Q3 2024 Gladstone Capital Corp Earnings Call

August 8, 2024

Greetings and welcome to the Gladstone Capital Corporation third quarter earnings call. At this time all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation.

Operator: At this time, all participants are in a listen-only mode.

Operator: A brief question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.

If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, David Gladstone. Thank you, Mr. Gladstone. You may begin.

David Gladstone: It is now my pleasure to introduce your host, David Gladstone.

Kate: Thank you, Mr. Gladstone; you may begin.

David Gladstone: Thank you, Kate.

David Gladstone: It's a nice introduction, and good morning and hello to everyone out there, and this is David Gladstone, Chairman. And this is the earnings conference call for Gladstone Capital for the quarter ending June 30th, 2024. Thank you all for calling in. We're always happy to talk with our shareholders and the analysts who follow us and welcome the opportunity to provide an update.

Thank you, Kate. It's a nice introduction and good morning and hello to everyone out there and this is David Gladstone, chairman.

And this is the earnings conference call for Gladstone Capital for the quarter ending June 30, 2024.

Speaker Change: Thank you all for calling in. We're always happy to talk with our shareholders and the analysts who follow us.

Michael LiCalsi: We're now here from our general council, Michael LaCalsi, who will make a statement regarding some certain forward-looking statements.

and welcome the opportunity to provide an update.

We now hear from our General Counsel, Michael LiCalsi, who will make a statement regarding some certain forward-looking statements.

Michael LiCalsi: Thanks, David.

Michael LiCalsi: Good morning, everybody. Today's report may include forward-looking statements on the Securities Act of 1933, Securities Exchange Act of 1934, including those regarding our future performance. Now, these forward-looking statements involve certain risks and uncertainties that are based on our current plans, which we believe to be reasonable. Many factors may cause our actual results to be materially different from any future results expressed or implied by these forward-looking statements, including all risk factors in our forms, 10-Q, 10-K, and other documents that we file with the SEC. You can find them on the Investors page of our website, www.gladstonecapital.com.

Michael LiCalsi: Michael? Thanks, David. Good morning, everybody. Today's report may include forward-looking statements on the Securities Act of 1933, the Securities Exchange Act of 1934, including those regarding our future performance.

Speaker Change: These forward-looking statements involve certain risks and uncertainties that are based on our current plans, which we believe to be reasonable.

Michael LiCalsi: Many factors may cause our actual results to be materially different from any future results.

Michael LiCalsi: expressed or implied by these forward-looking statements including all risk factors in our forms ten q ten -k and other documents that we file withthe sec and find them on the investors page of our website w w do ladstone capital dot com

Michael LiCalsi: We can also sign up for our email notification service. You can also find them on the SEC's website, which is www.sec.gov.

Michael LiCalsi: Now we undertake no obligation to publicly update or revise any of these forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.

Michael LiCalsi: Now, we undertake no obligation to publicly update or revise any of these forward-looking statements, whether as a result of new information, future events, or otherwise.

Michael LiCalsi: Today's call is an overview of our results, so we ask that you review our press release and Form 10-Q, both issued yesterday for more detailed information. Again, you can find them on the investors page of our website.

Michael LiCalsi: except as required by law.

b mark: in today's calls an overview of our results so we asked that you review our press release and form ten -q both issued yesterday for more gel information again you can find them on the investors page of our website with that i'll turn it back to atsome capitalals president b mark

Bob Markov: With that, I'll turn it back to Gladstone Capital's president, Bob Markov.

Bob Markov: Thank you, Michael. Good morning, and thank you all for dialing in this morning.

Operator: A brief question and answer session will follow the formal presentation.

David Gladstone: Good morning, and thank you all for dialing in this morning. I'll cover the highlights from the last quarter and then turn the call over to Nicole Schaltenbrand to review the details of our financial results for the period. Beginning with our last quarter results, funding last quarter was modest at $46 million as new deal buyout activity was building over the period and several transactions carried over to the current quarter. We did close two new platform investments, which represented two-thirds of the originations, with add-ons to our existing portfolio representing the balance.

Bob Markov: I'll cover the highlights for last quarter, and then turn the call over to Nicole Soule, who ran to review the details of our financial results for the period. Beginning with our last quarter results, funding's last quarter were modest at 46 million, as new deal buyout activity was building over the period, and several transactions carried over to the current quarter. We did close two new platform investments, which represented two-thirds of the originations, with add-ons to our existing portfolio representing the balance. Consistent with the spike in refinancing activity for larger middle-market credits, two of our larger investments in Giving Health and Panthopic were refinanced, lifting the total prepayments and amortization for the quarter to 86 million, so net originations were negative at 40 million.

B Mark: Thank you, Michael. Good morning, and thank you all for dialing in this morning. I'll cover the highlights for last quarter and then turn the call over to Nicole Schaltenbrand to review the details of our financial results for the period.

Michael: Thank you, Michael. Good morning, and thank you all for dialing in this morning.

Bob: I'll cover the highlights for the last quarter and then turn the call over to Nicole Schaltenbrand to review the details of our financial results for the period. Consistent with the spike in refinancing activity for larger middle market credits, two of our larger investments in Giving Health and Pansophic refinanced, lifting the total prepayments and amortization for the quarter to $86 million. So net originations were negative at $40 million. Average earning assets for the period declined slightly, resulting in a 2.2% decline in total interest income to $23.2 for the quarter.

Nicole Schaltenbrand: beginning with our last quarter results fundings last quarter were a modest at forty- six million as new deal bott activity was building over the period and several transactions carried over to the current quarter

Michael LiCalsi: We did close two new platform investments, which represented two-thirds of the originations, with add-ons to our existing portfolio representing the balance.

David Gladstone: Consistent with the spike in refinancing activity for larger middle market credits, two of our larger investments in Giving Health and Pansophic were refinanced, lifting the total prepayments and amortization for the quarter to 86 million. However, net originations were negative at 40 million. Short-term SOFR rates were unchanged, so the weighted average yield on our investment portfolio was largely unchanged at 13.9%.

Michael LiCalsi: consistent with the spike and refinancing activity for larger middle market credits two of our larger investments in giving health in pantsphic refinanced lifting the total of prepayments and amortization for the quarter to eighty six million so net originations were negative at forty million

Bob Markov: Short-term sofa rates were unchanged, so the weighted average yield on our investment portfolio was largely unchanged at 13.9%. Average earning assets for the period declined slightly, resulting in a 2.2% decline in total interest income to 23.2 for the quarter. However, other income rose to 2.5 million with the increase in prepayment fees and dividends, which lifted total investment income by 1.7 million to 25.7 million. Interest costs decline slightly on reduced line borrowings, and net management fees rose with the increased income. However, net investment income rose by 1.6 million, or 15 percent, to 12.4 million. Net realized and unrealized gains on the portfolio totaled 6.7 million, which lifted our ROE to just under 18 percent for the quarter in the last 12 months.

