Q1 2024 BlackRock TCP Capital Corp Earnings Call

Participants

Katie McGlynn; Investor Relations; BlackRock TCP Capital Corp

Rajneesh Vig; Chairman of the Board, Chief Executive Officer; BlackRock TCP Capital Corp

Philip Tseng; President & COO; BlackRock TCP Capital Corp

Erik Cuellar; Chief Financial Officer; BlackRock TCP Capital Corp

Robert Dodd; Analyst; Raymond James & Associates Inc.

Christopher Nolan; Analyst; Ladenburg Thalmann & Co Inc.

Paul Johnson; Analyst; Keefe, Bruyette, & Woods, Inc

Presentation

Operator

Ladies and gentlemen, good afternoon. Welcome, everyone to BlackRock TCP Capital Corp's first quarter 2024 earnings conference call. Today's conference call is being recorded for replay purposes. (Operator Instructions)
And now I would like to turn the call over to Katie McGlynn, Director of the BlackRock TCP Capital Corp Investor Relations team. Katie, please proceed.

Katie McGlynn

Thank you, Emily. Before we begin, I'll note that this conference call may contain forward-looking statements based on the estimates and assumptions of management at the time of such statements and are not guarantees of future performance. Forward-looking statements involve risks and uncertainties, and actual results could differ materially from those projected.
Any forward-looking statements made on this call are made as of today and are subject to change without notice. Additionally, certain information discussed and presented may have been derived from third-party sources and has not been independently verified. And accordingly, we make no representation or warranty with respect to such information.
Earlier today, we issued our earnings release for the first quarter ended March 31, 2024. We also posted a supplemental earnings presentation to our website at www.tcpcapital.com to view the slide presentation, which we will refer to on today's call, please click on the Investor Relations link and select Events and Presentations.
These documents should be reviewed in conjunction with the company's Form 10-Q, which was filed with the SEC earlier today.
I will now turn the call over to our Chairman and CEO, Raj Vig.

