NASDAQ:CGBD Carlyle Secured Lending Q2 2023 Earnings Report $14.78 +0.19 (+1.30%) Closing price 04/25/2025 04:00 PM EasternExtended Trading$14.78 0.00 (-0.03%) As of 04/25/2025 04:05 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings HistoryForecast Carlyle Secured Lending EPS ResultsActual EPS$0.52Consensus EPS $0.51Beat/MissBeat by +$0.01One Year Ago EPSN/ACarlyle Secured Lending Revenue ResultsActual Revenue$42.73 millionExpected Revenue$50.62 millionBeat/MissMissed by -$7.89 millionYoY Revenue GrowthN/ACarlyle Secured Lending Announcement DetailsQuarterQ2 2023Date8/8/2023TimeN/AConference Call DateWednesday, August 9, 2023Conference Call Time10:00AM ETUpcoming EarningsCarlyle Secured Lending's Q1 2025 earnings is scheduled for Tuesday, May 6, 2025, with a conference call scheduled on Wednesday, May 7, 2025 at 11:00 AM ET. Check back for transcripts, audio, and key financial metrics as they become available.Conference Call ResourcesConference Call AudioConference Call TranscriptSlide DeckPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfileSlide DeckFull Screen Slide DeckPowered by Carlyle Secured Lending Q2 2023 Earnings Call TranscriptProvided by QuartrAugust 9, 2023 ShareLink copied to clipboard.There are 5 speakers on the call. Operator00:00:00Good day, everyone, and thank you for standing by. Welcome to the Carlyle Secure Lending, Inc. 2nd Quarter 2023 Earnings Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Operator00:00:29Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Daniel Hahn. Please go ahead. Speaker 100:00:39Good morning, and welcome to Carlyle Secured Lending's 2nd quarter 2023 earnings call. With me on the call this morning is Aaron Liqong, our Chief Executive Officer and Tom Hennigan, our Chief Financial Officer. Last night, we filed our Form 10 Q and issued a press release with the presentation of our results, which are available on the Investor Relations section of our website. Following our remarks today, we will hold a question and answer session for analysts and institutional investors. This call is being webcast and a replay will be available on our website. Speaker 100:01:11Any forward looking statements made today do not guarantee future performance and any undue reliance should not be placed on them. These statements are based on current management expectations and involve inherent risks and uncertainties, including those identified in the Risk Factors section of our annual report on Form 10 ks. These risks and uncertainties could cause Actual results to differ materially from those indicated. Carlyle Secured Lending assumes no obligation to update any forward looking statements at any time. With that, I'll turn the call over to Aaron. Speaker 200:01:42Thanks, Dan. Good morning, everyone, and thank you all for joining. I will focus my remarks on 3 topics for today's call. I'll start with an overview of our 2nd quarter results. Next, I'll touch on the current market environment. Speaker 200:01:57And finally, I'll conclude with a few thoughts on our investment activity and current positioning. Starting off with earnings. We continue to see the benefit of higher base rates and attractive pricing on new investments, generating total net investment income of $0.52 per share for the quarter, which is up 30% year on year. Our net asset value at June 30 was $16.73 per share as compared to $17.09 for Q1. As Tom will detail later, the change in NAV for the quarter was primarily driven by a markdown on one of our healthcare services investments It was partially offset by earning NII in excess of the dividend. Speaker 200:02:41We declared total Q3 dividends of $0.44 consisting of our $0.37 base dividend plus a $0.07 supplemental, both of which were in line with the prior quarter. Although we are pleased with the quarter's earnings, we remain focused on the credit performance of the overall portfolio. The credit fundamentals of our portfolio in the aggregate have continued to perform well with revenues up more than 30% And EBITDA margins largely flat year over year despite inflationary pressures to the economy. And importantly, Our borrowers have reported consistent quality results as we've not seen a meaningful increase in non cash add backs and interest coverage remains stable. This gives us comfort in the strength of our portfolio. Speaker 200:03:32Turning now to the current market environment. We saw the key trends discussed on our last call continue Through the balance of the Q2, terms and pricing lean favorably to lenders and deal activity In high yield and syndicated markets is still sluggish with overall net loan supply of 15 year loans. Given these market dynamics, Sponsors continue to favor the private credit market to finance limited number of LBO transactions that have been completed. While we continue to view the LVL market as a core component of our strategy, we also complemented our traditional sponsor pipeline with other sources of transaction flow. In particular, we have seen attractive sourcing opportunities from 3 main areas. Speaker 200:04:201, as mentioned, new deal flow from sponsored backed companies. This is our largest generator of our deal flow and we've continued to be increasingly selective. 2, Carlyle generated and non sponsored deal flow. The 1 Carlyle platform provides us access to a wide swath of deal flow. And 3, finally, what I would call farming the portfolio. Speaker 200:04:45We were able to leverage our position as an incumbent lender along with our long standing relationships with companies and sponsors to execute collaborative solutions for amendments, extensions and M and A activity that provide added flexibility to borrowers And attractive incremental economics too. We focused our efforts in Q2 on opportunities that were accretive to the portfolio's return. One example of this was that our average spread at origination on new deals improved by approximately 100 basis points compared to this period last year. In addition, as previously mentioned, we generated significant incremental value from our existing borrowers from amendment activity, which has driven tighter documentation, incremental fees, additional equity contribution from sponsors and spread increases. In the Q2 alone, approximately 16% of our loans saw an improvement in 1 or more of these areas due to amendment and other related activity. Speaker 200:05:47I'll now hand the call over to our CFO, Tom Madigan. Speaker 300:05:51Thank