Executive Summary

Q4 2025 delivered a clean beat: Net investment income (NII) per share of $0.52 vs S&P Global consensus $0.504 (~~+3%); total investment income (revenue proxy) of $23.94M vs $22.72M consensus (~~+5%) (*Values retrieved from S&P Global).
Strong origination quarter: $126.6M funded and $23.5M repayments, driving ~$103.1M net originations; portfolio at fair value rose to $859.1M, NAV/share edged up to $21.34 .
Capital structure reset: Issued $149.5M 5.875% converts, then redeemed $150.0M 5.125% (2026) and $57.0M 7.75% (2028) notes; increased floating-rate bank borrowings to align with declining short rates and reduce unused facility costs, leaving ~$130M LOC availability pro forma .
Dividend prudently lowered to $0.15/month for Oct–Dec (total $0.45 for the quarter), with management signaling potential supplementals funded by equity gains; rationale centers on anticipated ~100 bps base-rate compression pressuring NII despite resilient spreads .

What Went Well and What Went Wrong

What Went Well

Net origination momentum and mix: Five new sponsor-backed investments, first lien debt at 72% of fair value, and total debt holdings at 90%; management highlighted healthy pipeline and conservative leverage entering FY26 .
Balance sheet and funding flexibility: Converts issuance and note redemptions extended maturities and increased floating-rate alignment; pro forma LOC availability ~$130M supports near-term growth .
Portfolio credit tone improving at key names: WBXL saw 18 straight months of sales/profit growth and is EBITDA positive; non-earning debt remains modest (three investments, ~1.7% of debt FV) .

Management quotes:

“Fiscal 2025 was a huge challenge… we were able to source and close 15 new investments representing $397 million of originations” .
“We ended the quarter with a conservative leverage position… increased our floating rate bank borrowings to capitalize on the projected decline in short-term rates” .

What Went Wrong

Yield compression: Weighted average portfolio yield fell to 12.5% from 12.8% QoQ primarily due to lower base rates; new originations also modestly diluted the combined yield .
Realized losses: Net realized loss of $6.3M in Q4, largely tied to the exit of a legacy oil and gas services investment (FES Resources) .
Higher expenses: Total expenses rose 20.5% QoQ (+$2.1M), driven by interest expense (Credit Facility usage/notes) and lower incentive fee credits; necessitated dividend prudence entering 2026 .

Financial Results

Quarterly Financials vs Prior Periods

Metric	Q2 2025	Q3 2025	Q4 2025
Total investment income ($USD)	$21,569,000	$21,657,000	$23,936,000
Total expenses, net of credits ($USD)	$10,324,000	$10,363,000	$12,492,000
Net investment income ($USD)	$11,245,000	$11,294,000	$11,444,000
NII per share ($USD)	$0.50	$0.50	$0.52
Net increase in net assets from operations ($USD)	$8,797,000	$7,448,000	$13,971,000
Net increase in net assets per share ($USD)	$0.39	$0.33	$0.63
Weighted avg yield on interest-bearing investments (%)	12.6%	12.8%	12.5%
Cash distribution per common share ($USD)	$0.50	$0.50	$0.59

Portfolio Activity & Balance Sheet KPIs

Metric	Q2 2025	Q3 2025	Q4 2025
Total invested ($USD)	$45,595,000	$72,952,000	$126,633,000
Total repayments and net proceeds ($USD)	$81,274,000	$82,205,000	$23,495,000
Net originations ($USD)	-	-$9,000,000	$103,100,000
Investments at fair value ($USD)	$762,636,000	$751,260,000	$859,124,000
Fair value as % of cost (%)	96.6%	96.6%	98.0%
NAV per share ($USD)	$21.41	$21.25	$21.34
Gross leverage (% of net assets)	64%	64%	84.3%

Portfolio Mix & Credit KPIs

Metric	Q2 2025	Q3 2025	Q4 2025
First lien debt (% of FV)	≥70%	70%	72%
Total debt holdings (% of FV)	90%	90%	90%
Non-earning debt investments	3; cost $28.8M; FV $11.5M; 1.7% of debt FV	3; cost $28.8M; FV $11.5M; 1.7% of debt FV	3; cost $28.8M; FV $13.0M; 1.7% of debt FV
PIC income (% of interest income)	-	-	$2.0M; 8.4%

Q4 2025 Results vs S&P Global Consensus

Metric	Consensus	Actual	Surprise
Primary EPS Consensus Mean ($)	$0.504*	$0.52*	+$0.016 (~+3%)*
Revenue Consensus Mean ($)	$22,723,140*	$23,936,000*	+$1,212,860 (~+5%)*
Primary EPS - # of Estimates	7*	-	-
Revenue - # of Estimates	7*	-	-

Values retrieved from S&P Global.