Rajneesh Vig

Thanks, Katie, and thank you for joining us for TCPC Q1 2024 earnings call. Which is also officially the first earnings call for TCPC as a combined entity post our successful combination with our former affiliate, ABC, BlackRock Capital Investment Corp., core VCIC. today, I'm joined by our President, Bill Sanger and our CFO, Eric, where we are also joined today by Kevin Murray, who will be taking over the Investor Relations role from key demographic, who's leading the effort to pursue other opportunities.
I'd like to officially welcome Mikael to the show. As a reminder, key has been a valued member of the TCPC team and private debt platform since 2018 through instrumental in structuring and closing the recent merger. She's been a great partner friend and will be sorely missed. We, of course, wish her well in her future endeavors for today.
I'll begin with a few comments on the successful completion of our merger with BCIC. I'll then provide an overview of our first quarter results. Phil will follow with an overview of the investment environment and our portfolio and investment activity, and Eric will then review our financial results as well as our capital and liquidity in greater detail. Finally, I will wrap up with a few comments on the opportunities we see ahead before taking your questions.
But as I mentioned earlier, during the first quarter, on March 18, we closed our affiliate merger with BCIC. As a reminder, since BlackRock's acquisition of TCP's platform in 2018, the investment activities of both TCPC. and BCIC. were managed by one team under the current leadership. The merger simply formalized the combination of these two materially overlapping portfolios and delivers meaningful value for our shareholders through greater scale and targeted operating efficiencies.
This includes a lower overall fee structure for the larger combined entity, the likelihood of more efficient access to capital and income accretion for the company and ultimately for our shareholders. From this point forward, we will be discussing financial results for the entity on a combined basis.
Now let's begin with a review of the highlights of our first quarter results. I am pleased to report that from the first quarter of 2024 TCPC delivered adjusted net income of $0.45 per share an increase from $0.44 per share in the prior quarter. Our run rate remains among the highest in TCP's history of the company and our annualized net investment income return on equity for the quarter was 14.7% and continues to benefit from relatively higher base rates, base rates and spreads.
During the first quarter, our net debt declined 6.4%, primarily due to net unrealized losses on portfolio companies. Previously process, including our investments in 2.5 is on aggregators for audio and Raser, along with our equity invested in inventory. The write-downs in the first quarter are mostly the result of circumstances specific to a handful of companies that we have stated before. We do not believe these situations are any indication of broader credit challenges in our portfolio.
The majority of our portfolio companies continue to report revenue and margin expansion with many generating sustained performance improvements. That said, I again must provide commentary on a few of the names that contributed to the portfolio markdowns throughout here and razor both operate in the Amazon aggregator space. And as we have discussed on previous calls, the aggregators are consolidated small to medium-sized brands that sell through Amazon to market leading third party platform.
This sector was initially impacted by COVID-related supply chain issues and then by slowing growth in online consumer spending and supply chain issues, alleviated resulting in excess inventories and over-leveraged balance sheet given the persistent operating and liquidity challenges that resulted from IPO when the largest and more aggregators opted for a balance sheet restructuring or Chapter 11 filing in February 2024, which we supported given the net benefits on that process although a fair bit of work remains ahead of us, we expect ultimately project to emerge with a lower and more manageable debt structure as well as a leaner and more efficient operating profile.
This should allow the company to remain a leader in the sector and to focus on a return to profitability post emergence and what we continue to believe the long-term and viable and tracking industry by contrast, razor group. But by contrast, rated room officer address challenges via consolidation and acquired perch in March, solidifying the combined entity's position as a global leader in the space similar to Raja standalone restructuring effort.
We expect this strategic combination to drive a more efficient operating structure than either company could have achieved in the near term standalone. We also believe that further consolidation and cost optimization are likely to continue in this space. And ultimately, there will be fewer, larger scale and better capitalized vendors serving. And we will continue to update you on our progress at each of these as we're able to net other stuff, Edmentum and online learning provider, which, as we noted last quarter, is navigating a reversion to a more normalized, but still positive demand environment, demand for tools and services spikes during the pandemic. But that has since corrected following the successful return to in-person attendance and many schools relative to pre-pandemic levels.
Digital Education and remote learning services continued to grow in popularity and provenance and Edmentum remains well positioned in an industry with positive secular trends as a reminder, our current investment in medicine is a residual equity position after we receive full repayment on our loan to the company as a longtime player in the direct lending space.
Our team has experienced lending across market cycles and has developed unique expertise and a proven track record of success working through challenged credits, challenging credit situations. We are leveraging this expertise believe we have the right teams in place and are proactively working with management teams, equity owners and other lenders to improve performance and achieve positive outcomes for our investments.
Most importantly, outside of these situations, the credit quality of our portfolio remains strong. As of March 31, 2024, our internal risk rating was relatively unchanged from December 31, 2023, and reflects the fact that the majority of our portfolio companies are substantially in line or ahead of base-case expectations.
Our Board of Directors declared a second quarter dividend of $0.34 per share, which implies 132% and a coverage based on our first quarter adjusted identified a second quarter dividend is payable on June 28th to shareholders of record on June 14. We have always taken a disciplined approach to our dividends with an emphasis on stability and strong coverage for more recurring net investment income for our TCPC.s, 12-year history.
We have consistently covered our dividend for recurring net investment income and have also paid several special dividends, including the most recent quarters.
Now I will turn it over to Phil to discuss our investment activity and portfolio.

