Golub Capital BDC (NASDAQ:GBDC) Q2 2022 Earnings Call

0:00 Hello, everyone, and welcome to GBDC's earnings call for the quarter ended March 31st. 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 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.

0:48 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.golubcapitalbdc.com, and click on the Events Presentations link. As a reminder, this call is being recorded for replay purposes. I'll now turn the call over to David Golub, Chief Executive Officer of GBDC. David?

1:17 Thanks, John. Hello, everybody. Thanks for joining us today. I'm joined here by Chris Ericson, our Chief Financial Officer, Greg Robbins, Senior Managing Director, and John Simmons, Managing Director here at Golub Capital. Yesterday, we issued our earnings press release for the quarter ended March 31st, and we posted an earnings presentation on our website. We're going to be referring to this presentation throughout the call today. For those of you who are not familiar with GBDC, Our investment strategy is 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. The headline for this quarter is that GBDC had another strong, consistent performance, and that came despite a very challenging macro backdrop, which included rising interest rates, continuing supply chain issues, the Russia-Ukraine war, and a significant down draft in equity and fixed income markets.

2:14 For the March 31 quarter, adjusted NII per share before the capital gain incentive fee accrual was $0.30, adjusted EPS was $0.39, and ending NAV rode from $15.26 per share to $15.35 per share. During the quarter, GBDC made a quarterly distribution of $0.30 per share. We believe our results highlight the resilience of our strategy, and we'll talk some more about that over the course of today's call. Now I'll hand the floor to Gregory, John, and Chris to elaborate on GBDC's performance for the quarter. And after that, I'm going to provide some closing commentary, talk about our outlook, and then I'll open the floor for questions. Gregory, over to you.

2:58 Thank you, David. I'm going to begin on slide six, which describes two key themes that contributed to GBDC's success during the quarter. The first theme is strong portfolio performance. I'd call your attention to the Golub Capital Middle Market Report, or GCMMR, from March 31st, which we published several weeks ago. The median earnings growth rate in January and February from 2021 to the same period in 2022 was nearly 10%. Although GDP fell by an annualized 1.4% in Q1 in inflation-adjusted terms, Golub Capital portfolio companies continue to perform well.

3:43 This is not only reflected in strong credit results. We'll take a closer look at the data later in the presentation. It is also reflected in the second key theme for the quarter, net portfolio growth. Golub Capital's origination was above our expectations. We expected the first calendar quarter to be slow. It typically is. And we expected that dealmakers, would need to catch their breath after a really busy 2021. We were right in part. M&A was not particularly strong. However, Golub Capital's origination in calendar Q1 exceeded our expectations primarily because our portfolio companies were playing offense. They were closing out on acquisitions and executing growth programs which created new investment opportunities for Golub Capital.

4:33 Origination and existing borrowers, what we call incumbencies, across the platform represented over 70% of all originations this quarter. In calendar Q1, GBDC's net portfolio growth also had a tailwind from unusually low repayments. Moving on to slide seven, this slide provides a bridge from GBDC's $15.26 NAV per share as of 12-31 to its increased $15.35 NAV per share as of 3-31. Let's walk through the bridge. Adjusted NII per share was 27 cents. Dividends per share paid during the quarter was 30 cents. And adjusted net realized and unrealized gains per share were 12 cents.

5:20 Let's now take a closer look at our results for the quarter. And for that, let me hand the call over to John Simmons to walk you through the results in more detail. John?

5:30 Thanks, Gregory. Slide 9 summarizes our results for the quarter and over the past several quarters. Gregory already discussed the results for the March quarter. This slide also shows GBDC's consistent and solid adjusted NII, adjusted NII before the capital gains incentive fee accrual, adjusted net realized and unrealized gains, EPS, and distributions over the last several quarters. Moving to slide 10, as Gregory noted, net originations exceeded our expectations this quarter. New investment commitments totaled $323.2 million. After factoring in repayments on investments of $122.2 million, as well as unrealized appreciation and other portfolio activity, total investments at fair value increased by 5.4% for $279.4 million during the quarter.

