GLADSTONE CAPITAL CORP (GLAD)·Q2 2025 Earnings Summary

Executive Summary

• Q2 FY2025 was stable on core earnings but softer on revenue: Net investment income (NII) held at $11.2M ($0.50/share), while total investment income (TII) declined 1.8% sequentially to $21.57M; NII margin expanded slightly to ~52% on incentive fee credits .
• Versus S&P Global consensus, GLAD modestly missed on EPS ($0.50 vs $0.508) and revenue ($21.57M vs $22.97M); drivers were lower prepayment fees and a 36 bps decline in average SOFR, which compressed portfolio yield to 12.6% .
• Realized gains of $7.7M and stable non-accruals (4 names; 4.3% of FV) supported a resilient P&L despite net unrealized depreciation; NAV/share edged down $0.10 to $21.41 .
• Management expects the recent wave of repayments has largely passed; pipeline is “very healthy” (8–10 advanced deals, $100–$150M potential), and fundings should outpace repayments, positioning the portfolio to grow and support distributions in coming quarters .

What Went Well and What Went Wrong

• What Went Well

  • Stable core earnings and margin: NII was $11.2M ($0.50/share) with expenses down $0.4M QoQ and incentive fee credit of ~$1.4M, lifting NII margin to ~52% .
  • Realizations and portfolio quality: $7.7M net realized gains; non-earning assets unchanged at 4 companies (4.3% of FV), with management expecting improvements in underperformers through 2025 .
  • Pipeline and balance sheet: Management says they have “absorbed much of the anticipated surge in portfolio liquidity events” and ended with ample funding capacity; backlog expected to drive growth and distributions near term . Quote: “We’ve absorbed much of the anticipated surge in portfolio liquidity events…a healthy backlog of deals to grow the company’s investment portfolio and support shareholder distributions” – Bob Marcotte .

• What Went Wrong

  • Revenue softness: TII fell 1.8% QoQ to $21.57M due to lower prepayment fees; yield slipped to 12.6% on a 36 bps decline in average SOFR (4.3% vs 4.7% prior quarter) .
  • Valuation headwinds: Net unrealized depreciation of $(10.0)M partially offset realized gains; NAV/share dipped $0.10 to $21.41 .
  • Estimate shortfall: EPS and revenue came in modestly below S&P Global consensus as fee income moderated and yields compressed; management noted interest income was flat QoQ despite asset growth due to lower rates .

Financial Results

Actuals vs prior periods (oldest → newest)

Q2 2025 actuals vs S&P Global consensus

*Values retrieved from S&P Global.

KPIs and portfolio mix

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “Over the past two quarters we believe we have absorbed much of the anticipated surge in portfolio liquidity events and ended last quarter with a strong balance sheet, ample funding capacity and a healthy backlog of deals to grow the company’s investment portfolio and support shareholder distributions” – Bob Marcotte, President .
• “Net investment income for the quarter was unchanged at $11.2 million or $0.50 per share” – Nicole Schaltenbrand, CFO .
• “We ended the quarter with…debt at 62.5% of NAV and the bulk of our bank credit facility available to support the growth of our earning assets and shareholder distributions in the coming year” – Bob Marcotte .
• Chairman David Gladstone: “Very strong balance sheet…healthy backlog of deals…we’re going to keep up the good work and keep going” .

Q&A Highlights

• Tariffs/supply chain: Management sees domestic-focused logistics and manufacturing names advantaged as large platforms struggle to adapt; RPM and SeaLink seeing demand; auto supply chain remains a watch item - .
• Pipeline/volume: 8–10 deals in advanced stages ($100–$150M aggregate); expect $50–$75M quarterly originations in a “healthy” quarter, tilted ~80% new vs 20% add-ons near term .
• Leverage path: Goal to move leverage up toward 90–100% of NAV; could take 2–3 quarters given recent prepayments; preserving ROE discipline is key .
• Specific credits: Eegees restructuring likely a very small realized loss; debt expected back on accrual; three underperformers (lab testing, PCB, precision metals) expected to improve through 2025 with management and sales changes .

Estimates Context

• Q2 FY2025 vs S&P Global consensus: EPS $0.50 vs $0.508 (MISS) and revenue $21.57M vs $22.97M (MISS); 5 estimates on both EPS and revenue. Primary drivers were softer fee income and 36 bps lower average SOFR compressing yields, partly offset by higher average earning assets . Values retrieved from S&P Global.

Key Takeaways for Investors

• Core earnings resilience: NII/share held at $0.50 with modest margin expansion despite revenue softness; incentive fee credit provided support .
• Near-term growth setup: Repayment wave appears largely behind; robust pipeline and liquidity should allow net portfolio growth and support distributions over coming quarters .
• Rate sensitivity: Lower average SOFR pressured portfolio yield; further rate declines could weigh on TII, though originations at >700 bps over SOFR provide cushion .
• Credit quality stable: Non-accruals steady at 4 names (~4.3% of FV) with targeted remediation underway; watch list concentrated in a few idiosyncratic situations .
• Capital deployment and leverage: Management intends to move leverage toward 0.9–1.0x NAV over the next 2–3 quarters, contingent on maintaining yield and funding costs to preserve ROE .
• Dividend supported: Monthly $0.165/share declared for Apr–Jun 2025; run-rate $1.98/year reiterated on the call, implying a mid-to-high single-digit yield at recent prices (management context) .
• Trading implication: Slight top-line and EPS miss may temper near-term reaction, but narrative is shifting toward re-acceleration of originations and leverage rebuild—key catalysts to watch are net originations, yield trajectory, and any reduction in funding costs .