Q2 2024 Fidus Investment Corp Earnings Call
Good day and welcome to the second quarter 'twenty 'twenty four earnings conference call.
Operator: All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on your telephone keypad. To withdraw your question, please press star, then 2. Please note that this event is being recorded. I would now like to turn the conference over to Jody Burfening. Please go ahead.
All participants will be in there.
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Speaker Change: Please take note of a conference specialist by pressing the star key followed by zero.
Speaker Change: After todays presentation, there will be an opportunity to ask questions.
Speaker Change: Can I ask a question you May press Star then one on your telephone keypad.
Speaker Change: That's probably a question. Please press Star then two.
Speaker Change: Please note this event is being recorded.
Speaker Change: Every time I like to turn the conference over to Jody perfect perfect.
Speaker Change: Go ahead.
Jody Burfening: Thank you, Cindy, and good morning, everyone, and thank you for joining us today for Fidus Investment Corporation's second quarter 2024 earnings conference call. With me this morning are Ed Ross, Fidus Investment Corporation's Chairman and Chief Executive Officer, and Shelby Sherard, Chief Financial Officer. They issued a press release yesterday afternoon with the details of the company's quarterly financial results. A copy of the press release is available on the investor relations page of the company's website, sdus.com.
Jody: Thank you Cindy and good morning, everyone and thank you for joining us today for finance investment corporations second quarter 'twenty 'twenty four earnings conference call.
Speaker Change: With me. This morning are Ed Ross financed investment corporations, Chairman and Chief Executive Officer, and Shelby Sherard, Chief Financial Officer.
Speaker Change: <unk> investment Corporation issued a press release yesterday afternoon with the details of the company's quarterly financial results.
Speaker Change: A copy of the press release is available on the Investor Relations page of the company's website.
Speaker Change: The U S dot com.
Speaker Change: I'd also like to call your attention to the customary safe Harbor disclosure regarding forward looking statements included on today's call.
Jody Burfening: I'd also like to call your attention to the Customary Safe Harbor Disclosure regarding forward-looking statements included on today's call. The conference call today will contain forward-looking statements, including statements regarding the goals, strategies, beliefs, future potential, operating results, and cash flows of Fidus Investment Corporation. Although management believes these statements are reasonable, based on estimates, assumptions, and projections as of today, August 2, 2024, these statements are not guarantees of future performance. Time-sensitive information may no longer be accurate at the time of any telephonic or webcast replay.
Speaker Change: Our call today will contain forward looking statements, including statements regarding the goals strategies beliefs future potential operating results and cash flows well financed investment Corporation.
Speaker Change: Although management believes these statements are reasonable based on estimates assumptions and projections as of today August <unk> 2024. These statements are not guarantees of future performance time sensitive information may no longer be accurate at the time of any telephonic or webcast replay.
Jody Burfening: Actual results may differ materially as a result of risks, uncertainties, and other factors, including, but not limited to, those set forth in the company's filings with the Securities and Exchange Commission. Fidus undertakes no obligation to update or revise any of these forward-looking statements.
Speaker Change: Actual results may differ materially as a result, the risks uncertainties and other factors, including but not limited to the factors set forth in the company's filings with the Securities and Exchange Commission.
Speaker Change: I just undertakes no obligation to update or revise any of these forward looking statements with that I would now like to turn the call over to Ed Good morning, Ed.
Jody Burfening: With that said, I would now like to turn the call over to Ed. Good morning, Ed.
Ed Ross: Good morning Jody.
Edward Ross: Good morning, everyone. Welcome to our second quarter 2024 earnings conference call. On today's call, I'll start with a review of our second quarter performance in our portfolio at quarter end, and then share with you our outlook for the second half of 2024. Shelby will cover the second quarter financial results and our liquidity. After we have completed our prepared remarks, I will be happy to take your questions.
Ed Ross: And good morning, everyone welcome to our second quarter 2024 earnings Conference call.
On today's call I'll start with a review of our second quarter performance and our portfolio at quarter end.
Ed Ross: And then share with you our outlook for the second half of 2024.
Speaker Change: He will cover the second quarter financial results and our liquidity position.
After we have completed our prepared remarks, we'll be happy to take your questions.
Speaker Change: Our second quarter results demonstrate the strength of our portfolio and the power of our investment strategy, our debt portfolio generated high levels of adjusted net investment income amply covering our base dividend.
Edward Ross: Our second quarter results demonstrate the strength of our portfolio and the power of our investment strategy. Our debt portfolio generated high levels of adjusted net investment income, amply covering our base dividends. Our equity portfolio produced net realized gains of $9.2 million. In the face of a less-than-robust M&A environment, we stayed focused on deals in the lower-middle market that met our underwriting standards, investing in companies with strong competitive advantages and resilient business models.
Speaker Change: Our equity portfolio produced net realized gains of $9.2 million.
Speaker Change: In the face of a less than robust M&A environment. We stayed focused on deals in the lower middle market that met our underwriting standards.
Speaker Change: That's been in companies with strong competitive advantages.
Speaker Change: Billion business models.
Speaker Change: Adjusted net investment income for the quarter grew 17, 7% to $18 $4 million compared to $15.6 million last year, primarily reflecting higher interest income for the quarter.
Edward Ross: The adjusted net investment income for the quarter grew 17.7% to $18.4 million, compared to $15.6 million last year, primarily reflecting higher interest income for the quarter. Taking into account the higher average share count from ATM issuances, adjusted net investment income. 57 cents per share compared to 62 cents per share for the same period last year and well in excess of our base dividend. In Q2, in addition to the base dividend of $0.43 per share, we paid a $0.16 per share supplemental dividend for a total distribution to shareholders of $0.59 per share.
Speaker Change: Taking into account the higher average share count from ATM issuances. Adjusted net investment income was 57 per share compared to 62 cents per share for the same period last year and well in excess of our base dividend.
Speaker Change: In Q2 in addition to the base dividend of 43 cents per share we paid a <unk> 16 cents per share supplemental dividend for a total distribution to shareholders of 59 cents per share.
Speaker Change: For the third quarter of 2024, the board of directors declared dividends totaling 57 per share consisting of our base dividend of 43 cents per share and a supplemental dividend of <unk> 14 per share equal to 100% of the surplus in adjusted NII over the base dividend.
Edward Ross: For the third quarter of 2024, the Board of Directors declared dividends totaling $0.57 per share, consisting of a base dividend of $0.43 per share and a supplemental dividend of $0.14 per share, equal to 100% of the surplus in adjusted NII over the base dividend from the prior quarter, which will be payable on September 26, 2024 to stockholders of record as of September 19, 2021.
