PennantPark Investment (PNNT) - 2024 Q2 - Quarterly Report

PART I. CONSOLIDATED FINANCIAL INFORMATION This section presents the unaudited consolidated financial statements for PennantPark Investment Corporation, including statements of assets and liabilities, operations, changes in net assets, and cash flows, along with detailed schedules of investments and comprehensive notes Item 1. Consolidated Financial Statements This section presents the unaudited consolidated financial statements for PennantPark Investment Corporation as of March 31, 2024, and for the three and six-month periods then ended Consolidated Statements of Assets and Liabilities As of March 31, 2024, total assets increased to $1.29 billion from $1.16 billion, primarily driven by a rise in the fair value of investments, while net assets remained stable at approximately $501.5 million Consolidated Balance Sheet Highlights (in thousands, except per share data) | Metric | March 31, 2024 (unaudited) | September 30, 2023 | | :--- | :--- | :--- | | Total Investments at Fair Value | $1,238,231 | $1,101,647 | | Total Assets | $1,291,239 | $1,156,977 | | Total Liabilities | $789,710 | $654,790 | | Total Net Assets | $501,529 | $502,187 | | Net Asset Value (NAV) per share | $7.69 | $7.70 | Consolidated Statements of Operations For the six months ended March 31, 2024, total investment income increased to $70.3 million, and net investment income rose to $29.9 million, resulting in a net decrease in net assets from operations of $26.7 million, a significant improvement from the prior year Key Operating Results (in thousands, except per share data) | Metric | Six Months Ended Mar 31, 2024 | Six Months Ended Mar 31, 2023 | | :--- | :--- | :--- | | Total Investment Income | $70,315 | $66,312 | | Net Expenses | $40,404 | $39,338 | | Net Investment Income | $29,911 | $26,974 | | Net Realized and Unrealized Loss | $(3,173) | $(93,994) | | Net Increase (Decrease) in Net Assets | $26,738 | $(67,020) | | Net Investment Income per Share | $0.46 | $0.41 | | Net Increase (Decrease) in Net Assets per Share | $0.41 | $(1.03) | Consolidated Statements of Changes in Net Assets For the six months ended March 31, 2024, net assets decreased by $0.7 million, primarily due to distributions to stockholders nearly offsetting the net increase from operations, a substantial improvement from the prior year's larger decrease Changes in Net Assets (in thousands) | Description | Six Months Ended Mar 31, 2024 | Six Months Ended Mar 31, 2023 | | :--- | :--- | :--- | | Net Increase (Decrease) from Operations | $26,738 | $(67,020) | | Distributions to Stockholders | $(27,396) | $(22,830) | | Net Increase (Decrease) in Net Assets | $(658) | $(89,850) | | Net Assets, Beginning of Period | $502,187 | $585,565 | | Net Assets, End of Period | $501,529 | $495,715 | Consolidated Statements of Cash Flows For the six months ended March 31, 2024, net cash used in operating activities was $150.9 million, a significant shift from the prior year, while net cash provided by financing activities was $147.5 million, driven by net borrowings Summary of Cash Flows (in thousands) | Activity | Six Months Ended Mar 31, 2024 | Six Months Ended Mar 31, 2023 | | :--- | :--- | :--- | | Net Cash (Used in) Provided by Operating Activities | $(150,868) | $60,484 | | Net Cash Provided by (Used in) Financing Activities | $147,511 | $(49,046) | | Net (Decrease) Increase in Cash | $(3,357) | $11,438 | | Cash and Cash Equivalents, End of Period | $35,418 | $66,436 | Consolidated Schedules of Investments As of March 31, 2024, the total investment portfolio's fair value increased to $1.24 billion, diversified across various company types, with First Lien Secured Debt remaining the largest category Portfolio Composition by Investment Type (Fair Value, in thousands) | Investment Type | March 31, 2024 | September 30, 2023 | | :--- | :--- | :--- | | First Lien Secured Debt | $678,605 | $527,657 | | Second Lien Secured Debt | $63,737 | $80,396 | | Subordinated Debt/Corporate Notes | $49,212 | $53,897 | | Subordinated notes in PSLF | $115,886 | $102,325 | | Equity & Warrants | $198,549 | $175,538 | | Equity in PSLF | $72,557 | $62,083 | | U.S. Government Securities | $59,685 | $99,751 | | Total Investments | $1,238,231 | $1,101,647 | Notes to Consolidated Financial Statements The notes detail the company's organization, accounting policies, related-party agreements, investment portfolio, fair value measurements, and debt structure, including fee arrangements and unfunded commitments - The company is a BDC focused on generating income and capital appreciation through debt and equity investments in U.S. middle-market companies[77] - A prior period error in cash classification related to affiliates PSLF and PTSF II was identified and corrected, with no impact on total net assets, NAV per share, or net investment income[87][88] - The Investment Adviser earns a base management fee of 1.50% on average adjusted gross assets, reduced to 1.00% on assets exceeding 200% of net assets, plus a two-part incentive fee[113][114][115] - As of March 31, 2024, the company had $242.1 million in unfunded commitments to fund investments[186] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition, portfolio activity, results of operations, and liquidity, highlighting