Portfolio Overview - Gladstone Capital's portfolio reached $750 million in fair value, diversified across 51 companies and 12 industries as of December 31, 2023[11, 43] - The investment portfolio is conservatively structured, with 90% in secured loans and 73% in lower-risk 1st lien loans[11, 34] - The weighted average leverage across the core proprietary loan portfolio is approximately 40x EBITDA[11, 34, 44] - The portfolio generates an attractive weighted average yield of 139% and supports an annual cash distribution of $099 per share[11] Financial Performance - New investments totaled $58 million during the quarter, including $47 million in add-on investments to existing portfolio companies[31] - Net originations for the quarter were strong at $36 million[31, 35] - Net investment income (NII) for the quarter increased 86% to $119 million, or $0274 per share, covering the current recurring common stock distribution by over 110%[34] - Total assets increased to $7666 million, with $750 million in investments at fair value as of December 31, 2023[58] Strategy and Market Dynamics - Gladstone Capital targets companies with $3-25 million in EBITDA and investments of $8-40 million[10, 24] - Approximately 78% of the portfolio is backed by private equity sponsors as of December 31, 2023[24] - Over 90% of private debt funds raised exceed $1 billion and are managed by firms focused on larger borrowers (>$25 million EBITDA)[30]

Investment Portfolio - As of December 31, 2023, the investment portfolio consisted of approximately 90.6% debt investments and 9.4% equity investments, at cost[158]. - During the three months ended December 31, 2023, the company invested $11.0 million in a new portfolio company and extended $47.0 million to existing portfolio companies, resulting in a total portfolio increase of $37.4 million at cost since September 30, 2023[165]. - The company has made 646 different loans or investments totaling approximately $2.7 billion since its initial public offering in August 2001[165]. - The company focuses on lower middle market companies with annual earnings before interest, taxes, depreciation, and amortization of $3 million to $25 million[159]. - As of December 31, 2023, the company had loans and equity investments in 51 companies with an aggregate cost basis of approximately $759.6 million, up from $722.3 million as of September 30, 2023[189]. Financial Performance - Investment income increased by 20.4% to $23.2 million for the three months ended December 31, 2023, compared to $19.3 million in the prior year[175]. - Interest income rose by 25.2% to $23.0 million, driven by an 11.5% increase in the weighted average principal balance of interest-bearing investments to $657.6 million[176]. - Net investment income for the three months ended December 31, 2023, was $11.9 million, a 36.8% increase from $8.7 million in the prior year[175]. - The net realized gain on investments was $0.3 million, a significant decrease from $9.3 million in the same period last year[183][184]. - Net unrealized appreciation of investments amounted to $7.8 million, reflecting improved financial performance of several portfolio companies[185]. Expenses and Distributions - Total expenses, net of credits, increased by 6.8% to $11.3 million, primarily due to a $0.8 million rise in the incentive fee earned by the Adviser[179]. - The net base management fee decreased by 30.5% to $1.7 million, attributed to increased credits for new deal origination fees[181]. - The company declared a total distribution of $0.2475 per common share for the quarter ending March 2024[172]. - Monthly cash distributions for the three months ended December 31, 2023, were $0.0825 per common share, totaling $10.8 million, compared to $0.07 per share and $7.4 million for the same period in 2022[193]. - The company paid distributions to common stockholders totaling approximately $469.8 million or $23.02 per share from inception through December 31, 2023[193]. Debt and Financing - The company has a total commitment amount of $233.7 million under its Credit Facility, which has been extended to October 2025[167]. - The effective interest rate on the Credit Facility increased to 12.7% from 6.9% year-over-year, influenced by rising interest rates[180]. - Net cash provided by financing activities for the three months ended December 31, 2023, was $26.4 million, primarily from $37.2 million in net borrowings on the Credit Facility[191]. - The Credit Facility had a total commitment amount of $233.7 million as of December 31, 2023, with an accordion feature allowing