6:27 Also, as of March 31st, we had $40.6 million of undrawn revolver commitments and $203.2 million of undrawn commitments on delayed draw term loans. Each of these unfunded commitment amounts are relatively small in the context of GBDC's strong balance sheet and liquidity position. Finally, as shown at the bottom of the table, both the weighted average rate and spread over LIBOR on new investments remain consistent quarter over quarter. Slide 11 shows that GBDC's overall portfolio mix by investment type remained consistent quarter over quarter, with one-stop loans continuing to represent approximately 80% of the portfolio at fair value.

7:13 Slide 12 shows that GBDC's portfolio remained highly diversified by obligor, with an average investment size of less than 40 basis points. As of March 31st, 94% of our investment portfolio was comprised of first lien senior secured floating rate loans and defensively positioned in what we believe to be resilient industries. Turning to slide 13, this graph summarizes portfolio yields and net investment spreads for the quarter. Focusing first on the light blue line, this line represents the income yield or the actual amount earned on our investments, including interest and fee income, but excluding the amortization of upfront origination fees and purchase price premium.

7:58 The income yield decreased by 20 basis points to 6.9% for the quarter ended March 31st. The investment income yield or the dark blue line which includes the amortization of fees and discounts decreased by 40 basis points to 7.3% for the quarter driven by an unusually low level of repayments. Repayments can be cyclical. and we don't expect this low level of repayments to be sustained in future periods. Our weighted average cost of debt or the aqua blue line increased by 10 basis points to 2.8%. Our net investment spread or the green line, which is the difference between the investment income yield and the weighted average cost of debt, decreased by 50 basis points to 4.5%.

8:45 Both LIBOR and SOFR base rates increased during the quarter Thanks, John.

9:17 Flipping to the next two slides, non-accrual investments as a percentage of total debt investments at cost and fair value increased to 1.5% and 1.1%, respectively, as of March 31st, due to the number of non-accrual investments increasing from five to seven investments. Overall, fundamental credit quality remains strong, with over 90% of the investments in our portfolio having an internal performance rating of four or higher as of March 31st. As a reminder, independent valuation firms value at least 25% of our investments each quarter. Slide 16 and 17 provide further details on our balance sheet and income statement as of and for the three months ended March 31st, 2022.

10:03 Turning to slide 18, the graph on the top summarizes our quarterly returns on equity over the past five years, and the graph on the bottom summarizes our regular quarterly distributions as well as our special distributions over the same timeframe. Turning to slide 19, this graph illustrates our long history of strong shareholder returns since our IPO. As illustrated, investors in GBDC's 2010 IPO have achieved a 10% IRR on NAV since inception. Slide 20 summarizes our liquidity and investment capacity as of March 31st. which remains strong with over 950 million of capital available through cash, restricted cash and availability in our various credit facilities.

10:51 Slide 21 summarizes the terms of our debt facilities as of March 31st. Slide 22 summarizes our recent distributions to stockholders. Most recently, our board declared a quarterly distribution of 30 cents per share Payable on June 29, 2022 to stockholders of record as of June 3, 2022. And with that, I will turn it over to David for some closing remarks.

11:19 Thanks, Chris. To wrap up, GBDC had a strong quarter. Our portfolio companies continued to perform well, realized and unrealized gains were solid, and new commitments coupled with low repayments resulted in healthy net portfolio growth. Let me talk briefly about our outlook before I open the line for questions. I've said in the last couple of quarters that we're cautiously optimistic about the prospects for Golub Capital and GBDC in the coming period. We still are, but I say the cautiously part is increasing. But before I talk about why we're cautious, I want to review and highlight four reasons for our optimism. First, the strength of GBDC's portfolio. We've talked about it along this call. Despite the recent report of negative first quarter GDP, despite the downdraft in stock market prices, Our portfolio companies continue to report strong year-over-year growth in both revenue and EBITDA.

