Q1 2024 Gladstone Investment Corporation Earnings Call

[music].

Pleasure to introduce your host David Gladstone, Chief Executive Officer. Thank you Sir you may begin.

Thank you Latonia, that's it's David Gladstone.

First quarter of fiscal year 2024.

June 30.

You're in this.

Nine months or so away earnings conference call and this is for shareholders and analysts of Gladstone investment were listed on the NASDAQ trading symbol G. A I N for the common stock and then we have three other less things game N.

Z E L.

He has three different registrations are preferred stock or in some cases.

Miniature bonds as they call them.

Awful, calling in we're always happy to provide an update to our shareholders and analysts providing a view of the current business environment.

Two goals of this call call as it always is is to help you understand what happened in the last quarter.

And they gave you are current view of the issue.

Now we hear from our General Counsel and Secretary, Michael the Kalsi good morning, everybody.

Today's call May include forward looking statements under the Securities Act of 1933, the Securities Exchange Act of 1934.

Putting those regarding a future performance. These forward looking statements involve certain risks and uncertainty that other factors.

Used on our current plans, which we believe to be reasonable that many factors may cause our actual results to be Ms.

Really different from any future results expressed or implied by these forward looking statements.

[noise] all the risk factors will fill out forms tend to 10-K and other documents that we followed yesterday. So you can find them on the investors page of our website Gladstone investment dotcom.

[noise] website at Www Dot S. A C dot G O V.

Take no obligation publicly update a revised 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 any past performance information or market information about a guarantee of any future results at least take the opportunity to visit our website once again Gladstone investment dotcom.

Sign up for our email notification service can also find us on Twitter at Gladstone comps and on Facebook keyboard. The Gladstone companies today's call is simply an overview of ourselves through June 30, twenty-three. So we ask that you review our press release Form 10-Q boasts issued yesterday.

Detailed information about with that I'll turn it over to Gladstone investments President David David Thanks, Mike Good morning to everyone on the call.

I am pleased to report that we did have a very good first quarter of fiscal you're at 24.

And that in fact follows on the previous very solid fourth quarter, we had a physical twenty-three. We ended this first quarter on 630 twenty-three with adjusted NII of 25 cents per share and total assets of 847 million and those assets are that amount of asked.

Sets it up from 766 million, which was at the end of the prior quarter.

So the deal activity for this quarter actually it was pretty good in that we invested in aggregate up approximately $50 million in one new buyout investments and add on acquisition of one of our existing portfolio companies and we were able to make an investment to facilitate it give it an recapitalization of another of art.

Current portfolio companies. This recap actually helped to produce both are realized capital gain and other income for the quarter.

We actually find that these add ons and these debate and recap opportunities. They are important to pursue and they do allow us to increase their investment in an existing company and in fact, one where we would know the management team well, we know the business and we have a strong belief in the future. So we can build incremental value.

Particular company, so I'd give it a recap as a positive thing and we might do it again from time to time as may come up.

We were also able to maintain our monkey distribution to shareholders at eight cents per share or 96 cents per share on an annual basis. We also paid a supplemental distribution of 12 cents per share in June and then subsequent to this quarter and we declared another supplemental distribution of 12 cents per share which will be paid.

In September 2023.

We currently right now or anticipate being able to fund future supplemental distributions as we continue to recognize realized capital gains on the equity portion of future exits and potentially from other recapitalization.

R. A buyout focused strategy, which does differentiate us from other bdcs continues to successfully generate both the income for the Monkey distributions is mentioned and also capital gains on the equity when it comes from along the supplemental distributions.

During the quarter. We also successfully issues 74.8 million in new publicly traded 8% notes and those go along the other other two publicly traded notes that we we have currently in these notes will mature in 2028.

Our balance sheet continues to be strong we have low leverage in a very positive liquidity position, including additional availability on our credit facility. So we will continue being able to provide support to our portfolio companies for add on acquisitions, which is one of the areas. We've been we've been focusing on that's also a interim financing if they need.

It arises why are we actively grow the assets from new vials.

So looking ahead the deal slow at first it seems to be picking up somewhat they're sellers, who had been somewhat holding back over the past six months seemed to be testing the market. We of course, you're in the market all the time and what we can gather from the merger and acquisition groups and the cell site investment bankers.

Is that the backlog of new opportunities seems to be building and we may be seeing an increasing supply of by-road opportunities going into the end of the year. So there continues therefore, he be significant liquidity and buy out funds, which does reinforce a strong competitive environment that we face as a result of that we will remain valley.