Speaker Change: <unk> from the prior quarter, which will be payable on September 26, 2024 to stockholders of record as of September 19, 2024.
Speaker Change: At quarter end net asset value stood at $646.8 million nine 7% higher than net asset value of $589 $5 million as of December 31, 2023.
Edward Ross: At quarter end, net asset value stood at $646.8 million, 9.7% higher than net asset value of $589.5 million as of December 31, 2023. On a per share basis, net asset value was $19.50 at quarter end and compared to $19.37 per share as of December 31. 2023. Originations totaled $62.4 million for the second quarter, including $17.8 million in one new portfolio company. Our portfolio, as a whole, continued to be very acquisitive in the second quarter, resulting in $44.6 million in follow-on investment activity. That investment totaled $58.1 million, all of which were in first-line security.
Speaker Change: On a per share basis, net asset value was $19.50 at quarter end compared to $19 37 per share as of December 31.
Speaker Change: 2023.
Speaker Change: Originations totaled $62 $4 million for the second quarter, including $17 8 million in one new portfolio company.
Speaker Change: Our portfolio as a whole continued to be very acquisitive in the second quarter, resulting in $44 $6 million in follow on investment activity.
Speaker Change: Net investments totaled $58 $1 million, all of which were in first lien securities equity investments totaled $4 $3 million as we continue to co invest in the equity of portfolio companies.
Speaker Change: Proceeds from repayments and realizations totaled $43 $1 million for the second quarter, including $12 $6 million in proceeds from the monetization of equity investments primarily in two portfolio companies, who in electrical products and <unk>.
Edward Ross: Equity investments totaled $4.3 million as we continue to co-invest in the equity of portfolio companies. Proceeds from repayments and realizations totaled $43.1 million for the second quarter, including $12.6 million in proceeds from the monetization of equity investments, primarily in two portfolio companies, Houlin Electrical Products and Virginia Tile, resulting in net realized gains of $9.2 million. Subsequent to quarter close, we exited one first lien debt investment and received payment in full of $23.1 million, including prepayment.
Speaker Change: Virginia tile, resulting a net realized gain of $9 $2 million.
Speaker Change: Subsequent to quarter close we exited one first lien debt investment and received payment in full of $23 $1 million inquiry, including prepayment fees.
Speaker Change: Our portfolio grew to $1 1 billion on a fair value basis as of June 32024, equal to 101, 9% of cost and consisting of a debt portfolio totaling $945 $7 million in an equity portfolio of 132.
Edward Ross: Our portfolio grew to $1.1 billion on a fair value basis as of June 30, 2024, equal to 101.9% of cost and consisting of a debt portfolio totaling $945.7 million and an equity portfolio of $132.7 million at quarter end. With debt originations consisting entirely of first lien investments for the second quarter, first lien securities grew to 71% of the debt portfolio at quarter end.
Speaker Change: $7 million at quarter end.
Speaker Change: With that or is that originations consisting entirely of first lien.
Speaker Change: Estimates for the second quarter first lien securities grew to 71% of the debt portfolio at quarter end, we ended the quarter with 86 active portfolio companies.
Edward Ross: We ended the quarter with 86 active portfolio companies. In terms of credit quality, our portfolio remains healthy and in good shape overall. We continue to manage through the issues of two operating companies on non-accrual. As a percentage of the total portfolio on a fair value basis, non-accrual stayed under 1% for the second quarter.
Speaker Change: In terms of credit quality, our portfolio remains healthy and in good shape overall, we continue to manage through the issues of two operating companies on non accrual as a percentage of the total portfolio on a fair value basis nonaccrual stayed under 1% for the second quarter.
Speaker Change: Yeah.
Speaker Change: Turning to our outlook, we still expect deal flow and M&A activity for the remainder of the year to be at reasonable levels, while we expect to see higher investment activity levels. We do also expect to see a pickup in repayments as numerous portfolio companies are evaluating strategic alternatives.
Edward Ross: Turning to our Outlook, we still expect deal flow and M&A activity for the remainder of the year to be at a reasonable level. While we expect to see higher investment activity levels, we do also expect to see a pickup in repayments as numerous portfolio companies are evaluating strategic alternatives. We remain focused on opportunities that meet our strict underwriting standards, leveraging our relationships with deal sponsors and our industry expertise within the lower-middle market.
Speaker Change: We remain focused on opportunities that meet our strict underwriting standards, leveraging our relationships with deal sponsors and our industry expertise within the lower middle market.
Edward Ross: We continue to invest in businesses with strong and sustainable cash flow-generating business models and positive long-term outlooks. At the same time, we continue to structure our debt investments with a high degree of equity cushion, maintaining a portfolio that produces both high levels of current and recurring income and the potential for enhanced returns from the monetization of equity and security. With a healthy and growing portfolio, we remain focused on our long-term goals of growing net asset value over time, preserving capital, and generating attractive risk-adjusted returns for our shareholders. Now, I'll turn the call over to Shelby to provide some details on our financial and operating results. Shelby?
Speaker Change: We continue to invest in businesses with strong and sustainable cash flow generating business models and positive long term outlooks.
Speaker Change: Same time, we continue to structure, our debt investments with a high degree of equity cushion maintaining a portfolio that produces both high levels of current and recurring income and the potential for enhanced returns from the monetization of equity securities.
Speaker Change: A healthy and growing portfolio, we remain focused on our long term goals of growing net asset value over time, preserving capital and generating attractive risk adjusted returns for our shareholders.
Speaker Change: Now I'll turn the call over to Shelby to provide some details on our financial and operating results Shelby.
Shelby Sherard: Thank you, Ed, and good morning, everyone. I'll review our second quarter results in more detail and close with comments on our liquidity position. Please note, I will be providing comparative commentary versus the prior quarter, Q1, 2024. Total investment income was $35.7 million for the three months into June 30th. A $1 million increase from Q1, primarily due to a $3.2 million increase in interest income, including PIC, partially offset by a $0.8 million decrease in fee income related to investment activity and a $1.3 million decrease in interest income on excess cash, which was due to the new investments in Q1 being back-end loaded.
Shelby Sherard: Thank you Ed and good morning, everyone I'll review, our second quarter results in more detail and close with comments on our liquidity position. Please note I will be providing comparative commentary versus the prior quarter Q1, 'twenty 'twenty four.
Shelby Sherard: Total investment income was $35 7 million for the three months ended June 30th 1 million increase from Q1, primarily due to $3 2 million increase in interest income, including Pik, partially offset by a point 8 million decrease in fee income related to investment activity and a $1 3 million.