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Common dividend (monthly)	Q4 2025 (Oct–Dec)	$0.165/month (Aug–Sep; annual run-rate $1.98)	$0.15/month (Oct, Nov, Dec; total $0.45)	Lowered
Capital structure	Q4 2025 onward	2026 maturity outstanding; higher unused LOC costs	Issued $149.5M 5.875% converts; redeemed $150.0M (2026) and $57.0M (2028); increased floating-rate bank borrowings; LOC availability ≈$130M	Improved maturity profile / funding flexibility
Dividend policy framework	FY26 outlook	Base dividend only (historical)	Base dividend maintained with potential supplemental dividends funded by realized gains	Clarified structure

Management rationale: anticipating ~100 bps decline in base rates could pressure NII; dividend reduction positions company to maintain distributions amid rate compression while retaining flexibility to invest and deliver overall equity returns (including NAV growth and capital gains) .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q-2 and Q-1)	Current Period (Q4 2025)	Trend
Pipeline & originations	Q2: “healthy backlog” after elevated liquidity events ; Q3: post-quarter originations $93M; net originations $89M; 50–100M quarterly originations targeted; broadened sponsor relationships	Funded $126.6M; net originations ~$103.1M; tracking ~$100M near-term volume (~10 deals); lower turnover expected in 2026	Improving growth momentum
Credit quality	Q2: EG’s restructured; portfolio largely first lien ; Q3: 3 non-earning investments; EG’s back to accrual; edge adhesives winding down	WBXL operationally improving (18 months); no LTV concerns; non-earning remains ~1.7% of debt FV	Stable to improving
Rates & yields	Q2: SOFR down; yield 12.6% ; Q3: yield up to 12.8% (one-time items); spreads >7%	Yield 12.5%, base-rate driven; new originations attractive margins; increased floating-rate borrowings to benefit from cuts	Base-rate pressure; spread resilience
Capital structure	Q2/Q3: upsized/extended bank line; leverage ~64% NAV	Converts issued; 2026/2028 notes redeemed; gross leverage 84.3%; net debt ~82.5% of NAV; LOC availability ≈$130M	Maturity extension; funding flexibility up
Dividends	Q2: $0.165/month (Apr–Jun) ; Q3: $0.165/month (Aug–Sep); 7.4% yield at ~$26.91 price	$0.15/month (Oct–Dec) with potential supplementals; ~9.6% yield at ~$18.77 price	Base reduced; optionality via supplementals
Share repurchase	-	Under consideration if discount persists	On the table
Macro / lower middle market dynamics	Q3: Mixed macro signals; lower middle market relatively insulated; conservative leverage underwriting	Continued cautious optimism; focus on sponsor-backed growth strategies	Steady cautious stance

Management Commentary

Strategic positioning: “The depth of the deal origination opportunities in the lower middle market… and the utility of our BDC private credit model… all contributed to these record results” .
Funding strategy: “Increased our floating rate bank borrowings to capitalize on the projected decline in short-term rates… reduce unused facility costs” .
Dividend philosophy: “We could certainly see a supplemental on a go forward basis… overall yield on equity with NAV growth has been almost… 16.7% over the last five years” .
Q4 backdrop: “FY25 closed on a high note… reset near-term maturities and increased our floating rate funding via the debt refinancing… positioned us well to deliver continued asset growth and sustain our net interest income” .

Q&A Highlights

Pipeline size/mix: Tracking ~$100M near-term volume across ~10 deals, with barbell mix of larger add-ons and smaller first-time sponsor platforms; expected net asset growth as turnover normalizes in FY26 .
Yield drivers: QoQ yield decline driven predominantly by lower base rates; spreads on new originations remain “well north of 7%” .
Dividend rationale and path: Base dividend lowered to absorb potential ~100 bps rate decline; management expects higher fee income and lower unused LOC costs to support maintaining current dividend; supplementals possible tied to realized gains .
Share repurchases: Under consideration given stock discount and low leverage, balanced against desire to fund growth profitably .
Credit tone: No new non-accruals; select assets monitored closely but LTV coverage remains adequate; WBXL performance improving .

Estimates Context

Q4 2025 beat vs S&P Global: NII/share $0.52 vs $0.504 mean (~~+3%); total investment income $23.94M vs $22.72M (~~+5%); 7 estimates for each metric, indicating reasonably covered quarter (*Values retrieved from S&P Global).
Implications: Consensus likely to recalibrate modestly higher on earning assets growth and fee normalization, but base-rate trajectory remains an offset; dividend path prudent given rate outlook (*Values retrieved from S&P Global).

Key Takeaways for Investors

Originations have re-accelerated with first-lien heavy mix and broadened sponsor relationships; expect asset growth to outpace normalized repayments in FY26 .
Funding reset reduces near-term maturities and aligns liabilities with floating-rate assets; ~$130M LOC availability supports continued deployment .
Base-rate sensitivity is the main earnings headwind; spreads resilient and PIC moderate, but management is proactively protecting dividend sustainability with potential supplementals .
Credit performance remains solid with limited non-earning exposure and improving names (WBXL); underwriting leverage remains conservative (~3x EBITDA) .
NAV stability and equity realization potential underpin total return; supplemental dividends tied to gains can augment cash yield .
Tactical: Watch for December/January deal closings (seasonally strong), board dividend decision in January, and any share repurchase signals if discount persists .
Medium-term: Reduced portfolio turnover and enhanced sponsor pipeline improve visibility; capital structure flexibility positions GLAD to scale while preserving distribution capacity .

GLADSTONE CAPITAL CORP (GLAD)·Q4 2025 Earnings Summary