Q3 2024 Gladstone Investment Corp Earnings Call
Operator: www.globalonenessproject.org Greetings and welcome to the Gladstone Investment Corporation third quarter earnings call. At this time, all participants are in a listen-only mode.
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Greetings and welcome to the Gladstone investment Corporation's third quarter earnings call. At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation.
Operator: A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, 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. Thank you, Mr. Gladstone. You may begin. Thank you, Cat.
Anyone should require operator assistance during the conference. Please.
<unk> zero on your telephone keypad.
As a reminder, this conference is being recorded it is my pleasure to introduce your host David Gladstone. Thank you. Mr. Gladstone you may begin.
Thank you cat that was a good beginning and this is David Gladstone Chairman of Gladstone investment and this is the third quarter that we're gonna be talking about the year ending December 31st 2023.
David Gladstone: That was a good beginning. And this is David Gladstone, chairman of Gladstone Investment. And this is the third quarter that we're going to be talking about, the year ending December 31st, 2023. The fiscal year ends in a couple of months, and this Earnings Conference call is for all the shareholders and analysts that listen to us. We're listed on NASDAQ under the symbol G-A-I-N, capital gains, gain, and then the common, that's the common stock, and then there's gain N, gain Z, and gain L. All three of these are different registered notes; buy those if you wish as well. We won't be talking much about them today.
Fiscal year ends in a couple of months.
Earnings Conference call is for all the shareholders and analysts that follow us and we listed on NASDAQ under the symbol G. A I N.
Uh huh.
Capital gains gain and then the comment that's the common stock and then there's gain in game Z and gain al all three of these are different registered notes. So you can either if you wish as well we won't be talking much about them today.
David Gladstone: Thank you for calling in. We're always happy to provide an update to our shareholders and analysts, and provide our view of the current business environment. So there are really two goals here: help you understand what has happened. And even though we don't have a crystal ball, we'll give you our current view of the... Now we'll hear from our Deputy General Counsel, Eric Hellman.
Thank you for calling in we're always happy to provide an update to our shareholders and analysts that.
Provide our view of the current business environment. So there's really two goals here help me understand what has happened.
And even though we don't have a crystal ball will give you our current view of the future.
And now well hear from our Deputy General Counsel Erich helmet.
Eric Hellman: Thank you, and good morning everyone. Today's call may 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 and other factors, even though they are based on our current plans, which we believe are 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 risk factors listed in our Forms 10-Q, 10-K, and other documents we file with the SEC.
Eric Thanks.
Thank you and good morning, everyone. Today's call May include forward looking statements under the Securities Act of 1933 Securities Exchange Act of 1934, including those regarding our future performance.
These forward looking statements involve certain risks and uncertainties and other factors, even though they 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 risk factors listed in our forms 10-Q, 10-K, and other documents we file with the S E C.
Eric Hellman: These can all be found on the Investors page of our website at www.gladstoneinvestment.com or the SEC's website at www.sec.gov. 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. Please also note that past performance or market information is not a guarantee of future results. Please take the opportunity to visit our website, www.gladstoneinvestment.com, and sign up for our email notification service. You can also find us on Twitter at GladstoneComps and on Facebook using the keyword The Gladstone Company.
This can all be found on the investors page of our website at Www Dot Gladstone investment's dot com or the Sec's website at Www Dot FCC Dot Gov.
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. Please also note that past performance or market information is not a guarantee of future results.
Can you just take the opportunity to visit our website at Www Gladstone investment Dot com and sign up for our email notification service.
Could also find us on Twitter at Gladstone comps and on Facebook keyword the Gladstone companies.
Today's call is simply an overview of our results through December 31st 2023. So we ask that you review our press release and Form 10-Q, both issued yesterday for more detailed information.
Dave Dellum: Today's call is simply an overview of our results through December 31st, 2023, so we ask that you review our press release and Form 10-Q, both issued yesterday, for more detailed information. Now I'll turn it over to Dave Dellum, President of Gladstone Investments. Thanks, Eric, and good morning, everyone.
Now I'll turn it over to Dave <unk> President of Gladstone investment, Thanks, Eric and good morning, everyone. We are happy to report that gain produced very good results for this third quarter of fiscal year, 'twenty, four which follows on the previous solid first two quarters of fiscal year 'twenty four which of course ends in March we ended the third.
