[Part I](index=3&type=section&id=PART%20I) [Item 1. Business](index=4&type=section&id=Item%201.%20Business) PennantPark Investment Corporation (PNNT) is a Business Development Company (BDC) focused on generating income and capital appreciation by investing in U.S. middle-market companies - PNNT's primary business objective is to generate both current income and capital appreciation by investing in U.S. middle-market companies with annual revenues between **$50 million and $1 billion**[20](index=20&type=chunk)[21](index=21&type=chunk) - The company is an externally managed, non-diversified investment company that has elected to be treated as a BDC under the 1940 Act and a RIC for federal income tax purposes[23](index=23&type=chunk) - PNNT's investment adviser, PennantPark Investment Advisers, has invested **$18.5 billion** in **653 companies** since its inception in 2007, demonstrating extensive experience in the middle-market lending space[28](index=28&type=chunk) Portfolio Composition by Fair Value (as of September 30, 2023) | Investment Type | Percentage of Portfolio | | :--- | :--- | | First Lien Secured Debt | 48% | | Second Lien Secured Debt | 7% | | Subordinated Debt (incl. PSLF) | 14% | | Preferred and Common Equity (incl. PSLF) | 22% | | U.S. Government Securities | 9% | Top Industries by Portfolio Assets (as of September 30, 2023) | Industry | Percentage of Portfolio | | :--- | :--- | | Business Services | 18% | | Healthcare, Education and Childcare | 14% | | Consumer Products | 9% | | Distribution | 8% | | Financial Services | 6% | [Leverage](index=6&type=section&id=Leverage) The company utilizes various debt instruments, including credit facilities and notes, to finance its investments and operations Outstanding Debt as of September 30, 2023 | Debt Instrument | Total Commitment/Principal | Outstanding Borrowings | Interest Rate/Coupon | | :--- | :--- | :--- | :--- | | Truist Credit Facility | $475.0 million | $212.4 million | 7.7% (weighted avg.) | | 2026 Notes | $150.0 million | $150.0 million | 4.50% | | 2026 Notes-2 | $165.0 million | $165.0 million | 4.00% | - The company's asset coverage requirement for senior securities was reduced from **200% to 150%** following stockholder approval on February 5, 2019, allowing for increased leverage[47](index=47&type=chunk) [Investment Management Agreement](index=11&type=section&id=Investment%20Management%20Agreement) The company's investment adviser earns fees based on a combination of base management fees and performance-based incentive fees - The base management fee is **1.50%** of average adjusted gross assets, reduced to **1.00%** on gross assets exceeding **200%** of total net assets[81](index=81&type=chunk) - The incentive fee has two parts: one based on Pre-Incentive Fee Net Investment Income exceeding a **1.75%** quarterly hurdle rate, and a second part equal to **17.5%** of cumulative realized capital gains net of losses and unrealized depreciation[83](index=83&type=chunk)[85](index=85&type=chunk) Fees Earned by Investment Adviser (in millions) | Fee Type | FY 2023 | FY 2022 | FY 2021 | | :--- | :--- | :--- | :--- | | Base Management Fee | $16.5 | $19.8 | $17.3 | | Incentive Fee on NII | $13.9 | $2.7 | $0.6 | [Regulation](index=14&type=section&id=REGULATION) The company operates under specific regulatory requirements as a Business Development Company (BDC) and a Regulated Investment Company (RIC) - As a BDC, the company must invest at least **70%** of its assets in "qualifying assets," which are primarily securities of private or thinly traded U.S. companies[105](index=105&type=chunk) - To maintain its RIC status for tax purposes, the company must annually distribute at least **90%** of its investment company taxable income[127](index=127&type=chunk) - The company's subsidiary, SBIC II, was licensed by the SBA but has since repaid all outstanding debentures and surrendered its license[141](index=141&type=chunk) [Item 1A. Risk Factors](index=20&type=section&id=Item%201A.