Capital Southwest - Earnings Call - Q1 2020
August 6, 2019
Transcript
Speaker 0
Thank you for joining today's Capital Southwest First Fiscal Quarter twenty twenty Earnings Call. Participating on the call today are Boen Diehl, CEO Michael Sarner, CFO and Chris Reberger, Vice President, Finance. I'll now turn the call over to Chris Reberger.
Speaker 1
Thank you. I would like to remind everyone that in the course of this call, we will be making certain forward looking statements. These statements are based on current conditions, currently available information and management's expectations, assumptions and beliefs. They are not guarantees of future results and are subject to numerous risks, uncertainties and assumptions that could cause actual results to differ materially from such statements. For information concerning these risks and uncertainties, see Capital Southwest's publicly available filings with the SEC.
The company does not undertake any obligation to update or revise any forward looking statements whether as a result of new information, future events, changing circumstances or any other reason after the date of this press release except as required by law. I will now hand the call off to our President and Chief Executive Officer, Bowen Diehl.
Speaker 2
Thanks, Chris, and thank you to everyone for joining us for our first quarter fiscal year twenty twenty earnings call. Throughout our prepared remarks, we will refer to various slides in our earnings presentation, which can be found on our website at www.capitalsouthwest.com. We are pleased to be with you this morning to announce our quarterly results for the first quarter ended June 3039. During the quarter, we continued to advance the credit strategy we laid out for our shareholders four point five years ago of prudently building a well performing credit portfolio utilizing conservative late cycle underwriting principles. We continue to be committed and excited about our core investment strategy of building a predominantly lower middle market portfolio consisting largely of first lien senior secured debt with equity co investments across the loan portfolio where we believe significant equity upside exists.
Executing our investment strategy under our shareholder friendly, internally managed structure closely aligns the interests of our board and management team with that of our fellow shareholders in generating sustainable long term value through recurring dividends, capital preservation, NAV per share growth, and operating cost efficiency. During the June 3039 quarter, as laid out on slide six, we generated $0.44 per share of pretax net investment income, representing 42% growth over the $0.31 per share generated in the same quarter a year ago, while paying out a regular dividend of $0.39 per share for the June, representing 34% growth over the February per share paid out in the same quarter a year ago. Additionally, we distributed $0.10 per share through our supplemental dividend program, funded by our sizable undistributed taxable income balance, or UTI, which was generated by excess income and capital gains accumulated from our investment strategy to date. As of June 3039, we had approximately $19,500,000 or $1.1 per share in UTI, providing visibility into continuing the quarterly supplemental dividend program well into the future. For the June, the $0.49 per share paid out in total dividends generated a total annualized dividend yield of 90.4% based upon our June 3039 share price.
We are also pleased to announce further growth in our quarterly regular dividend for the September as our board has declared dividends of $0.50 per share for the September made up of a $0.40 per share regular dividend and a $0.10 per share supplemental dividend. This will mark our fifteenth consecutive quarter of increasing shareholder dividends. During the June, we grew our portfolio on a net basis to $533,000,000 from $524,000,000 as of March 3139, originating $35,000,000 in new commitments and exiting one portfolio company for $20,000,000 in total proceeds. Our senior loan fund, I-forty five, also continued its solid performance, providing a 17.7% annualized yield and fair value on our capital in the fund for the quarter. Additionally, during the quarter, we raised $4,200,000 in gross proceeds through our equity ATM program and upsized our revolving credit facility by $25,000,000 to a total of $295,000,000 in total commitments from 10 banks.
Turning to slide seven, we illustrate our continued track record of growing shareholder dividends as we continue to migrate the balance sheet towards target leverage levels through thoughtfully building a portfolio of well performing, income generating assets. Turning to Slide eight. As a reminder, our investment strategy has remained consistent since its launch in January 2015. We continue to focus on a blend of lower middle market and upper middle market assets, providing us strategic flexibility as we have built the robust capability to seek attractive risk adjusted returns in both markets. In our core lower middle market, we directly originate opportunities consisting of debt investments and equity co investments.
