Sixth Street Specialty Lending, Inc.

Good morning and welcome to Sixth Street Lending Specialty Lendings, Inc.' 's fourth quarter and fiscal year-ended December 31st, 2025 earnings conference call. At this time, all participants are in a listen-only mode. As a reminder, this conference is being recorded on Friday, February 13th, 2026. I will now turn the call over to Ms. Kami Sinator, Head of Investor Relations.

Thank you. Before we begin today's call, I would like to remind our listeners that remarks made during the call may contain forward-looking statements. 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 Sixth Street Specialty Lending Inc.' 's filings with the Securities and Exchange Commission. The company assumes no obligation to update any such forward-looking statements. Yesterday, after the market closed, we issued our earnings press release for the fourth quarter and fiscal year ended December 31, 2025, and posted a presentation to the Investor Resources section of our website, www.sixthstreetspecialtylending.com. The presentation should be reviewed in conjunction with our form 10-K filed yesterday with the SEC. Sixth Street Specialty Lending Inc.' 's earnings release is also available on our website under the investor resources section. Unless noted otherwise, all performance figures mentioned in today's prepared remarks are as of and for the fourth quarter and fiscal year ended December 31st, 2025. As a reminder, this call is being recorded for replay purposes. I will now turn the call over to Beau Stanley, Chief Executive Officer of Sixth Street Specialty Lending, Inc.

Thank you, Cami. Good morning, everyone, and thank you for joining us. This marks my first earnings call as CEO, and I'm energized by the continued strength of our platform and the discipline our team has maintained through a dynamic 2025 and into 2026. Before we dive into the financial results, I'm pleased to introduce Ross Bruck, who is joining us on this call today for the first time in his capacity as managing director and head of investment strategy. Ross was one of our first members of our correct lending investment team, having joined Sixth Street more than a decade ago. He has had roles across the Sixth Street platform in both the US and Europe, applying his deep underwriting expertise to various credit investment strategies. Ross brings a unique perspective that bridges complex asset-level underwriting with a strategic lens on market opportunity. His appointment reflects our commitment to elevating our internal talent to drive disciplined investment decisions, and we are excited to have his voice on these calls. For our prepared remarks, I will review full year and fourth quarter highlights and pass it over to Ross to discuss investment activity in the portfolio. Our CFO, Ian, will review our financial performance in more detail, and I will conclude with final remarks before opening the call to Q&A. After the market closed yesterday, we've reported fourth quarter results with adjusted net investment income of 52 cents per share or an annualized operating return on equity of 12%. An adjusted net income of 30 cents per share or an annualized return on equity of 7%. Adjusted net investment income of 52 cents per share exceeded our base dividend of 46 cents per share, providing base dividend coverage of 113%. As presented in our financial statements, our Q4 net investment income and our net income per share inclusive of the unwind of the non-cash accrued capital gains incentive fee expense were 53 cents and 32 cents respectively. The difference between adjusted net investment income and adjusted net income of 22 cents per share in Q4 was primarily driven by 12 cents per share of unrealized losses from idiosyncratic credit impacts and 10 cents per share of prior period unrealized gains that reversed this period and moved into this quarter's net investment income related to investment realizations. For the full year 2025, we generated adjusted net investment income per share of $2.18 representing an operating return on equity of 12.7%, which exceeded the top end of our guidance range we communicated throughout the course of 2025. Adjusted net income per share was $1.76, corresponding to a return on equity of 10.3%. From an economic return perspective, which is calculated using movement in that asset value plus dividends paid in the year, we delivered a return of 10.9%, representing our 10th consecutive year of double-digit economic returns, highlighting the durability of our business across different credit and interest rate environments. Consistent with our ongoing messaging regarding the importance of earning one's cost of capital, our 2025 net income ROE and economic return both exceeded our estimated cost of equity of 9%. It's hard to have a thoughtful conversation about the market today without spending real time on enterprise software and the impact of AI, so we're going to address this directly in our prepared remarks. We've been thinking deeply about these issues for quite some time, and consistent with our investment framework, we are taking a forward-looking approach in how we underwrite and manage risk. Longtime followers will know that our team has been investing in technology-related businesses for more than two