12:13 Do I expect it's going to slow down from the pace of 2021? Absolutely. But we're still seeing robust growth and we continue to have very few companies showing signs of credit stress. Second reason for optimism is the strength and flexibility of GBDC's balance sheet. With interest rates rising, we're well positioned with about half of GBDC's debt funding in the form of low-cost, fixed-rate, unsecured debt. We think GBDC will benefit as rates go above the whitewater or sulfur floors on GBDC's assets. We've already started to see this happen as floors are typically at 1%. Third reason for optimism is the momentum that we're seeing in the private equity ecosystem. Many are predicting that the overall size of the private equity ecosystem is going to double in the next three to five years. And this means a growing opportunity set for us and for other leading private debt players.

13:07 And finally, there's a market share shift underway. Within the sponsored finance industry, there's a shift toward the market-leading players. We think the private equity winners are concentrating their business with lenders who have scale and product breadth and expertise and who are more generally strategically valuable partners. If this story about four factors that are leading to optimism sounds familiar, it should. I've discussed these trends for the last several quarters. It's not all clear skies out there, so let's talk about how our optimism is tempered by three sources of uncertainty. Let's start with COVID. It's supposed to be over now, but it's not. In fact, top virologists are now saying that even though over 60% of Americans have had COVID, over 75% of youth, we're not only not at herd immunity, but we may never get to herd immunity. were instead likely going to have to learn to live with COVID. And it may not just be COVID.

14:06 It may be global pandemics may be part of the new norm. Second is inflation and higher interest rates. There's some good news here. The good news is that now everybody agrees that inflation is a problem. I think this is important because the first step in solving any problem is agreeing it's a problem. And for an extended period of time, a lot of economists and members of the Fed agreed thought that inflation was transitory didn't need to be addressed. That's the good news. The bad news is that inflation is hard to cure. So while I think we all, as investors, need to plan for a lot of different scenarios, our base case is that inflation is going to be around for a while, that higher rates are going to be around for a while, and that we're all going to need to adjust to both.

14:55 The third source of uncertainty is Ukraine. Now, we've all been reading about how this is a superpower standoff in the nuclear age and their threats of escalation. All that's true. What I want to focus on here is the degree to which the war has led to a global reset of the international monetary and trading system. We've basically seen the West make moves in its restrictions on Russian foreign currency movements and tariffs on Russian goods. that are fundamental changes to the post-World War II liberal economic order in international monetary and trading norms. I think it's going to take some time for companies, for governments, for investors to understand and adjust to all the second and third order impacts of these new norms.

15:46 And my own view is that investors would do well to prepare for a long stretch of greater market volatility as we all see how these second and third order impacts play out. The good news from the perspective of GBDC shareholders is that our niche in sponsor finance is reasonably well insulated from these three sources of uncertainty. We and our sponsors and our borrowers, we've learned to manage COVID risk. Our loans are floating rate and so they adjust to changes in interest rates. Our borrowers are primarily U.S. companies selling to U.S. customers. So the impacts on international trade system, international monetary system, volatile commodity markets, they matter less. So we're not immune to what's happening with COVID and interest rates and the war, but I do think we're well positioned for continued stable results.

16:36 With that, operator, please open the line for questions. Thank you. At this time, I'd like to remind everyone, in order to ask a question, press star then the number one on your telephone keypad. Once again, press star one to ask a question. We'll pause for a moment to compile the Q&A roster. Okay. We'll take our first question from Finian O'Shea with Wells Fargo Securities. Your line is now open.

17:10 Hey, everyone. Good afternoon. David, I wanted to ask a question on recurring revenue loans. You've been a leader in this space for years. And, you know, how the companies to our understanding are – have less ongoing cash generation because they're spending that on marketing and research and so forth, but that would still intuitively leave them more prone to higher interest rates on their debt. They could cut costs, but that wouldn't necessarily be good for them. Having exposure to this and experience over the years How well set up do you think this category is financially in its ability to withstand base rates going up to 1%, 2%, maybe 3% over the near term?

