Q1 2022 Gladstone Investment Corp Earnings Call
Greetings and welcome to the Gladstone investment first quarter earnings call.
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I'll now turn the conference over to your host David Gladstone, Mr. Gladstone you may begin.
Thank you Alex Nice introduction and this is the first quarter of our fiscal year, the ends and and March 31st 2022, and this is the conference for shareholders and analyst day at Gladstone investment and where and on NASDAQ under the symbol G. A I N and then we.
Have a.
G a I and al for preferred stock and we have some registered notes G. A I N and for registered notes and thank you all for calling in and we're always happy to provide updates to shareholders and analysts and provide a view of the current business environment and remember our 2 goals here are to understand what happened and the last.
Quarter, and then give you some view of the future of course, nobody knows the future, but we will give you a shot at it and I'll start out with the our general Counsel and Secretary Michael the Kalsi.
Good morning, everyone. Today's call May include forward looking statements under the Securities Act of 1933, and the Securities Exchange Act of $19.30 for including those regarding our future performance. These forward looking statements involve certain risks and uncertainties and other factors, even though they're based on our current plans, which we believe to be reasonable and there are many factors may cause our actual re.
<unk> 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 and we filed with the SEC and can find all of these on the investors page of our website, that's www dot Gladstone investment dotcom or even the SEC's website, which is the.
Www Dot FCC the G O V and 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 and please also note that past performance of market information.
Guarantee of any future results, we ask that you take the opportunity and need to visit our website. Once again, the Gladstone investment dotcom sign up for our email notification service you can also find us on Twitter at Gladstone comps and all of them.
Facebook keyword there is the Gladstone companies.
Today's call is simply an overview of our results through 632020. So we ask that you review our press release and form 10-Q, both issued yesterday for more detailed information now I'll turn the presentation over to Dave doll, and who's the president of Gladstone investment, Dave Hey, Mike, Thanks, and and.
I'm very pleased to report of everything going on and the World certainly on a very good quarter in terms of all of our operating results for gain the.
Portfolio of quality and also the progress we have and we are experiencing.
And returning to pre Covid operating status and despite the uncertainties that we're now somewhat facing regarding virus variants.
However, we ended the first quarter of fiscal year of 22 with adjusted NII of 24 cents per share, which is continuing the improving trend started over the last 2 quarters of fiscal year 'twenty, 1 where we reported adjusted NII per share of 2020.4 cents, respectively. So we're very pleased again with this.
Positive trend hopefully continuing forward. We are encouraged by these results because they do reflect improvements and the operations and the health of our portfolio of companies and certainly the prospects for future earnings. In addition, our NAV net asset value per share increased from $11.52 at $3.31.
'twenty 1 to $12.66 at 630, 21 assets increased to $713 million from $644 million. This was in large part due to the continuing recovery of the values of our equity holdings, which do make up about 25% of our total portfolio at cost.
We also did maintain or of monthly distribution of 7 cents per share, which is 84 cents per share on an annual basis.
We also paid a supplemental distribution of 6 cents per share and June 2021 and declared another supplemental distribution of 3 cents per share, which will be paid and September remembering that the supplemental distributions are coming from generally our exits and capital gains, which again is a big part of what we do.
During this first quarter of fiscal year 'twenty, 2 we exited 2 portfolio companies of which resulted in a net realized gain and significant other income. We also made 1 new buyout investment and incremental investments and existing portfolio of companies. So all of our strategy of buyout ended the continued successful.
And to generate both income for monthly distributions to shareholders and capital gains on equity, which again are we generally pay out through the supplemental distributions and as importantly, our balance sheet continues to strengthen with low leverage and a very strong liquidity position. So this allows us now to provide support to our ports.
Full year of companies both for add on acquisitions and any interim financing if the need were to arise and also to actively seek which we are doing new buyout opportunities.
So it's sort of been in this regard and kind of of the outlook are the flow of buyout opportunities is robust very robust I would say and then the challenges really are and making new successful acquisitions really is for the discipline around sort of the triage and in other words, how we value and law.