you, Aaron. Today, I'll begin with a review of our 2nd quarter earnings. Then I'll discuss portfolio performance and I'll conclude with detail on our balance sheet positioning. As Aaron previewed, We had another strong quarter on the earnings front. Total investment income for the Q2 was $60,000,000 up 3% from the prior quarter. Speaker 300:06:13This increase was primarily driven by higher benchmark rates. Total expenses increased in the quarter from $33,000,000 to $34,000,000 Similar to last quarter, the increase was primarily driven by higher interest expense from rising base rates. The result was total net investment income for the Q2 of $26,000,000 or $0.52 per share, up 4% versus prior quarter. Importantly, this recent level of earnings is materially above our quarterly core earnings from 2022. Our Board of Directors declared the dividends for the Q3 of 2023 at a total level of $0.44 per share. Speaker 300:06:55That's comprised of the $0.37 base dividend plus the $0.07 supplemental, which is payable to shareholders of record as of the close of business on September 29. This total dividend level of $0.44 allows us to build NAV in the face of an increasingly complex macroeconomic environment. At the same time, it also represents an attractive yield of over 10% on NAV and over 11% on the latest share price. And the $0.52 of NII that we earned this quarter equates to a 12% plus return on 6.30 NAV. In terms of the forward outlook for earnings, we see stability at this $0.52 level based on the combination of current benchmark rates and attractive economics on new deals. Speaker 300:07:43So we remain highly confident in our ability to comfortably meet and exceed our $0.37 base dividend and continue paying out supplemental dividends each quarter. On our valuations, our total aggregate realized and unrealized net loss It was about $22,000,000 for the quarter. The decrease was driven by a markdown on one of our healthcare services names, American Physician Partners. As we've noted in the past, the healthcare services sector has faced headwinds from labor shortages, wage inflation and regulatory changes in the U. S. Speaker 300:08:17However, recent financial performance of our other healthcare services names has trended favorably And we see valuation and earnings upside in these other investments. Additionally, one of the key tenets to our strategy is an acute on portfolio management and construction. Maintaining a highly diversified portfolio that is conservatively marked with a prudent use of leverage has allowed us to deliver consistent dividends. Part of our strategy also has been retaining NII. We've retained 15% of NII or $0.32 per share during the LTM period to act as a buffer to NAV volatility. Speaker 300:08:56This also has resulted in a dividend coverage ratio of over 140%. Outside of APP, We continue to see overall stability in credit quality across the book. The total fair value of transactions risk rated 3 to 5, Indicating some level of downgrade since we made the investment was down slightly from last quarter. Total non accruals decreased from 3.5% to 1.8% based on fair value aided by the completion of the ProPT restructuring this quarter. Aaron noted that most of our portfolio companies have weathered the inflationary environment well. Speaker 300:09:33And of note, we continue to see financial performance improvement and positive valuation migration in investments like Direct Travel and Dermatology Associates. I'll finish by touching on our financing facilities and leverage. We continue to be well positioned on the right side of our balance sheet. Statutory leverage was about 1.3x and net financial leverage ended the quarter slightly lower 1.1 times comfortably within our target range. This positioning allows us to effectively deploy capital given the attractive yields and terms available for new investments in the current market. Speaker 300:10:08With that, I'll turn it back to Aaron. Speaker 200:10:11Thanks, Tom. I would like to finish by highlighting the consistency of our investment approach and reiterate our overall strategy. We're focused on primarily making investments to U. S. Companies backed by high quality sponsors in the middle market. Speaker 200:10:28The median EBITDA across our core portfolio at the end of the Q1 was $72,000,000 Our approach allows us to remain focused on disciplined underwriting, prudent portfolio construction and conservative risk management. Our portfolio remains highly diversified and it's comprised of over 170 investments in 130 companies across over 25 industries. The average exposure to any single portfolio company is less than 1% And 94% of our investments are in senior secured loans. So we feel very well positioned in the current environment. I'd like to now hand the call over to the operator to take your questions. Speaker 200:11:11Thank you. Operator00:11:13Thank you. One moment while we compile the Q and A roster. And our first question comes from the line of Melissa Weddell with JPMorgan. Please proceed. Speaker 300:11:41Hey, this is A. J. On for Melissa. I have a question on capital returns. First, how are you all thinking about share repurchase going forward? Speaker 300:11:49And then given that you're out earning the dividend, could we see a special dividend at the end of the year? Good morning. Hi, it's Tom. On the share repurchases, we take a close look at where our current trading price is And that's certainly a big factor in evaluating the level of repurchases. You can see this last quarter, we're trading up in the 90%, 95% of NAV territory. Speaker 300:12:16We've stated in the past that we got that level. We'd certainly look to curtail the buybacks and that's certainly what you saw this past quarter. We'll continue to evaluate where the stock is trading as well as looking importantly at our overall flow. That's Something we keep a close eye on and we want to be mindful of. When we talk to investors, some of us say, hey, those buybacks, yes, depending on the level of accretion, but we also want to make sure we've got good flow in that stock. Speaker 300:12:39So historically, we've purchased over $150,000,000 We've been very supportive over the years. I think based on the current level of trading, we're certainly going Look to modify that mitigate that a little let me get a little bit smaller just based on the current trading levels. In terms of the dividend, We've noted we've focused on retaining some of that NII