Shelby Sherard: Kris and interest income on excess cash, which was due to the new investments in Q1 being backend loaded.
Shelby Sherard: Total expenses, including income tax provision, were $18.7 million for the second quarter, a $1.7 million higher than Q1, driven primarily by a $0.9 million increase in the capital gains fee accrual, a $0.4 million increase in base management and income incentive fees, and a $0.2 million increase in the income tax provision related to state tax payments. Net investment income, or NII, for the three months ended June 30th was $0.53 per share versus $0.57 per share in Q1.
Shelby Sherard: Total expenses, including income tax provision were $18 7 million for the second quarter of $1 7 million higher than Q1, driven primarily by a point 9 million increase in the capital gains fee accrual applying for a million increase in base management and income incentive fees and a point 2 million increase in the income tax provision related to state tax.
Shelby Sherard: Payments.
Speaker Change: Net investment income or NII for the three months ended June 30th was 53 cents per share versus 57 cents per share in Q1, adjusted NII, which excludes any capital gains incentive fee accruals or reversals attributable to realized and unrealized gains and losses on investments was 57 cents per share in Q2.
Shelby Sherard: Adjusted NII, which excludes any capital gains in SINIFI accruals or reversals attributable to realized and unrealized gains and losses on investments, was $0.57 per share in Q2 versus $0.59 in Q1, which includes an increase in the weighted average shares outstanding in Q2.
Shelby Sherard: Versus 59 turns in Q1, which includes an increase in the weighted average shares outstanding in Q2.
Shelby Sherard: For the three months ended June 30th, we recognized approximately $9.2 million of net realized gains primarily related to the sale of our equity investments in pool and electrical products and Virginia Tile. We ended the quarter with $472.8 million of debt outstanding, comprised of $175 million of SBA debentures, $250 million of unsecured notes, $32.5 million outstanding on the line of credit, and $15.3 million of secured borrowings. Our debt-to-equity ratio as of June 30 was 0.7 times or 0.5 times statutory leverage, excluding exempt SBA debentures.
Shelby Sherard: For the three months ended June 30th we recognized approximately $9 2 million of net realized gains primarily related to the sale of our equity investments in pool in electrical products and Virginia tile.
Speaker Change: We ended the quarter with $472 $8 million of debt outstanding comprised of $175 million of SBA debentures $250 million of unsecured notes 32.5 million outstanding on the line of credit and $15 3 million of secured borrowings our debt to equity ratio as of June 30th.
Speaker Change: Was <unk> seven times, our 0.5 times statutory leverage excluding exempt SBA debentures.
Shelby Sherard: The weighted average interest rate on our outstanding debt was 4.6% as of June 30th. Turning now to portfolio statistics, as of June 30th, our total investment portfolio had a fair value of $1.1 billion. Our average portfolio company on a cost basis was $11.9 million, which excludes investments in five portfolio companies that sold their operations or are in the process of winding down. We have equity investments in approximately 81.3% of our portfolio companies with an average fully diluted equity ownership of 3.6%.
Speaker Change: The weighted average interest rate on our outstanding debt was 4.6% as of June 30th.
Shelby Sherard: Turning now to portfolio statistics.
Shelby Sherard: As of June 30th our total investment portfolio had a fair value of 1.1 billion. Our average portfolio company on a cost basis was $11 9 million.
Shelby Sherard: Those investments in five portfolio companies. That's all their operations are in the process of winding down.
Shelby Sherard: We have equity investments in approximately 81, 3% of our portfolio companies with an average fully diluted equity ownership of three 6%.
Shelby Sherard: The weighted average effective yield on debt investments was 14% as of June, in line with Q1. The weighted average yield is computed using effective interest rates for debt investments at cost, including the accretion of original issued discount and loan origination fees but excluding investments on non-accrual if any.
Shelby Sherard: Weighted average effective yield on debt investments was 14% as of June in line with Q1.
Shelby Sherard: Weighted average yield is computed using effective interest rates for debt investments at cost, including the accretion of original issue discount and loan origination fees, but excluding investments on nonaccrual if any.
Shelby Sherard: Now, I'd like to briefly discuss our available liquidity. In Q2, we issued approximately 1.7 million shares at an average price of $19.80 per share, generating $33 million in net proceeds. As of June 30th, our liquidity and capital resources included cash of $48.3 million and $67 million of availability on our line of credit, resulting in total liquidity of approximately $115.8 million. Subsequent to Quarter End, we increased our line of credit from $100 million to $140 million, giving us $40 million of incremental liquidity. Now I will turn the call back to Ed for his concluding comments.
Shelby Sherard: Now I'd like to briefly discuss our available liquidity.
Speaker Change: In Q2, we issued approximately one 7 million shares at an average price of $19.80 per share generating 33 million in net proceeds as of June 30th our liquidity and capital resources included cash of $48 3 million and $67 million of availability on our line of credit resulting in total liquidity.
Shelby Sherard: Approximately $115 8 million.
Shelby Sherard: Subsequent to quarter end, we increased our line of credit from $100 million to $140 million, giving us $40 million of incremental liquidity.
Shelby Sherard: Now I will turn the call back to Ed for concluding comments.
Ed Ross: Thanks, Shelby as always I'd like to thank our team and the board of directors at <unk> for their dedication and hard work and our shareholders for their continued support I will now turn the call over to Cindy for Q&A Cindy.
Edward Ross: Thanks, Shelby. As always, I'd like to thank our team and the board of directors at Fidus for their dedication and hard work and our shareholders for their continued support. I will now turn the call over to Cindy for Q&A. Cindy. We will now begin the question and answer session.
Operator: We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been answered and you would like to withdraw your question, please press star then 2. At this time, we will pause momentarily to assemble our roster. Our first question comes from Bryce Rowe of Bay Raleigh. Go ahead, please.
Cindy: Well now begin the question and answer session.
Cindy: Ask a question you May press Star then one on your telephone keypad.
Speaker Change: Using a speakerphone please pick up your handset before pressing the keys.
Cindy: If at any time. Your question has been addressed and you would like to withdraw your question. Please press Star then two.
Speaker Change: At this time of a pause momentarily to assemble our roster.
Cindy: Our first question comes from Bryce Rowe of B Riley go ahead. Please.
Bryce Rowe: Thanks a bunch. Good morning. Good morning, Brian.
Speaker Change: Thanks, Thanks, a bunch good morning.
Brian: Good morning, Brian.
