Group 1 - The article highlights the importance of closed-end funds and the potential for directional and arbitrage opportunities due to market price deviations [1] - OFS Credit Company (NASDAQ: OCCI) offers a distribution yield of 18.5%, which is emphasized as a significant investment opportunity [2] - The investment group Trade With Beta provides various services including frequent picks for mispriced preferred stocks and baby bonds, weekly reviews of over 1200 equities, and hedging strategies [2]

Group 1 - Business Development Companies (BDCs) are highlighted as one of the best sectors for collecting high yields due to their straightforward business models and easily understood investment methodologies [1] - A hybrid investment strategy combining classic dividend growth stocks, BDCs, Real Estate Investment Trusts (REITs), and Closed-End Funds can enhance investment income while achieving total returns comparable to traditional index funds like the S&P [1] - The article emphasizes the potential for early retirement through effective investment strategies without compromising portfolio safety, aligning with the principles of the FIRE (Financial Independence, Retire Early) movement [1]

Financial Data and Key Metrics Changes - Net investment income increased by approximately 4.8% to $0.27 per share [7] - Net asset value per share decreased modestly by 1.9% to $11.29 per share [7][19] - Total investment income was down approximately 2% to $10.9 million [21] - Total expenses decreased by 5.3% to $7.3 million, primarily due to a reduction in G&A expenses [22] Business Line Data and Key Metrics Changes - The fair value of the minority equity investment in Pfanstiehl appreciated by $2.8 million to $73.7 million [8] - Nonaccrual metrics as a percentage of total portfolio at fair value remained stable, with one new non-accrual loan representing 0.6% of the total portfolio [10][20] - 5.4% of total investments at fair value were on non-accrual status at quarter end [20] Market Data and Key Metrics Changes - The weighted average performing investment income yield on the interest-bearing portion of the portfolio improved slightly to 13.6%, up about 0.2% quarter-over-quarter [26] - 72% of outstanding debt is unsecured, with all outstanding debt maturing in 2026 or later [12][23] Company Strategy and Development Direction - The company remains focused on increasing net investment income by rotating non-interest earning equity positions into interest earning assets [7][27] - The investment discipline emphasizes avoiding highly cyclical industries and maintaining a diversified loan portfolio [11][24] - The company anticipates an increase in M&A activity, which could lead to higher originations and fee income [14] Management's Comments on Operating Environment and Future Outlook - Management believes the portfolio is well positioned for the current macroeconomic environment, with lower interest rates expected to benefit borrowers [11][24] - The recent interest rate cut by the Federal Reserve may put pressure on net interest margin but is expected to reduce the risk of recession [13][14] - Confidence in the advisor's experience and track record through multiple credit cycles is emphasized [14][29] Other Important Information - The company has invested more than $2 billion since 2011 with a cumulative net realized loss of just 3.2% [28] - The advisor maintains approximately 23% ownership in the company, aligning their interests with shareholders [29][30] Q&A Session Summary Question: What are the plans for increasing net investment income? - The company is exploring alternatives to monetize non-interest earning equity investments, particularly the minority equity stake in Pfanstiehl [18]

Group 1: Earnings Performance - OFS Capital reported quarterly earnings of $0.27 per share, exceeding the Zacks Consensus Estimate of $0.25 per share, but down from $0.40 per share a year ago, representing an earnings surprise of 8% [1] - The company posted revenues of $10.92 million for the quarter ended September 2024, missing the Zacks Consensus Estimate by 0.47%, and down from $14.65 million year-over-year [2] - Over the last four quarters, OFS Capital has surpassed consensus EPS estimates two times and topped consensus revenue estimates just once [2] Group 2: Stock Performance and Outlook - OFS Capital shares have declined approximately 30.3% since the beginning of the year, contrasting with the S&P 500's gain of 21.9% [3] - The company's earnings outlook is crucial for investors, as it includes current consensus earnings expectations for upcoming quarters and any recent changes to these expectations [4] - The current consensus EPS estimate for the coming quarter is $0.25 on revenues of $10.97 million, and for the current fiscal year, it is $1.18 on revenues of $47.33 million [7] Group 3: Industry Context - The Financial - SBIC & Commercial Industry, to which OFS Capital belongs, is currently ranked in the bottom 27% of over 250 Zacks industries, indicating potential challenges for stock performance [8] - Empirical research suggests a strong correlation between near-term stock movements and trends in earnings estimate revisions, which can be tracked by investors or through tools like the Zacks Rank [5][6]