%20Risk%20Factors) This section details the significant risks associated with investing in the company's securities, including business, liquidity, investment, and market risks [Risks Relating to Our Business and Structure](index=20&type=section&id=RISKS%20RELATING%20TO%20OUR%20BUSINESS%20AND%20STRUCTURE) The company faces risks related to market competition, reliance on key personnel, interest rate fluctuations, internal control deficiencies, and the use of leverage - The company operates in a highly competitive market for investment opportunities, competing with other BDCs, banks, and private funds, which could limit its ability to find attractive investments[150](index=150&type=chunk) - Dependence on the Investment Adviser's key personnel is a significant risk; their departure could harm the company's ability to achieve its investment objectives[158](index=158&type=chunk) - The company is exposed to interest rate risk, as rising rates increase borrowing costs and could lead to defaults from portfolio companies with floating-rate debt[160](index=160&type=chunk)[163](index=163&type=chunk) - Material weaknesses in internal control over financial reporting have been identified, which could impact the accuracy of financial reporting if not remediated[170](index=170&type=chunk) - The use of leverage, permitted up to a **150%** asset coverage ratio, increases the risk of loss for common stockholders if the value of assets declines[180](index=180&type=chunk)[189](index=189&type=chunk) [Risks Relating to the Illiquid Nature of Portfolio Assets](index=28&type=section&id=RISKS%20RELATING%20TO%20THE%20ILLIQUID%20NATURE%20OF%20OUR%20PORTFOLIO%20ASSETS) The company's investments in illiquid assets pose valuation challenges and may restrict its ability to sell assets when necessary - The company invests in illiquid assets, and its valuation procedures may result in recorded values that differ materially from the values ultimately received upon disposition[225](index=225&type=chunk) - The lack of liquidity in investments may make it difficult or impossible to sell assets when needed, potentially forcing sales at a significant loss, especially during market disruptions[229](index=229&type=chunk) [Risks Relating to Our Investments](index=29&type=section&id=RISKS%20RELATING%20TO%20OUR%20INVESTMENTS) Investments in middle-market companies carry inherent risks due to their characteristics and the company's non-diversified investment strategy - Investments in middle-market companies are inherently risky due to factors such as high leverage, limited financial resources, and dependence on small management teams[235](index=235&type=chunk) - The company is a non-diversified investment company, meaning it can invest a large portion of its assets in a small number of issuers, increasing risk concentration[240](index=240&type=chunk) - The incentive fee structure may induce the Investment Adviser to make more speculative investments to increase its compensation, potentially leading to higher investment losses[248](index=248&type=chunk) [Risks Relating to an Investment in Our Common Stock](index=32&type=section&id=RISKS%20RELATING%20TO%20AN%20INVESTMENT%20IN%20OUR%20COMMON%20STOCK) Investing in the company's common stock carries risks including potential trading discounts to NAV, dilution from future issuances, and uncertainty regarding distributions - The company's shares may trade at a significant discount to their Net Asset Value (NAV), a risk separate from the risk of NAV declining[266](index=266&type=chunk) - Future issuances of common stock below the then-current NAV per share, if approved by stockholders, could materially dilute existing shareholders' interests[258](index=258&type=chunk)[260](index=260&type=chunk) - There is a risk that stockholders may not receive distributions or that distributions may not grow, and they may be limited by asset coverage requirements[262](index=262&type=chunk) [Risks Relating to an Investment in Our Debt Securities](index=34&type=section&id=RISKS%20RELATING%20TO%20AN%20INVESTMENT%20IN%20OUR%20DEBT%20SECURITIES) The company's debt securities are subject to subordination risks and limited protective covenants - The 2026 Notes and 2026-2 Notes are unsecured and are effectively subordinated to any current or future secured indebtedness, such as the Truist Credit Facility[274](index=274&type=chunk) - The notes are structurally subordinated to all indebtedness and liabilities of the company's subsidiaries, as the assets of subsidiaries are not directly available to satisfy the claims of the company's creditors[275](index=275&type=chunk)[276](index=276&type=chunk) - The indenture governing the notes offers limited protection to holders and does not restrict the company from incurring additional debt or engaging in various corporate transactions that could adversely impact the notes' value[277](index=277&type=chunk) [Item 1B. Unresolved Staff Comments](index=37&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports that it has no unresolved staff comments from the SEC - None[301](index=301&type=chunk) [Item 2. Properties](index=37&type=section&id=Item%202.