Golub Capital BDC (GBDC) Q1 2026 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call reveals several concerns: declining investment income yield, decrease in net asset value, and modest decline in net investment spread. The Q&A highlights challenges in the software sector due to AI disruptions and a challenging market environment. Despite some positive aspects like strong credit performance, the overall sentiment is negative due to declining financial metrics and market uncertainties. Given the market cap of $2.7 billion, the stock is likely to react with a negative movement of -2% to -8% in the short term.
Key Financial Performance
Adjusted NII per share $0.38, which translates to an adjusted NII ROE of 10.2%. This was driven by solid credit performance, low nonaccrual investments, and a decline in borrowing costs.
Adjusted net income per share $0.25 for an adjusted ROE of 6.7%. This was influenced by fair value markdowns on underperforming borrowers and equity investments.
Investment income yield 10%, down 40 basis points sequentially. This decline was mostly driven by lower base rates and lower weighted average spread across the portfolio.
Net asset value (NAV) per share $14.84, a decrease due to adjusted net realized and unrealized losses of $0.13 per share and distributions paid of $0.39 per share, partially offset by $0.01 per share of NAV accretion from share repurchases.
Nonaccrual investments 0.8% of the total investment portfolio at fair value, which is very low compared to the industry average. This reflects strong credit performance.
Net funds growth Decreased by $130 million for the quarter, primarily due to repayments and exits outpacing new originations and delayed draw term loans.
Weighted average rate on new investments 8.6%, a decline of 30 basis points from the prior quarter, primarily due to lower base rates at origination.
Net investment spread 4.6%, a modest decline quarter-over-quarter due to a decrease in investment income yield and cost of debt.
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Operating Highlights
Adjusted NII per share: $0.38, translating to an adjusted NII ROE of 10.2%.
Adjusted net income per share: $0.25, resulting in an adjusted ROE of 6.7%.
Dividend policy update: Quarterly base dividend reset to $0.33 per share, with a variable supplemental dividend policy maintained.
Credit performance: 89% of the investment portfolio remains in the highest performing internal rating categories, with nonaccrual status at 0.8% of the portfolio.
Investment portfolio: Decreased by 1.5% quarter-over-quarter to $8.6 billion at fair value. Loans were made to 18 new borrowers.
Net debt to equity: Remained stable at 1.23x, within the targeted range of 0.85x to 1.25x.
Share repurchases: 5.5 million shares repurchased in 2025, totaling $76.5 million, resulting in $0.01 per share of NAV accretion.
Market positioning and Darwinian moment: The private credit industry is maturing, and a Darwinian moment is expected where some firms will adapt and thrive while others may not. GBDC plans to leverage its playbook to minimize credit losses and capitalize on opportunities.
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Risk or Challenges
Lower Base Rates: The company is facing challenges due to lower base rates, which have negatively impacted investment income yield and overall returns.
Tighter Spreads: Tighter spreads across credit asset classes, including the company's market, are reducing profitability and returns.
Muted M&A Activity: The muted M&A activity, despite some improvement in the second half of 2025, has constrained new investment opportunities.
High Levels of Credit Stress: Continued high levels of credit stress are impacting the company's portfolio, with an increase in nonaccrual investments and fair value markdowns on underperforming borrowers.
Dividend Policy Adjustment: The company had to reset its quarterly base dividend due to the challenging environment, which may affect shareholder sentiment.
Decline in Investment Income Yield: The investment income yield decreased by 40 basis points sequentially, driven by lower base rates and lower weighted average spreads.
Increased Nonaccrual Investments: Nonaccrual investments increased to 0.8% of the portfolio at fair value, signaling rising credit risks.
Decreased Portfolio Value: The investment portfolio decreased by 1.5% quarter-over-quarter, reflecting challenges in maintaining portfolio growth.
Lower Weighted Average Rate on New Investments: The weighted average rate on new investments declined by 30 basis points, further pressuring returns.
Darwinian Market Conditions: The private credit industry is undergoing a 'Darwinian moment,' with increased dispersion between strong and weak managers, creating competitive pressures.
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Guidance & Outlook
Headwinds and 2026 Outlook: The company expects the current headwinds, including lower base rates, tighter spreads, muted M&A activity, and high levels of credit stress, to persist into 2026, making it a challenging year.
Dividend Policy Update: The Board of Directors has reset the quarterly base dividend to $0.33 per share, approximately 9% of NAV per share, and plans to maintain the quarterly variable supplemental dividend policy.
Investment Strategy: The company plans to remain highly selective and conservative in underwriting, focusing on core middle market opportunities with better risk-adjusted returns. It will continue leveraging scale to lead deals and maintain a diversified portfolio.
Liquidity and Debt Management: GBDC is well-positioned with $1.3 billion in liquidity and a highly diversified, flexible debt funding structure. The company plans to modulate the impact of lower interest rates on investment income through offsetting lower interest expenses.
Private Credit Industry Outlook: The company anticipates a 'Darwinian moment' in the private credit industry, where some firms will adapt and thrive while others will not. GBDC plans to leverage its experience and playbook to minimize realized credit losses and capitalize on opportunities.
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Shareholder Return Plan
Quarterly Base Dividend: The Board of Directors has reset the company's quarterly base dividend to $0.33 per share, which is approximately 9% of NAV per share.
Quarterly Variable Supplemental Dividend: The company plans to maintain a quarterly variable supplemental dividend policy, distributing 50% of earnings in excess of $0.33 per share.
