Capital Southwest(CSWC) - 2024 Q2 - Quarterly Report

PART I FINANCIAL INFORMATION Item 1. Consolidated Financial Statements The unaudited consolidated financial statements present the company's financial position, operations, changes in net assets, and cash flows for recent periods Consolidated Statements of Assets and Liabilities Total assets and net assets increased from March to September 2023, driven by growth in investments and cash | Metric | Sep 30, 2023 (in thousands) | Mar 31, 2023 (in thousands) | |:---|:---|:---| | Total Assets | $1,416,913 | $1,257,684 | | Total Liabilities | $759,139 | $667,276 | | Total Net Assets | $657,774 | $590,408 | | Net Asset Value per Share | $16.46 | $16.37 | - Total investments at fair value increased from $1,206,388 thousand on March 31, 2023, to $1,353,566 thousand on September 30, 2023[14] - Cash and cash equivalents increased from $21,585 thousand to $23,020 thousand[14] Consolidated Statements of Operations Net investment income grew significantly for the three and six months ended September 30, 2023, due to higher total investment income | Metric (in thousands) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Six Months Ended Sep 30, 2023 | Six Months Ended Sep 30, 2022 | |:---|:---|:---|:---|:---| | Total Investment Income | $42,777 | $26,799 | $83,138 | $49,342 | | Total Operating Expenses | $16,366 | $11,821 | $31,724 | $21,734 | | Net Investment Income | $27,194 | $14,444 | $51,750 | $26,882 | | Net Increase in Net Assets from Operations | $22,624 | $9,458 | $46,436 | $11,968 | | Net Investment Income per Share | $0.69 | $0.52 | $1.34 | $1.01 | - Net investment income for the three months ended September 30, 2023, increased by 88.3% year-over-year[7] - Net increase in net assets from operations for the six months ended September 30, 2023, increased by 288.0% year-over-year[7] Consolidated Statements of Changes in Net Assets Total net asset value increased due to net investment income and common stock issuances, partially offset by dividends | Metric (in thousands) | Balances at March 31, 2023 | Balances at September 30, 2023 | |:---|:---|:---| | Total Net Asset Value | $590,408 | $657,774 | | Issuance of common stock | $44,872 | $22,493 | | Net investment income | $24,556 | $27,194 | | Dividends to shareholders | $(22,916) | $(24,769) | | Net realized loss on investments | $(12,782) | $29 | | Net unrealized appreciation on investments | $12,038 | $(4,599) | - Total Net Asset Value increased by $67,366 thousand from March 31, 2023, to September 30, 2023[16] - Common stock issuances contributed significantly to the increase in net assets, with $44,872 thousand for the six months ended June 30, 2023, and $22,493 thousand for the three months ended September 30, 2023[16] Consolidated Statements of Cash Flows Operating activities used cash, which was largely offset by cash from financing activities, resulting in a net increase in cash | Metric (in thousands) | Six Months Ended Sep 30, 2023 | Six Months Ended Sep 30, 2022 | |:---|:---|:---| | Net Cash Used in Operating Activities | $(104,417) | $(95,558) | | Net Cash Used in Investing Activities | $(2) | $(156) | | Net Cash Provided by Financing Activities | $105,854 | $114,521 | | Net Increase in Cash and Cash Equivalents | $1,435 | $18,807 | | Cash and Cash Equivalents at End of Period | $23,020 | $30,238 | - Purchases and originations of investments were a major use of cash in operating activities, totaling $(206,011) thousand for the six months ended September 30, 2023[9] - Financing activities were primarily driven by borrowings under credit facilities ($165,000 thousand) and proceeds from common stock offerings ($67,390 thousand) for the six months ended September 30, 2023[9] Consolidated Schedule of Investments The investment portfolio is detailed by type, industry, and specific companies, showing principal, cost, and fair values | Investment Type | Fair Value (Sep 30, 2023, in thousands) | Cost (Sep 30, 2023, in thousands) | |:---|:---|:---| | Non-control/Non-affiliate investments | $1,132,316 | $1,117,439 | | Affiliate investments | $167,828 | $162,716 | | Control investments | $53,422 | $80,800 | | Total Investments | $1,353,566 | $1,360,955 | - As of September 30, 2023, the portfolio included investments in 95 companies, with an aggregate cost of $1,361.0 million[86] - The majority of investments are in Non-control/Non-affiliate categories, representing 83.7% of investment assets at fair value[591] Notes to Consolidated Financial Statements These notes explain the company's accounting policies, investment details, borrowings, and other financial information 1. ORGANIZATION AND BASIS OF PRESENTATION The company operates as an internally managed BDC providing financing to middle-market companies - CSWC is an internally managed BDC, focusing on customized debt and equity financing for lower middle market (LMM) and opportunistic upper middle market (UMM) companies[139][114] - The company operates a wholly-owned taxable subsidiary to help satisfy the Regulated Investment Company (RIC) tax requirement that at least 90% of gross income must be qualifying investment income[140][617] - CSWC's wholly-owned subsidiary, Capital Southwest SBIC I, LP (SBIC I), operates under an SBA license and is consolidated for financial reporting purposes[618][141] 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES This section outlines key accounting policies for fair value, income recognition, taxes, and stock-based compensation - Investments are stated at fair value, determined by the Valuation Committee subject to Board oversight, using significant unobservable Level 3 inputs[121][146] - Payment-in-kind (PIK) interest is added to the principal balance and recorded as interest income, affecting taxable income and required shareholder distributions even if cash is not yet collected[151] - CSWC maintains RIC tax treatment by distributing at least 90% of investment company taxable income, with a wholly-owned taxable subsidiary handling certain portfolio company interests to preserve RIC status[130][131][290] 3. INVESTMENTS The investment portfolio is detailed by type, industry, and geography, with first lien loans comprising the majority | Investment Type | Sep 30, 2023 Fair Value (in thousands) | Mar 31, 2023 Fair Value (in thousands) | |:---|:---|:---| | First lien loans | $1,141,280 | $1,000,984 | | Second lien loans | $37,034 | $35,820 | | Subordinated debt | $760 | $791 | | Preferred equity | $66,440 | $63,393 | | Common equity & warrants | $54,630 | $54,144 | | I-45 SLF LLC | $53,422 | $51,256 | | Total Investments | $1,353,566 | $1,206,388 | | Top 3 Industries (Sep 30, 2023) | Fair Value (in thousands) | % of Total Portfolio | |:---|:---|:---| | Healthcare Services | $176,397 | 13.0% | | Business Services | $163,911 | 12.1% | | Media & Marketing | $163,541 | 12.1% | | Top 3 Geographic Regions (Sep 30, 2023) | Fair Value (in thousands) | % of Total Portfolio | |:---|:---|:---| | Northeast | $337,330 | 24.9% | | West | $264,461 | 19.6% | | Southwest | $238,578 | 17.6% | 4. FAIR VALUE MEASUREMENTS The Valuation Committee oversees the fair value process for all portfolio investments, which use Level 3 inputs - The Valuation Committee, designated by the Board, determines the fair value of investments lacking readily available market quotations, using significant unobservable Level 3 inputs[166][195] - CSWC utilizes Market Approach, Income Approach, Enterprise Value Waterfall Approach, and NAV Valuation Method for valuing different security types[173][232] | Asset Category | Valuation Technique | Significant Unobservable Inputs | Weighted Average (Sep 30, 2023) | |:---|:---|:---|:---| | First lien loans | Income Approach | Discount Rate | 13.6% | | Preferred equity | Enterprise Value Waterfall Approach | EBITDA Multiple | 9.9x | | Common equity & warrants | Enterprise Value Waterfall Approach | Discount Rate | 16.6% | 5. BORROWINGS This note details outstanding borrowings, including the Credit Facility, various Notes, and SBA Debentures | Borrowing Type | Outstanding Balance (Sep 30, 2023, in thousands) | Recorded Value (Sep 30, 2023, in