Edward Ross: Ed and Shelby, maybe I'll just start on the capital structure and liquidity profile. You know, last quarter we talked about the potential for a fresh SBIC license, so I'd like to get an update on that if there is one. And also, it's nice to see the revolving credit facility get expanded, and then getting the investment grade rating subsequent to quarter end, too, was a good thing to see. So I wanted to get your feel in terms of how you think about managing the capital structure at this point.
Speaker Change: Ed and Shelby, maybe I'll just start on.
Speaker Change: The capital structure.
Speaker Change: And liquidity profile.
Shelby Sherard: Last quarter, we talked about.
Speaker Change: The the potential for a fresh FDIC license.
Speaker Change: So like to get an update there if there is one and then also nice to see.
Speaker Change: The revolving credit facility get get expanded and then getting getting the investment grade rating.
Speaker Change: Subsequent to quarter end to was it was it was a good thing to see so no. One wanted to get your feel in terms of how you think about kind of managing managing the capital structure at this point.
Speaker Change: Especially in light of what seems to be maybe the lowest debt to equity coverage our debt to equity ratio in the in the industry.
Speaker Change: Great question right.
Edward Ross: Great question, Bryce, and I'll let Shelby jump in here as well.
Speaker Change: And I'll, let Joe jump in here as well I think.
Joe: The increase in the revolver is a good thing the investment grade ratings is a great point I. Appreciate you, bringing that up I think that'd be very helpful win.
Edward Ross: I think, obviously, the increase in the revolvers is a good thing. The investment grade rating is a great point. Appreciate you bringing that up.
Joe: We are ultimately do issue.
Speaker Change: Unsecured notes are in the market, which we will at some point in time.
Edward Ross: I think that would be very helpful when we ultimately do issue unsecured notes in the market, which we will at some point in time. And then the SBIC is, we continue to go through that process. We still have a fair degree of confidence that we'll get through this by year end. So we are making progress, but, you know, when it's completed, it's still a little bit of an unknown, but we feel good about it.
Joe: And then the SAIC is it weird continue to go through that process. We still have a fair degree of confidence that we'll get through that by year end. So we are making progress, but you know you know.
Speaker Change: When it's complete it is still a little bit of an unknown, but we feel good about it.
Edward Ross: So from an equity capitalization perspective, we did raise some equity through our ATM program last quarter. We're going to keep that open, but generally speaking, we were very focused on liquidity here in Q2 and wanted to make sure we had a good liquidity position as we were making decisions to make new investments or not. So we feel good about our capitalization right now and our liquidity position, and we also feel good about the fact that we've got some additional places we can go, meaning equity, meaning the SBIC license, hopefully soon, as well as the use of the revolver. Shelby, do you have any additional thoughts there?
Speaker Change: So from our equity capitalization perspective, we did raise.
Speaker Change: Some equity you know through our ATM program last quarter.
Speaker Change: You know part of it you know we're going to keep that open but generally speaking we were very focused on liquidity here in Q2 and wanted to make sure. We had a good liquidity position as we were making decisions to are.
Speaker Change: They do investments or not and.
Speaker Change: And so we feel good about our capitalization right now and our liquidity position and we also feel good about the fact that we've got some additional.
Speaker Change: Places, we can go meaning the equity meeting yesterday I see license hopefully soon.
Speaker Change: As well as using the revolver. So shall we do you have any additional thoughts there.
Shelby Sherard: No, I would just echo that. We are currently under-levered, but in terms of increasing leverage on the balance sheet, its first line of credit, and then SBIC debt, once that becomes available to us, and we're obviously well-positioned in the unsecured market, that's probably a more opportunistic as opposed to a near-term need.
Speaker Change: No I would just echo that we are currently under levered them, but in terms of you know increasing leverage on the balance sheet. Its first line of credit.
Speaker Change: And then S. P I see that once that becomes available to us and we're obviously well positioned in the unsecured market, but that's.
Speaker Change: Probably a more opportunistic as opposed to a near term need.
Speaker Change: Okay, Okay, that's great great context.
Bryce Rowe: That's great, great context. Maybe one more from me, and we talked last quarter about the second quarter being a little bit slower in terms of newer originations, and certainly that came to be. I think your other commentary last quarter was around the second half of the year picking up, and in the press release, you noted that. Can you talk a little bit about what the second half of the year is like?
Speaker Change: Maybe one more from me.
Speaker Change: We talked last quarter also about <unk>.
Speaker Change: Quarter being a little bit slower in terms of newer originations and certainly that it came to be I think your other commentary last quarter was around the second half of the year picking up and in the press release, you noted that can you talk a little bit about what what the second half you know my might look.
Speaker Change: Like in Hell help size size it up for us.
Edward Ross: Sure, sure. But the second quarter, as you mentioned and as we mentioned, was slower than normal from a new investment perspective. We had a feeling it would go that way, and some of that's just timing. We did lose a deal or two from a pricing perspective, but we're sticking to our knitting on how we go about things, and our risk-adjusted returns are our focus. And so as we look forward, we do feel like M&A activity is below normal levels, so it's not robust, but the good thing about the lower middle market is that there is always activity going on, including add-on activity in our existing portfolio.
Speaker Change: Sure sure no. It's second quarter, you know as you mentioned and as we mentioned it was it was slower than normal from a new investment perspective, we had a feeling it would go that way and so that's just timing some of that we did lose a deal or two from a pricing perspective, but where.
Speaker Change: Sticking to our you know our netting on how we go about things in our and our risk adjusted returns or our focus and so.
Speaker Change: As we look forward, we do feel like you know like M&A activity is below normal levels.
Speaker Change: It's not robust, but it's you know the good thing about the lower middle market is that there is always activity going on including add on activity in our existing portfolio.
Edward Ross: So, we are working on several opportunities that would be new platform investments and, you know, have high hopes that some of those will take place here in Q3. We also expect overall M&A activity levels to pick up a little bit from the summer and so to be decent. And so our hope and expectation is to participate with some of those as we move forward. So it's, you know, it's not a terrible market; it's just not a robust market.
Speaker Change: So we are working on several opportunities there would be new platform investments and you don't have high hopes that some of those will take place here. In Q3. We also expect just overall M&A activity levels to pick up a little bit here from the summer.
Speaker Change: And so to be decent and so our hope and expectation is to participate with some of those as we move forward. So it's you know it's not a terrible market is just not a robust market and.