Financial Performance - Net asset value per common share decreased to $11.29 as of September 30, 2024, from $11.51 at June 30, 2024, due to a net loss on investments of $0.15 per share and a quarterly distribution of $0.34 per share exceeding net investment income of $0.27 per share [132]. - Total investment income for the quarter ended September 30, 2024, decreased to $10.9 million from $11.2 million in the prior quarter, primarily due to a $0.2 million decrease in interest income [132]. - The company recognized a net loss on investments of $1.9 million for the quarter ended September 30, 2024, primarily due to net realized losses of $11.1 million [132]. - Net investment income for the three months ended September 30, 2024 was $3.603 million, compared to $3.437 million in the prior quarter [158]. - The net loss on investments for the three months ended September 30, 2024 was $1.915 million, primarily due to aggregate net losses of $5.6 million on loans and Structured Finance Securities [164]. - For the nine months ended September 30, 2024, total investment income decreased by $7.1 million compared to the corresponding period in the prior year, primarily due to a decrease in total interest income of $8.9 million [161]. - The company recognized a net loss on investments of $9.7 million for the nine months ended September 30, 2024, primarily due to a net loss on debt investments of $8.7 million [164]. Debt and Financing - As of September 30, 2024, total outstanding debt was $249.1 million, with a weighted-average debt interest cost of 6.46% [132]. - The aggregate amount outstanding of the senior securities issued by the company was $249.1 million, with an asset coverage ratio of 161%, exceeding the minimum requirement of 150% under the 1940 Act [166]. - Approximately 50% of the company's outstanding debt matures in 2027 and beyond, with 72% carrying fixed interest rates and being unsecured [178]. - The effective interest rate on the Banc of California Credit Facility was 8.75% as of September 30, 2024 [172]. - The effective interest rate on the BNP Facility was 8.78% as of September 30, 2024, with $69.1 million drawn and an unused commitment of $80.9 million [174]. - The company had unused commitments of $25.0 million under the Banc of California Credit Facility and $80.9 million under the BNP Facility as of September 30, 2024 [132]. Investment Portfolio - The fair value of the debt investment portfolio totaled $231.1 million in 42 portfolio companies, with approximately 82% being first lien debt investments [138]. - The common equity investment in Pfanstiehl Holdings, Inc. accounted for 18.7% of the total portfolio at fair value and 48.7% of total net assets as of September 30, 2024 [141]. - Total Portfolio Company Investments amounted to $320.9 million at fair value as of September 30, 2024, compared to $341.2 million as of December 31, 2023 [145]. - The three largest industries by fair value in the Portfolio Company Investments were Manufacturing (33.4%), Health Care and Social Assistance (20.5%), and Professional, Scientific, and Technical Services (8.8%), totaling approximately 62.7% [146]. - As of September 30, 2024, 100% of the loan portfolio and 59% of the total portfolio consisted of first lien and second lien loans based on fair value [145]. - The company had non-accrual loans with an aggregate fair value of $21.1 million, representing 5.4% of total investments at fair value as of September 30, 2024 [132]. Cash and Distributions - The company held cash and cash equivalents of $20.3 million, including $8.0 million held by OFSCC-FS [166]. - Cash from net investment income for the nine months ended September 30, 2024, was $8.8 million, a decrease of $3.8 million compared to $12.6 million for the same period in 2023 [170]. - Distributions paid to stockholders increased to $13.7 million for the nine months ended September 30, 2024, compared to $13.4 million in 2023 [169]. - A distribution of $0.34 per share for the fourth quarter of 2024 was declared on October 29, 2024, payable on December 31, 2024 [132]. - The company is required to distribute at least 90% of its taxable income to maintain its RIC status [179]. Operational Metrics - Total expenses for the three months ended September 30, 2024 were $7.315 million, a decrease from $7.728 million in the prior quarter [162]. - Interest expense for the nine months ended September 30, 2024 decreased by $2.1 million compared to the corresponding period in the prior year, primarily due to the full repayment of SBA debentures [162]. - The company's average total assets (excluding cash and cash equivalents) decreased, leading to a reduction in base management fees by $1.1 million for the nine months ended September 30, 2024, compared to the prior year [162]. - The company had a payable for investments purchased of $14.7 million and $8.5 million in unfunded commitments to fund portfolio investments as of September 30, 2024 [178]. Strategic Focus - The company’s investment strategy now includes a focus on debt investments in larger U.S. companies and Structured Finance Securities, differing from its historical investment concentration [157]. - Approximately 81% of the company's investments were qualifying assets as of September 30, 2024 [176]. - The Stock Repurchase Program allows for the repurchase of up to $10.0 million of common stock, with approximately $9.6 million remaining as of September 30, 2024 [176]. - The company has not made any repurchases of common stock under the Stock Repurchase Program during the nine months ended September 30, 2024 [176].