Dave Dellum: We are happy to report that GAIN produced very good results for this third quarter of fiscal year 24, which follows on the previous solid first two quarters of fiscal year 24, which, of course, ends in March. We ended the third quarter of fiscal year 24 on 12-31-23 with an adjusted NII of 26 cents per share and total assets of $918 million. You'll learn more about this from Rachel Easton, our CFO, when she describes the details around that. Again, those are good results.
Third quarter of fiscal year 'twenty four on 12, 31, 23 with adjusted NII of 26 cents per share and total assets of $918 million.
You'll learn more about this from a Rachel eastern our CFO and she describes the details around that again those are good results.
Dave Dellum: In regards to activity for the quarter, we did invest $65 million, which helped us to fund an add-on acquisition in one of our existing portfolio companies. And again, obviously, we are always looking at doing new deals, making new investments, and new acquisitions, and that continues to be our goal and objective. However, doing add-ons to certain of our existing portfolio companies is really an important aspect of our value-building process because it allows us to increase our investment in companies where we know the management team, the business itself, and where we have a strong belief in the future of the business, and it continues to allow us to really build very good value in these fundamental businesses.
In regards to activity for the quarter, we did invest 65 million, which helped us to fund an add on acquisition in one of our existing portfolio of companies and again you know we obviously we are always looking at are doing new deals, making new investments in new acquisitions and that continues to be our goal and objective.
Never doing add ons to certain of our existing portfolio of companies is really an important aspect of our value building process because it allows us to increase our investment in companies, where we know the management team the business itself and where we have a strong belief in its future and then it continues to allow us to really build very.
Good value in these fundamental businesses. So we'll continue to do that as necessary and in certain specific cases, obviously, while pursuing our main business, which is adding new new acquisitions as we go along.
Dave Dellum: So we'll continue to do that as necessary and in certain specific cases, obviously while pursuing our main business, which is adding new acquisitions as we go along. We also, as we have in our buyout strategy, exits, and we did have a very successful exit with one of our portfolio companies where we actually generated a pretty meaningful realized capital gain for us of about $43.5 million. We were able to maintain our monthly distribution to shareholders at $0.08 per share or $0.96 per share on an annual basis, and we paid an aggregate supplemental distribution of a dollar per share during November and December of 2023.
We also as we have with our buyout strategy exits and we did have a very successful exit with one of our portfolio companies, where we actually generated pretty meaningful realized capital gain for us of about 43, and a half million dollars.
We were able to maintain our monthly distributions to shareholders at eight cents per share or 96 cents per share on an annual basis, and we paid an aggregate supplemental distribution of a dollar per share doing November and December of 2023.
Dave Dellum: Again, this large supplemental distribution is a result of the buyout strategy and is our ability to continue rewarding our shareholders with these meaningful distributions from realized capital gains, which are generated on the equity portion of our exits, in addition, of course, to the income that we continue to generate for the monthly distributions and which is obviously very important for the basis of distribution to our shareholders on a monthly basis. Our balance sheet continues to be strong with very low leverage and a very positive liquidity position with additional availability on our credit facility. So we will continue providing support to our portfolio companies, both for add-on acquisitions and interim financing if the need arises, while actively growing our assets through new buyouts.
Again this large supplemental distribution is a result of the buyout strategy add is our ability to continue rewarding our shareholders with these meaningful distributions from realized capital gains which are generated on the equity portion of our exits. In addition of course to the income that we continue to generate before the monthly distributions excuse me.
And which is obviously very important for the basis of distributions to our shareholders on a monthly basis.
Our balance sheet continues to be strong with very low leverage and a very positive liquidity position with additional availability on our credit facility. So we will continue providing support to our portfolio of companies both for add on acquisitions interim financing as the need arises while actively growing our assets in new buyouts turning to the outlook.
Dave Dellum: Turning to the outlook, deal flow, as we call it, appears to be picking up somewhat as the sellers who have been holding back over the past six months or so are testing the market. And we do hear from the merger and acquisition groups and investment bankers, who are our primary sources for new acquisition opportunities, that the backlog of new opportunities has been building. It seems like the last six months or so of last year were fairly slow, and deals were coming to the market, and they were being taken back, et cetera.