an increase to $350.0 million[201]. - Interest expense on debt obligations is estimated at $77.682 million over the contractual obligation periods[216]. Market and Risk Factors - The company is exposed to interest rate risk, which could materially affect its net investment income due to borrowing costs[227]. - The average risk rating for proprietary loans in the portfolio was 7.2 as of December 31, 2023, compared to 7.1 as of September 30, 2023[221]. - As of December 31, 2023, the portfolio of debt investments consisted of 88.3% variable rates and 11.7% fixed rates[228]. - There have been no material changes in the quantitative and qualitative market risk disclosures for the three months ended December 31, 2023[228]. Asset Coverage and Valuation - As of December 31, 2023, the asset coverage on senior securities representing indebtedness was 219.3%[171]. - The total portfolio investment at fair value increased to $749.985 million as of December 31, 2023, up from $621.739 million at the end of December 31, 2022[190]. - As of December 31, 2023, the company had a net worth of $670.1 million and an asset coverage ratio of 219.3% for senior securities representing indebtedness[207]. - The company anticipates issuing equity securities to obtain additional capital in the future, with the ability to issue up to an additional $151.1 million in securities under its shelf registration statement as of December 31, 2023[197]. Other Financial Metrics - The company recorded net unrealized depreciation of investments totaling $12.6 million for the three months ended December 31, 2022, mainly due to the exit of the investment in Targus Cayman HoldCo, Ltd.[186]. - The loan to Edge Adhesives Holdings, Inc. remained on non-accrual status with a cost basis of $6.1 million, representing 0.9% of the total debt investments[177]. - The average total assets subject to the base management fee increased to $741.7 million from $646.6 million year-over-year[182]. - The company completed an offering of $57.0 million aggregate principal amount of 7.75% Notes due 2028, with net proceeds of approximately $55.1 million[208]. - Total contractual obligations as of December 31, 2023, amount to $419.682 million, including $22.406 million due within one year[216].

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 __________________________ FORM 10-K __________________________ (Mark One) x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended September 30, 2023 OR o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________ to __________ Commission file number 814-00237 __________________________ GLADSTON ...

Gladstone Capital (NASDAQ:GLAD) Q3 2023 Earnings Conference Call July 27, 2023 8:30 AM ET Company Participants David Gladstone - Chief Executive Officer Michael LiCalsi - General Counsel and Secretary Bob Marcotte - President Nicole Schaltenbrand - Chief Financial Officer Conference Call Participants Mickey Schleien - Ladenburg Thalmann Kyle Joseph - Jefferies Group LLC Robert Dodd - Raymond James Financial, Inc. Operator Greetings, and welcome to the Gladstone Capital Corporation Third Quarter Earnings Cal ...

PART I. FINANCIAL INFORMATION [Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents the unaudited consolidated financial statements for Gladstone Capital Corporation, covering assets, operations, cash flows, and investments for the periods ended June 30, 2023 [Consolidated Statements of Assets and Liabilities](index=4&type=section&id=Consolidated%20Statements%20of%20Assets%20and%20Liabilities) Total assets and liabilities increased as of June 30, 2023, leading to a rise in total net assets and Net Asset Value per common share Consolidated Statements of Assets and Liabilities (in thousands, except per share data) | | June 30, 2023 | September 30, 2022 | | :--- | :--- | :--- | | **Total Investments, at fair value** | $715,324 | $649,615 | | **Total Assets** | $730,062 | $660,968 | | **Total Liabilities** | $372,116 | $345,481 | | **Total Net Assets** | $357,946 | $315,487 | | **Net Asset Value Per Common Share** | $9.27 | $9.08 | [Consolidated Statements of Operations](index=5&type=section&id=Consolidated%20Statements%20of%20Operations) For the nine months ended June 30, 2023, the company reported increased total investment income and net investment income, leading to a significant rise in net assets from operations Key Operational Results (in thousands) | | Nine Months Ended June 30, 2023 | Nine Months Ended June 30, 2022 | | :--- | :--- | :--- | | **Total Investment Income** | $62,678 | $47,211 | | **Total Expenses, net