GLADSTONE CAPITAL CORP Q4 FY2025 earnings call

• Last quarter fundings totaled $126.6 million with five new private equity-sponsored investments. Net originations were $103.1 million. - Interest income rose 14% to $23.8 million. - Net investment income was $11.4 million. - Fiscal 2025 saw $397 million of originations from 15 new investments, contributing to a $63 million increase in fair value of the investment portfolio. - Refinanced debt, including refunding 2026 debt maturity with a $149 million convertible issue and calling $57 million of 2028 notes. - Continues to see a healthy flow of attractive investment opportunities and remains cautiously optimistic about the lower middle market.

Fundings last quarter totaled $126.6 million with five new private equity-sponsored investments. Exits and prepayments were $23.5 million, so net originations were $103.1 million. Interest income rose 14% to $23.8 million with a 16.2% increase in average earning assets and a 30 basis point decline in the weighted average portfolio yield to 12.5%. Net investment income for the period was $11.4 million. Total assets were $908 million as of September 30, consisting of $859 million in investments at fair value and $49 million in cash and other assets. Liabilities were $406 million, with the completion of a $149.5 million convertible note issue. Net assets were $482 million, and NAV per share rose to $21.34. Revenue contribution details weren't explicitly broken down by product segments beyond general fundings, exits, interest income, etc.

• Bob mentioned potential accelerating portfolio growth in fiscal 2026 due to lower turnover in the portfolio and expanded private equity partnerships. - Consideration of share repurchases as the stock is in a range where it's a discussion point. - Dividend reduction was done to be responsible and manage potential challenges from further rate compressions and maintain financial flexibility.

• Risk of spread erosion, leverage escalation, and financing terms erosion in the larger middle market. - Impact of further base rate compressions on interest costs and the challenge it poses to maintaining profitability.

Q: Could you give an update on the pipeline in terms of size and mix of new versus add-on opportunities?

A: Fourth quarter is strong. Tracking around $100 million of potential volume, with a barbell of transactions including add-ons for existing deals (larger EBITDA range) and new smaller originations.

Q: How much of the decline in portfolio yield was due to lower base rates versus new originations?

A: Most was due to lower base rates, but new originations also brought it down a bit.

Q: What's the outlook on WBXL which was on non-accrual?

A: It's had eighteen straight months of sales and profitability increases, EBITDA positive and growing, but not yet an earning asset.

Q: Any consideration of material share repurchases?

A: It's a discussion point as the stock is in a range where it's relevant.

Q: Thinking behind the dividend reduction?

A: Trying to be responsible, considering potential rate compressions and maintaining financial flexibility.

Q: Risks of elevated repayment activity going into 2026?

A: Maturity of investments and private equity's appreciation plans are factors, but net-net confident in growth even if some turn over.

Q: Any cracks developing in the portfolio?

A: There are some businesses with challenges, but no LTV exposure issues as leverage position is well covered by enterprise value.