Release Date: May 07, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Gladstone Capital Corp (GLAD, Financial) reported net investment income of $11.2 million for the quarter, maintaining a stable income level.
- The company successfully exited a large senior debt investment in Spaceco, generating $42 million following the company's IPO and debt recapitalization.
- Gladstone Capital Corp (GLAD) has a healthy pipeline of expected funding, which is anticipated to outpace repayments and support portfolio growth.
- The company maintains a conservative leverage position with debt at 62.5% of NAV, providing room for future growth.
- Gladstone Capital Corp (GLAD) continues to focus on growth-oriented, lower middle market businesses, which are expected to benefit from private equity partnerships and market opportunities.
Negative Points
- Net originations were negative $35 million due to elevated exits and repayments, indicating a decline in portfolio size.
- Interest income remained unchanged despite a 6.3% increase in average earning assets, due to a decline in the weighted average portfolio yield.
- The company experienced net realized and unrealized depreciation of $2.2 million on the balance of the portfolio.
- Total investment income decreased by $400,000 or 1.8% from the previous quarter, reflecting reduced levels of fees and other income.
- The net asset value per share fell by $0.10, indicating a decline in shareholder value.
Q & A Highlights
Q: How do you see the portfolio and NAV performing with both the broadly syndicated loan and private credit spreads widening in April?
A: Bob Marcotte, President, explained that Gladstone Capital does not have syndicated loans, so the widening spreads are not relevant. The company focuses on the lower middle market, where spreads have not compressed as much. The deals closed last quarter averaged spreads over 7%, and leverage remains low, so they do not expect significant degradation in value.
Q: How do you see Cin and RPM freight performing as tariffs are starting to impact shipping volumes?
A: Bob Marcotte noted that smaller, domestically focused companies like RPM and Cin are advantaged in the current market. They can adapt quickly to changes in supply chains, unlike larger, asset-heavy businesses. This adaptability has led to increased business for RPM and Cin.
Q: Is the EG's restructuring going to generate a realized loss for you?
A: Bob Marcotte stated that the restructuring may result in a very small loss. The business is performing well, and most of the debt is back on accrual status. The markdowns from the previous quarter anticipated the likely outcome.
Q: Can you provide an update on the pipeline and its size relative to three months ago?
A: Bob Marcotte mentioned that the pipeline is healthy, with 8 to 10 deals in advanced stages, totaling $100 million to $150 million. Most of the current traffic is new business, with about 80% new deals and 20% add-ons.
Q: Do you have any portfolio companies with exposure to government contracts, and how do you mitigate risks from potential cuts?
A: Bob Marcotte explained that Gladstone Capital does not have significant exposure to government contracts, particularly in services or staffing. They have some exposure in defense and healthcare, but these areas remain stable with good order flows.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