of credits** | $32,645 | $22,409 | | **Net Investment Income** | $30,033 | $24,802 | | **Net Realized and Unrealized Gain (Loss)** | $(465) | $(9,995) | | **Net Increase in Net Assets** | $29,568 | $14,807 | Per Share Results | | Nine Months Ended June 30, 2023 | Nine Months Ended June 30, 2022 | | :--- | :--- | :--- | | **Net Investment Income Per Share** | $0.82 | $0.72 | | **Net Increase in Net Assets Per Share** | $0.81 | $0.43 | [Consolidated Statements of Changes in Net Assets](index=6&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Net%20Assets) Net assets increased for the nine months ended June 30, 2023, driven by operational gains and common stock issuance, partially offset by stockholder distributions Changes in Net Assets for the Nine Months Ended June 30, 2023 (in thousands) | Description | Amount | | :--- | :--- | | **Net Assets, September 30, 2022** | **$315,487** | | Net Increase from Operations | $29,568 | | Distributions to Common Stockholders | $(24,737) | | Issuance of Common Stock, net | $37,728 | | **Net Assets, June 30, 2023** | **$357,946** | [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash used in operating activities was largely offset by cash provided by financing activities for the nine months ended June 30, 2023 Cash Flow Summary for the Nine Months Ended June 30 (in thousands) | | 2023 | 2022 | | :--- | :--- | :--- | | **Net cash provided by (used in) operating activities** | $(33,730) | $(18,603) | | **Net cash provided by (used in) financing activities** | $33,409 | $18,700 | | **Net Increase (Decrease) in Cash** | $(321) | $97 | | **Cash, End of Period** | $1,786 | $943 | [Consolidated Schedules of Investments](index=8&type=section&id=Consolidated%20Schedules%20of%20Investments) As of June 30, 2023, the investment portfolio comprised 52 companies, primarily in secured first lien debt, with significant concentrations in diversified service and manufacturing sectors Investment Portfolio Composition by Type (June 30, 2023) | Investment Type | Fair Value (in thousands) | % of Total Investments | | :--- | :--- | :--- | | Secured first lien debt | $533,237 | 74.5% | | Secured second lien debt | $120,036 | 16.8% | | Unsecured debt | $32 | 0.0% | | Preferred equity | $27,991 | 3.9% | | Common equity/equivalents | $34,028 | 4.8% | | **Total Investments** | **$715,324** | **100.0%** | - The investment portfolio consisted of 52 companies across 12 industries, with the five largest investments comprising **24.0%** of the total portfolio fair value[97](index=97&type=chunk) - The majority of investments (**98.5%** of fair value) are proprietary, with the remaining **1.5%** being syndicated investments[95](index=95&type=chunk)[96](index=96&type=chunk) [Notes to Consolidated Financial Statements](index=22&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section details the company's accounting policies, investment valuation, related party transactions, borrowings, distributions, and unfunded commitments - The company is an externally managed BDC and has elected to be treated as a RIC for tax purposes, aiming for current income and long-term capital appreciation by investing in debt and equity of U.S. lower middle market companies[50](index=50&type=chunk) - As of June 30, 2023, all investments were valued using Level 3 inputs, except for one investment valued using Level 2 inputs (Funko) and one using NAV as a practical expedient (Leeds)[79](index=79&type=chunk) - The company has a revolving credit facility with a commitment of **$223.7 million**, maturing in October 2027, and has outstanding notes payable totaling **$200.0 million** (2026 Notes and 2027 Notes)[124](index=124&type=chunk)[135](index=135&type=chunk)[137](index=137&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=48&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial condition and operating results, highlighting investment income, expenses, portfolio activity, and liquidity [Overview](index=48&type=section&id=Overview) The company operates as a BDC and RIC, targeting debt and equity investments in lower middle market companies, maintaining strong asset coverage - The company's investment objectives are to generate current income and long-term capital appreciation by investing in debt and equity of lower middle market companies[167](index=167&type=chunk) - The target portfolio composition is approximately **90.0%** debt and **10.0%** equity, at cost, with the actual portfolio at June 30, 2023, being **91.5%** debt and **8.5%** equity, at cost[167](index=167&type=chunk) - The company's asset