Total Distributions Paid: Total distributions paid in the quarter were $0.39 per share.
Share Repurchase Program: The company repurchased 5.5 million shares in calendar year 2025, amounting to $76.5 million in aggregate value. This resulted in $0.01 per share of accretion to net asset value.
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Key Q&A
Q:What are your thoughts on the recent developments from AI firms that have spooked the software market and private credit market?
A:David Golub acknowledged the rapid advancements in AI, particularly in tools that make coding easier, and agreed that some software companies are vulnerable to AI disruption. He emphasized Golub Capital's expertise in software investments, highlighting their proprietary risk mapping framework and diligence templates to assess AI risks. He expressed confidence in their portfolio, favoring enterprise-critical platforms with sticky workflows and proprietary data sets, while avoiding software focused on content creation and analytical overlays.
Q:Has the recent market action caused a pause in software investments, and does this amplify risks similar to healthcare services roll-ups?
A:David Golub stated it is too early to draw conclusions but outlined three scenarios: 1) a challenging capital access environment for software companies, which could benefit private credit specialists like Golub Capital; 2) a quick market recovery, which he deemed unlikely; and 3) a selective market favoring resilient companies. He believes the first scenario is most likely in the short term.
Q:Can you expand on your comment about planning for a challenging 2026?
A:David Golub explained that the current market environment is challenging due to declining SOFR, low spreads, muted M&A activity, and elevated credit stress. He emphasized the need for candor about these headwinds while expressing optimism about GBDC's long-term prospects.
Q:How are you balancing capital allocation opportunities like share repurchases and new loans?
A:David Golub stated that Golub Capital is actively repurchasing shares due to their discount to NAV while also seeking attractive new loan opportunities. He emphasized the need to balance these competing priorities.
Q:What are the risks of AI disrupting the perceived moats of proprietary and sticky software?
A:David Golub outlined three scenarios: 1) slower growth leading to lower equity valuations; 2) significant revenue reductions; and 3) a meltdown scenario where AI replaces incumbent products. He believes the first scenario is most likely and emphasized the need to monitor equity and credit market reactions.
Q:Do you expect to do fewer software deals given the potential outsized risks?
A:David Golub expects the market to reprice risk, making it premature to determine specific capital deployment goals. He anticipates Golub Capital will remain a leading software lender due to their expertise and relationships with top sponsors.
Q:What are the underlying trends in the software sector, particularly regarding slower growth?
A:David Golub noted that while the technology/software sector has historically grown faster than the rest of their portfolio, there has been a slowdown in bookings over the past two years. He attributed this to cost pressures and companies digesting prior tech investments, viewing it as a cyclical pattern likely to rebound.
Q:How much of your portfolio is in ARR-based structures, and how do you view their defensiveness?
A:David Golub stated that Golub Capital has reduced its exposure to ARR loans in recent years due to tighter pricing and less attractiveness. He noted that ARR loans are more challenging in an environment of slower bookings trends but emphasized the need to evaluate individual loans on their merits.
Q:Review of Unclear Management Responses
A:Management avoided providing specific details on the proportion of the portfolio in ARR loans, stating only that exposure has been reduced in recent years. Additionally, they did not commit to specific capital deployment goals for software investments, citing the need for more data on market repricing.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
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borrower GBDC
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capital transaction
distribution level
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draw term
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GBDC Transcript
Golub Capital BDC (GBDC) Q1 2026 Earnings Call Transcript
Unknown2-5
The earnings call reveals several concerns: declining investment income yield, decrease in net asset value, and modest decline in net investment spread. The Q&A highlights challenges in the software sector due to AI disruptions and a challenging market environment. Despite some positive aspects like strong credit performance, the overall sentiment is negative due to declining financial metrics and market uncertainties. Given the market cap of $2.7 billion, the stock is likely to react with a negative movement of -2% to -8% in the short term.
Golub Capital BDC (GBDC) Q4 2025 Earnings Call Transcript
Positive11-19
The earnings call summary shows strong financial performance with solid credit results, low nonaccrual investments, and proactive share repurchase strategies. The Q&A section reveals some concerns about cost inflation and private credit spreads but overall optimism about capital spending provisions. The dividend strategy and share repurchase activities are positive indicators for shareholder returns. The market cap suggests moderate volatility, aligning with a positive sentiment prediction of 2% to 8% stock price movement.
Golub Capital BDC (GBDC) Q3 2025 Earnings Call Transcript
Unknown8-5
Despite a stable adjusted NII and a strong dividend yield, the company's credit performance concerns, declining NAV, and spread compression pose challenges. The Q&A revealed no significant new insights, and management's responses were clear but did not address potential deleveraging. The company's cautious market outlook and uncertainties in M&A and tariffs contribute to a neutral sentiment. Given the company's market cap, the stock price is expected to remain relatively stable over the next two weeks, resulting in a neutral prediction.
Earnings call transcript: Golub Capital misses Q1 2025 earnings expectations
Unknown5-6
The earnings call presents a mixed picture: solid credit performance and a stable debt-to-equity ratio are positives, but concerns about unrealized losses, increased nonaccrual investments, and tariff risks are negatives. The Q&A highlights management's cautious approach and uncertainty regarding tariffs, which tempers optimism. The stable dividend and share repurchase are positive, but the macro environment and market volatility present challenges. Given the company's market cap of approximately $2.7 billion, the stock is likely to see moderate movement, resulting in a neutral sentiment prediction.
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