OFS Capital Corporation Announces Fourth Quarter 2024 Financial Results

Rhea-AI Summary

OFS Capital (Nasdaq: OFS) reported strong Q4 2024 financial results, with net investment income increasing to $0.30 per share from $0.27 in Q3. The company saw a significant net gain on investments of $1.60 per share, primarily due to net unrealized appreciation of $1.79 per share.

Net asset value per share improved to $12.85 from $11.29 quarter-over-quarter. The investment portfolio, valued at $409.7 million, showed a 13.8% weighted-average performing income yield. The portfolio composition includes 91% floating rate loans, with 100% in first and second lien loans.

The Board declared a Q1 2025 distribution of $0.34 per share, payable March 31, 2025. During Q4, the company purchased $27.4 million of structured finance securities with a weighted-average effective yield of 22.7%.

Positive

• Net investment income increased to $0.30 per share from $0.27
• NAV per share rose to $12.85 from $11.29
• Portfolio yield improved to 13.8% from 13.6%
• Net unrealized appreciation of $1.79 per share
• Structured finance securities yield of 22.7%

Negative

• Net realized losses of $0.19 per share
• Net realized loss of $1.9M on sale of second lien debt investment

Insights

Financial Analyst

OFS Capital's Q4 2024 results demonstrate notable strengthening across key performance metrics. The 14% increase in NAV to $12.85 per share represents significant value creation in a single quarter, primarily driven by $21.4 million in net investment gains. Most impressive is the substantial 13.8% weighted-average performing income yield - exceptionally strong for a BDC portfolio focused on first and second lien loans.

The $0.30 per share in net investment income reflects continued improvement in core earnings power while maintaining complete first/second lien loan positioning. The primary value driver appears to be their $76.9 million structured finance securities portfolio, which generated a remarkable 22.7% effective yield on recent $27.4 million purchases.

The reduction in non-accrual loans and substantial liquidity ($106.7 million in available capital between cash and unused credit facilities) positions OFS well for opportunistic investments while maintaining distribution coverage. The $0.34 quarterly dividend represents a run-rate yield of approximately 16.2% at current price levels.

The decisive portfolio management demonstrated by exiting a troubled second lien position, combined with the 15% reduction in second lien exposure versus prior quarters, suggests management is appropriately balancing yield against risk in the current environment.

Investment Strategist

OFS Capital's substantial NAV appreciation to $12.85 creates a compelling valuation proposition with shares trading at approximately 65% of book value. This discount appears unwarranted given the significant portfolio quality improvements and earnings stability demonstrated this quarter.

The strategic portfolio positioning deserves attention - 91% floating-rate exposure provides meaningful downside protection against potential rate volatility while maintaining attractive yields. The structured finance securities allocation, while higher-yielding at 22.7%, represents a calculated risk component that has materially contributed to performance without excessive concentration at 18.8% of the portfolio.

The $15.6 million unrealized appreciation in their Pfanstiehl Holdings equity position demonstrates the upside potential in their equity co-investment strategy. This represents approximately $1.16 per share in NAV accretion from a single position.

From a liquidity standpoint, the $106.7 million in available capital provides significant dry powder in a market where distressed opportunities may be emerging. The ability to fund $18.8 million in outstanding commitments while maintaining substantial investment capacity positions them well to capitalize on market dislocations while supporting existing portfolio companies.

Declares First Quarter 2025 Distribution of $0.34 Per Share

CHICAGO--(BUSINESS WIRE)-- OFS Capital Corporation (Nasdaq: OFS) (“OFS Capital,” “we,” “us,” or “our”) today announced its financial results for the fiscal quarter ended December 31, 2024.

FOURTH QUARTER FINANCIAL HIGHLIGHTS

• Net investment income increased to $0.30 per common share for the quarter ended December 31, 2024 from $0.27 per common share for the quarter ended September 30, 2024.
• Net gain on investments of $1.60 per common share for the quarter ended December 31, 2024, primarily comprised of net unrealized appreciation of $1.79 per common share, offset in part by net realized losses of $0.19 per common share. See additional information under “Results of Operations” below.
• Net asset value per common share increased to $12.85 at December 31, 2024 from $11.29 at September 30, 2024.
• As of December 31, 2024, based on fair value, 91% of our loan portfolio consisted of floating rate loans and 100% of our loan portfolio consisted of first and second lien loans.
• For the quarter ended December 31, 2024, our investment portfolio’s weighted-average performing income yield increased to 13.8% from 13.6% during the quarter ended September 30, 2024, primarily due to an increase in earned yields on our structured finance securities.
• No new loans were placed on non-accrual status during the fourth quarter. The number of issuers with loans on non-accrual status decreased by one from the prior quarter. See additional information under “Portfolio and Investment Activities” below.

