Q3 2021 Gladstone Capital Corp Earnings Call
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Hello, and welcome to the Gladstone capital third quarter earnings Conference call and webcast. At this time all participants are already listed only mode.
Anyone should require operator assistance. Please press star zero on your telephone keypad, a question and answer session will follow the formal presentation. As a reminder, this conference is being recorded.
Now my pleasure to turn the call over to CEO, David Gladstone. Please go ahead.
Thank you Kevin Nice introduction and this is the quarterly earnings call that we do at the end of each quarter Gladstone Capital's third quarter ends June 30, 'twenty 'twenty..1. Thank you all for calling in we're always happy to talk with shareholders and analysts and welcome the opportunity to provide an update for this company and its.
Net portfolio, we always start with our general counsel, Michael accounts say he'll make some statements regarding certain forward looking statements. Michael Thanks, David Good morning, everybody. Today is reported to include forward looking statements under the Securities Act of $19.33, and the Securities Exchange Act of $19.34, including those regarding our future performance.
Forward looking statements involve certain risks and uncertainties that are based on our current plans, which we believe to be reasonable and there are 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.
You can find them on the Investor page of our website at Www Dot Gladstone capital Dot Com, where you can also sign up for our email notification service, where you can find them on the SEC's website, which is www dot FCC Dot G O V and we undertake no obligation to publicly update or revise any of these forward looking.
King statements, whether as a result of new information future events or otherwise, except as required by law on today's calls that 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 them on the investors page of our website and now with that I'll turn the call over.
Gladstone Capital's President Bob Marcotte, Bob. Thank you Michael Good morning, and thank you all for dialing in this morning to discuss the results for Gladstone capital for the quarter ended June 30.
Let's get into it originations for the quarter was strong totaling $53 million, including 3 proprietary investments and add ons to existing investments. However, as anticipated we had 3 exits which contributed to lifting prepayments and exits to 54 million for the period.
Interest income rose 7.2% to $12.7 million over the prior quarter driven by the collection of $600000 of past due interest on the non earning credit.
Other income fell slightly however, total investment income rose to $13.7 million.
Borrowing cost increased 200000.
With a full quarter of the $50 million add on to our senior notes and an increase in unused fees paid on our line of credit, which we expect to abate.
As our floating rate borrowers borrowings rise with asset growth and the potential redemption of our higher cost senior notes due in 2024 later this year.
Administrative costs and expenses Rose 200000, with the professional fees associated with the renewal and extension of our bank line of credit in the quarter.
And net management fees on the quarter increased with.
But the incentive fees. However, net investment income rose to $6.6 million or 19, and a half cents a share net.
Net assets from operations came in at 18 million or 53 cents, a share which included $6.5 million of realized gains and $4.8 million of unrealized portfolio appreciation on the quarter.
As a result for the period NAV rose to 41 cents rose 41 cents, a share or 5.1% to $8.52 per share as of June 30.
With respect to the portfolio our portfolio continues to perform well and for the quarter. We did not experience any payment defaults and our 1 non accrual investment has continued to recover which supported the collection of most of the accumulated past due interest and that credit now has been moved to accrual status.
We exited 2 season second lien and equity co investments last quarter associated with AG trucking and ATR G, which generated $6.4 million of after tax gains.
For the quarter the bulk of the portfolio appreciation was driven by 6 equity investment positions in a variety of industries, most of which are experiencing strong operating performance and in total they easily outpaced the few decliners and generated net appreciation of $13 million base.
Based on the portfolio performance and loan margin recovery the cumulative gains in portfolio appreciation of the past 4 quarters have exceeded the COVID-19 related markdowns of the March 2020 quarter by 32% and contributed to the 5.4% increase in NAV since December.
31.2019.
The asset mix as of the end of the quarter continue to shift in favor of first lien loans as the private equity community has continued to favor the flexibility and certainty of Unitranche loans and the majority of the repayments were second lien or equity exits as a result first lien assets rose to 66 per cent of the portfolio at cost.
While second lien exposure declined to 25 per cent of the portfolio at cost. Despite the shift in asset mix, we've been able to maintain an average yield on our loan portfolio of 10.5 per cent.
Looking forward last quarter was active for originations and we absorbed most of the expected repayments and we expect much the same in the near term as the private private market liquidity is driving an elevated level of refinancing and recapitalization activity.
As we have reiterated in the past couple of quarters, we continue to target a 1 to 1 debt to equity leverage however, based on the magnitude of the portfolio appreciation last quarter and the pace of repayments. Our leverage continues to believe be below our target range at 76% debt to equity.
Despite the modest leverage we are pleased to report that our cumulative return on equity for the <unk> 'twenty 2020, 1 period inclusive inclusive of the challenging cobin markdowns in 2020.