Philip Tseng

Thanks, Raj. I'll start with providing an update on our portfolio and highlights from our investment activity during the first quarter and then provide a few comments on the investment environment.
In the first quarter of 2024, we invested $20 million primarily in senior secured loans deployments in the quarter included loans to four new and three existing portfolio company. Consistent with our strategy, our emphasis remains on companies and established business models and proven core customer bases that make them more resilient across economic cycles.
In reviewing the opportunities we emphasize transactions will be our position as a lender influence where we have a direct relationship with the borrower and the ability to leverage our more than two decades of experience in negotiating deal terms and conditions that we believe provide meaningful downside protection. We believe this has been a key driver of our low realized loss rates over our history.
We also see emerging opportunities on the horizon as pent-up M&A transactions come to market as the bid-ask spread and valuations for higher-quality assets narrow. We expect market participants who've been sitting on the sidelines to be more actual interest rate cuts should help to catalyze a pickup in M&A due to the lower debt service costs for prospective borrowers. And based on our conversations with market participants, we're optimistic about activity in the near to intermediate term bidding in this environment.
Our industry specialization continues to be an advantage as it provides two key benefits for us. First, it enhances our ability to assess and effectively mitigate risks in our underwriting when we negotiate terms and credit documentation. And secondly, it expands our dual sourcing capabilities with sponsors and non sponsors who value our industry experience, which lends itself to more reliable execution for borrowers.
Follow-on investments in existing companies continue to be an important source of opportunity for us. About half of the capital we deployed over the last 12 months was to existing point of what are the recent investments made during the first quarter was investment in PMA Asset Management. Pma is a leading money market asset manager serving local government K through 12 education and other public sector.
The company provides its public sector clients with a comprehensive suite of investment advisory fund administration and capital markets advisory services. Blackrock provided capital to support the sponsor's acquisition of PMAT. We believe this investment offers an attractive risk-adjusted return and provides a unique opportunity to invest in a scale money market asset manager. It has simply been a growth.
Okay, new investments in the first quarter were offset by dispositions and payoffs of $24 million. As part of our ongoing portfolio management, we closely monitor and directly engaged with our existing portfolio companies pro actively assessing both current and projected performance relative to our original underwriting assumptions.
In the limited situations where performance is below our expectations, we're engaged with the management teams and the owners to proactively drive performance improvement, ensure our capital remains well protected. Managing situations where capital may be at risk is a top priority for our team, and we believe our 20 plus years of experience in managing portfolios through cycles is a significant competitive advantage for TI.
Yes, we are pleased to report that the majority of our portfolio companies continue to deliver revenue growth and margin expansion as they successfully navigate the higher rate environment, lingering inflation and general uncertainty in the economy. We believe this reflects the durability of companies in the middle market as well as our ability to pick the right industries and the right companies and to structure transactions that are good for our borrowers and for our investors.
Now I'll turn to our portfolio. As a reminder, these figures relate to our consolidated portfolio following a merger with PCSC at quarter end, our portfolio at fair market value of approximately $2.1 billion. 91% of our investments were senior secured debt spread across a wide range of industries, providing portfolio diversity and minimizing concentration risk. At quarter end, our diversified portfolio consisted of investments in 157 companies and our average portfolio company investment was [$13.5 million].
As the chart on Slide 7 of the presentation illustrates our recurring income is distributed broadly across our portfolio and has not relied on income from any one company. In fact, more than 75% of our portfolio companies each contribute less than 1% to our recurring income. 80% of the portfolio are firstly, providing significant downside protection in 97% of our debt investments.
Our floating rate, the overall effective yield on our debt portfolio was 14.1%, reflecting the benefit of higher base rates and wider spreads on new investors. Investments in new portfolio companies during the quarter had a weighted average effective yield of 14.7%, exceeding the 14% weighted average effective yield on exited positions.
To date, we have had no prepayment income quarter and looking forward, we believe we're well positioned to continue to deliver attractive returns, given that our team has one of the longest track record indirect lending of any of the publicly-traded BDCs irrespective of when the Fed rate cuts come in, we believe we'll be in a slower growth and an elevated rate environment for the foreseeable future and could see a range of macroeconomic scenarios.
But in periods like this, we believe our experience and our deep industry knowledge provide us advantages, and we saw strong results throughout various market cycles. The market environment that persisted over the past year is changing. For a large part of 2023, we saw wider spreads from more conservative leverage profiles and generally stronger structural protections.
However, for much of this year so far, we've seen a broader repricing, and we expect this to continue. This means managers have to work harder to identify deals with favorable economics and favorable structure as we noted last quarter, there's been an increased bifurcation of the direct lending market, which continues to persist today.
Many have observed more borrower-friendly trends such as tightening pricing and covenant light deal structures. These are especially prevalent in the upper middle market or large cap directly anymore, given the robust return of banks to that segment. However, in the core middle market, refocus, there's been less impact by this trend.
We continue to benefit from lower leverage overall and the presence of maintenance covenants and fewer adjustments, all of which lead to generally tighter documentation that we continue to see a durable yield premium for our transaction flow relative our broadly syndicated markets.
Now I'll turn it over to Eric to walk through our financial results. As well as our capital and liquidity position.