And that's what we've done historically. When you look at the our level of returns, we feel really good at that $0.44 level in terms of delivering really solid Returns on both NAV and the current share price. As we, I'll say, stockpile some of that NII, we're going to look at Do we potentially it wouldn't be in the it wouldn't potentially be this year perhaps next year. Speaker 300:13:25We may be required to pay a special dividend just based on the 90% Payout requirements, that's something we're going to take a look at. But otherwise, I think we'll continue to retain that NII payout, that $0.44 based What we see as a feeling pretty good about assuming benchmark rates stay where they are that earnings $0.50 to $0.52 per share. Okay, got you. And then just one more. Can you walk us through the Bayside restructuring? Speaker 300:13:54Sure. That was Yes, a transaction, it's a typical restructuring where the lenders took a write off of debt And in exchange for majority equity in that company. So that you'll see that there's multiple levels of debt now on the SOI As well as equity that we're marking at 0, there are the different tranches, there's a holdco loan And as well as 2 different loans at the operating company level. That's where you see the multiple line items in that capital structure. Great. Speaker 300:14:32Thank Operator00:14:33you. Thank you. One moment for our next question please. It comes from the line of Bryce Roe with B. Riley. Speaker 400:14:48Thanks a bunch. Good morning. Wanted to maybe ask about portfolio activity originations And repayments here for the quarter. Just kind of curious how the pipeline looks and The repayment and sales activity exceeding originations, just curious how kind of intentional that was or that was that kind of more normal course in terms of the repayment activity? Speaker 300:15:21Hey, Bryce. Good morning. I'd characterize it just as Speaker 200:15:24normal course. Yes. So, hey, it's Aaron Lee Kang. Nice to meet you. So, I would say, Look, we view the world there are some strategic decisions that we make in any given moment. Speaker 200:15:39We have a portfolio today I mentioned in my opening remarks. If you think of sort of the 3 big places that we're focused, We're focused on farming the portfolio so that we can get more out of it. We're focused on the 1 Carlyle sourcing opportunities And we are being exceptionally picky when it comes to just regular way sponsor finance. Now If our goal today and you'll see I think year to date our average spread that we have originated transactions on is somewhere between 6.70 and 6.80, Significant premium to last year. Our goal is focused on improving the portfolio at every moment. Speaker 200:16:19So when we're thinking about What's being repaid and over the next year we have a fairly detailed model of everything that is up for maturity. We're at all times thinking about replacing what's being repaid, which on average has a 5 hevlon it with sort of 6.50 To and above spreads with fairly tight docks. So the bottom line is we're not I know that this is A constant conversation on private credit land. We're focused on quality and portfolio construction. So To be fair, and the previous question also touched on this, we're fine holding a little bit more cash to make sure that we have a very steady Battle tested kind of cap structure and balance sheet here and we're improving our portfolio. Speaker 200:17:08So yes, we're as things come off, We don't have we're focused on quality, not products. Speaker 400:17:17Okay. And then and kind of reading into that, Is there an expectation that maybe we see balance sheet leverage compress a little bit more versus relevering up Over the I don't know, over the next 6 months or so. Speaker 200:17:36So it's a great question. So when we think about And we could obviously talk about this offline as well in further detail, but this is sort of a kind of a 3 d chess match that we're playing. So we're thinking about Tom just mentioned it, we bought over the course of last year and a half, two years almost A little over 23% of our float back, which is $0.65 in total accretion. We've held back on NII And been able to take leverage down a little bit so that we can actually have more dry powder, but also take less risk in this market. We've tried to focus on higher quality names and while repaying some of the older vintages. Speaker 200:18:20So To the point, we are quite frankly thinking about all of it and trying to create the best portfolio we can. But so The answer is we are all of these things are under consideration. Speaker 400:18:35Okay. Appreciate that, Aaron. And then maybe last one for me, just thinking about Capital structure seeing debt capital markets kind of start to open back up here really over the last month. You've got maturities at the end of next year, so a decent ways away. But just kind of Curious how you're thinking about capital structure, maybe any commentary around the preferreds too, which would be helpful? Speaker 300:19:01You must be sitting here in our office Speaker 200:19:10Tom, do you want to start and I'll bring up the revenue? Speaker 300:19:12Yes, sure. We're in constant dialogue with our banking relationships and Pekka was we had a meeting Question 2 months ago was like, hey, the public market is shut. Well, guess what, it's open very quickly. So we're certainly considering various options. Remindful of those maturities at the end of 2024. Speaker 300:19:31We're always looking at what's the best optimizing the capital structure, diversified capital structure, looking at the press, Looking at potential public bond offering and getting the right mix in the capital structure, something that we have constant dialogue And we'll continue to assess and do what's best for our shareholders. Speaker 200:19:49And in terms of as Tom said, we're kind of focused holistically and everything I've mentioned and Tom mentioned All works together and the pref we are in constant contact and dialogue with Carlyle proper as well as the Board and thinking about How to think about that as a long term part of our cap structure? Right now, if you look at the comparable preferred trades in the market, Quite frankly, our pref is at 7%, which is about 200 basis points cheap to what the comparable trades are today. So it's actually A pretty good piece of paper as it stands, but we are along with the unsecured thinking about long term shareholder value. So stay tuned. Speaker 400:20:31Got it. Okay. Appreciate the comments guys. Speaker 200:20:35Appreciate you. Operator00:20:37Thank you. One moment for our next question. Our next question is from Arren Cyganovich with Citi. Speaker 200:20:50Thank you. Maybe you can talk a little bit about your investment pipeline, how that's Flowing in the competitive environment you're seeing from other BDCs or non bank competitors? I'm going to take your question because I like your name. Aaron, you should ask questions. So I'd say, if you think about, I mentioned it 2 questions ago. Speaker 200:21:18If you think about the The 3 sleeves of where we source capital. 