Q4 2021 Gladstone Capital Corp Earnings Call
Greetings and welcome to the Gladstone Capital Corporation fourth quarter 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 he would like to ask a question. Please press star one on your telephone keypad, if anyone should require operator assistance during the call for.
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. Please go ahead.
Thank you Donna very nice introduction and Hello, everyone. This is David Gladstone Chairman and this is the earnings conference call for Gladstone capital for the.
Quarter, ending and also this is the ending of our fiscal year at September 30th 'twenty 'twenty. One. Thank you all for calling in we're happy to talk with all of the shareholders.
And now we'll hear from our General Counsel, Michael The Council, who makes a statement regarding certain forward looking statements Michael Thanks, David and good morning, everybody. Today's report May include forward looking statements under the Securities Act of $19 33, and Securities Exchange Act of 1934, 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. 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 the risk factors in our forms 10-Q, 10-K, and other documents that we filed with the SEC and you can find them on the investors page of our website.
W. W. Dot Gladstone capital Dot Com you can also sign up for email notification service there or you can get the documents on the SEC's website that Jeff said that G O V.
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 on today's call is an overview of our results.
Take a look at our press release from yesterday and our Form 10-K.
Get some more detailed information in there and again those can be found on the investors page of our website now with that I'll turn it over to Gladstone Capital's President Bob Marcotte Bob.
Thank you Michael Good morning, and thank you all for dialing in this morning.
I'll cover some of the highlights for the quarter and the fiscal year ended September 30, and conclude with some market commentary before turning the call to Nicole Scholten Bran Gladstone capital CFO to review, our financial results and our capital and liquidity position.
So beginning with our last quarter results originations for the quarter came in at $27 6 million all of which represented an attractive add on investments to several performing portfolio of companies. We had no material repayments last quarter. So net originations totaled $24 8 million for the period.
Interest income rose in line with asset growth and was up three 9% over the prior quarter to $13 2 million other income, which is mostly dividend related increased and contributed to the five 1% increase in total investment income to $14 4 million for the quarter.
Barring an administrative costs were unchanged for the quarter, while net management fees Rose 600000, with the increase in asset levels and lower new deal origination fee credits. However, net investment income rose to $6 8 million or <unk> 20, a share and fully covered the shareholder.
<unk> without any incentive fee credits.
Net assets from operations came in at $32 7 million or 95 per share, which included a robust 26 million of unrealized portfolio appreciation on the quarter. While we had several strong quarters of appreciation this year with the loan market recovery from Covid the increase this.
Quarter was largely related to performance of a number of our equity investments, notably our investment in <unk>, which was under contract at the end of the quarter and has subsequently closed represented about half of the total appreciation for the period.
For the period and a B rose 76 pence per share or eight 9% to $9 28 per share as of September 30.
Despite our modest leverage we are pleased to report our cumulative return on equity over the past two years inclusive of the challenging Covid period has now risen to approximately 16, 5%.
With respect to the portfolio our portfolio continues to perform well and for the quarter. We did not experience any payment defaults. In addition to like Netflix gain improved operating performance, especially for several businesses with Covid weakened in 2020 results improved in all of the valuation movements over 200.
50000.
The gainers outnumbered the decliners 14 to one for the quarter.
This quarter's portfolio performance in equity investment appreciation brings the net appreciation to $31 $1 million over the past two years, which represents a 12, 5% increase in NAV since September 32019, and we believe demonstrates the resilience and attraction of our lower.
Middle market investment strategy.
The asset mix as of the end of the quarter continue to shift in favor of firstly, loons, which rose to 66, 3% of assets at cost and despite this shift in asset mix, we've been able to maintain an average yield on earning assets of 10, 3%.
Since the end of the quarter, we've had a number of notable notable events, including the funding of a new proprietary senior debt and equity co investment of $26 3 million and a precision manufacturing business and the exit of two second lien investments totaling $19 million in.
In addition, additionally, the lignite <unk> exit which included $29 million of second lien.
Payment generated $1 6 million of exit fees and $16 6 million of proceeds on our equity investment or approximately five two times our cost.
We are expecting several other premium repayments in the near term. However, the current deal flow was strong and we are actively pursuing new opportunities, which we hope will more than offset these liquidity events.
The light of the scope of the expected investment activity. We recently completed the placement of additional $50 million of senior notes due in 2027 to replace the call of our 2024 notes and preserve our line of credit capacity for new deals.
Looking over the balance of fiscal 2020.
Couple of comments I'd like to leave you with the portfolios continue to perform and the fair market value gains on our equity investments have not only generated attractive NAV appreciation for our shareholders. The maintain a modest leverage position to support the further growth of our investment portfolio.
While we've seen modest earning asset yield compression through 930, the $48 million of pre.
Prepayments since the end of the quarter, which have generated an average yield of 11, 1% will be difficult to replace however, when you consider we have an additional $16 6 million of equity gains to reinvest in earning assets as well I would not expect NII to be negatively impacted.
As we have reiterated in the past couple of quarters, we continue to target a one to one debt to equity leverage however, based on the magnitude of the portfolio accretion, let appreciation last quarter ever leverage continues to be below our target range at 78.
78% debt to equity.
While competitive pressures are undeniable, we will continue to be selective which in combination with nab appreciation and excess debt capacity, we are well positioned to continue to grow our NII and now I'd like to turn the call over to Nicole <unk> Brown, the CFO for Gladstone capital to provide some details of the fund's financial performance for the core.
