GLADSTONE CAPITAL CORP Q4 FY2024 earnings call

• Last quarter funding was $29 million with add-on investments; net originations were $16 million.
• Interest income rose marginally, but other income and total investment income declined.
• Net investment income decreased by $1.4 million.
• Portfolio performed well with senior loans at 70% due to equity appreciation.
• Realized and unrealized gains on the portfolio were $21 million, boosting ROE to 21.5% for the last 12 months.
• Exited investments in ARA and Perimeter Solutions; funded a $28.9 million second lien investment in Giving Home Health.
• Issued 476,000 shares under ATM program, raising $10.8 million.
• Monthly distributions for October, November, and December are $16.5 per common share; a supplemental distribution of $0.40 per share will be made on December 18th.

Last quarter, funding was $29 million with add-on investments to existing portfolio companies. Refinancing and amortizations were $13 million, resulting in net originations of $16 million. Total interest income rose marginally to $23.4 million for the quarter. Other income fell to $300,000, and total investment income declined by $2 million to $23.7 million. Net investment income declined by $1.4 million or 12% to $11 million. The portfolio continued to perform well, with senior loans at 70% of the portfolio due to equity appreciation. Realized and unrealized gains on the portfolio were $21 million, lifting ROE to 21.5% for the last 12 months. Assets totaled $812 million as of September 30th, with liabilities at $342 million, and NAV per share rose from $20.18 to $21.18.

• Deals in queue will more than exceed cash proceeds from exits.
• Expecting the most active quarter of originations for the company.
• Conservative leverage position at 73% of net assets, well positioned to absorb impact of lower SOFR rates and support shareholder distributions.

• Factors in Forms 10-Q, 10-K, and other SEC filings that may cause actual results to differ from forward-looking statements.

Q: Why have you issued common equity when the balance sheet is under levered and NII is near distribution?

A: It was to counter a significant concentrated event like the ARA exit, with modest issuance expecting to play through the liquidity event.

Q: Are you still looking for balance sheet leveraged debt to equity of 0.9% to 1.25%?

A: Will move back up, but current marginal funding cost of equity was below debt, so not pushing leverage as much.

Q: Any success fees receivable from the ARA exit?

A: No, it was a straight equity gain, not a material factor in investment activity.

Q: Outlook for DKI and EGs?

A: Optimism for DKI diminished; working on exit; elevating engagement on EGs, stepping up to realize on that investment.

Q: Preferred dividends reporting below the line?

A: Accounting rules dictate classification there, but considered above line for modeling.

Q: Indication of portfolio scale in December quarter?

A: Deals in queue will exceed cash proceeds, tracking flat, with potential additional exits by year-end.

Q: Working with commercial banks on blending solutions?

A: Will consider, depending on circumstance, and may see increase in subordinated/last-out financings as rates compress.

Q: Portfolio concentration issue?

A: Vintage not a major factor; sectors may have streaks, but selective in closing deals, not an issue for portfolio.