Financial Performance - Net investment income increased to $0.27 per common share for Q3 2024, up from $0.26 in Q2 2024[2] - Net loss on investments was $0.15 per common share for Q3 2024, compared to a net gain of $0.51 per common share in Q2 2024[4] - Total investment income decreased to $10.9 million in Q3 2024 from $11.2 million in Q2 2024, primarily due to a decrease in interest income[8] - Total investment income for the three months ended September 30, 2023, was $10,918,000, a decrease of 25.0% from $14,651,000 in the same period last year[17] - Net investment income for the nine months ended September 30, 2023, was $12,636,000, down 10.5% from $15,463,000 in the prior year[17] - Net realized loss on investments for the three months ended September 30, 2023, was $(11,116,000), compared to a gain of $117,000 in the same period last year[17] - Net unrealized appreciation for the three months ended September 30, 2023, was $9,201,000, compared to a depreciation of $(3,512,000) in the same period last year[17] Asset and Investment Metrics - Net asset value per common share decreased to $11.29 as of September 30, 2024, down from $11.51 as of June 30, 2024[2] - Total investments at fair value were $394.7 million as of September 30, 2024, compared to $398.2 million as of June 30, 2024[4] - The weighted-average performing income yield increased to 13.6% in Q3 2024 from 13.4% in Q2 2024[5] Expenses and Distributions - Total expenses decreased by $0.4 million to $7.3 million in Q3 2024 compared to Q2 2024[9] - Total expenses for the three months ended September 30, 2023, were $7,315,000, a decrease of 21.0% from $9,261,000 in the same period last year[17] - The company declared a distribution of $0.34 per common share for Q4 2024, payable on December 31, 2024[3] - Distributions declared per common share remained stable at $0.34 for both the current and prior year periods[17] Cash and Credit Facilities - As of September 30, 2024, the company had $20.3 million in cash and no outstanding balance under its senior secured revolving credit facility[11][12] Management and Investment Strategy - The company targets investments of $3 million to $20 million in privately held middle-market companies with annual EBITDA between $5 million and $50 million[18] - The company is externally managed by OFS Capital Management, LLC, which is registered under the Investment Advisers Act of 1940[18] Forward-Looking Statements - Forward-looking statements indicate potential risks and uncertainties that may affect future results, as detailed in the company's Annual Report on Form 10-K[19]

