Gladstone Capital (US:GLAD)2025-05-06 20:16PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Gladstone Capital Corporation's unaudited consolidated financial statements for March 31, 2025, detail assets, operations, cash flows, and investment schedules Consolidated Statements of Assets and Liabilities Total assets decreased to $776.8 million while liabilities reduced, increasing net assets to $478.1 million and NAV per share to $21.41 Consolidated Statements of Assets and Liabilities (in thousands, except per share data) | | March 31, 2025 | September 30, 2024 | | :--- | :--- | :--- | | Total Investments, at fair value | $762,636 | $796,260 | | Total Assets | $776,780 | $812,468 | | Total Liabilities | $286,993 | $333,727 | | Total Net Assets | $478,059 | $470,895 | | Net Asset Value Per Common Share | $21.41 | $21.18 | Consolidated Statements of Operations Net investment income increased to $11.2 million for the three months ended March 31, 2025, despite lower total investment income, with six-month net investment income remaining stable Key Operational Data (in thousands, except per share data) | | Three Months Ended March 31, | Six Months Ended March 31, | | :--- | :--- | :--- | :--- | :--- | | | 2025 | 2024 | 2025 | 2024 | | Total Investment Income | $21,569 | $23,997 | $43,529 | $47,218 | | Total Expenses, net of credits | $10,324 | $13,220 | $21,060 | $24,507 | | Net Investment Income | $11,245 | $10,777 | $22,469 | $22,711 | | Net Realized and Unrealized Gain (Loss) | $(2,257) | $12,863 | $13,665 | $20,930 | | Net Increase in Net Assets | $8,797 | $23,632 | $35,772 | $43,633 | | Net Investment Income per Share | $0.50 | $0.49 | $1.00 | $1.04 | | Net Increase in Net Assets per Share | $0.39 | $1.09 | $1.60 | $2.00 | Consolidated Statements of Changes in Net Assets Net assets increased by $7.2 million to $478.1 million for the six months ended March 31, 2025, driven by operations and stock issuance, partially offset by distributions Changes in Net Assets for the Six Months Ended March 31, 2025 (in thousands) | Description | Amount | | :--- | :--- | | Net Assets, September 30, 2024 | $470,895 | | Net Increase from Operations | $35,772 | | Distributions to Stockholders | $(31,039) | | Issuance of Common & Preferred Stock, net | $2,431 | | Net Increase in Net Assets | $7,164 | | Net Assets, March 31, 2025 | $478,059 | Consolidated Statements of Cash Flows Net cash provided by operating activities was $70.7 million for the six months ended March 31, 2025, offset by $70.2 million used in financing activities, resulting in a $0.5 million net cash increase Cash Flow Summary for the Six Months Ended March 31 (in thousands) | | 2025 | 2024 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $70,739 | $(45,276) | | Net cash provided by (used in) financing activities | $(70,246) | $49,287 | | Net increase (decrease) in cash | $493 | $4,011 | | Cash, end of period | $2,797 | $5,412 | Consolidated Schedules of Investments The investment portfolio's fair value was $762.6 million as of March 31, 2025, primarily 71.0% secured first lien debt, with Healthcare, Education, and Childcare as the top industry Portfolio Composition by Investment Type (at Fair Value) | Security Type | March 31, 2025 (%) | September 30, 2024 (%) | | :--- | :--- | :--- | | Secured first lien debt | 71.0% | 69.7% | | Secured second lien debt | 19.0% | 14.3% | | Unsecured debt | 0.1% | 0.0% | | Preferred equity | 3.3% | 3.9% | | Common equity/equivalents | 6.6% | 12.1% | | Total | 100.0% | 100.0% | Total Investments (in thousands) | | March 31, 2025 | September 30, 2024 | | :--- | :--- | :--- | | Cost | $789,193 | $771,011 | | Fair Value | $762,636 | $796,260 | - The top five industry concentrations by fair value as of March 31, 2025 are: Healthcare, Education, and Childcare (28.6%), Diversified/Conglomerate Manufacturing (23.2%), Diversified/Conglomerate Service (12.5%), Beverage, Food, and Tobacco (12.2%), and Aerospace and Defense (7.8%)95 Notes to Consolidated Financial Statements These notes detail the company's organization, accounting policies including Level 3 investment valuations, related-party transactions, borrowings, equity offerings, distributions, and subsequent events - The company is an externally managed BDC and has elected to be treated as a RIC for tax purposes. Its investment objective is to generate current income and long-term capital appreciation by investing in debt and equity of U.S. lower middle market companies47 - As of March 31, 2025, all investments were valued using Level 3 inputs, except for two fund investments valued at NAV. The company engages third-party firms for independent valuation assessments5976 - As of March 31, 2025, loans to four portfolio companies were on non-accrual status, representing 7.5% of the total debt portfolio cost and 4.3% of its fair value66 - Subsequent to the quarter end, in April 2025, a $42.2 million debt investment in SpaceCo Holdings paid off at par, and the investment in Eegees, LLC was restructured through bankruptcy into a new $20.5 million investment163 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations, covering business overview, investment activity, capital, liquidity, and critical accounting estimates Overview Gladstone Capital operates as a BDC and RIC, investing in lower middle market companies, with $197.2 million invested and $246.6 million received in repayments, maintaining a 270.9% asset coverage ratio - Investment strategy focuses on lower middle market companies with annual EBITDA of $3 million to $25 million, with typical investment sizes ranging from $8 million to $40 million168169 - During the six months ended March 31, 2025, the company invested $145.4 million in eight new