Building out a highly performing and granular portfolio of equity co investments is important to driving NAV per share growth while aiding in the mitigation of any future credit losses. At the same time, our capability and presence in the upper middle market provides us the ability to opportunistically invest in a more liquid market when attractive risk adjusted returns exist. Overall, we believe that maximizing the top end of our deal origination funnel in both markets is critical to generating strong credit investment performance over time, as it ensures that we consider a wide array of deals, allowing us to employ our conservative underwriting standards in a competitive market and thoughtfully build a portfolio that will perform through the economic cycle. Our on balance sheet credit portfolio, excluding I-forty five, as shown on slide nine, grew to $382,000,000 as of June 3039, from $368,000,000 as of March 3139. We continue to heavily emphasize first lien senior secured debt lending to the lower middle market in our investment strategy.
As of the end of the quarter, we had 76% of our on balance sheet credit portfolio invested in lower middle market companies, while having 87% of the credit portfolio in first lien senior secured debt. Turning to slide 10, we originated $35,000,000 in first lien senior secured debt this quarter, consisting of two new portfolio companies and two add ons to existing portfolio companies. One of the new portfolio companies was a club deal in the upper middle market, and the other was a first lien senior secured loan to a lower middle market company in which Capital Southwest is the sole lender. Both of the add ons were in the lower middle market, with one being a Capital Southwest led deal in which we brought in a co lender, and one being a deal in which Capital Southwest is the sole lender. The weighted average yield to maturity on all originations this quarter was 11.1%.
As shown on slide 11, we also exited one portfolio company during the quarter for $20,000,000 in total proceeds, generating a realized gain of $226,000 and an IRR of 10.9% on total invested capital. This continues our strong track record as we have now had 26 portfolio exits since launching our credit strategy back in January 2015, generating $182,000,000 in proceeds and a cumulative IRR of 15.7%. On slide 12, we break out our on balance sheet portfolio, again excluding I-forty five, between the lower middle market and the upper middle market. As of the end of the quarter, the total portfolio was weighted approximately 77% to the lower middle market and 23% to the upper middle market on a cost basis. We had 26 lower middle market portfolio companies with an average hold size of 12,500,000.0 a weighted average EBITDA of $8,800,000 a weighted average yield of 12.2%, and a leverage ratio measured as debt to EBITDA through our security of 3.4 times.
Within our lower middle market portfolio, as of the end of the quarter, we held equity ownership in 69% of our portfolio companies. Our upper middle market portfolio consisted of 11 companies with an average hold size of $8,800,000 a weighted average EBITDA of $65,600,000 a weighted average yield of 9.9%, and a leverage ratio through our security of 3.4 times. We should note that our balance sheet upper middle market metrics are shown excluding our investment in American Addiction, as the EBITDA is not meaningful, and thus skews the total upper middle market portfolio ratios so as not to be able to clearly show the ratios of the remainder of the upper middle market portfolio. With respect to American Addiction, the company continues to struggle, albeit with recently improving operating metrics. Since American Addiction is a public company, we want to be careful not to effectively announce developments prior to the American Addiction management team appropriately communicating to their shareholders.
What we will say is that the lender group continues to work with the company on solutions to the capital structure. The company's leading market position in the substance abuse industry, company's cost savings and business development initiatives, and its large owned real estate portfolio all provide reasons to be optimistic on the prospects of a favorable resolution. American Addiction remained rated a three on our internal rating system. As a reminder, all investments upon origination are initially assigned an investment rating of two on a four point scale, with one being the highest rating and four being the lowest rating. Overall, we are pleased with the performance of the investment portfolio as a whole.
As of the end of the quarter, of the 40 loans in the portfolio, we had four with the highest rating of one, representing 17% of the credit portfolio. We had 32 loans rated a two, representing 77% of the credit portfolio. And we had three loans rated a three, representing 4% of the credit portfolio. We did reduce AG Kings to a four this quarter, making it the only investment rated a four in the credit portfolio. The investment is our first and only non accrual among the investments made since launching our credit strategy four and a half years ago.