Are you sensitive why that'd be aggressively compete for new acquisitions that really do fit our criteria.

We are currently in the due diligence phase on a few new buyout opportunities. So we will see how that plays out over the next few quarters.

As far as adding to our portfolio, which obviously continues to be our our main objective in goal as we grow the assets of Gladstone investment Corporation.

So in summing up the quarter and looking forward. We believe the state of our portfolio is very good we have a strong in liquid balance sheet and active level a buyout activity and it continued prospect of very good earnings and distributions over the next year, so with that I'm going to turn it over to our C. A full Rachel eastern so she can give you a bit more detail on on that that.

Rachel.

Good morning, everyone.

At our operating performance in the first quarter of fiscal year 24, we generate a total of 20.3 million up from 19.9 million in the prior courtyard.

Kris was primarily due to increased interest income, which was driven by an increase in the weighted average.

It's a 14.7% from 14.3% which was directly corner.

This increase in total investment income was limited as our dividend unsuccessfully income, which is variable and timing.

I as the prior corner.

And that expenses as of June 30th 11.9 million up from $10.2 million in the prior corner. This was primarily due to an increase in capital a crew capital gains based on fantasy is due to the net.

I've realized an unrealized gains and losses as required under your last gap as well as an increase in interest expense, which is primarily due to the new eight per cent notes issued.

This resulted in none investment income for the quarter to $8.4 million or 25 cents per share.

6 million or 20th for sure.

I just didn't have enough for the corner with 8.5 million or 25 cents per share dot a penny from $8.6 million.

We continue to believe that adjusted not investment income, which isn't that investment income exclusive of any capital gains fantasies is it useful and representative indicator of our ongoing operations.

Consistent with a prior corner at June 30th 2023, we continue to have three portfolio companies that are on non accrual status and we will continue working with us companies to get back on and crossed out if possible.

That maintaining on quality and flexibility to support and grow our portfolio are key elements of our success as Dave mentioned during the quarter. We successfully issue 74.8 million a new publicly traded eight per cent.

2028.

With these new notes.

Two public echelon says, we have long term fixed rate capital in place and at June 30th 2023, we had over 133 million available on 180 million dollar line a line of credit.

Additionally in July we raised approximately four valley Internet proceeds under our common stock ATM program, all sales of which whereabouts.

We anticipate continuing to be active in the a T M program.

Overall, our leverage remains relatively low with an asset coverage ratio at June 30th of 211%, providing plenty of question to the required 150 per cent coverage.

Valuations in the aggregate remained relatively flat that's quite error, resulting from upsetting fair value fluctuation. This was led by higher valuation multiples across the portfolio and it was offset by decreased appetite at a few portfolio.

Or any of the 19.

99 per share compared to 13 O nine per share at the end of the prior corner.

The decrease was primarily driven by 36 cents per share of distributions pizza common shareholder starting at the corner.

[noise] cents per share was related to a supplemental distribution. This was partially offset by 25 cents per share of and I I generated during the corner.

Consistently airporters distributor bulk earnings to shareholders remain strong restarted the fiscal year with $32 million.95 per share and spell of our in our monthly distribution remains consistent at eight cents per share for annual run rate of 96 cents per share.

During this past quarter in June 2023, we've had a 12 cents per share supplemental distribution and in July we declared an additional 12 that pressure distribution to be pay next month in September .

We love to continue funding future supplemental distributions as we recognized realized capital gains on the equity portion of accents.

Using the monthly distribution run rate of 96 cents per share per year, and 24 cents per share and supplemental distributions paid are declared so far in the current fiscal year or aggregate estimated fiscal year distributions with total at least $1.20 per common chair or y'all'd've about 8.9 per cent using yesterday's closing price of 13 46.

This covers my part of today's call back to you David Alright. Thank you Rachel and it was very nice presentation.

Trolling also good luck, Dave and Michael.

This is good information for our shareholders. This call in the 10-K filed with the S. A C yesterday should bring.

Everybody up to date team has reported solid results for the quarter, including the buyout investment activity and.

There's exit activity associated with a net realized gains that's been increasing we believe the team is in a great position to continue these successes.

The remainder of our fiscal year ending March 31st 2024.

I just say it again I believe Gladstone investment as an attractive investment for those investors seeking continuous monthly distributions and supplemental distributions from potential capital gains and other income team hopes to continue to show your strong returns on your investment in eight.

0.9% yield town current basis is pretty good so now I'm going to stop and ask our analysts and shareholders. If they have some questions I'd like to ask us latoya.

Thank you we would now conduct a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.