18:16 So, great question. Let's just take a step back and make sure everybody's familiar with the category, the context of Finn's question. So, Finn's asking about recurring revenue loans. These are loans to companies generally in the software space that have made the decision to have high levels of selling or general administrative or R&D expenses relative to their revenues in order to facilitate rapid growth, even though that's at the expense of profitability. And typically, these loans are made at a lower loan-to-value rate but if you look at them in terms of traditional credit metrics like debt to EBITDA, they don't look very good. We've been in the recurring revenue loan business for about eight years now.

19:05 As Finn says, one of the pioneers. It's been a very strong experience for us. We've had very good results, very few loan losses. It's been a category in which I think we've done very well for our investors.

19:21 I do think that

19:22 The larger companies in the recurring revenue sphere today are meaningfully less attractive than they used to be from a lender's perspective. One of the reasons is the one you mentioned, Ken, which is as interest rates go up, you've got higher cash burn, which needs to be addressed in some way by these companies. It's not addressed out of operating cash flow, so it's addressed through new cash that's coming into the system or cash that's on the balance sheet. So, by definition, if rates go up, you're putting more pressure on these companies because the cash-to-pay interest has to come from somewhere. The second reason that I think these loans have become less attractive is simply competition.

20:09 Eight years ago, when we were a pioneer in this area, spreads were higher, leverage levels as a multiple of recurring revenues were lower, terms were tighter. We've seen, and this is a normal part of our business as you develop a relatively new area, we've seen all of those become less attractive from a lender's perspective, particularly in the last year or so. And as a consequence of that, we've focused in other areas. If you look at our loan origination, I think John mentioned this in our opening remarks, about 70% of our platform-wide loans loan originations in calendar Q1 were incumbencies, were to companies that we were already a lender to. So we're very focused in the current environment, given the uncertainties that I talked about in my opening comments, on making sure that we're lending to companies that are well-positioned for rising rates, for inflation, for the uncertainties that we're facing. And the single best category that we like to focus on is is companies that we know best, and those are our existing portfolio companies.

21:22 That's a helpful thank you, and playing off a couple of your remarks there on competition and origination. I know first quarter is often seasonally lower for you on origination, but what are things looking like now? The market's more volatile, so there may be maybe less demand and there's still a lot of inflow to direct lending products as we're all seeing. How do you see, you know, or what do you expect top line gross at least origination to be? Is the pipeline building up like it normally would at this point in the year?

22:06 So, again, I'm just going to go back before going forward. If you look at Q1, quite as you say it, Q1s tend to be seasonally low. And as Greg said in our prepared remarks, we expected Q1 to be unusually low because of pull forward into 21. We thought that a substantial number of sellers took their sales, their company sales into 21 in order to avoid the prospect of higher capital gains tax rates. and that that would have an impact on first quarter of 22, maybe even on later in 22. We were partly right, but if you look at our overall platform-wide origination in Q1, we were about 30% up year over year. It did slant, as I mentioned, very significantly toward existing borrowers.

22:55 But I say overall we were pleasantly surprised by the attractiveness of the opportunities that we saw in Q1. In Q2, we're seeing some acceleration. Is it as fast a pace as 21? No, I wouldn't expect it to be. 21, I think, will prove to be an outlier for a bit. There were some special factors that made 21 as active as it was coming out of COVID and the pull forward impact of expected tax law changes that I just mentioned. But I think Q2 will be a quite solid quarter for us from a I'm sure that's helpful. And I guess – whoa.

24:01 One more, if I may. Can you talk about credit and what the outlook would be as it relates to sort of the Fed going the other way, which is very opposite of what happened in the 2020 COVID era, where there was government monetary fiscal support all around, private equity supported the companies because it was all You know, supposed to be and ended up being temporary, although COVID is still a problem, as you mentioned. But this time feels different where, you know, the Fed is addressing inflation problems and appears very serious about it and financial conditions are therefore getting tighter. How do you look at the outlook for, you know, sponsor middle market credit and the The overall asset class loss and default rate.

