OFS Capital Corp (OFS)·Q2 2025 Earnings Summary

Executive Summary

• Net investment income was $0.25 per share and $3.283M; total investment income rose modestly to $10.476M. NAV fell to $10.91 (down $1.06 QoQ) driven by $12.9M net investment losses, notably $7.8M unrealized depreciation on Pfanstiehl/Fanstiehl Holdings; distribution was maintained at $0.34 for Q3 2025 .
• Balance sheet actions highlight proactive refinancing: $69M of 7.50% unsecured notes due 2028 issued in July and planned redemption of $94M of 4.75% notes due Feb 2026; 74% of debt unsecured and BNP Paribas facility matures June 2027, preserving flexibility .
• Portfolio credit quality stable with no new non‑accruals; weighted‑average performing income yield increased to 13.6% and non‑accruals stood at $15.2M (4.0% of investments) .
• Management continues to pursue monetization of its largest equity holding (Fansteel/Pfanstiehl) to rotate into interest‑earning assets, reduce concentration, and improve NII; this is a key medium‑term catalyst .
• Against S&P Global consensus, Q2 2025 EPS and revenue were slight beats, following mixed performance in prior quarters; narrative for near‑term stock reaction centers on equity markdowns vs. improved liability profile and the potential Fansteel monetization timing [*S&P Global estimates table below].

What Went Well and What Went Wrong

What Went Well

• Revenue resilience and income mix: Total investment income increased ~2% QoQ to $10.476M, aided by non‑recurring fee income and improved loan yields; performing income yield rose to 13.6% from 13.4% .
• Credit stability: No new loans were placed on non‑accrual; portfolio remains 100% senior secured (first/second lien) on the loan book; 85% of loans first lien by fair value .
• Liability management: Issued $69M of 7.50% notes due 2028 and intend to redeem $94M of 4.75% notes due 2026, extending maturities and maintaining ~74% unsecured debt—supporting operational flexibility .
• Quote: “We took advantage of favorable market conditions to extend the maturities of our debt, which we believe gives us operational flexibility over the coming years.” — Bilal Rashid .

What Went Wrong

• NAV compression from equity marks: NAV per share declined to $10.91 from $11.97, driven by $12.9M net investment loss, including $7.8M unrealized depreciation on Pfanstiehl Holdings; equity markdowns were the primary driver .
• Expense uptick: Total expenses increased $0.4M QoQ to $7.193M, led by a $0.5M increase in incentive fees, modestly pressuring NII per share ($0.25 vs $0.26) .
• Concentration risk persists: Fansteel/Pfanstiehl equity position (~$83M fair value) remains the largest holding; while distributions have been attractive historically, near‑term exit may sacrifice some fundamental value .

Financial Results

Headline Metrics: Q4 2024 → Q1 2025 → Q2 2025

Margins and Yields

Portfolio Composition

KPIs and Credit Metrics

YoY Snapshot: Q2 2024 vs Q2 2025

Actual vs S&P Global Estimates

Values retrieved from S&P Global.*

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “Our net investment income was fairly stable at $0.25 per share… Our net asset value at June 30 was $10.91… This drop… was primarily due to a decline in the value of our equity investments, including a decrease of $7.8 million on our equity investment in Fansteel Holdings.” — Bilal Rashid .
• “We continue to work on improving our net investment income… by rotating certain non‑interest‑earning equity positions into interest‑earning assets… our minority equity investment in Fansteel Holdings… fair value of approximately $83 million at quarter end.” — Bilal Rashid .
• “Total investment income increased approximately 2% to $10.5 million this quarter… Total expenses increased… to $7.2 million.” — Kyle Spina .
• “We had no new non‑accruals in the quarter… 100% of our loan portfolio was senior secured… 85% first lien.” — Kyle Spina .
• “The new notes mature in July 2028, carry a 7.5% coupon… we intend to pay off a total of $94 million in August… 74% of our outstanding debt is unsecured.” — Bilal Rashid .

Q&A Highlights

• The call concluded without substantive Q&A; no analyst question themes disclosed .

Estimates Context

• Q2 2025 delivered slight beats vs S&P Global consensus: Revenue $10.476M vs $10.0M*, EPS $0.25 vs $0.24*. Prior quarter (Q1 2025) saw misses: Revenue $10.295M vs $11.9M*, EPS $0.26 vs $0.33*. Q4 2024 was a beat on both metrics (Revenue $11.648M vs $10.3M*, EPS $0.30 vs $0.23*) .
• Coverage is thin (one estimate per metric each period), limiting robustness of consensus comparisons; near‑term estimate revisions likely to reflect higher funding costs (new notes) and equity valuation volatility around Fansteel/Pfanstiehl .

Values retrieved from S&P Global.*

Key Takeaways for Investors

• Defensive credit posture with no new non‑accruals and 100% senior secured loans mitigates downside risk amid macro uncertainty; performing yield ticked up to 13.6% .
• NAV pressure is equity‑driven (Pfanstiehl mark); watch for timing and pricing of the contemplated Fansteel/Pfanstiehl monetization—key driver of NII trajectory and concentration risk .
• Liability optimization is a positive: 7.50% 2028 notes and planned redemption of 2026 notes extend maturities and preserve flexibility, albeit at higher coupons; monitor interest expense and asset coverage ratio impacts .
• Distribution held at $0.34 for Q3 2025; sustainability hinges on NII stability vs. rising funding costs and equity mark volatility .
• Near‑term trading catalysts: additional disclosures on Fansteel/Pfanstiehl, any non‑accrual changes, and capital markets actions; medium‑term thesis centers on rotation into interest‑earning assets and disciplined underwriting amid subdued M&A .
• For estimate framing, treat consensus with caution given single‑analyst coverage; Q2 beat was modest and largely driven by fee/interest mix; watch Q3 evolution where higher net interest expense is visible in subsequent quarter results .