OFS Capital(US:OFS)2025-05-01 21:36PART I. FINANCIAL INFORMATION Consolidated Financial Statements The company's net assets and NAV per share declined in Q1 2025 due to a net operating loss, with the investment portfolio remaining diversified Consolidated Statements of Assets and Liabilities Total assets and net assets decreased during the quarter, resulting in a lower net asset value per share Consolidated Statements of Assets and Liabilities (in thousands, except per share data) | Metric | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Total investments, at fair value | $403,071 | $409,665 | | Total assets | $411,963 | $428,123 | | Total liabilities | $251,580 | $255,898 | | Total net assets | $160,383 | $172,225 | | Net asset value per share | $11.97 | $12.85 | Consolidated Statements of Operations Quarterly investment income and net investment income decreased year-over-year, leading to a net loss from operations Consolidated Statements of Operations (in thousands, except per share data) | Metric | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Total investment income | $10,295 | $14,233 | | Total expenses | $6,830 | $8,637 | | Net investment income | $3,465 | $5,596 | | Net loss on investments | $(10,752) | $(14,645) | | Net decrease in net assets from operations | $(7,287) | $(9,049) | | Net investment income per share | $0.26 | $0.42 | | Net decrease in net assets per share | $(0.54) | $(0.67) | | Distributions declared per share | $0.34 | $0.34 | Consolidated Statements of Changes in Net Assets Net assets decreased by $11.8 million in Q1 2025, driven by a net operating loss and shareholder distributions - Net assets decreased from $172,225 thousand at the end of 2024 to $160,383 thousand at March 31, 202516 Changes in Net Assets for Q1 2025 (in thousands) | Description | Amount | | :--- | :--- | | Net investment income | $3,465 | | Net realized loss on investments | $(2,587) | | Net unrealized depreciation on investments | $(8,165) | | Distributions declared | $(4,555) | | Net decrease for the period | $(11,842) | Consolidated Statements of Cash Flows Net cash from operations decreased significantly year-over-year, while financing activities primarily involved shareholder distributions Consolidated Cash Flows (in thousands) | Cash Flow Category | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $2,841 | $9,218 | | Net cash used in financing activities | $(4,855) | $(48,475) | | Net decrease in cash and cash equivalents | $(2,014) | $(39,257) | Consolidated Schedules of Investments The investment portfolio's fair value slightly decreased to $403.1 million, with a significant concentration in Pfanstiehl Holdings, Inc Portfolio Composition by Fair Value | Investment Type | Fair Value (Mar 31, 2025) | % of Total | Fair Value (Dec 31, 2024) | % of Total | | :--- | :--- | :--- | :--- | :--- | | First lien debt | $184,315 | 45.8% | $189,874 | 46.3% | | Second lien debt | $31,547 | 7.8% | $34,331 | 8.4% | | Preferred equity | $10,615 | 2.6% | $12,248 | 3.0% | | Common equity, warrants & other | $97,060 | 24.1% | $96,337 | 23.5% | | Structured Finance Securities | $79,534 | 19.7% | $76,875 | 18.8% | | Total Investments | $403,071 | 100.0% | $409,665 | 100.0% | - The company's equity investment in Pfanstiehl Holdings, Inc had a fair value of $90.8 million, representing 56.6% of total net assets as of March 31, 20252678 - As of March 31, 2025, investments on non-accrual status had an aggregate amortized cost of $39.1 million and a fair value of $16.9 million2677 Notes to Consolidated Financial Statements (unaudited) The notes detail the company's BDC structure, related-party transactions, portfolio valuation, and debt facilities with upcoming maturities - The company is an externally managed BDC and has elected to be treated as a RIC for tax purposes45 - OFS Advisor manages operations and receives a base management fee of 1.75% of average total assets and a two-part incentive fee586061 - As of March 31, 2025, affiliates of OFS Advisor held approximately 22.6% of the Company's outstanding common stock70 - As of March 31, 2025, the company had $13.8 million in unfunded commitments to nine portfolio companies99 - On March 1, 2024, the company's subsidiary, SBIC I LP, fully repaid its outstanding SBA debentures totaling $31.9 million and surrendered its SBIC license49103 - The Board declared a second quarter 2025 distribution of $0.34 per share, payable on June 30, 2025129 Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the decline in NAV per share, lower investment income, and key liquidity considerations for 2025 and 2026 Key Performance Metrics Per Share | Metric | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Net asset value | $11.97 | $12.85 | | Net investment income (for the quarter) | $0.26 | $0.30 | | Net (decrease) in net assets (for the quarter) | $(0.54) | $1.90 | | Distributions paid (for the quarter) | $0.34 | $0.34 | - The decrease in NAV per share was attributed to a net loss on investments of $0.80 per share and a quarterly distribution exceeding net investment income131 - The company's asset coverage ratio was 165% as of March 31, 2025, exceeding the minimum requirement of 150%135183 - The reinvestment period for the BNP Facility ends in June 2025, posing a significant short-term liquidity risk if not extended or replaced181206 Portfolio Composition and Investment Activity The portfolio's fair value was $403.1 million, with high concentration in the top ten investments and a decrease in performing income yield Ten Largest Investments by Fair Value (as of March 31, 2025, in thousands) | Issuer Name | Type | Fair Value | % of Total Portfolio | % of Net Assets | | :--- | :--- | :--- | :--- | :--- | | Pfanstiehl Holdings, Inc. | Equity | $90,762 | 22.5% | 56.6% | | Kreg LLC | Debt | $17,431 | 4.3% | 10.9% | | Inergex Holdings, LLC | Debt | $17,086 | 4.2% | 10.7% | | SS Acquisition, LLC | Debt | $16,641 | 4.1% | 10.4% | | Tolemar Acquisition, Inc. | Debt | $15,320 | 3.8% | 9.6% | | Honor HN Buyer Inc. | Debt | $15,008 | 3.7% | 9.4% | | One GI LLC | Debt | $12,244 | 3.0% | 7.6% | | Boca Home Care Holdings, Inc. | Debt and Equity | $10,432 | 2.6% | 6.5% | | Contract Datascan Holdings, Inc. | Equity | $10,255 | 2.5% | 6.4% | | ICG US CLO 2021-3, Ltd. | Structured Finance | $9,893 | 2.5% | 6.2% | Portfolio Yields | Weighted-Average Performing Income Yield | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | Debt investments | 12.3% | 12.9% | | Structured Finance Securities | 16.3% | 16.3% | | Interest-bearing investments | 13.4% | 13.8% | - As of March 31, 2025, debt investments on non-accrual status had a fair value of $16.9 million, representing 4.2% of total investments at fair value134163 Results of Operations Investment income and expenses both decreased from Q4 2024, while a net loss on investments reversed the prior quarter's gain Quarterly Operating Results Comparison (in thousands) | Metric | Q1 2025 | Q4 2024 | Q1 2024 | | :--- | :--- | :--- | :--- | | Total investment income | $10,295 | $11,648 | $14,233 | | Total expenses | $6,830 | $7,572 | $8,637 | | Net investment income | $3,465 | $4,076 | $5,596 | | Net gain (loss) on investments | $(10,752) | $21,399 | $(14,645) | - The Q1 2025 net loss on investments of $10.8 million was primarily due to a net loss of $8.1 million on debt investments177178 - The Q4 2024 net gain on investments of $21.4 million was primarily driven by net unrealized appreciation on the Pfanstiehl Holdings, Inc investment179 Liquidity and Capital Resources The company has adequate near-term liquidity but faces significant debt maturities and facility expirations in 2025 and 2026 Sources and Uses of Cash (in thousands) | Description | Three Months Ended March 31, 2025 | Three Months Ended March 31, 2024 | | :--- | :--- | :--- | | Net cash provided by operating activities | $2,841 | $9,218 | | Net cash used in financing activities | $(4,855) | $(48,475) | | Net decrease in cash | $(2,014) | $(39,257) | - The company has $125.0 million of Unsecured Notes and the Banc of California Facility maturing in February 2026188190 - The Board extended the Stock Repurchase Program to May 2026, with $9.6 million remaining available for repurchases202232 - On June 26, 2024, stockholders authorized the company to sell shares below NAV, though no shares have been sold under this authorization203 Quantitative and Qualitative Disclosures About Market Risk The company is exposed to significant investment valuation uncertainty and interest rate risk affecting its floating-rate assets - The company faces investment valuation risk due to the use of unobservable inputs (Level 3) for most of its investments217 - As of March 31, 2025, $207.0 million of the company's investments at fair value were floating-rate, making income sensitive to rate changes218 Annualized Impact of Hypothetical Interest Rate Changes (in thousands) | Basis Point Change | Impact on Interest Income | Impact on Interest Expense | Net Change | | :--- | :--- | :--- | :--- | | +100 | $2,159 | $(664) | $1,495 | | -100 | $(2,204) | $697 | $(1,507) | Controls and Procedures Management concluded that disclosure controls and procedures were effective, with no material changes to internal controls during the quarter - The CEO and CFO concluded that as of March 31, 2025, the company's disclosure controls and procedures were effective at the reasonable assurance level224 - No material changes in internal control over financial reporting occurred during the quarter ended March 31, 2025225 PART II. OTHER INFORMATION Legal Proceedings The company is not currently subject to any material pending legal proceedings that would adversely affect its financial condition - The company is not currently subject to any material pending legal proceedings as of March 31, 2025227 Risk Factors There have been no material changes to the risk factors previously disclosed in the company's 2024 Annual Report on Form 10-K - There have been no material changes to the risk factors disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2024229 Unregistered Sales of Equity Securities and Use of Proceeds No unregistered equity was sold, and no shares were repurchased under the extended stock repurchase program during the quarter - The Board extended the Stock Repurchase Program for a two-year period ending May 22, 2026232 - No shares of common stock were repurchased under the program during the three months ended March 31, 2025123233 - As of March 31, 2025, approximately $9.6 million remained available for purchase under the Stock Repurchase Program232 Defaults Upon Senior Securities Not applicable - Not applicable234 Mine Safety Disclosures Not applicable - Not applicable235 Other Information No directors or officers adopted new trading plans, and the company's stock traded at a significant discount to NAV during the quarter - No director or officer of the Company adopted or terminated a Rule 10b5-1 trading arrangement during the three months ended March 31, 2025236 Q1 2025 Stock Performance | Metric | Value | | :--- | :--- | | NAV Per Share (end of Q1) | $11.97 | | High Sales Price | $9.80 | | Low Sales Price | $7.92 | | Premium (Discount) of High Price to NAV | -18.1% | | Premium (Discount) of Low Price to NAV | -33.8% | | Cash Distribution per Share | $0.34 | Exhibits This section lists standard exhibits filed with the report, including Sarbanes-Oxley certifications and Inline XBRL data - The report includes standard exhibits, such as CEO and CFO certifications under Sarbanes-Oxley and Inline XBRL filings239 Signatures - The report was signed on May 1, 2025, by Bilal Rashid, Chief Executive Officer, and Kyle Spina, Chief Financial Officer242