Golub Capital BDC, Inc. 2026 Q3 Earnings Call

Hello, everyone. Welcome to GBDC's earnings call for the fiscal quarter ended June 30th, 2026. 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.golubcapitalbdc.com. Click on the Events and 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. Thanks for joining us today. This is David Golub, and I'm joined by Tim Topicz, our Chief Operating Officer, Rob Tuchscherer, a Senior Managing Director and Officer of GBDC, and Chris Ericson, our Chief Financial Officer. For those of you who are new to GBDC, our investment strategy's focused 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 fiscal quarter ended June 30th. We posted an earnings presentation on our website. We'll be referring to this presentation during today's call. I'm going to start with headlines and a brief summary of performance for the quarter. Tim, Rob, and Chris are going to walk you through our operating and financial performance in more detail.

Finally, I'll wrap up with some observations on current market conditions and our outlook. We'll take questions. The headline for the quarter is this. GBDC's performance was much better than last quarter, not as good as we'd like, and better than it looks. That's a lot. That's a three-parter. Let me take a few moments to unpack each of the three parts of that headline. First, GBDC's performance was much better than last quarter. That's pretty clear from the data. Adjusted net income per share was $0.22. That compares to an $0.18 per share loss last quarter, and it translates into an annualized adjusted ROE of 6.2%. The key driver of the improvement quarter-over-quarter was a decrease in adjusted net realized and unrealized losses.

Such losses went from $0.52 per share last quarter to $0.12 per share this quarter. At the same time, adjusted NII per share remained solid and consistent with last quarter at $0.34 per share, which translates into an adjusted NII ROE of 9.5%. Finally, GBDC paid a $0.33 per share distribution. For those of you who are familiar with GBDC, you can see from the data I just described why the quarter was not as good as we'd like. GBDC's delivered a 9.4% net IRR on NAV since our IPO in 2010. If we compare that to GBDC's annualized adjusted ROE for the quarter of 6.2%, it's clearly a few points below GBDC's 16-year+ average.

You've heard us talk for several quarters about how we're in a credit cycle, how we're in a period that's marked by sustained elevated credit stress. We've also talked, including on last quarter's call, about our view that what we're seeing fits a pattern. It's a pattern that when things shift from a borrower-friendly environment to a more lender-friendly one, we tend to see a period of bumpiness in results. I'm not entirely surprised to see a degree of bumpiness in GBDC's results for the quarter. My expectation is that we're going to see a large degree of bumpiness across the BDC industry as results come in. That all said, some quarters feel worse than the numbers, and some quarters feel better than the numbers. This quarter feels to me better than the numbers. Why do I think that?

GBDC's net realized and unrealized losses for the quarter, the $0.12 per share of loss, they arose primarily from a small number of junior debt and equity positions, and not from the core debt portfolio. We saw a lot of stability in the core debt portfolio. This is important because our experience is that the kinds of write-downs that we had, they're typically one-offs. Put differently, I'm encouraged by the health and resilience of the vast majority of GBDC's portfolio. I'll have more to say about that in my outlook in my closing remarks. For now, I'm going to let Tim, Rob, and Chris go into the quarter in more detail.

Tim? Thanks, David. Let's start on slide three and walk through the drivers of GBDC's earnings in the quarter.

I'll start with the drivers of our $0.34 per share of adjusted net investment income, then unpack credit gains and losses that contributed to $0.22 per share of adjusted earnings. Let me start with the drivers of net investment income. There were three in the quarter. Number 1, improving investment income yield. Number 2, stable borrowing costs. Number 3, prudent expense management. Let's go through each of these in turn. First, on investment income yield, it was 9.9% annualized, which increased modestly quarter-over-quarter. It was supported by a stable weighted average spread in the portfolio, consistent base rates throughout the quarter, and to a lesser extent, a modest amount of accelerated fee recognition and discount accretion tied to a handful of payoffs.

On number 2, borrowing costs held steady at 5.3% annualized, one of the lowest borrowing costs in the listed BDC peer group, and a real competitive advantage for GBDC and its investors.

Number 3, operating expenses remained low. GBDC continues to benefit from its gold standard fee structure. There's nothing new to call out here. It's just continued efficiency. Now let's unpack the drivers of GBDC's $0.22 per share of adjusted earnings. Overall credit performance remained solid. Approximately 87% of our portfolio at fair value remains in our highest performing internal rating categories. Investments on non-accrual status remained low at just 1.9% of the portfolio at fair value. That's a level well below the average of our listed BDC peers. We did, however, recognize $0.12 per share of adjusted net realized and unrealized losses in the quarter. Here's how that breaks down. Approximately $0.08 per share of unrealized losses from markdowns on junior debt and equity investments in two portfolio companies that were taken to non-accrual status or were on a non-accrual status in the quarter.

Those losses were somewhat offset by unrealized gains due to a small degree of reversal of last quarter's spread-driven unrealized losses. We recognized approximately $0.04 per share of net realized losses. This was driven primarily from the successful restructuring of RWAM Holdco and Dolphis Meig in the quarter. Importantly, the realized losses resulting from these restructurings were more than fully offset by the reversal of unrealized losses in the same investments. Lastly, and on a positive note, we recognized $4 million of net realized gains on the exit of equity investments in a couple portfolio companies. As a reminder, GBDC will, in certain instances, co-invest in the equity of high-performing borrowers. The liquidation of these equity investments, which historically has typically happened at a gain, is one of the factors that have contributed to GBDC's top-quartile credit performance since IPO.

Now, regarding balance sheet changes and distributions in the quarter. NAV per share declined slightly to $14.25 per share. We wrapped up the quarter with net debt-to-equity of 1.23 times. That was down slightly from the prior quarter, while average leverage throughout the quarter was also 1.23 times. Total distributions paid in the quarter were $0.33 per share. Our board of directors declared a $0.33-per-share distribution for the fourth fiscal quarter of 2026. We also kept up our opportunistic share repurchase program during the quarter. The company bought back 1.1 million shares at a weighted average price of $12.90 per share or an approximate 10% discount to our March 31, 2026, net asset value. In addition, the Golub Capital Employee Grant Program Trust purchased approximately $31 million or 2.4 million shares of GBDC during the quarter for incentive compensation purposes.

This brought purchases of GBDC shares by the trust to $70 million over the last 12 months. Golub Capital affiliates now hold about 8% of GBDC shares outstanding. That's an indication of a high degree of alignment between Golub Capital and GBDC investors. Turning to slide seven, here we've laid out the NAV per share bridge quarter-over-quarter, and you can see how the earnings drivers that I just walked through translate into GBDC's June 30th, 2026, net asset value per share of $14.25. Adjusted NII per share of $0.34 fully covered the $0.33 per share of distribution that was paid out during the quarter. Adjusted net realized and unrealized losses were $0.12 per share, and share repurchases added $0.01 per share of NAV accretion.