%20Properties) The company does not own any real estate or other material physical properties, utilizing facilities provided by its Investment Adviser and Administrator - As of September 30, 2023, the company did not own any real estate or other physical properties material to its operation[303](index=303&type=chunk) [Item 3. Legal Proceedings](index=37&type=section&id=Item%203.%20Legal%20Proceedings) The company, its Investment Adviser, and its Administrator are not currently subject to any material legal proceedings, nor are any known to be threatened - The company reports no material legal proceedings against itself, its Investment Adviser, or its Administrator[304](index=304&type=chunk) [Part II](index=38&type=section&id=PART%20II) [Item 5. Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=38&type=section&id=Item%205.%20Market%20For%20Registrant's%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) This section provides information on the company's common stock (PNNT), including its trading price relative to NAV, share repurchase program status, and distribution details Quarterly Stock Price and NAV Per Share (FY 2023) | Quarter | NAV per Share | High Price | Low Price | High Price to NAV | Low Price to NAV | | :--- | :--- | :--- | :--- | :--- | :--- | | Q4 2023 | $7.70 | $6.92 | $5.95 | (10)% | (23)% | | Q3 2023 | $7.72 | $6.00 | $4.76 | (22)% | (38)% | | Q2 2023 | $7.60 | $6.25 | $4.99 | (18)% | (34)% | | Q1 2023 | $7.71 | $6.30 | $5.45 | (18)% | (29)% | - The company's share repurchase program, which allowed for up to **$25 million** in repurchases, expired on March 31, 2023[312](index=312&type=chunk) - No shares were repurchased during the fiscal year ended September 30, 2023[312](index=312&type=chunk) - For the fiscal year ended September 30, 2023, total distributions from ordinary income were **$49.6 million**, or **$0.76 per share**[316](index=316&type=chunk) - No distributions were made from long-term capital gains[316](index=316&type=chunk) [Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=43&type=section&id=Item%207.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section analyzes the company's financial performance for FY 2023, highlighting increased net investment income, significant realized losses, and portfolio value changes [Portfolio and Investment Activity](index=45&type=section&id=PORTFOLIO%20AND%20INVESTMENT%20ACTIVITY) This section summarizes the company's investment portfolio characteristics and activity for the fiscal year ended September 30, 2023 Portfolio Summary (as of Sept 30) | Metric | 2023 | 2022 | | :--- | :--- | :--- | | Total Portfolio Value | $1,101.7 million | $1,226.3 million | | Number of Companies | 129 | 123 | | Avg. Investment Size | $7.8 million | $10.0 million | | Weighted Avg. Yield on Debt | 13.0% | 10.8% | | Non-Accrual (Cost Basis) | 1.2% | 1.2% | Investment Activity (Year Ended Sept 30) | Activity | 2023 | 2022 | | :--- | :--- | :--- | | Investments Made | $275.4 million | $933.8 million | | Sales and Repayments | $418.6 million | $911.6 million | [Results of Operations](index=49&type=section&id=RESULTS%20OF%20OPERATIONS) This section details the company's financial results, including investment income, expenses, and net changes in assets for the fiscal year ended September 30, 2023 Results of Operations Summary (Year Ended Sept 30) | Metric (in millions) | 2023 | 2022 | | :--- | :--- | :--- | | Total Investment Income | $145.4 | $105.0 | | Net Expenses | $79.8 | $61.0 | | **Net Investment Income** | **$65.5** | **$43.9** | | Net Realized Gain (Loss) | $(156.8) | $34.8 | | Net Unrealized Appreciation (Depreciation) | $59.6 | $(110.0) | | **Net Change in Net Assets** | **$(33.8)** | **$(24.7)** | - The increase in investment income in FY 2023 was primarily due to higher SOFR base rates[385](index=385&type=chunk) - The significant net realized loss in FY 2023 was primarily due to the realization of the investment in RAM Energy Holdings LLC[390](index=390&type=chunk) [Liquidity and Capital Resources](index=50&type=section&id=LIQUIDITY%20AND%20CAPITAL%20RESOURCES) This section outlines the company's financial flexibility, including its asset coverage ratio, available borrowing capacity, and cash position - As of September 30, 2023, the company's asset coverage