Q4 2020 Earnings Call
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I like to end the conference, yes, because today David Gladstone. Please go ahead Sir.
Alright. Thank you Joe well is nice introduction this is the.
Fiscal year, ending 2020 earnings call in conference call for shareholders and analysts so Gladstone investment.
That's traded on.
NASDAQ G.A., <unk> and and we have to preferred shares out there as well.
Yeah, I am Angie I am at all.
Thank you all have calling in always happy to provide an update for the shareholders in the analyst and provide a view of what's going to happen then a future as best we can figured out.
We start out with a general Counsel Secretary Michael Accountancy, Michael go ahead.
Thanks, David and good morning, everybody. Today's call May include forward looking statements from those Securities Act would like to 33, That's Securities Exchange Act would like to 34, including those regarding our future performance. These forward looking statements involve certain risks uncertainties and other factors, even though they're based on our current plans, which we believed 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 listed forms 10-Q, Okay and other documents, we filed with the FCC and find all of these on our website, which is www dot Gladstone investment dot com or on the.
Ccs website, which is www dot SCC that GLP.
Now we undertake no obligation to publicly update or revise any forward looking statements, whether as a result of new information future events or otherwise except as required by law.
Please also note that past performance or market information is not a guarantee of any future results. We ask everybody to take the opportunity to visit our website. Once again Gladstone investment dotcom sign up for email notification service you can also find us on Twitter Gladstonecomps, Oh, Facebook you weren't there is the glass.
So on companies today's call is an overview of our results through March 31, 2020. So we ask that you read our press release and form 10-K, both issued yesterday for more detailed information now with that I'll turn the presentation over to David Dullum Who's the president of Gladstone investment Dave.
Thanks, Mike.
And good morning, everyone happy sheltering wherever you are.
A weird or station hair, and working away and actually we'd be very happy to report.
Very good operating results for the fiscal year, ending 331, 20, especially when we consider the challenges.
We along with a lot of other folks obviously in the fourth quarter had to go through regarding coal that 19.
So we actually ended or fiscal year 331, 20, with adjusted net investment income up 90 cents per share.
And we actually has the same time, how did we increased our monthly distributions to an annual run rate of 84 cents per common share or seven cents per month.
This year has been a very active fiscal year, we exited six bio portfolio companies.
Generated a combined net realized gain of over $43 million. We also made three new buyout investments for about $79 million during during the year.
Net asset value, which the book value of course was $11 in 17 cents per share at 331, 20 and that does compare to $12 an 40 cents at 330.
331 19.
This decline a wasn't part the result, Oh, the reversal of net unrealized depreciation which was related to the six exits. The total which was of course, partially offset by the significant net realized gains from those exits.
Also valuations for the remaining portfolio will talk more about does reflect the covert 19 impact, thereby contributing to this amount of unrealized depreciation at 331 20.
The exits, though have allowed us to reduce our borrowings and therefore, we ended the fiscal year with a very strong balance sheet, an extremely low leverage. So this is a very important obviously in this variance uncertain environment with a pandemic.
So, let's talk a bit though about pandemic and some of the actions that we talk and as a result to that sort of where we are the portfolio.
In general a number of the portfolio companies, obviously, how been affected but to varying degrees and we are continuing to actively monitor all the potential issues and we are very engaged with the management teams, which helps about provides support is necessary for those companies.
To give me an idea very early in the shutdown phase we get a number of things first we initiated a conference call format for all of our portfolio management teams in which we provided legal and human resource information and guidance to help navigate the various rules and regulations by state in that shutdown phase.
So much of a learning process, which was very helpful charter companies.
Most of our companies actually were able to have been able to maintain their operations, even if they're not at 100%. Some very from very high percentage of operation to you know a much smaller number obviously I'm just based upon the industry that they're in.
Similarly number two we help the company's navigate the P. P P, which allowed a couple of our company is actually the access those loan programs, where they were possible that was very helpful.
Third each of our managing directors and our team worked with each portfolio company to assess the worst case forecast and potential temporary capital needs as we look forward over the next nine months to 12 months, obviously, it's not easy to do that but we weren't really felt as important to get on top of this fortunately.
We are in a strong liquidity position as a fun and were therefore, we are able to provide the support if our companies do face a temporary liquidity need as a result of cobot 19.