As a reminder, AG Kings was placed on nonaccrual during our December 2018 quarter. As illustrated on Slide 13, we have established a portfolio well diversified across industries, which we believe is well positioned for late in the economic cycle. Further, our portfolio asset mix should provide strong security for our shareholders' capital. The portfolio remains heavily weighted towards first lien senior secured debt, with only 73% of the portfolio in second lien senior secured debt and the subordinated debt investments, respectively. Our last remaining legacy equity investment, Media Recovery, which does business under the banner Spot C, represents 10% of the portfolio, and other equity co investments as of the end of the quarter represented 6%.
As we have mentioned on prior calls, Media Recovery is currently undergoing a sale process. The process is going well, and our expectation continues to be that this company will sell during the 2019 calendar year. Shown on Slide 14 as of the end of the quarter, the I-forty five portfolio was ninety five percent first lien with diversity among industries and an average hold size of 2% of the portfolio. The I-forty five portfolio had a weighted average EBITDA of approximately $71,000,000 and a weighted average leverage through the I-forty five secondurity of 3.9 times. We also excluded American Addiction from these ratios for the aforementioned reasons.
We should also note that the increase in weighted average leverage to 3.9 times from 3.6 times last quarter was driven primarily by the prepayment of two lower levered loans in the I-forty five portfolio during the quarter. Overall, we have been pleased with the solid performance of I-forty five since its inception back in 2015. We and our partner in I-forty five, Main Street Capital, have invested approximately $500,000,000 through the fund, primarily in first lien senior secured syndicated loans. Since inception, we have harvested 54 exits, generating $223,000,000 in proceeds at a weighted average IRR on the exits of 11.3%. I will now hand the call over to Michael to review the specifics of our financial performance for the quarter.
Speaker 3
Thanks, Bowen. Seen on Slide 15, our investment portfolio produced $15,800,000 of investment income this quarter with a weighted average yield on all investments of 11.6%. This represents an increase of 1,500,000 from the previous quarter, mostly attributable to net portfolio growth. The weighted average yield on our credit portfolio was 11.7% for the quarter, a slight increase from the previous quarter. As of the end of the quarter, there was one asset on nonaccrual with a fair value of $7,900,000 representing 1.5% of our total investment portfolio.
Excluding interest expense, we incurred $4,300,000 in operating expenses this quarter, which was an increase of roughly $500,000 from the prior quarter. As noted on our prior quarterly call, the increase was expected as we incur seasonal expenses in the June of each year associated with payroll taxes and the annual shareholder meeting. Additionally, during the June, we incurred a one time charge for the accelerated vesting of restricted stock awards for a long time employee upon his retirement. For the quarter, we earned pretax net investment income of $7,700,000 or $0.44 per share compared to $0.42 per share during the prior quarter. We paid out $0.39 per share in regular dividends for the quarter, an increase of $01 per share over the $0.38 per share regular dividend paid out in the prior quarter.
We continue to focus on growing our regular dividends in a sustainable manner demonstrated by our cumulative regular dividend coverage of 108% over the last twelve months and 105% since the launch of our credit strategy four years ago. As Bowen mentioned earlier, we also paid out a supplemental dividend of $0.10 per share this quarter as part of our supplemental dividend program. This program allows our shareholders to meaningfully participate in the successful exits of our investment portfolio. The program will continue to be funded from our UTI earned from both realized gains on debt and equity as well as undistributed net investment income earned each quarter in excess of our regular dividends. On Slide 16, we illustrate our operating leverage, which as of the end of the quarter was 3.1%.
