OFS Capital (OFS) Q1 2025 Earnings Call May 02, 2025 10:00 AM ET Speaker0 Good day, and welcome to the OFS Corporation q one twenty twenty five earnings conference call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Mr. Steve Altibrandeau, Head of Investor Relations. Please go ahead. Speaker1 Good morning, everyone, and thank you for joining us. ...

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 March 31, 2025 or ¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______ to _______ OFS CAPITAL CORPORATION (Exact name of registrant as specified in its charter) Delaware 46-1339639 State or Other Jurisdiction of I.R.S. Em ...

OFS CAPITAL CORPORATION ANNOUNCES FIRST QUARTER 2025 FINANCIAL RESULTS DECLARES SECOND QUARTER DISTRIBUTION OF $0.34 PER SHARE FIRST QUARTER FINANCIAL HIGHLIGHTS OTHER RECENT EVENTS • On April 29, 2025, our Board of Directors declared a distribution of $0.34 per common share for the second quarter of 2025, payable on June 30, 2025 to stockholders of record as of June 20, 2025. | SELECTED FINANCIAL HIGHLIGHTS | | Three Months Ended | | | | --- | --- | --- | --- | --- | | (Per common share) | March 31, 2025 | ...

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OFS Credit Company Inc (NASDAQ: OCCI ) operates as a closed-end fund that aims to provide a high level of income from its portfolio of CLO investments. CLOs (Collateralized Loan Obligations) are essentially different pools of loans that haveFinancial analyst by day and a seasoned investor by passion, I've been involved in the world of investing for over 15 years and honed my skills in analyzing lucrative opportunities within the market.I specialize in uncovering strategies to utilize various investment vehi ...

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OFS Capital (OFS) appears an attractive pick, as it has been recently upgraded to a Zacks Rank #2 (Buy). This upgrade primarily reflects an upward trend in earnings estimates, which is one of the most powerful forces impacting stock prices.A company's changing earnings picture is at the core of the Zacks rating. The system tracks the Zacks Consensus Estimate -- the consensus measure of EPS estimates from the sell-side analysts covering the stock -- for the current and following years.The power of a changing ...

Financial Data and Key Metrics Changes - Net investment income increased by approximately 13% to $0.30 per share for Q4 2024 [6][14] - Net asset value per share increased by 14% to $12.85 per share [6][16] - Total investment income rose almost 7% to $11.6 million [19] - Total expenses increased by 3.5% to $7.6 million [20] Business Line Data and Key Metrics Changes - Significant increase in dividend income attributed to a nonrecurring distribution and other nonrecurring fee income [7][14] - No new non-accruals this quarter, with one loan exiting non-accrual status [9][17] - The loan portfolio remains well-diversified, with 100% in first lien and second lien senior secured loans [10][22] Market Data and Key Metrics Changes - The regulatory asset coverage ratio increased by eight percentage points to 169% [18] - Approximately 72% of outstanding debt was unsecured at quarter end [11][19] Company Strategy and Development Direction - The company is focused on rotating non-interest earning equity positions into interest-earning assets to improve net investment income [7][24] - Continued exploration of monetizing the minority equity investment in Fansteel Holdings [7][16] - Emphasis on capital preservation during uncertain economic times [24][25] Management's Comments on Operating Environment and Future Outlook - The Fed rate cuts in the second half of 2024 positively impacted portfolio companies by reducing interest costs [11] - Confidence in the adviser's experience and expertise in navigating the current market environment [13][25] - The company believes it is well-positioned to navigate the market successfully due to its adviser's size and reputation [25][26] Other Important Information - The company has $18.8 million in unfunded commitments to portfolio companies [22] - The investment portfolio comprised approximately 69% senior secured loans, 25% structured finance securities, and 6% equity securities [22] Q&A Session Summary - The Q&A session was not detailed in the provided content, and thus no specific questions and answers can be summarized. [27]