And at companies upfront, where we spend our time the review process the evaluation and analysis all of this because purchase price expectation still remain very elevated in our opinion and any event, though and in this regard subsequent to 630.21, the finance the add on of another operating company to watch.
And our recent buyout platform investment, which is called knocked her and villas and we closed on a new buyout investment, but just call, Utah Pacific Bridge and steel. This company actually provides large street steel components.
And bridge replacement and rehabilitation and construction, so somewhat playing into the the whole infrastructure of.
Developments it will occur in this country, so and summing up the quarter. The state of our portfolio is great. We have a strong and liquid balance sheet and active level of buyout activity and the prospect of very good earnings and distributions. During this fiscal year, so with that I'm going to turn it over to all of our CFO Julia Ryan and give you a bit more detail on.
And the financials Julia.
Thanks, David as far as the operating performance for the quarter and we continue to see improvement after the initial impact of the pandemic, we generated adjusted NII of <unk> 8 million or 20 per cent per common share as compared to the adjusted NII of $6.7 million for like 20 cents per common share and the prior quarter, we continue to believe that.
The adjusted NII is a useful and representative indicator of our operation and the.
That's been income increased quarter over quarter and interest income like most of it by the collection of past due interest from those loans that were previously on non accrual and other income benefit and that's from the close of transaction and related and other income and the current quarter.
Well, we added 1 line and to non accrual this quarter, which we believe will be on a relatively short term change over the past over the last 2 quarters. We returned for portfolio companies to accrual status. So with all of that that as of 630.
The 2 of our portfolio of companies were non accrual status.
Net expenses increased by $6.8 million this quarter, which was primarily driven by a $6.7 million dollar increase and capital gains based incentive fee, which was due to the net impact of realized gains and unrealized gains and the current quarter and all of this is required by U S GAAP, but its not contractually.
And moving over to our liquidity position, which is obviously very important and we still continue to believe that maintaining liquidity and flexibility to support and grow and folio are key elements of our success.
And with the successful financing transaction last quarter I E. The cloud the registered and that we have near and long term capital and place to do just about that and significant availability under our credit facility for the next and the remainder of this fiscal year and going into the future.
And our NAV increased to $12.66 per common share and that is primarily related to the unrealized depreciation and we had this quarter day already touched upon that consistent with prior quarters distributing of both book earnings to shareholders remains solid, especially when considering that that number has been reduced by cumulative for 'twenty 2.
1.7 million of GAAP accruals of capital gains based incentive fee, which equates to about 68 cents per common share again those fees are not currently do or deductible for tax purposes.
With that of mine and as previously announced in July our board declared and additional 3 and supplemental distribution to common shareholders to be paid in September and if we assume that the current monthly distribution of run rate of 84 cents per year of per share.
And then also assume 15 cents per common share and supplemental distributions those of the 2.6 tenths of 1 plus the threep and 1 for December.
And our annual distributions for total of 99 cents per common share and bad results of net yield of about 6 point and 9% using yesterday's closing price.
And this covers my part of todays call back to you David.
Alright, very nice Julia and nice for Dave as well and Michael 1 of lot of good information there to our shareholders that the presentation and the 10-Q filed yesterday should bring everyone up to date. The team has reported solid results for the quarter, including buyout investment transactions and AG.
The next it activity which is.
Positive and net realized gains we believe these teams are and a great position to continue the success that they've had and the fiscal year ending March 31.
22, so again Gladstone investment is an active investment for investors seeking continuous monthly distributions.
And I and N and addition to that supplemental distributions from potential capital gains and other income team hopes to continue this going forward I'm going to stop now and Alex would you come in and we're going to have some questions from the analysts and shareholders that want to talk to us.
Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask the question. Please press star 1 on your telephone keypad.
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Our first question comes from Kyle Joseph with Jefferies. Please proceed with your question.
