Gladstone Capital (GLAD) - 2025 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) Presents Gladstone Capital Corporation's unaudited consolidated financial statements, highlighting a $21.25 NAV per share, $43.2 million net increase in net assets, and $751.3 million investment portfolio fair value Consolidated Statements of Assets and Liabilities Gladstone Capital's total assets decreased to $780.2 million as of June 30, 2025, while total net assets increased to $474.5 million, with NAV per share rising to $21.25 Consolidated Balance Sheet Highlights (in thousands, except per share data) | Metric | June 30, 2025 | September 30, 2024 | | :--- | :--- | :--- | | Total Investments, at fair value | $751,260 | $796,260 | | Total Assets | $780,198 | $812,468 | | Total Liabilities | $291,227 | $333,727 | | Total Net Assets | $474,454 | $470,895 | | Net Asset Value Per Common Share | $21.25 | $21.18 | Consolidated Statements of Operations Total investment income for the three months ended June 30, 2025, was $21.7 million, with net investment income at $11.3 million and a $43.2 million net increase in net assets for the nine-month period Key Operating Results (in thousands, except per share data) | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | | Total Investment Income | $21,657 | $25,689 | $65,186 | $72,907 | | Total Expenses, net of credits | $10,363 | $13,296 | $31,423 | $37,803 | | Net Investment Income | $11,294 | $12,393 | $33,763 | $35,104 | | Net Realized and Unrealized Gain (Loss) | ($3,605) | $6,751 | $10,060 | $27,681 | | Net Increase in Net Assets | $7,448 | $19,056 | $43,220 | $62,689 | | Net Investment Income Per Share | $0.50 | $0.57 | $1.50 | $1.61 | | Net Increase in Net Assets Per Share | $0.33 | $0.88 | $1.93 | $2.88 | Consolidated Schedules of Investments The investment portfolio's fair value was $751.3 million as of June 30, 2025, primarily comprising 70.4% secured first lien debt, with Healthcare, Education, and Childcare as the largest industry concentration at 36.3% Investment Portfolio Composition by Type (at Fair Value) | Security Type | June 30, 2025 (%) | September 30, 2024 (%) | | :--- | :--- | :--- | | Secured first lien debt | 70.4% | 69.7% | | Secured second lien debt | 19.2% | 14.3% | | Unsecured debt | 0.1% | 0.0% | | Preferred equity | 3.4% | 3.9% | | Common equity/equivalents | 6.9% | 12.1% | | Total | 100.0% | 100.0% | Top 5 Industry Concentrations (at Fair Value, June 30, 2025) | Industry Classification | Percentage of Total Investments | | :--- | :--- | | Healthcare, Education, and Childcare | 36.3% | | Diversified/Conglomerate Manufacturing | 23.2% | | Diversified/Conglomerate Service | 14.7% | | Beverage, Food, and Tobacco | 7.5% | | Automobile | 3.6% | - As of June 30, 2025, three portfolio company loans were on non-accrual status: B+T Group Acquisition, Inc., Edge Adhesives Holdings, Inc., and WB Xcel Holdings, LLC. These loans had a combined cost basis of $28.8 million (4.1% of total debt cost) and a fair value of $11.5 million (1.7% of total debt fair value)[66] Notes to Consolidated Financial Statements Detailed notes cover accounting policies, BDC/RIC status, Level 3 investment valuation, related-party transactions, credit facilities, and $1.89 per share distributions, with $94.0 million in subsequent investments - The company is externally managed by Gladstone Management Corporation (the "Adviser") and receives administrative services from Gladstone Administration, LLC (the "Administrator"), both of which are affiliates[49] - As of June 30, 2025, all investments were valued using Level 3 inputs, except for two fund investments valued at NAV as a practical expedient[56][76] - For the nine months ended June 30, 2025, the company paid distributions of $1.89 per common share, including a supplemental distribution of $0.40 per share in December 2024[155] - Subsequent to quarter-end, in July and August 2025, the company made new and follow-on investments totaling approximately $94.0 million and had one investment pay off at par[164][165][166][167] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, portfolio activity, and liquidity, noting $270.1 million invested, a $61.7 million net realized gain, and $320.0 million credit facility availability Results of Operations Net investment income decreased to $11.3 million for the quarter, while a $61.7 million net realized gain for the nine months was offset by $51.8 million in net unrealized depreciation Comparison of Operating Results (in thousands) | Metric | Nine Months Ended June 30, 2025 | Nine Months Ended June 30, 2024 | | :--- | :--- | :--- | | Total Investment Income | $65,186 | $72,907 | | Total Expenses, net of credits | $31,423 | $37,803 | | Net Investment Income | $33,763 | $35,104 | | Net Realized Gain on Investments | $61,718 | $1,895 | | Net Unrealized (Depreciation) Appreciation | ($51,840) | $21,936 | - The decrease in interest income for the nine months ended June 30, 2025 was driven by a lower weighted average yield on the investment portfolio (12.8% vs 13.9% YoY)[205] - The net realized gain of $61.7 million for the nine months ended June 30, 2025 was primarily driven by a $59.3 million gain on the sale of the investment in Antenna Research Associates, Inc.[214] - Net unrealized depreciation of $51.8 million for the nine months ended June 30, 2025 was primarily due to the reversal of previously recognized unrealized appreciation on the exited investment in Antenna Research Associates, Inc.[216] Liquidity and Capital Resources Liquidity is supported by a $320.0 million credit facility with $277.7 million availability, $257.0 million in notes payable, and 267.9% asset coverage for senior debt Capital Resources as of June 30, 2025 (in millions) | Source | Amount | | :--- | :--- | | Credit Facility Commitment | $320.0 | | Credit Facility Outstanding | $27.5 | | Credit Facility Availability | $277.7 | | Notes Payable Outstanding | $257.0 | - As of June 30, 2025, the company was in compliance with all financial covenants, including a net worth of $727.0 million (vs. $500.0 million required) and asset coverage of 267.9% on senior debt (vs. 150% required)[240] - The company has an effective shelf registration statement permitting the issuance of up to $700.0 million in securities, with $681.3 million remaining available as of June 30, 2025[231] - Unfunded commitments to portfolio companies, including lines of credit and delayed draw term loans, totaled $48.7 million as of June 30, 2025[249] Item 3. Quantitative and Qualitative Disclosures About Market Risk Interest rate risk is the primary market exposure, with 90.1% of the debt investment portfolio consisting of variable-rate loans indexed to SOFR - The company's primary market risk exposure is to interest rate fluctuations, as it borrows money to make investments[260] - As of June 30, 2025, 90.1% of the debt portfolio consisted of variable-rate investments, while 9.9% were fixed-rate[261] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal control over financial reporting - Management concluded that as of June 30, 2025, the company's disclosure controls and procedures were effective[262] - There were no changes in internal controls during the quarter that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[263] 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 actions - As of the filing date, the company is not a party to any material legal proceedings[264] Item 1A. Risk Factors Supplements existing risk factors with a new disclosure on the potential adverse effects of tariffs on the company and its portfolio companies - A new risk factor was added regarding the potential negative impact of tariffs on the company and its portfolio companies' operations[265][266] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or issuer purchases of equity securities occurred during the reporting period - There were no unregistered sales of equity securities or issuer repurchases during the reporting period[268][269]