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GLADSTONE CAPITAL CORP (GLAD)·Q1 2025 Earnings Summary

Executive Summary

  • Q1 2025 delivered stable NII ($11.224M; $0.50/share) despite a 7.4% decline in total investment income to $21.960M, driven by lower yields and average earning assets; a large $57.8M realized gain lifted NAV to $21.51 (+$0.33 q/q) .
  • Originations surged ($152M fundings; six new portfolio companies) while exits/prepayments spiked ($165M), and portfolio mix shifted more senior (first-lien debt to 73.4% of debt investments; total debt to 89.3% of portfolio) .
  • Regular monthly distribution was maintained at $0.165 (Jan–Mar) and a $0.40 supplemental cash distribution (paid in Dec-2024) raised quarterly cash distributions to $0.90; management highlighted fee credits from deal origination supporting NII .
  • Near-term catalysts: realized gains and elevated closing/prepayment fees, accelerated redeployment of proceeds, and potential refinancing of 7.75% baby bond due Sept-2028 to lower funding costs; watch yield compression from lower SOFR and resolution of non-earning assets (e.g., EGs) .

What Went Well and What Went Wrong

What Went Well

  • “Delivered net realized gains of $57.8 million for the quarter which supported a supplemental cash distribution of $0.40 per common share” and increased NAV/share by $0.33; ROE lifted with $15.9M net investment appreciation .
  • Strong origination pipeline execution: “Fundings were strong last quarter, totaling $152 million, including 6 new portfolio companies,” with origination fee credits reducing net management fees and bolstering NII via closing fees .
  • Portfolio mix improved: “reinvestment of equity gains increased debt investments… raising secured first lien assets to 73.4% of debt investments at fair value”; seniority and discipline maintained (weighted average spread >700 bps over SOFR, closing leverage 3.4x EBITDA) .

What Went Wrong

  • Investment income fell $1.8M q/q (-7.4%), mainly on yield compression as weighted average portfolio yield declined to 13.1% (from 14.0%) and average earning assets dipped; SOFR down ~62 bps cited as driver .
  • Net unrealized depreciation of $(41.892)M offset realized gains (net increase in net assets from operations still positive $26.975M); fair value/cost fell to 98.0% from 103.3% .
  • Credit challenges: foreclosed on EGs (regional QSR), added to non-earning assets ($52.7M cost; $28.5M FV; 4% of assets); restaurant exposure managed tightly; timeline to resolution guided at “six months… hopefully less” .

Financial Results

MetricQ1 2024 (Dec 31, 2023)Q4 2024 (Sep 30, 2024)Q1 2025 (Dec 31, 2024)
Total investment income ($USD Millions)$23.221 $23.714 $21.960
Total expenses, net of credits ($USD Millions)$(11.287) $(12.759) $(10.736)
Net investment income ($USD Millions)$11.934 $10.955 $11.224
Net investment income per common share ($USD)$0.274 $0.50 $0.50
Cash distribution per common share ($USD)$0.2475 $0.50 $0.90
Net realized gain (loss) ($USD Millions)$0.262 $0.214 $57.814
Net unrealized appreciation (depreciation) ($USD Millions)$7.805 $20.767 $(41.892)
Net increase in net assets from operations ($USD Millions)$20.001 $31.817 $26.975
Net increase in net assets per share ($USD)$0.46 $1.46 $1.21
Weighted average yield on interest-bearing investments (%)13.9% 14.0% 13.1%
Total invested ($USD Millions)$57.998 $28.527 $151.616
Total repayments and net proceeds ($USD Millions)$22.066 $12.638 $165.343
Total investments, at fair value ($USD Millions)$749.985 $796.260 $799.497
Fair value as % of cost (%)98.7% 103.3% 98.0%
NAV per common share ($USD)$9.61 $21.18 $21.51

Note: Q1 2024 per-share metrics are pre-reverse split; GLAD effected a 1-for-2 reverse stock split on April 4, 2024 (subsequent periods present per-share metrics on a retroactive basis) .