decades, and we've navigated multiple periods of significant change. In each case, there were predictions of the demise of incumbents or the erosion of margins. With hindsight, those shifts tended to expand addressable markets and create opportunities for those who could distinguish between durable and fragile business models. That insight is where we'll focus our commentary today. What we're not going to do is resort to hyperbole about the portfolio or describe our performance with words like impeccable. We generally find that kind of language not particularly credible because credit outcomes are always idiosyncratic. More importantly, this is not about congratulating ourselves on a historical performance, which has been good from a credit lens and is clearly reflected and the cumulative net realized gain and loss metrics in our financial statements. Our job is and has always been about the forward. It's about how business models evolve from here under a new cost curve in a different competitive landscape. Throughout cycles, we've maintained an intensive focus on the durability of business models grounded in deep understanding of specific business unit economics, sector-specific ecosystems, valuation discipline in the resulting margin of safety embedded in our investments. The reality is that capital is never a long-term moat for a business. It's merely a tool. At its core, AI levels the playing field for additional competition because the cost curve is shifting down. Capital intensity was never the primary barrier to entry for a business and replacement cost is not a concept we have ever felt was applicable in assessing the intrinsic value of a software company. So, rather than AI bridging a moat that protected businesses in their margins, we see AI as leveling the playing field on development costs that does not fundamentally change the intrinsic moats that protect a business. Existing enterprise software companies should benefit from this shift in the cost curve if they are well managed and have limited technical depth. They can use these tools to accelerate product development and enhance their value proposition. The modes and software are what the customer is actually purchasing as a product, a single source of truth, ongoing maintenance and customer service, security, governance and compliance, and often transaction enablement. In many ways, these customers are also effectively purchasing an insurance policy. I guarantee these tools will work reliably for mission-critical applications where the cost of failure is far higher than the cost of the software. The vast majority of our portfolio companies today have a massive incumbency advantage. They own the distribution. They own the customer relationship, and they possess deep domain expertise. These modes, data integration, network effects, and regulatory complexity are incredibly difficult for a new entrant to come in and displace, even in a world where it is faster and cheaper to write code. If we did our job correctly, we ignored purchase prices and market valuations and looked at how durable the business model was to support the credit pieces. This has always been our lens as credit investors. We don't participate in the growth or the upside of equity valuations. We are focused on the durability of an asset and its cash flows. We're not saying the tails might not be wider on the margin for ill-prepared business models and management teams, but generally, we think this is an equity valuation problem. We believe many software businesses will likely have less pricing power given the change in the cost curve and therefore may see less revenue growth. Less growth means fundamental valuations of these assets is lower, but that doesn't mean they aren't generally credit worthy. If you look at the credit spread since the beginning of the year of public enterprise software companies, and how little they have widened, about 10 to 20 basis points on average, compared to the compression in the TEV multiples, about two to three turns, or about 15% on average, It illustrates this point. For more levered private software companies, we see broadly syndicated loan spreads about 50 to 100 basis points wider versus the beginning of the year. The market is re-rating the equity risk, but the credit remains resilient. By focusing on the modes that drive durability, we assess not just where the business stands today, but how well it is positioned to withstand even the benefits from AI-driven change. With some credit investors focused on historical results, our underwriting has been forward-looking from day one. This emphasis on future durability rather than past performance is a core differentiator in our investment process and underpins our confidence in the resilience of the businesses within our portfolio today and in the future. Turning to our portfolio in aggregate, our borrowers continue to demonstrate strong credit statistics characterized by consistent revenue growth and expanding EBITDA margins. As of year-end, the weighted average LTV within our portfolio company was approximately 41%, remaining broadly stable year over year, as steady earnings growth offset lower equity valuations in the broader market. Our view of LTV is based on our own fundamental valuation of these