Q1 2021 Gladstone Capital Corp Earnings Call

Greetings and welcome to the Gladstone Capital Corporation quarter ended December 31st 2020 earnings Conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation.

If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded it is now my pleasure to introduce your host David Gladstone Chief Executive Officer. Thank you Sir you may begin.

Thank you Jesse it was a nice introduction and good morning, everybody. This is David Gladstone Chairman and this is the quarterly earnings conference call for Gladstone capital for the quarter ending December 31st 2000.

20 thank.

Thank you all for calling in and we're always happy to talk to our shareholders and the analysts who follow us and welcome the opportunity to give you an update on how the company is doing now.

And what I hear from our General Counsel, Michael what Cal City, who make statements regarding forward looking statements Michael.

Thanks, David and good morning. Today's report May include forward looking statements and the Securities Act and 1933 and Securities Exchange Act and 1930 for including those regarding our future performance. These forward looking statements involve certain risks and uncertainties that are based on our current plans, which we believe to be reasonable and many factors may cause our actual results to be materially different from.

Future results expressed or implied by these forward looking statements, including all risk factors listed on our forms 10-Q, 10-K, and other documents, we filed with the SEC and findings on the investors page of our website, which is www dot Gladstone capital Dot Com, where you can also sign up for email notification service and also find these documents on the SEC's website.

And that's www dot S and see that G. O V that we undertake no obligation to publicly update or revise any of these forward looking statements whether as a result of new information future events or otherwise, except as required by law and today's calls and overview of our results. So we ask that you review our press release and form 10-Q, both issued yesterday.

For more detailed information again, you can find these on the investors page of our website Gladstone capital Dot com and with that I'll turn the presentation over to Gladstone Capital's President Bob Marcotte Bob.

Thank you Michael Good morning, all and thank you all for dialing in this morning through a review of the results for Gladstone capital for the quarter ended December 31.

Originations for the quarter totaled about $29 million, including two new proprietary investments, however, repayments and proceeds totaled 34 million, including the exit of one proprietary investment and two syndicated investments so assets were largely unchanged for the period.

Interest income for the period rose to $12 1 million up slightly over the prior quarter with a small increase in average investments as the portfolio yield was relatively unchanged at 10, 8%.

Prepayment and dividend income increased with the calendar year, and which contributed to lifting the total investment income to $12 9 million, which was up 300000 over the prior quarter.

Borrowing costs increased 200000 on the quarter with the closing of the $100 million five year senior note offering and.

Our lower cost floating rate line borrowings fell pending the call of our higher cost $57 5 million senior notes due in 'twenty and 'twenty, three which was completed in early January.

Administrative costs and net management fees were largely unchanged on the quarter, resulting in net investment income of $6 3 million or $19 five per share.

Net assets from operations rose to $12 3 million or <unk> 38 cents, a share which included 6 million of net realized and unrealized portfolio appreciation on the quarter.

And for the quarter, the peers for the quarter and and a V rose 21 per share to $7 61 as of December 31st.

With respect to the portfolio our portfolio continues to perform well and improve from any COVID-19 related effects and some companies have also begun to receive SBA approval of their PPP loan forgiveness applications.

Two legacy investments exited last quarter had been restructured previously and we were pleased to exit these positions at our prior quarter F. A V. A fair value as these represented our largest unsecured and pick interest investments as well as $2 6 million of non earning equity investment.

For the quarter, we did not experience any payment defaults and our one non accrual investment was unchanged at one 6% of the portfolio at fair value.

From a valuation perspective, the portfolio performance combined with the continued recovery of market returns for loan assets.

Generated based on the broad based market improvements.

Generated total net appreciation of $6 million for the quarter, the only decliners being two energy sector exposures, where fundamentals continue to be soft pending the easing of COVID-19 conditions and a more normal market demand, which are expected later in 'twenty and 'twenty one.

The asset mix as of the end of the quarter shifted slightly in favor of first lien loans, which rose slightly to 51% at cost while the second lien exposure declined to 41% of the portfolio at cost.

Looking forward, while the post year end period has been relatively quiet as far as originations, which is not unusual we are on the final stages of closing several new investments, which will position us well to absorb some expected prepayments and still be in a position to grow our investment portfolio and earnings going forward.

And as we have demonstrated in the past couple of quarters, you can expect us to continue to manage our leverage in the vicinity of 1.1.

Two one to one debt to equity and given our debt capacity as of last quarter, and we have capacity to take on additional yielding investments, which should improve our earnings and dividend coverage.

We remain cautious regarding any lasting for later.

His financial impacts on new business opportunities or the sustainability of recent growth as we evaluate the recent pickup in new deal inquiries, we intend to continue to proactively manage our investment capacity and where appropriate sell existing assets to support new investments as well as maintain our targeted leverage level.

Enhancing our overall net interest income and now I'd like to turn the call over there and the coal Shelton Brown the CFO for Gladstone capital to provide a more detailed review of its funds financial results for the quarter.

Thanks, Bob and good morning home during the December quarter total interest income increased to 147000, or one 2% to $12 1 million, primarily due to an increase and the average balance on our interest bearing investments the weighted average balance of the and investment portfolio increased by 8 million or one 8% to 444 million.