thousands) | |:---|:---|:---| | SBA Debentures | $130,000 | $126,376 | | Credit Facility | $250,000 | $250,000 | | January 2026 Notes | $140,000 | $139,220 | | October 2026 Notes | $150,000 | $147,633 | | August 2028 Notes | $71,875 | $69,438 | | Total | $741,875 | $732,667 | - The Credit Facility commitments increased from $400 million to $435 million, with an extended maturity to August 2, 2028[273] - The August 2028 Notes, issued in June 2023, bear interest at 7.75% per year and are listed on the Nasdaq Global Select Market[253] 6. INCOME TAXES CSWC maintains its status as a Regulated Investment Company (RIC) by distributing at least 90% of its taxable income - CSWC qualified for RIC tax treatment as of September 30, 2023, and intends to maintain this status, requiring timely distribution of at least 90% of investment company taxable income[287][259] - The taxable subsidiary helps CSWC hold interests in pass-through entities, ensuring compliance with RIC income requirements by taxing income at the subsidiary level[290] | Deferred Tax Item (in thousands) | Sep 30, 2023 | Mar 31, 2023 | |:---|:---|:---| | Total deferred tax asset | $1,125 | $219 | | Total deferred tax liabilities | $(11,483) | $(12,336) | | Total net deferred tax (liabilities) assets | $(10,358) | $(12,117) | 7. SHAREHOLDERS' EQUITY This note covers equity capital activities, including public offerings, the Equity ATM Program, and share management - In November 2022, CSWC completed an underwritten public equity offering, raising $46.0 million in gross proceeds ($44.1 million net) from 2,534,436 shares[294] | Equity ATM Program (in thousands) | Six Months Ended Sep 30, 2023 | Six Months Ended Sep 30, 2022 | |:---|:---|:---| | Number of shares sold | 3,627,458 | 3,644,568 | | Gross proceeds received | $68,416 | $73,666 | | Net proceeds received | $67,390 | $72,561 | | Weighted average price per share | $18.86 | $20.21 | - As of September 30, 2023, CSWC had $236.9 million available under its Equity ATM Program[323] - On April 26, 2023, the Board approved the cancellation of 2,339,512 shares of treasury stock[300] 8. STOCK BASED COMPENSATION PLANS This note describes the company's restricted stock plans for employees and non-employee directors - Restricted stock awards for employees generally vest in equal annual installments over a four-year period from the grant date[301] - Non-employee directors receive shares equivalent to $50,000 annually, vesting one year from the grant date[328] | Metric (in thousands) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | |:---|:---|:---| | Total share based compensation expense | $1,200 | $1,100 | | Related to non-employee directors | $100 | $35.5 | | Metric (in thousands) | Six Months Ended Sep 30, 2023 | Six Months Ended Sep 30, 2022 | |:---|:---|:---| | Total share based compensation expense | $2,200 | $1,900 | | Related to non-employee directors | $100 | $35.5 | - As of September 30, 2023, total remaining unrecognized compensation expense was $10.6 million, to be amortized over approximately 2.8 years[305] 9. OTHER EMPLOYEE COMPENSATION This note details the company's 401(k) plan, including eligibility and matching contributions - CSWC contributes up to 4.5% of eligible compensation to its 401(k) plan for full-time employees, with immediate vesting[331] | Metric (in thousands) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | |:---|:---|:---| | Matching contributions | $34.5 | $31.4 | | Metric (in thousands) | Six Months Ended Sep 30, 2023 | Six Months Ended Sep 30, 2022 | |:---|:---|:---| | Matching contributions | $100 | $100 | 10. COMMITMENTS AND CONTINGENCIES This note outlines unfunded commitments to portfolio companies and operating lease obligations | Commitment Type (in thousands) | Sep 30, 2023 | Mar 31, 2023 | |:---|:---|:---| | Total Revolving Loans | $105,715 | $87,554 | | Total Delayed Draw Term Loans | $25,147 | $37,083 | | Total Unfunded Debt Commitments | $130,862 | $124,637 | | Unfunded Equity Commitments (in thousands) | Sep 30, 2023 | Mar 31, 2023 | |:---|:---|:---| | Catbird NYC, LLC | $125 | $125 | | Infolinks Media Buyco, LLC | $412 | $412 | | Total Unfunded Equity Commitments | $537 | $537 | | Operating Lease Payments (in thousands) | Amount | |:---|:---| | Year ending March 31, 2024 | $206 | | 2025 | $416 | | 2026 | $426 | | 2027 | $436 | | 2028 | $446 | | Thereafter | $2,132 | | Total | $4,062 | - As of September 30, 2023, CSWC had $0.9 million in letters of credit issued and outstanding on behalf of portfolio companies[312] 11. RELATED PARTY TRANSACTIONS This note discloses transactions with I-45 SLF LLC, a joint venture, including dividends and administrative fees - CSWC had dividends receivable from I-45 SLF LLC of $2.2 million as of September 30, 2023, and $1.9 million as of March 31, 2023[364] - Administrative fee income from I-45 SLF LLC was $21.0 thousand for the three months ended September 30, 2023, and $45.4 thousand for the six months ended September 30, 2023[364] 12. SUMMARY OF PER SHARE INFORMATION This note provides key per share data, financial ratios, and total investment returns for recent periods | Per Share Data | Six Months Ended Sep 30, 2023 | Six Months Ended Sep 30, 2022 | |:---|:---|:---| | Investment income | $2.15 | $1.84 | | Operating expenses | $(0.82) | $(0.81) | | Net investment income | $1.34 | $1.01 | | Net asset value (End of period) | $16.46 | $16.53 | | Weighted-average basic and diluted shares outstanding | 38,654 | 26,757 | | Ratios and Supplemental Data | Six Months Ended Sep 30, 2023 | Six Months Ended Sep 30, 2022 | |:---|:---|:---| | Ratio of net investment income to average net assets | 16.15% | 12.07% | | Total investment return | 36.14% | (24.06)% | | Total return based on change in NAV | 7.94% | 4.74% | 13. SUBSEQUENT EVENTS This note reports on a quarterly dividend declaration and an increase in authorized common stock shares - On October 25, 2023, the Board declared a total dividend of $0.63 per share ($0.57 regular, $0.06 supplemental) for the quarter ending December 31, 2023[344] - On October 11, 2023, authorized common stock shares were increased from 40,000,000 to 75,000,000 after shareholder approval[367] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section analyzes the company's financial condition, investment strategy, portfolio, asset quality, and operational results OVERVIEW The company is an internally managed BDC providing customized financing to lower and upper middle market companies - CSWC is an internally managed BDC specializing in customized debt and equity financing for LMM companies (EBITDA $3.0M-$20.0M) and opportunistic loans for UMM companies (EBITDA >$20.0M)[352][406] - The company's internally managed structure provides a beneficial operating expense structure, with LTM operating expenses as a percentage of LTM average total assets at 1.84% for the six months ended September 30, 2023[354] - The investment objective is to produce attractive risk-adjusted returns by generating current income from debt investments and capital appreciation from equity investments[375] CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES Investment valuation and revenue recognition are the most critical accounting estimates due to the portfolio's size - Investment valuation and revenue recognition are identified as the most critical accounting estimates[378][408] - The investment portfolio at fair value represented approximately 95.5% of total assets as of September 30, 2023[409] - Fair value for the investment portfolio is determined in good faith by the Valuation Committee, consistent with 1940 Act requirements and ASC 820[410][409] INVESTMENT PORTFOLIO COMPOSITION The investment portfolio grew to $1.35 billion, consisting primarily of floating-rate debt investments across 95 companies - Total investment portfolio value increased to $1,353.6 million as of September 30, 2023, from $1,206.4 million as of March 31, 2023[383] - As of September 30, 2023, 97.2% of the debt investment portfolio (at fair value) bore interest at floating rates, with 100.0% subject to contractual minimum interest rates[414] | Metric | Sep 30, 2023 | Mar 31, 