Gladstone Capital Corporation Q2 FY2026 earnings call

Bob Marcotte covered highlights: Fundings $44M, exits/prepayments $46M, interest income $23.2M, other income $2.8M, net investment income $11.8M, net portfolio appreciation $4.2M. Portfolio growth didn't materially impact investment mix. Healthcare concentration declined. Since end of quarter, funded two new portfolio companies. Nicole Schultenbrand provided financial results: Total interest income declined $700,000, total investment income $26M, total expenses rose $900,000, net investment income rose $11.8M. Balance sheet: Total assets $925M, liabilities $442M, net assets $483M, NAV per share $21.36. Monthly distributions $0.15 per common share.

Fundings last quarter totaled $44 million, including three new private equity-sponsored investments totaling $34 million and $10 million of additional advances to existing portfolio companies. Exits and prepayments were $46 million. Interest income declined to $23.2 million with a 30 basis point decline in average SOFR rates. Other income was $2.8 million. Net investment income rose $574,000 to $11.8 million. Net portfolio appreciation was $4.2 million. First lien debt and total debt investments were 70% and 90% of the portfolio cost, respectively. Healthcare-related industry concentration declined. Three non-earning debt investments were unchanged with a cost basis of $28.8 million. PIC income declined to $1.7 million. Total interest income in March quarter declined $700,000 to $23.2 million. Total investment income was $26 million. Total expenses rose $900,000. Net investment income rose $11.8 million. Net assets increased $15.5 million. Total assets were $925 million. Liabilities declined $3 million. Net assets rose $5.3 million. NAV per share rose from $21.13 to $21.36. Gross leverage was 91.8% of net assets. Monthly distributions for May and June were $0.15 per common share, annual run rate $1.80 per share.

Expecting a couple of exits in near term. Actively managing healthy pipeline of investment opportunities. Strength of investment outlook from lower middle market growth and add-on financing. Conservative leverage position, net debt at 92% of NAV. Current line of credit facility $365M, borrowing availability more than $150M. Monthly distributions for May and June $0.15 per common share, annual run rate $1.80 per share. Board to meet in July to determine next quarter's distributions.

Forward-looking statements based on estimates, assumptions, projections. Actual results may differ due to uncertainties in SEC filings. Non-accruals related to one particular investment. Energy costs in delivery of products, soft auto market, and potential impact of software market repricing on others. Private equity sponsors being diligent, deals not closing at same pace.

Q: Thoughts on future path of portfolio yield, spreads in April activity and pipeline compared to existing portfolio.

A: Activity on quarter had no compression in spreads, closing spreads on par with prior quarters, disciplined approach in lower middle market, less competitive pressure from larger transactions.

Q: Dividend income increase, whether from one large dividend or multiple companies, one-time or recurring.

A: Two components: prepayment and a large dividend from a scaling company, some additional distributions expected but characterized as one-time.

Q: Thoughts on repurchasing shares, view on good use of capital.

A: Seeing opportunities to execute plan and strategy, will focus on scaling capital base rather than buying shares.

Q: Observations on non-accruals, market stress, private equity sponsors.

A: Non-accruals up due to one investment performing well, no lot of energy-related businesses, private equity sponsors diligent, more caution up market.

Q: Spread expansion in lower middle market, competitive pressure.

A: Not expecting spread widening in market, less competitive spread pressure, well-positioned to compete with others.

Q: Concern about future net origination volume, other partners in lower middle market.

A: Focus on underlying businesses, long-term growth story, not financial transactions, larger funds not likely to come down market