Edward Ross: Our portfolio will continue to be Perquisitive, would be our guess, and so that will also drive some new originations for us. Hopefully, that gives you a good feel. I guess one other point I would make is that with that comes repayments, right? And we do have numerous companies that are evaluating strategic alternatives. However, several are equity-only deals, you know, more smallish in nature. But there are, you know, a fair number of companies that are evaluating strategic alternatives. So we do expect repayments to pick up a little bit here in Q3 and Q4. But that's in line with our expectation for a bit of a pickup on the front end, meaning new investment.
Speaker Change: Our portfolio will continue to be acquisitive would be our guests and so that will also drive some some new originations for us.
Speaker Change: Hopefully that gives you a good feel I guess, one other point I would make is.
Speaker Change: With that comes.
Speaker Change: Repayments right and we do have.
Speaker Change: Numerous companies that are evaluating strategic alternatives. Several several are equity only deals you know more smallish in nature.
Speaker Change: But there is a fair number of companies that are evaluating strategic alternatives.
Speaker Change: So we do expect repayments to pick up a little bit here in Q3 and Q4, but in line. That's in line with our expectation for a bit of a pick up on the front end, maybe new investment side of things as well.
Speaker Change: Got it.
Speaker Change: Okay.
Speaker Change: I'll jump back in queue I appreciate the time, okay. Thank you good talking to you Bryce.
Edward Ross: I'll jump back in queue. Appreciate the time. Thank you. Good talking to you, Bryce.
Bryce Rowe: You bet. Thanks.
Speaker Change: The next question comes from Robert Dodd of Raymond James Go ahead. Please.
Operator: The next question comes from Robert Dodd of Raymond James. Go ahead, please.
Robert Dodd: Hi, guys. Congratulations on the quarter just to kind of follow up on that theme on repayments that you're talking about strategic alternatives et cetera.
Robert Dodd: Hi guys, congratulations on the quarter.
Robert Dodd: Just to kind of follow up on that theme on repayment said, you're talking about strategic alternatives, et cetera. I mean, can you give us any comment on how it looks within the portfolio for like repricing requests or refinancing activities versus, to your point, strategic alternatives sounds like moving into a different area of the market or getting acquired or whatever, right? So, you know, because obviously repayment can be triggered by different things.
Robert Dodd: Can you give us any color on how how does it look within the portfolio to like you know repricing requests or refinancing activity the change.
Speaker Change: The strategic alternatives. It sounds like you know moving into a different area of the market or getting acquired or whatever right. So you know.
Speaker Change: Because obviously repayments can be triggered by different things. So what are you seeing on the different dynamics between.
Robert Dodd: So what are you seeing in the different dynamics between, you know, a portfolio company having grown and now looking at a different segment of the market versus companies looking to refinance? Can you give us any color on the different breakdowns?
Speaker Change: Portfolio company having.
Speaker Change: Yeah.
Speaker Change: And now looking at a different segment of the market versus.
Speaker Change: And theyre looking to refinance.
Speaker Change: Can you give us any color on the different right down with it.
Speaker Change: The expectation for payments.
Edward Ross: Great question, Robert, and it's a little nuanced, but what I would suggest is the strategic alternatives comment that I'm making, and again, some of those are now equity-only pretty mature investments that we have, but we have numerous, and when I mean numerous, over five that are evaluating strategic alternatives at the moment, and that's to be sold. And so that's a piece of the puzzle, if you will. Repricing, early in the year, we did have one or two. I actually think it was only one, but one or two.
Speaker Change: Great question, Robert and it's.
Speaker Change: A little nuance, but.
Speaker Change: I will what I would suggest is the strategic alternatives comment that I'm, making and again some of those are now equity only pretty mature investments that we have but.
Speaker Change: But we have numerous numerous over five that are evaluating strategic alternatives at the moment and that's to be so.
Speaker Change: And so that you know I'd say that piece of the puzzle if you will repricing.
Speaker Change: Early in the year, we did have a one or two I actually think it was the only one but one or two I guess, one repricing of alone.
Edward Ross: I think it was one repricing of a loan. And it was an asset that we obviously wanted to keep, and it made good sense. The company had defaulted, and so we executed that transaction. So that's not overly common, refinancing of companies that have performed well, gotten bigger, you know, maybe another lender will do things cheaper than us. That has happened. We had one company in Q2 that actually went to the broadly syndicated loan market.
Speaker Change: You know and it was a record.
Speaker Change: An asset then we obviously wanted to keep and it made good sense for the company is de Levered and so we executed that transaction. So that's not overly common and then refinancing.
Speaker Change: Refinancings of companies that have performed well a gotten bigger you know maybe a another lender will do things cheaper than us that has happened we had one company in Q2 that actually went to the broadly syndicated loan market now we don't have many companies in our portfolio that are.
Speaker Change: Big enough for that to happen often but they did do that and achieve a better level of pricing and then we had.
Edward Ross: And then we have, you know, the
Speaker Change: The event in July that's a subsequent event.
Speaker Change: We announced that was a full repayment of a first lien loan that.
Speaker Change: We were leading that we did have another lender came in and you'll get a lower price. So that is part of the market as we've talked about I don't expect it to be a huge trend, but it will be part of the market as we move forward. This is kind of how we think about it.
Robert Dodd: God, I appreciate that. Then on credit quality, I mean, it's obviously really good. You haven't had the first new non-account since, like, 2019, and I haven't had anything in a year at this point. [inaudible] Ah, ah, I'm an allergen. What? Do you have any significant concerns, or how are they holding up so well in this situation? The Economy Invades, you know, which has been going on a while, and you just haven't
Speaker Change: Got it I appreciate that there's one on credit quality I mean, it's always historically you haven't been personally even on a cool kind of like 2019.
Speaker Change: I haven't had anything.
Speaker Change: And yet at this point so.
Speaker Change: I mean.
Speaker Change: The portfolio is really holding in really well.
Speaker Change: Right.
Speaker Change: Economy does seem to be slowing I mean it doesn't.
Speaker Change: Quiddity portfolio of companies.
Speaker Change: There's going to be getting more squeezed.
Speaker Change: Whats.
Speaker Change: [laughter] mileage and watch.
Speaker Change: Yeah do you have any significant concerns or how are they holding up so well in this situation.
Speaker Change: With the economy and rates.
Speaker Change: Which has been going on a while and you just haven't.
Speaker Change: Having issues.
Edward Ross: Sure, I'll try. I will. You know, we're very pleased with the overall performance of our portfolio. You know, it comes with a lot of work. We focus on very high-caliber, you know, quite frankly, high free cash flow, defensive growth companies. Those are general characteristics that we're looking for, and I think that strategy has worked well for us. You know, we do have two non-accruals, as you noted and well know, and we're working through those. And what I would say is, you know, the rest of the portfolio is generally performing quite well. This quarter, 65% of the companies grew their cash flow or EBITDA.