<unk>.
Thanks, Bob Good morning, all during the September quarter total interest income increased 500000, or three 9% to $13 2 million investment portfolio weighted average balance increased by 24 million or five 2% to $487 6 million compared to the June 32021 quarter, the weighted average yield.
Our interest bearing portfolio declined by 20 basis points to 10, 3% compared to the prior quarter, which was associated with the increased proportion of first lien loans.
Other income rose by 196000 to one 1 million and contributed to the five 1% increase in total investment income of $14 4 million for the quarter.
Total expenses rose by 500000 quarter over quarter, driven by an increase in net management fees associated with the increase in asset levels and lower new deal origination fee credit.
Net investment income for the quarter ended September 30 was $6 8 million, which was an increase of 200000 compared to the prior quarter or 28 cents per share and covered 102% of shareholder distributions.
The net increase in net assets, resulting from operations was $32 7 million or <unk> 95 per share.
For the quarter ended September 30, as compared to $18 million or 53.
For the prior quarter.
The current quarter increase was driven by the 26 million of net unrealized portfolio appreciation was covered by Bob earlier, a couple of notes on the performance for the full fiscal year.
This funding was able to generate an increase in total assets of $107 3 million, despite the uptick in prepayments and.
And average, earning assets rose 10, 7% to 463 million of our fiscal 2021.
The weighted average yield on earning assets declined from 11% to 10, 6% for fiscal 2021. However, other income doubled which helped lift total investment income by 12, 2% to $53 8 million for the year.
Net investment income rose three 8% to $26 1 million at a net management fees increase with the higher assets and reduced incentive fee credit.
Moving over to the balance sheet as of September 30th total assets rose to $567 million, consisting of $558 million in investments at fair value and $9 million in cash and other assets.
<unk> rose to 248 million as of September 30th and <unk>.
This would primarily of $100 million of five and eight senior notes due 2026, $38 8 million of five and three eight senior notes due 2024 and as of the end of the quarter. The advances under our line of credit were $50 5 million Subsys.
Subsequent to the end of the quarter. The 2024 notes have been called 50 million of new 375% Senior notes due may 2027 were issued.
Issued and our line of credit borrowings have been eliminated with the aforementioned investment prepayments and net new debt issue protein.
It is worth noting that over the past year, we have redone all of our existing liabilities, including refunding all of our unsecured senior notes, while lowering the average rate by approximately 120 basis points and extending the earliest maturity to 2026, and we increase the increase in interest costs associated with.
The increased reliance on our fixed rate senior note.
However, we eliminated any earnings hit associated with any increase in floating rate.
As of the end of the year and net assets rose by $26 1 million from the prior quarter end with $25 9 million of net realized unrealized portfolio appreciation.
NAV rose eight 9% from $8 52 per share at June 30 up to $9 28 per share as of the end of our fiscal year.
Our leverage as of September 30th increased slightly with the increase in NAV from the prior quarter end and stands at 78% of net asset and we currently have in excess of $150 million of borrowing availability under our line of credit.
With the revolving period of which ends in October of 2023.
With respect to distributions Gladstone capital has remained committed to paying its stockholders a cash distribution.
In October our board of directors declared monthly distributions to our common stockholders of $6.05 per common share per month for October November and December which is an annual run rate of 78 cents per share. The board will meet again in January 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 $11.76 per share yesterday. The distribution run rate is now producing a yield of about six 6%.
Distributions. In addition to the NAV growth over the past year of $1 88 per share have resulted in a total return of $2.66 per share or 35, 9% over the past fiscal year.
And now I will turn it back to David to conclude alright, very nice job Nicole Bob Michael you all did a great job of informing our shareholders and analysts out there that follow the company and summary.
Just another solid quarter, which capped a stellar year for Gladstone capital.
Company executed $27 million, an attractive add on investments to support the growth and diversification of the existing portfolio companies.
Increased net investment income to $6 8 million, which was able to cover the current dividend without any incentive fee credits.
And delivered just another strong quarter portfolio performance, which begins with a cumulative net asset value per share increasing over the past year to $1 six.
Her share for a total return of $1 84 per share or about $24 nine.
Just round that out to about 25% per year.
For the past year, Bob I'll say, one thing you got to be this year next year.
And Sam Perry. The then in summary, the company continues to invest in growth oriented lower middle market businesses with good management.
Many of these investments that we go into our to support midsized private equity funds that are looking for experienced partners to support the acquisitions and growth of the business. They're investing in this gives us an opportunity to make an attractive interest paying loans to support the ongoing commitments to pay cash distributions.
To stockholders. So it was a great quarter and a fantastic year and now operator, if you'll come on and let's see if we have some good questions from R.
Our team that's out there and following us.
Thank you the floor is now open for questions. If he would like to ask a question. Please press star one on your telephone keypad at this time a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the starkey.
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We will pause a moment for questions to be submitted.
Yes.
Okay.
That's my question.
Once again that is star one to register a question at this time.
I'm showing no one else in queue at this time I would like to turn it over to Mr. Gladstone for closing comments, well, we don't understand that but I guess when you have a terrific year like this it's hard for anybody to ask a question that's going to be meaningful because.
The question, we already ask was Bob what are you going to do to top out.
Alright, Thank you all for calling in and that's the end of this.
Yes.
Ladies and gentlemen, thank you for your participation. This concludes today's event you may disconnect. Your lines at this time or log off the webcast and enjoy the rest of your day.
Yeah.
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