ratio was **195%**, compliant with the **150%** regulatory requirement[397](index=397&type=chunk) - The company had **$262.6 million** of unused borrowing capacity under its Truist Credit Facility as of September 30, 2023[398](index=398&type=chunk) - The company repaid the remaining **$20.0 million** of its SBA debentures during the nine months ended June 30, 2023[406](index=406&type=chunk) - As of September 30, 2023, the company had cash and cash equivalents of **$38.8 million** available for investing and general corporate purposes[410](index=410&type=chunk) [Item 7A. Quantitative and Qualitative Disclosures About Market Risk](index=59&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company is primarily exposed to market risk through interest rate fluctuations, given its significant portfolio of variable-rate investments - As of September 30, 2023, **95%** of the company's debt portfolio consisted of variable-rate investments, making it sensitive to interest rate fluctuations[440](index=440&type=chunk) Annualized Impact of Hypothetical Interest Rate Changes | Change in Interest Rates | Change in Net Interest Income (in thousands) | Change in Net Interest Income Per Share | | :--- | :--- | :--- | | Down 1% | $(5,373) | $(0.08) | | Up 1% | $5,373 | $0.08 | | Up 2% | $10,746 | $0.16 | | Up 3% | $16,120 | $0.25 | | Up 4% | $21,497 | $0.33 | [Item 8. Consolidated Financial Statements and Supplementary Data](index=60&type=section&id=Item%208.%20Consolidated%20Financial%20Statements%20and%20Supplementary%20Data) This section contains the company's audited consolidated financial statements for FY 2023, including management's report on internal controls and the independent auditor's reports [Management's Report on Internal Control Over Financial Reporting](index=61&type=section&id=Management's%20Report%20on%20Internal%20Control%20Over%20Financial%20Reporting) Management concluded that the company's internal control over financial reporting was not effective as of September 30, 2023, due to identified material weaknesses - Management concluded that as of September 30, 2023, the company did not maintain effective internal control over financial reporting due to identified material weaknesses[450](index=450&type=chunk) - Material weaknesses were identified in controls related to the review of quarterly cash and investment reconciliations, as well as the review of interest income and non-accrual classification of investments[451](index=451&type=chunk) - Management has begun remediation efforts, including enhancing existing controls and policies to improve the overall control environment[452](index=452&type=chunk)[454](index=454&type=chunk) [Report of Independent Registered Public Accounting Firm](index=62&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) The independent auditor issued an adverse opinion on internal controls but an unqualified opinion on the consolidated financial statements - The independent auditor, RSM US LLP, issued an adverse opinion on the effectiveness of the company's internal control over financial reporting as of September 30, 2023, due to the identified material weaknesses[455](index=455&type=chunk)[457](index=457&type=chunk) - The auditor issued an unqualified (clean) opinion on the consolidated financial statements, stating they present fairly, in all material respects, the financial position and results of operations of the company[456](index=456&type=chunk)[462](index=462&type=chunk) - The audit report includes an Emphasis of Matter paragraph noting that the 2022 financial statements were restated to reclassify certain amounts[464](index=464&type=chunk) [Consolidated Financial Statements](index=65&type=section&id=Consolidated%20Financial%20Statements) This section presents the company's key financial statements, including the Statement of Assets and Liabilities and the Statement of Operations Consolidated Statement of Assets and Liabilities (in thousands) | | Sep 30, 2023 | Sep 30, 2022 | | :--- | :--- | :--- | | Total Investments (at fair value) | $1,101,647 | $1,226,301 | | Total Assets | $1,156,977 | $1,320,619 | | Total Liabilities | $654,790 | $735,054 | | **Total Net Assets** | **$502,187** | **$585,565** | | **Net Asset Value per Share** | **$7.70** | **$8.98** | Consolidated Statement of Operations (in thousands) | | FY 2023 | FY 2022 | FY 2021 | | :--- | :--- | :--- | :--- | | Total Investment Income | $145,366 | $104,966 | $81,588 | | Net Expenses | $79,833 | $61,023 | $45,112 | | **Net Investment Income** | **$65,533** | **$43,943** | **$36,476** | | Net Realized/Unrealized Gain (Loss) | $(99,340) | $(68,683) | $130,141 | | **Net Increase (Decrease) in Net Assets** | **$(33,807)** | **$(24,740)** | **$166,617** | [Item 9A. Controls and Procedures](index=102&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were not effective as of September 30, 2023, due to identified material weaknesses, but remediation efforts are underway - Management concluded that disclosure controls and procedures were not effective as of September 30, 2023, due to the material weaknesses identified in internal controls[647](index=647&type=chunk) - The company has begun remediation efforts for the current material weaknesses, which include enhancing review controls and policies[648](index=648&type=chunk)[655](index=655&type=chunk) - A material weakness identified as of September 30, 2022, related to providing information to valuation services, was successfully remediated during fiscal year 2023[650](index=650&type=chunk)[651](index=651&type=chunk)[652](index=652&type=chunk) [Part III](index=104&type=section&id=PART%20III) [Item 10. Directors, Executive Officers and Corporate Governance](index=104&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information regarding directors, executive officers, and corporate governance will be incorporated by reference from the forthcoming 2024 Proxy Statement - Information regarding directors, executive officers, and corporate governance is incorporated by reference from the forthcoming 2024 Proxy Statement[661](index=661&type=chunk) [Item 11. Executive Compensation](index=104&type=section&id=Item%2011.%20Executive%20Compensation) Information regarding executive compensation will be incorporated by reference from the forthcoming 2024 Proxy Statement - Information regarding executive compensation is incorporated by reference from the forthcoming 2024 Proxy Statement[662](index=662&type=chunk) [Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=104&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Related%20Stockholder%20Matters) Information regarding security ownership of certain beneficial owners and management, and related stockholder matters, will be incorporated by reference from the forthcoming 2024 Proxy Statement - Information regarding security ownership is incorporated by reference from the forthcoming 2024 Proxy Statement[663](index=663&type=chunk) [Item 13. Certain Relationships and Related Transactions, and Director Independence](index=104&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information regarding certain relationships and related transactions, and director independence, will be incorporated by reference from the forthcoming 2024 Proxy Statement - Information regarding related transactions and director independence is incorporated by reference from the forthcoming 2024 Proxy Statement[664](index=664&type=chunk) [Item 14. Principal Accountant Fees and Services](index=104&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Information regarding principal accountant fees and services will be incorporated by reference from the forthcoming 2024 Proxy Statement - Information regarding principal accountant fees and services is incorporated by reference from the forthcoming 2024 Proxy Statement[665](index=665&type=chunk) [Part IV](index=105&type=section&id=PART%20IV) [Item 15. Exhibits and Financial Statement Schedules](index=105&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists all financial statements, schedules, and exhibits filed as part of the Annual Report on Form 10-K - This section lists all financial statements, schedules, and exhibits filed with the Form 10-K, including key corporate documents, debt agreements, and management agreements[667](index=667&type=chunk)

