FS KKR Capital (FSK) Financials

FS KKR Capital Corp (NYSE: FSK) has displayed notable stability in its core interest income over the past several years, primarily driven by investment securities interest income. The quarterly financial statements from Q3 2022 through Q1 2025 reveal key trends in the company's profitability, expenses, cash flow, and balance sheet strength.

Positive Highlights:

• Consistent and substantial investment securities interest income ranging around $400 million in recent quarters, supporting steady net interest income without interest expense in Q1 2025, which boosted net interest income to $400 million.
• Growing consolidated net income to $120 million in Q1 2025 compared to prior quarters with earnings per share at $0.43, which shows profitability despite a challenging expense environment.
• Stable total assets around $15 billion over the last few quarters, indicating maintained asset base size and operational continuity.
• Strong common equity position at approximately $6.5 billion in Q1 2025, reflecting solid capitalization and shareholder equity backing.
• Net cash provided by financing activities improved to $594 million in Q1 2025 from a negative cash flow in financing activities in Q4 2024, showing better financing flexibility.
• Net change in cash and equivalents increased by $176 million in Q1 2025, indicating improved liquidity.

Neutral Observations:

• Salaries and employee benefits expenses remain relatively steady around $39 million to $47 million per quarter, indicating no significant changes in labor costs.
• Other operating expenses rose to $174 million in Q1 2025 from significantly negative values in Q4 2024, suggesting volatility but unclear impact without more context.
• No loans and leases reported on the balance sheet, consistent over time, reflecting the company’s business model focusing on securities investments rather than lending.
• Weighted average shares outstanding remain stable at about 280 million, showing no dilution trends.

Negative Concerns:

• Fluctuating other adjustments to consolidated net income have notably reduced net income, with a $67 million negative adjustment in Q1 2025 and similar impacts in prior quarters, indicating possible one-time charges or mark-to-market losses.
• Significant swings in cash flows from operating activities, including a negative $418 million in Q1 2025 compared to positive cash flows in previous quarters, warrant close monitoring for operational cash health.
• Quarterly interest expense was zero in Q1 2025 but very high ($349 million) in Q4 2024, suggesting changes in debt structure or capital costs volatility.
• Total liabilities remain extensive at around $8.3 billion, with long-term debt close to $8 billion, indicating a leveraged capital structure that could pose risks if earnings decline.
• Negative retained earnings around -$2.7 billion highlight accumulated losses or substantial dividend distributions over time, which may affect future growth or capital flexibility.

Summary: FS KKR Capital maintains a consistent interest income stream predominantly from investment securities with strong asset and equity bases. While the company has shown profitability and improving financing cash flows recently, the volatility in operating cash flows and periodic large negative income adjustments are areas of caution. The high leverage and negative retained earnings warrant attention from investors, especially given the fluctuations in interest expense and operating expenses over recent quarters.