Michael LiCalsi: Short-term SOFR rates were unchanged so the weighted average yield on our investment portfolio largely unchanged at 13.9 percent.

David Gladstone: Average earning assets for the period declined slightly, resulting in a 2.2% decline in total interest income to $23.2 million for the quarter. However, other income rose to $2.5 million with an increase in prepayment fees and dividends, which lifted total investment income by $1.7 million to $25.7 million. Interest costs declined slightly on reduced line borrowings, and net management fees rose with the increased income.

Michael LiCalsi: Average earning assets for the period declined slightly, resulting in a 2.2% decline in total interest income to $23.2 for the quarter.

Michael LiCalsi: However, other income rose to $2.5 million with an increase in prepayment fees and dividends, which lifted total investment income by $1.7 million to $25.7 million.

Michael LiCalsi: Interest costs declined slightly on reduced line borrowings, and net management fees rose with the increased income. However, net investment income rose by 1.6 million, or 15 percent to 12.4 million.

David Gladstone: However, net investment income rose by 1.6 million, or 15 percent, to 12.4 million. Net realized and unrealized gains on the portfolio totaled $6.7 million, which lifted our ROE to just under 18% for the quarter. With respect to the portfolio, our portfolio continues to perform well, with senior debt representing 72% of the portfolio and our three non-earning investments representing $26.4 million at cost, or $13.9 million, or 2.1% of assets at fair value.

Bob: Net realized and unrealized gains on the portfolio totaled $6.7 million, which lifted our ROE to just under 18% for the quarter. With respect to the portfolio, our portfolio continues to perform well, with senior debt representing 72% of the portfolio and our three non-earning investments representing $26.4 million at cost, or $13.9 million, or 2.1% of assets at fair value. Regarding our near-term outlook, I'd like to leave with a couple of comments.

Michael LiCalsi: Net realized and unrealized gains on the portfolio totaled $6.7 million, which lifted our ROE to just under 18% for the quarter in the last 12 months.

Bob Markov: With respect to the portfolio, our portfolio continues to perform well, with senior debt representing 72 percent of the portfolio, and our three non-earning investments representing 26.4 million at cost, or 13.9 million, or 2.1 percent of assets at fair value. Appreciation for the quarter of 6.7 million was led by 3.3 million of realized appreciation. The unrealized appreciation of our position in ARA, which was partially offset by the depreciation of several smaller manufacturing, consumer, and service-related businesses.

Michael LiCalsi: With respect to the portfolio, our portfolio continues to perform well.

Michael LiCalsi: with senior debt representing seventy two percent of the portfolio

Michael LiCalsi: and our three non-earning investments representing $26.4 million at cost or $13.9 million or 2.1% of assets at fair value.

David Gladstone: Appreciation for the quarter of $6.7 million was led by $3.3 million of realized appreciation. The unrealized depreciation of our position in ARA, which was partially offset by the depreciation of several smaller manufacturing, consumer, and service-related businesses.

Michael LiCalsi: appreciation for the quarter of six point seven million was led by three point three million of realized appreciation

Michael LiCalsi: the unrealized depreciation of our position in ara which was partially offset by the depreciation of several smaller manufacturing consumer and service -related businesses

Bob Markov: Regarding our near-term outlook, I'd like to leave you the couple of comments. The majority of our investments are proprietary originations of lower-middle market buyouts, often associated with the business founder transition or first institutional capital rates, and are not driven by refinancing activities. While several more mature and larger investment positions in the portfolio did take advantage of credit market conditions and lower spreads, we continue to see a healthy level of attractive lower-middle market financing opportunities, typically with under $10 million VBITA. We enter the current quarter with a significant pipeline of award and high probability transactions, which we expect will support the resumption of our asset growth in the near-term.

David Gladstone: Regarding our near-term outlook, I'd like to leave with a couple of comments. The majority of our investments are proprietary originations of lower middle market buyouts, often associated with a business founder transition or first institutional capital raise, and are not driven by refinancing activity. While several more mature and larger investment positions in the portfolio did take advantage of credit market conditions and lower spreads, we continue to see a healthy level of attractive lower middle market financing opportunities, typically with under $10 million in VBITDA.

Michael LiCalsi: regarding our your term outlook i'dlike to leave you a couple of comments

Michael LiCalsi: The majority of our investments are proprietary originations of lower middle market buyouts, often associated with a business founder transition or first institutional capital raise, and are not driven by refinancing activities.

Bob: While several more mature and larger investment positions in the portfolio did take advantage of credit market conditions and lower spreads, we continue to see a healthy level of attractive lower middle market financing opportunities, typically with under $10 million in VBITDA. We entered the current quarter with a significant pipeline of awarded and high probability transactions, which we expect will support the resumption of our asset growth in the near term. Nicole. Thanks.

Michael LiCalsi: While several more mature and larger investment positions in the portfolio did take advantage of credit market conditions and lower spreads,

Michael LiCalsi: we continue to see a healthy level of attractive lower middle market financing opportunities

David Gladstone: We entered the current quarter with a significant pipeline of awarded and high probability transactions, which we expect will support the resumption of our asset growth in the near term. In addition to recycling some of our matured investments, we expect to continue to benefit from our incumbent position as the originator, lead lender, and, in some cases, equity co-investor in a variety of smaller growth-oriented businesses as they look to grow through acquisition or expansion to support the appreciation of their equity position.

Michael LiCalsi: typically with under $10 million VBITDA. We entered the current quarter with a significant pipeline of awarded and high probability transactions, which we expect will support the resumption of our asset growth in the near term.

Bob Markov: In addition to recycling some of our matured investments, we expect to continue to benefit from our incumbent position as the originator, lead lender, and, in some cases, equity co-investor in a variety of smaller growth-oriented businesses as they look to grow through acquisition or expansion and support the appreciation of their equity position. We enter the quarter with a conservative leverage position at 77% of NAV and have increased the size of our bank credit facility to 269 million to support the growth of our earning assets and fee income to continue to support our shareholder distributions in the coming year.

Michael LiCalsi: in addition to recycling some of our matured investments.

Michael LiCalsi: We expect to continue to benefit from our incumbent position as the originator, lead lender, and in some cases equity co-investor in a variety of smaller growth-oriented businesses as they look to grow through acquisition or expansion.

Michael LiCalsi: to support the appreciation of their equity position.

