Gladstone Capital NASDAQ: GLAD reported results for its quarter ended March 31, 2026, with management highlighting steady portfolio activity, higher net investment income, and continued confidence in the lower middle market lending environment. CEO and President Bob Marcotte said the company delivered “another solid quarter,” supported by prepayment-related income and portfolio distributions that “more than cover the current shareholder dividends.”
Portfolio activity and investment mix
Marcotte said quarterly fundings totaled $44 million, consisting of three new private equity-sponsored investments totaling $34 million and $10 million of additional advances to existing portfolio companies. Exits and prepayments were $46 million, which Marcotte said were down compared with 2025 levels, leaving assets “largely unchanged for the quarter.”
After quarter-end, Marcotte added that Gladstone Capital funded “two new portfolio companies representing a total of $44 million of senior secured debt.” While earning assets have increased since the end of the quarter, he said the company expects “a couple of exits in the near term,” but is managing what he described as a “healthy pipeline” that should “more than cover any repayments and support our continued modest asset growth.”
On portfolio composition, Marcotte said quarter-to-quarter portfolio growth did not materially change investment mix or spread profile. First lien debt represented 70% of portfolio cost and total debt investments were 90% of portfolio cost, he said.
Income, expenses, and NAV
CFO Nicole Schaltenbrand said total interest income declined $700,000, or 2.9%, to $23.2 million, as average earning assets rose $21.7 million, or 2.8%, but the weighted average yield on the interest-bearing portfolio fell 40 basis points to 11.8%. Marcotte attributed the slight decline in interest income to a 30 basis point decrease in average SOFR rates from the prior quarter.
Total investment income was $26 million, Schaltenbrand said, with dividends and fee income up $2.2 million from the prior quarter. Marcotte said other income totaled $2.8 million, increasing $2.2 million due to prepayment fees and dividends.
Expenses increased $900,000, or 6.8%, Schaltenbrand said, driven primarily by approximately $900,000 in higher net management fees tied to higher average assets and lower closing fee credits. Marcotte similarly noted net management fees rose $875,000 due to lower origination fee credits.
Net investment income rose to $11.8 million, or $0.52 per share, Schaltenbrand said, equating to 116% of cash distributions per common share during the quarter. Marcotte said net investment income increased $574,000 to $11.8 million for the period.
On valuations, Marcotte reported net portfolio appreciation of $4.2 million, which he said was largely driven by unrealized appreciation in three larger portfolio companies “which continued to scale.” Schaltenbrand said the net increase in net assets resulting from operations was $15.5 million, or $0.68 per share.
On the balance sheet, Schaltenbrand said total assets increased to $925 million, including $907 million of investments at fair value and $18 million of cash and other assets. Liabilities declined $3 million to $442 million due to lower line of credit borrowings. She outlined remaining liabilities as primarily:
- $149.5 million of 5 7/8% convertible debt due 2030
- $50 million of 3 3/4% notes due May 2027
- $35 million of 6 1/4% perpetual preferred stock
Net assets rose $5.3 million to $483 million and NAV per share increased from $21.13 to $21.36, Schaltenbrand said. Gross leverage rose to 91.8% of net assets as of March 31. Marcotte described leverage as conservative, stating net debt was “a modest 92% of NAV.”
Credit quality, non-accruals, and sector exposure
Marcotte said the company’s three non-earning debt investments were unchanged, with a cost basis of $28.8 million and fair value of $13 million, representing 1.6% of debt investments at fair value. He also noted PIK income declined to $1.7 million, or 7.4% of interest income.
During Q&A, Marcotte addressed questions about non-accruals and broader market stress. He said the only reason non-accruals increased in fair value was that one position “is performing very well,” and he said management is optimistic it can return to cash-pay status and move off non-accrual.
On industry exposure, Marcotte said the company’s healthcare-related concentration declined and is expected to fall further in the short term due to pending exits. He also emphasized that Gladstone Capital has “zero software,” which he contrasted with what he described as slowing or uncertainty in software decision-making. Marcotte also noted the firm has one or two investments related to the auto market, which he said is “a little bit up in the air right now,” with volume “relatively soft.”
Dividend, funding capacity, and outlook on spreads
Schaltenbrand said monthly distributions for May and June will be $0.15 per common share, an annualized run rate of $1.80 per share. She said the board will meet in July to determine distributions for the following quarter. She also noted that based on the prior day’s common stock price of about $19.21, the distribution run rate implied a yield of roughly 9.4%.
Marcotte said interest and financing costs declined with lower SOFR rates and reduced unused commitment fees. He also said the company expects to continue using its floating rate bank facility to fund floating rate assets, which he said helps mitigate the impact of short-term rate declines.
The company’s line of credit totals $365 million, Marcotte said, and borrowing availability was more than $150 million at quarter-end, which he called ample to support near-term investment activity.
Asked about portfolio yield and new-deal pricing, Marcotte said the company did not see spread compression in its market and that deals were “on par with our prior quarters.” He cited a disciplined approach in the lower middle market and said competitive pressure from larger, upmarket transactions had eased as spreads backed up there. Marcotte said closing spreads were “in the range of roughly 7% on average” last quarter and he did not expect significant near-term pressure on margins. He added that add-on financings to existing portfolio companies would likely be consistent with existing spreads.
Marcotte also said he would not expect spreads to widen materially in Gladstone Capital’s segment, describing pricing as a “relative play” versus larger deals. He argued that large platforms are less likely to move down market given scale constraints, and said competition that could overlap more directly would include SBICs, which he said are constrained in size.
On equity capital allocation, Marcotte said he did not expect the company to repurchase shares, despite the stock trading at a discount to NAV raised by an analyst. He said the firm sees “tremendous opportunities” to execute its strategy and that “scale is important,” adding that the company intends to “scale the capital base” to capitalize on its lower middle market position.
Chairman David Gladstone offered brief closing remarks, saying many private lending companies have moved into high technology, while Gladstone Capital plans to continue focusing on “solid small businesses and mid-sized businesses and finance them where they need it.”
About Gladstone Capital NASDAQ: GLAD
Gladstone Capital Corporation is a publicly traded business development company (BDC) that provides debt and equity financing solutions to U.S. lower middle-market companies. Operating under an external management agreement with Gladstone Management L.P., the firm offers senior secured loans, mezzanine debt and equity investments designed to support growth initiatives, acquisitions and recapitalizations. Through its focus on privately held businesses, Gladstone Capital seeks to construct a diversified portfolio across various industry sectors.
Since its formation in 2003, Gladstone Capital has developed a track record of working closely with management teams and business owners to meet their capital needs.
Further Reading
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