OTHER RECENT EVENTS

• On February 26, 2025, our Board of Directors declared a distribution of $0.34 per common share for the first quarter of 2025, payable on March 31, 2025 to stockholders of record as of March 21, 2025.

SELECTED FINANCIAL HIGHLIGHTS	Quarter Ended
(Per common share)	December 31, 2024				September 30, 2024
Net Investment Income
Net investment income	$	0.30			$	0.27
Net Realized/Unrealized Gain (Loss)
Net realized loss on investments, net of taxes	$	(0.19	)		$	(0.83	)
Net unrealized appreciation on investments, net of taxes		1.79				0.68
Net realized and unrealized gain (loss)	$	1.60			$	(0.15	)
Earnings (Loss)
Earnings (loss)	$	1.90			$	0.12
Net Asset Value
Net asset value	$	12.85			$	11.29
Distributions paid		0.34				0.34

	As of
(in millions)	December 31, 2024			September 30, 2024
Balance Sheet Highlights
Investment portfolio, at fair value	$	409.7		$	394.7
Outstanding debt		248.4			249.1
Net assets		172.2			151.3

PORTFOLIO AND INVESTMENT ACTIVITIES ($ in millions)
		Quarter Ended
Portfolio Yields(1)		December 31, 2024				September 30, 2024
Average performing interest-bearing investments, at cost		$	298.0			$	309.4
Weighted-average performing income yield - interest-bearing investments(2)			13.8	%			13.6	%
Weighted-average realized yield - interest-bearing investments(3)			11.9	%			11.8	%

(1)		The weighted-average yield of our investments is not the same as a return on investment for our stockholders, but rather relates to our investment portfolio and is calculated before the payment of all of our fees and expenses.
(2)		Performing income yield is calculated as (a) the actual amount earned on performing interest-bearing investments, including interest, prepayment fees and amortization of net loan fees, divided by (b) the weighted-average of total performing interest-bearing investments at amortized cost.
(3)		Realized yield is calculated as (a) the actual amount earned on interest-bearing investments, including interest, prepayment fees and amortization of net loan fees, divided by (b) the weighted-average of total interest-bearing investments at amortized cost, in each case, including debt investments on non-accrual status and non-performing structured finance securities.

		Quarter Ended
Portfolio Purchase Activity		December 31, 2024			September 30, 2024
Investments in debt securities		$	23.2		$	30.4
Investments in structured finance securities			9.4			18.0
Total investment purchases and originations		$	32.6		$	48.4

During the quarters ended December 31, 2024 and September 30, 2024, we purchased $27.4 million of structured finance securities, which had a weighted-average effective yield of 22.7% at December 31, 2024, based on the original purchase cost and the yield as of period end.

As of December 31, 2024, based on fair value, our investment portfolio was comprised of the following:

• Total investments of $409.7 million, which was equal to approximately 113% of amortized cost;
• Debt investments of $224.2 million, of which 85% and 15% were first lien loans and second lien loans, respectively;
• Equity investments of $108.6 million; and
• Structured finance securities of $76.9 million.

During the quarter ended December 31, 2024, we sold a second lien debt investment, which was previously on non-accrual status, resulting in a net realized loss of $1.9 million. The net realized loss of $1.9 million was substantially recognized in prior fiscal periods as an unrealized loss and did not impact our net asset value during the quarter. No new loans were placed on non-accrual status during the quarter ended December 31, 2024.

OUTSTANDING DEBT

During the quarter ended December 31, 2024 and September 30, 2024, the average dollar borrowings and weighted-average effective interest rate for our debt were as follows ($ in millions):

Quarter ended		Average Dollar Borrowings			Weighted-Average Effective Interest Rate
December 31, 2024		$	248.1		6.30	%
September 30, 2024			249.1		6.46

RESULTS OF OPERATIONS
(in thousands)	Quarter Ended
	December 31, 2024			September 30, 2024
Total investment income	$	11,648		$	10,918
Expenses:
Interest expense		3,937			4,022
Base management and incentive fees		2,539			2,373
Professional, administration and other expenses		1,096			920
Total expenses		7,572			7,315
Net investment income		4,076			3,603
Net gain (loss) on investments		21,399			(1,915	)
Net increase in net assets resulting from operations	$	25,475		$	1,688

Investment Income

For the quarter ended December 31, 2024, total investment income increased by $0.7 million as compared to the quarter ended September 30, 2024. The increase in total investment income was primarily due to increases in dividend income of $0.6 million and fee income of $0.3 million.

