Gladstone Capital Corp (NASDAQ:GLAD) Q3 2022 Earnings Conference Call July 28, 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 Robert Dodd - Raymond James & Associates Mickey Schleien - Ladenburg Thalmann & Co. Operator Greetings. Welcome to the Gladstone Capital Corporation Third Quarter Earnings Call. [Operator Instructions]. Ple ...

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Item 1. Financial Statements (Unaudited)](index=3&type=section&id=Item%201.%20Financial%20Statements%20(Unaudited)) This section presents Gladstone Capital Corporation's unaudited consolidated financial statements as of June 30, 2022, including statements of assets and liabilities, operations, changes in net assets, cash flows, and a detailed schedule of investments [Consolidated Statements of Assets and Liabilities](index=3&type=section&id=Consolidated%20Statements%20of%20Assets%20and%20Liabilities) Total assets increased to **$597.2 million**, liabilities to **$284.3 million**, resulting in a slight decrease in net assets to **$312.9 million** and NAV per share of **$9.12** Consolidated Statements of Assets and Liabilities (in thousands) | Metric | June 30, 2022 | September 30, 2021 | | :--- | :--- | :--- | | **Total Investments, at fair value** | $586,462 | $557,612 | | **Total Assets** | $597,244 | $566,500 | | **Total Liabilities** | $284,323 | $248,061 | | **Total Net Assets** | $312,921 | $318,439 | | **Net Asset Value Per Common Share** | $9.12 | $9.28 | [Consolidated Statements of Operations](index=4&type=section&id=Consolidated%20Statements%20of%20Operations) Net Investment Income increased to **$6.9 million** for the three months and **$24.8 million** for nine months, but net realized and unrealized losses led to a **$5.6 million** net decrease in net assets for the quarter Key Operational Data (in thousands) | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Nine Months Ended June 30, 2022 | Nine Months Ended June 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | **Total Investment Income** | $13,784 | $13,666 | $47,211 | $39,433 | | **Total Expenses, net of credits** | $6,837 | $7,062 | $22,409 | $20,150 | | **Net Investment Income** | $6,947 | $6,604 | $24,802 | $19,283 | | **Net Realized and Unrealized Gain (Loss)** | ($12,546) | $11,350 | ($9,995) | $32,273 | | **Net Increase (Decrease) in Net Assets** | ($5,599) | $17,954 | $14,807 | $51,556 | | **Net Investment Income per Share** | $0.20 | $0.20 | $0.72 | $0.59 | [Consolidated Statements of Changes in Net Assets](index=6&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Net%20Assets) Net assets decreased by **$5.5 million** to **$312.9 million** for the nine months, primarily due to **$20.3 million** in distributions outweighing the **$14.8 million** net increase from operations Changes in Net Assets for the Nine Months Ended June 30, 2022 (in thousands) | Description | Amount | | :--- | :--- | | **Net Assets, September 30, 2021** | $318,439 | | Net Increase in Net Assets from Operations | $14,807 | | Distributions to Common Stockholders | ($20,325) | | **Net Assets, June 30, 2022** | $312,921 | [Consolidated Statements of Cash Flows](index=7&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Net cash used in operating activities was **$18.6 million** for the nine months, offset by **$18.7 million** provided by financing activities, resulting in a **$97 thousand** net increase in cash Consolidated Statements of Cash Flows (in thousands) | Cash Flow Activity | Nine Months Ended June 30, 2022 | Nine Months Ended June 30, 2021 | | :--- | :--- | :--- | | **Net cash provided by (used in) operating activities** | ($18,603) | $7,367 | | **Net cash provided by (used in) financing activities** | $18,700 | ($8,371) | | **Net increase (decrease) in cash** | $97 | ($1,004) | [Consolidated Schedules of Investments](index=8&type=section&id=Consolidated%20Schedules%20of%20Investments) Total investments at fair value increased to **$586.5 million** across 49 companies, with **73.9%** in secured first lien debt and top concentrations in Diversified/Conglomerate Service, Healthcare, and Manufacturing Investment Portfolio Composition by Security Type | Security Type | Fair Value (June 30, 2022, in thousands) | % of Total | Fair Value (Sept 30, 2021, in thousands) | % of Total | | :--- | :--- | :--- | :--- | :--- | | Secured first lien debt | $433,106 | 73.9% | $337,394 | 60.5% | | Secured second lien debt | $83,846 | 14.3% | $135,956 | 24.4% | | Preferred equity | $25,315 | 4.3% | $29,246 | 5.2% | | Common equity/equivalents | $44,136 | 7.5% | $55,006 | 9.9% | | Other | $59 | 0.0% | $10 | 0.0% | | **Total Investments** | **$586,462** | **100.0%** | **$557,612** | **100.0%** | Top 5 Industry Concentrations by Fair Value (June 30, 2022) | Industry Classification | Fair Value (in thousands) | % of Total Investments | | :--- | :--- | :--- | | Diversified/Conglomerate Service | $147,715 | 25.2% | | Healthcare, Education, and Childcare | $98,750 | 16.8% | | Diversified/Conglomerate Manufacturing | $94,896 | 16.2% | | Aerospace and Defense | $77,382 | 13.2% | | Beverage, Food, and Tobacco | $46,267 | 7.9% | [Notes to Consolidated Financial Statements](index=19&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) This section details accounting policies, investment valuation (primarily Level 3), fee structures, credit facility terms, notes payable, and shareholder distributions - The company is an externally managed, closed-end, non-diversified management investment company that has elected to be treated as a Business Development Company (BDC) and a Regulated Investment Company (RIC)[43](index=43&type=chunk) - The Board of Directors is ultimately responsible for determining the fair value of investments, which are primarily classified as Level 3 and valued using techniques like Total Enterprise Value (TEV) and Yield Analysis[50](index=50&type=chunk)[55](index=55&type=chunk)[70](index=70&type=chunk) - The company is externally managed by Gladstone Management Corporation (the "Adviser"), which earns a base management fee and an incentive fee; administrative services are provided by Gladstone Administration, LLC[45](index=45&type=chunk) - As of June 30, 2022, the company had a **$175.0 million** revolving