Q1 2022 Gladstone Capital Corp Earnings Call
Greetings and welcome to Gladstone Capital's first quarter earnings conference call.
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I would now like to turn the conference over to your host.
Mr. David Gladstone, Chief Executive Officer. Thank.
Thank you and what do you Sir.
Alright. Thank you I'm not this is a that was a nice introduction and this is the first quarter earnings call for Gladstone capital.
Quarter, ending December 31, 2021 .
You all for calling in we're always happy to talk to shareholders and analysts and welcome the opportunity to provide a further update of the information that was filed yesterday with the S. E C.
But first I'll turn it over to the General Counsel, Michael accounts he'll make a statement regarding certain forward looking statements Michael and thanks, David and good morning, everybody. Today's report for include forward looking statements under the Securities Act of 1933, and the 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 and 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. The forms 10-Q, 10-K, and other documents that we file with the SEC and you can find these on the.
Investors page of our website Www Dot Gladstone capital Dotcom. It also sign up for our email notification service Theyre also finally 10 Qs T. J on the SEC's website, which is SEC dot G. O V and 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 that today's call is an 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 now I'll turn the call over to Gladstone Capital's President.
Hi, Mark Hi, Bob Good morning, all and thank you for dialing in this morning.
Last quarter was a busy one for us so I'll cover the highlights for the period and provide some comments on the state of the portfolio and market outlook.
Before turning the call to Nicole's Scholten Bran Gladstone Capital's CFO to review, our financial results for the period, and our capital and liquidity position.
So beginning with last quarter's results originations for the quarter came in at a record $111 million, which included six new proprietary investments, which represented approximately $140 million of total commitments.
As covered in our last call. We also anticipated a number of exits and repayments, which came in at a total of 97 million. So net originations were $14 million for the period.
Exits for the period include the previously discussed sale of Blue kinetics, which represented just under 50% of the total exits for the period and included a net realized gain of $13 4 million.
Interest income for the quarter declined 3% or $400000 as the average interest bearing investment portfolio. The increase of 1.4% did not offset the $600000 of past due interest we received in the prior period.
Other income surged with a $1.6 million exit fee generated by the <unk> sale and other prepayment fees to 3.3 million, which is an increase of 2.2 million over the prior quarter and contributed to the 12, 6% increase in total investment income to $16 2 million for the.
A quarter.
Borrowing costs were unchanged in administrative costs rose slightly with new debt issuance. However, net management fees declined by 20% to $2 7 million as the increase in new deal closing fees remitted to the management company and credited against the base.
Management fees, resulting in a $700000 decline in the net management fees compared to last quarter.
With investment income up and expenses down net investment income rose 2.3 million to $9 2 million or 27 cents a share.
Net assets from operations came in at $12 1 million or 35 cents a share which included the realized gain from the lytic Lynette <unk> sale as well as $5 million of net unrealized portfolio appreciation on the quarter largely related to the improved performance of several credits negatively impacted at the early stay.
Ages of the Covid pandemic for.
For the period NAV Rose 16 cents, a share or one 7% to $9.44 per share as of December 31st.
Despite our modest leverage we're pleased to report the cumulative return over the past two years poor glad has risen to 17.6%.
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 bill again ex gain improved operating performance in several energy and communication businesses supported the reduction in the depreciation of these investments and the bulk of the unrealized.
<unk> for the period.
This quarter's portfolio performance in equity investment appreciation, bringing the net N. A V appreciation to 39.8 million since December 31 2019.
Prior to the pandemic, which represents a $1 36 per share or 16.8% increase in NAV over the last two years.
The asset mix as of the end of the quarter continue to shift in favor of first lien loans is 80% of the exits last quarter were second lien our equity investments and 65% of the new originations were senior loans. So first lien assets rose to 69% of assets at fair value at the end of the quarter.
The weighted average yield on new debt investments was nine 7%, which trailed the 10.3% weighted average yield on the exited investments. However by reinvesting last quarter's equity gain into yielding investments. The overall yield on new investments was approximately 55 basis points.
Higher than the net then the exited investments and for reference the average yield on our earning assets overall was unchanged at 10, 3% from the prior quarter end.
Yeah.
Looking over the balance of fiscal 'twenty. Two there are a couple of comments I'd like to leave you with we have received $14 million of repayments since the end of the quarter and anticipate several others in the near term, but anticipate we'll be able to maintain or grow our investment portfolio as we did last quarter.
As you May note, a number of our recent investments or growth or two growth oriented P platform companies and include future funding commitments, which we anticipate to make up a larger portion of our investment activity going forward.
And consistent with our investment strategy four of the six investments made last quarter included small equity co investments.
We are well positioned to absorb any impending increase in short term rates as only 21% of our debt was subject to floating rates and given the modest spread between our borrowing rate and the average floor and investments of one 1.17% the average floor.
On our floating rate assets exceeds.
The average floor in our floating rate assets exceed the floating rate debt by a substantial margin.
While we're able to generate one time fee income last quarter to exceed the current dividend. We are focused on increasing NII through some combination of earning asset growth higher leverage sustained margins or increase in interest rates to support sustaining any adjustment to the current shareholder distributions.
And now I'd like to turn it over to Nicole Shelton Brown, the CFO for Gladstone capital to provide some details of the fund's financial performance for the quarter Nicole. Thanks, Bob Good morning, everyone. During the December quarter total interest income declined 400000, or 3% to $12 9 million, which is driven by the receipt of stakes in <unk>.