Speaker Change: So that's one.
Speaker Change: Sure I'll try.
Speaker Change: I would you know we were very pleased with the overall performance of our portfolio.
Speaker Change: Comes with a lot of work we focus on very high caliber you know quite frankly high free cash flow defensive growth companies. Those are general characteristics that we're looking for and I think that strategy has worked well for us.
Speaker Change: Yeah, we do have two non accruals as you as you noted and well know and we're working through those.
Speaker Change: And what I would say is you know the rest of the portfolio is generally performing quite.
Speaker Change: Quite well this quarter, 65% of the companies grew their cash flow or EBITDA.
Edward Ross: So we feel good about the portfolio. Having said that, you always have some companies that are greatly exceeding expectations, and you have some companies that are not meeting expectations, in some cases in a more meaningful fashion than you would like. And, you know, we're not immune to either one of those. That's the good news. On the positive side, we've got more than a few that are doing great, and we've got a few that are also underperforming relative to expectations. But, you know, that's all part of it.
Speaker Change: So we feel good about the portfolio, having said that you always have some companies that are greatly exceeding expectations and you have some companies that are not meeting expectations in some cases in a more meaningful fashion than you would like and you know we're not immune to either one of those that's the good news.
Speaker Change: On the positive we've got more than a few that are doing great and we've got a few that also are underperforming relative to expectations, but.
Speaker Change: Yeah. That's that's all part of it I think our leverage levels are four three times in the core lower middle market. So much more modest than the broader in the bigger market or a larger EBITDA market and I think that's one of the things that helps us it helps us from a cash interest coverage perspective.
Edward Ross: I think our leverage levels are 4.3 times in the core lower middle market, so much more modest than the broader and bigger market, the larger EBITDA market, and I think that's one of the things that helps us and helps us from a cash interest coverage perspective. And then, you know, when, you know, our portfolio is gravitated towards more of a first lien portfolio, as you well know, and when things aren't going exactly as the sponsor wants them to or the ownership group or we do, that's a discussion.
Speaker Change: And then when you know our portfolio is gravitated towards more of a first lien portfolio as you well know and when things are going exactly you know how the sponsor wants it to where the ownership group or we do you know that's a discussion and then those case.
Edward Ross: And in those cases where there is tighter liquidity, for instance, because of underperformance, we typically ask the owners to put money in. It doesn't mean there isn't a discussion about a two-way street, because there typically is. But we very much ask for support to make sure that, you know, we're protected on our side of things, and the company has room to operate.
Speaker Change: Mrs where there is tighter liquidity for instance, because of underperformance, we typically ask the honors to put money in it doesn't mean, there's not a discussion in a two way street because theyre typically is but we very much asked for support to make sure that.
Edward Ross: put money in. It doesn't mean there's not a discussion on a two-way street.
Speaker Change: You know, we're protected on our side of things and and the company has a room to operate so that's the general strategy, but I think the strategy of moving to a first lien.
Speaker Change: <unk> has helped us win.
Speaker Change: When things don't go as well as expected and are also I think the overall strategy of where we focus you know in the types of deals and types of companies. We're looking for I think has helped us as well.
Robert Dodd: Got it. Thank you for the color on that, and then one last one, if I can, kind of following up on Bryce's first question.
Speaker Change: Got it. Thank you for the color on that and like what was it I just wonder if I can kind of.
Speaker Change: Following up on the glasses first question.
Robert Dodd: You know, activities are expected to pick up repayments. I mean, in the first half of the year, you grew the portfolio net just a little over $100 million. Most of that was in Q1, which was really, really active, obviously.
Speaker Change: Activities expected to pick up in repayments in the first half of the year you grew the portfolio net just a little over $100 million. Most of that was in Q1, which was really really got to obviously I mean, so if we look at like $100 million with a six month gross number I mean do you think in the second half.
Robert Dodd: I mean, so if we look at them like, you know,
Speaker Change: What's the over under on that.
Edward Ross: You know, as I sit here today, I would guess that it's going to be less than that because of repayments. Because repayments will become a bigger part of the I think my belief system is that originations will most likely outpace repayments, but hopefully that gives you the context. It's very hard to look at Q4 at this point and know what's going to happen, but we expect decent activity levels on both sides of the coin, if you will, meaning origination.
Speaker Change: You know as I sit here today I would I would guess, it's going to be less than that because of repayments because repayments will become a bigger part of the equation.
Speaker Change: By that simple I think my my belief system is originations you know will most likely outpaced repayments.
Speaker Change: But there are you know.
Speaker Change: So hopefully that gives you the context.
Speaker Change: Q4 at this point and know what's going to happen, but we expect you know decent activity levels on both ends of the coin if you will a meeting.
Speaker Change: <unk> and repayments.
Edward Ross: Got it. Thank you. Thank you. Good talking to you, Robert.
Speaker Change: Got it thank you.
Speaker Change: Thank you good talking to you Robert.
Speaker Change: Yeah.
Speaker Change: Our next question comes from Mickey.
Operator: Our next question comes from Mickey. Schleien of Ladenburg, go ahead, please.
Speaker Change: Go ahead please.
Mickey Schleien: Yes, good morning everyone. Ed, spreads in the sponsored rental market are under enormous pressure with so much capital available, so I'm curious whether that's driving you toward looking at more non-sponsored deals, and if so, how do you look at the underwriting and structuring of non-sponsored deals versus sponsored deals?
Mickey: Yes, good morning, everyone.
Mickey: And spreads in the sponsored market on are under enormous pressure well with so much capital available.
Mickey: So I'm curious, whether that's driving you towards looking at more non sponsored deals.
Speaker Change: And if you are how.
Speaker Change: Do you look at the underwriting and structuring of non sponsor deals versus sponsored deals.
Mickey: The great question Mickey and.
Edward Ross: It's a great question, Mickey. I think, you know, we've always looked at non-sponsored deals. There was a time, actually, when they were, you know, 30 to 40 percent of our portfolio. That is not the case today.
Speaker Change: I think you know we've always looked at non sponsored deals are there was a time actually when it was 30% to 40% of our portfolio.
Speaker Change: That is not the case today I'd say our portfolio is over 90%, 90% of our companies are controlled by private equity groups.