1, you have the sponsor market. Sponsor market is quite busy. Obviously, the BSL market is still choppy, high yield market is coming back a little bit, but it is quite busy. I'd say our Average deal in our portfolio is kind of low $70,000,000 of EBITDA. Speaker 200:21:46I'd say The large market transactions that we've seen are priced a lot more competitively today. And So we're kind of shying away from those to be able to get better terms and better rate down in our core mid market. But we are being quite selective in terms of sponsor. The 1 Carlisle sort of sourcing channel, there's been some transactions that we've announced over the last week or 2. Those were those transactions are less sponsored driven and more 1 Carlisle sourced, So source from other teams within Carlyle, that sourcing channel is fairly robust today. Speaker 200:22:31Folks trying to partner with Carlyle as a whole and us Carlyle, that's a direct lending, but our other partners showing up to be A solution provider. So I would expect that to be a much bigger contributor. And then the last piece, which I view as The highest ROIC segment today, which again after this call we're happy to get on the phone and walk through things is Literally farming the portfolio. There's a pretty significant portion of this portfolio and that we're going after that have The yields that can be improved, stocks that can be improved, amendment fees that can be taken to cash They can be contributed by sponsors in order to amend or extend the transactions and do what's right for the company. The solution provided to the sponsors, but also actually improve Our current portfolio with credits we're already very familiar with and any changes to the current portfolio that Those improvements drop straight to the bottom line. Speaker 200:23:32So if you were inside of our offices, I guess 2 or 3 weeks ago when we did our Q2 review, You would have kind of heard that message probably ad nauseam, which is let's focus on our portfolio and trying to The solutions providers, but also grab value and extract value for our current shareholders Because quite frankly, that's the best risk we have, loans that we are already quite familiar with in improving those terms. So I'd say those are the 3 general buckets. Is that helpful? Yes. Thank you. Speaker 200:24:08And then on the American physician write down That seemed to kind of move relatively quickly from, I guess, beginning of the part of the year to the markdown last quarter. What happened there? What's more specific to that investment versus some of the other healthcare investments? Speaker 300:24:31Yes. Aaron, this one remains inactive and sensitive situation. So we can't get into too many of the deal specifics of that transaction. I think that some of the broader items we've highlighted across the industry are inherent here. As we discussed Healthcare Services, the headwinds in the industry, Labor shortages, wage inflation, regulatory changes, specifically the No Surprises Act. Speaker 300:24:53In summary, costs have gone up dramatically And the top line has been squeezed when you were getting last 2 years ago, you're getting $150,000,000 per encounter and now it's 130, While you're faced with wage inflation that results in a pretty sharp depression of your earnings. And this is really industry wide. We've seen it with other large cap healthcare firms, for example, Envision Health is in a similar space. What I'll note is, we've actually compared to our peers, we value this one relatively conservative. Last quarter, we were 20 points Lower than other BDCs marking this one. Speaker 300:25:34The good in that, Alex, we have the zero valuation right now, Full non accrual. So the current NAV and the $0.52 that's fully reflective of any negative of this particular position. Speaker 200:25:46And look, I think everyone's asked great questions today because they're all kind of actually related Aaron. So For us, we have a super that's a technical term, a super diversified portfolio. So our average position is less than 1%. The goal of keeping leverage low, maintaining kind of reserving And I just in the event that there's any bumps in the road, managing portfolio risk and trying to improve each quarter, That allows us to quite frankly mark a little bit more conservatively. So for us, we marked conservatively last quarter. Speaker 200:26:30We are we decided that it was most prudent to mark this position even more conservatively here. The goal of a direct lending portfolio is to have a diversified portfolio that also has predictable and sustainable cash flow. So for us, It isn't really about the position, it's about kind of the overall portfolio management. So we're trying to be very conservative here, but we're taking We quite frankly took a much larger portfolio view as to how conservatively the market. Speaker 300:27:02Thanks. Appreciate it. Speaker 200:27:04Appreciate it. Operator00:27:05Thank you. And as I see no further questions in queue, I will pass it back to Aaron Lycon for closing comments. Speaker 200:27:15Everyone have a great morning. Thank you. We look forward Speaking to you some of you next quarter. We look forward to speaking to some of you over the next few days to go deeper on the story. And thank you all for your support. Speaker 200:27:25Have a great rest of your summer. Operator00:27:28Thank you all for your participation in today's conference. This does conclude the program and you may now disconnect.