OFS Capital Corporation (NASDAQ:OFS) Q1 2020 Earnings Conference Call May 8, 2020 1:00 PM ET Company Participants Steve Altebrando - Vice President, Investor Relations Bilal Rashid - Chairman & Chief Executive Officer Jeff Cerny - Chief Financial Officer & Treasurer Conference Call Participants Mickey Schleien - Ladenburg Operator Good day, and welcome to the OFS Capital Corporation First Quarter Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's pr ...

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, 2020 or ¨ 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 814-00813 OFS CAPITAL CORPORATION (Exact name of registrant as specified in its charter) Delaware 46-1339639 State o ...

PART I [Business](index=5&type=section&id=Item%201.%20Business) OFS Capital operates as an externally managed BDC, investing in U.S. middle-market companies for income and capital appreciation, and is taxed as a RIC [General Overview](index=5&type=section&id=General%20Overview) OFS Capital operates as a BDC, aiming for current income and capital appreciation, with a $516.9 million portfolio primarily in senior secured loans, managed externally, and taxed as a RIC - The company's investment objective is to provide stockholders with both **current income and capital appreciation**, primarily through debt investments in U.S. middle-market companies[16](index=16&type=chunk) Portfolio Composition at Fair Value (December 31, 2019) | Investment Type | Fair Value (in millions) | Portfolio Companies | | :--- | :--- | :--- | | Debt Investments | $451.8 | 79 | | - Senior Secured Loans | 90% of Debt Portfolio | N/A | | - Subordinated Loans | 10% of Debt Portfolio | N/A | | Equity Investments (in companies with debt) | $43.5 | 15 | | Equity-Only Investments | N/A | 6 | | Structured Finance Notes | $21.6 | 4 | - The company has reduced its required **asset coverage ratio from 200% to 150%**, effective May 3, 2019, allowing for increased leverage[22](index=22&type=chunk) - The company has elected to be treated as a **Regulated Investment Company (RIC)**, which generally eliminates corporate-level taxes on income distributed to stockholders[24](index=24&type=chunk) [Investment Strategy and Market](index=8&type=section&id=Investment%20Strategy%20and%20Market) The company targets U.S. middle-market companies, primarily investing in senior secured and subordinated loans, with a rigorous due diligence and active portfolio monitoring process - The company targets U.S. middle-market companies, typically defined as having revenues between **$15 million and $300 million** and annual EBITDA between **$3 million and $50 million**[45](index=45&type=chunk)[47](index=47&type=chunk) - Investment types include **senior secured first-lien, unitranche, second-lien, broadly syndicated, and subordinated (mezzanine) loans**, along with equity securities, warrants, and Structured Finance Notes[67](index=67&type=chunk)[68](index=68&type=chunk)[72](index=72&type=chunk)[73](index=73&type=chunk) - The company employs a **rigorous due diligence process** focusing on prospective company characteristics, industry overview, financial analysis, and legal documentation[48](index=48&type=chunk)[49](index=49&type=chunk)[50](index=50&type=chunk)[51](index=51&type=chunk) Debt Investment Risk Ratings (December 31, 2019) | Risk Category | Fair Value (in millions) | | :--- | :--- | | 2 (Below Average Risk) | $18.0 | | 3 (Average) | $387.7 | | 4 (Special Mention) | $45.5 | | 5 (Substandard) | $0.0 | | 6 (Doubtful) | $0.7 | [Management and Other Agreements](index=13&type=section&id=Management%20and%20Other%20Agreements) OFS Capital is externally managed by OFS Advisor, subject to a base management fee of 1.75% of assets (reduced for OFSCC-FS) and a two-part incentive fee, with administrative services provided by OFS Services - The base management fee is **1.75% annually** on average total assets (excluding cash, and goodwill/intangibles from the SBIC Acquisition)[77](index=77&type=chunk) - OFS Advisor agreed to reduce its base management fee to **1.00%** on assets held by the OFSCC-FS subsidiary, effective January 1, 2020[78](index=78&type=chunk) - The incentive fee has two parts: Part One is based on pre-incentive fee net investment income exceeding a **2.0% quarterly hurdle rate**, and Part Two is **20% of cumulative realized capital gains** net of losses and unrealized depreciation[79](index=79&type=chunk)[85](index=85&type=chunk) Advisory Fees Paid (2017-2019) | Fee Type | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Base Management Fee | $8.3 million | $6.3 million | $5.0 million | | Incentive Fee | $4.8 million | $4.4 million | $3.0 million | - Administrative services are provided by OFS Services, an affiliate, under an Administration Agreement, with the company reimbursing for allocable overhead, including officer salaries[102](index=102&type=chunk)[103](index=103&type=chunk) [Regulation](index=19&type=section&id=Regulation) As