Core Viewpoint - OFS Capital's 17% dividend yield is among the highest in the business development industry, but its sustainability is in question due to declining portfolio value, deteriorating earnings growth, higher non-accruals, and a weak cash position, leading to a hold rating for the stock [1][14]. Dividend Performance - The 4-year average dividend yield for OFS Capital is 11.62%, significantly higher than the sector median of 3.29%, indicating a 252.78% difference [2]. - The current dividend yield of 17.00% is 449.62% above the sector median of 3.09% [2]. - The dividend yield has increased due to a share price selloff rather than dividend growth, with the company losing almost 30% of its share price year-to-date [3][4]. Financial Performance - In the latest quarter, OFS Capital reported a net investment income of $0.26 per share, while the quarterly dividend was $0.34 per share, indicating that dividends are not covered by net investment income [4]. - Earnings forecasts suggest a decline in net investment income, with estimates of $1.18 per share in 2024, down 21.67% year-over-year, which is insufficient to cover the annual dividend payment of $1.36 per share [5][6]. - The company has only around $5 million in cash, making it challenging to sustain current dividend levels [6]. Portfolio and Investment Strategy - OFS Capital's portfolio investments at fair value have declined by almost $100 million over the past four quarters, now standing at $398 million [7]. - The company has been highly selective in its underwriting policies and cautious about new originations, which may hinder investment income growth [8]. - As of the end of the June quarter, 92% of the loan portfolio was at floating rates, and potential rate cuts could negatively impact investment income and margins [9]. Market Sentiment and Valuation - Despite a cheap stock price based on valuations and net asset value, potential returns are limited due to a lack of financial support and the risk of a dividend cut, which could negatively affect investor sentiment [9]. - The quant rating for OFS Capital is 3.35, indicating a hold rating, with low grades on momentum, growth, and profitability [12]. Conclusion - The current financial outlook does not support OFS Capital's high dividend yield, suggesting it may not be a suitable investment at this time, with investors advised to wait for a better entry point [14].

Financial Data and Key Metrics Changes - The net asset value per share increased by 3.9% to $11.51, up $0.43 from the prior quarter [4] - Net investment income decreased from $0.42 per share in Q1 to $0.26 per share in Q2, primarily due to non-recurring items in the previous quarter [4][8] - The GAAP leverage ratio decreased from 1.87 times at December 31 to 1.62 times at June 30 [8] - Total investment income decreased by approximately $3.1 million to $11.2 million this quarter [10] - Total expenses decreased by 10.5% to $7.7 million, mainly due to lower interest expenses [10] Business Line Data and Key Metrics Changes - The fair value of the minority equity investment in Pfanstiehl increased by $7.8 million to $70.8 million at quarter end [5] - Approximately 100% of the loan portfolio at fair value consists of senior secured loans [12] - The weighted average performing investment income yield on the interest-bearing portion of the portfolio improved slightly to 13.4%, up about 0.4% quarter-over-quarter [13] Market Data and Key Metrics Changes - The company remains cautious about new originations and notes that M&A activity remains subdued [6][12] - The overall quality of the portfolio remains stable, with 4.6% of total investments at fair value on non-accrual status at quarter's end [9] Company Strategy and Development Direction - The company is focused on increasing net investment income by converting non-interest earning equity positions into interest-earning assets [5][14] - The investment discipline emphasizes avoiding highly cyclical industries and maintaining a well-diversified loan portfolio [6][12] - The company aims to preserve capital with approximately 100% of the known portfolio at fair value being senior secured [14] Management's Comments on Operating Environment and Future Outlook - Management acknowledges the uncertain interest rate environment but believes the company benefits from its balance sheet positioning [4] - The company anticipates an increase in M&A activity later in the year as clarity on interest rates improves [6] - Management expresses confidence in the overall quality and fundamentals of the portfolio, citing a long-standing investment discipline [14][15] Other Important Information - The quarterly distribution will remain at $0.34 per share for the third quarter, representing a 15.3% annualized yield based on the stock price at quarter end [8] - The adviser managing the company has a strong track record and maintains approximately 23% ownership in the company, aligning their interests with shareholders [15] Q&A Session Summary Question: What are the plans for increasing net investment income? - The company is actively exploring alternatives to monetize non-interest-bearing investments, specifically the minority equity stake in Pfanstiehl [9] Question: How is the company positioned in the current market? - The company believes its portfolio remains solid with no new non-accruals and is focused on capital preservation [14]

OFS Capital (OFS) came out with quarterly earnings of $0.26 per share, missing the Zacks Consensus Estimate of $0.29 per share. This compares to earnings of $0.38 per share a year ago. These figures are adjusted for nonrecurring items. This quarterly report represents an earnings surprise of -10.34%. A quarter ago, it was expected that this management investment company would post earnings of $0.35 per share when it actually produced earnings of $0.42, delivering a surprise of 20%. Over the last four quarte ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Title of each class Trading Symbol(s) Name of each exchange on which registered Common Stock, $0.01 par value per share OFS The Nasdaq Global Select Market 4.95% Notes due 2028 OFSSH The Nasdaq Global Select Market 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 June 30, 2024 or ¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURIT ...