The following is a summary of the Gladstone Capital (GLAD) Q3 2024 Earnings Call Transcript:

Financial Performance:

• Gladstone Capital reported a modest funding total of $46 million in Q3 due to build-up in new deal buyout activity, with net originations negative at $40 million after accounting for prepayments and amortization.

• Interest income decreased by 2.2% to $23.2 million for the quarter, largely due to a slight decline in average earning assets.

• Net investment income for the quarter increased by 15%, totalling $12.4 million, which was driven by an increase in other income from prepayment fees and dividends.

• Total investment income for the quarter was $25.7 million, up by $1.7 million or 7.1% from the previous quarters, assisted by other income components.

• Net assets resulting from operations amounted to $19.1 million or $0.88 per share for the quarter ended June 30.

Business Progress:

• Gladstone Capital closed two new platform investments and made add-ons to existing portfolio companies, amid several transactions carrying over to the current quarter.

• The portfolio saw net appreciation led by realized gains, particularly from positions like ARA, and a modest decrement from manufacturing and consumer services.

• The company anticipates further growth in asset under management as it entered the current quarter with a robust pipeline of awarded and probable transactions likely to boost investment opportunities.

Opportunities:

• Gladstone sees ongoing opportunities in proprietary originations in lower middle market financing, typically firms with under $10 million EBITDA, which are often associated with business founder transitions or first institutional capital raises.

• The company's investment strategy focuses on smaller growth-oriented businesses, facilitating their expansion through acquisition or operational growth, enhancing equity stakes.

• An expanded credit facility, now at $269 million, supports further growth of earning assets and fee revenue, ensuring robust shareholder distributions.

Risks:

• Elevated refinancing activity could result in large investment positions taking advantage of credit market conditions to lower spreads, reducing investment holdings.

• The potential sales of mature portfolio companies represent a volatility risk in investment returns, influenced by the less predictable nature of sale transactions compared to refinancings.

More details: Gladstone Capital IR

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