is to use our deep bench of experienced investment professionals and the playbook that we've developed over several decades to minimize ultimate losses. In both these cases, GBDC now holds post-restructuring equity positions that we believe have upside potential. During the September 30th quarter, we also took some fair value markdowns on several other companies that are underperforming. The quantum of net realized and unrealized losses, it improved quarter over quarter, but it was again higher than our version of normal. So in short, fiscal Q4 performance was good. It wasn't great, but it was good. And it gave GBDC a solid ending to a transformational fiscal year that we believe sets up GBDC very well for the long term. I'll come back to this theme when I go through our outlook at the end of our prepared remarks. With that, I'll pass the mic over to Matt Benton to discuss the quarter in more detail.

Thanks, David. I'm going to start on slide four. Adjusted NII per share was 47 cents, corresponding to an adjusted NII ROE of 12.4%. Adjusted earnings per share was 36 cents, corresponding to an adjusted net income ROE of 9.4%. GBDC's earnings were driven by three key factors. First, credit performance was generally solid. But as David said, we took some fair value write downs on several underperformers. Second, earnings were supported by continued high base rates consistent with recent quarters. Third, GBDC benefited from sustainably lower expenses due to its leading investment advisory fee structure. And fourth, Golub Capital, GBDC's investment manager, elected to voluntarily waive on a one-time basis a portion of its fee this quarter. This equated to an approximately $0.03 per share benefit to net investment income and earnings. We did this to enhance the shareholder experience by giving investors an early benefit from the cost of funds reductions GBDC will recognize from the debt funding initiatives we undertook post-quarter end. I'll hit on these exciting initiatives in more detail in a bit. Let me summarize portfolio activity and credit quality in the quarter. Gross originations were nearly $1 billion, up from last quarter as we sought to take leverage up modestly post-merger. After factoring in repayments and unfunded commitments associated with originations, net funds increased by $368 million sequentially. This represented net portfolio growth of approximately 5%. GBDC did not get the full benefit of the earnings power of this portfolio growth because much of that growth was back-end weighted. I want to offer some comments around the environment in general. The underwriting pendulum in the current environment has swung to more borrower-friendly across all credit markets, from investment grade, which is trading at 20-year types, to the broadly syndicated market to private credit. In larger size transactions especially, we are seeing spread compression, looser deal documentation, especially around EBITDA definitions, and higher leverage. As these underwriting trends have shifted over this past year, we have purposely chosen to be more selective and to focus more on core middle market transactions. Our wide funnel allows us to be picky. We typically see over 2,000 opportunities annually. Year-to-date at Golub Capital, our origination stats depict our conservatism. First, a selectivity rate of 3%. Second, a repeat borrower percentage of about 70%. Third, Golub Capital acted as the lead or sole book runner in over 87% of our transactions. And year-to-date, we've been the sole lender in almost a quarter of the deals that we've done. So we're controlling structures and documentation, which as everyone knows, is our typical MO. Fourth, our average LTVs at the time of origination have generally been in the mid-30 percent to mid-40 percent range, with an average LTV of approximately 37 percent. Finally, given the risk-adjusted pricing dynamics, we are choosing to play in the core middle market. The median EBITDA for our origination has been below $60 million. While the overall credit performance of GBDC's investment portfolio remains strong, consistent with David's overview, we did see a small increase in category three credits this quarter. Investments in rating categories four and five decreased slightly from 89.2 percent of the portfolio at their value to 87.1 percent during the quarter. Investments in rating category three increased from 10.1 percent of the portfolio at their value to 11.6 percent quarter-over-quarter. And investments in rating categories one and two remain very low, representing just 1.3 percent of the total portfolio at fair value. As a percentage of total debt investments at fair value, non-accruals increased slightly to 1.2 percent at quarter-end from 1 percent in the June quarter. As a reminder, these metrics are well below the BDC sector average. In the quarter, the number of non-accrual investments increased to 11, as the restructuring of three former non-accrual investments was offset by the addition of four non-accrual investments in the quarter. Several of these were very small positions. Continuing on slide four, let me briefly summarize distributions paid and certain balance sheet changes in the quarter. Distributions paid in the quarter of 49 cents per share included not only the quarterly base distribution of 39 cents per share, but also the 5 cent per share quarterly variable supplemental distribution declared in August, as well as the 5 cent per share special distribution declared in June 2024 in conjunction with the GBDC III merger closing. We expect these supplementals to eliminate GBDC's need to pay excise tax on undistributed earnings. As we've said in the past, we would prefer in general to return capital to shareholders versus paying any form of an excise tax. NAV per share decreased by 13 cents on a sequential basis to $15.19 because distributions were unusually high. Despite the decrease, GBDC's NAV per share is now 17 cents higher than it was at September 30th, 2023, which we believe is a clear outlier in the BDC sector. From a leverage perspective, debt to equity increased quarter over quarter to one spot zero nine turns on a net of cash basis. This includes cash trapped in debt securitizations for the purposes of paying down principal standing notes. As I mentioned earlier with respect to assets, the increase in net leverage largely happened in the last few weeks of the quarter. GBDC's average net leverage during the quarter was just one spot zero two turns. Increasing net leverage further, our target is one spot one zero terms to one spot one five terms, will be an additional tailwind for profitability. Let's turn to distributions declared in the quarter. The Board declared 43 cents of total distributions, a regular quarterly distribution of 39 cents per share, and a fiscal Q4 supplemental distribution of 4 cents per share. Taken together, these distributions correspond to an annualized dividend yield of 11.3% based on GBDC's NAV per share as of September 30, 2024. Adjusted NII per share continues to significantly exceed the company's regular quarterly distribution, resulting in regular distribution coverage of 121%. In addition, our board declared in June 2024 additional special distributions to be paid in three equal installments of 5 cents per share following the merger close on June 3rd, 2024. The final special distribution of 5 cents per share will be paid on December 13th, 2024 for stockholders of record as of November 29th, 2024. You can find more information about the record dates and payment dates for fiscal Q4 distributions on slide 23 of the earnings presentation and about the variable supplemental distribution framework on slide 24. I'm going to turn it over to Chris now to provide more detail on our results. Chris?