Erik Cuellar

Thank you, fell. As rash noted, our net investment income in the first quarter benefited from the increase in base rates over the last 21 months and was $0.45 on an adjusted basis for the quarter. As detailed in the earnings press release, adjusted NI excludes amortization of the purchase accounting discount, resulting from the merger with BCIC. and is calculated in accordance with GAAP.
The full reconciliation of adjusted NII to GAAP NII as well as other non-GAAP financial metrics is included in the earnings press release and 10-Q. Today, we declared a second quarter dividend of $0.34 per share. We remain committed to paying a sustainable dividend that is fully covered by our net investment income regardless of the interest rate environment as we have done consistently over the last 12 years, investment income for the first quarter was $0.9 per share.
This included recurring cash interest of $0.78, nonrecurring interest of $0.02, recurring discount and fee amortization of $0.03 and PIC income of $0.05. Pic income remains in line with the average over our history. Investment income also included $0.02 of dividend. Income from operating expenses for the first quarter were $0.35 per share, including $0.21 of interest and other debt expenses.
Incentive fees in the quarter totaled $5.8 million, or $0.09 per share. Operating expenses for the quarter reflected the impact of the lower management fee rate since the closing of the transaction on March 18. We expect other synergies and expense savings to materialize over the next few quarters. Net realized losses for the quarter were $168,000 or less than a penny per share.
Net unrealized losses in the first quarter totaled $23 million or $0.37 per share, primarily reflecting unrealized markdowns on previously discussed investments. As Raj described earlier, the net increase in net assets for the quarter was $5.1 million or $0.08 per share. As of March 31, we had five portfolio companies on nonaccrual, representing 1.7% of the portfolio at fair value and 3.6% at cost.
During the quarter, we added two portfolio companies to nonaccrual status, including inVentiv, previously known as securities, as well as Gordon Brothers have pre-existing non-accrual portfolio company from the acquired VCIC. portfolio.
Turning to our liquidity, our balance sheet positioning remains solid and our total liquidity increased to $409 million at the end of the quarter relative to our total investments of $2.1 billion. This included available leverage of $286 million and cash of $121 million unfunded loan commitments to portfolio companies. At quarter end equaled 4% of total investments were approximately $91 million, of which only $57 million were revolver commitments, while net leverage excluding SBIC debt for the quarter is 1.08 times, well within our target range of 0.9 times to 1.2 times leverage.
Our diverse and flexible leverage program includes three low-cost credit facilities, three unsecured note issuances and an SBA program. Given the modest size of each of our debt issuances, we are not overly reliant on any single source of financing and our debt maturities remain well laddered. Additionally, we are comfortable with our current mix of secured and unsecured financing, and we expect to address the upcoming maturity of our 2024 notes in the near future.
Combine the weighted average interest rate on our outstanding borrowings, including debt assumed as a result of the merger, increased modestly during the quarter to 5.08%. That average interest rate is up only 217 basis points since March of 2022, while base rates increased more than 500 basis points during this period. This is the result of our lower overall cost of capital.
Now I'll turn the call back over to Raj.

Rajneesh Vig

Thanks, Eric. Since we took TCC-EZ public in 2012 to deliver a 10% annualized return on invested assets and an excellent annualized cash return of 9.7% to our shareholders. We are very proud of these results, which include performance during periods when base rates were substantially lower than they are today. We believe this performance remains at the high end of our peer group and speaks to our ability to consistently identify attractive middle market investment opportunities at premium yields and to deliver exceptional returns to our shareholders across market cycles.
On our successful merger with ECIC. We look forward to continuing to deliver and energy solutions to our borrowers and infrastructure transactions that deliver attractive returns to our shareholders.
And with that, operator, please open the call for questions.

Question and Answer Session

Operator

(Operator Instructions)
Robert Dodd, Raymond James.

Robert Dodd

Wondering, um, well, after the merger for your own own class, you know, except for the aggregates on aggregate spending. So many old friends here, particularly amending the Bankruptcy Code got resolved. I think after quarter end that I just want to clarify, I think in the docs and the discussion was now in fiber comfortably below the mark that you currently have it hit carry that is that factored in? Or because it is we just agree about valuation of the business long term potentially or is it because it happened after the quarter end? That was not fully known at the time we were evaluating some of these is it.

Rajneesh Vig

Robert, I think I got most of that question, but I think the question was, is that bankruptcy after quarter end, that correct.

Robert Dodd

Which was resolved at the quarter end right. I mean it was finalized and what I made was employed by adding two senior lenders, 20%, which obviously is lower than the current market. You have that Canada.So it's not a disagreement with evaluation, which is fine, or is it that it wasn't factored in yet because it hadn't been resolved yet?