a BDC, OFS Capital is subject to 1940 Act regulations, including a 70% qualifying asset rule and a 150% asset coverage ratio, while its SBIC subsidiary is SBA-regulated, and the company maintains RIC tax status by meeting specific income and distribution tests - As a BDC, at least **70% of the company's assets** must be "qualifying assets," typically securities of private or small public U.S. companies[113](index=113&type=chunk) - The company's applicable **asset coverage ratio for senior securities was reduced from 200% to 150%**, effective May 3, 2019, allowing it to borrow up to **$2 for every $1 of investor equity**[119](index=119&type=chunk)[121](index=121&type=chunk) - The company's subsidiary, SBIC I LP, is licensed by the SBA and can issue up to **$150 million in SBA-guaranteed debentures**, subject to SBA regulations regarding eligible small business investments[130](index=130&type=chunk)[131](index=131&type=chunk)[132](index=132&type=chunk) - To maintain its RIC status, the company must meet a **90% gross income test** from qualifying sources and asset diversification tests, and distribute at least **90% of its investment company taxable income annually**[151](index=151&type=chunk)[154](index=154&type=chunk)[157](index=157&type=chunk) - The company has an SEC exemptive order permitting it to **co-invest with certain funds managed by OFS Advisor**, subject to approval by a required majority of independent directors[111](index=111&type=chunk)[127](index=127&type=chunk) [Risk Factors](index=30&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks including dependence on its external advisor, conflicts of interest, leverage and financing risks, inherent credit risk in middle-market investments, regulatory compliance, market volatility, and potential trading below net asset value [Risks Related to Our Business and Structure](index=30&type=section&id=Risks%20Related%20to%20Our%20Business%20and%20Structure) The company's success depends on OFS Advisor's professionals, with leverage magnifying gains and losses, and valuation uncertainty from illiquid assets; risks also include SBIC compliance, credit losses, maintaining RIC status, market disruptions, and cybersecurity threats - The company is dependent on the **senior professionals of its external advisor, OFS Advisor**, and has no internal management or employees[176](index=176&type=chunk) - The use of borrowed money magnifies potential gains or losses; the company's asset coverage ratio was **180%** as of December 31, 2019, with the Board approving a reduction to **150%** effective May 3, 2019[189](index=189&type=chunk)[190](index=190&type=chunk)[198](index=198&type=chunk) - Many portfolio investments are not publicly traded and are **valued in good faith by the board**, leading to uncertainty in the net asset value[183](index=183&type=chunk)[184](index=184&type=chunk) - Failure to maintain **RIC tax status** would subject the company to corporate-level income tax, substantially reducing net assets and distributable income[210](index=210&type=chunk) [Risks Related to OFS Advisor and its Affiliates](index=41&type=section&id=Risks%20Related%20to%20OFS%20Advisor%20and%20its%20Affiliates) Conflicts of interest arise from OFS Advisor managing other funds with similar strategies, potentially leading to non-arm's length agreements and a fee structure that may incentivize higher leverage or riskier investments, while the advisor's limited liability and resignation option pose operational risks - OFS Advisor manages other entities with similar investment strategies, such as **HPCI and OCCI**, creating potential conflicts in allocating investment opportunities[251](index=251&type=chunk) - The base management fee, calculated on total assets including leverage, may incentivize OFS Advisor to **increase borrowings**[272](index=272&type=chunk) - The incentive fee structure may encourage OFS Advisor to make **riskier or more speculative investments** to generate higher returns and capital gains[273](index=273&type=chunk)[275](index=275&type=chunk) - The Investment Advisory and Administration Agreements were negotiated between related parties and may not be as favorable as if negotiated with an **unaffiliated third party**[264](index=264&type=chunk) [Risks Related to Our Investments](index=47&type=section&id=Risks%20Related%20to%20Our%20Investments) Investments in private and middle-market companies are speculative, carrying high credit risk, especially for leveraged, subordinated, and 'covenant-lite' loans, exacerbated by illiquidity, portfolio concentration, and uncertainty from the LIBOR transition - Investments in middle-market companies are speculative and involve a **high degree of risk of credit loss**, as these companies are susceptible to economic slowdowns[291](index=291&type=chunk)[296](index=296&type=chunk) - The portfolio may include **"covenant-lite" loans**, which offer fewer protections for lenders