And compared to 436 million for the quarter ended September 30th.

Average yield on our interest bearing portfolio was relatively unchanged at 10, 8% compared to the prior quarter. Despite the higher first lien loan level and as LIBOR interest rate floors continue and in fact for the majority of our floating rate assets.

Other income rose by 200000 compared to last quarter as prepayment fees and dividends lifted total investment income for the quarter by 300000, or two 4% to $12 9 million.

Total expenses were largely unchanged, increasing 100000 or 2.2% quarter over quarter as higher interest costs due to the new note offering were mitigated by a small increase and incentive fee credit.

Net investment income for the quarter ended December 31st for $6 3 million and was unchanged compared to the prior quarter and 19, and a half cents per share and covered 100% of our shareholder distributions.

And net increase and net assets, resulting from operations was $12 3 million or <unk> 38 cents per share for the quarter ended December 30, <unk> compared to 12 2 million or 33 cents per share for the quarter ended September 30th 'twenty and 'twenty.

The current quarter increase was driven by 6 million and net realized and unrealized portfolio appreciation and covered by Bob earlier.

Through last quarter. The portfolio has recovered just under approximately 70% of the unrealized depreciation and reported in the March 31, 2020 quarter associated with the onset of the Covid pandemic.

Moving over to the balance sheet as of December 30th Thirty-first total assets for 459 million, consisting of $452 million and investments at fair value and 7 million and cash and other assets.

The abilities declined to $212 million and.

And consisted primarily of the 100 million dollar on newly issued five and and eight senior notes due 2026.

57, and a half million of fixed and and eight senior notes due 2023, which were called and subscale and subsequently repaid shortly after yearend and $38 8 million and five and three eight senior notes due 2020 for it.

As of the end of the quarter the advances under our line of credit were artificially low at $16 million and with the subsequent call and prepayment of our 'twenty and 'twenty three senior notes line of credit borrowings increased to approximately 73 million or 34% of total liabilities after quarter end.

Net assets rose by $13 4 million from the prior quarter and it was $6 million of net realized and unrealized portfolio depreciation.

Appreciation and the issuance of 923000 common shares under our ATM program, which generated proceeds of $7 4 million.

NAV rose two 8% from $7 40 per share at September 30th to $7.61 per share as of December 31st.

Our leverage declined from the prior quarter and 286% of net assets from 96% last quarter with the increase and net assets for the period and <unk>.

Currently have in excess of $100 million and current borrowing availability under our line of credit after calling our 2023 net.

With respect to distributions Gladstone capital has remained committed to paying its shareholders a cash dividend and in January our board of directors declared monthly distributions to our common stockholders of six and a half cents per common share per month for January and February and March.

And there's an annual rate of 78 cents per share.

The board will meet again in April to determine the monthly distribution to common stockholders for the following quarter.

At the current distribution rate for our common stock and with the common stock price at about $9.49 yesterday. The distribution run rate is now producing a yield of about eight 2%, which we believe continues to be attractive relative to the extraordinary low yields generally available and the market today and now I'll turn it over to David to conclude at the present.

Okay, and nice report and Nicole and good report by Michael and Bob.

And thank the combination of the 10-Q that you filed yesterday with all the information we've been giving out certainly bring shareholders up to and where we are today and.

In summary, it was a good quarter again and solid.

Gladstone capital as the company did well and delivering on a number of fronts that it works on originated 29 million and new attractively priced investments on the quarter.

Exited a couple of underperforming syndicated investments and manage to keep nonperforming assets at one 6% of investments at fair value of this good good position to be and and these unstable times.

Enhanced the stability of the company's capital position and.

And flexibility by issuing $100 million of attractive for the price senior term notes and maintain leverage debt or low end of the peers that we compare ourselves to providing a capacity take additional middle market investment opportunities and grow earnings in the coming quarters and summary, the company continues to invest.

And midsized private businesses with good management, many of which are supported by midsized private equity funds and these private equity funds are looking for experienced partners to support the acquisitions and we feel that bill for them.

This gives us the opportunity to make attractive interest paying loans to support our ongoing commitment to pay cash distributions to stockholders.

And now operator, if you'll come on until everyone. How they can ask us some questions, we'll do our best to fill and the blanks.

Absolutely ladies and gentlemen at this time, we will be conducting the question and answer session. If you would like to ask a question. Please press star one on your telephone keypad. The confirmation tone will indicate that your line is and the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment and may be necessary to pick up your <unk>.

Handset before pressing the star keys, one moment, please poll for questions.

Yeah.

Once again, ladies and gentlemen, if you would like to ask a question at this time. Please press star one on your telephone keypad.

And must have answered them all.

No questions, Jesse and nobody nobody calling and huh.

Mr lots and I don't see any questions coming in at this point would you like to make any additional concluding remarks no just thank everybody for supporting the company. The stocks moved nicely and we're continuing to grow the asset base I think this will be a good quarter for us and.

And being on March 31st So see you all next quarter at the end of this call.

Ladies and gentlemen, this does conclude today's teleconference and webcast. We thank you for your participation and you may disconnect. Your lines at this time.

Yeah.

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