David Gladstone: We ended the quarter with a conservative leverage position at 77% of NAV and have increased the size of our bank credit facility to $269 million to support the growth of our earning assets and fee income to continue to support our shareholder distributions in the coming. Now, I'd like to turn the call over to Nicole Schaltenbrand, the CFO for Gladstone Capital, to provide some more details on the fund's financial performance for the quarter. Thanks.

Speaker Change: we ended the quarter over the conservative leverage position at seventy-seven percent of nab and have a increaseed the szeesof our bank creditfacility to two hundred and sixty nine million to support the growth of our earning assets and fee income to continue to support our shareholder distributions in the coming year

Nicole Schaltenbrand: And now I'd like to turn the call over to Nicole Shelton, Brand of the CFO for Gladstone Capital to provide some more details on the fund's financial performance for the quarter.

Speaker Change: and now i'd like to turn the call over to n cole lton brand the fo for glad some capital provide some more details on the funds financialperformance for the quarter

Nicole Schaltenbrand: Thanks, Bob. Good morning, everyone.

Nicole Schaltenbrand: Thanks, Bob.

Nicole Schaltenbrand: Good morning, everyone. During the June quarter, total interest income declined 500,000 or 2.2% to 23.2 million, with the decline in average earning assets as the weighted average yield on our interest growing portfolio was largely unchanged at 13.9%. The investment portfolio weighted average balance declined to 665 million, which was down 16 million or 2.3% compared to the prior quarter. Other income of 2.5 million in total investment income rose 1.7 million, or 7.1%, to 25.7 million for the quarter. Total expenses rose 100,000 quarter-over-quarter as net management fees increased 300,000, with higher investment income and interest expenses declined 200,000 from reduced bank borrowing.

Speaker Change: Thanks, Bob. Good morning, everyone. During the June quarter, total interest income declined 500,000, or 2.2%, to $23.2 million, with the decline in average earning assets as the weighted average yield on our interest bearing portfolio was largely unchanged at 13.9%.

Nicole Schaltenbrand: During the June quarter, total interest income declined to $500,000, or 2.2%, to $23.2 million, with the decline in average earning assets, as the weighted average yield on our interest-bearing portfolio was largely unchanged at 13.9%. Navrose increased 2% from $19.88 per share as of March 31st, which is retroactively adjusted for the 1 for 2 reverse stock split, to $20.18 per share as of June 30th. As far as distributions go, at the current distribution rate for our common stock and with the common stock price at about $22.28 per share yesterday, the distribution run rate is now producing a yield of about 8.9%.

Nicole Schaltenbrand: During the June quarter, total interest income declined to $500,000, or 2.2%, to $23.2 million, with the decline in average earning assets, as the weighted average yield on our interest-bearing portfolio was largely unchanged at 13.9%. The investment portfolio weighted average balance declined to $665 million, which was down $16 million, or 2.3%, compared to the prior quarter. Other income of $2.5 million and total investment income rose $1.7 million or 7.1% to $25.7 million for the quarter. Total expenses rose $100,000 quarter over quarter as net management fees increased $300,000 with higher investment income and interest expenses declined $200,000 from reduced bank borrowing.

Speaker Change: the investment portfolioaweighted average balance declined for six hundred and sixty-five million

Speaker Change: which was down $16 million or 2.3% compared to the prior quarter. Other income of $2.5 million and total investment income rose $1.7 million or 7.1% to $25.7 million for the quarter.

Nicole Schaltenbrand: Total expenses rose $100,000 quarter over quarter as net management fees increased $300,000 with higher investment income, and interest expenses declined $200,000 from reduced bank borrowing.

Nicole Schaltenbrand: Net investment income for the quarter ended June 30th was 12.4 million, which was an increase of 1.6 million compared to the prior quarters, or 57 cents per share. The net increase in net assets resulting from operations was 19.1 million, or 88 cents per share, for the quarter ended June 30th, as impacted by the realized and unrealized valuation appreciation covered by Bob earlier. Moving over to the balance sheet, as of June 30th, total assets declined to 775 million, consisting of 758 million in investments at fair value and 17 million in cash in other assets. Biabilities declined with net origination to 330 million as of June 30th and consisted primarily of 254 million of senior notes and, as of the end of the quarter, advances under our line of credit of 66 million.

Speaker Change: net investment income for the quarter june thirtieth was twelve point four million which was an its increase at one point six million compared to the prior quarter or fifty seven plans per share the net increase in net assets resulting from operations was one nineteen point one million or eighty eight cents per share

Speaker Change: for the quarter under june thirtieth as impacted by the realizede and i realized valuation depreciation covered by bober work maybe over to the ban as thirty of total actiof decline to seven hundred seventy five minthes consisting of seven hundred and fifty eight million and investments at fair value and seventeen million in cash and other assets

Nicole Schaltenbrand: Net investment income for the quarter ended June 30th was $12.4 million, which was an increase of $1.6 million compared to the prior quarter, or $0.57 per share. The net increase in net assets resulting from operations was $19.1 million, or $0.88 per share, for the quarter ended June 30th, as impacted by the realized and unrealized valuation depreciation covered by Bob earlier. Moving over to the balance sheet, total assets declined to $775 million, consisting of $758 million in investments at fair value and $17 million in cash and other assets.

Nicole Schaltenbrand: Viabilities declined, with net origination to $330 million as of June 30, and consisted primarily of $254 million of senior notes and, as of the end of the quarter, advances under our line of credit of $66 million. As of June 30th, net assets rose to $439 million from the prior quarter end, with investment appreciation on distributed earnings. Navrose increased 2% from $19.88 per share as of March 31st, which is retroactively adjusted for the 1 for 2 reverse stock split, to $20.18 per share as of June 30th.

Nicole Schaltenbrand: Liabilities declined with net origination to $330 million as of June 30th and consisted primarily of $254 million of senior notes and as of the end of the quarter advances under our line of credit of $66 million.

Nicole Schaltenbrand: As of June 30th, net assets rose to 439 million from the prior quarter end, with investment appreciation on distributed earnings. Now rose 2% from $19.88 in 80 cents per share as of March 31st, which is retroactively adjusted for the 1 for 2 reversed off split to $20.18 per share of June 30th. Our leverage as of June 30th declined to 77% of net assets. Subsequent to the end of the quarter, a $5 million indicated loan paid off at par, and we funded an additional $6.5 million senior firstly investment to an existing portfolio company. As far as distribution, we will pay distributions for July, August, and September of 16.5 cents per common share, which is an annual run rate of $1.98 per share.

Nicole Schaltenbrand: As of June 30th, net assets rose to $439 million from the prior quarter end, with investment appreciation and undistributed earnings.

Nicole Schaltenbrand: na rose two percent from nineteen dollars in eighty eight in eighty cents per share as of march thirty first which is retroactively adjusted for the one per two reversed off split to twenty dollars in eighteen cents per share thirtie

Nicole Schaltenbrand: Our leverage as of June 30 declined to 77% of net assets. Subsequent to the end of the quarter, a $5 million syndicated loan was paid off at par and refunded an additional $6.5 million senior first lien investment to an existing portfolio company. As far as distributions go, we will pay distributions for July, August, and September of $0.165 per common share, which is an annual run rate of $1.98 per share. The board will meet again in October to determine the monthly distribution to common stockholders for the following quarter.

Nicole Schaltenbrand: our leverage as of june thirtieth declined to seventy-seven percent of net assets

Nicole Schaltenbrand: Subsequent to the end of the quarter, a $5 million syndicated loan paid off at par and refunded an additional $6.5 million senior first lien investment to an existing portfolio company.

Nicole Schaltenbrand: The board will meet again in October to determine the monthly distribution to common stockholders for the following quarter. At the current distribution rate for our common stock and with the common stock price at about $22.28 per share yesterday, the distribution memory is now producing a yield of about 8.9%.

Nicole Schaltenbrand: At the current distribution rate for our common stock, and with the common stock price at about $22.28 per share yesterday, the distribution run rate is now producing a yield of about 8.9%. Now, I'll turn it back to David.

David Gladstone: And now I'll turn it back to David.

David Gladstone: Well, thank you, Nicole.

David Gladstone: Well, thank you, Nicole, Bob, Nicole, Michael; you all did a great job of informing our shareholders and the analysts that follow the company with information that should be good for them. In summary, another solid quarter for Gladstone Capital, including net investment income rose by 15% to $0.57 per share and provided ample coverage of our current common distribution. So, in good shape there and running at 8.9 percent.

David Gladstone: Bob, Nicole, Michael. It all did a great job of informing our shareholders and the analysts that follow the company with information that should be good for them. And summary, another solid quarter for Gladstone Capital, including net investment income rose by 15% to 57 cents per share and provided ample coverage of our current common distribution. So in good shape there and running at 8.9%. Strong portfolio performance generated net portfolio appreciation, which increased net asset value by 38 cents per share from last quarter and $1.64, or 9%, from June 2023. For the past year, Gladstone Capital achieved returns on equity of 18%, which compare favorably to the BDC peer group that we follow.

Nicole Schaltenbrand: And now I'll turn it back to David.

Speaker Change: Well, thank you, Nicole, Bob, Nicole, Michael. You all did a great job of informing our shareholders and the analysts that follow the company.

Nicole Schaltenbrand: with information that should be good for them. In summary, another solid quarter for Gladstone Capital, including net investment income rose by 15%.

Nicole Schaltenbrand: to $0.57 per share.

Nicole Schaltenbrand: and provided ample coverage of our current common distribution. So, in good shape there and running at 8.9%.

David Gladstone: Strong portfolio performance generated net portfolio appreciation, which increased net asset value by 38 cents per share from last quarter and a dollar sixty four, or nine percent, from June 2023. For the past year, Gladstone Capital achieved returns on equity of 18%, which compared favorably to the BDC peer group that we follow. The company is also very well positioned for the coming year, as the portfolio is in good shape, with modest leverage and a strong balance sheet to support further growth of the lower middle market investment portfolios that we look at.

Nicole Schaltenbrand: Strong portfolio performance generated net portfolio appreciation, which increased net asset value by $0.38 per share from last quarter and $1.64, or 9%, from June 2023.

Nicole Schaltenbrand: For the past year, Gladstone Capital achieved returns on equity of 18%, which compared favorably to the BDC peer group that we follow.

David Gladstone: Companies also very well positioned for the coming year as the portfolio is in good shape, modest leverage, and a strong balance sheet to support further growth.

Nicole Schaltenbrand: The company is also very well positioned for the coming year, as the portfolio is in good shape, with modest leverage and a strong balance sheet to support further growth.

Nicole Schaltenbrand: companies also very well positioned for the coming year

Nicole Schaltenbrand: as the portfolio is in good shape, modest leverage, and a strong balance sheet to support further growth.

David Gladstone: of the lower metal market investment portfolios that we look at. In summary, the company continues to stick with the strategy of investing in growth-oriented lower metal market businesses with good management. Many of these investments are in support of mid-sized private equity funds that are looking for experienced partners to support their acquisition and grow the business in which they've made a strong investment. This gives the opportunity to make attractive and interest-paying loans and to support the ongoing commitments to pay cash distributions to our shareholders.

David Gladstone: In summary, the company continues to stick with a strategy of investing in growth-oriented lower middle market businesses with good management. Many of these investments are in support of mid-sized private equity funds that are looking for experienced partners to support their acquisitions and grow the businesses in which they've made a strong investment. This gives us the opportunity to make attractive and interest-paying loans and to support the ongoing commitments to pay cash distributions to our shareholders. And now I'll bring Cat on if you'll come on, and let's see if we have some questions from the folks out there.

Speaker Change: of the lower middle market investment portfolios that we look at. In summary, the company continues to stick with a strategy of investing in growth-oriented lower middle market businesses with good management. Many of these investments

Nicole Schaltenbrand: or in support of mid-sized private equity funds

Nicole Schaltenbrand: that are looking for experienced partners to support their acquisition and grow the business in which they've made a strong investment.

Nicole Schaltenbrand: This gives the opportunity to make attractive and interest-paying loans.

Cat: and to support the ongoing commitments to pay cash distributions to our shareholders. And now I'll bring Cat if you'll come on and let's see if we have some questions from the folks out there.

Kate: And now, Robert, Kat, if you'll come on and let's see if we have some questions from the folks out there.

Operator: Certainly, we will now be conducting an question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue.

Operator: Certainly. We will now be conducting the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in. You may press star 2 if you would like to remove your question. For participants using speaker equipment, it may be necessary to pick up your handset.

Speaker Change: Certainly, we will now be conducting the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.

Operator: For participants choosing speaker equipment, it may be necessary to pick up your handset before pressing the stockies. One moment, please, while we pull for questions.

Speaker Change: you may press start to if you would like to remove your question from the view

Speaker Change: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions.

Robert Dodd: Our first question comes from Robert Dodd from Raymond James.

Robert Dodd: Please proceed.

Speaker Change: Our first question comes from Robert Dodd from Raymond James. Please proceed.

Robert Dodd: Good morning, and congratulations on quarter. Last quarter, you told us you expected repayment activity to pick up in the second half, and you were definitely right. Do you expect that to, how much of what you expected to be elevated repayment has actually already happened now? I mean, this quarter was extremely elevated. Do you expect it to moderate a little bit from that level or remain elevated for the rest of the year? I think you gave indications to expect the portfolio to go on a net basis.

Questioner: Good morning, and congratulations on the quarter. Last quarter, you told us you expected repayment activity to pick up in the second half, and you were definitely right. Do you expect that to— and the additional cover?

Robert Dodd: Good morning, and congratulations on the quarter. Last quarter, you told us you expected repayment activity to pick up in the second half, and you were definitely right. Do you expect that to... How much of what you expected to be elevated repayments has actually already happened now? I mean, this past quarter was extremely elevated. Or do you expect it to moderate a little bit from that level or remain elevated for the rest of the year? And I think you gave indications that you expect the portfolio to grow on a net basis and to add additional cover.

Speaker Change: Good morning and congratulations on the quarter. Last quarter you told us you expected repayment activity to pick up in the second half and you were definitely right. Do you expect that to

Speaker Change: How much of what you expected to be elevated repayments has actually already happened now?

Speaker Change: this past quarter was was extremely elevated or you expect that to do you expected to moderate a little bit from that level or all remain elevated for the rest of the year and i think you give indications to portfolio to grow on a net basis there any

Robert Dodd: Any additional cover?

Bob Markov: Good morning, Robert. I think it will moderate slightly. Clearly, anybody who had access to the bank market and the spreads that were out there jumped. I will say that there are several on the queue, but it has less to do with refinancing activity and has more to do with companies that are long in their hold cycle, as much of the private equity market is. There are a number of our companies that are testing the waters for potential sale transactions. The predictability of those sale transactions is obviously less certain than a refinancing activity. We are tracking a handful of companies that are in various stages of offering.

David Gladstone: Good morning, Robert. I think it will moderate slightly. Clearly, you know, anybody who had access to the bank market and the spreads that were out there jumped. I will say that there are several on the queue, but it has less to do with refinancing activity and has more to do with companies that are long in their hold cycle, as much of the private equity market is. And so there are a number of our companies that are testing the waters for potential sale transactions.

Speaker Change: any additional col

Robert: Good morning, Robert. I think it will moderate slightly. Clearly, you know, anybody who had access to the bank market and the spreads that were out there jumped.

Speaker Change: I will say that there are several...

Speaker Change: on the queue, but it has less to do with refinancing activity.

Speaker Change: and has more to do with companies that...

Speaker Change: are long in their hold cycle, as much of the private equity market is. And so there are a number of our companies that are testing the waters for potential sale transactions.

David Gladstone: The predictability of those sale transactions is obviously less certain than a refinancing activity. We are tracking a handful of companies that are in various stages of offering. I would expect some of our larger positions to continue to come forward, but probably the high-water mark was established last week. So I think there will be continued activity, but it may not be at quite the same pace as we've experienced recently. And I think the other thing to keep in mind is, as I alluded to in my comments, the sale activity will obviously then create more investment activity for us given the general buyout activity.

Speaker Change: The predictability of those sale transactions is obviously...

Speaker Change: less certain than a refinancing activity. We are tracking a handful of companies that are various stages of offering.

Bob Markov: I would expect some of our larger positions to continue to come forward, but probably the high watermark was established last quarter. I think there will be continued activity, but it may not be quite the same pace as we have experienced recently. I think the other thing to keep in mind is, as I alluded to in my comments, the sale activity will obviously then create more investment activity for us, given the general buyout activity. The first quarter was dominated because it was refinancing and not buyouts. As we go forward with the buyout activity and potential repayments, we should expect a reasonable position in new investment opportunities.

Speaker Change: I would expect some of our larger positions to continue to come forward, but probably the high-water mark was established last quarter.

Bob: So I think there will be continued activity, but it may not be at quite the same pace as we've experienced recently. And I think the other thing to keep in mind is.

Bob: So I think there will be continued activity, but it may not be at quite the same pace as we've experienced recently. And I think the other thing to keep in mind is...

Speaker Change: as I alluded to in my comments.

Bob: The

Speaker Change: The sale activity will obviously then create more investment activity for us.

David Gladstone: So the first quarter was dominated because it was refinancing and not buyouts. As we go forward with the buyout activity and potential repayments, we should expect a reasonable position in new investment opportunities. So the two should be more in lockstep as we go out over the balance of the year. Now I will say one last comment there: mature portfolio companies that have grown that are well north of the $10 million where we typically enter a company; they're going to be larger deals.

Speaker Change: given the general buyout activity.

Speaker Change: The first quarter was dominated because it was refinancing and not buyouts.

Speaker Change: as we go forward with the buyout activity and potential repayments, we should expect a reasonable position in new investment opportunities. So the two should be more in lockstep as we go out over the balance of the year. Now I will say one last comment there.

Bob Markov: The two should be more in lockstep as we go out over the balance of the year. I will say one last comment there: mature portfolio companies that have grown, that are well north of the $10 million where we typically enter a company. They are going to be larger deals. We may see some of the larger companies prepay at maturity levels, whereas we will be investing in new deals at a lower point in their growth cycle. It will be a bit more of an accelerated pace to offset some of those larger role offs, but the activity should be more closely aligned as we go out over the balance of the year.

Speaker Change: Mature portfolio companies that have grown that are well north of the $10 million where we typically enter a company, they're going to be larger deals.

David Gladstone: And so we may see some of the larger companies prepay at maturity levels, whereas we'll be investing in new deals at a lower point in their growth cycle. So it will be a bit more of an accelerated pace to offset some of those larger roll-offs, but the activity should be more closely aligned as we go over the balance of the year.

Speaker Change: and so we may see some of the larger companies prepay at maturity levels whereas we'll be investing in new deals at a lower point in their growth cycle.

Speaker Change: So it will be a bit more of an accelerated pace to offset some of those larger roll-offs, but the activity should be more closely aligned as we go over the balance of the year.

Robert Dodd: Got it. Thank you. Very, very clear. Now, just one more, if I can, on credit, you put on some trenches of B&T, which I think is a wireless cellular network engineering firm, which is obviously, you've given us some color earlier in the year that you were seeing headwinds in consumer-facing businesses, et cetera, and wireless engineering is obviously very much a business service. So can you give us any color on, you know, was that idiosyncratic to the company, obviously, but what your level of optimism or pessimism is for that business, which is not really, to my impression of it, at least, that it's not consumer-facing and maybe the headwinds.

Robert Dodd: Got it. Thank you. Very clear.

Robert Dodd: Just one more. On credit, you put on some trenches of B&T, which I think is a wireless cellular network engineering firm, which obviously you've given us some color earlier in the year that you were seeing headwinds and consumer-facing businesses, etc. And wireless engineering obviously is very much a business services.

Speaker Change: got it thank you very very clear there're just one more if i can on credit you put on

Speaker Change: some trenches of band t which i think thereis a wireless cellular and network engineer in firm which is ious you've given us some color ear in the you were seeing headwinds and consumer facing businesses cept for wiless engineering honestlyis

Bob Markov: So can you give us any color on, you know, what's that idiot's in credit to the company? I mean, honestly, but what your level of optimism or pessimism is for that business, which is not really my impression or at least it's not consumer facing, and maybe the headwinds are different. Yeah, the challenge associated with a business like that is it's a capex business. So the limited number of customers out there are highly driven by, you know, capex. And there are two factors I think that are driving capex these days. One, the interest rates are relatively high.

David Gladstone: Yeah, the challenge associated with a business like that is that it's a CapEx business. So the limited number of customers out there are highly driven by, you know, CapEx. And there are two factors, I think, that are driving CapEx these days. One, interest rates are relatively high, so for companies in that sector, incurring additional investment activity or, you know, funding CapEx, given the pressure on general cash flows, is certainly challenging. The second is the consumer market, and the net ads in the wireless business are somewhat more modest.

Bob Markov: So for companies in that sector, incurring additional investment activity or, you know, funding capex, given the pressure on general cash flows, is certainly challenging. The second is the consumer market, and the net ads in the wireless business are somewhat more modest. I do think there is a positive in the business in that there continues to be a reasonably elevated level of spend on fiber, which is somewhat surprising. Just, you know, internet and infrastructure spend that in some ways is supported by Washington's infrastructure bills, is positive, but it's more fragmented. I would tend to say that business is going to continue to face some headwinds, net net of all those pressures.

David Gladstone: I do think there is a positive in the business in that there continues to be a reasonably elevated level of spend on fiber, which is somewhat surprising. Just, you know, Internet and infrastructure spend that, in some ways, is supported by Washington's infrastructure bills is positive, but it's more fragmented.

Speaker Change: Just you know internet and infrastructure spend that in some ways is supported by Washingtons infrastructure bills is positive, but it's it's more fragmented.

David Gladstone: I would tend to say that business is going to continue to face some headwinds, net-net of all those pressures. So it's a CapEx cycle business. We generally steer clear of CapEx cycle businesses. The expertise that they have and the long-term view of wireless continues to grow, but it's a concentrated customer base with significant CapEx headwinds that probably make us a little bit less optimistic about where that business is going to go. But we're continuing to focus on it, and we've brought in some additional resources to try to steer it in the right direction to capitalize on its competitive advantage.

Speaker Change: I would tend to say that business is going to continue to face some headwinds.

Bob: net-net of all those pressures. So it's a CapEx cycle business. We generally steer clear of CapEx cycle businesses, although the expertise that they have and the long-term view of wireless continues to grow. But it's a concentrated customer base with significant CapEx headwinds that probably make us a little bit less optimistic about where that business is going to go. But we're continuing to focus on it. And we've brought in some additional resources to try to steer them in the right direction to capitalize on their competitive advantage.

Bob: Net net of all those pressures so it's a capex cycle business, we generally stick.

Bob Markov: So it's a capex cycle business. We generally steer clear of capex cycle businesses. You know, the expertise that they have and the long-term view of wireless continues to grow. But it's a concentrated customer base with significant capex headwinds that probably make us a little less optimistic on where that business is going to go.

Bob: Steer clear of Capex cycle businesses the.

Bob: The expertise that they have in the long term view of of of wireless continues to grow but it's it's a concentrated customer base with significant capex headwinds that.

Bob: Probably make us a little bit less optimistic on where that business is going to go but we've.

Bob Markov: But we're continuing to focus on it, and we've brought in some additional resources to try to steer that in the right direction to capitalize on their competitive advantages. So if I can dig it, it's a cycle issue. It's not like loss of the major customer or anything like that. No, they're just battling quarter to quarter for awards of business. And depending on how big, how active people are, some people will, you know, underprice that business to keep working. And that's not a, that's not a particularly positive way to grow a business. So the pricing discipline and the volume of the volume of capex opportunities, you know, affect the revenue line for that services oriented business.

Bob: We're continuing to focus on it then and we've brought in some additional resources to try to.

Bob: Steer that in the right direction to capitalize on their competitive advantages.

Robert Dodd: So if I can dig in, it sounds like it's a cycle issue; it's not like the loss of a major customer or anything like that. No, they're battling quarter to quarter for awards of business, and depending on how active people are, some people will underprice that business to keep working, and that's not a particularly positive way to grow a business. The pricing discipline and the volume of CapEx opportunities, you know, affect the revenue line for that services-oriented... Got it.

Bob: So if I can dig in.

Speaker Change: It sounds like it's.

Bob: It's a cycle issue, it's not like most of the major customer or anything like that so no. They're just they're battling quarter to quarter for awards of business and depending on how big how active people or some people will underpriced that business to speak to keep working in.

Operator: at this time, all participants are in a listen only mode.

Operator: A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.

Bob: That's not that's not a particularly positive way to grow our business. So the pricing discipline and the volume of in the volume of Capex opportunities you know them.

Operator: As a reminder, this conference is being recorded.

Bob: In fact, the revenue line for that services oriented business.

Kate: It is now my pleasure to introduce your host, David Gladstone. Thank you, Mr. Gladstone, you may begin. Thank you, Kate.

Robert Dodd: on it.

David Gladstone: Thank you. I really appreciate it. Thanks for calling in. Any other questions?

Speaker Change: Got it. Thank you really appreciate that.

Robert Dodd: Thank you. Really appreciate that.

Operator: Thanks for calling in. Other questions?

Operator: Thanks for calling in. Any other questions?

Speaker Change: Thanks for calling in.

Operator: Other questions.

David Gladstone: It's a nice introduction and good morning and hello to everyone out there and this is David Gladstone Chairman. And this is the earnings conference call for Gladstone Capital for the quarter ending June 30th, 2024. Thank you all for calling in. We're always happy to talk with our shareholders and the analysts who follow us and welcome the opportunity to provide an update.

Operator: Once again, as a reminder, if you would like to ask a question, please press star one on your telephone keypad. No more questions? I suppose not.

Operator: Once again, as a reminder, if you would like to ask a question, please press star one on your telephone keypad.

Speaker Change: Once again as a reminder, if you would like to ask a question. Please press star one on your telephone keypad.

Operator: No more questions? I suppose not.

Operator: No more question with your question.

David Gladstone: So this concludes our question-and-answer session. I would like to turn the floor back over to David Gladstone for closing comments. Well, it's disappointing that we don't have more questions. We like it when you ask a lot of questions, and we can improvise off of that and give you more information about the companies that we've backed.

Operator: I suppose not so this concludes our question and answer session I would like to turn the floor back over to David Gladstone for closing comments.

David Gladstone: But I guess we're going to have to wait until next quarter since nobody's asking questions this quarter except Robert. That's the end. That's the end of this call. Thank you.

David Gladstone: So this concludes our question-and-answer session.

Michael LiCalsi: We're now here from our general council, Michael LaCalsi, who will make a statement regarding some certain forward-looking statements. Michael? Thanks, David. Good morning, everybody. Today's report may include forward-looking statements on the Securities Act of 1933, Securities Exchange Act of 1934, including those regarding our future performance. Now these forward-looking statements involve certain risks and uncertainties that are based on our current plans, which we believe to be reasonable. Many factors may cause our actual results to be materially different from any future results expressed or implied by these forward-looking statements, including all risk factors in our forms, 10Q, 10K, and other documents that we follow with the SEC.

Speaker Change: Well, it's disappointing that we don't have more questions. We like it when you ask a lot of questions and weekend and provides off of that and give you more information about the companies that we bank, but at this I guess, we're gonna have to wait until next quarter since nobody is asking questions this quarter, except Robert.

Michael LiCalsi: You can find them on the Investors page of our website, www.gladstonecapital.com. We can also sign up for our email notification service. You can also find them on the SEC's website, which is www.suc.gov. Now we undertake no obligation to publicly update or revise any of these forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law. Today's call is an overview of our results, so we ask that you review our press release, and form 10Q, both issued yesterday for more detail information. Again, you can find them on the Investors page of our website.

David Gladstone: But I guess we're going to have to wait until next quarter since nobody's asking questions this quarter except Robert. At the end, at the end of this call.

Speaker Change: At the end at the end of this call. Thank you.

David Gladstone: Thank you.

Operator: This concludes today's teleconference. You may disconnect your lines at this time.

Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Operator: This concludes today's teleconference. You may disconnect your lines at this time.

Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Operator: Yeah.

Operator: Hum.

Operator: Yeah.

Operator: Thank you for your John

Operator:

Operator: Oh.

Operator:

Operator: Yeah.

Operator: Hum.

Operator: Yeah.

Operator: Okay.

Operator: Yeah.

Bob Markov: With that, I'll turn it back to gladstonecapital's president, Bob Markov. Thank you, Michael.

Operator: Yeah.

Bob Markov: Good morning, and thank you all for dialing in this morning. I'll cover the highlights for last quarter, and then turn to the call over to Nicole Soule, who ran to review the details of our financial results for the period. Beginning with our last quarter results, funding's last quarter were a modest at 46 million, as new deal buyout activity was building over the period, and several transactions carried over to the current quarter.

Operator: Yeah.

Operator: Hum.

Operator: Hmm.

Operator: Okay.

Operator: Uh-huh.

Operator: Hum.

Speaker Change: [music] mhm.

Bob Markov: We did close two new platform investments, which represented two-thirds of the originations, with add-ons to our existing portfolio representing the balance. Consistent with the spike in refinancing activity for larger middle-market credits, two of our larger investments in giving health and panthopic were refinanced, lifting the total prepayments and amortization for the quarter to 86 million, so net originations were negative at 40 million. Short-term sofa rates were unchanged, so the weighted average yield on our investment portfolio was largely unchanged at 13.9%.

Operator: Yeah.

Operator: Uh-huh Oh.

Operator: Oh.

Operator: Hum.

Operator: [music].

Operator: Hum.

Operator: [music].

Operator: Hum.

Operator: Hmm.

Bob Markov: Average earning assets for the period declined slightly, resulting in 2.2% decline in total interest income to 23.2 for the quarter. However, other income rose to 2.5 million with the increase in prepayment fees and dividends, which lifted total investment income by 1.7 million to 25.7 million. Interest costs decline slightly on reduced line borrowings, and net management fees rose with the increased income. However, net investment income rose by 1.6 million or 15 percent to 12.4 million.

Operator: [music].

Operator: Okay.

Operator:

Speaker Change: Uh huh.

Operator: Hum.

Operator: [music].

Operator: Okay.

Operator: [music].

Bob Markov: Net realized and unrealized gains on the portfolio totaled 6.7 million, which lifted our ROE to just under 18 percent for the quarter in the last 12 months. With respect to the portfolio, our portfolio continues to perform well with senior debt representing 72 percent of the portfolio, and our three non-earning investments representing 26.4 million at cost, or 13.9 million, or 2.1 percent of assets at fair value. Appreciation for the quarter of 6.7 million was led by 3.3 million of realized appreciation. The unrealized appreciation of our position in ARA, which was partially offset by the depreciation of several smaller manufacturing, consumer, and service-related businesses.

Bob Markov: We enter the current quarter with a significant pipeline of award and high probability transactions, which we expect will support the resumption of our asset growth in the near-term. In addition to recycling some of our matured investments, we expect to continue to benefit from our incumbent position as the originator, lead lender, and in some cases equity co-investor in a variety of smaller growth-oriented businesses as they look to grow through acquisition or expansion and support the appreciation of to support the appreciation of their equity position.

Bob Markov: We enter the quarter with a conservative leverage position at 77% of NAV and have increased the size of our bank credit facility to 269 million to support the growth of our earning assets and fee income to continue to support our shareholder distributions in the coming year.

Nicole Schaltenbrand: And now I'd like to turn the call over to Nicole Shelton, brand of the CFO for Gladstone Capital to provide some more details on the funds financial performance for the quarter. Nicole. Thanks, Bob.

Nicole Schaltenbrand: Good morning everyone. During the June quarter total interest income declined 500,000 or 2.2% to 23.2 million with the decline and average earning assets as the weighted average yield on our interest growing portfolio was largely unchanged at 13.9%. The investment portfolio weighted average balance declined to 665 million, which was down 16 million or 2.3% compared to the prior quarter. Other income of 2.5 million in total investment income rose 1.7 million or 7.1% to 25.7 million for the quarter.

Nicole Schaltenbrand: Total expenses rose 100,000 quarter-over-quarter as net management fees increased 300,000 with higher investment income and interest expenses declined 200,000 from reduced bank borrowing. Net investment income for the quarter ended June 30th was 12.4 million, which was an increase of 1.6 million compared to the prior quarters or 57 cents per share. The net increase in net assets resulting from operations was 19.1 million or 88 cents per share for the quarter ended June 30th as impacted by the realized and unrealized valuation appreciation covered by Bob earlier.

Nicole Schaltenbrand: Moving over to the balance sheet, as of June 30th total assets declined to 775 million, consisting of 758 million in investments at fair value and 17 million in cash in other assets. Biabilities declined with net origination to 330 million as of June 30th and consisted primarily of 254 million of senior notes and as of the end of the quarter advances under our line of credit of 66 million. As of June 30th net assets rose to 439 million from the prior quarter end with investment appreciation on distributed earnings.