and may lead to a greater risk of loss compared to loans with traditional financial maintenance covenants[295](index=295&type=chunk) - The company is a non-diversified investment company, meaning its portfolio may be **concentrated in a limited number of companies and industries**, subjecting it to significant loss if one defaults or an industry experiences a downturn[314](index=314&type=chunk)[315](index=315&type=chunk) - The planned phase-out of LIBOR by the end of 2021 creates **uncertainty for the company's floating-rate debt securities** and may adversely affect their value[337](index=337&type=chunk)[338](index=338&type=chunk) [Risks Related to Our Securities](index=55&type=section&id=Risks%20Related%20to%20Our%20Securities) The company's common stock may trade at a significant discount to NAV, limiting equity capital raising, while Unsecured Notes are effectively subordinated to secured debt and structurally subordinated to subsidiary liabilities - Shares of BDCs, including OFS Capital, frequently trade at a **discount to their net asset value (NAV)**; as of December 31, 2019, NAV was **$12.46 per share**, while the average closing price for 2019 was **$11.74**[347](index=347&type=chunk) - The company's Unsecured Notes are **effectively subordinated to any secured debt** and **structurally subordinated to all liabilities of its subsidiaries**[348](index=348&type=chunk)[350](index=350&type=chunk) - The indenture for the Unsecured Notes offers **limited protection to holders** and does not restrict the company from incurring additional debt or paying dividends, provided asset coverage tests are met[351](index=351&type=chunk) [Properties](index=58&type=section&id=Item%202.%20Properties) The company does not own any real estate; its headquarters and other offices are provided by its administrator, OFS Services, under the Administration Agreement - The company does not own or lease any material physical properties; its office facilities are provided by OFS Services under the Administration Agreement[359](index=359&type=chunk) [Legal Proceedings](index=58&type=section&id=Item%203.%20Legal%20Proceedings) As of December 31, 2019, the company and its affiliates were not subject to any material pending legal proceedings, with incidental proceedings not expected to have a material effect - The company and its affiliates are not currently subject to any **material pending legal proceedings**[360](index=360&type=chunk) PART II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=59&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) This section details the company's common stock trading on Nasdaq under "OFS", including historical stock price, NAV, distributions, a stock repurchase program (no 2019 repurchases), performance comparison, fee structure, and outstanding senior securities Fiscal 2019 Quarterly Stock and Distribution Data | Quarter | NAV Per Share | High Price | Low Price | Distribution per Share | | :--- | :--- | :--- | :--- | :--- | | Q4 2019 | $12.46 | $12.01 | $10.99 | $0.34 | | Q3 2019 | $12.74 | $12.27 | $10.98 | $0.34 | | Q2 2019 | $12.95 | $12.80 | $11.85 | $0.34 | | Q1 2019 | $13.04 | $12.52 | $10.77 | $0.34 | - The Board authorized a **$10.0 million stock repurchase program** on May 22, 2018, with no shares repurchased during the year ended December 31, 2019[366](index=366&type=chunk)[367](index=367&type=chunk)[368](index=368&type=chunk) Total Annual Expenses (as a % of net assets) | Expense Category | Percentage | | :--- | :--- | | Base management fees | 5.38% | | Incentive fees | 2.73% | | Interest payments on borrowed funds | 10.91% | | Other expenses | 2.76% | | **Total annual expenses** | **21.78%** | | Base management fee reduction | (0.08)% | | **Total annual expenses, net of fee waiver** | **21.70%** | Senior Securities Outstanding (December 31, 2019) | Security | Amount Outstanding (in thousands) | | :--- | :--- | | BNP Facility | $56,450 | | 5.95% Notes due 2026 | $54,325 | | 6.50% Notes due 2025 | $48,525 | | 6.375% Notes due 2025 | $50,000 | | PWB Credit Facility | $0 | | SBA debentures (SBIC I LP) | $149,880 | | **Total Senior Securities** | **$359,180** | [Selected Consolidated Financial Data](index=67&type=section&id=Item%206.