GLADSTONE CAPITAL CORP Q1 FY2025 earnings call

• Fundings of $152 million included six new portfolio companies. Exits and prepayments reached $165 million. - Investment income declined but net investment income increased. - Reinvested ARA proceeds boosted senior and total debt holdings. - Foreclosed on EG's, undergoing operational restructuring. - Exited two additional portfolio investments and closed two new ones totaling $38 million. - Monthly distributions for January-March are $0.165 per share, annual run rate $1.98. Board to determine next quarter's distribution in April.

Fundings were strong last quarter, totaling $152 million including six new portfolio companies. Exits and prepayments spiked to $165 million, but total debt investments increased by $45 million. Investment income declined by $1.8 million to $22 million due to lower SOFR rates. Net investment income increased by $300,000 to $11.2 million. Total assets were $815 million, with investments at fair value at $799 million. Senior debt holdings were 73.4% of the portfolio fair value, and total debt holdings were 89.3%. Nonearning investments were $52.7 million at cost. Average earning assets declined 2.6%, interest and financing costs decreased, and net management fees declined with new deal origination fee credits.

• Expect elevated exits and prepayments for next 1-2 quarters. - Focus on redeploying exit proceeds. - Healthy lower middle market financing opportunities under $10M EBITDA. - Consider teaming with banks for blended financings. - Continue benefiting from incumbent position in newer growth-oriented businesses. - Ended quarter with 70% leverage, bank facility available for growth and distributions.

• Factors affecting forward-looking statements as per SEC filings. - Auto market exposure due to supply chains and tariffs. - Uncertainties in foreign operations and sourcing.

Q: What attracts Gladstone to the restaurant sector and what's looked for in restaurant deals?

A: Compelling business model, margin profile, loyal customer base, disciplined leverage structure, sustainable margins, efficient labor models, and restaurants with reasonable payback periods.

Q: Would Gladstone invest in more liquid credits with liquidity on balance sheet?

A: No, as bank lines are not cheap, marginal return on equity would be low, and lack of control in liquid credits.

Q: Outlook for engineered manufacturing tech?

A: Impacted by large customer in-sourcing, but retooling sales efforts, benefiting from data center and supply chain trends, monitoring EBITDA momentum.

Q: Timeframe for EG's to become income producing or liquidated?

A: Hoping significantly less than six months.

Q: Leverage target and timeline?

A: Mission to hold serve, expect to move leverage up, need to address capital costs and yield.

Q: Exposure to tariffs and government contracts?

A: Auto market with supply chains in Mexico is a concern, monitoring closely.