Gladstone Capital (GLAD) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Fundings for the last quarter totaled $126.6 million, with net originations at $103.1 million, while exits and prepayments declined to $23.5 million [4] - Interest income rose 14% to $23.8 million, driven by a 16.2% increase in average earning assets, although the weighted average portfolio yield declined by 30 basis points to 12.5% [4][9] - Net investment income for the period was $11.4 million, with net realized losses of $6.3 million related to the exit of FES Resources [5][9] - Total assets increased to $908 million, with net assets rising to $482 million, and NAV per share increased from $21.25 to $21.34 [10][11] Business Line Data and Key Metrics Changes - The portfolio turnover did not materially impact the investment mix, with new originations predominantly in first lien debt, which rose to 72% of the portfolio's fair value [5] - PIC income increased to $2 million, representing 8.4% of interest income, largely from two recent investments [6] Market Data and Key Metrics Changes - The company experienced a significant increase in fair value of the investment portfolio by $63 million for the fiscal year, despite challenges in fiscal 2025 [6][7] - The company maintained a conservative leverage position with net debt at 82.5% of NAV [8] Company Strategy and Development Direction - The company continues to focus on investing in growth-oriented lower middle market businesses, supporting mid-sized private equity funds [15] - The strategy includes expanding private equity sponsor relationships and positioning as the lead lender in most deals [7][15] Management's Comments on Operating Environment and Future Outlook - Management expressed cautious optimism about the lower middle market remaining insulated from spread erosion and leverage escalation [7] - The company is well-positioned to increase investments as new private equity platforms seek growth through acquisitions [7] Other Important Information - Monthly distributions for November and December will be $0.15 per common share, with an annual run rate of $1.80 per share [11] - The company is considering share repurchases due to the stock price being at a discount [33] Q&A Session Summary Question: Update on the pipeline and mix of new versus add-on opportunities - The company is tracking approximately $100 million of potential volume, with a mix of new and follow-on acquisition opportunities [20][21] Question: Decline in portfolio yield - The decline was primarily due to lower base rates, with new deals still maintaining attractive spreads [25][26] Question: Consideration of share repurchases - The company is tempted to consider share repurchases given the stock price and low leverage [33] Question: Dividend reduction reasoning - The reduction was a proactive measure to maintain financial flexibility in light of potential rate compressions [39][41] Question: Outlook for elevated repayment activity - Management believes that while some larger transactions may turn over, the overall portfolio remains stable, and they are not overly concerned about repayment activity [46][48] Question: Credit concerns in the portfolio - Management noted that while there are some challenges in certain businesses, the overall leverage position remains secure [49][51]