Ofs Capital (OFS -2.12%), a business development company focused on lending to U.S. middle-market businesses, reported its earnings for the second quarter on July 31, 2025. Net investment income per share was $0.25 for Q2 2025, slightly exceeding analyst expectations of $0.24 (GAAP). Total investment income (GAAP) reached $10.5 million, also above the $10.0 million GAAP estimate. However, there was a significant net investment loss of $12.9 million and Net asset value per share decreased from $11.97 as of March 31, 2025, to $10.91 as of June 30, 2025. Despite these portfolio pressures, the company maintained its quarterly dividend at $0.34 per share. Net investment income per share declined slightly, and the period was marked by ongoing challenges in asset valuations.

MetricQ2 2025Q2 2025 EstimateQ1 2025Y/Y Change
Net Investment Income per Share$0.25$0.24$0.26(3.8%)
Total Investment Income$10.5 million$10.0 million$10.3 million1.9%
Net Loss on Investments$(12.9) million$(10.8) million(19.4%)
Net Asset Value per Share$10.91$11.97(8.9%)
Total Investments, at Fair Value$382.7 million$403.1 million-5.1%

Source: Analyst estimates for the quarter provided by FactSet.

Business Overview and Key Focus Areas

Ofs Capital is a business development company (BDC) that provides flexible financing solutions to U.S. middle-market companies. These businesses typically have annual revenues between $15 million and $300 million and earnings before interest, taxes, depreciation, and amortization (EBITDA) of $5 million to $50 million. The company primarily invests in senior secured loans, subordinated debt, and some equity securities, usually structuring investments to generate recurring interest income.

At the heart of its strategy is a focus on lending to middle-market firms, a segment often underserved by traditional banks. As of December 31, 2024, 67% of the investment portfolio was tied to these companies. Managing credit risk and portfolio diversification, while keeping up with BDC regulations and asset coverage ratios, are critical to its continued success. The company’s ability to fund new investments—and thus pay dividends—depends heavily on both its income stream and managing losses on equity holdings.

Quarter Highlights and Portfolio Developments

During Q2 2025, OFS Capital exceeded analyst expectations for both net investment income per share and total investment income. Net investment income (GAAP) reached $0.25 per share, edging out the $0.24 analyst estimate. Total investment income (GAAP) rose to $10.5 million, driven by slight increases in both non-recurring fee and interest income compared to the prior period. The company deployed $12.5 million in new investments, up from $10.4 million in the prior quarter.

Net loss on investments was $12.9 million (GAAP), compared to $10,752,000 (GAAP) in the prior quarter. Net unrealized depreciation of $7.8 million on its common equity investment in Pfanstiehl Holdings, Inc. accounted for the majority of the $8.7 million in net unrealized depreciation, highlighting the risk that concentrated equity positions can pose. Net asset value per share decreased from $11.97 as of March 31, 2025, to $10.91 as of June 30, 2025. Total investments, measured at fair value, declined from $409.7 million as of March 31, 2025, to $382.7 million as of June 30, 2025.

The overall health of the loan book showed mixed signals. There were no new loans shifted to non-accrual status—a term which refers to loans that have stopped generating income due to borrower payment issues—during the quarter. However, loans already on non-accrual status accounted for 4.0% of total investments based on fair value, underscoring continued credit concerns in a portion of the portfolio.

The company’s balance sheet reflected a slight decline in total outstanding debt, moving from $248.1 million at the end of Q1 2025 to $243.4 million at the end of Q2 2025. Management took action to refinance debt by issuing $69.0 million in new unsecured notes at an interest rate of 7.50% in July 2025, while redeeming older notes with lower rates.

Dividend, Income Coverage, and Looking Forward

The company declared a dividend of $0.34 per share, unchanged from the previous period, raising the possibility of ongoing shortfalls if income doesn’t grow or investment losses persist. Management opted to keep the dividend steady at $0.34 per share, even as net asset value and net investment income (GAAP) have both trended downward.

Management did not provide any explicit financial guidance for the current quarter or fiscal 2025 in the earnings release. As a result, investors will likely focus on future commentary regarding portfolio credit quality, potential further markdowns in the equity book, and the impact of higher debt costs on earnings.

Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.