the portfolio value increase, weighted average yield, and net investment income growth Portfolio and Investment Activity The company's portfolio grew to $1.24 billion across 138 companies, primarily in first lien secured debt, with a weighted average yield of 12.5%, and significant investment and repayment activity during the period Portfolio Summary | Metric | March 31, 2024 | September 30, 2023 | | :--- | :--- | :--- | | Total Portfolio Value | $1,238.2 million | $1,101.7 million | | Number of Companies | 138 | 129 | | Average Investment Size | $8.5 million | $7.8 million | | Weighted Avg. Yield on Debt | 12.5% | 13.0% | | First Lien Secured Debt % | 55% | 48% | | Non-Accrual (at Fair Value) | 3.0% | 0.0% | - For the six months ended March 31, 2024, the company invested $419.6 million in 18 new and 60 existing portfolio companies and received $247.2 million from sales and repayments (excluding U.S. Government Securities)[221] Results of Operations For the six months ended March 31, 2024, investment income increased to $70.3 million, and net investment income grew to $29.9 million, resulting in a net increase in net assets from operations of $26.7 million, a substantial improvement from the prior year - Investment income for the six months ended March 31, 2024, increased year-over-year primarily due to a higher cost of yield on the debt portfolio[250] - Expenses increased for the six months ended March 31, 2024, mainly due to higher debt-related interest and general and administrative expenses[251] - The net increase in net assets from operations for the six months ended March 31, 2024, was $26.7 million, compared to a net decrease of $67.0 million for the same period in 2023[256] Liquidity and Capital Resources The company's liquidity is sourced from operations, securities offerings, and debt financings, with $396.5 million outstanding on its Truist Credit Facility and an asset coverage ratio of 170% as of March 31, 2024 - The company's asset coverage ratio was 170% as of March 31, 2024, above the required 150%[260] Debt and Liquidity Summary (as of March 31, 2024) | Item | Amount (in millions) | | :--- | :--- | | Truist Credit Facility Capacity | $475.0 | | Truist Credit Facility Outstanding | $396.5 | | Truist Credit Facility Unused Capacity | $78.5 | | 4.50% Notes due 2026 | $150.0 | | 4.00% Notes-2 due 2026 | $165.0 | | Cash and Cash Equivalents | $35.4 | Item 3. Quantitative and Qualitative Disclosures About Market Risk The company is primarily exposed to interest rate risk, with 97% of its debt portfolio in variable-rate investments, where a hypothetical 1% increase in base interest rates would increase net interest income by approximately $4.9 million annually - As of March 31, 2024, 97% of the company's debt portfolio consisted of variable-rate investments, making it sensitive to changes in interest rates[298] 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% | $(4,948) | $(0.08) | | Up 1% | $4,948 | $0.08 | | Up 2% | $9,896 | $0.15 | | Up 3% | $14,843 | $0.23 | | Up 4% | $19,816 | $0.30 | Item 4. Controls and Procedures Management concluded that the company's disclosure controls and procedures were effective as of March 31, 2024, having remediated previously disclosed material weaknesses - Management concluded that disclosure controls and procedures were effective as of the quarter ended March 31, 2024[303] - The company has implemented remediation efforts for previously identified material weaknesses in internal controls related to cash/investment reconciliations and interest income/non-accrual analysis[302] PART II. OTHER INFORMATION This section covers other information including legal proceedings, risk factors, unregistered sales of equity securities, defaults on senior securities, mine safety disclosures, and exhibits Item 1. Legal Proceedings The company, its Investment Adviser, and its Administrator are not currently subject to any material legal proceedings - There are no material legal proceedings against the company, its Investment Adviser, or its Administrator[305] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended September 30, 2023 - The report refers to the risk factors disclosed in the Annual Report on Form 10-K for the fiscal year ended September 30, 2023, indicating no material changes[306] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered securities were sold during the quarter ended March 31, 2024, and the company's share repurchase program expired on March 31, 2023 - No unregistered securities were sold in the quarter ended March 31, 2024[307] - The company's share repurchase program expired on March 31, 2023, with a total of 1,820,605 shares purchased at an average price of $7.28 per share[308] Item 3. Defaults Upon Senior Securities There were no defaults upon senior securities during the period - None[309] Item 4. Mine Safety Disclosures This item is not applicable to the company - Not applicable[310] Item 5. Other Information No officers or directors of the company have adopted or terminated any Rule 10b5-1 trading arrangements during the period - No Rule 10b5-1 trading arrangements were adopted or terminated by officers or directors[311] Item 6. Exhibits This section lists the exhibits filed with the report, including certifications from the CEO and CFO, and XBRL data files