Gladstone Capital Corporation

For the June quarter, interest income rose $1.1 million, or 4.7%, to $24.3 million as average earning assets increased $28.4 million, or 3.6%, and the weighted average yield remained 11.8%. Total investment income was $24.5 million, down $1.5 million from the prior quarter because prepayment fee income and dividends were lower. Net investment income was $11 million, or $0.49 per share, and net increase in net assets from operations was $13.3 million, or $0.59 per share. NAV per share rose from $21.36 to $21.50, and net assets increased to $485.7 million. Forward-looking commentary pointed to a strong pipeline, expected quarterly originations of about $75 million plus or minus, repayments of $35 million to $50 million per quarter, and continued use of floating-rate bank facilities; monthly distributions for August and September were set at $0.15 per share, an annual run rate of $1.80 per share.

Bob Marcotte said the company is seeing a strong market for lower middle market opportunities, especially add-ons to existing portfolio companies, and expects that to continue through the balance of the year. He emphasized that new investments are still being made at attractive spreads in the high 6s to low 7s, while average leverage on those loans remains under 3x EBITDA. His tone was constructive but measured, noting that the firm is being selective in sectors with heavy competition and higher credit risk.

Nicole Schaltenbrand said total interest income increased to $24.3 million because average earning assets rose, while the portfolio yield stayed flat at 11.8%. She highlighted that total expenses declined $700,000, helped by lower net management fees and lower legal expenses, though interest expense rose $700,000 due to added borrowings, including the new $60 million note due in December 2029. She also detailed balance sheet strength, with total assets of $970 million, liabilities of $439 million, net assets of $485.7 million, and gross leverage at 100% of net assets. She noted accumulated spillover income was a little over $6 million and that monthly common dividends for August and September were set at $0.15 per share.

Analysts focused on the size and quality of the pipeline, spread levels, the pace of originations, and whether the company is seeing a consumer and macro bifurcation. Management said the pipeline is strong, originations of about $75 million per quarter are achievable, and repayments have slowed to roughly $35 million to $50 million per quarter, supporting modest portfolio growth. On consumer exposure, management said most of the portfolio is industrial and manufacturing oriented, but Eegee’s and a few other consumer-facing assets are facing pressure; Eegee’s was described as a tougher situation in Southern Arizona with additional investment likely needed to reposition the business. Management also clarified that the earlier reference to “high 6s, low 7s” referred to loan spreads, not leverage.