Hey, good morning, Thanks, a lot for taking my questions here first 1 of the on reported yields and the quarter of they were really strong up nearly 200 basis points quarter on quarter was there any any 1 time items and that and can you give us a sense for your outlook going forward there.
Julien and you want to take that 1 of the Mt.
Yes, sure and kind of that was related to my earlier comment on the loans were trying to non accrual.
And you often see and periods where loans come back on accrual they've made some catch up payments and that's what particularly left and yield this quarter.
Yeah.
Got it that makes sense and then I think on that note non accruals.
And obviously came down can you give us a sense for how you were able to work through those you know of any sort of restrictions where they or did they all returned to accrual and in your outlook for for non accruals going forward.
Yeah Carlo I'll take that 1.
Julia go ahead.
And I was just going to say, maybe David you can touch upon the.
Okay I'll do that.
[laughter] weighted we're not quite in the same place today, that's why I apologize for the that little bit of back and forth, Yes, Kyle basically and this was all no. There were no restructurings there that that effect the effect of that it was simply a having gone through the the COVID-19 period, and where we had to sort of give the companies and opportunity.
And in fact in certain cases, working with say commercial banks that were in a senior position because of our revolver or what have you just just getting back into compliance. If you will on on some of the the they required you know covenants et cetera, just fundamentally just good progress towards the.
You know the operations of the companies and the 1 that did go on non accrual kind of its paying a we're in a position of pay but again because of just some constraints regarding the senior bank. We just had to put it on non accrual, but it will probably come back on accrual of pretty quickly.
So generally I feel pretty good about where we are with all of those again somewhat temporarily but nowhere we feel really good about going forward.
Got it and then the last question for me and just what I'm talking about the the investment of our environment and kind of weighing when he said you know we saw the investment activity and repayments picked up 2 of certain extent this quarter.
But at the same time it sounds like you guys are finding.
Good good capital deployment opportunities even subsequent to the 630 as of kind of you know, it's the very active market competitive but at the same time and it's kind of supply and demand are fairly balanced at this point and you're still seeing good opportunities is that fair yeah. Yeah, I'd say, we're seeing a lot of opportunities and the challenge for us as I mentioned is.
Sticking with our format the things that work for us the 2 that I mentioned that we closed on 1 knocked her and the others.
Utah Bridge those are really good companies and evaluations that will work for all of our model I mean, we again, there's a whole slew of activity out there with the investment bankers and the M&A shops, and again, we just have to stick to our of our strengths and and I feel very good about doing that.
And so we'll we'll make a couple of new acquisitions, yet over the next year or so, but we're not going to rush out and and just go crazy because multiples are just really pretty pretty bizarre to be perfectly honest with you on an.
The companies that we see.
And that makes sense. Thanks for answering all my questions appreciate it and there Sir.
Okay next question.
Thank you. Our next question comes from Mickey <unk> with Ladenburg Thalmann. Please proceed with your question.
Good morning, everyone.
David I just wanted to follow up on your comments about the activity and the M&A market and I certainly agree with you and I'm happy to see that you can find some transactions that meet your return requirements.
Could you give us some sense of whether any of your companies are in the sale process given how high the multiples are and your willingness to take.
Take advantage of those of evaluations.
We're making all of the answer I always give a couple of things 1 the good news for us as a public entity and.
Sort of and Evergreen type fund as we don't have any pressure to exit companies.
You know usually again it truly is working with the management teams are and when and if they believe the time is right.
To exit for a variety of reasons, we will take that seriously. We as you pointed out we have had exits as.
And as we go forward, we will certainly be faced with opportunities for exits and we'll do that on a very careful basis, because frankly again, you know we exit of really good company and back to the earlier comments then we just have to figure out how we're going to get a new opportunity so to speak to replace it right because as you know we keep.
The focus very much on the income that we generate for it because we want to keep growing our dividends or distributions to shareholders. So the debt pieces are really important. So again, yes, we will certainly entertain opportunities to exit if it really makes sense and we might see some of that over the next 6.
The 9 months.
