Q4 2021 Gladstone Investment Corp Earnings Call

Greetings and welcome to Gladstone investment fourth quarter and year end earnings conference call.

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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.

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I'd now like to turn the conference over Mr. David Gladstone, Chief Executive Officer. Please proceed sir.

Thank you Oh, Yeah. This is Seth and good morning to all of you out there. This is David Gladstone Chairman.

And this is the fiscal year ending 2021 for this fund.

And shareholders and analyst hopefully you're asked some good questions that were listed on NASDAQ under the trading simple G. I N with a common stock and we've got two other trading out their G. A I N L for the preferred stock six to seven 5%.

N G a I N.

And for the registered note that's up 5% matures in 2026.

Thank you all again for calling in and we're always happy to talk to you and provide updates to our shareholders.

Great analysts that follow us they had government Julia Ryan will be up in a few minutes, but first we're going to start with our general counsel and secretary Michael the calcium.

Thanks, David Good morning, everybody. Today's call May include forward looking statements under the Securities Act of $19 33, and the Securities Exchange Act of 1934, including those regarding our future performance. These forward looking statements involve certain risks and uncertainties and other factors, even though they are based on our current plans, which we believe to be reasonable net 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 in our forms 10-Q, 10-K, and other documents that we filed with the SEC and you can find them all on the investors page of our website, which is www dot Gladstone investment Dot com.

<unk> or the SEC's website, which is www dot FCC dot GOP now 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. Please also note that past performance or market information is not a guarantee.

Or any future results now please take the opportunity to visit our website once again Gladstone investment dot com and sign up for our email notification service you can also find us on Twitter at Gladstone comps and on Facebook keyword. There is the Gladstone companies that today's call is simply an overview of <unk>.

Our results through $3 31, 2021, so we ask you to review 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 Donahue President of Gladstone investment day, Hey, Mike. Thanks, So much and good morning, Likewise for everybody.

I'm happy today to report that we have come through.

The fiscal year of $3 31, 'twenty, one with a minimum of COVID-19 scars we.

We did end the year with an adjusted NII of <unk> 69 per share with the last two quarters really importantly, showing a recovery trend with the adjusted NII per share at 'twenty and.

24 cents, respectively. I wanted to just say that this trend really an income level reflects the COVID-19 impact on the first two quarters, where we did limit the other income from portfolio companies in all obviously, where we reduced net interest income as well.

Along the lines. We also increased NAV per share from 11, 17, a 331 20 to $11 52 per share with true 31, 21, and we're able to increase assets to 644 million from $576 million. We maintained our monthly distributions at seven cents per share or <unk> 84 per share on an <unk>.

Annual basis, and also paid a supplemental dividend of <unk> <unk> per share in June of 2020.

We were able to exit one portfolio company completed a dividend recapitalization of another.

Both of which generated other income which was from exit fees and our dividends.

And we also had realized capital gains on equity we made one new buyout investment and then also incremental investments on some existing portfolio companies and in one day to help facilitate actually an accretive add on acquisition.

I'd like to mention here, though that since inception in 2005 and true $3 31, 'twenty. One we have invested in 53 buyout portfolio companies with an aggregate of about a $1 4 billion. We exited 23 of these companies generating about $238 million of net realized gains and over $31 million.

Other income on exit.

I mentioned this as it really reinforces our buyout at investing strategy to generate both income from monthly distributions to shareholders and capital gains on equity for supplemental distributions. This provides some stability, especially in periods. As we have recently experienced it is also important to note the effect of the cash.

Orderly changes in our portfolio companies' equity values as Theres, a very high correlation to the overall portfolio value given that about 25% of our assets at cost are equity securities and again. This is a somewhat of a differentiator to other.

All other bdcs, so where we experienced primarily equity valuation declines early in the COVID-19 cycle, we are seeing clearly improving valuations and therefore increases quarter over quarter.

Two other areas I'd like to briefly touch on it's one we've seen two of our portfolio of companies that were on non accrual come back on accrual status this quarter and hope to continue that trend during the next fiscal year with at least two other companies.

And given the exits and the favorable financings that we were able to execute before $3 31, 'twenty. One we begin the new fiscal year with a very strong and low levered balance sheet excellent liquidity quick liquidity availability and Julie actually will elaborate more on this in her section.

Regarding pandemic.

Briefly one of them.

You know review the portfolio companies that we did have that experienced any disruption in earnings decline or are starting to see some real improvement. Unfortunately, we did not have to provide much financial support. Although we do continue to actively monitor potential issues and are proactively engaged with our company's management teams to provide support.

It is necessary and as I mentioned, we are in a strong liquidity position and able to provide the support of any of our companies really faced temporary liquidity needs.

So looking forward.

Continue to provide managerial financial support to our portfolio companies, while we continue to actively review potential new acquisitions.

And the buyout market, though does continue to present challenges with purchase price expectations being elevated so we have to maintain our discipline as usual in a high level of due diligence. Although we currently are engaging in discussions with a few acquisition opportunities where I do believe we might be in a position to take advantage of attractive valuations and closed.

From deals.

Overall I'm encouraged by the state of our portfolio the strength of our balance sheet and the prospect of good earnings and distributions over the next year I wanted to elaborate that the structure of our portfolio is geared to.

Providing consistent monthly distributions with a view to increasing as appropriate and in that respect we expect to continue our run rate most of the distribution of <unk> 84 per share annually and we have declared another supplemental distribution of <unk> <unk> per share to be paid in June of 2021, so with that I'll turn it over to Julian. So you can go into some more.