Financial Data and Key Metrics Changes - For the quarter ended September 30, GAAP and core net investment income was $0.24 per share, with an adjusted NAV per share of $7.70, up 0.4% from the prior quarter [1][2][60] - The GAAP NAV decreased slightly to $7.70 per share from $7.72 per share in the previous quarter [2][60] - The weighted average yield on debt investments increased to 13% from 12.7% in the prior quarter and 10.8% a year ago [4][60] Business Line Data and Key Metrics Changes - The portfolio remains diversified with 129 companies across 27 different industries, with 95% of the debt portfolio being floating rate [4][60] - The debt-to-EBITDA ratio on the portfolio is 5x, and the interest coverage ratio is 2.3x, indicating a meaningful cushion regarding interest coverage [5][60] - The company invested $61 million in two new and 31 existing portfolio companies at a weighted average yield of 11.2% during the quarter [61] Market Data and Key Metrics Changes - The company has seen an increase in deal flow compared to the first half of 2023, with a growing pipeline of attractive investment opportunities [63][66] - Approximately 12% of the portfolio is in government services and defense, which is expected to benefit from strong tailwinds in the current geopolitical environment [67][68] Company Strategy and Development Direction - The company focuses on the core middle market, providing strategic capital to borrowers in sectors such as business services, consumer, government services and defense, healthcare, and software technology [67][68] - The company aims to rotate equity positions into cash as deal flow increases, targeting lower equity exposure [21][22] Management's Comments on Operating Environment and Future Outlook - Management believes the current market environment of inflation, rising interest rates, and geopolitical risks positions the company well as a lender focused on capital preservation [66] - The company expects continued growth in the joint venture portfolio, which is anticipated to enhance earnings momentum in future quarters [65][66] Other Important Information - The joint venture portfolio equaled $804 million, with the JV investing $57 million during the quarter [64][65] - The company has a long-term track record of generating value with a loss ratio of approximately 20 basis points annually since inception [72] Q&A Session Summary Question: Can you elaborate on the EBITDA growth year-over-year or since last quarter? - Management confirmed that EBITDA is generally up, with revenues in the portfolio trending positively [11] Question: Are there any changes in the type of deals in the pipeline? - Management indicated that there are no material differences in the types of deals, maintaining a focus on high free cash flow companies [12][13] Question: What is the expected mix of the portfolio going forward? - Management expects the mix to remain generally the same, with a focus on reducing equity exposure over time [21] Question: Is there anything under 1x interest coverage in the portfolio? - Management stated that there is currently nothing under 1x interest coverage [23] Question: How is the Board thinking about the dividend? - Management is monitoring the situation and maintaining a cushion for the monthly dividend, with no immediate decisions on changes [43][44] Question: What are the competitive dynamics in the market? - Management noted that while banks are exiting the middle market, private BDCs are raising capital, leading to a mixed competitive landscape [39][40]

PennantPark Investment Corporation (NYSE:PNNT) Q3 2023 Results Conference Call August 10, 2023 12:00 PM ET Company Participants Art Penn - Founder, Chairman, Managing Partner & CEO Richard Allorto - Chief Financial Officer Conference Call Participants Robert Dodd - Raymond James C.J. Alex - Compass Point Research Paul Johnson - KBW Mark Hughes - Truist Kyle Joseph - Jefferies Melissa Wedel - JPMorgan Operator Good afternoon, and welcome to the PennantPark Investment Corporation's Third Fiscal Quarter 2023 ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2023 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: 814-00736 PENNANTPARK INVESTMENT CORPORATION (Exact name of registrant as specified in its charter) (State or other jurisdiction of ...

PennantPark Investment Corporation (NYSE:PNNT) Q2 2023 Earnings Conference Call May 11, 2023 ET Company Participants Art Penn - Chairman and CEO Rick Allorto - CFO Conference Call Participants Paul Johnson - KBW Robert Dodd - Raymond James Kyle Joseph - Jefferies Mickey Schleien - Ladenburg Mark Hughes - Truist. Melissa Wedel - JP Morgan Casey Alexander - Compass Point Operator Good afternoon and welcome to the PennantPark Investment Corporation's Second Fiscal Quarter 2023 Earnings Conference Call. Today's ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q (Mark One) ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2023 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: 814-00736 PENNANTPARK INVESTMENT CORPORATION (Exact name of registrant as specified in its charter) (State or other jurisdiction of ...