Mickey Schleien: I'd say our portfolio is over 90 percent. Ninety percent of our companies are controlled by private equity groups. Having said that, when companies that are domiciled in industries that we know well and we really like the, you know, the characteristics of the business and the outlook, we do look to participate in those situations. But the bar is very high, as you might imagine, and they need to be companies that aren't dependent on people as much, and the relationships with the customers are really a – so there's an underwriting there that you've got to be But we do always look at that as a source of deal flow and of good opportunities, and so we do continue to participate, to look, but the bar remains very, very high.
Speaker Change: Having said that when companies that are domiciled in industries that we know well and we really like the.
Speaker Change: Yeah, the characteristics of the business and the outlook, we do look to participate in those situations. You know does the bar is very high as you might imagine and they need to be companies that are dependent on people as much.
Speaker Change: And the relationships with the customers is really a.
Speaker Change: Theres an underwriting there that you got to be very very careful about but we.
Speaker Change: We are we do always have looked at that as a.
Speaker Change: Source of deal flow and a good opportunities and so we do continue to.
Speaker Change: Do look, but the bar remains very very high.
Speaker Change: So if I could follow up on that in terms of your actionable pipeline are non sponsor deals are a meaningful portion of that at this time.
Edward Ross: So if I could follow up on that, in terms of your actionable pipeline, are non-sponsored deals a meaningful portion of that at this time?
Speaker Change:
Edward Ross: Actually, no. The deals that are most likely, and that's more than a couple, are all sponsored deals and part of a fund complex, if you will, a committed fund. Having said that, we had some discussion this week about a couple of non-sponsored deals, and we also have one in a longer-term pipeline. It's more of a search fund deal, which is quasi-sponsored. Definitely So you're right, it's part of the equation for us, but we're, you know, sponsor-driven deals are still gonna be the majority of our flow and our activity. But we do, for the right opportunities, we are interested in those.
Speaker Change: I'm trying to actually know the deals that are most likely and that's more than a couple are all sponsored deals and part of our fund complex. If you will and committed funds, having said that we had some discussions.
Speaker Change: This week about a couple of non sponsored deals.
Speaker Change: And we also have one in the longer term pipeline, it's more of a search fund deal, which is quasi sponsored definitely.
Speaker Change: So you you're right. It's part of the equation for us, but where sponsor driven deals is still going to be the.
Speaker Change: Majority of our our flow and our activity, but we do the right.
Speaker Change: <unk>. We are we are interested in those types of situations.
Mickey Schleien: Okay, I understand. I want to follow up on the balance sheet question. And I do recall that on the last earnings call, you guided for lower originations in the second quarter, which is indeed what happened. But you also kept issuing a lot of equity. So now you're holding a lot of cash, and you're under levered, which is causing your adjusted NII yield to run below last year. So what's the rationale for that process? And why not pay off at least the balance on the credit card?
Speaker Change: Okay understand.
Speaker Change: I wanted to follow up on the balance sheet question.
Speaker Change: You'll recall that in the last earnings call you guided for lower originations in the second quarter, which is indeed, what happened, but you also kept issuing a lot of equity. So now you're holding a lot of cash and you're under Levered, which.
Speaker Change: Which is causing your adjusted NII yield to run below last year. So whats the rationale for that process and why not pay off at least the balance on the credit facility.
Speaker Change: Jeremy you want to take that.
Shelby Sherard: Shelby, you want to take that? Yeah, I'll jump in there.
Jeremy: I'll I'll I'll jump in there some of that Nike is at 630 and seeing that excess cash is timing subsequent to quarter end. We did in fact pay off the line of credit and I would expect us to start borrowing on our line of credit again before the end of the second quarter, but there's just some timing nuances about where the pipeline is and what might be coming up.
Shelby Sherard: Some of that, Mickey, as a 630 and seeing that excess cash, timing subsequent to quarter end. We did, in fact, pay off the line of credit. I would expect us to start borrowing on the line of credit again before the end of the second quarter, but there's just some timing nuances about where the pipeline is and what might be coming down the road and where cash sits.
Speaker Change: Coming down the road, where cash sits.
Shelby Sherard: And, Shelby, you know, just from a working capital perspective, what's the sort of minimum amount of cash you typically want to hold on your balance sheet?
Shelby Sherard: And Shelby.
Speaker Change: Just from a working capital perspective, what's sort of the minimum amount of cash you typically want to hold on your balance sheet.
Shelby Sherard: I mean, I, I really less than $10 million.
Shelby Sherard: Less than $10 million. Our line of credit is fairly facile, so it's easy to go up and down, and we don't have any concerns from a covenant or borrowing-based perspective, so there's really no need to sit on excess cash out of, I'll clarify, the RIC. As you know, we do have some SBIC funds, and so from time to time, there can be reasons why we might need to sit on some excess cash in an SBIC fund.
Shelby Sherard: Our line of credit is fairly Faisel. So it's easy to go up and down and we don't have any concerns from a covenant a borrowing base perspective, so there's really.
Speaker Change: No need to sit on excess cash out of them I'll clarify from the Ric as you know we do have some FDIC funds into from time to time.
Shelby Sherard: There can be reasons, why we might need to sit on some excess cash at an SP IC fund them, but generally speaking there's not a need but you know I'm not gonna buyer I'm not going to pay down the line and then turned around and borrow shortly thereafter.
Shelby Sherard: But generally speaking, there's not a need, but I'm not going to pay down the line and then turn around and borrow shortly thereafter. And the timing of closings is very fluid, so it's kind of hard to predict.
Shelby Sherard: And timing of closings and it's very fluid so it's kind of hard to break right.
Shelby Sherard: So, just in terms of a trajectory, if Ed's plan or hope for net portfolio growth pans out in the second half, your first source of funds is cash, and then the credit facility, and then down the road, perhaps more SBIC debt. Is that correct? Okay, those are all my questions this morning. Thanks for your time. Thanks, Mickey. Good talking to you.
Shelby Sherard: So just in terms of the trajectory.
Shelby Sherard: Yes.
Speaker Change: Plan or hope for net portfolio growth pans out in the second half your first source of funds as cash and then the credit facility and then down the road, perhaps more SPE I see that is that correct.
Shelby Sherard: Correct.
Shelby Sherard: Okay.
Speaker Change: Those are all my questions. This morning, Thanks for your time.
Edward Ross: Thanks Mickey, good talking to you.
Shelby Sherard: Thanks, Vickie good talking to you.
Shelby Sherard: Yeah.
Shelby Sherard: The next question comes from Paul Johnson of <unk>.
Operator: The next question comes from Paul Johnson of KBW. Go ahead, please.
Paul Johnson: Go ahead please.
Paul Johnson: Yeah, good morning. Thanks for taking my questions. Congratulations on all, and a couple more successful exits.