%20Selected%20Consolidated%20Financial%20Data) This section summarizes five years of key financial data, showing 2019 total investment income of **$52.5 million**, net investment income of **$19.1 million** ($1.43 per share), a **$9.6 million** net decrease in net assets from operations due to unrealized depreciation, and growth in total investments to **$516.9 million** with total debt at **$352.5 million** Selected Financial Data (Years Ended December 31) | Metric (in thousands, except per share) | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Total investment income | $52,521 | $42,834 | $33,426 | | Net investment income | $19,098 | $18,385 | $15,877 | | Net increase in net assets from operations | $9,553 | $9,572 | $7,910 | | Net asset value per share | $12.46 | $13.10 | $14.12 | | Net investment income per share | $1.43 | $1.38 | $1.28 | | Distributions declared per share | $1.36 | $1.73 | $1.36 | | Investments, at fair value | $516,931 | $396,797 | $277,499 | | Total assets | $538,188 | $441,421 | $357,778 | | Debt | $352,478 | $254,826 | $164,823 | | Total net assets | $166,627 | $175,023 | $188,336 | - The weighted average yield on performing debt and Structured Finance Note investments decreased to **10.40% in 2019 from 11.50% in 2018**[392](index=392&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=69&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses 2019 financial performance, noting investment income growth to **$52.5 million** driven by portfolio expansion and leverage, offset by increased expenses and a **$9.5 million** net loss on investments from unrealized depreciation, with the portfolio at **$516.9 million** and total debt at **$359.2 million** [Portfolio Composition and Investment Activity](index=74&type=section&id=Portfolio%20Composition%20and%20Investment%20Activity) As of December 31, 2019, the investment portfolio's fair value was **$516.9 million**, primarily senior secured debt, with the weighted average yield decreasing to **10.40%**; new investments totaled **$198.8 million**, and four loans were on non-accrual status Portfolio Composition by Investment Type (Fair Value) | Investment Type | Dec 31, 2019 (in thousands) | Dec 31, 2018 (in thousands) | | :--- | :--- | :--- | | Senior secured debt | $408,724 | $319,017 | | Subordinated debt | $43,091 | $44,540 | | Preferred equity | $17,729 | $14,613 | | Common equity and warrants | $25,777 | $18,627 | | **Total Direct Investments** | **$495,321** | **$396,797** | - The weighted average yield on performing debt and Structured Finance Notes decreased from **11.5% at year-end 2018 to 10.40% at year-end 2019**, primarily due to deploying capital into new, lower-yielding originations and a decrease in LIBOR[426](index=426&type=chunk) - During 2019, the company invested **$193.2 million in debt** and **$5.6 million in equity** in new and existing portfolio companies, plus **$23.4 million in Structured Finance Notes**[431](index=431&type=chunk) - At year-end 2019, **four loans were on non-accrual status** with an aggregate amortized cost of **$22.2 million** and fair value of **$0.7 million**[428](index=428&type=chunk) [Results of Operations](index=78&type=section&id=Results%20of%20Operations) For 2019, total investment income increased by **$9.7 million to $52.5 million**, driven by portfolio growth, while total expenses rose by **$9.0 million to $33.4 million** due to higher interest and management fees, resulting in **$19.1 million** net investment income and a **$9.5 million** net loss on investments from unrealized depreciation Consolidated Operating Results (in thousands) | Line Item | 2019 | 2018 | 2017 | | :--- | :--- | :--- | :--- | | Total investment income | $52,521 | $42,834 | $33,426 | | Total expenses, net | $33,423 | $24,449 | $17,549 | | **Net investment income** | **$19,098** | **$18,385** | **$15,877** | | Net loss on investments | ($9,545) | ($8,813) | ($7,967) | | **Net increase in net assets** | **$9,553** | **$9,572** | **$7,910** | - The increase in 2019 investment income was driven by a **$103 million increase in the average outstanding loan balance**[445](index=445&type=chunk)[447](index=447&type=chunk) - The increase in 2019 expenses was primarily due to a **$6.6 million rise in interest expense** from increased borrowings, including the new BNP Facility and Unsecured Notes[451](index=451&type=chunk)[452](index=452&type=chunk) - The net loss on investments in 2019 was primarily driven by a **$9.0 million unrealized loss** on the senior secured debt of Constellis Holdings, LLC[461](index=461&type=chunk) [Liquidity and Capital Resources](index=83&type=section&id=Liquidity%20and%20Capital%20Resources) As of December 31, 2019, the company had **$13.4 million** cash and **$162.6 million** in available credit facilities, with total debt outstanding at **$359.2 million** and an asset coverage ratio of **180%**, planning future growth through equity and additional borrowings Sources of Liquidity (December 31, 2019) | Source | Amount (in millions) | | :--- | :--- | | Cash and cash equivalents | $13.4 | | PWB Credit Facility Availability | $69.0 | | BNP Facility Unused Commitment | $93.6 | Debt Outstanding (December 31, 2019) | Debt Instrument | Principal Outstanding (in thousands) | | :--- | :--- | | SBA Debentures | $149,880 | | PWB Credit Facility | $0 | | BNP Facility | $56,450 | | Unsecured Notes | $152,850 | | **Total** | **$359,180** | - The company's **asset coverage ratio was 180%** as of December 31, 2019, well above the **150% regulatory requirement**, with SBA debentures excluded per an SEC exemptive order[475](index=475&type=chunk)[476](index=476&type=chunk) - The