coverage on senior securities was **195.8%** as of June 30, 2023, exceeding the required **150%** minimum[183](index=183&type=chunk) [Results of Operations](index=53&type=section&id=Results%20of%20Operations) Net investment income increased significantly for the nine months ended June 30, 2023, driven by higher interest income and realized gains on investments Comparison of Results of Operations (Nine Months Ended June 30) | | 2023 (in thousands) | 2022 (in thousands) | % Change | | :--- | :--- | :--- | :--- | | **Total Investment Income** | $62,678 | $47,211 | 32.8% | | **Total Expenses, net of credits** | $32,645 | $22,409 | 45.7% | | **Net Investment Income** | $30,033 | $24,802 | 21.1% | | **Net Realized Gain on Investments** | $12,633 | $5,384 | 134.6% | | **Net Unrealized Depreciation** | $(13,420) | $(15,259) | (12.1)% | - The increase in interest income was driven by a **21.3%** increase in the average principal balance of the investment portfolio and a rise in the weighted average yield to **13.0%** from **10.2%** due to higher market interest rates[208](index=208&type=chunk) - Net realized gains for the nine months ended June 30, 2023, were primarily driven by gains on the exits of Targus Cayman HoldCo, Ltd. (**$5.9 million**), Leeds Novamark Capital I, L.P. (**$4.4 million**), and PIC 360, LLC (**$3.7 million**)[216](index=216&type=chunk) [Liquidity and Capital Resources](index=60&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity is supported by operating cash flows, credit facility borrowings, and capital market activities, with significant unfunded commitments - During the nine months ended June 30, 2023, the company sold **3,865,890** shares of common stock under its at-the-market program, raising net proceeds of approximately **$37.6 million**[234](index=234&type=chunk) - The revolving credit facility was amended in June 2023, extending the revolving period to October 2025 and the maturity date to October 2027, with a total commitment of **$223.7 million**[239](index=239&type=chunk) Contractual Obligations as of June 30, 2023 (in thousands) | Contractual Obligations | Less than 1 Year | 1-3 Years | 3-5 Years | More than 5 Years | Total | | :--- | :--- | :--- | :--- | :--- | :--- | | Credit Facility | $0 | $163,800 | $0 | $0 | $163,800 | | Notes Payable | $0 | $150,000 | $50,000 | $0 | $200,000 | | Interest expense on debt | $23,539 | $34,557 | $1,563 | $0 | $59,659 | | **Total** | **$23,539** | **$348,357** | **$51,563** | **$0** | **$423,459** | [Quantitative and Qualitative Disclosures About Market Risk](index=68&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate risk, given its reliance on variable-rate debt investments and borrowing costs - The primary market risk exposure is interest rate risk, as the company's net investment income is dependent on the difference between its borrowing rates and investment yields[266](index=266&type=chunk) Debt Investment Portfolio by Interest Rate Type (as of June 30, 2023) | Rate Type | Percentage of Principal | | :--- | :--- | | Variable rates | 91.6% | | Fixed rates | 8.4% | | **Total** | **100.0%** | [Controls and Procedures](index=68&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting - Management concluded that as of June 30, 2023, the company's disclosure controls and procedures were effective at a reasonable assurance level[268](index=268&type=chunk) - No changes in internal controls occurred during the three months ended June 30, 2023, that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting[269](index=269&type=chunk) PART II. OTHER INFORMATION [Legal Proceedings](index=69&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently subject to any material legal proceedings and does not anticipate future material impacts - As of the report date, the company is not subject to any material legal proceedings, nor is it aware of any pending or threatened material legal proceedings[270](index=270&type=chunk) [Risk Factors](index=69&type=section&id=Item%201A.%20Risk%20Factors) The company's business is subject to various risks, with no new material changes reported since the last annual filing - There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended September 30, 2022[271](index=271&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=69&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section is reported as not applicable, indicating no unregistered equity sales or related use of proceeds - The company reported no unregistered sales of equity securities during the period[272](index=272&type=chunk) [Defaults Upon Senior Securities](index=69&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section is reported as not applicable, indicating no defaults on senior securities during the period - The company reported no defaults upon its senior securities[274](index=274&type=chunk) [Other Information](index=69&type=section&id=Item%205.