Dylan Hines

Dylan Hines, representing Hal Goetsch from B. Riley Securities, inquired about the sustainability of the impressive 61% EBITDA growth on 13% revenue growth in the Payables segment during Q4. Hines asked if there is a natural margin ceiling for Payables and whether future trajectory would be driven by continued cost reduction or revenue scale.

Answer

CFO Tim O'Leary stated that the Payables business will remain efficient with minimal incremental operational personnel, focusing on sales talent for distribution channels. He noted that the 2025 benefit from increased balances in the high-margin ACH business contributed significantly. O'Leary expects future EBITDA growth to more closely correlate with revenue growth, as there isn't a large margin shift anticipated, with operating efficiencies offsetting potential margin pressure from larger, lower-margin enterprise customers.

Dylan Hines asked about the inflection point that led to the current nonaccrual rates, contrasting them with last quarter's expectations of decreasing nonaccruals (pro forma guide of 3.6% on cost and 1.9% on fair value after the PRG restructuring).

Answer

Dan Pietrzak, Chief Investment Officer and President, clarified that the 3.6% figure was a pro forma estimate after PRG's removal, not a guide. He explained that three of the new nonaccruals are small, with the primary drivers being Dental Care Alliance (DCA) and Lionbridge Technologies. DCA's situation involved live conversations with subordinate debt holders that took an unexpected turn, while Lionbridge's active sales process was complicated by AI's impact on the business's overall mood, making the sale difficult. These events were the key drivers of the increased nonaccruals.

Dylan Hines asked about the inflection point that led to the current higher nonaccrual rates, contrasting them with last quarter's expectations of decreasing nonaccruals (pro forma 3.6% on cost and 1.9% on fair value after the PRG restructuring).

Answer

Dan Pietrzak, Chief Investment Officer and President, clarified that the 3.6% figure was a pro forma estimate after PRG's removal, not a forward-looking guide. He identified Dental Care Alliance (DCA) and Lionbridge Technologies as the primary drivers of the nonaccrual increase. DCA's situation involved complex discussions with junior debt holders, leading to an unexpected outcome, while Lionbridge's active sales process was hindered by AI's impact on market sentiment, making a sale difficult.