Rajneesh Vig

Yes. So let me address your second question so the vacuum and our valuation procedures are done through third party, Tom and already taking it from them and they'll take into account. And the other is also other circumstances at the time of the valuation. The bankruptcy process is kind of a different process where evaluations that are being put forth, maybe more strategic, depending on where you are in the capital structure. And so will there be differences potentially.
Yes, are they are folks looking at it for the same purpose. Not necessarily. And I guess what I would say is we have maintained evaluation process and policies that we think are appropriate for the portfolio margins and the value that the bankruptcy itself would IKEA really a collective decision, something that was a more strategic tool to do some additional financing and clean up the capital structure and other liabilities.
But I will say for any company and not just Russia, but in general, Greg, there is a restructuring either in or out of court. You're just going to see, as you know, Robert, more volatility and maybe variance and marks until the ultimate realization. And that probably happens here. That probably happens with the other aggregators as happened with Edmentum, where ultimately we're doing a right by the process, giving all the information that's available, including the filing.
But ultimately, our realization is cash-based. And I think in the case of Edmentum, at least even though about the equity, it's volatile, we've taken our cash card and the original debt off at par plus and here in the effort is going to be on maintaining that and rigor on the valuation, but really focusing on the recovery on a realized basis, which will probably be, you know, a couple of a couple of years of work and restructuring.
But but yes, the language may differ from our our folks will take the operating results and I don't think they're going to necessarily take the bankruptcy valuation as as a value versus the information we give them around forecast projections and things of that sort of hopefully that answers your question.

Erik Cuellar

Gary and Robert, I don't know if that tool has their own Pat and Robert, as it relates to the three 31st mark, this loan actually has had some trading activity even through the bankruptcy process. So it's quoted and that's what drove the mark at three 31 data at.

Robert Dodd

Thank you. I understand there's a lot of moving parts in the net net switching with whom I know from experience on you expect activity in the markets have picked up from an amendment and then as rates decline, so is there that you're not looking at the curve today and it moves around a lot side rates are really protected decline materially as a tool this year based on the curve today, and it will change. It could certainly can you give us any more color? I mean, are you expecting the the activity in Lane level remained very moderate So long as rates stay here? Or are there other factors that can drive it?

Philip Tseng

Yes, that's a good point that you're right. The forward yield curve is dramatically different than it was, let's say, a few quarters ago, a few quarters ago, folks are expecting a rate to kind of stabilize down in that. It met high threes in about 18 months, but I think we're now looking at probably closer to mid mid fours. So you're right, rates are not expected to come down as dramatically.
So so we are moderating our expectations because they'll retouch will drive more higher equity valuations and more processes are probably get done. But I think the fact that rates have normalized here, I'm not sure folks are really expecting rates to increase given what's been published on the market last few weeks, but we are continuing to hear from market participants, whether they're investment bankers or private sponsors, that there are a lot of processes underway.
There are a lot of non process processes, but meaning there are a lot of premarketing of deals trying to do some price discovery on on fund assets. And so that tells us that there's some momentum underway. The second is we are continuing to hear from clients out there institutional investors that they are continuing to demand distributions come back from their GP. So they're putting more and more pressure in order to give more money for future vintages to get money back.
And so what you're seeing are GPs trying to really go test the market, but to have enough selling businesses out, right? And they are looking at other ways of distributing capital back to their clients like dividend recaps and maybe some continuation type vehicles given recaps, are areas that we've started to yield profiles that we funded over the course of the past several quarters for great assets where that delevered over time. We're happy to be putting good money at this the situation.
So I think we're cautious cautiously optimistic, Robert, but I agree now of the yield curve, not showing a more dramatic reduction is it something that we should be watching closely.

Robert Dodd

Got it. Thank you. And I appreciate the answer. And then I wonder if I can take it in a slightly different direction. Is what you mentioned as well that either it's harder to find favorable deal for them and certainly investigation like LBO financing and things like that over the last decade.
I mean, you have color that you guys have shown a lot more flexibility than some previous seasons willingness to do other kinds of deals in our ABL financing for retail leasing out other areas of the market you'll look at is that something we should expect to see increasingly over the mix couple of years if the market for LBOs maybe stays a little bit more moderate.
Should we see more of these other verticals for you guys or how you're thinking about operating in an environment, hypothetically where LBO activity remains modular, but a prolonged downturn?

Rajneesh Vig

Yes. Great question, Robert. I think that also you have insight that perhaps because beyond the public vehicle platform itself, which has adjusted well to the BDC was public. And I think as you highlight, we've always have you been able to pivot to things that are little, maybe I would say, opportunistic and risks, but areas that are maybe a little less picked over like the leasing.
And I think in aviation, I think that's sort of I think the one of the benefits of the merger that we don't speak about it as much is the greater scale also allows us to think through some of those things and perhaps take advantage of that.
I will say this as a as an additional element, even at our new LBO activity from visiting And keep in mind that the existing portfolio, even through the last couple of years and I expect going forward will always be a good source of deals, add-on investments because the portfolio remains healthy and those companies are good about taking advantage of that held elsewhere, whether it's through M&A or other types of consolidation, but to answer your question as we see things that are interesting areas where we can do the credit work and we feel comfortable with the industry or industry-leading asset, I would say and we will take advantage of that.
And I think the leasing is a good example. We've also done more ABS structures where there's less of a desire to be exposed to the entity, but more of a desire V covered by the industry asset. And I think that the environment is rising as opportunities. Our team is very well positioned to take advantage of that, but it's always going to be a credit first downside protection type type of approach.