PennantPark Investment Corporation (NYSE:PNNT) Q1 2023 Earnings Conference Call February 9, 2023 12:00 PM ET Company Participants Art Penn - Founder, Managing Partner, Chairman and CEO Rick Allorto - CFO Conference Call Participants Robert Dodd - Raymond James Ryan Lynch - KBW Casey Alexander - Compass Point Mickey Schleien - Ladenburg Thalmann Mike Ramirez - Truist Securities Melissa Wedel - JPMorgan Operator Good afternoon and welcome to the PennantPark Investment Corporation's First Fiscal Quarter 2023 ...

Portfolio Overview - As of December 31, 2022, the company's portfolio totaled $1,196.0 million, consisting of $661.2 million in first lien secured debt, $130.8 million in second lien secured debt, $148.6 million in subordinated debt, and $255.4 million in preferred and common equity[207]. - The overall portfolio had a net unrealized depreciation of $167.5 million as of December 31, 2022, with an average investment size of $9.6 million across 125 companies[207]. - As of September 30, 2022, the portfolio totaled $1,226.3 million, with a weighted average yield on interest-bearing debt investments of 10.8%[208]. - As of December 31, 2022, the PennantPark Senior Loan Fund's portfolio totaled $734.7 million, consisting of 83 companies with a weighted average yield on debt investments of 10.6%[211]. - The investment portfolio of PSLF consisted of debt investments in 83 portfolio companies as of December 31, 2022, up from 80 companies as of September 30, 2022[268]. Investment Activity - For the three months ended December 31, 2022, the company invested $86.2 million in six new and 29 existing portfolio companies, achieving a weighted average yield on debt investments of 11.2%[209]. - For the three months ended December 31, 2021, the company invested $295.1 million in 15 new and 30 existing portfolio companies, with a weighted average yield on debt investments of 8.1%[210]. - The company aims to create a diversified portfolio by investing approximately $10 million to $50 million in middle-market companies, defined as those with annual revenues between $50 million and $1 billion[198]. Financial Performance - For the three months ended December 31, 2022, investment income was $30.0 million, an increase from $28.3 million in the same period of 2021, primarily due to higher cost yield of the debt portfolio[240]. - Net investment income for the three months ended December 31, 2022, was $10.3 million, or $0.16 per share, compared to $12.5 million, or $0.19 per share in the prior year[242]. - Total expenses for the three months ended December 31, 2022, were $19.6 million, up from $15.8 million in the same period of 2021, with debt-related interest and expenses increasing significantly[241]. - The company declared distributions of $0.17 per share for a total of $10.8 million during the three months ended December 31, 2022, up from $0.12 per share totaling $8.0 million in the prior year, indicating a 35% increase in total distributions[285]. Valuation and Risk Management - The fair value of investments is determined using a multi-step valuation process, with most investments classified as Level 3 due to lack of readily available market values[219]. - The company does not accrue PIK interest on loans and debt investments if it is deemed uncollectible based on portfolio company valuations[225]. - The company’s quarterly valuation process includes independent appraisals for investments where market quotations are not readily available[222]. - The board of directors periodically assesses material valuation risks and has complied with SEC Rule 2a-5 under the 1940 Act since before its compliance date[220]. Debt and Liabilities - As of December 31, 2022, the company had $380.9 million in outstanding borrowings under the Truist Credit Facility, with a weighted average interest rate of 6.6%[251]. - The company reported liabilities of $688.003 million as of December 31, 2022, compared to $696.825 million as of September 30, 2022, showing a decrease of 1.2%[282]. - The weighted average cost of debt for the three months ended December 31, 2022, was 5.6%, compared to 4.0% in the same period of 2021[250]. Cash and Equivalents - As of December 31, 2022, cash and cash equivalents amounted to $28.6 million, down from $52.7 million as of September 30, 2022[265]. - Total cash and cash equivalents held is $35.71 million[276]. Interest Rate Sensitivity - The debt portfolio consisted of 96.0% variable-rate investments and 4.0% fixed-rate investments as of December 31, 2022[292]. - A 1% decrease in interest rates results in a decrease of $5,378 in net interest income, equating to a $0.08 decrease in expense per share[294]. - A 1% increase in interest rates results in an increase of $5,378 in net interest income, equating to a $0.08 increase in expense per share[294]. - The company's net investment income is dependent on the difference between borrowing rates and investment rates, as well as the level of leverage[295]. Shareholder Equity - Members' equity stands at $88.94 million, reflecting a 100.0% increase[276]. - The net increase in members' equity resulting from operations for the three months ended December 31, 2022, was $1.608 million, down from $3.725 million in the same period of the previous year, a decrease of 56.9%[282].