credit facility with **$80.0 million** outstanding, and **$200.0 million** in aggregate principal of notes payable (3.75% Notes due 2027 and 5.125% Notes due 2026)[115](index=115&type=chunk)[126](index=126&type=chunk)[128](index=128&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=44&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial condition, investment activities, and operational results, highlighting investment strategy, regulatory compliance, and liquidity [Overview](index=44&type=section&id=Overview) Gladstone Capital invests in U.S. lower middle market companies, growing its portfolio by **$44.1 million** at cost, while maintaining a **209.1%** asset coverage ratio above regulatory minimums - The company's investment strategy targets lower middle market companies with annual EBITDA between **$3 million** and **$15 million**[154](index=154&type=chunk) - For the nine months ended June 30, 2022, the company invested **$155.6 million** in 10 new portfolio companies and **$33.2 million** in existing ones, resulting in a net portfolio increase of **$44.1 million** at cost[160](index=160&type=chunk) - The asset coverage ratio for senior securities was **209.1%** as of June 30, 2022, exceeding the required **150%** minimum[169](index=169&type=chunk) [Results of Operations](index=49&type=section&id=Results%20of%20Operations) Net Investment Income increased for both three and nine-month periods, but significant net realized and unrealized losses led to a net decrease in net assets for the quarter Comparison of Results of Operations (Three Months Ended June 30) | Metric (in thousands) | 2022 | 2021 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | **Total Investment Income** | $13,784 | $13,666 | $118 | 0.9% | | **Total Expenses, net** | $6,837 | $7,062 | ($225) | (3.2)% | | **Net Investment Income** | $6,947 | $6,604 | $343 | 5.2% | | **Net Realized/Unrealized Gain (Loss)** | ($12,546) | $11,350 | ($23,896) | (210.5)% | | **Net Increase (Decrease) in Net Assets** | ($5,599) | $17,954 | ($23,553) | (131.2)% | Comparison of Results of Operations (Nine Months Ended June 30) | Metric (in thousands) | 2022 | 2021 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | **Total Investment Income** | $47,211 | $39,433 | $7,778 | 19.7% | | **Total Expenses, net** | $22,409 | $20,150 | $2,259 | 11.2% | | **Net Investment Income** | $24,802 | $19,283 | $5,519 | 28.6% | | **Net Realized/Unrealized Gain (Loss)** | ($9,995) | $32,273 | ($42,268) | (131.0)% | | **Net Increase in Net Assets** | $14,807 | $51,556 | ($36,749) | (71.3)% | - The net realized loss of **$8.5 million** for the three months ended June 30, 2022, was primarily due to the restructuring of the investment in LWO Acquisitions Company LLC[182](index=182&type=chunk) [Liquidity and Capital Resources](index=57&type=section&id=Liquidity%20and%20Capital%20Resources) Liquidity is primarily from operations and financing, with **$18.6 million** net cash used in operations and **$18.7 million** provided by financing, including new debt issuance and redemptions - Net cash used in operating activities was **$18.6 million** for the nine months ended June 30, 2022, a reversal from **$7.4 million** provided in the prior year, mainly due to higher investment purchases[203](index=203&type=chunk) - In November 2021, the company issued **$50.0 million** of 3.75% Notes due 2027 and redeemed all **$38.8 million** of its 5.375% Notes due 2024[207](index=207&type=chunk)[222](index=222&type=chunk)[225](index=225&type=chunk) Contractual Obligations as of June 30, 2022 (in thousands) | Contractual Obligations | Less than 1 Year | 1-3 Years | 3-5 Years | More than 5 Years | Total | | :--- | :--- | :--- | :--- | :--- | :--- | | Credit Facility | $0 | $0 | $80,000 | $0 | $80,000 | | Notes Payable | $0 | $0 | $200,000 | $0 | $200,000 | | Interest expense on debt | $14,006 | $28,011 | $9,403 | $0 | $51,420 | | **Total** | **$14,006** | **$28,011** | **$289,403** | **$0** | **$331,420** | [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=63&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate fluctuations, with **93.1%** of debt investments at variable rates, impacting net income by **$4.0 million** for a 100 basis point increase - The company's primary market risk exposure is to interest rate fluctuations, with **93.1%** of its debt investments being variable-rate as of June 30, 2022[243](index=243&type=chunk)[244](index=244&type=chunk) Interest Rate Sensitivity Analysis (Annualized) | Basis Point Change | Net Increase (Decrease) in Net Assets (in thousands) | | :--- | :--- | | Up 200 basis points | $8,202 | | Up 100 basis points | $4,048 | | Down 100 basis points | ($2,323) | [Item 4. Controls and Procedures](index=64&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 during the quarter - Management concluded that disclosure controls and procedures were effective as of the end of the period covered by the report[247](index=247&type=chunk) - No changes in internal control over financial reporting occurred during the quarter that have materially affected, or are reasonably likely to materially affect, internal controls[248](index=248&type=chunk) [PART II. OTHER INFORMATION](index=65&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Item 1. Legal Proceedings](index=65&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 material legal proceedings - As of the filing date, the company is not a party to any material legal proceedings[249](index=249&type=chunk) [Item 1A. Risk Factors](index=65&type=section&id=Item%201A.%20Risk%20Factors) For a comprehensive discussion of risk factors, refer to the company's Annual Report on Form 10-K for the fiscal year ended September 30, 2021 - For a discussion of risk factors, the company refers to its Annual Report on Form 10-K for the fiscal year ended September 30, 2021[250](index=250&type=chunk) [Other Items (Items 2, 3, 4, 5, 6)](index=65&type=section&id=Other%20Items) Items 2, 3, 4, and 5 of Part II are reported as not applicable, while Item 6 lists exhibits filed with the Form 10-Q - Items 2, 3, 4, and 5 of Part II are not applicable for this reporting period[251](index=251&type=chunk)[253](index=253&type=chunk)[254](index=254&type=chunk)[255](index=255&type=chunk)

Gladstone Capital (NASDAQ:GLAD) Q2 2022 Earnings Conference Call May 4, 2022 8:30 AM ET Company Representatives David Gladstone - Chairman Michael LiCalsi - General Counsel Bob Marcotte - President Nicole Schaltenbrand - Chief Financial Officer Conference Call Participants Robert Dodd - Raymond James Operator Greetings! And welcome to Gladstone Capital, Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A Question-and-answer session will follow the formal pres ...

Gladstone Capital (NASDAQ:GLAD) Q1 2022 Earnings Conference Call February 3, 2022 8:30 AM ET Company Participants David Gladstone - Chief Executive Officer Nicole Schaltenbrand - Chief Financial Officer Bob Marcotte - President Michael Licalsi - General Counsel Conference Call Participants Adrian Day - Adrian Day Asset Management Operator Greetings, and welcome to Gladstone Capital First Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Question-and-answer session w ...

Gladstone Capital (NASDAQ:GLAD) Q4 2021 Results Conference Call November 16, 2021 8:30 AM ET Company Participants David Gladstone - Chief Executive Officer Bob Marcotte - President Nicole Schaltenbrand - Chief Financial Officer Michael Licalsi - General Counsel Conference Call Participants Operator Greetings and welcome to the Gladstone Capital Corporation Fourth Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal p ...

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K (Mark One) OR ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Maryland 54-2040781 (I.R.S. Employer Identification No.) For the transition period from to Commission file number 814-00237 GLADSTONE CAPITAL CORPORATION ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (Exact name of registrant as specified in its charter) For the fisca ...