company has **$4.8 million in unfunded commitments** to four portfolio companies as of year-end 2019[516](index=516&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=90&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company is primarily exposed to interest rate risk, with **93% of debt investments floating-rate** (LIBOR-indexed) and a sensitivity analysis showing a **$3.4 million** increase in net annual income for a 100 basis point rate rise and a **$2.9 million** decrease for a 100 basis point fall - As of December 31, 2019, **93% of the company's debt investments at fair value were floating-rate**, making its income sensitive to interest rate changes[521](index=521&type=chunk) Annualized Impact of Hypothetical Interest Rate Changes (in thousands) | Basis Point Change | Net Increase (Decrease) in Income | | :--- | :--- | | +200 | $6,928 | | +100 | $3,368 | | -100 | ($2,861) | | -200 | ($3,005) | [Financial Statements and Supplementary Data](index=91&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the company's audited consolidated financial statements for 2019 and prior years, including reports from independent accounting firms, statements of assets and liabilities, operations, changes in net assets, cash flows, a detailed schedule of investments, and comprehensive notes covering accounting policies, fair value, related party transactions, and debt Consolidated Statement of Assets and Liabilities (December 31, 2019) | | Amount (in thousands) | | :--- | :--- | | **Assets** | | | Total investments at fair value | $516,931 | | Cash and cash equivalents | $13,447 | | **Total Assets** | **$538,188** | | **Liabilities** | | | Total debt (net of costs) | $352,478 | | **Total Liabilities** | **$371,561** | | **Total Net Assets** | **$166,627** | | Net Asset Value per share | $12.46 | - The company's independent registered public accounting firm for fiscal year 2019 was **KPMG LLP**, providing an **unqualified opinion** on financial statements and internal control effectiveness[530](index=530&type=chunk)[531](index=531&type=chunk) - All of the company's investments are classified as **Level 2 or Level 3 in the fair value hierarchy**, with the vast majority (**$442.3 million out of $516.9 million**) classified as **Level 3**, indicating reliance on unobservable inputs for valuation[667](index=667&type=chunk) [Controls and Procedures](index=159&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2019, an assessment audited by KPMG LLP with an unqualified opinion, and no material changes were reported in Q4 2019 - Management concluded that the company's **disclosure controls and procedures were effective** as of December 31, 2019[741](index=741&type=chunk) - Management concluded that the company's **internal control over financial reporting was effective** as of December 31, 2019, an assessment audited by **KPMG LLP** which issued an **unqualified opinion**[744](index=744&type=chunk)[745](index=745&type=chunk) PART III [Directors, Executive Officers, Corporate Governance, Compensation, and Security Ownership](index=160&type=section&id=Items%2010-14) Information for Items 10-14, covering directors, executive officers, corporate governance, compensation, security ownership, related transactions, and principal accountant fees, is incorporated by reference from the company's definitive 2020 Proxy Statement - Information regarding **Directors, Executive Officers, Corporate Governance (Item 10), Executive Compensation (Item 11), Security Ownership (Item 12), Certain Relationships and Related Transactions (Item 13), and Principal Accountant Fees (Item 14)** is incorporated by reference from the forthcoming 2020 Proxy Statement[749](index=749&type=chunk)[750](index=750&type=chunk)[751](index=751&type=chunk)[752](index=752&type=chunk)[753](index=753&type=chunk) PART IV [Exhibits and Financial Statement Schedules](index=161&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists financial statements, schedules, and exhibits filed with the 10-K, including corporate governance documents, debt agreements, management agreements, and CEO/CFO certifications pursuant to the Sarbanes-Oxley Act - This section provides a comprehensive list of all documents filed with the 10-K, including **corporate governance documents, debt agreements, management agreements, and required certifications**[755](index=755&type=chunk)[756](index=756&type=chunk)[757](index=757&type=chunk)

OFS Capital Corporation (NASDAQ:OFS) Q4 2019 Earnings Conference Call March 13, 2020 10:00 AM ET Company Participants Steve Altebrando – Vice President-Investor Relations Bilal Rashid – Chairman and Chief Executive Officer Jeff Cerny – Chief Financial Officer and Treasurer Conference Call Participants Mickey Schleien – Ladenburg Operator Good day, and welcome to the OFS Capital Corporation Fourth Quarter and Full Year 2019 Earnings Conference Call and Webcast. [Operator Instructions] Please note this event ...