%20Other%20Information) No officers or directors adopted or terminated Rule 10b5-1 trading plans during the third quarter of fiscal year 2023 - No officers or directors adopted or terminated a Rule 10b5-1 trading arrangement during the three months ended June 30, 2023[276](index=276&type=chunk) [Exhibits](index=69&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including credit agreement amendments and SOX certifications - Key exhibits filed include Amendment No. 4 to the Credit Agreement, Articles Supplementary for the Series A Preferred Stock, and CEO/CFO certifications under Sarbanes-Oxley Sections 302 and 906[278](index=278&type=chunk)[282](index=282&type=chunk)

[PART I. FINANCIAL INFORMATION](index=4&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section presents the unaudited consolidated financial statements and management's discussion and analysis for Gladstone Capital Corporation [Item 1. Financial Statements (Unaudited)](index=4&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents the unaudited consolidated financial statements, including balance sheets, income statements, cash flows, and investment schedules, for the periods ended March 31, 2023 [Consolidated Statements of Assets and Liabilities](index=4&type=section&id=Consolidated%20Statements%20of%20Assets%20and%20Liabilities) Total assets increased to **$699.8 million** as of March 31, 2023, driving total net assets to **$341.8 million** and NAV per share to **$9.19** Consolidated Balance Sheet Summary (in thousands, except per share data) | Metric | March 31, 2023 | September 30, 2022 | | :--- | :--- | :--- | | **Total Assets** | **$699,770** | **$660,968** | | Total Investments, at fair value | $678,759 | $649,615 | | Cash and cash equivalents | $8,923 | $2,011 | | **Total Liabilities** | **$357,959** | **$345,481** | | Line of credit at fair value | $152,439 | $141,800 | | Notes payable, net | $197,814 | $197,607 | | **Total Net Assets** | **$341,811** | **$315,487** | | **NAV per Common Share** | **$9.19** | **$9.08** | [Consolidated Statements of Operations](index=5&type=section&id=Consolidated%20Statements%20of%20Operations) Total investment income for the three months ended March 31, 2023, increased to **$20.6 million**, resulting in **$9.6 million** net investment income and **$0.33** EPS Three Months Ended March 31, (in thousands, except per share data) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Total Investment Income | $20,561 | $17,260 | | Total Expenses, net of credits | $10,929 | $8,565 | | **Net Investment Income** | **$9,632** | **$8,695** | | Net Realized and Unrealized Gain (Loss) | $2,354 | $(392) | | **Net Increase in Net Assets from Operations** | **$11,986** | **$8,303** | | **EPS from Operations (Basic and Diluted)** | **$0.33** | **$0.24** | Six Months Ended March 31, (in thousands, except per share data) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Total Investment Income | $39,855 | $33,427 | | Total Expenses, net of credits | $21,498 | $15,572 | | **Net Investment Income** | **$18,357** | **$17,855** | | Net Realized and Unrealized Gain (Loss) | $(673) | $2,551 | | **Net Increase in Net Assets from Operations** | **$17,684** | **$20,406** | | **EPS from Operations (Basic and Diluted)** | **$0.49** | **$0.59** | [Consolidated Statements of Changes in Net Assets](index=6&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Net%20Assets) Net assets increased by **$26.3 million** to **$341.8 million** for the six months ended March 31, 2023, driven by operations and common stock issuance Changes in Net Assets for the Six Months Ended March 31, 2023 (in thousands) | Description | Amount | | :--- | :--- | | Net Assets, September 30, 2022 | $315,487 | | Net Increase from Operations | $17,684 | | Distributions to Common Stockholders | $(15,655) | | Net Issuance of Common Stock | $24,316 | | **Net Assets, March 31, 2023** | **$341,811** | [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash used in operating activities was **$12.3 million** for the six months ended March 31, 2023, while financing activities provided **$19.3 million** Cash Flow Summary for the Six Months Ended March 31, (in thousands) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Net Cash Provided by (Used in) Operating Activities | $(12,316) | $37,664 | | Net Cash Provided by (Used in) Financing Activities | $19,258 | $(36,866) | | **Net Increase in Cash** | **$6,942** | **$798** | | Cash, End of Period | $9,049 | $1,644 | [Consolidated Schedules of Investments](index=8&type=section&id=Consolidated%20Schedules%20of%20Investments) The total investment portfolio's fair value reached **$678.8 million** as of March 31, 2023, primarily comprising **91.1%** debt investments, with **73.5%** in secured first lien debt Total Investments by Type as of March 31, 2023 | Security Type | Fair Value (in thousands) | % of Total Fair Value | | :--- | :--- | :--- | | Secured first lien debt | $498,947 | 73.5% | | Secured second lien debt | $117,438 | 17.3% | | Unsecured debt | $2,372 | 0.3% | | Total debt investments | $618,757 | 91.1% | | Preferred equity | $28,298 | 4.2% | | Common equity/equivalents | $31,704 | 4.7% | | Total equity investments | $60,002 | 8.9% | | **Total Investments** | **$678,759** | **100.0%** | - The investment portfolio comprises **$601.4 million** in Non-Control/Non-Affiliate, **$42.1 million** in Affiliate, and **$35.2 million** in Control investments at fair value[24](index=24&type=chunk) [Notes to Consolidated Financial Statements](index=22&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) Detailed notes explain accounting policies, investment valuation, related-party transactions, credit facilities, and unfunded commitments, clarifying the company's financial statements - The company operates as an externally managed BDC and RIC, investing in U.S. lower middle market companies with annual EBITDA between **$3 million** and **$15 million**[52](index=52&type=chunk) - One loan to Edge Adhesives Holdings, Inc. was on non-accrual status as of March 31, 2023, with a cost basis of **$6.1 million** and fair value of **$2.8 million**[71](index=71&type=chunk) - The company pays its Adviser a base management fee of **1.75%** of average total assets and a two-part incentive fee, with total fees before credits reaching **$14.1 million** for the six months ended March 31, 2023[106](index=106&type=chunk)[109](index=109&type=chunk)[115](index=115&type=chunk) - As of March 31, 2023, the company had a **$245 million** revolving credit facility with **$152.6 million** outstanding, and **$200 million** in aggregate principal of notes payable[125](index=125&type=chunk)[138](index=138&type=chunk)[140](index=140&type=chunk) - Unfunded commitments to portfolio companies, including lines of credit and delayed draw term loans, totaled **$58.2 million** as of March 31, 2023[157](index=157&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=47&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial condition, operating results, investment strategy, liquidity, and capital resources, highlighting portfolio activity and the impact of rising interest rates [Overview](index=47&type=section&id=Overview) The company's strategy focuses on U.S. lower middle-market investments, maintaining a **195.5%** asset coverage ratio and transitioning variable-rate investments to SOFR - Investment strategy targets U.S. lower middle market companies with annual EBITDA of **$3 million to $15 million**, with typical investments between **$8 million and $30 million**[167](index=167&type=chunk)[168](index=168&type=chunk) - For the six months ended March 31, 2023, the company invested **$75.1 million** (including **$48.0 million** in new companies and **$27.1 million** in existing ones) and received **$48.9 million** in net proceeds and repayments[175](index=175&type=chunk) - The company's asset coverage ratio on senior securities was **195.5%** as of March 31, 2023, exceeding the **150%** regulatory requirement[182](index=182&type=chunk) [Results of Operations](index=51&type=section&id=Results%20of%20Operations) Net investment income increased **10.8%** to **$9.6 million** for the three months ended March 31, 2023, driven by higher interest income, while the six-month net increase in net assets from operations decreased to **$17.7 million** Comparison of Three Months Ended March 31, (in thousands) | Metric | 2023 | 2022 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total investment income | $20,561 | $17,260 | $3,301 | 19.1% | | Total expenses, net of credits | $10,929 | $8,565 | $2,364 | 27.6% | | **Net Investment Income** | **$9,632** | **$8,695** | **$937** | **10.8%** | | Net gain (loss) from investments | $2,354 | $(392) | $2,746 | (700.5)% | Comparison of Six Months Ended March 31, (in thousands) | Metric | 2023 | 