25:03 Credit's going to get tougher. If you look at not just in sponsor finance, but in liquid credit markets generally, the S&P LCD index for the first four months of 22 had zero defaults. You can't get better than zero, so it's going to get worse. What are the factors that are going to push things in the worst direction? You mentioned one, which is higher interest rates. A second is some companies are going to find themselves on the wrong end of the inflation curve and inflation is going to impact their costs, but they're not going to have the pricing power to raise prices enough. I think supply disruptions are a third issue that are going to impact some companies. What's going on right now in Shanghai is pretty scary for many companies that rely on tech inputs.

25:55 So I think we're going to see More credit stress across the system. I feel pretty good about our portfolio. As I mentioned in my opening remarks, we've been anticipating inflation for two years. We've been thinking about how to position the portfolio to be able to have real resiliency in the context of inflation and rising interest rates. We're not exposed to Russia and Ukraine. We have relatively little exposure to China. So I think we're in a good position, Finn, to continue our track record of meaningfully outperforming the market. But I think it's reasonable to expect that credit markets are going to get tougher in the coming period.

26:41 Very well. That's all for me. Thanks so much. Next, we'll go to Ryan Lynch with KBW. Your line's open.

26:50 Hey, good afternoon. I wanted to talk about the Golub middle market capital report you guys put out. It's an incredibly helpful report, provides a lot of insight. As you stayed on the call today, you're still seeing good revenue and earnings growth in the first two months of calendar Q1 of 2022. But when I look at the report, Revenue growth in the overall portfolio of 18% and earnings growth of 9%. To me, that shows pretty meaningful margin contraction in the overall portfolio. And then if you look at the individual subsectors, there are outliers in there as well. You look at industrials up 12% with total revenue growth and earnings decline of almost 2%.

27:42 So while I think things look pretty good today, I would love to hear your comment on what are you seeing from a margin standpoint in your portfolio and what is the outlook for that going forward?

27:58 Happy to. But, Ryan, before I get that, I feel compelled to respond to something that you wrote earlier today. You wrote that you thought that we missed on NII per share, and I don't agree with that. It's been a while since we've seen capital gain incentive fee accruals, so I want to just review with everybody. How that works, because it's very funky accounting. So if, like Golub Capital, you're a BDC that's done exceptionally well from a credit standpoint and has net realized and unrealized gains from inception, this is very, very unusual. We're an extremely rare company in having that. If you have that, the accounting says that you do an as-if liquidation at the end of the quarter. So you assume that all of your unrealized are realized after Denmark, and you calculate what the capital gain incentive fee would be if that all were to take place.

28:55 So we had roughly $0.04 of capital gain incentive fee that goes above the NII line, and that's what brought our NII down. But this is not a cash expense. In fact, when you calculate what's payable in cash, you do a completely different calculation. You look at Realized gains, and you look at realized and unrealized losses. And so, in fact, this is not only a non-cash expense, it's also matched by an income item that falls below the NII line. The only way you can get a capital gain incentive fee accrual is if you have meaningful net realized and unrealized gains, which, of course, we did this quarter. So I'm sorry to pick on you.

29:42 I don't mean to pick on you. But I do disagree with that part of your analysis. I think that we had a really good quarter that you have to look past the capital gain incentive fee accrual in looking at NII. And I think the best thing that could happen for shareholders is for every quarter for there to be a big fat capital gain incentive fee accrual because it would mean that we have very significant net realized and unrealized gains beneath it.

30:12 I agree with everything you said. I agree with everything you said. Our estimate was $0.31. Consensus was $0.31. Wasn't adjusted. NII, adjusting for the capital gains, incentive three, incentive three is $0.30, which would be below $0.31 consensus, or that's what he says on slide four. Unless I'm missing something. It looked like a mess.