Gladstone Capital Corporation (NASDAQ:GLAD) Q3 2021 Results Conference Call August 4, 2021 8:30 AM ET Company Participants David Gladstone - CEO Michael LiCalsi - General Counsel Bob Marcotte - President Nicole Schaltenbrand - CFO Conference Call Participants Operator Hello, and welcome to the Gladstone Capital Third Quarter Earnings Conference Call and Webcast. At this time, all participants are in a listen-only mode. [Operator Instructions] A question-and-answer session will follow the formal presentation ...

Financial Data and Key Metrics Changes - For the quarter ending March 31, 2021, total interest income declined slightly to $11.9 million, a decrease of $200,000 or 1.6% compared to the prior quarter, primarily due to a small decline in the weighted average yield [18][19] - Net investment income rose to $6.4 million or $0.195 per share, covering 100% of shareholder distributions, an increase of $100,000 compared to the prior quarter [20] - Net assets from operations increased to $21.3 million or $0.65 per share, compared to $12.3 million or $0.38 per share for the quarter ending December 31, 2020 [21] - NAV rose by 6.6% from $7.61 per share at December 31 to $8.11 per share as of March 31, 2021 [24] Business Line Data and Key Metrics Changes - Originations for the quarter totaled $72 million, including three new proprietary investments, while exits totaled $48 million, resulting in net originations of $24 million [7] - The portfolio's weighted average balance increased slightly by $10.7 million or 2.4% to $454.1 million compared to the previous quarter [18] - The asset mix shifted in favor of first lien loans, which rose to 58% of cost, while second lien exposure declined to 32% [15] Market Data and Key Metrics Changes - The company reported no payment defaults in its one non-accrual investment, which represents 1.5% of the portfolio at fair value, indicating a material uptick in business volumes [14] - The weighted average borrowing costs were reported at 4.6% as of March 31, with total liabilities rising to $233 million [22][24] Company Strategy and Development Direction - The company continues to target leverage in the vicinity of one-to-one debt to equity, with a focus on maintaining a low leverage position to capitalize on middle market investment opportunities [17][30] - The strategy includes investing in midsize private businesses supported by private equity funds, which helps facilitate acquisitions and business growth [31] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism regarding the portfolio's performance, noting that most investments have moved past COVID-related effects, with broad-based asset appreciation [12] - The company anticipates continued net investment portfolio growth driven by elevated levels of refinancing and recapitalization activity in the market [16] - Management highlighted the importance of maintaining a flexible capital position to navigate potential economic changes [30] Other Important Information - The board declared monthly distributions of $0.065 per common share for April, May, and June, resulting in an annual rate of $0.78 per share [25] - An incentive fee reduction was implemented, increasing the hurdle rate from 7% to 8%, which is expected to enhance net earnings available for shareholder distributions [26] Q&A Session Summary Question: Any questions from participants? - No questions were raised during the Q&A session, and the call concluded without further inquiries [33][34][35]

Financial Data and Key Metrics Changes - Total interest income increased by $147,000 or 1.2% to $12.1 million, primarily due to an increase in the average balance of interest-bearing investments [15] - Net investment income for the quarter was $6.3 million, unchanged compared to the prior quarter, equating to $0.195 per share [18] - Net assets from operations rose to $12.3 million or $0.38 per share, compared to $12.2 million or $0.33 per share in the previous quarter [18] - NAV increased by 2.8% from $7.40 per share at the end of the previous quarter to $7.61 per share as of December 31 [23] Business Line Data and Key Metrics Changes - Originations for the quarter totaled approximately $29 million, including two new proprietary investments, while repayments and proceeds totaled $34 million [7] - Interest income rose slightly over the prior quarter, with the portfolio yield remaining relatively unchanged at 10.8% [7][16] - The asset mix shifted slightly in favor of first lien loans, which rose to 51% at cost, while second lien exposure declined to 41% [11] Market Data and Key Metrics Changes - The portfolio has recovered approximately 70% of the unrealized depreciation reported in the March 31, 2020 quarter due to the onset of the COVID pandemic [19] - The only decliners in the portfolio were related to energy sector exposures, which continue to face soft fundamentals [11] Company Strategy and Development Direction - The company intends to continue managing its leverage around a one-to-one debt to equity ratio while enhancing overall net interest income [13][14] - The focus remains on investing in midsized private businesses with strong management, supported by private equity funds seeking experienced partners [29] Management's Comments on Operating Environment and Future Outlook - Management remains cautious regarding any lasting COVID-related financial impacts on new business opportunities and the sustainability of recent growth [14] - The company is in the final stages of closing several new investments, positioning itself well to absorb expected prepayments and grow its investment portfolio [12] Other Important Information - Total assets as of December 31 were $459 million, consisting of $452 million in investments at fair value and $7 million in cash and other assets [20] - The company declared monthly distributions of $0.065 per common share for January, February, and March, resulting in an annual rate of $0.78 per share [24] - The current distribution rate yields approximately 8.2%, which is considered attractive relative to low market yields [25] Q&A Session Summary - No questions were received during the Q&A session, indicating that all relevant information was effectively communicated during the presentation [31][32]