PART I. FINANCIAL INFORMATION [Consolidated Financial Statements](index=8&type=section&id=Item%201.%20Consolidated%20Financial%20Statements) This section presents OFS Capital Corporation's unaudited consolidated financial statements, including statements of assets and liabilities, operations, changes in net assets, cash flows, and detailed investment schedules, for the periods ended September 30, 2019 [Consolidated Statements of Assets and Liabilities](index=8&type=section&id=Consolidated%20Statements%20of%20Assets%20and%20Liabilities) Total assets increased to **$518.3 million** by September 30, 2019, driven by investment fair value, while total liabilities also grew, leading to a decrease in net asset value per share to **$12.74** Consolidated Balance Sheet Highlights (in thousands) | Metric | September 30, 2019 (unaudited) | December 31, 2018 | | :--- | :--- | :--- | | **Total Investments, at fair value** | $502,161 | $396,797 | | **Total Assets** | $518,287 | $441,421 | | **Total Liabilities** | $347,881 | $266,398 | | **Total Net Assets** | $170,406 | $175,023 | | **Net Asset Value per share** | $12.74 | $13.10 | [Consolidated Statements of Operations](index=9&type=section&id=Consolidated%20Statements%20of%20Operations) Total investment income rose to **$13.9 million** in Q3 2019, yielding **$4.9 million** in net investment income, but a **$3.1 million** net loss on investments led to a lower net increase in net assets Operating Results (in thousands, except per share data) | Metric | Q3 2019 (unaudited) | Q3 2018 (unaudited) | Nine Months 2019 (unaudited) | Nine Months 2018 (unaudited) | | :--- | :--- | :--- | :--- | :--- | | Total Investment Income | $13,858 | $10,982 | $39,103 | $30,263 | | Total Expenses | $9,005 | $6,292 | $24,562 | $17,199 | | **Net Investment Income** | **$4,853** | **$4,690** | **$14,541** | **$13,064** | | Net Gain (Loss) on Investments | ($3,091) | $489 | ($5,694) | $603 | | **Net Increase in Net Assets** | **$1,762** | **$5,179** | **$8,847** | **$13,667** | | Net Investment Income per Share | $0.36 | $0.35 | $1.09 | $0.98 | | Net Increase in Net Assets per Share | $0.13 | $0.39 | $0.66 | $1.02 | [Consolidated Statements of Changes in Net Assets](index=11&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Net%20Assets) Net assets decreased by **$4.6 million** to **$170.4 million** for the nine months ended September 30, 2019, primarily due to distributions and unrealized depreciation offsetting net investment income Changes in Net Assets - Nine Months Ended Sep 30, 2019 (in thousands) | Description | Amount | | :--- | :--- | | Balances at January 1, 2019 | $175,023 | | Net Investment Income | $14,541 | | Net Realized Loss on Investments | ($843) | | Net Unrealized Depreciation on Investments | ($4,851) | | Distributions to Stockholders | ($13,631) | | Other | $167 | | **Balances at September 30, 2019** | **$170,406** | [Consolidated Statements of Cash Flows](index=13&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) The company experienced a net cash outflow of **$30.2 million** for the nine months ended September 30, 2019, driven by operating activities and partially offset by financing activities Cash Flow Summary - Nine Months Ended Sep 30 (in thousands) | Activity | 2019 (unaudited) | 2018 (unaudited) | | :--- | :--- | :--- | | Net Cash Used in Operating Activities | ($95,349) | ($95,927) | | Net Cash Provided by Financing Activities | $65,151 | $29,018 | | **Net Decrease in Cash** | **($30,198)** | **($66,909)** | | Cash at Beginning of Period | $38,172 | $72,952 | | **Cash at End of Period** | **$7,974** | **$6,043** | [Consolidated Schedules of Investments](index=14&type=section&id=Consolidated%20Schedules%20of%20Investments) Total investments at fair value increased to **$502.2 million** by September 30, 2019, comprising debt, equity, and structured finance notes across 69 companies, with the majority in non-control/non-affiliate investments Investment Portfolio Composition as of Sep 30, 2019 (Fair Value, in thousands) | Investment Category | Fair Value | % of Total Investments | | :--- | :--- | :--- | | Non-control/Non-affiliate Investments | $368,634 | 73.4% | | Affiliate Investments | $124,227 | 24.7% | | Control Investment | $9,300 | 1.9% | | **Total Investments** | **$502,161** | **100.0%** | Investment Type Breakdown as of Sep 30, 2019 (Fair Value, in thousands) | Investment Type | Fair Value | % of Total Investments | | :--- | :--- | :--- | | Senior Secured Debt | $393,857 | 78.4% | | Subordinated Debt | $44,079 | 8.8% | | Preferred Equity | $18,566 | 3.7% | | Common Equity and Warrants | $23,465 | 4.7% | | Structured Finance Notes | $22,194 | 4.4% | | **Total** | **$502,161** | **100.0%** | [Notes to Consolidated Financial Statements](index=34&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail accounting policies, related-party transactions, investment composition, fair value measurements, debt facilities, and capital transactions, including