Excluding the aforementioned seasonal expenses and onetime charge, our operating leverage for the quarter was 2.8%, which continues to migrate towards our target operating leverage of sub 2.5%. We are fully committed to actively managing our operating costs in lockstep with portfolio growth and expect to achieve our target operating leverage over the next few quarters. With senior professionals and corporate infrastructure largely in place, operating leverage should continue to improve as the investment portfolio grows due to our internally managed structure. As Bowen mentioned earlier, our NAV per share as of the end of the quarter was essentially flat at $18.58 per share as seen on slide 17. The slight decrease for the quarter was primarily driven by the $0.10 per share quarterly supplemental dividend paid to shareholders.
Our total pre tax NII return on equity for the quarter was 9.4%. On Slide 18, we lay out our multiple pockets of capital. As of the end of the quarter, we had approximately $160,000,000 in cash and undrawn commitments available between our balance sheet and I-forty five, with the earliest debt maturity at December 2022. During the quarter, we added an additional $25,000,000 commitment from a new lender to our credit facility, increasing total commitments to $295,000,000 Our balance sheet leverage ended the quarter at a debt to equity ratio of 0.69:one. We feel good about our liquidity and capital structure flexibility and believe that it would allow us to thoughtfully grow our investment portfolio.
With that being said, a strategic priority for our company is to continually evaluate approaches to derisk the liability structure of the company while ensuring that we have adequate investable capital throughout the economic cycle. During the quarter ended June 3039, the company sold 195,549 shares of its common stock under the equity ATM program at a weighted average price of $21.66 per share, raising $4,200,000 of gross proceeds. Cumulative to date, the company has sold 459,205 shares of its common stock under the equity ATM program at a weighted average price of $21.55 raising $9,900,000 of gross proceeds. We continue to believe our equity ATM program is a prudent and cost effective way to issue equity over time at tight spreads to the latest trade while selling equity on a just in time basis so it can be thoughtfully invested in income generating assets. I will now hand the call back to Bowen for some final comments.
Speaker 2
Thanks, Michael, and thank you, everyone,
Speaker 4
for joining us today.
Speaker 2
Capital Southwest has grown and the business and portfolio have developed consistent with the vision and strategy we communicated to our shareholders four point five years ago. Our team has done an excellent job generating significant returns for our shareholders. Everyone here at Capital Southwest is totally dedicated to being good stewards of our shareholders' capital by continuing to deliver strong performance and creating long term sustainable value for our shareholders. This concludes our prepared remarks. Operator, we are ready to open the lines for questions.
Speaker 0
Certainly. Our first question comes from the of Tim Hayes from B. Riley FBR. Your question please.
Speaker 4
Hey guys, this is actually Mike on for Tim and thank you for taking my questions. My first question is when you look at Slide 13 it looks like you added MRI to the graph which implies a 53,000,000 or so mark, which is largely unchanged quarter over quarter. So I was just wondering if this is a reflection of more or less interest you're seeing from bidders? Or I guess if you could just broadly provide any additional commentary on the sale process?
Speaker 2
Yes. So you're right. We put MRI Spot C on the chart. It has been previous quarters a yielding equity. We denoted it as yielding equity.
We just decided this quarter to be more specific and separated out from our other general equity co investments. I would say, generally, the sale process is going well. As I said in my prepared remarks, there's obviously interest in the asset and it's progressing forward. So that's really from the sale process, really all I want say, given the buyers looking at business. But we still think it'll exit before the end of the year.
Our valuation process methodology hasn't changed. So we incorporate DCF. We incorporate comps. We also incorporate a weighting from the valuations in the market. And as valuation or as sale process progresses forward, that weighting influence on the valuation increases over time.
So we did have a we'll see in the queue this afternoon, we did have a $1,200,000 write up this quarter, so it's not exactly flat, as you said. But again, the weighting of the valuations in the market increases as an influence on evaluation over time as the sale process progresses and you get more clarity and visibility on where it might ultimately trade.
Speaker 4
Thank you. Thank you for that. And then
Speaker 3
just a follow-up, do you
Speaker 4
have any updates on the decision once the sale process is complete? Or is that something you guys are still thinking about in terms of retaining versus paying out a special dividend?