companies, which incorporates the re-rating of enterprise values to reflect current market conditions. We believe the resilience of our portfolio reflected in LTM revenue and earnings growth rates of approximately 9% and 12% respectively for our core portfolio companies is a testament to our discipline of allocation of capital and our ability to apply a nuanced lens to asset selection across market environments. We understand many of our peers map the industry exposure differently from us. with a specific software classification, which is intended to illustrate enterprise software exposure. We do not view software as a standalone industry, but instead, we view it as a mission-critical tool that enables a broad range of end user markets. For that reason, our industry disclosure is organized by end market, such as healthcare, business services, and financial services, rather than by specific products or delivery mechanisms used to serve those markets. We believe this is a better approach to risk management, as the primary driver of credit performance is the health and demand of the end markets being served, rather than the technology used to deliver the service. At this moment in time, however, we felt it beneficial to our stakeholders to provide a more comparable figure to our peers. We have mapped our portfolio to enterprise software exposure, which comprises approximately 40% of our total portfolio by fair value. The credit statistics of this portfolio are largely consistent with the overall portfolio, including a weighted average LTV of 40%, LTM top line growth of approximately 9%, and LTM earnings growth of approximately 15%. As we've said for several quarters, we've remained disciplined in our credit selection in what has been a tighter spread environment. Periods of market volatility and uncertainty pay to our strength and we would love to see an environment where we can put more capital to work. We ended the year at 1.10 times debt to equity, positioning us with $246 million in investment capacity before we reached the top end of our target leverage range. This compares to any leverage of our peers in Q3 of 1.22x near the upper end of the target range for BDCs. Our liquidity represented approximately 33% of our total assets, and we had nearly six times coverage on our unfunded commitments available to be drawn by our borrowers based on contractual requirements in the underlying loan agreements. This compares to a peer medium of approximately two times as of September 30th. Our robust liquidity combined with our capital available means that we have substantial investment capacity and flexibility during these uncertain times. Further, our capital base is permanent in nature. As noted in our November shareholder letter, unlike other structures of BDCs, we are not subject to redemptions or outflows and believe, as a result, we are able to take advantage of opportunities created by market dislocations. These times of market volatility have been the environments where we have shown that the Sixth Street platform excels in trade shareholder value. There is significant change happening in our ecosystem, and we have always performed better on a relative basis in changing and dynamic environments. Our expertise spans the firm, from our investing teams across direct lending, growth, digital strategies, and infrastructure, to our technical leadership of our engineering team and chief information officer, alongside our vice chairman and pioneering AI strategist, Martin Chavez. Ultimately, we believe that as the market enters a more complex era, we remain uniquely positioned to lean into volatility and extend our track record of our performance. Moving back to our financial results, reported net asset value per share at year end was $16.98 compared to 1711 in Q3 and 1709 at year end 2024. The latter two after giving effect to the supplemental dividends declared for those periods. Factors contributing to net asset value movement during Q4 include the over-earning of our base dividend through net investment income, which was offset primarily by the reversal of net unrealized gains from investment realizations during the quarter, the impact of winding credit spreads on the valuation of our portfolio, and portfolio-specific events. Ian will discuss movements in net asset value in further detail. Yesterday, our board approved a base quarterly dividend of 46 cents per share to shareholders of record as of March 16th, payable on March 31st. Our board also declared a supplemental dividend of one cent per share relating to our Q4 earnings to shareholders of record as of February 27th, payable on March 20th. The supplemental dividend was capped at one cent per share this quarter in accordance with our distribution framework. As a reminder, we limit the payment of supplemental dividends such that any decline in net asset value over the preceding two quarters, inclusive of any supplemental payment, does not exceed 15 cents per share. We have maintained this framework since we declared our first supplemental dividend in 2017 to prudently retain capital and stabilize net asset value in periods of market volatility. With that, I'll now pass it over to Ross to discuss our market outlook and summarize this quarter's investment activity.