Has he approached 11, 3%.
Based on our modest leverage position and our reduced secured line borrowings we have an unprecedented level of debt capacity to take on additional yielding assets to further enhance our earnings and diverge coverage in the coming quarters and now I'd like to turn the call Liberty Nicole Shilton Brown, the CFO for Gladstone capital to provide some more details from the fund's financial.
<unk> Nicole thank Bob good morning, everyone.
The June quarter total interest income increased 900000, or 7.2% to $12.7 million I think collection of 600000 of past due interest. Additionally, the investment portfolio weighted average balance increased by $9.5 million or 2.1% to $463.6 million compared to the March 31, 2021 quarter also can.
Getting to the interest increase in interest income.
Our weighted average yield on our interest bearing portfolio declined by 10 basis points to 10.5 per cent compared to the prior quarter associated with the increased population of first lien loans in our portfolio.
Other income fell by 79000 compared to last quarter with these items total investment income from acquire increase to $313.7 million.
Total expenses rose by 600000 quarter over quarter, driven by the increase in interest expense professional fees, including mainly legal fees and the management fees.
Net investment income for the quarter ended June 30th was $6.6 million, which is an increase of 200000 compared to the prior quarter, our $19.05 per share and covered 100% of our shareholder distributions.
The net increase in net assets, resulting from operations was $18 million or 53 cents per share quarter ended June 30th compared to $21.3 million or 65 cents per share for the quarter ended March 31st 2021.
Current quarter increase was driven by after tax gains of $6.5 million as well as $4.8 million of net unrealized portfolio appreciation.
Moving over to the balance sheet as of June 30, total assets rose to 514 million consisting of 506 million in investment that fair value and $8 million in cash and other asset.
Liabilities declined to 222 million as of June 30th and consisted primarily of 150 million of newly issued 5 and 8 senior notes due 2026, $38.8 million of 5 and 3.8 senior notes due 2024 and at the end of the quarter. The advances under our line of credit were only 23 million net.
Assets rose by $21.5 million from the prior quarter end with $11.4 million of net realized and unrealized portfolio appreciation and the issuance of approximately 908000 common shares under our ATM program, which generated net proceeds of $10.1 million for the quarter and $2.7 million in excess NAV or 8 tenths of appreciation.
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NAV rose 5.1% from $8.11 per share as of March 31st to $8.52 per share as of June 30th 2021.
Our leverage as of the end of the quarter declined with the increase in NAV from the prior quarter and 76 per cent of net asset. We currently have in excess of 130 million of borrowing availability under our recently renewed line of credit.
Part of the line of credit and then we successfully extended the revolving period to October 31st 2023.
With respect to distribution 5 Sun capital has remained committed to paying its stockholders of cash distributions and in July our board of directors declared monthly distributions to our common stockholders of $6.05 per common share per month for July August and September which is an annual rate of 17.8 cents per share. The board will meet in October to <unk>.
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 $11.50 per share yesterday. The distribution run rate is now producing a yield of about 6.8%, which continues to be attractive relative to the extraordinarily low yields generally available in the market today.
And now I'll turn it back to David David to conclude thank you, Nicole you and Bob and Michael All did a great job of bringing in people along in terms of analysis of our good company a few take what you've said today and add it to the 10-Q.
It was filed and you can read that 10-Q at Www Gladstone glad glad Gladstone and dotcom. So we've got a strong opportunity here to continue to grow we had a solid quarter for the for the period ending June 30, we're off to a good start where we are today.
Solid originations are it's passed the 53 million very attractively priced investments we've generated net investment income to cover the current dividend. So we're not supporting that some other way between realized gains appreciation and accrete.
Accretive stock issuance lifted the net asset value of 41 cents, that's up about 5.1 per cent for the last quarter and enhanced the ability and stability of the company to make sure. We pay those dividends every car that's our goal in life here at this company so in.
Summary, the company continues to invest in growth oriented middle market businesses with good management. Many of these investments are supported by a midsized private equity funds.
Net are looking for experienced partners like the team that's here.
And so we've been able to fund.
<unk> chips in the market is good interest paying loans to support our ongoing commitment to pay cash distributions to stockholders.
Some day it was a very good quarter now we'll have some questions. So operator, if you'll come on and telecom callers how they can ask some questions.
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Thank you Scott.
Right.
Okay folks you need to ask your questions are will hang up and wait for next quarter.
If there are no questions. At this time do you have any further or closing comments there no. That's all we had a great quarter I'm not surprised that we don't have a lot of questions. It was a great quarter with not many differences that are arent showing up in our in all of our filings. So thank you very much everybody for calling in and see you next.
Order.
That does conclude today's teleconference and webcast you may disconnect. Your line at this time and have a wonderful day, we thank you for your participation today.