Expenses

For the quarter ended December 31, 2024, total expenses increased by $0.3 million as compared to the quarter ended September 30, 2024. The increase in total expenses was primarily due to an increase in base management and incentives fees of $0.2 million.

Net Gain (Loss) on Investments

For the quarter ended December 31, 2024, net gain on investments of $21.4 million was primarily due to net unrealized appreciation of $15.6 million on our common equity investment in Pfanstiehl Holdings, Inc.

LIQUIDITY AND CAPITAL RESOURCES

As of December 31, 2024, we had $6.1 million of cash and cash equivalents, which included $4.8 million held in OFSCC-FS, LLC (“OFSCC-FS”), an indirect wholly owned subsidiary. Our use of cash held by OFSCC-FS is restricted by contractual conditions of its credit facility with BNP Paribas, including limitations on the amount of cash OFSCC-FS can distribute to us.

As of December 31, 2024, we had an unused commitment of $24.0 million under our senior secured revolving credit facility with Banc of California, as well as an unused commitment of $82.7 million under our revolving credit facility with BNP Paribas, both of which are subject to borrowing base requirements and other covenants.

As of December 31, 2024, we had a payable for investments purchased of $1.8 million and outstanding commitments to fund various undrawn revolvers and other credit facilities of portfolio companies totaling $18.8 million.

CONFERENCE CALL

OFS Capital will host a conference call to discuss these results on Tuesday, March 4, 2025, at 10:00 AM Eastern Time. Interested parties may participate in the call via the following:

INTERNET: Go to www.ofscapital.com at least 15 minutes prior to the start time of the call to register, download, and install any necessary audio software. A replay will be available for 90 days on OFS Capital’s website at www.ofscapital.com.

TELEPHONE: Dial 1-833-816-1364 (Domestic) or 1-412-317-5699 (International) approximately 15 minutes prior to the call. A telephone replay of the conference call will be available through March 14, 2025 and may be accessed by calling 1-877-344-7529 (Domestic) or 1-412-317-0088 (International) and utilizing conference ID #8100611.

For more detailed discussion of the financial and other information included in this press release, please refer to OFS Capital’s Form 10-K for the year ended December 31, 2024.

OFS Capital Corporation and Subsidiaries Consolidated Statements of Assets and Liabilities (Dollar amounts in thousands, except per share data)
	December 31,
	2024				2023
Assets
Total investments, at fair value (amortized cost of $363,547 and $403,530, respectively)	$	409,665			$	420,287
Cash and cash equivalents		6,068				45,349
Receivable for investments sold		9,247				—
Interest and dividend receivable		1,774				2,217
Prepaid expenses and other assets		1,369				1,965
Total assets		428,123				469,818
Liabilities
Revolving lines of credit		68,350				90,500
SBA debentures (net of deferred debt issuance costs of $0 and $20, respectively)		—				31,900
Unsecured Notes (net of discounts and deferred debt issuance costs of $1,688 and $2,667, respectively)		178,312				177,333
Interest payable		3,195				3,712
Payable to investment adviser and affiliates		3,145				3,556
Payable for investments purchased		1,802				—
Other liabilities		1,094				813
Total liabilities		255,898				307,814
Net Assets
Preferred stock, par value of $0.01 per share, 2,000,000 shares authorized, 0 shares issued and outstanding as of December 31, 2024 and December 31, 2023, respectively		—				—
Common stock, par value of $0.01 per share, 100,000,000 shares authorized, 13,398,078 shares issued and outstanding as of December 31, 2024 and December 31, 2023, respectively		134				134
Paid-in capital in excess of par		184,912				184,841
Total distributable earnings (accumulated losses)		(12,821	)			(22,971	)
Total net assets		172,225				162,004
Total liabilities and net assets	$	428,123			$	469,818
Number of common shares outstanding		13,398,078				13,398,078
Net asset value per share	$	12.85			$	12.09