Speaker 2
Yeah. So, I mean, Board's going to make that determination, and we'll make that determination once it sells. So the answer is no. We don't have anything else additional to tell the market other than a reminder that we'll have the option to we will re stuff we will replenish the UTI bucket first and foremost. The gain will obviously most likely very likely be much in excess of that.
So the remainder of the gain, we will have option. We can either retain it and do a deemed distribution to the shareholders, pay a 21% tax, or we can distribute it in a special dividend, or a third option, do a combination of both. The board, like I said, will ultimately decide that once the sale is complete and we'll announce it.
Speaker 4
Got you. Thank you. Then one more question. How does the pipeline look maybe compared to a year ago?
Speaker 2
Yes. The pipeline is as far as number of deals that are in the shop that we're reviewing, it's up year over year. Hence, my comment that the pipeline is strong. Market competitiveness is still very competitive. I wouldn't say it's more competitive today than it was six or nine or even twelve months ago.
It's been very competitive for a while. But our pipeline, as far as deals we're reviewing, looks good. We're being very careful and diligent. We definitely have had a couple of deals that have closings have been pretty materially delayed based on diligence findings and needing to see a few more months of performance, that type of thing. But that's pretty normal in our business.
So it tends to make it, like I've always said, a lumpy business. But overall, we're pretty happy with the pipeline. We're certainly getting a lot of looks.
Speaker 4
Got you. Thank you for that. And have you seen any changes in the upper middle market versus the lower middle market? Have you seen any improvements in the upper middle market or vice versa?
Speaker 2
No. We definitely, right now, continue to see the best opportunities in the lower middle market with a few exceptions. IEnergizer this quarter is actually an upper middle market deal. But I would say still same environment, largely in the lower middle market, and I would say same generally same environment in the upper middle market. The upper middle markets we all know the frothiness in that market.
That continues today.
Speaker 4
Got you. Thank you for taking my questions.
Speaker 2
You bet. Thanks.
Speaker 0
Thank you. Our next question comes from the line of Mickey Sleone from Ladenburg. Your question, please.
Speaker 5
Yeah, good morning Bowen. I wanted to follow-up on that last question about upper middle market versus lower middle market. There's, you know, I think investors and analysts are struggling with the outlook for defaults and recoveries in those two different markets if the economy were to slow meaningfully down the road. So when you look at those two markets, how do you gauge the risk adjusted returns? And how do you judge the differences in the potential default and recovery probabilities in those two markets?
Speaker 2
Yeah. Thanks, Mickey. I hope you're well. So on that, I would tell you that clearly a textbook view is, well, larger companies are more established and therefore they do better in a recessionary environment. And while that's not wrong, the other thing that goes into that is structure and leverage levels.
And we're a first lien lender, and if we can lever a business appropriately versus the potential volatility of that business, then we're dollar 1 risk. And so we can control the dialogue and ultimately have much better control of our destiny, which is ultimately what our shareholders care about with our capital. So, in the lower middle market, where leverage levels are lower and structures are tighter, they're smaller companies clearly. And so, we've got to pick the companies correctly. But it's not correct to say that there aren't good, sustainable, full cycle businesses in the lower middle market.
We don't believe that that's the case. But you have to have less leverage, and you have to have tighter structures. And indeed, the market follows that largely, because the lower middle market has definitely tighter structures, lower leverage. In the upper middle market, we all know, very loose structures, a lot of covenant light deals, higher leverage, even if they are a larger company. So if you think about a full cycle in a recessionary environment, I've got a lot more options if I'm $1 risk at a lower leverage level going into the cycle than I am even if I'm $1 risk going into the cycle at a higher leverage level.
And then also in the lower middle market, absent a recession, when things are going well, we have some equity upside in our portfolio as well. So as an investor, I see that and I'm like, okay, good times, I'm gonna make some money. In bad times, I can control my destiny. The company survives, the capital structure survives, and we ride out the other side of a recession, which are typically, what, eighteen months or so long. And so you basically live to play for another day, and you've gotten appropriate full cycle returns for your shareholders.