KPIs and Portfolio Mix

KPIQ3 2024Q4 2024Q1 2025
Senior/first-lien debt as % of portfolio72% ~70% 73.4% of debt investments (FV)
Total debt holdings as % of portfolio (FV)n/an/a89.3%
Non-earning investments (cost, $M)$26.4 $28.3 $52.7
Non-earning investments (fair value, $M)$13.9 $12.8 $28.5
Non-earning investments (% of assets at FV)2.1% 1.9% 4.0%
Weighted avg spread over SOFR on originationsn/an/a>700 bps
Weighted avg closing leverage (x EBITDA)n/an/a3.4x
Leverage (debt as % of NAV)77% 73% 70%
Credit facility (committed, $M)$268.7; >$180M availability $293.7; >$200M availability “bulk… available” (no change disclosed)

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Regular monthly distribution per common shareQ4 2024 (Oct–Dec)$0.165/month; $0.495 for quarter ——
Regular monthly distribution per common shareQ1 2025 (Jan–Mar)—$0.165/month; $0.495 for quarter Maintained
Supplemental distribution per common shareDec 2024Announced $0.40 (record 12/4; pay 12/18) Reflected in Q1 “cash distribution per share” total of $0.90 Executed (paid)
Capital structure (GLADZ 7.75% notes due 2028)Callable Sept 2025—Plan to refinance to lower cost; supports adding assets/leverage in 2H CY2025 New plan disclosed

No revenue/EPS/OpEx/tax-rate guidance was issued; management provided qualitative outlook on elevated exits, redeployment, fee income, and disciplined underwriting/pricing .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q3 2024)Previous Mentions (Q4 2024)Current Period (Q1 2025)Trend
Originations momentumPipeline building; resumption of asset growth expected Funding spillover to current quarter; most active quarter anticipated $152M fundings; 6 new portfolio companies Up
Exits/prepaymentsElevated; high watermark likely set; sale-driven exits ahead Exited ARA ($63.7M equity; $31.3M debt) and Perimeter; more turnover expected $165M exits; Fix-It and Sokol debt payoffs; Sokol equity proceeds Elevated
Yield/SOFRYield 13.9%; SOFR unchanged Yield steady; noted late-rate reduction Yield fell to 13.1% (SOFR down ~62 bps) Down
Partnering with banksWill consider bank partnerships to blend cost Same; blending solutions noted Will team with banks where low leverage/pricing dictate Maintained
Sector exposure: restaurantsHeadwinds in consumer-facing noted EGs underperforming; heightened engagement Foreclosure and restructuring of EGs; tight underwriting criteria; limited further restaurant exposure Mixed/Active remediation
Defense electronicsPositive sector visibility post-ARA exit Same Continued visibility; potential additional investments Stable/positive
CapEx-cycle businessesWireless engineering faces CapEx headwinds; cautious stance —Similar caution; focus on spreads/ROE Cautious
Tariffs/macro——Monitoring tariff/auto supply chain exposure (Mexico/metals); risks to 2 smaller auto-related holdings Emerging risk

Management Commentary

  • “The exit of our largest investment position generated a material realized gain, which supported the supplemental cash distribution paid, increased our NAV per share and lifted our ROE to the top of our peer group.” – Bob Marcotte, President .
  • “Prepayments or closing fees are expected to remain elevated during this period of portfolio turnover…originations last quarter… closed at a weighted average spread above 700 bps over SOFR and a weighted average closing leverage of 3.4x EBITDA.” – Bob Marcotte .
  • “Total interest income declined…as the weighted average yield…declined from 14% to 13.1% with a 62 basis point decline in the average SOFR rate…Net investment income…$11.2 million or $0.50 per share.” – Nicole Schaltenbrand, CFO .
  • “We ended the quarter with a conservative leverage position with debt at 70% of NAV… and the bulk of our bank credit facility available to support the growth…” – Bob Marcotte .
  • “Company delivered…realized gains totaling $69 million… more than supporting… distributions… NAV per share lifted by 12% compared to December 2023.” – David Gladstone (prepared remarks) .