30:36 So you're saying $0.31 versus $0.30. Okay. I mean, that's correct. Rounding. There's some other factors as well. We had some PIC income on preferred instruments that we own, that we take that income below the line in realized and unrealized. Other BDCs take it above the line. I guess I have a bias. I think EPS is a much better measure than NII, but we can continue that debate offline. Let me go back and answer your other question, which was about company performance. You're 100% right that if you look at the most recent Golub Capital Middle Market Index that the numbers reflected a deceleration in growth from what we saw in 21, and they reversed something that we saw pretty consistently over the course of 21, which was actually faster profit growth than revenue growth. In the most recent quarter, quite as you described, Ryan, we saw revenue growth outpacing Profit Growth. I'm not sure that one quarter gives us enough data to draw a lot of really good conclusions about that.

31:46 If we saw that pattern continuing over an extended period of time, and if we saw the profit growth start to go down further to the point where in real terms it's actually not positive, then I think your point about this being a sign of and many more. and many, many more.

33:03 for portfolio performance is actually quite positive. Now, all that's a lagging indicator. You know, I mean, in the best case, we're looking at history. We're not looking at projections. We're not looking at budgets or forecasts. So, you know, we've got to let in all of that data analysis with perspectives about what we're seeing on the horizon.

33:28 Yes, no, I totally agree. I mean, that's the thing is I think the past, has been great. I think everybody's sort of worried about the future, not for you specifically, but for all these private businesses. One of the other questions I had was, I see you guys primarily play in the direct lending private credit markets, but you guys also have a big, broadly syndicated loan business, and then there's some overlap between those two markets. I'm just wondering, in the last, you know, and a couple weeks or last month. How has the broadly syndicated loan market been functioning? Because obviously that has impacts on kind of the pipelines and people's desires to take a private solution versus tapping those markets.

34:21 Sure. The broadly syndicated market's been pretty bumpy over the last month. I'd say a typical broadly syndicated loan is probably down about a point over that period. And if you amortize that over an expected life of three years, that's an approximately 33 basis point spread widening. We've seen some similar indicators if you look at the new issue market, which hasn't been robust, but there have been some. And if you look at new issue, I'd say, again, there are signs in the new issue market that we've seen a modest degree of spread widening. Another thing we're seeing in the broadly syndicated market that I think is interesting and worth watching is we're seeing a slowdown in new CLO formation.

35:06 And that's important because over 70% of the buyers of new broadly syndicated loans are typically CLOs. And so if you see a slowdown in new CLO formation, that's taking some buyers out of the market. So I think We're likely to see some continued spread widening. I think we're seeing it in the high yield market. It's more marked in the high yield market. And I think the usual pattern, Ryan, is that these things happen first in liquid credit markets and then they migrate down to the private market over time. And that's my expectation this time as well.

35:49 Okay. That's helpful. And the other question I had – and these are, you know, I talked about kind of the March concerns. And again, just to be clear, these are concerns, you know, all throughout, you know, the private credit markets, not GDC, you know, things, but they certainly impact you and I'd love to hear your insights because you have great insights on the market. But when we look at kind of the public markets, the public equity markets, I mean, there's been a huge reset in valuations. And in particular, some of very strong cash flow positive businesses, that are particularly strong growers. You know, you can talk about like Adobe or, you know, Salesforce and things like that. You have a lot of investments, I feel like, in very good, strong, secular growing businesses that are probably, you know, going to be fine, you know, from probably an earning EBITDA standpoint.

36:39 But what happens if that valuation reset in the public market, you know, stocks down 20%, 30%, 40%, again, very strong businesses, also gets reset in the private market. I'm assuming that hasn't happened yet, and it may not happen, but what would that mean, and is that a concern for you? Obviously, they're still going to be able to pay interest and all that, and they'll still be strong businesses, but ultimately, you have to get paid back, and what happens? I guess, one, is that a concern, that we're going to see a major pullback in valuations in the private market? Well, not a small one, but a major one, and what would that mean?