Julia.

Good morning, Thanks, David I'm looking at operating performance for the past year and quarter fiscal 2021 certainly had its challenges and we're happy to report the positive trend during the latter part of the year, resulting in total investment income of $56 6 million adjusted NII up 69 cents per share and over 11 million.

In dollars of net realized gains on investments.

I'm excited about our financing success during the last fiscal quarter with the issuance of our 'twenty 'twenty six notes the redemption of the series C term preferred stock and the extension of our credit facility.

For the most recent quarter, we generated adjusted NII of $6 7 million or 20 cents per share as compared to 8 million or 24 cents per share in the prior quarter. We continue to believe that adjusted NII is a useful and representative indicator of operations.

Investment income declined slightly quarter over quarter and a decrease in other income which was due to the investment transactions in the prior quarter was partially upset by an increase in interest income as Dave mentioned two of our loans from a return to accrual status during the quarter and we believe we can expect further improvement going into this new fiscal year for us.

Net expenses increased by two 4 million from cancer, the prior quarter, which was primarily driven by a 1.8 million increase in the capital gains based incentive fee, which was due to the net impact of realized and unrealized gains and losses in the current quarter against you reiterate that she has not yet contractually do.

We believe that maintaining liquidity and flexibility to support and grow our portfolio are key elements of our success.

With the successful financing transactions this quarter, we have new long term capital in place and had availability under our credit facility of about 158 million that's left to be 31 21.

Our NAV increased to $11.52 per common share quarter over quarter, primarily related to net unrealized appreciation of $17 3 million. In addition, distributable income to shareholders remains very solid on a book basis Undistributed net investment income combined with net realized gains.

Totaled $11 3 million or about 34 cents per common share.

With that in mind and as previously announced in April 2021 our board of directors declared another six cents supplemental distribution to common shareholders to be paid in June of 2021.

Assuming the current monthly distribution run rate of 84 cents per share per year, and estimating 12 cents per share in supplemental distributions. The total of which has not yet been determined or declared.

And Youll distributions with total 96 cents per common share, which would result, a net yield of about 7% using yesterday's closing price.

This covers my part of today's call. Thank you David.

Oh, great Julia very nice work.

And David Michael have informed shareholders along with the 10-K that you filed yesterday, which is one of our largest ones I've ever seen and thank the.

People, who are following our stock have plenty of information about how strong we are.

Team has reported solid results for the fiscal year, including financings buyout investment transactions and exit activity.

With significant realized gains when we believe the team is in great position to continue to succeed for fiscal year ending March 31 2022.

I personally believe that Gladstone investment is one of the attractive investments for investors seeking continuous monthly distributions.

Of income that we're generating and supplemental distributions from potential capital gains.

Thank the record during a year in which COVID-19, and the government's reaction to it has been extremely good assets increase from $5 $76 million to $644 million net assets up from $11 17 to $11 52.

All of this while paying a steady dividend. So those of you who love dividends like me.

I have enjoyed going right through this recession for COVID-19, with our dividends being paid so great job by the team.

Running Gladstone investment.

Now, let's stop and have our operator come on and we will have some questions from the analyst or any other shareholder out there.

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One moment, while we pull from our first question.

Our first question comes from Kyle Joseph with Jefferies. Please proceed.

Hey, good morning, Thanks, very much for having me on his.

Good question in terms of the markets you guys focus on just wanted to get a sense for where spreads and pricing is.

In contrast to pre COVID-19 levels.

Hey, good morning, Dave.

I won't answer the question really in terms of spreads if you will because as you know well week the market, whereas looking to buy companies right. So what I'd say is not much change to be honest, because we think of it more around.

Enterprise value of companies that we're looking to buy.

And I'd say pre COVID-19 multiples for good companies not great companies. Good companies was pushing seven times trailing EBITDA.

We're seeing frankly that same sort of environment and in fact, even some elevated multiples in the <unk>.

Trickier part frankly is that a number of companies that wanted to COVID-19. Some some did very very well relatively speaking.

Obviously, you did not do as well so the thing you've got to really look through our what's called COVID-19 adjustments.

Which are finding its way into EBITDA. So that's really the tricky part, but having said all of that I'd say generally.

From a enterprise value perspective, and therefore, the challenge we have on looking to buy a business. The multiples are still fairly high and really requires from rigor and seeing how you ultimately get a return on it.

That helps.

Very helpful. Thanks, and then on non accruals are great to see you know two investment turned back on.

Just curious what do you say this resulted from kind of broader economic improvement or is it specific things you've done that these companies that resulted in them being going back on accrual.

Yeah, I would say in July should certainly answering here I'd say couple of things one generally things that we have been.

Work on with our portfolio companies, whether it's a change in management to improve management or that sort of thing I would say, it's a combination frankly are generally our business are improving but they are also.

We're doing a good job managing managing the companies.

And as we suggested in there hopefully in a couple of more if that all happens here by the end of this calendar year will be pretty much. The day you out of all of our non accruals that maybe exception of one company.

Very helpful. Thanks for answering my questions, Yes, Sir Okay second question.

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Yeah.

There are no further questions in queue at this time I would like to turn the call back over to Mr. Gladstone for closing comment.

Alright, Thank you for calling in and wish you had more questions. We like to answer any questions that are out there floating around but at this point in time, we will see you next quarter at the end of this call.

Thank you ladies and gentlemen, you may disconnect your lines at this time and have a great day.