Total interest income: decreased 2.2% to $23.2 million in the quarter.
Other income: increased to $2.5 million and total investment income increased $1.7 million to $25.7 million.
Net investment income: +15% to $12.4 million ($0.57 per share).
Net realized and unrealized gains: Totaled $6.7 million, contributing to return on equity of just under 18% for the quarter.
Net Asset Value (NAV): Increased 2% from $19.80 to $20.18 per share as of June 30th.
Total assets: decreased to $775 million, with fair value investments of $758 million.
Leverage: reduced to 77% of net assets.
Distribution rate: $16.50 per common share for July, August and September, with an annual run rate of $1.98 per share, yielding approximately 8.9%.
Release date: August 8, 2024
For a complete record of financial statements, see Complete Record of Financial Statements.
good points
Net investment income increased 15% to $12.4 million, or $0.57 per share, more than covering current distributions.
Strong portfolio performance increased the portfolio’s net value, increasing net asset value by $0.38 per share from the prior quarter.
Gladstone Capital Corporation (NASDAQ:GLAD) achieved a return on equity of 18% over the past year, outperforming its BDC peer group.
The company has extended bank credit facilities to support growth and maintains a conservative leverage position of 77% of NAV.
The investment strategy focuses on growth-oriented lower middle market businesses that offer attractive interest financing opportunities and support distributions to shareholders.
Minus points
Total interest income decreased 2.2% to $23.2 million due to lower average earning assets.
Net origination value was negative $40 million, with significant prepayments and amortization totaling $86 million.
The weighted average balance of our investment portfolio decreased $16 million, or 2.3%, compared to the prior quarter.
The company faces headwinds in certain sectors, including its consumer business and capital investment cycle businesses such as wireless engineering.
The predictability of sale transactions is less certain than refinancing activities and may impact future investment activity.
Q&A highlights
Q: Last quarter, you said repayment activity would accelerate in the second half of the year. How much of this high-cost repayment activity is already occurring? And do you expect that to continue at the same level for the rest of the year? A: President Robert Marcotte: We do expect repayment activity to moderate somewhat. Although many companies have taken advantage of favorable conditions in the banking market, future activity is likely to be further driven by companies testing for potential sale transactions. Some larger positions may still move forward, but the high water mark was likely last quarter. We expect acquisition activity to be more closely aligned with repayments and support new investment opportunities.
Q: Can you tell us about the credit profile of B&T, a wireless cellular network engineering company, and your optimistic outlook for the business? A: Robert Marcotte, President: B&T’s capital investment-driven nature and current high interest rate environment facing challenges. Despite positive momentum from infrastructure spending, the business is likely to continue to face headwinds. This is a cyclical issue rather than a loss of key customers, and we are focused on leveraging their competitive advantage.
Q: Are B&T’s problems more a cycle issue than a loss of major customers? A: President Robert Marcotte: Yes, this is primarily a cycle issue. The company competes for business awards on a quarterly basis, and the amount of capital investment opportunities will impact its bottom line. We didn’t lose any major customers.
Q: Given current market conditions, what are the prospects for new investment opportunities? A: President Robert Marcotte: Healthy levels of financing in attractive lower-middle markets, typically less than $10 million in EBITDA. Opportunities are expected. Our significant pipeline of completed high probability trades should support asset growth in the near term.
Q: Where does the company position itself going into next year from a portfolio and financial health perspective? A: David Gladstone, CEO: Gladstone Capital is positioned with a strong portfolio, moderate leverage, and a solid balance sheet. , are in a favorable position. We continue to focus on growth-oriented lower middle market businesses that support our strategy of making attractive financings and maintaining distributions to shareholders.
For a complete record of financial statements, see Complete Record of Financial Statements.
This article first appeared on GuruFocus.