1000, and pasture interest during the prior quarter, whereas we received no such amounts during the current quarter.
The investment portfolio weighted average balance did increase slightly by 7 million or one 4% to 494 million compared to the September 30th quarter No.
Weighted average yield on our interest bearing portfolio was unchanged at 10, 3%. Despite the increased proportion of first lien loans.
Other income rose by 2.2 million to $3 3 million and drove the 12, 6% increase in total investment income to $16 2 million for the quarter total expenses declined by 500000, a quarter over quarter driven by a decline in net management fees associated with the surge in new deal origination fee credits.
Net investment income for the quarter ended December 31st with $9 2 million, which was an increase of $2 3 million compared to the prior quarter or 27 cents per share per share and covered 137% of our shareholder distribution.
The net increase in net assets, resulting from operations of $12 1 million or 35 cents per share for the quarter ended December 31st compared to 32.7 or 95, a share for the border.
The current quarter increase was driven by the increase in earnings as well as the net unrealized portfolio appreciation is covered by Bob earlier.
Moving over to the balance sheet as of December 31, total assets rose to 587 million consisting of $576 million in investments at fair value and $11 million in cash and another asset.
Liabilities rose to 263 million at December 31st and consisted primarily of $150 million at five and eight senior notes due 2026 50 million of three three and three quarter senior notes due may of 2027 and as of the end of the quarter advances under our line of credit were $53 9 million.
As of December 31st net assets rose by $5 4 million from the prior quarter end with a net realized and unrealized portfolio appreciation as well as earnings in excess of distributions.
NAV rose one 7% from $9.28 per share at September 30th to $9 44 per share as of December 31st.
Our leverage as of the end of the quarter increased slightly with the increase in total assets from the prior quarter and stands at 81% of net assets.
Currently have in excess of $100 million of borrowing availability under our line of credit revolving period of which ends in October of 2023.
With respect to distributions, we have remained committed to paying all our stockholders in cash distributions.
And in October our board of directors declared monthly distributions to common stockholders of $66.05 per common share per month for January February and March which is an annual rate of 78 cents per share.
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 $11.06 per share yesterday. The distribution run rate is now producing a yield of about seven 1%.
Distributions in addition to the NAV grow with over the past year of $1.74 per share have resulted in a total return of $2 52 per share or 33% over the past year.
Now I'll turn it back to David to conclude alright, Thank you, Nicole and Bob and Michael you All did a great job of informing shareholders and analysts.
That follow our company in summary, another solid quarter for Gladstone capital Company closed six new proprietary investments representing about $111 million of new investments. During this period. These investments represent nice diversity of industry sectors and several new private equity sponsors.
And relationships and include a small equity co invest in four of these growing businesses the.
The company realized net gains of $13 $4 million and 1.6 million of fee income associated with the sale of Lake Metics, which represented a blended return of about 18, 5% over the seven year investment period.
The combination of investment activity and exits lifted net investment income by 34% as a very good number of about $9 2 million for the quarter that brings the distribution our net asset value appreciation of about 33% over the past year I think that's absolutely fantastic.
In summary, the company continues to invest in growth oriented middle market businesses with good management. Many of these investments are supported a midsized private equity funds that are looking for experienced partners to support their acquisition and growth of the business they've invested in.
This gives us an opportunity to make an attractive in interest paying loan to support their ongoing commitment to pay cash distributions to our stockholders.
It was by all accounts, a very good quarter and now operator would you. Please come on and tell people how they can ask us some questions.
Thank you.
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One moment, please while we poll for questions.
Okay.
Okay.
Right.
Yeah.
Okay.
We have some questions.
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If we have a question. Please press star one on your telephone keypad.
Okay.
Oh, well that's disappointing somebody should ask a question.
[laughter]. The first question comes from Adrian Day, with Adrian Day asset management. Please go ahead.
Yeah. Thank you well listen David could you just say a little bit more main thing or somebody about the.
Equity investments you know how high might you go and could you just give us a little bit more about that please.
Well from my standpoint, I like the idea we've not done it as much in the past year.
But as you remember allied capital always picked up some equity some warrants or something everytime. It made alone. So Bob is moving a little bit in that direction now that he's got a little more flexibility in his balance sheet, Bobby you want to comment on that.
Sure generally speaking we are still holding to the 10% of the overall portfolio now that swings for two reasons one.
As things depreciate.
That certainly increases it over our 10%, so 10% threshold, but with some of the liquidations.
It made sense to to reap to.
First in a number of the recent companies.
Generally speaking I look at a 10% of cost is kind of the target.
Also to be mindful, we don't invest in all of the companies certainly private equity sponsors sometimes are receptive and other times. We're not we're also selective in the companies that we invest in.
Overall, I would say 10%.
Adjusted for appreciation at the current time I think we have a significant number of investments that have appreciated. So that's probably driving the current percentage more than historically I would expect that number to continue to go up a little bit but I also would expect some additional liquidation of those investments over the coming quarters. So I know that's.
Not specific but generally speaking, we're probably you are or where we'd like to be.
With some with some variance around that number based on liquidations and activity.
Okay Super Thank you.
Other questions.
Yes.
Well, we got one good question. So I guess, we'll have to wait I guess, we'll have to wait until next quarter to get some good questions. Thank you very much.
Thank you so.
Ladies and gentlemen.
We have reached the end of question and answer session and I would like to turn the call back to Mr. David Gladstone for closing remarks. Thank you.
Alright, Thank you very much everybody and we'll see you again next quarter. That's the end of this call.
Okay.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
Yeah.