GLADSTONE CAPITAL CORP Q2 FY2025 earnings call

• Last quarter's results: fundings $46M, exits/repayments $81M, net originations negative $35M. Excluding equity proceeds, yielding debt investments declined $20M. Interest income unchanged at $21.3M due to increase in average earning assets offset by decline in weighted average portfolio yield. Interest and financing costs rose 5.4%. Net management fees declined slightly. Net investment income $11.2M. Net realized gains $7.7M, ROE 18.6%. - Portfolio: Senior debt portfolio 71% of fair value, total debt holdings over 90%. Non-earning assets $53.7M at cost. Realized depreciation led by $4.7M gain on equity co-investment exit. Unrealized depreciation in three investments, but expect improving results in 2025. - Post-quarter events: Exited $42M senior debt investment in SpaceCo, completed EG's restructuring. - Pipeline: Current pipeline healthy, ~8-10 advanced deals, ~100-150M aggregate volume. Most traffic new, some add-ons. - Tariff impacts: Domestically focused companies in shipping, auto, manufacturing advantaged; no fundamental shift in investment strategy yet.

Fundings totaled $46 million including two new private equity sponsored investments. Exits and repayments were $81 million, net originations negative $35 million. Interest income was $21.3 million, unchanged from prior period. Interest and financing costs rose 5.4%. Net investment income was $11.2 million. Net realized gains were $7.7 million. Senior debt portfolio represented 71% of the fair value of the portfolio. Total debt holdings were just over 90% of the portfolio at fair value. Non-earning asset investments were unchanged at four companies totaling $53.7 million at cost or $29.8 million or 4.3% of assets at fair value.

• Monthly distributions for May and June: $0.165 per common share, annual run rate $1.98 per share. - Board to meet in July to determine next quarter's distribution. - Current pipeline healthy, expecting to grow portfolio, leveraging available bank credit facility.

• Market volatility impacting portfolio valuations. - Tariff implications affecting certain portfolio segments' performance. - Uncertainties in government contracts and their impact on portfolio companies. - Economic conditions potentially affecting operating results of portfolio investments.

Q: How do you see the portfolio and NAV performing with broadly syndicated loan and private credit spreads widening in April?

A: We don't have syndicated loans. Most widening at competitive edge. Our portfolio deals closed last quarter averaged north of seven over, average leverage under three turns, not expecting much degradation in value.

Q: How does the EG's restructuring impact realized loss?

A: It may generate a very small loss. Business is performing well, will have significant equity investment going forward with very minor loss.

Q: Update on pipeline size relative to three months ago and mix between new and add on opportunities?

A: Backlog healthy, ~8-10 advanced deals, ~100-150M aggregate volume. Currently ~80% new and 20% add-ons.

Q: Has there been a shift to investment strategy due to tariff implications?

A: No fundamental shift, but market evolving; more active in services, seeing shifts in contractor industrial services businesses, but not primary focus yet.