Gladstone Capital Corp 2026 Q3 Earnings Call

Well, thank you for bringing all these things together. Good morning to everyone out there. This is the earnings conference call for Gladstone Capital for the quarter ending June 30th, 2026. Thank you all for calling in. We are always happy to talk to our shareholders and analysts welcome the opportunity to provide some updates on our company that is doing very well. Before we get to the last quarter's results, Katherine Kirk, Director of Investor Relations, will provide a brief disclosure about certain regulatory matters. Katherine, go ahead. Thanks, David.

Good morning all. Today's call may include forward-looking statements which are based on management's estimates, assumptions, and projections. There are no guarantees of future performance, actual results may differ materially from those expressed or implied in these statements due to various uncertainties, including the risk factors set forth in our SEC filings, which you can find on the investors page of our website, gladstonecapital.com. We assume no obligation to update any of these statements unless required by law. Please visit our website for a copy of our Form 10-Q and earnings press release for more detailed information. You can also sign up for our email notification service and find information on how to contact our investor relations department. Now, I will turn the call over to Gladstone Capital CEO and President, Robert Marcotte.

Good morning. I will cover the highlights for the quarter a few comments on the near-term outlook for the company. Beginning with last quarter's results, fundings last quarter totaled $82 million included four new investments totaling $67 million $15 million advances to existing portfolio companies. Exits and repayments came in at $40 million, net originations were $42 million for the quarter. Interest income for the period rose 4.7% to $24.3 million on higher average assets as our weighted average debt yield of 11.8% was unchanged for the period. However, other income declined from the large prepayment fee received last quarter, total investment income declined $1.5 million to $24.5 million. Interest in financing costs rose $700,000 with increased borrowings, which included the $60 million December 2029 note issued in the period.

Net management fees declined $1.1 million with the increased origination fee credits. Net investment income declined by $800,000, largely on lower one-time prepayment fees to $11 million or $0.49 per share for the period. Net portfolio appreciation came in at $3 million, driven by unrealized portfolio appreciation as our gainers outnumbered the decliners by a 2 to 1 margin. With respect to the portfolio, the investment portfolio composition is largely unchanged, with first lien debt and total debt investments at 71% and 91% of the portfolio at cost, respectively. We're pleased to report that the leverage and return profile of our new debt investments last quarter were all first lien and with weighted average leverage under 3 times EBITDA and an average 7% spread over SOFR.

Our healthcare and education sector concentration declined as we elected to exit Giving Home Healthcare and redeploy the capital to higher returning investments. As of the end of the quarter, our non-accrual debt investments increased to five with a cost basis of $46 million or $26.7 million or 3.1% of our debt investments at fair value. The credits added are Lone Star Circuits, a Texas-based printed circuit board contractor, and eegee's, an Arizona-based quick-serve sandwich chain. Both credits are Gladstone controlled investments and have recently undergone senior management changes and are in the process of developing additional revenues and expense reductions to return them to earning asset status. As far as the outlook is concerned, since the end of the quarter, received an anticipated prepayment of Imperative totaling $12 million, which will eliminate our exposure to the oil and gas sector.

We anticipate a slightly larger prepayment this week, which should reduce our PIK interest income in coming quarters. Our committed investment pipeline is well more than the recent repayments and includes several attractive follow-on investments in existing portfolio companies which are continuing to scale. Between upsizing existing credits and new investment yields, we are not expecting our weighted average yield to be negatively impacted by these reinvestment activities. Our leverage position ticked up at the end of the quarter with net debt at a modest 100% of NAV, and we expect to continue to use our floating rate bank facility to support our near-term investment activities. Now I'll turn the call over to Nicole Schaltenbrand, our CFO, to provide details on the fund's financial results for the quarter.

Nicole. Thanks, Bob. Good morning, everyone.

During the June quarter, total interest income rose $1.1 million or 4.7% to $24.3 million as the average earning assets rose $28.4 million or 3.6%, while the weighted average yield on our interest-bearing portfolio was unchanged at 11.8% for the period.

Total investment income was $24.5 million as dividends and prepayment fee income declined from the large one-time payment in the prior quarter. Total expenses declined $700,000 or 4.7% versus the prior quarter due to a decrease in net management fees of $1.1 million and higher closing fee credits. Other expenses also fell $300,000, mainly due to lower legal expenses. These factors were offset by a $700,000 increase in interest expense. Net investment income for the quarter fell to $11 million or $0.49 per share or 109% of cash distributions per common share. The net increase in net assets resulting from operations was $13.3 million or $0.59 per share for the quarter ended June 30th, as impacted by the unrealized valuation appreciation covered by Bob earlier. Moving over to the balance sheet.

As of June 30th, total assets rose to $970 million, consisting of $953 million in investments at fair value and $17 million in cash and other assets. Liabilities rose $32 million since the prior quarter to $439 million, with a decrease in LOC borrowings funded by the new $60 million, 7% note issue due in December of 2029. The remaining balance of our liabilities consists primarily of the $149.5 million of five and seven-eighths convertible debt, $50 million of three and three-quarter notes due May 2027, and $45 million of six and a quarter perpetual preferred stock. As of June 30th, net assets rose $3.1 million to $485.7 million, and NAV per share rose from $21.36 to $21.50 as of June 30th. Our gross leverage as of June 30th rose to 100% of net assets.

With respect to distributions, monthly distributions for August and September will be $0.15 per common share, which is an annual run rate of $1.80 per share. The board will meet again in October to determine the monthly distributions to common stockholders for the following quarter. At the distribution run rate for our common stock and with the common stock price at about $19.35 per share yesterday, the distribution run rate is now producing a yield of about 9.3%. Now I'll turn it back to David to conclude.

Well, in summary again, it was just another solid quarter for Gladstone Capital. The team is doing an excellent job of sourcing attractive private equity-backed lower middle market investment opportunities. Again, Bob, you're on top of the world again. The team continues to deliver strong earnings performance driven by healthy increases in net interest margins and bolstered net investment income to more than cover the current shareholder dividends. That's 9.3% for a great little company. The company has a strong balance sheet, ample borrowing capacity to grow our investment portfolio and continue to support our shareholders with dividends. We love dividends here, and we love paying them out to our folks. I'm going to stop now and call on the operator to tell people how they can ask some questions, and we'll try to help you out there.