2023 | |:---|:---|:---| | Number of portfolio companies | 94 | 85 | | % of portfolio at fair value - debt | 90.7% | 89.8% | | % of investments at fair value secured by first lien | 87.8% | 86.7% | | Weighted average annual effective yield on debt investments | 13.5% | 12.8% | | Weighted average leverage through CSWC security | 3.6x | 4.0x | Portfolio Asset Quality The majority of the debt portfolio is performing as expected, with a small portion on non-accrual status - CSWC employs an internally developed 1-4 investment rating system to monitor debt investment performance and expected returns[50] | Investment Rating | Debt Investments at Fair Value (Sep 30, 2023, in thousands) | Percentage of Debt Portfolio | |:---|:---|:---| | 1 (Least Risk) | $162,854 | 13.8% | | 2 (Performing as Expected) | $980,104 | 83.1% | | 3 (Below Expectations) | $29,513 | 2.5% | | 4 (Substantially Increased Risk) | $6,603 | 0.6% | | Total | $1,179,074 | 100.0% | - Investments on non-accrual status represented approximately 2.0% of the total investment portfolio's fair value and 2.9% of its cost as of September 30, 2023[228][381] Investment Activity The six months ended September 30, 2023, saw significant new and follow-on investments, net of repayments and sales - For the six months ended September 30, 2023, new debt investments totaled $146.0 million, follow-on debt investments were $40.5 million, and equity investments totaled $7.5 million[229] - Proceeds from sales of debt and equity investments totaled $17.3 million, and contractual principal repayments were approximately $31.5 million[229] - Compared to the same period in 2022, new debt investments decreased slightly from $156.1 million to $146.0 million, while total investment originations remained robust[229][230] RESULTS OF OPERATIONS Net investment income and net assets from operations increased substantially due to higher investment income Comparison of three months ended September 30, 2023 and September 30, 2022 Net investment income increased 88.3% year-over-year, driven by a 59.6% rise in total investment income | Metric (in thousands) | Sep 30, 2023 | Sep 30, 2022 | Net Change Amount | % Change | |:---|:---|:---|:---|:---| | Total investment income | $42,777 | $26,799 | $15,978 | 59.6% | | Interest expense | $(10,481) | $(6,629) | $(3,852) | 58.1% | | Other operating expenses | $(5,885) | $(5,192) | $(693) | 13.3% | | Net investment income | $27,194 | $14,444 | $12,750 | 88.3% | | Net increase (decrease) in net assets from operations | $22,624 | $9,458 | $13,166 | 139.2% | - Total investment income increased by $16.0 million, primarily from a 29.6% increase in the cost basis of debt investments and rising benchmark interest rates[203] - Interest expense increased by $3.9 million due to higher average borrowings and an increase in the weighted average interest rate on total debt from 3.93% to 5.42%[205][206] - Net unrealized depreciation on investments totaled $4.6 million for the three months ended September 30, 2023[174] Comparison of six months ended September 30, 2023 and September 30, 2022 Net investment income surged 92.5% year-over-year, driven by a 68.5% increase in total investment income | Metric (in thousands) | Sep 30, 2023 | Sep 30, 2022 | Net Change Amount | % Change | |:---|:---|:---|:---|:---| | Total investment income | $83,138 | $49,342 | $33,796 | 68.5% | | Interest expense | $(20,162) | $(12,113) | $(8,049) | 66.4% | | Other operating expenses | $(11,562) | $(9,621) | $(1,941) | 20.2% | | Net investment income | $51,750 | $26,882 | $24,868 | 92.5% | | Net increase in net assets from operations | $46,436 | $11,968 | $34,468 | 288.0% | - Total investment income increased by $33.8 million, primarily due to a 29.6% increase in the cost basis of debt investments and rising benchmark interest rates[84] - Interest expense increased by $8.0 million, driven by higher average borrowings and an increase in the weighted average interest rate on total debt from 3.73% to 5.33%[86] - Net unrealized appreciation on investments was $7.4 million for the six months ended September 