Financial Data and Key Metrics Changes - For the quarter ended September 30, core net investment income was $0.18 per share, excluding one-time financing costs, while net investment income totaled $0.14 per share including $0.01 per share of other income [20][37] - The company's net asset value (NAV) per share decreased by 6.9% to $8.98 from $9.65 in the prior quarter, primarily due to unrealized mark-to-market adjustments [21][40] - The weighted average yield to maturity on the debt portfolio increased to 10.8% from 9.3% in the previous quarter [15] Business Line Data and Key Metrics Changes - The debt portfolio remains diversified with 123 companies across 32 different industries, with 51% in first lien secured debt and 11% in second lien secured debt [41] - The company invested $134 million in new and existing portfolio companies during the quarter, with sales and repayments totaling $176 million [19] Market Data and Key Metrics Changes - Approximately 96% of the company's assets are floating rate, compared to 47% of liabilities that are fixed rate, positioning the company well to benefit from rising interest rates [15] - The weighted average debt-to-EBITDA ratio on the portfolio was 4.6 times, and the average interest coverage ratio was 3.6 times, indicating a strong capacity to cover interest expenses [31] Company Strategy and Development Direction - The company focuses on capital preservation and is well-positioned as a lender in the current market environment characterized by inflation and rising interest rates [9][10] - The strategy includes optimizing the portfolio and balance sheet, growing the PSLF joint venture to $1 billion, and rotating out of equity investments into cash pay yield instruments [22] - The company aims to generate attractive risk-adjusted returns through income while preserving capital, targeting high-growth middle market companies with strong free cash flow [35] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the quality of new loans and the attractiveness of the current vintage, citing lower leverage and tighter covenants [19][34] - The company believes that the borrowers in its investment portfolio are performing well and is optimistic about future quarters [31] Other Important Information - The Board of Directors approved a quarterly dividend increase to $0.165 per share, payable on January 3, 2023 [13] - The company completed an amendment and extension of its Truist Credit Facility, increasing its size from $465 million to $500 million and extending the maturity to 2027 [17] Q&A Session Summary Question: Ability to buy first lien loans in the secondary market - Management indicated that these loans are typically from companies they have previously financed, allowing them to buy at a discount and expect a return to par over time [49][50] Question: Upfront fee for credit facility amendment - Management explained that the upfront fee is taken as a one-time expense due to accounting obligations, which is considered shareholder-friendly as it avoids ongoing expenses [52][54] Question: Mark on RAM Energy investment - Management clarified that RAM Energy is performing well, and the markdown was influenced by external market factors, particularly the price of oil and gas [70][72] Question: Evaluation of secondary purchases - Management stated that each investment is evaluated on its own merits, comparing potential returns from secondary purchases against new loans [76] Question: Equity co-investment strategy - Management emphasized that equity co-investments are generally part of their strategy, particularly in buy-and-build scenarios, and are not typically a trade-off against yield [80][81]

Pennantpark Investment Corp (NYSE:PNNT) Q3 2022 Earnings Conference Call August 4, 2022 12:00 PM ET Company Participants Arthur Penn - Founder, Chairman, Managing Partner & CEO Richard Allorto - CFO Conference Call Participants Paul Johnson - KBW Robert Dodd - Raymond James & Associates Mickey Schleien - Ladenburg Thalmann & Co. Casey Alexander - Compass Point Research & Trading Melissa Wedel - JPMorgan Chase & Co. Operator Good afternoon, and welcome to the PennantPark Investment Corporation's Third Fisca ...