portfolio companies and $51.8 million in existing ones, and exited six portfolio companies175 - A significant transaction was the October 2024 sale of the investment in Antenna Research Associates, Inc., resulting in a net realized gain of approximately $59.3 million176 - As of March 31, 2025, the asset coverage ratio for senior securities representing indebtedness was 270.9%, well above the 150% regulatory requirement181 Results of Operations Net investment income increased to $11.2 million for the three months ended March 31, 2025, despite lower interest income, while the six-month period saw stable net investment income and a $65.4 million net realized gain Comparison of Operations - Three Months Ended March 31, | (in thousands) | 2025 | 2024 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total investment income | $21,569 | $23,997 | $(2,428) | (10.1)% | | Total expenses, net of credits | $10,324 | $13,220 | $(2,896) | (21.9)% | | Net Investment Income | $11,245 | $10,777 | $468 | 4.3% | | Net Realized/Unrealized Gain (Loss) | $(2,257) | $12,863 | $(15,120) | NM | Comparison of Operations - Six Months Ended March 31, | (in thousands) | 2025 | 2024 | $ Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Total investment income | $43,529 | $47,218 | $(3,689) | (7.8)% | | Total expenses, net of credits | $21,060 | $24,507 | $(3,447) | (14.1)% | | Net Investment Income | $22,469 | $22,711 | $(242) | (1.1)% | | Net Realized/Unrealized Gain (Loss) | $13,665 | $20,930 | $(7,265) | (34.7)% | - The decrease in interest income for the three and six-month periods was driven by a lower weighted average yield on investments (12.6% and 12.9% respectively, down from 14.0% and 13.9%), primarily due to decreases in market interest rates184201 - For the six months ended March 31, 2025, a net realized gain of $65.4 million was primarily driven by the sale of Antenna Research Associates, Inc. ($59.3 million gain)210 - Net unrealized depreciation of $51.8 million for the six months ended March 31, 2025, was mainly due to the reversal of $61.9 million in prior unrealized appreciation on realized investments21287 Liquidity and Capital Resources The company's liquidity is sourced from operating cash flows and financing activities, maintaining a $293.7 million credit facility with $251.0 million available, and total contractual obligations of $322.0 million - Net cash from operating activities was $70.7 million for the six months ended March 31, 2025, compared to a use of $45.3 million in the prior year, driven by higher investment repayments and sales215 Credit Facility Status as of March 31, 2025 (in millions) | | Amount | | :--- | :--- | | Commitment Amount | $293.7 | | Outstanding Balance | $25.1 | | Availability | $251.0 | - The company has $257.0 million in notes payable, consisting of 2026, 2027, and 2028 notes with varying interest rates and maturities236237239 - As of March 31, 2025, the company had off-balance sheet success fee receivables of $5.6 million, which are contingent and not recorded in the financial statements242 - The company has unfunded commitments to portfolio companies totaling $57.9 million as of March 31, 2025161245 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate risk, with 90.8% of its debt investment portfolio in variable-rate loans, making net investment income sensitive to interest rate changes - The primary market risk exposure is interest rate risk, affecting the spread between borrowing costs and investment yields255 - As of March 31, 2025, 90.8% of the company's debt investments have variable rates, making net investment income sensitive to fluctuations in interest rates like SOFR256 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2025, with no material changes to internal control over financial reporting during the quarter - Management concluded that disclosure controls and procedures were effective as of March 31, 2025257 - No material changes in internal control over financial reporting occurred during the three months ended March 31, 2025258 PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is not currently subject to any material legal proceedings, nor is it aware of any pending or threatened material legal proceedings against it or its subsidiaries - As of the report date, the company is not a party to any material legal proceedings259 Item 1A. Risk Factors A new risk factor highlights that tariffs on foreign or U.S. goods could adversely affect the company or its portfolio companies by increasing costs or reducing demand - A new risk factor was noted: tariffs on foreign or U.S. goods could adversely affect the company or its portfolio companies by increasing costs or reducing demand260 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This item is not applicable as there were no unregistered sales of equity securities or issuer purchases of equity securities during the period - Not applicable262263 Item 3. Defaults Upon Senior Securities This item is not applicable as there were no defaults upon senior securities during the period - Not applicable264 Item 4. Mine Safety Disclosures This item is not applicable - Not applicable265 Item 5. Other Information During the three months ended March 31, 2025, no officers or directors adopted or terminated any Rule 10b5-1 trading plans or any non-Rule 10b5-1 trading arrangements - No officers or directors adopted or terminated any Rule 10b5-1 trading plans during the quarter266 Item 6. Exhibits This section lists all exhibits filed with the report, including corporate documents, material contracts, certifications from officers, and XBRL interactive data files - Lists all exhibits filed with the Form 10-Q, including certifications and XBRL data267270