Paul Johnson: Yeah. Good morning, Thanks for taking my questions and congrats on a good.
Speaker Change: Quarter end.
Speaker Change: Our successful exits.
Paul Johnson: Kind of on that and kind of following on some of the questions for M&A, you know, obviously it's been. [inaudible] Is there any effect where that's just due to these being inherently smaller companies and there's maybe just more potential buyers out there for these businesses? Private equity, you know, communities obviously under pressure to, you know, return more capital. So maybe these are, you know, I'm just wondering if there's just anything out there, I guess, that would be, you know... I guess I'm supporting these realizations that you need to have in your portfolio despite the slow remnant here.
Speaker Change: I know on that and kind of following on some of the questions for M&A.
Speaker Change: Obviously, it's been.
Speaker Change: Slower.
Speaker Change: Across the market, but your your portfolio. Obviously you used to have these realizations along the way.
Speaker Change: I'm just curious I mean, just.
Speaker Change: Is there any effect, where that's just huge these are inherently smaller companies than theirs, maybe just more potential buyers out there for these businesses.
Speaker Change: The private equity community is obviously under pressure to return more capital. So maybe these are you know.
Speaker Change: Essentially outperforming companies, an easier places to potentially prune within their portfolios, but.
Speaker Change: Wondering if there's just anything out there I guess that would be you know.
Speaker Change: Kind of I guess supporting these realizations.
Speaker Change: Have your portfolio, despite the smaller M&A market sure.
Edward Ross: I mean, I think what it speaks to is the lower middle market is, as you know, large, right? It's 90% of the transactions that take place in M&A. They're just not talked about as much in the newspapers.
Speaker Change: I think I think what it speaks to is the lower middle market is as you know large right 90% of the transactions that take place in M&A, they're just not talked about as much in the newspapers and and then you know one of our strategies is to invest in the lower end.
Edward Ross: And then, you know, one of our strategies is to invest in the lower end of the lower middle market. And if you grow those businesses, there's typically a pretty good opportunity to do one of two things: sell to another private equity group or sell to a strategic. And so, one of the strategies, and what I would say is the names that I'm mentioning are all pretty mature investments for us, meaning they weren't made two or three years ago.
Speaker Change: The lower middle market.
Speaker Change: And if you grow those businesses, there's typically a pretty good opportunity to do one of two things. So another private equity group or cellular strategic and so one of the strategies and what I would say is that the names that I'm mentioning are all pretty much.
Speaker Change: A mature investments for us, meaning they're not they weren't made two or three years ago.
Edward Ross: And so, you know, we have, as you may know, probably 17 to 20, I don't know the exact number of equity investments that are, we no longer have debt investments associated with those equities. So some of those names, the ones I'm talking about, so at some point, they do need to realize they're mostly private equity-driven deals, and they've just taken a little bit longer. So I think it really just speaks to the portfolio size of 86 companies and the fact that the lower middle market is always somewhat active, and that's where, you know, in terms of numbers,
Speaker Change: So you know we have as you may know it probably 17% to 20 I don't know the exact number of equity investments that are we no longer have that investments associated with those equity investments and so some of those names the ones I'm talking about.
Speaker Change: So it's just you know at some point they do need to realize they're mostly private equity driven deals and they've just taken a little bit longer. So I think it really just speaks to the ER.
Speaker Change: Portfolio size of 86 companies and the fact that the lower middle.
Speaker Change: No market is always somewhat active and that's where you know in terms of numbers that the majority of the deals taking place.
Speaker Change: M&A is not.
Speaker Change: That is just not robust right now and that's one of the things we like about the lower middle market.
Ed Ross: Thanks for that Ed.
Paul Johnson: Thanks for that, Ed. That's helpful. And then, just kind of... when you mention new platform deals, I'm just curious, you know, when you're evaluating a new platform, does that mean that the deal is in a specific industry or not?
Ed Ross: Okay.
Speaker Change: And then just kind of.
Speaker Change: When you mentioned new platform deals that you've done.
Ed Ross: Curious.
Speaker Change: When you're evaluating a new platform does that mean that that's a deal that's.
Ed Ross: In a specific industry or vertical that that's potentially new for that buyer and that's an industry that you've already identified as attractive and as you know.
Ed Ross: Experience and investment expertise built up around that or is that a new platform and potentially industry for you as well.
Speaker Change: That's typically not a new new.
Edward Ross: Typically, it is not a new industry for us. We really try to focus on where we have experience and expertise. I think about the one new platform company last quarter that is a tech-enabled services business, which is 30% to 40% of our portfolio today. Within that segment, we have a lot of different end markets and whatnot, but it's tech-enabled services, software, what have you. So we really try to stick to what we understand. So when I say new platform, it's a change; those are change of control transactions, typically private equity driven. So the new ownership group is the private equity group, and we're financing that buyout and then also co-investing in the equity of the securities alongside the private equity group.
Speaker Change: History for Us, we really try to focus on where we have experience and expertise in.
Paul Johnson: Got it, got it. That makes sense.
Speaker Change: I think about the one new platform company.
Speaker Change: Last quarter to Deca enabled services business, which is a 30% to 40% of our portfolio today.
Speaker Change: Within that segment, we have a lot of different end markets and whatnot, but its tech enabled type services software or what have you.
Speaker Change: So we really try to stick to what we understand so when I say new platform as it change it does or change of control transactions typically private equity driven so a new ownership group is the private equity group and we're financing that buyout and then also co investing in the equity of <unk>.
Speaker Change: The securities alongside the private equity group.
Speaker Change: Got it got it that makes sense alright, that's all for me.
Paul Johnson: All right. Well, that's all for me. Congratulations on a good court. Thank you, Paul. Good talking to you.
Speaker Change: Congrats on a good quarter.
Speaker Change: Thank you Paul good talking to you.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to address CEO for any closing remarks.
Operator: This concludes our question and answer session. I would like to turn the conference back over to Ed Ross, CEO, for any closing remarks. Thank you, Cindy, and thank you, everyone, for joining us this morning. We look forward to speaking with you on our third quarter call.
Edward Ross: Thank you, Cindy, and thank you everyone for joining us this morning. We look forward to speaking with you on our third quarter call in early November. Have a great day and a great weekend.
address CEO: Thank you Cindy and thank you everyone for joining us this morning.
Speaker Change: Look forward to speaking with you on our third quarter call in early November.
Speaker Change: Have a great day and a great weekend.
Speaker Change: Yeah.
Speaker Change: Okay.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Operator: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.