management fees, Level 3 asset valuation, and distribution policy - The company operates as a **BDC** and has elected to be treated as a **RIC** for tax purposes, making investments directly and through subsidiaries like **SBIC I LP** and **OFSCC-FS**[56](index=56&type=chunk)[57](index=57&type=chunk)[59](index=59&type=chunk) - OFS Advisor receives a **1.75%** annual **base management fee** and a **two-part incentive fee**, with a **partial waiver** on the base management fee for assets in OFSCC-FS under certain leverage conditions[71](index=71&type=chunk)[73](index=73&type=chunk) - As of September 30, 2019, **$450.1 million** (**89.6%**) of the company's **$502.2 million** investment portfolio was classified as **Level 3**, valued using significant unobservable inputs[107](index=107&type=chunk) - Total debt outstanding includes **SBA debentures ($147.9 million)**, **Unsecured Notes ($95.6 million)**, the **PWB Credit Facility ($45.8 million)**, and the **BNP Facility ($46.7 million)**[113](index=113&type=chunk)[117](index=117&type=chunk)[118](index=118&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=57&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial condition and operating results, covering investment strategy, portfolio composition, key financial metrics, liquidity, capital resources, and recent debt issuance [Portfolio Composition and Investment Activity](index=60&type=section&id=Portfolio%20Composition%20and%20Investment%20Activity) The investment portfolio's fair value reached **$502.2 million** by September 30, 2019, primarily in debt, with **$142.2 million** invested in direct debt and **$23.4 million** in Structured Finance Notes during the period Investment Activity - Nine Months Ended Sep 30, 2019 (in millions) | Activity | Debt Investments | Equity Investments | | :--- | :--- | :--- | | Investments in new portfolio companies | $97.7 | $4.1 | | Investments in existing portfolio companies | $44.5 | $— | | **Total Investments** | **$142.2** | **$4.1** | | **Total Proceeds (Repayments/Sales)** | **$61.2** | **$—** | - The company also invested **$23.4 million** in **Structured Finance Notes** with a weighted average annual effective yield of **15.94%** during the nine months ended September 30, 2019[173](index=173&type=chunk) - Debt investments with a fair value of **$41.0 million** were downgraded from **risk category 3** to **categories 4 and 5**, while investments with a fair value of **$17.1 million** were upgraded from **category 4 to 3** during the first nine months of 2019[181](index=181&type=chunk) [Results of Operations](index=65&type=section&id=Results%20of%20Operations) Total investment income increased to **$13.9 million** in Q3 2019, but rising expenses, primarily interest, led to a stable net investment income of **$4.9 million** and a **$3.1 million** net loss on investments Comparison of Operating Results (in thousands) | Metric | Q3 2019 | Q3 2018 | Nine Months 2019 | Nine Months 2018 | | :--- | :--- | :--- | :--- | :--- | | Total Investment Income | $13,858 | $10,982 | $39,103 | $30,263 | | Total Expenses, net | $9,005 | $6,292 | $24,562 | $17,199 | | Net Investment Income | $4,853 | $4,690 | $14,541 | $13,064 | | Net Gain (Loss) on Investments | ($3,091) | $489 | ($5,694) | $603 | - The increase in expenses was primarily driven by **interest expense**, which rose to **$4.5 million** in Q3 2019 from **$2.4 million** in Q3 2018 due to the issuance of **Unsecured Notes** and borrowings under the new **BNP Facility**[196](index=196&type=chunk)[198](index=198&type=chunk) [Liquidity and Capital Resources](index=70&type=section&id=Liquidity%20and%20Capital%20Resources) As of September 30, 2019, the company maintained **$8.0 million** in cash and substantial borrowing capacity, with an **asset coverage ratio of 189%**, and further enhanced liquidity post-quarter by issuing **$54.3 million** in unsecured notes Contractual Obligations as of Sep 30, 2019 (in thousands) | Obligation | Total | Less than 1 year | 1-3 years | 3-5 years | After 5 years | | :--- | :--- | :--- | :--- | :--- | :--- | | PWB Credit Facility | $45,825 | $— | $45,825 | $— | $— | | Unsecured Notes | $98,525 | $— | $— | $— | $98,525 | | SBA Debentures | $149,880 | $— | $14,000 | $47,375 | $88,505 | | BNP Facility | $46,650 | $— | $— | $46,650 | $— | | **Total** | **$340,880** | **$—** | **$59,825** | **$94,025** | **$187,030** | - The company's **asset coverage ratio was 189%** as of September 30, 2019, exceeding the required minimum of **150%** which became effective May 3, 2019[240](index=240&type=chunk)[238](index=238&type=chunk) - Subsequent to quarter-end, in October and November 2019, the company issued **$54.3 million** in **5.95% unsecured notes due 2026**, raising net proceeds of approximately **$52.3 million**[248](index=248&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=75&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is primarily exposed to interest rate risk, with **90%** of