So far we've not had to provide much support either through additional investment or some accommodation on interest obligations that they may have to us in other words the debt securities.
And fourth we do continue noted this detailed monitoring daily.
And we are moving into that more of this reopening phase with our companies through the HR and insurance guidance. That's important each portfolio company to navigate the rules and all the plans for bringing employees back to work safely and all the implications and they go along with that absolutely. We're looking forward to getting our.
Economy back to work and we're doing everything we can with our companies to be sure that they continue to contribute with that on a very aggressive basis.
Now as a result of the large net realized gains that I mentioned earlier and similar to last year, we have opted to retain a significant portion of these gains and declare a another deem distribution to common shareholders. We do believe this is a very prudent.
Action and especially in these uncertain times and further strengthens our balance sheet.
As noted earlier, our fair values have been impacted by the effect of the pandemic, what mainly on market multiples. Some degree and all this the operations of summer portfolio companies, some have been impacted more than others, depending on the sector and their geographic location now depending on the duration of these locked down.
Loans from the pandemic, we could obviously see some more devaluation as we roll through the next 12 months and were very sensitive to that and very much involved with keeping on top of this. So this is why keep stressing this it's in times like these that our fund Gladstone investment isn't a fortunate position.
And just assist our companies and we are proactively involved this all of them, which is a strength of this differentiated investment approach that we do bring to it where we are providing both is significant portion of the equity and most of the debt in these transactions and again. This provides an advantage in that we do have more flexibility with financial stress.
String of any one portfolio company and also the cash management, so again, bringing intense as best as we can management assistance and internally and outside to help these companies through this period of time.
I'd like though even with these challenges in these uncertainties that we face in the near term. It is still useful to briefly review because it helps us think forward to where we are where we're going to really briefly review some of our past results because they do provide the basis for the position that were in to work in support or portfolio companies.
As we navigate the crisis and move forward. So very briefly again for the past fiscal years from all 331 15. The 331 20, we have been able to grow total assets were about 484 million to over 575 million at fair value and this of course is inclusive of all the numerous exits significant realized gain so.
This cash and cash out which has allowed us to grow very nicely and generate gains along the way. It's allowed us to also our for our regular monthly distributions that we've been able to grow them from 72 cents per share annual run rate to 84 cents per share annual run rate.
For the fiscal year.
During fiscal 20, we also paid 21 cents per common share in supplemental distributions and that's an area that we obviously look to continue in some fashion our end Avi per share over the five years has increased from 918 or share to of course 11 17 as I mentioned.
Our balance sheet as a result of all of this and this is one of the key points is very strong we have asset coverage right now of about 294% and availability on our line of credit.
Though a bank syndicate of today of about $137 million.
During this time also we had 28 companies in our portfolio at 331 20 through that date, we have a exited 22 companies, which has since our inception in 2005 in aggregate. These exits of generated over $220 million, a net realized gains and about 30 million in other income on exit.
The aggregate cash on cash return on the equity portion of these exits, which approximately 4.4 times I mentioned all of this it's important and looking back as a way to think about how we continue to manage and we'll manage.
From a conservative at the same time.
Type of business that we are looking forward and even though we're gonna have to you know pull up our bootstraps and work and work in a slightly different way with our pandemic. We certainly look forward to believe we can maintain and continue the type of operation that we have exhibited over the last five years, so with that what's our outlook and focus.
Right now for the near term, obviously is helping our portfolio companies maintaining our distributions to shareholders of the current levels. We actively continue to review potential new acquisitions as well.
Including a few that we were very close to before the pandemic hit and in fact are probably going to be able to keep moving forward on these we we obviously have to operate in a different type environment. We're all facing this I know with zune calls and and lots of conference calls et cetera. So the challenge for us in pursuing new companies obviously.
These maintaining our level of quality due diligence being able to do it on a on a long distance basis at the same time also valuations are going to be a little bit more interesting and we do believe that we are going to have acquisition opportunities, where we'll be in a position to take advantage of these attractive valuations as we.
Look forward over this next year. So it's continuing what we're doing taking a hard work with our portfolio companies. During this period, but the same time, maintaining our approach to the type of business that we are in the success. We've generated to date, so without further ado I'm going to turn it over to Julia Ryan our CFO. So she can give you a bit more detail.
On the income statement and balance sheet Julia.