Investment Strategy - The company targets U.S. middle-market companies with annual revenues between $10 million and $1 billion, representing approximately 200,000 potential companies[32]. - The investment strategy focuses on senior secured loans, including first lien, second lien, and unitranche loans, as well as subordinated loans[38]. - The company aims to generate strong risk-adjusted net returns by assembling a diversified portfolio across various industries[38]. - The company focuses on investments in middle-market companies in the U.S., targeting individual investments generally ranging from $3.0 million to $25.0 million[65]. - The loan portfolio is expected to continue comprising a significant portion of Senior Secured First Lien Loans, which provide security interests in the assets of portfolio companies[66]. - Unitranche loans represent a significant growth opportunity, combining senior and subordinated debt into one loan, typically structured as senior secured loans[67]. - The company anticipates that Senior Secured Second Lien Loans will continue to be part of its investment strategy, with no contractual loan amortization in the initial years[68]. - Broadly Syndicated Loans are utilized for leveraged buyouts, mergers, acquisitions, and refinancings, with the company relying on agents for monitoring compliance and payment collection[69]. - Subordinated Loans are typically unsecured and provide high fixed interest rates, but carry a greater risk of loss compared to secured loans[70]. - The company invests in Structured Finance Securities, including mezzanine and subordinated note securities of CLOs, which are leveraged 9 to 13 times[74]. - The investment strategy includes tailoring terms to protect rights and manage risks while incentivizing portfolio companies to improve operating results[76]. - The company expects to hold most middle-market debt investments to maturity, but may sell some earlier based on relative value decisions and liquidity needs[77]. Risk Management - The company employs a rigorous credit analysis and approval process to minimize credit losses through effective underwriting and comprehensive due diligence[29]. - The company utilizes a disciplined investment process that includes ongoing risk assessments and assigns credit ratings to debt investments[46][47]. - The company has access to a proprietary database of borrowers developed over 25 years, aiding in identifying investment opportunities[39]. - The company anticipates that the unique challenges of lending to middle-market companies create high barriers to entry for new lenders[34]. - The investment committees are responsible for reviewing and evaluating potential investments, ensuring adherence to the company's core investment philosophy[61]. - The company monitors the creditworthiness of counterparties involved in repurchase agreement transactions[114]. - The classification of debt investments by risk category showed that 70.5% were rated as average risk, while 25.4% were under special mention[489]. - Non-accrual loans totaled $39.1 million in amortized cost, with a fair value of $20.8 million as of December 31, 2024[490]. Financial Performance - For the year ended December 31, 2024, total investment income decreased by $8,979,000 to $47,964,000 compared to $56,943,000 in 2023[499]. - Net investment income for the year ended December 31, 2024 was $16,712,000, down from $20,160,000 in 2023, reflecting a decrease of 22.1%[499]. - The net gain on investments for the year ended December 31, 2024 was $11,730,000, a significant recovery from a loss of $20,412,000 in 2023[516]. - Total expenses for the year ended December 31, 2024 decreased to $31,252,000 from $36,783,000 in 2023, a reduction of 15.1%[507]. - Interest expense for the year ended December 31, 2024 decreased by $2,834,000 to $16,648,000, primarily due to a reduction in average outstanding debt balances[508]. - The company recognized total PIK income of $2.7 million for the year ended December 31, 2024, representing 5.7% of total investment income[502]. - The average investment portfolio at fair value decreased from $474.5 million in 2023 to $404.7 million in 2024[509]. - Net unrealized appreciation for the year ended December 31, 2024 was $28.9 million, primarily related to common equity investments[518]. - The company fully repaid outstanding SBA debentures totaling $31.9 million during the year ended December 31, 2024[508]. - For the year ended December 31, 2023, the company reported net losses of $20.4 million, including net realized losses of $11.4 million and net unrealized depreciation of $9.0 million[520]. - The net loss of $20.4 million was primarily due to net unrealized depreciation of $14.5 million in the common equity of Pfanstiehl Holdings, Inc.[521]. - The company recognized net realized losses of $11.4 million, mainly from the write-off of a non-accrual loan and equity investment in Eblens Holdings, Inc.[522]. - For the year ended December 31, 2022, the company experienced net losses of $25.8 million, primarily due to unrealized depreciation of $23.0 million on debt investments and Structured Finance Securities[523]. Management Fees and Incentives - OFS Advisor's base management fee is set at an annual rate of 1.75%, calculated based on the average value of total assets, excluding cash and cash equivalents[79]. - For the years ended December 31, 2024, 2023, and 2022, the base management fee was reduced to 0.25% per quarter (1.00% annualized) for OFSCC-FS Assets, resulting in reductions of $1.1 million, $1.2 million, and $1.4 million respectively[80]. - The incentive fee consists of two parts: the Income Incentive Fee, based on pre-incentive fee net investment income, and the Capital Gains Fee, calculated at 20% of positive cumulative realized capital gains[81][85]. - Pre-incentive fee net investment income is compared to a hurdle rate of 2.0% per quarter (8.0% annualized), with no accumulation of amounts on the hurdle rate from quarter to quarter[83]. - For the year ended December 31, 2024, base management fees amounted to $5.993 million, while the Income Incentive Fee was $4.178 million[89]. - The Capital Gains Fee for the year ended December 31, 2022, was reversed, resulting in a reduction of $1.9 million due to decreased net unrealized appreciation[89]. - The structure of the incentive fee allows for the possibility of paying an incentive fee in a quarter where a loss is incurred, provided pre-incentive fee net investment income exceeds the hurdle rate[82]. - The cumulative aggregate realized capital gains and losses are calculated based on the net sales price of investments when sold, impacting the Capital Gains Fee calculation[86]. Regulatory Compliance - The company is regulated as a Business Development Company (BDC) under the 1940 Act, which imposes restrictions on transactions with affiliates and requires a majority of independent directors[104]. - The company has modified its asset coverage requirements, reducing the minimum required asset coverage ratio from 200% to 150% effective May 3, 2019[117]. - The company is subject to periodic examination by the SEC for compliance with the Exchange Act and the 1940 Act[125]. - The company has adopted a code of ethics to establish procedures for personal investments and restrict certain personal securities transactions[129]. - The company has received an existing Order from the SEC allowing greater flexibility to enter into co-investment transactions with certain Affiliated Funds[122]. - The company must meet certain source-of-income and asset diversification requirements to maintain its qualification as a RIC under Subchapter M of the Code[139]. - The company is required to diversify its holdings such that at least 50% of its assets consist of cash and government securities, and no more than 25% is invested in the securities of any one issuer[144]. - Failure to qualify as a RIC would subject the company to corporate-level U.S. federal income tax on all ICTI and Net Capital Gains[149]. - The company may be required to recognize income in excess of distributions from PFICs, which will be subject to the Annual Distribution Requirement[147]. - The company is authorized to borrow funds and sell assets to satisfy distribution requirements, but must meet certain asset coverage tests[146]. - The company may face conflicts of interest when investing alongside affiliated accounts, particularly in distressed situations[153]. Portfolio Composition - As of December 31, 2024, total debt and equity investments amounted to $332.8 million, with a fair value of $274.6 million, compared to $341.2 million and $306.4 million respectively as of December 31, 2023[477]. - The portfolio consisted of 100% first lien and second lien loans based on fair value, with first lien debt investments valued at $189.9 million and second lien debt investments at $34.3 million as of December 31, 2024[478]. - The three largest industries by fair value in the investment portfolio were Manufacturing (36.7%), Health Care and Social Assistance (20.1%), and Administrative and Support and Waste Management (6.5%), totaling approximately 63.3% of the portfolio[479]. - The ten largest investments by issuer accounted for 52.8% of the total portfolio at fair value, with Pfanstiehl Holdings, Inc. being the largest equity investment at a fair value of $89.3 million[480]. - As of December 31, 2024, the company had no Structured Finance Securities that had been optionally redeemed, and sold Structured Finance Securities for net proceeds of $20.1 million during the year[483]. - Total investment purchases and originations for the year ended December 31, 2024, were $93.4 million, significantly up from $41.7 million in 2023[483]. - The company recognized a realized loss of $3.5 million from the write-off of preferred and common equity investments in Master Cutlery, LLC during the year ended December 31, 2024[484]. - As of December 31, 2023, total debt investments on non-accrual status amounted to $34,568,000, with a fair value of $12,139,000[491]. - For the three months ended December 31, 2024, total investment income was $11.6 million, an increase from $10.9 million in the previous quarter[530]. - The company reported net gains of $21.4 million for the three months ended December 31, 2024, primarily due to net unrealized appreciation of $15.6 million on the common equity investment in Pfanstiehl Holdings, Inc.[533]. - As of December 31, 2024, the company held cash of $6.1 million, including $4.8 million held by OFSCC-FS, and received $11.4 million in cash distributions from OFSCC-FS during the year[535]. - The company had an unused commitment of $24.0 million under its Banc of California Credit Facility and $82.7 million under the BNP Facility as of December 31, 2024[536]. - The aggregate amount outstanding of senior securities issued by the company was $248.4 million, with an asset coverage of 169%, exceeding the minimum requirement of 150%[537].