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallCarlyle Secured Lending Q2 202300:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsSlide DeckPress Release(8-K)Quarterly report(10-Q) Carlyle Secured Lending Earnings HeadlinesCarlyle Secured Lending, Inc. Schedules Earnings Release and Quarterly Earnings Call to Discuss ...April 15, 2025 | gurufocus.comCarlyle Secured Lending Rings the Opening BellApril 1, 2025 | nasdaq.comAltucher: Turn $900 into $108,000 in just 12 months?We are entering the final Trump Bump of our lives. But the biggest returns will not be in the stock market.April 26, 2025 | Paradigm Press (Ad)Carlyle Secured Lending, Inc. Closes Merger with Carlyle Secured Lending IIIMarch 27, 2025 | globenewswire.comCarlyle Secured Lending, Inc. Announces Shareholder Approval of Merger with Carlyle Secured Lending IIIMarch 26, 2025 | globenewswire.comQ4 2024 Carlyle Secured Lending Inc Earnings CallFebruary 27, 2025 | finance.yahoo.comSee More Carlyle Secured Lending Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Carlyle Secured Lending? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Carlyle Secured Lending and other key companies, straight to your email. Email Address About Carlyle Secured LendingCarlyle Secured Lending (NASDAQ:CGBD) is business development company specializing in first lien debt, senior secured loans, second lien senior secured loan unsecured debt, mezzanine debt and investments in equities. It specializes in directly investing. It specializes in middle market. It targets healthcare and pharmaceutical, aerospace and defense, high tech industries, business services, software, beverage food and tobacco, hotel gamming and leisure, banking finance insurance and in real estate sector. The fund seeks to invest across United States of America, Luxembourg, Cayman Islands, Cyprus, and United Kingdom. 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There are 5 speakers on the call. Operator00:00:00Good day, everyone, and thank you for standing by. Welcome to the Carlyle Secure Lending, Inc. 2nd Quarter 2023 Earnings Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Operator00:00:29Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Daniel Hahn. Please go ahead. Speaker 100:00:39Good morning, and welcome to Carlyle Secured Lending's 2nd quarter 2023 earnings call. With me on the call this morning is Aaron Liqong, our Chief Executive Officer and Tom Hennigan, our Chief Financial Officer. Last night, we filed our Form 10 Q and issued a press release with the presentation of our results, which are available on the Investor Relations section of our website. Following our remarks today, we will hold a question and answer session for analysts and institutional investors. This call is being webcast and a replay will be available on our website. Speaker 100:01:11Any forward looking statements made today do not guarantee future performance and any undue reliance should not be placed on them. These statements are based on current management expectations and involve inherent risks and uncertainties, including those identified in the Risk Factors section of our annual report on Form 10 ks. These risks and uncertainties could cause Actual results to differ materially from those indicated. Carlyle Secured Lending assumes no obligation to update any forward looking statements at any time. With that, I'll turn the call over to Aaron. Speaker 200:01:42Thanks, Dan. Good morning, everyone, and thank you all for joining. I will focus my remarks on 3 topics for today's call. I'll start with an overview of our 2nd quarter results. Next, I'll touch on the current market environment. Speaker 200:01:57And finally, I'll conclude with a few thoughts on our investment activity and current positioning. Starting off with earnings. We continue to see the benefit of higher base rates and attractive pricing on new investments, generating total net investment income of $0.52 per share for the quarter, which is up 30% year on year. Our net asset value at June 30 was $16.73 per share as compared to $17.09 for Q1. As Tom will detail later, the change in NAV for the quarter was primarily driven by a markdown on one of our healthcare services investments It was partially offset by earning NII in excess of the dividend. Speaker 200:02:41We declared total Q3 dividends of $0.44 consisting of our $0.37 base dividend plus a $0.07 supplemental, both of which were in line with the prior quarter. Although we are pleased with the quarter's earnings, we remain focused on the credit performance of the overall portfolio. The credit fundamentals of our portfolio in the aggregate have continued to perform well with revenues up more than 30% And EBITDA margins largely flat year over year despite inflationary pressures to the economy. And importantly, Our borrowers have reported consistent quality results as we've not seen a meaningful increase in non cash add backs and interest coverage remains stable. This gives us comfort in the strength of our portfolio. Speaker 200:03:32Turning now to the current market environment. We saw the key trends discussed on our last call continue Through the balance of the Q2, terms and pricing lean favorably to lenders and deal activity In high yield and syndicated markets is still sluggish with overall net loan supply of 15 year loans. Given these market dynamics, Sponsors continue to favor the private credit market to finance limited number of LBO transactions that have been completed. While we continue to view the LVL market as a core component of our strategy, we also complemented our traditional sponsor pipeline with other sources of transaction flow. In particular, we have seen attractive sourcing opportunities from 3 main areas. Speaker 200:04:201, as mentioned, new deal flow from sponsored backed companies. This is our largest generator of our deal flow and we've continued to be increasingly selective. 