Thanks, Dave Let me start with a summary of the funds operating performance for the past year in last quarter.
When he was a very successful year for US we increased total investment income and <unk> and adjusted and a year over year and realized over 44 million of nothing.
As for the most recent quarter, we generated net investment income of 14.8 million as compared to an eye off 6.2 million in the prior quarter investment income declined approximately 4 million primarily due to a decrease in other income the timing of which can be variable and to a lesser extent due to lower interest income, which was driven by placing one.
Investment on non accrual this quarter and the exit of another company in the prior quarter.
Net expenses decreased by 12.6 million compared to the prior quarter, which was primarily driven by an $8.4 million reversal of previously accrued capital gains based incentive fees due to the net impact of realized and unrealized gains and losses in the current quarter and that of course compared to 1.4 million of capital gains based incentive fees in the prior quarter.
And this is all based on GAAP accruals and then the income based incentive fee decreased by 1 million as well and credits to expenses by 1 billion. That's why when adjusting net investment income to exclude the capital gains based incentive fee reversal adjusted net investment income per weighted average common share was 19 cents and the current quarter.
We continue to believe that this metric its useful and representatives.
Operations exclusive of any capital gains based incentive fee as net investment income does not include those realized or unrealized investment activity that are associated with his feet.
During the quarter end at March 31st 2020, you recognize the net realized loss and investments up about 11 million, but trust primarily from exiting one if I personally companies.
As Dave noted a balance sheet on liquidity remains strong as of March 31st while our NAF has declined as a result of the unrealized depreciation distributable income to shareholders remains high.
The book basis, Undistributed net investment income combined but net realized gains totaled almost 12 million or about 35 cents per common share. This amount is already net of the 38 million theme distribution that we declared as of the end of the fiscal year and it's also reduced by the book accrual of the capital gains based incentive fees.
Oh, that's equal that 35 cents per common share would be available for distribution to shareholders in future periods, even if the entire capital gains based incentive fee accrual work to be paid.
And speaking of distributions and as we previously announced in April 2020, a board of directors declared another nine cents supplemental distributions to common shareholders to be paid in June of 2020, assuming the current monthly distribution run rate of 84 cents per share and estimating 18 cents per share and supplemental distribution the total of which has.
Not yet been determined or declared our annual distributions would total <unk> dollar and two cents per common share and that's a yield up about 9% with yesterday's closing price of $10 at 94 cents.
And this covers my part of today's call him back to you Dave.
Alright, Thank you very much Dave Dullum Julia Michael Hi, This is good information for our shareholders and that presentation less the 10-K and other filings that we have should bring everybody up to date.
This team has reported solid results for the fiscal year, including buyout investment transactions and exit activity with significant net realized gains.
I think we all believe the team is in good position to continue these successes for fiscal year ending March 30, Onest 2021.
Gladstone investment is an attractive investment for investors seeking continuous monthly distributions and then supplemental distributions and from time to time potential capital gains and other income.
Same hopes to continue to show you our strong return on investment in our funding or says no guarantees in this life with this company has a great team many years of experience. So operator to come on now well get some questions from the people who are listening.
Thank you as a reminder to ask a question you will need to press star one on your telephone.
Your question press the pound key please standby, while we compile the Q1 day roster.
My first question comes from Ryan car with Jefferies. Your line is now open.
Hi, Good morning, guys. Congratulations on good squaring thanks for taking my question.
Are you guys right.
Yeah, Yeah, my question's around any the in the quarter.
Line about 11% linked quarter, which is.
As you can given the cobot 19 impact from the portfolio.
You know for pure Bdcs, who reported up to you know to today, you've seen a typical quarter to quarter decline in any maybe 20%.
Granted most of them have more equity exposure. So can you give us a sensor the drivers behind the decline and how much of it was related to the mark to market impacts versus than six portfolio exits yet.
Why don't I take a crack at that and Julia Please feel free just so everybody knows on the call. We're not in the same room, so we might speak across each other a little bit.
But yes, basically it had to do with some we had one or two companies that because of the very.
Sharp results because a cold with 19, and we added factor that in we wanted to be as Conservatives. We could obviously, so we had a couple of companies that that did have an M were impacted by it ironically, a one of them as a company we actually exited right at the end of 2019 that act.
Contributed significant capital gains for us given that transaction at the time, we actually maintain a small for us equity portion.