2022 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total investment income | $39,855 | $33,427 | $6,428 | 19.2% | | Total expenses, net of credits | $21,498 | $15,572 | $5,926 | 38.1% | | **Net Investment Income** | **$18,357** | **$17,855** | **$502** | **2.8%** | | Net gain (loss) from investments | $(673) | $2,551 | $(3,224) | (126.4)% | - Interest income increased due to a larger average portfolio balance of **$604.0 million** (vs **$514.4 million**) and a higher weighted average yield of **13.1%** (vs **10.2%**) for the quarter[189](index=189&type=chunk) - A net realized gain of **$9.7 million** for the six months ended March 31, 2023, primarily resulted from the sale of Targus Cayman HoldCo, Ltd. (**$5.9 million** gain) and distributions from Leeds Novamark Capital I, L.P. (**$4.4 million** gain)[212](index=212&type=chunk) [Liquidity and Capital Resources](index=59&type=section&id=Liquidity%20and%20Capital%20Resources) Liquidity is sourced from operations, a **$245 million** credit facility, and equity/debt offerings, with **$12.3 million** net cash used in operations and **$19.3 million** provided by financing activities for the six months ended March 31, 2023 - Net cash used in operating activities was **$12.3 million** for the six months ended March 31, 2023, a shift from **$37.7 million** provided in the prior year, primarily due to lower investment repayments[220](index=220&type=chunk) - Financing activities provided **$19.3 million** in cash, driven by **$24.7 million** from common stock issuance and **$10.8 million** in net borrowings, partially offset by **$15.7 million** in distributions[223](index=223&type=chunk) Contractual Obligations as of March 31, 2023 (in thousands) | Contractual Obligations | Less than 1 Year | 1-3 Years | 3-5 Years | Total | | :--- | :--- | :--- | :--- | :--- | | Credit Facility | $0 | $152,600 | $0 | $152,600 | | Notes Payable | $0 | $0 | $200,000 | $200,000 | | Interest expense on debt | $22,131 | $37,745 | $2,031 | $61,907 | | **Total** | **$22,131** | **$190,345** | **$202,031** | **$414,507** | [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=66&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate risk, with **91.5%** of its debt investment portfolio in variable-rate loans, making income sensitive to benchmark rate changes - The primary market risk exposure is interest rate risk, impacting the spread between borrowing costs and investment yields[259](index=259&type=chunk) - As of March 31, 2023, **91.5%** of the debt investment portfolio at principal comprised variable-rate instruments, with **8.5%** being fixed-rate[260](index=260&type=chunk) [Item 4. Controls and Procedures](index=66&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of March 31, 2023, with no material changes to internal control over financial reporting - Management concluded that disclosure controls and procedures were effective as of March 31, 2023[261](index=261&type=chunk) - No material changes in internal control over financial reporting occurred during the three months ended March 31, 2023[263](index=263&type=chunk) [PART II. OTHER INFORMATION](index=68&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section provides additional information including legal proceedings, risk factors, equity sales, and a list of exhibits [Item 1. Legal Proceedings](index=68&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently subject to any material legal proceedings, nor is it aware of any pending or threatened actions - The company reports no material legal proceedings as of the filing date[265](index=265&type=chunk) [Item 1A. Risk Factors](index=68&type=section&id=Item%201A.%20Risk%20Factors) No material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended September 30, 2022, have occurred - The company refers to its Form 10-K for the fiscal year ended September 30, 2022, for a discussion of risk factors, indicating no material changes[266](index=266&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=68&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This item is not applicable as no unregistered sales or issuer purchases of equity securities occurred during the period - No unregistered sales of equity securities or issuer purchases of equity securities were reported for the period[267](index=267&type=chunk)[268](index=268&type=chunk) [Item 6. Exhibits](index=68&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including credit agreement amendments and CEO/CFO certifications