Financial Performance - Net investment income increased to $0.30 per common share for Q4 2024, up from $0.27 in Q3 2024[5] - Net gain on investments was $1.60 per common share for Q4 2024, primarily due to net unrealized appreciation of $1.79 per common share[5] - Total investment income for Q4 2024 was $11.648 million, an increase of $0.7 million from Q3 2024[12] - For the three months ended December 31, 2024, total investment income was $11,648,000, a decrease of 6.2% from $13,483,000 in the same period of 2023[22] - Net investment income for the year ended December 31, 2024, was $16,712,000, down 17.9% from $20,160,000 in 2023[22] - The net investment income per common share for the year ended December 31, 2024, was $1.25, down from $1.50 in 2023[22] - Distributions declared per common share remained stable at $0.34 for both the three months ended December 31, 2024, and 2023[22] Asset and Investment Overview - Net asset value per common share rose to $12.85 at December 31, 2024, compared to $11.29 at September 30, 2024[5] - Total investments at fair value were $409.7 million, approximately 113% of amortized cost[11] - The investment portfolio included $224.2 million in debt investments, with 85% as first lien loans[11] - Cash and cash equivalents totaled $6.1 million as of December 31, 2024[16] Debt and Liabilities - Outstanding debt was $248.4 million as of December 31, 2024, with a weighted-average effective interest rate of 6.30%[9] Gains and Losses - The net realized loss for the year ended December 31, 2024, was $17,121,000, compared to a loss of $11,405,000 in 2023, indicating a significant increase in losses[22] - Net unrealized appreciation for the year ended December 31, 2024, was $28,851,000, a recovery from a depreciation of $9,007,000 in 2023[22] - The net increase in net assets resulting from operations for the three months ended December 31, 2024, was $25,475,000, compared to a decrease of $4,109,000 in the same period of 2023[22] Company Strategy and Management - OFS Capital primarily targets investments of $3 million to $20 million in privately held middle-market companies with annual EBITDA between $5 million and $50 million[23] - The company is externally managed by OFS Capital Management, LLC, which is registered under the Investment Advisers Act of 1940[23] Forward-Looking Statements - Forward-looking statements indicate that actual results may differ materially from expectations due to various risks and uncertainties[24]