Which is which is shows up as or in our portfolio.
That had a fairly significant.
Decline so ironically again from an from operating companies that we own a portfolio that one had a fairly large contributed to the overall decline even though it's one where we have a relatively small.
Portion if you will.
Surely would you like to add to that or say something else.
Sure let me so for the years I always find it helpful to think about it in terms of the whole fiscal year as well so for the entire fiscal year, we had unrealized depreciation of 78 million an off that that 27 million related to exits so reversals of unrealized appreciation or depreciation related to exit at investments.
And then 51 million up it related to the current portfolio now obviously not all of that occurred in the current quarter Bank a chunk of that did given that coven dynamic.
Ryan any other question.
Yeah, and Dan Yes. Thank you for that answered a follow up to that as you can you give us a sense of what happened around non accruals in the quarter I know you exited meridian and the trends.
Last quarter and you had to be in tea did you Mark down the other three non accruals further in the quarter and could you maybe provide any color on what you're seeing in terms of quarter to date portfolio trends. Thanks.
Earlier.
Sure So you're right meridian, what's exited this this quarter and a b and T was a new loans placed on nonaccrual best quarter. That's that that's the activity. We believe that the ones that are currently on non accrual are in what we call workouts. So were working with those portfolio companies to make sure that they're getting back up just.
But again, a pandemic of course is providing maybe a little bit more of a lag on that process versus where we thought we were even three months ago, but as of now and where we stand we do believe that those loans will come back on as soon as we can get out of the current prices.
All right well, Brian very much taking my question.
Okay, Oh, well, we've got another question.
Thank you. Our next question comes from Bryce Rowe with National Security Your line how open.
Thanks, Good good morning, and appreciate the opportunity to talk to you. All this morning wanted to David you mentioned the the.
Origination activity, maybe maybe got pushed back you were looking at a couple of a buyout deals that.
Were disrupted obviously by the by the code that 19 emergence.
I was curious he said they could get back on track.
And I was just wondering if you could kind of talk us through how that how that might happen and what factors you're considering you know as that as those processes get back on on track what your life, what you're looking for to get to a point, where you where you're comfortable making those investments.
Right, So bryce morning, and without going it obviously detail on on any are each of these just there are one or two that we were ill say far enough along prior to where literally virtually all the due diligence had been done.
QB the management meetings et cetera, obviously, we then put that on hold and the challenge no well for those companies it's easier to the extent that what we really have to do know is to extent, we continue to move forward there'll be adjustments to some degree on the devaluation.
And maybe even the structure of the of the investment.
To to really take into account what we're looking forward to for let's say this fiscal year and frankly, almost not this year because we're already halfway through it as much as next year 2021. So show the challenge on ones, where we were pretty far down the road, it's really sort of updating.
Taking a really hard and critical look out how and what the their effect has been so far and then how we project out. So that's more those can be done in great part somewhat obviously as I mentioned either by June tight meetings, which were all getting used to now or or obviously long. So lots of conference calls are not much face to face.
Travel in terms of net new deals that is call it which we are continuing staying in touch with investment bankers all the folks that we generate business from all our guys are still working hard on that area. As we look at a new deal in that regard what we're trying to do is first and foremost really understand.
As best we can what the impact obviously of of cold. It is how can you really judge.
When at one particular company is going to start really coming back online and really thinking through structurally how to again due as such a transaction. So with those that are I'll call them net new meaning we didnt know about them until perhaps a month ago or something like that is really doing enough work.
Including all the sorta market related stuff, we can do offline understanding the business as best we can without obviously meeting people, but having conversations so that as we continue over the next couple of months and we started having the ability to physically get out there and so on will be in a position to move move forward. So.
It's really more of a desk evaluation I guess is a good way to say it of diligence and a big part of which we can do so we're trying to just maintain our overall diligence efforts and again the biggest issue might be how do your properly try to evaluate what the next two years might look like.
If you did do make the investment.
Hope that helps.
That does help I appreciate that.
Wanted to ask Julia you highlighted what the undistributed position was as of March 31.
35 cents, obviously, you've got a nine cents special coming up it sounds like you.
Expect to to continue that trend of I guess 18 cents of some supplementals I'm here in fiscal year 21.
I was I was I was just just wanted to get a better understanding of that 35 cents. You know is there what's the timing in terms of that having to get distributed.