30, 2023, a significant improvement from net unrealized depreciation of $8.6 million in the prior year[83][455] FINANCIAL LIQUIDITY AND CAPITAL RESOURCES Liquidity is generated from operations, public offerings, and credit facilities, and is considered adequate for the next year - Primary liquidity sources include cash flows from operations, net proceeds from public offerings of debt and equity, advances from the Credit Facility, and SBA Debentures[432] - Management believes current liquidity is adequate to meet needs for the next twelve months, with plans to fund investment activities through existing cash, operating cash flows, and available borrowings[432] - As of September 30, 2023, the Company's asset coverage ratio was 229%, exceeding the regulatory requirement of 150%[462][453] Cash Flows Cash increased by $1.4 million, as cash from financing activities offset cash used in operating activities - Net increase in cash and cash equivalents was $1.4 million for the six months ended September 30, 2023[433] - Operating activities used $104.4 million in cash, mainly due to $206.0 million in new portfolio investments[433] - Financing activities provided $105.9 million, primarily from August 2028 Notes ($69.7 million), Equity ATM Program ($67.4 million), and Credit Facility borrowings ($15.0 million)[433] Financing Transactions Recent financing activities include an increased Credit Facility, issuance of August 2028 Notes, and SBA Debenture utilization - The Credit Facility commitments increased from $400 million to $435 million, with an uncommitted accordion feature up to $750 million, and maturity extended to August 2, 2028[435] - The August 2028 Notes, issued in June 2023, totaled approximately $71.9 million in principal amount, bearing 7.75% interest[445] - As of September 30, 2023, all approved SBA Debenture commitments have been utilized, with an aggregate principal amount of $130.0 million outstanding[500][476] Equity Capital Activities The company raised capital through a public equity offering and its Equity ATM Program, and also cancelled treasury stock - A public equity offering in November 2022 raised $46.0 million in gross proceeds from 2,534,436 shares[449] | Equity ATM Program (in thousands) | Six Months Ended Sep 30, 2023 | Six Months Ended Sep 30, 2022 | |:---|:---|:---| | Number of shares sold | 3,627,458 | 3,644,568 | | Gross proceeds received | $68,416 | $73,666 | | Net proceeds received | $67,390 | $72,561 | - As of September 30, 2023, $236.9 million remained available under the Equity ATM Program[450] - On April 26, 2023, 2,339,512 shares of treasury stock were cancelled, increasing authorized and unissued shares[481] Contractual Obligations Contractual obligations include operating leases and principal and interest payments on various debt instruments | Contractual Obligations (in thousands) | Total | Less than 1 Year | 1-3 Years | 3-5 Years | More Than 5 Years | |:---|:---|:---|:---|:---|:---| | Operating lease obligations | $4,062 | $411 | $852 | $893 | $1,906 | | Credit Facility | $344,513 | $19,577 | $39,046 | $285,890 | — | | January 2026 Notes | $155,750 | $6,300 | $149,450 | — | — | | October 2026 Notes | $167,718 | $5,062 | $10,125 | $152,531 | — | | August 2028 Notes | $99,727 | $5,570 | $11,141 | $83,016 | — | | Total | $771,770 | $36,920 | $210,614 | $522,330 | $1,906 | OFF-BALANCE SHEET ARRANGEMENTS Off-balance sheet arrangements consist of unfunded debt and equity commitments to portfolio companies - Total unfunded commitments were approximately $131.4 million as of September 30, 2023[508] - These commitments include $0.9 million in letters of credit issued and outstanding on behalf of portfolio companies, expiring between February and August 2024[508] - CSWC believes its assets, including $23.0 million in cash and $184.4 million in available Credit Facility borrowings, provide adequate coverage for unfunded commitments[483] RECENT DEVELOPMENTS Recent developments include a quarterly dividend declaration and an increase in authorized common stock - On October 25, 2023, the Board