Investment Activities - The company invested $29.0 million in two new portfolio companies and extended $0.1 million in investments to existing portfolio companies during the three months ended December 31, 2020 [173]. - The company made significant investments in December 2020, including $19.0 million in Effective School Solutions LLC and $10.0 million in Encore Dredging Holdings, LLC [174]. - The company exited three portfolio companies through early payoffs during the three months ended December 31, 2020 [173]. - The company has made 557 different loans to, or investments in, 248 companies for a total of approximately $2.1 billion since its initial public offering in August 2001 [173]. - New investments during the three months ended December 31, 2020, were $29.0 million, down from $38.0 million in the same period of 2019 [209]. Financial Performance - Total investment income for the three months ended December 31, 2020, was $12.882 million, an increase of 5.9% compared to $12.159 million in the same period of 2019 [188]. - Interest income rose by 5.5% to $12.082 million for the three months ended December 31, 2020, driven by a $42 million increase in the weighted average principal balance of the interest-bearing portfolio, which reached $443.4 million [189]. - Net investment income for the three months ended December 31, 2020, was $6.280 million, a slight decrease of 2.1% from $6.417 million in the same period of 2019 [188]. - The company recorded a net realized loss on investments of $2.144 million for the three months ended December 31, 2020, an improvement from a loss of $4.434 million in the prior year [198]. - Net unrealized appreciation of investments was $8.495 million for the three months ended December 31, 2020, significantly up from $139, indicating a strong recovery in certain portfolio companies [200]. Expenses and Cash Flow - Total expenses, net of credits, increased by 15.0% to $6.602 million for the three months ended December 31, 2020, compared to $5.742 million in the same period of 2019 [188]. - For the three months ended December 31, 2020, net cash provided by operating activities was $12.2 million, compared to a net cash used of $24.3 million for the same period in 2019 [207]. - Net cash used in financing activities for the three months ended December 31, 2020, was $13.1 million, primarily due to $111.7 million in net repayments on the Credit Facility [210]. Debt and Equity - The company completed a debt offering of $100.0 million aggregate principal amount of its 5.125% Notes due 2026 in December 2020 [176]. - The company completed a debt offering of $100.0 million in December 2020, with net proceeds of approximately $97.7 million, bearing interest at a rate of 5.125% per year [230]. - The commitment amount of the Credit Facility was increased from $180 million to $205 million on December 9, 2020 [220]. - The company has the ability to issue up to an additional $124.8 million in securities under its shelf registration statement as of December 31, 2020 [216]. - The company redeemed its 2023 Notes with an aggregate principal amount of $57.5 million on January 7, 2021, for a net redemption amount of $58.1 million [232]. Market and Risk Exposure - The primary risk exposure for the company is interest rate risk, which affects net investment income based on the difference between borrowing and investment rates [248]. - As of December 31, 2020, the company's portfolio of debt investments consisted of 79.6% variable-rate and 20.4% fixed-rate investments [249]. - The company’s variable-rate debt investments are generally associated with the current LIBOR or prime rate [249]. - The average risk rating for proprietary loans in the company's portfolio was 6.4 as of December 31, 2020, indicating a moderate level of credit risk [242]. - There have been no material changes in the quantitative and qualitative market risk disclosures for the three months ended December 31, 2020, compared to the Annual Report [249]. Asset and Shareholder Information - As of December 31, 2020, the investment portfolio consisted of approximately 92.0% debt investments and 8.0% equity investments at cost [166]. - The closing market price of the company's common stock on December 31, 2020, was $8.86 per share, representing a 16.4% premium to the NAV per share of $7.61 [178]. - As of December 31, 2020, the company had a net worth of $438.5 million and asset coverage of 213.2% on its senior securities representing indebtedness [229]. - The company declared total distributions of $0.195 per common share for the quarter ending March 31, 2021 [184]. - The company paid monthly cash distributions of $0.065 per common share for the three months ended December 31, 2020, totaling $6.3 million [212].