Under under BDC rules, and then get if you could kinda talk about how you know how you expect to I guess to cover cover that and the monthly in light of potential shortfalls.
And in coming quarters, given given weakness related to two code.
Sure. So the 35 cents has to be distributed and 12 month period after fiscal yearend and that's how they usually do it now there are some in and out process of any type of taxable income spillover that has to be distributed so it might just be a wash the current.
Non-GAAP performance.
Again, where we're hopeful we can continue what we have currently in place and that's that's our goal and we want to work with our shoulders and for our shareholders in that regard and well do our best to continue that.
Hi, Bryce I don't know after you're going to be able to do much on the projections side, mainly because.
You've got the medical people, saying don't open up and slow down and their deaths involved. So please be careful and at the same time, you've got workers with bad health because they have no place to go there's the destruction of assets. So until the government decides to open up.
I'm not sure most people can make much in the way of projections. We can say if the government does a b and C and their opening up we can get to some point, but I think those are fairly strange things to do because we really can't count on the government.
For any kind of statement that they've made in the past here in Virginia, we've seen the governor elongate the locked down period and no do this and no do that over and over and over again. So we they have no idea here in Virginia, how if we had a business here, including our own so I.
I feel for you are trying to make a projection we're in good shape today.
And I think just looking at the way things that go and we'll be in strong shaped by the time, we get to next year. This time.
You have in every state.
Hi, David I appreciate those comments and intend to agree with you and certainly appreciate the.
The balance sheet position that the Gladstone.
Investment.
Im into this with so.
And definitely appreciate the a that the difficulty in trying to try and trying to turn to understand what projections might be and we're just we're still doing our best and hoping hoping that the the government's including Virginia getting graph their head around it and make the make the right decisions for.
For everyone. So thanks for your time this morning, Okay, Joe out into gotten the other questions out there.
Thank you I next question comes from Mickey Schleien with Ladenburg. Your line is now open.
Good morning, everyone I'm glad to hear that it sounds like everybody is doing well.
More questions than normal given everything that's going on so please please bear with me, but I hope you appreciate we're trying to get arms around.
Complicated issues I.
I just wanted to go back up to the valuation question for for a moment because I do understand that the meridian exit.
Impacted overall valuation of the portfolio.
As it was a first lean into prefer that was fully marked down but when I look at the overall portfolio. Your first and second lien debt investments well look at fair value.
As a percentage of costs were actually marked up and as you mentioned there was a meaningful decline in the equity side of the investments, but I'm surprised to see markups on debt investments given that spreads widened so how did that process unfolds.
Okay, Julian once you take that one.
Mckee so.
We we perform our valuation on normal course, where we go through each deal as you know we talked about this before and.
And go through projections and appropriate market multiple market multiples for each of those and then obviously evaluate whether those.
Valuations and fair values makes sense and the grander scheme of things, especially with the pandemic now.
Mark on that first lien loans as he said you have to take into consideration merging coming out obviously totally written down in prior quarter now coming out so values are going to go up for this alone. We also originated new that this quarter that is new and as Mark at par. So you see another write up as a result of that.
That's helpful.
And actually that's a segue into some of my other questions, but before I ask those.
Dave.
You mentioned two companies got P.P.P. assistance.
It's a relatively low number in terms of the number of companies.
Imagine that has to do something to do with DSP affiliation renewals is that correct precisely.
Right, so that would imply that.
Relatively speaking you may need to position yourself to provide more support and then someone who doesn't who is not subject to those affiliation means and therefore, I imagine you're taking that into consideration in terms of.
Allocating what is currently extremely scarce capital correct.
Yeah, I look I'd say it this way.
The ones that.
Most of our company's Fortunately right now are not even if they didnt want to our could access it wouldn't necessarily have access to the number them are able actually where we do have a senior lender.
In the company, they're working with their own senior lenders and so on and so as I mentioned, we are in a position and are going to provide what we can right now we feel like we're pretty good shape. So I.
The PPP thing couple of them might have wanted to access it was obviously relatively cheap money as you well no. It's a little complicated because they tightened somewhat to employees unemployment coming back in et cetera. So I didn't feel like we lost a lot as a result of.
You know those companies that did not need to our could not access it.
I understand it's Dave looking at this fiscal year.