But we're not just going to rush out there and and and just do it just for the sake of doing it very frankly are we want to keep balanced and and I think we've done a good job of that and we'll continue doing that.
That's helpful, Dave and and on Utah Pacific that that really seems to fit your you know of.
Business model quite well.
And and now and an industry that is getting a lot of attention.
Can you give us a sense of what sort of terms.
You had you paid on that in terms of leverage and maybe the interest rate.
Yeah, well you know again, we stick with our format and as you know when we buy of business roughly 30% of the dollars that we put out are going to be and in the equity component and of the balance is going to be in the in the debt component generally again, we as we publish our yield on the debt.
And of our portfolio is generally and the sort of 12% ish range. That's kind of all of that works for our model. So any 1 particular deal could see the debt piece b and that sort of interest you know interest range. So we blend it out with the with the equity components. So that's pretty consistent with with Utah.
As far as the the the terms of the deal and again you know we don't we generally don't publish out too much but you know we generally try to stay and and companies were looking at we need to stick within kind of the 6 to maybe 7 and 7.5 times. The EBITDA you know and so as long as we're kind of in that range. It works rail for.
For our model. This particular companies has a very strong ownership of owned by an individual of really build the business and that Fortunately, we've been able to have them stay involved with us. So we got really strong management a good team going forward and it's kind of a deal that you know other people might have overlooked very frankly, and you know that.
Where we work a little bit harder.
The define those kind of kind of transactions yeah. We're very excited about this 1.
And given their position that they have in their market area.
Well congrats on that debt deal David sounds good a.
A couple of housekeeping questions, maybe for Julia could you give us a sense of how much interest you recognized backing of past due interest recognized on a b and T and horizon and did you reverse anything for Sps.
And we did not making me debt not reverse anything for Sps for that was silly with index this quarter and.
And then the amount that was collected and past as the seriousness roughly $2 million.
Okay, so sizeable amount and and.
Julia can you give us your undistributed taxable income balance.
Sure.
And.
It is true.
I do.
Maybe and we'll have to get that to you. After this call.
Okay, that's fine day.
Dave just a couple of more follow ups, and then I'll, let somebody else get into the queue of.
Did you take out of another lender at J R. Hobbs I noticed you refinanced debt deal.
No. We didn't we did not have another lender in that deal is just us and management.
Okay and lastly.
Obviously, we're entering another upward cycle of the Covid pandemic, which is unfortunate and at least to me. It seems unclear how much more support the federal government is willing to provide could you describe how you would expect your portfolio to perform without P.
P P and telephone everything else that the government was doing to keep things moving assuming the pandemic.
<unk> to to deteriorate right. So the good news or bad news, depending on one's point of view is that our experience over the last year is that we actually only had 1 company that access P. P. P. A and that was because it was an exception.
Because it and Thats actually a company called the maids, and which ironically, they really have done a great job.
And working through it didn't really need it for every frankly, but they are a franchise or so there was an exception to that we have not been able to access it with our other companies, so where our companies have needed either some relief, which wasn't very many it's either been with us putting a little incremental money and to help them and so on so.
And the good news is if you will we are not relying on that looking forward I don't right now see any of that impacting us. The biggest issue I think which is not just us but across the board. Many companies very frankly, it's just getting people.
The work.
That's the big the Big Challenge and and you know how that might impact. If this occurs again is really a little bit of the unknown, but we're doing everything with our companies to increase efficiencies and.
Obviously, you know, there's some cost impact because of labor cost increases and overtime and that sort of thing, but we're very we're working very hard on that with each of our portfolio of companies and so I don't.
And we'll just have to keep doing what we've been doing very frankly.
And I understand those are all my questions I. Appreciate your time. This morning. Thank you very much. Thanks, Okay next question.
Thank you ladies and gentlemen, we have reached the end of the question and answer session and I will now turn the call over to David Gladstone for closing remarks.
Alright, Thank you all for tuning in and listening to this and asking good questions. So we will see you again next quarter. That's the end of this call.
This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.