2, Carlyle generated and non sponsored deal flow. The 1 Carlyle platform provides us access to a wide swath of deal flow. And 3, finally, what I would call farming the portfolio. Speaker 200:04:45We were able to leverage our position as an incumbent lender along with our long standing relationships with companies and sponsors to execute collaborative solutions for amendments, extensions and M and A activity that provide added flexibility to borrowers And attractive incremental economics too. We focused our efforts in Q2 on opportunities that were accretive to the portfolio's return. One example of this was that our average spread at origination on new deals improved by approximately 100 basis points compared to this period last year. In addition, as previously mentioned, we generated significant incremental value from our existing borrowers from amendment activity, which has driven tighter documentation, incremental fees, additional equity contribution from sponsors and spread increases. In the Q2 alone, approximately 16% of our loans saw an improvement in 1 or more of these areas due to amendment and other related activity. Speaker 200:05:47I'll now hand the call over to our CFO, Tom Madigan. Speaker 300:05:51Thank you, Aaron. Today, I'll begin with a review of our 2nd quarter earnings. Then I'll discuss portfolio performance and I'll conclude with detail on our balance sheet positioning. As Aaron previewed, We had another strong quarter on the earnings front. Total investment income for the Q2 was $60,000,000 up 3% from the prior quarter. Speaker 300:06:13This increase was primarily driven by higher benchmark rates. Total expenses increased in the quarter from $33,000,000 to $34,000,000 Similar to last quarter, the increase was primarily driven by higher interest expense from rising base rates. The result was total net investment income for the Q2 of $26,000,000 or $0.52 per share, up 4% versus prior quarter. Importantly, this recent level of earnings is materially above our quarterly core earnings from 2022. Our Board of Directors declared the dividends for the Q3 of 2023 at a total level of $0.44 per share. Speaker 300:06:55That's comprised of the $0.37 base dividend plus the $0.07 supplemental, which is payable to shareholders of record as of the close of business on September 29. This total dividend level of $0.44 allows us to build NAV in the face of an increasingly complex macroeconomic environment. At the same time, it also represents an attractive yield of over 10% on NAV and over 11% on the latest share price. And the $0.52 of NII that we earned this quarter equates to a 12% plus return on 6.30 NAV. In terms of the forward outlook for earnings, we see stability at this $0.52 level based on the combination of current benchmark rates and attractive economics on new deals. Speaker 300:07:43So we remain highly confident in our ability to comfortably meet and exceed our $0.37 base dividend and continue paying out supplemental dividends each quarter. On our valuations, our total aggregate realized and unrealized net loss It was about $22,000,000 for the quarter. The decrease was driven by a markdown on one of our healthcare services names, American Physician Partners. As we've noted in the past, the healthcare services sector has faced headwinds from labor shortages, wage inflation and regulatory changes in the U. S. Speaker 300:08:17However, recent financial performance of our other healthcare services names has trended favorably And we see valuation and earnings upside in these other investments. Additionally, one of the key tenets to our strategy is an acute on portfolio management and construction. Maintaining a highly diversified portfolio that is conservatively marked with a prudent use of leverage has allowed us to deliver consistent dividends. Part of our strategy also has been retaining NII. We've retained 15% of NII or $0.32 per share during the LTM period to act as a buffer to NAV volatility. Speaker 300:08:56This also has resulted in a dividend coverage ratio of over 140%. Outside of APP, We continue to see overall stability in credit quality across the book. The total fair value of transactions risk rated 3 to 5, Indicating some level of downgrade since we made the investment was down slightly from last quarter. Total non accruals decreased from 3.5% to 1.8% based on fair value aided by the completion of the ProPT restructuring this quarter. Aaron noted that most of our portfolio companies have weathered the inflationary environment well. Speaker 300:09:33And of note, we continue to see financial performance improvement and positive valuation migration in investments like Direct Travel and Dermatology Associates. I'll finish by touching on our financing facilities and leverage. We continue to be well positioned on the right side of our balance sheet. Statutory leverage was about 1.3x and net financial leverage ended the quarter slightly lower 1.1 times comfortably within our target range. This positioning allows us to effectively deploy capital given the attractive yields and terms available for new investments in the current market. Speaker 300:10:08With that, I'll turn it back to Aaron. Speaker 200:10:11Thanks, Tom. I would like to finish by highlighting the consistency of our investment approach and reiterate our overall strategy. We're focused on primarily making investments to U. S. Companies backed by high quality sponsors in the middle market. Speaker 200:10:28The median EBITDA across our core portfolio at the end of the Q1 was $72,000,000 Our approach allows us to remain focused on disciplined underwriting, prudent portfolio construction and conservative risk management. Our portfolio remains highly diversified and it's comprised of over 170 investments in 130 companies across over 25 industries. The average exposure to any single portfolio company is less than 1% And 94% of our investments are in senior secured loans. So we feel very well positioned in the current environment. I'd like to now hand the call over to the operator to take your questions. Speaker 200:11:11Thank you. Operator00:11:13Thank you. One moment while we compile the Q and A roster. And our first question comes from the line of Melissa Weddell with JPMorgan. Please proceed. Speaker 300:11:41Hey, this is A. J. On for Melissa. I have a question on capital returns. First, how are you all thinking about share repurchase going forward? Speaker 300:11:49And then given that you're out earning the dividend, could we see a special dividend at the end of the year? Good morning. Hi, it's Tom. On the share repurchases, we take a close look at where our current trading price is And that's certainly a big factor in evaluating the level of repurchases. You can see this last quarter, we're trading up in the 90%, 95% of NAV territory. Speaker 300:12:16We've stated in the past that we got that level. We'd certainly look to curtail the buybacks and that's certainly what you saw this past quarter. We'll continue to evaluate where the stock is trading as well as looking importantly at our overall flow. That's Something we keep a close eye on and we want to be mindful of. When we talk to investors, some of us say, hey, those buybacks, yes, depending on the level of accretion, but we also want to make sure we've got good flow in that stock. Speaker 300:12:39So historically, we've