It's interesting right you know we covered your stock for a long time and for most of that period of time.
It's been a sellers market and now all of a sudden it's a buyers market, but capital is scarce and you may need to provide portfolio companies support.
Could this result in a year, where we may see pressure on your dividend income and success fees, but you also mentioned that you're spending a lot a time with your portfolio companies, which makes a lot of sense.
And the external advisor.
Just for that help and ultimately that ends up as a credit on your income statement to the base management fees. So could it could we see actually see a boost in the credit in a sort of depression of the dividend and success success fee income.
Well I can't give you a precise because as we send you mentioned and David Gladstone.
Accurately represented issues around projections in general not only ourselves, but for our portfolio companies right now what we're doing Mickey is it's business as usual you know as time goes on I can't I don't know I wish I knew with a crystal ball again, how soon things start turning on et cetera, again as I mentioned.
Fortunately a number of our portfolio companies continue operating continue paying their interest et cetera.
I would I expect we might need to.
Limit or not take us much call it from our exit fees, which is a big part of our other income.
Just because companies are harvesting their own cash that's probably sold so we'll probably have a relative to prior years, where we've had a lower level of other income that's that's probably the case as far as interesting.
I see we know to extend where any of the company's we might need to help him a little bit with either some adjustment on their their interest income what we'll do that as well. So overall some potential decline in income, yes, one might expect that just because of the circumstance, we hadn't had cold winter, we absolutely no issues right.
So, but I don't have a good answer other than we're working hard to be sure. We do it given that and given our what did the situation and where we are again, we're going to do whatever we need to do to two to help the portfolio companies. So.
As far as the work, we do with our portfolio companies again, I think as you know because of the significant ownership positions. We have in these businesses.
We're not going to charge on a on a normal basis, if we ramp up our efforts because that's what we do anyway. So in other words, what we generate which run back to credits will continue running back to credits and not just because we're putting more energy. We it's really normal for us it's normal course.
It's just said, it's a little more intense just because of cobot.
Okay, that's interesting and really helpful.
Dave just in terms of helping us cage.
Risk in the portfolio could you give us a sense of the portfolios average EBITDA in terms of the borrowers and sort of where you're left portfolio leverage is that.
Well I would I'd be really hard to give an average because we've got such a variety of companies. Some of that have middle teens EBIT da and some that are you know you know up to five to 5 million EBITDA kind of thing. So I don't know how to really give a good answer on the average.
Suffice it to say a one of the things, we obviously look out with each of our portfolio companies would been projecting this out and we're very focused on it is the thing with with leverage with any of these portfolio companies I'm sure is true with every other type of company like ours.
You look at leverage on a trailing with a trailing 12 basis and obviously as we move through this year, you're going to have you know good quality earnings from the prior year start dropping off so the further you go into the air TTM EBIT da is going to generally going to decline somewhat and therefore.
The leverage in each portfolio companies go to probably increase somewhat but again, it's a company by company basis, and we've got some companies that you know there continue to perform an EBITDA is continued strong in fact increase so it's it's each company or we take each company separately and are doing everything we can with each of them to tick.
To to maintain the level in value of the portfolio a Mickey you know a upon with a three inch average depth of water lot of people drowned on that because it's an average and so some parts of six the and other parts are half inch deep and there's just no way to go across.
This portfolio and give you a sense from a gross perspective, if we were in one industry say for example, some part of health care and we were running up four program that was pretty much the same all aware across.
You could make some real statements there, but I think you might get thrown off completely if we went back and did that tally that come up with an average in our portfolio I know, it's easier to do your projections that way, but unfortunately I don't think it works in this portfolio, it's just too diverse.
Alright appreciate that David just moving on them.
You reported practically no dividend income this quarter, which is pretty unusual news. It was practically zero. So was there some sort of a reversal.
On another reason that we saw.
Literally no dividend income this quarter.
All right remember that the line item you are talking about again generally falls in other income and remember that we generally do not create a lot of quote dividend income on a normal basis in part because our portfolio companies first of all they have to have earnings and profits out of which to make it a dividend payment.
Where are you normally see increases in dividends are generally when we have exit in part because we have accrued dividends on the preferred securities that we own in those companies and when we have exits a lot of these companies, obviously, especially the ones. We've done the last couple of years.