debt investments being floating-rate, and a **100 basis point** interest rate increase would yield an estimated **$2.9 million** annual net income increase Annualized Impact of Hypothetical Interest Rate Changes (in thousands) | Basis Point Change | Impact on Interest Income | Impact on Interest Expense | Net Impact on Income | | :--- | :--- | :--- | :--- | | +100 | $3,823 | ($879) | $2,944 | | -100 | ($4,288) | $532 | ($3,756) | - As of September 30, 2019, **90%** of the company's debt investments bore **floating interest rates**, while its SBA debentures and Unsecured Notes were **fixed-rate**, and the PWB and BNP credit facilities are **floating-rate**[250](index=250&type=chunk)[251](index=251&type=chunk) [Controls and Procedures](index=75&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of September 30, 2019, with no material changes to internal control over financial reporting during the quarter - Based on an evaluation as of September 30, 2019, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were **effective**[255](index=255&type=chunk) - **No changes** in internal control over financial reporting occurred during the quarter that **materially affected**, or are reasonably likely to materially affect, internal controls[256](index=256&type=chunk) PART II. OTHER INFORMATION [Legal Proceedings](index=76&type=section&id=Item%201.%20Legal%20Proceedings) As of September 30, 2019, the company, its adviser, and administrator were not subject to any material pending legal proceedings - The company is **not currently subject** to any **material pending legal proceedings**[258](index=258&type=chunk) [Risk Factors](index=76&type=section&id=Item%201A.%20Risk%20Factors) No material changes have occurred to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended December 31, 2018 - **No material changes** from the risk factors previously disclosed in the Annual Report on Form 10-K for the year ended December 31, 2018 have occurred[260](index=260&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=76&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) In Q3 2019, the company issued **4,990 shares** of common stock via its DRIP, valued at **$58,000**, while no shares were repurchased under its **$10.0 million** stock repurchase program - During Q3 2019, **4,990 shares** of common stock were issued to stockholders through the **DRIP**, with an aggregate value of approximately **$57,928**[261](index=261&type=chunk) - **No shares were repurchased** under the company's stock repurchase program during the nine months ended September 30, 2019, with approximately **$10.0 million** remaining authorized for repurchase[262](index=262&type=chunk)[263](index=263&type=chunk) [Exhibits](index=77&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including the third supplemental indenture for the **5.95% Notes due 2026** and required CEO and CFO certifications - Exhibits filed include documents related to the **5.95% Notes Due 2026** and **certifications from the CEO and CFO**[267](index=267&type=chunk)

OFS Capital (NASDAQ:OFS) Q3 2019 Earnings Conference Call November 8, 2019 10:00 AM ET Company Participants Steve Altebrando - IR Bilal Rashid - Chairman and CEO Jeff Cerny - CFO and Treasurer Conference Call Participants Mickey Schleien - Ladenburg Operator Good day and welcome to the OFS Capital Corporation Third Quarter 2019 Earnings Conference Call and Webcast. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Steve Altebrando, Investor Rel ...

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 June 30, 2019 or ¨ 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 814-00813 OFS CAPITAL CORPORATION (Exact name of registrant as specified in its charter) Delaware 46-1339639 State or ...

OFS Capital (NASDAQ:OFS) Q2 2019 Results Conference Call August 2, 2019 10:00 AM ET Company Participants Steve Altebrando – Vice resident-Investor Relations Bilal Rashid – Chairman and Chief Executive Officer Jeff Cerny – Chief Financial Officer and Treasurer Conference Call Participants Mickey Schleien – Ladenburg Operator Good morning and welcome to the OFS Capital Corporation Second Quarter 2019 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] After today’ ...

OFS Capital Corporation (NASDAQ:OFS) Q1 2019 Results Conference Call May 3, 2019 10:00 AM ET Company Participants Steve Altebrando - Vice President of Equity Capital Markets Bilal Rashid - Chairman and Chief Executive Officer Jeff Cerny - Chief Financial Officer and Treasurer Operator Good day, and welcome to the OFS Capital Corporation First Quarter 2019 Earnings Conference Call and Webcast. All participants will be in listen-only mode [Operator Instructions]. Please note that this event is being recorded. ...

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, 2019 or ¨ 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 814-00813 OFS CAPITAL CORPORATION (Exact name of registrant as specified in its charter) Delaware 46-1339639 State o ...