So long winded answer, but that's kind of how I look at those two markets. So both have their advantages and their disadvantages, but that's why we do find full cycle, the lower middle market being more interesting.
Speaker 5
So just a follow-up if I can, Bowen. When you talk about cycles and weathering the storm, you know, we're in the longest expansion in the history of the country, obviously off of a very low base. But my sense is that a lot of the borrowers in a lot of BDC portfolios weren't around in the Great Recession. So you don't necessarily have, you know, data to look at how revenues and margins behaved in 02/2008, 2009 and so forth. So with that in mind, you know, how do you underwrite the downside to a borrower that didn't exist or wasn't really perhaps was a very different business model, that far back in time?
Speaker 2
Yeah. It's a good question. So, one of the things we said from the beginning is we do look at the Great Recession as an analog for the current situation. We've been doing that since 2015. And you're right.
I mean, not every company we invest in was even here in 2000 I would tell you a lot of them were. Even the ones that some of the ones that were, were a lot smaller. Maybe had one special customer, large customer in 2008 and 02/2009, which skewed the results. So a lot of times, have to go back and we do, you can do this when you work, but we go back and look at the industry. We look at other players that were there.
And we do a pretty deep dive into exactly what was happening in that timeframe, in that industry, and in that company with respect to suppliers, customers, customer behavior, pricing. And then we basically then construct simulation of, and if we do a loan today, it's twenty and twenty one, a simulation of that same dynamic happening to the company. And so, are we going to get that perfectly right every time? Of course not. But I think we're going to get pretty close.
And we're gonna be right more than we're wrong. And so we've been doing that. And our deal teams go through a fair amount of work to construct that simulation or that downside economic case. And we've done that loan by loan. From the very beginning, believe that if we do that loan by loan, we're going to be better positioned as a whole, as a portfolio to weather that storm.
And hence, you see our weighted average leverage in our lower middle market portfolio is lower than many of the BDCs. And that, I believe, in part reflects what I just said.
Speaker 5
Bowen, just one last question because you jogged
Speaker 2
my
Speaker 5
memory about something I'd like to follow-up on. Given that you've looked at a variety of industries, and I know the question I'm going to ask is going to be very much dependent on the industry. But when you look at 'eight and 'nine in the lower middle market, can you tell us broadly, you know, how did revenues behave and EBITDA during that recession? Again, know comparing a software company to somebody manufacturing widgets, it's not a fair comparison. But in broad brush strokes, how do they do?
Speaker 2
You know, obviously, the answer is, as you said, it depends on the company and the industry. I mean, more fundamentally, we're trying to match the capital structure we're putting on that particular company and that industry to match the potential volatility so that your dollars stay within enterprise value and your interest continues to get paid. As far as a macro lower middle market asset class, if you will, stats, honestly, I don't have that in front of me. So I actually I don't know the answer to that. We just always focus on a company by company basis.
Speaker 5
Okay. I appreciate that and appreciate your time this morning. Thank you.
Speaker 2
Thanks, Nicky.
Speaker 0
Thank you. Our next question comes from the line of Kyle Joseph from Jefferies. Your question please.
Speaker 6
Hey, good morning guys and thanks for taking my questions. I wanted to focus on yields. We've seen a modest bit of upward pressure on yields for the overall portfolio. Is that more of a sense of a portfolio mix rather than yields on new deals being higher than yields coming off?
Speaker 2
It's probably a portfolio mix. We've done recently a couple of first out, last out deals where we'll invest in the we'll sell a small first out piece, which pays a much lower rate. And then we'll scrape the rest to our position, controlling the loan along the way. That's going to have an influence on my view.
Speaker 3
Yes. That would on the debt. Overall, the overall yield went up based on the dividend. One from MRI produced a larger dividend this quarter based on it having additional free cash flows. And then I-forty five, we had a refinancing of a portfolio company that had a $400,000 gain that flowed through as a dividend to Capital Southwest.
So those two enhanced the overall yield for the entire portfolio.
Speaker 2
It's kind
Speaker 5
of all of those things.
Speaker 6
Got it. And then given sort of the rate outlook and everything, can you give us a sense of where you would anticipate that yields head heading going forward?
Speaker 3
Well, I think based on the assuming the last cut, I think it's gonna be flat based upon assuming the Fed doesn't make an additional cuts in the future. What we would say is from our yields, the, LIBOR reset date doesn't occur till the first of the next quarter. So we're going to see a 25 basis point hit. And so that's about a penny a quarter reduction in yield.
Speaker 6
Okay. Got it. And then one last one from me. Obviously, this is dependent on market conditions, but can you remind us your sort of target leverage ratios in the near term, intermediate term, and longer term?
Speaker 2
Yeah. Target leverage ratios at the BDC?
Speaker 6
Yeah.
Speaker 2
Yeah. You know, we our target leverage ratio, we're kinda defining it as a fairway, but a fairway between kinda one to one to as high as 1.2 to one. And the speed at which we get there is completely dependent on, originations. The culture here is we're not going to rush to get there. We're going to get there intentionally, step by step, as we find good deals to do.
Longer term and intermediate So and longer term is is really to get leverage up to kind of that one to one, slightly above one to one kind of economic leverage, I should say.
Speaker 3
I think Bowen said in past calls too, sort of a glide path. We're going be issuing a little bit of equity off our ATM program and making certain we always have borrowing capacity on the debt side to sort of steadily move leverage up towards those levels and not just bring it up in a quick fashion or raise large amounts of equity and bring it crashing down.
Speaker 6
Got it. That's helpful. Thanks very much for answering my questions.
Speaker 2
Got it. Thank you.
Speaker 0
Thank you. Our next question comes from the line of Chris York from JMP Securities. Your question please.
Speaker 7
Hey, good morningafternoon guys. Good morning. Good morning Chris. Hey, so Michael you touched on my question a little bit here in your answer to the last question. But given that the queue is not out, could you elaborate on the drivers of the increase in the dividend from controlled portfolio companies in the quarter and whether you think this increase is sustainable?
Speaker 3
Yes. So the two ones I noted earlier. So MRI being the one control portfolio company and then I-forty five being the other. So the dollar amount, I think, I noted were the MRI dividend increased by $150,000 and the I-forty five was $400,000
Speaker 7
Got it. And then so are either of those sustainable? So the sequential increase in our case?
Speaker 3
Yeah, correct. Neither of those are going to be sustainable going forward. That $500,000 is a one time for this quarter. You'll see that it was sort of met by $400,000 of additional expenses this quarter that were not run right as well.
Speaker 7
Mean, that's the Yeah,
Speaker 2
I'll just clarify. MRIs slight increase was a function of the cash flows MRI. The I-forty five was a refinancing that you discussed. Sure. So most of it is the I-forty five.
I've got to get
Speaker 3
to your question too, Chris. I would tell you the $0.44 of NII, of that, the run rate on that was really around $0.43 going forward.
Speaker 7
Okay. So that you
Speaker 3
take out the, yeah, to take out the the revenue onetime hits and the, expense as well.
Speaker 7
Okay. And just to be clear on the share based comp, 400 of the $8.37 was nonrecurring or onetime?
Speaker 3
No. So of the $8.37, 150,000 was onetime in nature, and the rest
Speaker 0
is
Speaker 3
ongoing and recurring.
Speaker 7
Got it. Those were my only questions today. So thank you very much.
Speaker 2
Thanks, Chris. Thanks, Chris.
Speaker 0
Thank you. And this does conclude the question and answer session of today's program. I'd like to hand the program back to Bowen Diehl Chief Executive Officer for any further remarks.
Speaker 2
Thank you, operator, and thanks, everybody, for joining us today. We really appreciate it. Appreciate all your support. And we look forward to keeping you apprised on the business as we move forward. Have a great week.
Speaker 0
Thank you, ladies and gentlemen, for your participation in today's conference. This does conclude the program. You may now disconnect. Good day.