of Directors declared a total dividend of $0.63 per share ($0.57 regular, $0.06 supplemental) for the quarter ending December 31, 2023[510] - On October 11, 2023, authorized common stock shares were increased from 40,000,000 to 75,000,000 after shareholder approval[484] Item 3. Quantitative and Qualitative Disclosures About Market Risk This section discusses the company's exposure to market risks, particularly interest rate fluctuations Interest Rate Risk The company is exposed to interest rate risk due to its portfolio of floating-rate investments and liabilities - As of September 30, 2023, approximately 97.2% of CSWC's debt investment portfolio (at fair value) bore interest at floating rates, all subject to contractual minimum interest rates[487] - The Credit Facility accrues interest at Adjusted Term SOFR plus 2.15% per annum, while other debt has fixed interest rates[487][513] | Basis Point Change | Increase (decrease) in net investment income (in thousands) | Increase (decrease) net investment income per share | |:---|:---|:---| | (200 bps) | $(19,110) | $(0.48) | | (150 bps) | $(14,333) | $(0.36) | | (100 bps) | $(9,555) | $(0.24) | | (50 bps) | $(4,778) | $(0.12) | | 50 bps | $4,778 | $0.12 | - CSWC regularly assesses its interest rate risk but was not a party to any hedging arrangements as of September 30, 2023[513] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal control - Disclosure controls and procedures were deemed effective as of September 30, 2023[517] - No changes in internal control over financial reporting materially affected, or are reasonably likely to materially affect, internal control over financial reporting during the three months ended September 30, 2023[491] PART II OTHER INFORMATION Item 1. Legal Proceedings The company is not currently involved in any material legal proceedings - The company has no currently pending material legal proceedings to which it is a party or to which any of its assets are subject[520] Item 1A. Risk Factors Risk factors have been updated to reflect the transition from LIBOR to alternative reference rates like SOFR - The primary material change to risk factors relates to the replacement of LIBOR with alternative reference rates, such as CME Term SOFR[531][493] - Concerns exist that alternative reference rates may not yield the same or similar economic results as LIBOR over the life of transactions[521][493] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section reports on the company's share repurchase program, with no activity in the recent quarter Issuer Purchases of Equity Securities No shares were repurchased under the authorized $20 million share repurchase program during the quarter - The Board of Directors approved a share repurchase program authorizing the company to repurchase up to $20 million of its outstanding common stock[523] - No shares were repurchased under the share repurchase program during the three months ended September 30, 2023[524] Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities to report - Not applicable, indicating no defaults upon senior securities[497] Item 4. Mine Safety Disclosures There are no mine safety disclosures to report - None, indicating no mine safety disclosures[526] Item 5. Other Information No directors or officers entered into Rule 10b5-1(c) or non-Rule 10b5-1 trading arrangements - No director or officer entered into any Rule 10b5-1(c) trading arrangements or non-Rule 10b5-1 trading arrangements during the period[498] Item 6. Exhibits This section lists all exhibits filed with the report, including organizational documents, debt agreements, and certifications - Exhibits include organizational documents, debt instruments, the Third Amended and Restated Senior Secured Revolving Credit Agreement, and certifications[538] Signatures SIGNATURES The report is duly signed by the President and CEO and the CFO as of October 31, 2023 - The report was signed by Bowen S. Diehl, President and Chief Executive Officer, and Michael S. Sarner, Chief Financial Officer, Secretary, and Treasurer, on October 31, 2023[541]