purchased over $150,000,000 We've been very supportive over the years. I think based on the current level of trading, we're certainly going Look to modify that mitigate that a little let me get a little bit smaller just based on the current trading levels. In terms of the dividend, We've noted we've focused on retaining some of that NII And that's what we've done historically. When you look at the our level of returns, we feel really good at that $0.44 level in terms of delivering really solid Returns on both NAV and the current share price. As we, I'll say, stockpile some of that NII, we're going to look at Do we potentially it wouldn't be in the it wouldn't potentially be this year perhaps next year. Speaker 300:13:25We may be required to pay a special dividend just based on the 90% Payout requirements, that's something we're going to take a look at. But otherwise, I think we'll continue to retain that NII payout, that $0.44 based What we see as a feeling pretty good about assuming benchmark rates stay where they are that earnings $0.50 to $0.52 per share. Okay, got you. And then just one more. Can you walk us through the Bayside restructuring? Speaker 300:13:54Sure. That was Yes, a transaction, it's a typical restructuring where the lenders took a write off of debt And in exchange for majority equity in that company. So that you'll see that there's multiple levels of debt now on the SOI As well as equity that we're marking at 0, there are the different tranches, there's a holdco loan And as well as 2 different loans at the operating company level. That's where you see the multiple line items in that capital structure. Great. Speaker 300:14:32Thank Operator00:14:33you. Thank you. One moment for our next question please. It comes from the line of Bryce Roe with B. Riley. Speaker 400:14:48Thanks a bunch. Good morning. Wanted to maybe ask about portfolio activity originations And repayments here for the quarter. Just kind of curious how the pipeline looks and The repayment and sales activity exceeding originations, just curious how kind of intentional that was or that was that kind of more normal course in terms of the repayment activity? Speaker 300:15:21Hey, Bryce. Good morning. I'd characterize it just as Speaker 200:15:24normal course. Yes. So, hey, it's Aaron Lee Kang. Nice to meet you. So, I would say, Look, we view the world there are some strategic decisions that we make in any given moment. Speaker 200:15:39We have a portfolio today I mentioned in my opening remarks. If you think of sort of the 3 big places that we're focused, We're focused on farming the portfolio so that we can get more out of it. We're focused on the 1 Carlyle sourcing opportunities And we are being exceptionally picky when it comes to just regular way sponsor finance. Now If our goal today and you'll see I think year to date our average spread that we have originated transactions on is somewhere between 6.70 and 6.80, Significant premium to last year. Our goal is focused on improving the portfolio at every moment. Speaker 200:16:19So when we're thinking about What's being repaid and over the next year we have a fairly detailed model of everything that is up for maturity. We're at all times thinking about replacing what's being repaid, which on average has a 5 hevlon it with sort of 6.50 To and above spreads with fairly tight docks. So the bottom line is we're not I know that this is A constant conversation on private credit land. We're focused on quality and portfolio construction. So To be fair, and the previous question also touched on this, we're fine holding a little bit more cash to make sure that we have a very steady Battle tested kind of cap structure and balance sheet here and we're improving our portfolio. Speaker 200:17:08So yes, we're as things come off, We don't have we're focused on quality, not products. Speaker 400:17:17Okay. And then and kind of reading into that, Is there an expectation that maybe we see balance sheet leverage compress a little bit more versus relevering up Over the I don't know, over the next 6 months or so. Speaker 200:17:36So it's a great question. So when we think about And we could obviously talk about this offline as well in further detail, but this is sort of a kind of a 3 d chess match that we're playing. So we're thinking about Tom just mentioned it, we bought over the course of last year and a half, two years almost A little over 23% of our float back, which is $0.65 in total accretion. We've held back on NII And been able to take leverage down a little bit so that we can actually have more dry powder, but also take less risk in this market. We've tried to focus on higher quality names and while repaying some of the older vintages. Speaker 200:18:20So To the point, we are quite frankly thinking about all of it and trying to create the best portfolio we can. But so The answer is we are all of these things are under consideration. Speaker 400:18:35Okay. Appreciate that, Aaron. And then maybe last one for me, just thinking about Capital structure seeing debt capital markets kind of start to open back up here really over the last month. You've got maturities at the end of next year, so a decent ways away. But just kind of Curious how you're thinking about capital structure, maybe any commentary around the preferreds too, which would be helpful? Speaker 300:19:01You must be sitting here in our office Speaker 200:19:10Tom, do you want to start and I'll bring up the revenue? Speaker 300:19:12Yes, sure. We're in constant dialogue with our banking relationships and Pekka was we had a meeting Question 2 months ago was like, hey, the public market is shut. Well, guess what, it's open very quickly. So we're certainly considering various options. Remindful of those maturities at the end of 2024. Speaker 300:19:31We're always looking at what's the best optimizing the capital structure, diversified capital structure, looking at the press, Looking at potential public bond offering and getting the right mix in the capital structure, something that we have constant dialogue And we'll continue to assess and do what's best for our shareholders. Speaker 200:19:49And in terms of as Tom said, we're kind of focused holistically and everything I've mentioned and Tom mentioned All works together and the pref we are in constant contact and dialogue with Carlyle proper as well as the Board and thinking about How to think about that as a long term part of our cap structure? Right