OFS Capital Corporation and Subsidiaries Consolidated Statements of Operations (Dollar amounts in thousands, except per share data)
	(unaudited)
	Three Months Ended December 31,								Year Ended December 31,
	2024				2023				2024				2023
Investment income
Interest income	$	10,474			$	12,884			$	43,334			$	54,669
Dividend income		843				342				4,125				1,795
Fee income		331				257				505				479
Total investment income		11,648				13,483				47,964				56,943
Expenses
Interest expense		3,937				4,684				16,648				19,482
Base management fees		1,520				1,645				5,993				7,218
Income Incentive Fee		1,019				1,174				4,178				5,040
Professional fees		411				419				1,630				1,681
Administration fees		337				379				1,521				1,680
Other expenses		348				486				1,282				1,682
Total expenses		7,572				8,787				31,252				36,783
Net investment income		4,076				4,696				16,712				20,160
Net realized and unrealized gain (loss) on investments
Net realized loss, net of taxes		(2,499	)			(1,110	)			(17,121	)			(11,405	)
Net unrealized appreciation (depreciation), net of deferred taxes		23,898				(7,695	)			28,851				(9,007	)
Net gain (loss) on investments		21,399				(8,805	)			11,730				(20,412	)
Loss on extinguishment of debt		—				—				—				(213	)
Net increase (decrease) in net assets resulting from operations	$	25,475			$	(4,109	)		$	28,442			$	(465	)
Net investment income per common share - basic and diluted	$	0.30			$	0.35			$	1.25			$	1.50
Net increase (decrease) in net assets resulting from operations per common share - basic and diluted	$	1.90			$	(0.31	)		$	2.12			$	(0.04	)
Distributions declared per common share	$	0.34			$	0.34			$	1.36			$	1.34
Basic and diluted weighted-average common shares outstanding		13,398,078				13,398,078				13,398,078				13,398,078

ABOUT OFS CAPITAL

OFS Capital Corporation is an externally managed, closed-end, non-diversified management investment company that has elected to be regulated as a business development company. OFS Capital’s investment objective is to provide stockholders with both current income and capital appreciation primarily through debt investments and, to a lesser extent, equity investments. OFS Capital invests primarily in privately held middle-market companies in the United States, including lower-middle-market companies, targeting investments of $3 million to $20 million in companies with annual EBITDA between $5 million and $50 million. OFS Capital offers flexible solutions through a variety of asset classes including senior secured loans, which includes first-lien, second-lien and unitranche loans, as well as subordinated loans and, to a lesser extent, warrants and other equity securities. OFS Capital’s investment activities are managed by OFS Capital Management, LLC, an investment adviser registered under the Investment Advisers Act of 1940⁽⁴⁾, as amended, and headquartered in Chicago, Illinois, with additional offices in New York and Los Angeles.

FORWARD-LOOKING STATEMENTS

Statements in this press release regarding management’s future expectations, beliefs, intentions, goals, strategies, plans or prospects, including statements relating to: OFS Capital’s results of operations, including net investment income, net asset value and net investment gains and losses and the factors that may affect such results; and other factors may constitute forward-looking statements for purposes of the safe harbor protection under applicable securities laws. Forward-looking statements can be identified by terminology such as “anticipate,” “believe,” “could,” “could increase the likelihood,” “estimate,” “expect,” “intend,” “is planned,” “may,” “should,” “will,” “will enable,” “would be expected,” “look forward,” “may provide,” “would” or similar terms, variations of such terms or the negative of those terms. Such forward-looking statements involve known and unknown risks, uncertainties and other factors including those risks, uncertainties and factors referred to in OFS Capital’s Annual Report on Form 10-K for the year ended December 31, 2024 filed with the Securities and Exchange Commission under the section “Risk Factors,” as well as other documents that may be filed by OFS Capital from time to time with the Securities and Exchange Commission. As a result of such risks, uncertainties and factors, actual results may differ materially from any future results, performance or achievements discussed in or implied by the forward-looking statements contained herein. OFS Capital is providing the information in this press release as of this date and assumes no obligations to update the information included in this press release or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

(4) Registration does not imply a certain level of skill or training

OFS® and OFS Capital® are registered trademarks of Orchard First Source Asset Management, LLC

View source version on businesswire.com: https://www.businesswire.com/news/home/20250303022025/en/

INVESTOR RELATIONS CONTACT:

Steve Altebrando

847-734-2084

investorrelations@ofscapital.com

Source: OFS Capital Corporation

FAQ

What was OFS Capital's net investment income per share in Q4 2024?

OFS Capital's net investment income increased to $0.30 per share in Q4 2024, up from $0.27 per share in Q3 2024.

How much is OFS Capital's Q1 2025 dividend distribution?

OFS Capital declared a distribution of $0.34 per share for Q1 2025, payable on March 31, 2025.

What was OFS Capital's NAV per share as of December 31, 2024?

OFS Capital's net asset value (NAV) per share was $12.85 as of December 31, 2024, up from $11.29 in the previous quarter.

What is the composition of OFS Capital's loan portfolio as of Q4 2024?

91% of OFS Capital's loan portfolio consisted of floating rate loans, with 100% in first and second lien loans.

What was the performance yield of OFS Capital's investment portfolio in Q4 2024?

The investment portfolio's weighted-average performing income yield increased to 13.8% from 13.6% in the previous quarter.