37:19 So let's take that in a couple of different pieces. Let's talk about the opportunity side first. So when you have a major public market pullback, one of the first things we tend to see is we tend to see a bunch of take privates. We tend to see private equity firms looking at public companies and identifying undervalued ones and seeking to take them into the private equity ecosystem. We've started to see that, and in fact, we've been involved in financing several of them in the last couple of months. I think that's a positive attribute. We don't have a particularly large equity portfolio. We have some. It's a couple of percent of the portfolio. But there are other BDCs that have much larger portions of their portfolio in equities where Changes in equity market values might have a more significant impact on realized. I don't think that's going to be a meaningful factor for us.

38:21 And then the third way it could impact us is if we have an underperformer. I mean, your point is right. These companies in general are performing quite well. And if they're performing quite well, they can go down in value by 25%. It doesn't really impact us as the debt holder. But if they're underperforming, then arguably we're losing some of the important cushion that makes sure that we don't have a credit loss. So this is part of our business. We've got to always be on the lookout for underperformance and working with our borrowers and working with our sponsors to address that underperformance early so that it doesn't become a credit loss over time.

39:04 Okay. Gotcha, that's very helpful, you know, color on those dynamics. That's all I had today. I appreciate the time and the dialogue. Thanks, Ryan. Okay, next we'll go to Robert Dodd with Raymond James. Your line's open.

39:23 Hi, guys. On a question about software as well, I mean, obviously, the proposed 25% software, I mean, a couple of questions. One, I mean, Thank you very much. Are there any concentrations in particular subsectors that we should be aware of?

40:15 So a couple of things I can say and a couple of things I think we're probably best served to take away and see if we can improve our transparency next quarter. What I can say is that most of the software exposure is not recurring revenue loans. It's cash flow, lending. to very successful, very resilient, mission-critical business-to-business software companies. SAS model, very high recurring revenues, very high repeat customer counts, very low attrition of customers, very high pre-cash flow. So we like that profile. We have a lot of them. We're the earliest of the direct lenders to go into the Thank you. Thank you.

41:27 I'm confident in the conclusion. The conclusion will be that we don't have meaningful concentrations by end market. And I think that's important because all software companies don't move together in the context of idiosyncratic changes in the economy. The better way to look at factor risks in software lending is based on end market.

41:53 I appreciate that. Thank you. I'm fine with that. Homework, if I'm assigning it, not doing it, so I appreciate that. On the healthcare side, I mean, it's been another area of focus for you over the long term. Pre-COVID, you had a lot of what we could call discretionary, well, we still do, discretionary healthcare. Obviously, COVID kind of upset the apple cart there a little bit because a lot of them got shut down. We're in recovery there. Oliver Street got marked up this quarter. Do you have... Any concerns or any material concerns that the health care consumer attitude has changed going forward, particularly if we see more inflation, if we do see an economic slowdown and rising unemployment?

42:40 Has COVID taught them that they could defer these things for a period of time? And is there a higher risk of greater deferrals if we see an economic issue? in future than might have been the case when you underwrote those businesses, some of those businesses, pre-COVID?

43:02 So it's an interesting question, and the honest answer is we don't know yet, and we'll see over the course of coming quarters. As I think about your question and think about subspecialties, I think the answer may prove different by different subspecialties. So for example, We're very active in the vet space. I think FIDO is going to continue to get what FIDO needs. That's been the history of the vet space through prior downturns, and given the trends toward humanization of pets, I don't think that's likely to change. We operate in a number of other subsectors, ophthalmology and eye care, dentistry, derm. I'm not seeing signs of I appreciate it.

43:50 Thank you. I'll turn it over to you for closing remarks.

44:24 Great. Thank you, David. I appreciate everyone taking the time today to share with us and your questions. As always, if you have any other questions before we come back and talk to you next quarter, please feel free to reach out. Very much appreciate your partnership. Thank you. This concludes today's conference call. You may now disconnect.