Confirmation tone indicate your line is in a question Q you make press star too if you would like to remove your questions from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing darkies.

Once again, that's star one at this time.

One moment, while people for questions.

No question again, ladies and gentlemen to ask a question. Please press Darwin. Our first question comes from Mickey Sleep with Latin America. Please proceed.

Yes, good morning, everyone.

Dave I'd like to follow up on your investments <unk> degree.

I see this this quarter you invested 30 million as a follow on and then subsequent to the quarter you announced.

Providing funding to support himself acquisition of Exposition holding.

And that will be joined within <unk> degree. So I'm a little confused could you describe ultimately what the structure of these investments will be and what did you emerge and degree with exposition.

No. So very brief history Mickey we sold ends degree in 2019 at the end of 2019 to himself when we exited we actually retained a small ownership percentage I think it was around 10% with an investment cost of about a million.

We did that for some structural reasons in the nature of selling the business. Obviously, we sold it as you might recall are very very nice Catholic gained subsequently 2020 came along that business went down pretty dramatically. They were able though then to come back out of it very nicely in in the <unk>.

He won period and going into 22, they started ramping up their EBITDA and as a result of that they were able to make this act. This company came along expositions and actually really add significantly two two n's degree so ends degree acquired.

<unk> and what we did was we were able to provide some capital of both debt and equity.

Into ends degree is a current structure is in fact that increased our equity ownership percentage in the business up to I think roughly around 15 per cent of advanced degree. So not only have we now got a reinvestment of debt at a really nice right, but we now have.

Steak again in the company, obviously, we really liked the the management team. They now with this acquisition.

Or somewhere in the 50 million almost EBITDA range. So it's a significant business now and one that frankly gives us the opportunity to have a second shot at at a rate company. So we're we're very pleased with it.

So just so I make sure I'm on the same page, Dave There's no additional capital required in this transaction you're now at this moment.

No okay, and so the <unk> the cash that's on the balance sheet, which is high for you that the the the use of that is going to be toward other investments not this one.

Correct, absolutely yep.

Okay. I also wanted to ask you about trends in your portfolio companies performance in terms of revenues and EBIT.

And what.

Part of the portfolio cause of the decline in the average risk rating of the portfolio of this quarter.

I'm Gonna I'll turn that over to Rachel let her have a chance to.

Way in.

Sure from from a performance perspective, we did see multiples across the portfolio increase and as I said in my prepared remarks EBITDA across much of the portfolio that increase as well, but that was offset by even out which was down from a handful of our of our portfolio companies, we were paying for all the tip.

Flat on an aggregate basis quarter over quarter from a fair value perspective.

From our internal risk rating perspective, you know this is the risk rating that we use internally to estimate the probability of default on our debt securities in any I expected loss overall, there was a a slight a decrease in the weighted average balance, but nothing that we remain concerned about.

And and do in terms of the Underperformers or can you tell us what sort of sectors, you're seeing those trends develop.

Mickey I'd to say, it's sort of a cross the the whole portfolio. There are none that were you know seeing any significant decline in a couple of them that are in the consumer type products businesses. We had a you know a very modest you know decline and you.

Keeping in mind that you know a small change in EBITDA Time's a fairly good size multiple can have an impact in terms of the you know our quote valuation if you will right. So the the the again I would say it was around a couple of the companies that are in the in the.

Consumer oriented products area, nothing again that where we are overly concerned about in any of those companies are all in good shape and and doing well so yeah and the other other sectors of all perform pretty well actually and so that that's how I would respond to that.

Okay and my last question, Dave how long do you think it might take to.

Invest the cash that's on the balance sheet.

Well as I mentioned in my remarks, we've got a couple of deals that we're working on right now that are in the due diligence phase and so we you know keep keep we'll keep hitting the web and hopefully we'll we'll find a couple of those that might might get done here in the next couple of months.

Okay.

That's it for me this morning and I. Appreciate your time. Thank you. Thank you. Thank you good to talk to you.

Once again, ladies and gentlemen to ask a question. Please press star one on your telephone keypad.

Mister Gladstone there are no further questions in queue at this time I would like to turn it back to you for closing comments.

Okay. Thank you so much and thanks to all of you for calling in.

Doing so well makes the call pretty boring because we don't have anything much to talk about except our successes.

I appreciate all you've you're calling in and we will see you next quarter. That's the end of this call.

Thank you. This does concludes today's teleconference. You may disconnect. Your minds at this time. Thank you for your participation and have a great day.

[music].

Mmm.

Mhm.

[music].