Nicole Schaltenbrand: Now rose 2% from $19.88 in 80 cents per share as of March 31st, which is retroactively adjusted for the 1 for 2 reversed off split to $20.18 per share of June 30th. Our leverage as of June 30th declined to 77% of net assets. Subsequent to the end of the quarter, a $5 million indicated loan paid off at par, and we funded an additional 6.5 million senior firstly investment to an existing portfolio company.

Nicole Schaltenbrand: As far as distribution, we will pay distributions for July, August, and September of 16.5 cents per common share, which is an annual run rate of $1.98 per share. The board will meet again in October to determine the monthly distribution to common stockholders for the following quarter. At the current distribution rate for our common stock and with the common stock price at about $22.28 per share yesterday, the distribution memory is now producing a yield of about 8.9%.

David Gladstone: And now I'll turn it back to David. Well, thank you, Nicole. Bob, Nicole, Michael. It all did a great job of informing our shareholders and the analysts that follow the company with information that should be good for them. And summary, another solid quarter for Gladstone Capital, including net investment income rose by 15% to 57 cents per share and provided ample coverage of our current common distribution. So in good shape there and running at 8.9%.

David Gladstone: Strong portfolio performance generated net portfolio appreciation, which increased net asset value by 38 cents per share from last quarter and $1.64 or 9% from June 2023. For the past year, Gladstone Capital achieved returns on equity of 18%, which compare favorably to the BDC peer group that we follow. Companies also very well positioned for the coming year as the portfolio is in good shape, modest leverage and a strong balance sheet to support further growth, of the lower metal market investment portfolios that we look at.

David Gladstone: In summary, the company continues to stick with the strategy of investing in growth oriented lower metal market businesses with good management. Many of these investments are in support of mid-sized private equity funds that are looking for experienced partners to support their acquisition and grow the business in which they've made a strong investment. This gives the opportunity to make attractive and interest paying loans and to support the ongoing commitments to pay cash distributions to our shareholders.

Operator: And now, Robert, Kat, if you'll come on and let's see if we have some questions from the folks out there. Certainly, we will now be conducting any question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants choosing speaker equipment, it may be necessary to pick up your handset before pressing the stockies. One moment, please, while we pull for questions.

Robert Dodd: Our first question comes from Robert, Dodd, from Raymond James. Please proceed.

Robert Dodd: Good morning and congratulations on quarter. Last quarter, you told us you expected repayment activity to pick up in the second half and you were definitely right. Do you expect that to, how much of what you expected to be elevated repayment has actually already happened now? I mean, this quarter was extremely elevated. Do you expect it to moderate a little bit from that level or remain elevated for the rest of the year? I think you gave indications to expect the portfolio to go on a net basis.

Robert Dodd: Any additional cover?

Bob Markov: Good morning, Robert. I think it will moderate slightly. Clearly, anybody who had access to the bank market and the spreads that were out there jumped. I will say that there are several on the queue, but it has less to do with refinancing activity and has more to do with companies that are long in their hold cycle as much of the private equity market is. There are a number of our companies that are testing the waters for potential sale transactions.

Bob Markov: The predictability of those sale transactions is obviously less certain than a refinancing activity. We are tracking a handful of companies that are various stages of offering. I would expect some of our larger positions to continue to come forward, but probably the high watermark was established last quarter. I think there will be continued activity, but it may not be quite the same pace as we have experienced recently. I think the other thing to keep in mind is, as I alluded to in my comments, the sale activity will obviously then create more investment activity for us, given the general buyout activity.

Bob Markov: The first quarter was dominated because it was refinancing and not buyouts. As we go forward with the buyout activity and potential repayments, we should expect a reasonable position in new investment opportunities. The two should be more in lockstep as we go out over the balance of the year. I will say one last comment there, mature portfolio companies that have grown that are well north of the $10 million where we typically enter a company.

Bob Markov: They are going to be larger deals. We may see some of the larger companies prepay at maturity levels, whereas we will be investing in new deals at a lower point in their growth cycle. It will be a bit more of an accelerated pace to offset some of those larger role offs, but the activity should be more closely aligned as we go out over the balance of the year. Got it. Thank you.

Bob Markov: Very clear. Just one more. On credit, you put on some trenches of B&T, which I think is a wireless cellular network engineering firm, which is obviously you've given us some color earlier in the year that you were seeing headwinds and consumer facing businesses, etc. And wireless engineering obviously is very much a business services. So can you give us any color on, you know, what's that idiot's in credit to the company? I mean, honestly, but but what your level of optimism or pessimism is for that business, which is not really my impression or at least it's not consumer facing and maybe the headwinds are different.

Bob Markov: Yeah, the challenge associated with a business like that is it's a capex business. So the limited number of customers out there are highly driven by, you know, capex. And there's two factors I think that are driving capex these days. One, the interest rates are relatively high. So for companies in that sector, incurring additional investment activity or, you know, funding capex, given the pressure on general cash flows is certainly challenging. The second is the consumer market and the net ads in the wireless business are somewhat more modest.

Bob Markov: I do think there is a positive in the business in that there continues to be a reasonably elevated level of spend on fiber, which is somewhat surprising. Just, you know, internet and infrastructure spend that in some ways is supported by Washington's infrastructure bills is positive, but it's more fragmented. I would tend to say that business is going to continue to face some headwinds net net of all those pressures. So it's a capex cycle business.

Bob Markov: We generally steer clear of capex cycle businesses. You know, the expertise that they have and the long term view of wireless continues to grow. But it's a concentrated customer base with significant capex headwinds that probably make us a little less optimistic on where that business is going to go. But we're continuing to focus on it and we've brought in some additional resources to try to steer that in the right direction to capitalize on their competitive advantages.

Bob Markov: So if I can dig it, it's a cycle issue. It's not like loss of the major customer or anything like that. No, they're just battling quarter to quarter for awards of business. And depending on how big, how active people are, some people will, you know, under price that business to keep working. And that's not a, that's not a particularly positive way to grow a business. So the pricing discipline and the volume of the volume of capex opportunities, you know, affect the revenue line for that services oriented business, on it.

Bob Markov: Thank you. Really appreciate that. Thanks for calling in. Other questions? Once again as a reminder, if you would like to ask a question, please press star one on your telephone keypad. No more questions? I suppose not.

Operator: So this concludes our question in answer session.

David Gladstone: I would like to turn the floor back over to David Gladstone for closing comments. Well, it's disappointing that we don't have more questions. We like it when you ask a lot of questions and we can improvise off of that and give you more information about the companies that we've backed. But I guess we're going to have to wait until next quarter since nobody's asking questions this quarter except Robert. At the end, at the end of this call. Thank you.

Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your John

Q3 2024 Gladstone Capital Corp Earnings Call

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