You know they've been really strong companies and as a result, they do have earnings and profits. So we've been able to and it's very sporadic and as we keep saying I hate the word but are you said, it's very lumpy so that as it relates to dividend income the other aspect of our other income line item is one I mentioned earlier and that has to do with what we call exit fee.
The sell it to success fees at the ones that our portfolio companies pay.
From time to time, even though we're not necessarily exiting so that's that line item that again, we've always stressed is an important one but it's also one that is less predictable and we manage it very carefully so what you're probably seeing there is the fact that as we have this end of this quarter. We obviously had no no real exit.
And certainly nothing to generate dividend income per se, but but I, but I wouldn't focusing on just as dividend income necessarily or that's a bad thing is just said in the past when we've we've taken dividends from portfolio. It comes it's usually because we've exited and we have accrued dividends. It we're actually having them to payout I got to date.
I guess as more matter of semantics really than anything else.
In terms of the spillover I know Julia mentioned 35 cents, but when I look at the K I see undistributed ordinary income of almost 18 million in undistributed capital gain of five and you know that's roughly double the a the 35 cents on a book basis, so wouldn't it be the the tax basis, that's the number.
Thats going to drive the undistributed.
I'm sorry, the special dividend that potentially could be pay later this year.
Yes, it's a combination up the too so the book basis is obviously, what we generally refer to because that's a hard and fast number that's required under GAAP. That's when we do every quarter.
At year end when you look at the came with the details in the fitness and the tax basis those would be absent other changes those would be those numbers, but there are other temporary differences that could come against those that happened efforts. So that would be trigger for tax in the current year that would go against that.
Okay, that's fair enough I understand.
Dave you made the investment in maids International early in March prior to covert really developing and it was marked at par which is normal for a new investment.
But it did these does stay in place orders effect that business post your Oh, a acquisition in other words were.
I understand the business model, but.
Those were those folks even allowed into people's houses as Covisint developed.
Yeah well.
So obviously, that's one that has had some impact because of that interestingly. They are one of the ones that got PPP in part because they are franchise operation. So that was there was an exemption for that and that's that has been helpful for them.
They did a restructuring not restructuring, but laid off folks would add to et cetra they've done a hell of a job managing it and that because a lot of their.
Generate revenue from their franchisees they own a couple of company stores, but most of it is.
The network of a franchises over 100 and what they have been finding actually couple of things one they were smart enough to start figuring out realizing you know what it's not just home.
Meaning, but theres industrial type cleaning so theyve been doing some work around that.
There have been fighting the franchisees are actually coming back online some of those that it's slow down Theyve also had a fairly significant increase in the number folks that want to be franchisees. So that one without question. Its business was impacted because like you said people not whether there were allowed in are not people then.
I want to people in their homes necessarily but as we roll forward. We're very impressed with what the management team has done and we feel like they maintain.
From a credit standpoint for US right no actually they are really good shape.
So there continue to pay their interest as well et cetera, So where we're pleased with what they're doing and as we see them now starting to come back online, we feel pretty good about where they are.
I understand and again I appreciate your patience, but I do have a couple more questions was up was BMT impacted by cobot or or these other operational issues that caused it to go on non accrual.
Yes, so be it yet again I don't want to go in any detail with any of these companies BMT has been affected a bit by cobot, but somewhat theirs is more the relationship with large somebody or large customers actually it's more of a timing thing they've got a really good backlog of business are actually doing fair.
Well, it's more of a payment somewhat.
From there their major customers, but again, we that one and we feel area again are going to be in good shape and we just decided it was the right thing to do for the near term.
And gradually as a move through this year, which is not necessarily really affected by covered with Jim get turned back on at some point.
That's helpful.
Dave I understand that there's limits to what you can say about specific companies, but galaxy tools and important investment how how exposed is that to the airline shutdown affectively and all of boeing's problems.
So that one believe it or not is they're doing very very well, they're performing extremely well and they are not that impacted by by Boeing because of the kinds of tools that they make.
Their customers people like spirit, and others, plus they have a very robust.
Call a government type business.
Aerospace related and actually in the plastics area, so for them that broadening their their product line so to speak their offerings and have had truthfully not much impact you're working on other projects for Boeing not miss or related to the 737, Max and some of the other issues that theyve had so.
They're they're they're actually performing extremely well that's great news.