Financial Data and Key Metrics Changes - Interest income for the quarter rose 18% to $18.4 million, driven by a 110 basis point increase in the weighted average loan yield to 12.3% and a 6.6% increase in the average investment balance to $589 million [11][30] - Net investment income increased by $1.2 million or 17% to $8.7 million, equating to $0.25 per share, while NAV declined slightly by $0.02 per share to $9.06 [13][36] - Total assets decreased to $640 million, with liabilities declining to $315 million, primarily due to a reduction in advances under the line of credit [34] Business Line Data and Key Metrics Changes - The company originated $11 million in new investments during the quarter, all of which were add-on investments to existing portfolio companies, while amortization, repayments, and exits totaled $39 million, resulting in a net decrease in the investment balance of $28 million [45] - The portfolio remains heavily weighted towards senior secured loans, which represent 72% of investments, with secured investments increasing to 91% of total investments [27] Market Data and Key Metrics Changes - The company noted that tightening credit conditions have pushed many borrowers to private capital markets, providing opportunities for the company to engage with a wider range of potential investments [53] - The current floating rate investments exceed floating rate liabilities by approximately $425 million, with expectations for net interest margin to increase by around $750,000 this quarter [28] Company Strategy and Development Direction - The company continues to focus on investing in growth-oriented middle market businesses, particularly those supported by private equity funds, aiming to grow debt investments by $50 million to $100 million over the year [17][26] - The management emphasized a conservative approach to underwriting in light of rising interest rates and economic uncertainties, ensuring that investments align with sustainable business trends [21][68] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the portfolio's ability to service its debt despite rising interest rates, noting that the majority of smaller credits are lowly leveraged [2][5] - The company is well-positioned for growth, with a strong capital structure and a recent increase in monthly distributions to common stockholders [16][37] Other Important Information - The company placed Edge Adhesives on non-accrual effective October 1, reversing less than $75,000 of previously accrued interest income [41] - The company has about $112 million of availability under its bank line, indicating a strong liquidity position [15] Q&A Session Summary Question: What prevented the company from closing new originations during the quarter? - The company had a thinner pipeline due to strong previous quarters and a significant step-up in underlying rates, leading to a more conservative approach in selecting industries to support [20][21] Question: How will potential Fed tightening impact the portfolio's ability to service its debt? - Management indicated that the portfolio is heavily weighted to senior secured loans, which should mitigate risks associated with rising rates [27] Question: How does the company view the current competitive landscape in the private capital markets? - The company noted that tightening credit conditions have reduced competition, allowing them to engage with borrowers that larger banks may have turned away [53][58]

Investor Presentation for the Fiscal Quarter Ended December 31, 2022 FINANCING FOR LOWER MIDDLE MARKET COMPANIES Legal Disclaimer Forward-Looking Statements: This presentation may include "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements may include comments with respect to our objectives and strategies, and the results of our operations and our busines ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark one): ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2022 OR o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ______ TO _______ COMMISSION FILE NUMBER: 814-00237 GLADSTONE CAPITAL CORPORATION (Exact name of registrant as specified in its charter) ...

Gladstone Capital Corp (NASDAQ:GLAD) Q4 2022 Results Conference Call November 15, 2022 8:30 AM ET Company Participants David Gladstone - Chairman & CEO Michael LiCalsi - General Counsel & Secretary Robert Marcotte - Executive MD & President Nicole Schaltenbrand - CFO & Treasurer Conference Call Participants Mickey Schleien - Ladenburg Thalmann & Co. Operator Greetings. Welcome to the Gladstone Capital Corporation Fourth Quarter and Year-End Earnings Call. At this time, all participants are in a listen-only ...