Robert Dodd

Got it. Thank you.

Rajneesh Vig

Yes, thanks for the question.

Operator

Christopher Nolan, Ladenburg Thalmann.

Christopher Nolan

Christopher, you guys are Katie. Congratulations, Michaela, welcome and thank you, Chris. Yes, on the maturing debt paydown, you guys referred to earlier, what's the thought in terms of what you're going to refinance that is going to be on your bond issuance because you and for that, are you able to leverage your investment grade rating? Do you think? Or are you going to turn to bank financing?

Erik Cuellar

Yes, Chris, good question. We're certainly looking to address those those maturities in the near future, and we're very happy with what we've seen in the capital markets within our sector. So definitely that that will be a factor. We also like our current mix of secured versus unsecured.
And so all of that will come into play. We really no reason we haven't addressed that to this point was the pending transaction, and we just wanted to wait till that was done to be able to address the maturity, but we plan to do so in the near term.

Christopher Nolan

All right. In Burma revenue on hardware were Moody's whose loans we can resume review and private credit in general on business, does your funding costs really turn on just having an investment grade rating?

Rajneesh Vig

I mean, I think our I think any credit issuance is correlated to a rating of course, and a different post clarify that article two things was more broader based than honing in on our partition specifically, it wasn't a downgrade. It was an outlook change, which we have seen that before have we passed in the sector. So whether that actually really impacts the pricing, I think is TTBG. as we're exploring that.
I also think that movement in pricing has been favorable over the last 12 to 18 months. And you can see that in issuance issues and issues that hit the market and you had some very spiky, I think a comparable comparable deal. So I think you I think we're going to do.
Yes, the responsible thing and sort of exploring the options, obviously that the write-up is not irrelevant, but how relevant it is sort of TBD. And I think there fortunately, we've had a very long, well-established investment grade rating in the market. So I think hopefully our bond investors and others looking at it will roll out. Is that fine?

Christopher Nolan

Okay. So for me, if I could. Thank you.

Operator

Paul Johnson, KBW.

Paul Johnson

Yes, good afternoon and thanks for taking my questions. I'm just curious what was the driver of the higher other income this quarter? Was there anything in particular driving that amendments are dividends or anything like that.

Erik Cuellar

And yes, we did have $0.02 of nonrecurring income from just amendments in general in a couple of prepayments that we receive anytime that we have any prepayments that tends to accelerate any and amortized discount or exit fee that might be linked to that investment.

Paul Johnson

Yes, thanks for that. And then just kind of higher level with the portfolio. There's a decent amount of software businesses in the portfolio. And I know it's not something you've disclosed historically, but I'm just curious, I mean, are any of those and A. are our loans? And are you able to give any kind of sense of kind of what percent of the portfolio is ARR.?

Philip Tseng

Yes, they pop up. So we don't disclose the percentage of software here are deals. But you know, when we look at our portfolio in a more detailed way, our software and air are portfolio. Also, air is a subset of our software exposure, but generally speaking, it's been one of them sectors for us that held up the strongest and the way we think about software actually is not as a fit, a broad brush kind of industry exposure. We actually look at it more as a horizontal across a number of end market exposures.
So the way we think about it, for example, is a risk management software provider or insurance company for insurance companies that is more related to insurance industrial markets. And then alternatively, a a software provider that helps facilitate e-commerce transactions for retailers that that perhaps is in the retail consumer market market. So we actually view, yes, software exposure broadly is I'm less correlated as a group, but much more susceptible to risks on the end markets. And when we look at it in that fashion, it's actually quite it's quite diversified.

Paul Johnson

Got it. Appreciate that.

Philip Tseng

Thank you, Bob.

Operator

We do not have any further questions, so I'll turn the call back to the management team.

Rajneesh Vig

Thank you. We appreciate your participation on today's call. I would like to thank our team for all their hard work and dedication and our shareholders and capital partners for their confidence and continued support. Thanks for joining us.

Operator

This concludes today's call. Thank you, everyone, for joining us today. This concludes our call, and you may now disconnect your lines.