Note: The press release shows net increase in net assets resulting from operations of $26.975M, while the call referenced ~$21M; per-share figure ($1.21) is consistent with the press release. We anchor to press release figures when discrepancies arise .

Q&A Highlights

  • Restaurant underwriting: high bar; focus on sustainable margins, efficient labor, limited build-out; leverage well under 3x; saturation point acknowledged. EGs targeted for cost cuts, closures, and possible sale; timeline “six months… hope less” .
  • Liquidity deployment: avoided liquid credits due to low marginal ROE and lack of control/covenants; prefer proprietary lower middle market financings .
  • Portfolio company outlook: Engineering Manufacturing Tech backfilling insourced revenue; positive January ramp (data center, reshoring), adding management; aiming to rebuild EBITDA momentum .
  • Leverage trajectory: mission is to “hold serve” amid heavy turnover; potential to lift leverage in the second half with scale and cost-of-capital actions (refinancing baby bond at 7.75%) .
  • Tariff/auto exposure: monitoring two smaller auto-related investments given metals/tariff volatility; broader defense/aerospace exposures viewed as relatively insensitive .

Estimates Context

  • Wall Street consensus estimates (S&P Global) for Q1 2025 EPS and revenue were unavailable due to access limitations on the request date; as a result, we cannot quantify beats/misses versus consensus at this time. Estimates may need to adjust for: lower portfolio yield (13.1%), elevated fee income from prepayments/closings, realized gains, and accelerated redeployment impacting future net interest margins .

Guidance Changes

  • Distributions maintained at $0.165 per month (Jan–Mar 2025), consistent with Q4 2024; a $0.40 supplemental was executed in Dec-2024 and reflected in Q1 total distributions ($0.90/qtr) .
  • Capital structure: management plans to refinance 7.75% notes (GLADZ) at the Sept-2025 call date to lower funding costs, supporting potential leverage increase and asset growth in 2H CY2025 .

Key Takeaways for Investors

  • Fee-driven NII resilience: despite yield compression, origination fee credits and elevated closing/prepayment fees supported NII ($0.50/share); watch redeployment pace to sustain NII as exits remain elevated .
  • Portfolio mix strengthening: debt holdings at 89.3% of portfolio and first-lien at 73.4% increases credit quality; continued disciplined underwriting (spreads >700 bps; leverage 3.4x) supports ROE amidst lower SOFR .
  • Realized gains and distributions: ARA exit drove $57.8M realized gain and $0.40 supplemental distribution; NAV/share grew to $21.51; these are near-term catalysts for investor sentiment .
  • Credit watch: EGs remediation and elevated non-earning assets (4% of FV) warrant monitoring; management is actively working toward resolution/sale in months .
  • Funding cost optionality: planned refinancing of GLADZ could lower cost of capital, enabling leverage to move toward target in 2H CY2025; potential tailwind for net interest margin .
  • Macro sensitivities: tariff/metals/auto supply chain risks identified; defense/aerospace exposures seen as resilient; keep an eye on sector-specific dynamics (restaurants, CapEx-cycle businesses) .
  • Actionable setup: focus on redeployment velocity, fee income durability, and spread/leveraging discipline; any delays in redeployment or widening credit issues could pressure NII, while successful refinancing and strong origination cadence could drive earnings and support distributions .

Additional Notes

  • Q1 2025 8-K included subsequent events: Fix-It Group ($20.6M) and Sokol ($5.4M debt payoff; $5.8M equity sale) payoffs, and new investments ($18.9M food processor; $19.4M Viron International) .
  • No separate company press releases in Q1 2025 beyond the earnings 8-K exhibit were found in the provided catalog [ListDocuments: press-release search returned none in 12/1/2024–3/31/2025].

All figures cited above come from Gladstone Capital’s Q1 2025 8-K and earnings call transcripts (and prior two quarters) as indicated in brackets: [14:x], [12:x], [16:x], [15:x], [17:x], [22:x].