now, if you look at the comparable preferred trades in the market, Quite frankly, our pref is at 7%, which is about 200 basis points cheap to what the comparable trades are today. So it's actually A pretty good piece of paper as it stands, but we are along with the unsecured thinking about long term shareholder value. So stay tuned. Speaker 400:20:31Got it. Okay. Appreciate the comments guys. Speaker 200:20:35Appreciate you. Operator00:20:37Thank you. One moment for our next question. Our next question is from Arren Cyganovich with Citi. Speaker 200:20:50Thank you. Maybe you can talk a little bit about your investment pipeline, how that's Flowing in the competitive environment you're seeing from other BDCs or non bank competitors? I'm going to take your question because I like your name. Aaron, you should ask questions. So I'd say, if you think about, I mentioned it 2 questions ago. Speaker 200:21:18If you think about the The 3 sleeves of where we source capital. 1, you have the sponsor market. Sponsor market is quite busy. Obviously, the BSL market is still choppy, high yield market is coming back a little bit, but it is quite busy. I'd say our Average deal in our portfolio is kind of low $70,000,000 of EBITDA. Speaker 200:21:46I'd say The large market transactions that we've seen are priced a lot more competitively today. And So we're kind of shying away from those to be able to get better terms and better rate down in our core mid market. But we are being quite selective in terms of sponsor. The 1 Carlisle sort of sourcing channel, there's been some transactions that we've announced over the last week or 2. Those were those transactions are less sponsored driven and more 1 Carlisle sourced, So source from other teams within Carlyle, that sourcing channel is fairly robust today. Speaker 200:22:31Folks trying to partner with Carlyle as a whole and us Carlyle, that's a direct lending, but our other partners showing up to be A solution provider. So I would expect that to be a much bigger contributor. And then the last piece, which I view as The highest ROIC segment today, which again after this call we're happy to get on the phone and walk through things is Literally farming the portfolio. There's a pretty significant portion of this portfolio and that we're going after that have The yields that can be improved, stocks that can be improved, amendment fees that can be taken to cash They can be contributed by sponsors in order to amend or extend the transactions and do what's right for the company. The solution provided to the sponsors, but also actually improve Our current portfolio with credits we're already very familiar with and any changes to the current portfolio that Those improvements drop straight to the bottom line. Speaker 200:23:32So if you were inside of our offices, I guess 2 or 3 weeks ago when we did our Q2 review, You would have kind of heard that message probably ad nauseam, which is let's focus on our portfolio and trying to The solutions providers, but also grab value and extract value for our current shareholders Because quite frankly, that's the best risk we have, loans that we are already quite familiar with in improving those terms. So I'd say those are the 3 general buckets. Is that helpful? Yes. Thank you. Speaker 200:24:08And then on the American physician write down That seemed to kind of move relatively quickly from, I guess, beginning of the part of the year to the markdown last quarter. What happened there? What's more specific to that investment versus some of the other healthcare investments? Speaker 300:24:31Yes. Aaron, this one remains inactive and sensitive situation. So we can't get into too many of the deal specifics of that transaction. I think that some of the broader items we've highlighted across the industry are inherent here. As we discussed Healthcare Services, the headwinds in the industry, Labor shortages, wage inflation, regulatory changes, specifically the No Surprises Act. Speaker 300:24:53In summary, costs have gone up dramatically And the top line has been squeezed when you were getting last 2 years ago, you're getting $150,000,000 per encounter and now it's 130, While you're faced with wage inflation that results in a pretty sharp depression of your earnings. And this is really industry wide. We've seen it with other large cap healthcare firms, for example, Envision Health is in a similar space. What I'll note is, we've actually compared to our peers, we value this one relatively conservative. Last quarter, we were 20 points Lower than other BDCs marking this one. Speaker 300:25:34The good in that, Alex, we have the zero valuation right now, Full non accrual. So the current NAV and the $0.52 that's fully reflective of any negative of this particular position. Speaker 200:25:46And look, I think everyone's asked great questions today because they're all kind of actually related Aaron. So For us, we have a super that's a technical term, a super diversified portfolio. So our average position is less than 1%. The goal of keeping leverage low, maintaining kind of reserving And I just in the event that there's any bumps in the road, managing portfolio risk and trying to improve each quarter, That allows us to quite frankly mark a little bit more conservatively. So for us, we marked conservatively last quarter. Speaker 200:26:30We are we decided that it was most prudent to mark this position even more conservatively here. The goal of a direct lending portfolio is to have a diversified portfolio that also has predictable and sustainable cash flow. So for us, It isn't really about the position, it's about kind of the overall portfolio management. So we're trying to be very conservative here, but we're taking We quite frankly took a much larger portfolio view as to how conservatively the market. Speaker 300:27:02Thanks. Appreciate it. Speaker 200:27:04Appreciate it. Operator00:27:05Thank you. And as I see no further questions in queue, I will pass it back to Aaron Lycon for closing comments. Speaker 200:27:15Everyone have a great morning. Thank you. We look forward Speaking to you some of you next quarter. We look forward to speaking to some of you over the next few days to go deeper on the story. And thank you all for your support. Speaker 200:27:25Have a great rest of your summer. Operator00:27:28Thank you all for your participation in today's conference. This does conclude the program and you may now disconnect.Read morePowered by