Dave the market risk language in the K would seem to imply that LIBOR floors or above the current level of LIBOR is that correct.
That's correct me.
Can you tell us what your average LIBOR floor is.
So.
They are generally around 2%.
If you wanted to look through the ESA life you wanted to pick any one company you can see what their current cash pay us and we also know what current LIBOR. So that'll give you an indication of where the floors for each of them.
So we're we're way below that I understand and then lastly, Julia you mentioned.
Let's start piece of equity that was marked down and I apologize.
We are scrambling with a lot of earnings, which which company are you referring to there.
I don't know that I mentioned anything but equity write downs.
You mentioned.
Maybe it was Dave that said you had a remaining equity investment from exit from the fourth quarter that was exposed to cope with that was written down this quarter.
Yeah, Mickey that was announced degree if you recall, we exited that in the quarter ending 12 31.
So our remaining.
Equity piece was written down this quarter I understand that's really helpful. I'll listen I appreciate your patience with me.
As always and thank you very much and I hope everybody stays a safe and healthy.
Thanks Mickey.
Okay next question.
Thank you. Our next question comes from current hand back a private Investor. Your line is now open.
Uh huh.
Thanks for taking a question on a more mundane matter regarding the deemed dividends.
As an individual shareholder.
Parts of the Dean distribution are not going as planned for shareholder with stock.
In the street name brokerage.
I did not get from the brokerage relevant tax information for last year's March.
IRS farmer.
39 supposedly mail in.
In may of 2019.
Not for this year as March 2020 deemed distribution.
The brokerage that says that they did not get any information and are not responsible for such matters.
There is no tax basis benefit tax credit for the 21% tax already paid nor a far and IRA account any of the a nine the dash Ti refunds.
How how can we break the log jam between.
Gladstone Computershare incorporated and the brokerage custodians.
Are you aware.
Other shareholders with similar problems.
Are we gonna, let our law you're right there.
Participants can be improved.
Sure. Thanks.
Sure. Thanks, This is Michael Wood Mac.
Sure. This is Michael the calcium general counsel that company I'm going to give you my phone number here. So you can call me offline I'm, not sure, which which brokerage firm you're referring to.
Well I wouldn't want to say it I've I've had good results with them in <unk> in the past.
But I.
I have written your letter and I would take your number to call you sure. So let me give you my number is I'm going to give you my cell number some working from home it's 571.
213.
For 713.
And that numbers out there now anybody can call me, which is fine I have a feeling I know its brokerage firm you're talking about I've been in contact with several of them over the last.
10 to 11 months, we filed the 24 39 information for all the registered shareholders on May 15th.
Of last year.
And so what what the processes from there is the.
Information goes from Computershare to the registered shareholders on which there's a couple of dozens and those are people, who just hold their shares a computershare. The main shareholders CDN company. That's C D E and company and that's the nominee for all of the Street name shareholders in other words every.
One who holds their shares at a brokerage firm, which is as you would imagine 99.9% of shareholders out there you know what happened.
That's right would happen from there is computershare or.
Transfer agent posted all of the aggregate beamed distribution information for those 99.9% shareholders through the DTC system and the individual brokerage firms are supposed to go in there and get their aggregate information and then break it down by each year.
Our holder and mail them, a 24 39.
If they have a taxable accounts and if they have an IRA account. The 24 39 goes to the.
Nobody in which is usually the same thing is the brokerage from just a different weighing of it. So if you had shares in a IRA account and shares in the taxable account.
Should have received 24 39 sometime in July or August and if you had another did not come.
Exactly and I haven't feeling I know you're talking about give me a call after the call and we'll talk about specifically, but we are working that brokerage firm.
On a side note.
Out of all the firm's I've dealt with no one has gotten their tax refund yet from the IRS in regard to the forms 990 T that big filed on everybody's behalf and that's for shareholders, who have their shares into IRA type of account.
And most people, though have received their 24 30 nines, if they hold the shares and taxable account, but again I have a feeling I know you're talking about and I can which in touch with some people who are trying to work through it and have now acknowledge that the drop the ball.
And are trying to fix it so just give me a call. After this and we can get into specifics in your case, if you don't mind.
Thank you very much for yourself.
Okay do we have another question.
I'm not showing any further questions at this time.
All right.
Will end this call now and talk to you again and about 30 days.
At the end of this comp.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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