The deal flow as we call it appears to be picking up somewhat as the sellers had been holding back over the past six months or so are testing the market and we do hear from the merger and acquisition group's investment bankers, who are our primary sources for new acquisition opportunities that the backlog of new opportunities has been <unk>.
Building seems like the last six months or so of last year were fairly.
Slow somewhat in deals were coming to the market and they were being taken back et cetera, and now it looks like there's continue to be a bit of of an increase in this regard maybe somewhat as a result of interest rates, perhaps coming down et cetera, but in any event. We we continue working on a new few new possible buyout deals and we're currently in that early.
Dave Dellum: Now it looks like there's continuing to be a bit of an increase in this regard, maybe somewhat as a result of interest rates perhaps coming down, et cetera. But in any event, we continue working on a few new possible buyout deals, and we're currently in that early phase of the process. There does continue to be very significant liquidity in the market, meaning that our competitive situation is, of course, being challenged all the time. So we're going to remain value-sensitive while we aggressively compete for new acquisitions.
As of the process. There does continue to be very significant liquidity in the market, meaning that our competitive situation is of course being challenge all the time. So we're gonna remains value sensitive while we aggressively compete for new acquisitions. So in summing up the quarter and looking forward. We believe the state of our portfolio is very good we have a strong.
Dave Dellum: So in summing up the quarter and looking forward, we believe the state of our portfolio is very good. We have a strong and liquid balance sheet, an active level of buyout activity, and continued prospects of very good earnings and distributions over the next year. So I'll turn it over to Rachel Easton, our CFO, and she can give more details on the finances of the quarter.
And liquid balance sheet and active level of buyout activity continued prospects are very good earnings and distributions over the next year. So I'll turn it over to Rachel Eaton, our CFO and she can give more details on the finances of the quarter Rachel Thank you.
Rachel Easton: Thank you, and good morning, everyone. Looking at our operating performance in the third quarter of fiscal year 24, we generated total investment income of $23.1 million. That was up from $20.3 million in the prior quarter. This increase was primarily due to increased interest income, which was driven by new debt investments made in the quarter, as well as higher dividend and success fee income, resulting from fees received associated with an exit during the quarter, as compared to not receiving any of these fees in the prior quarter. Net expenses as of December 31, 2023, were $13.3 million.
And good morning, everyone looking at our operating performance in the third quarter of fiscal year 'twenty. Four we generated total investment income of $23 1 million that was up from $20 3 million in the prior quarter. This increase was primarily due to increased interest income, which was driven by new debt investments made in the quarter as well as higher dividend and success fee income.
Faulting from fees received associated with an exit during the quarter as compared to not receiving any of these fees in the prior quarter.
Net expenses as of December 31, 2023 were $13 3 million. This was down from 22 million in the prior quarter. This decrease is primarily due to a $10 4 million a decrease in accrued capital gains based incentive fees due to the net impact of realized and unrealized gains and losses as required under U S. GAAP. This decrease was partially offset by an increase in <unk>.
Rachel Easton: This was down from $22 million in the prior quarter. This decrease is primarily due to a $10.4 million decrease in accrued capital gains-based incentive fees due to the net impact of realized and unrealized gains and losses as required under a U.S. gap. This decrease was partially offset by an increase in borrowing. This resulted in net investment income for the quarter of $9.7 million compared to net investment loss of $1.7 million in the prior quarter.
Uh huh.
This resulted in net investment income for the quarter of $9 7 million compared to net investment loss of $1 7 million in the prior quarter. This fluctuation is primarily due to the large accrued capital gains based incentive fees recognized during the prior quarter.
Rachel Easton: This fluctuation is primarily due to the large accrued capital gains-based incentive fees recognized during the prior quarter. Adjusted net investment income, which is net investment income or loss exclusive of any accrued capital gains-based incentives for the quarter, was $9.1 million, or $0.26 per share, up two cents from $8.1 million, or $0.24 per share in that prior quarter. We continue to believe that adjusted net investment income is a useful and representative indicator of our ongoing operation. Consistent with the prior quarter, at December 31st, 2023, we continue to have three portfolio companies that are on non-accrual status, and we will continue working with those companies to get back on accrual status when possible. We believe that maintaining liquidity and flexibility to support and grow our portfolio are key elements of our success. With our three public note issuances, we have long-term, fixed-rate capital in place. And, as announced yesterday, we have amended and expanded our credit facility, increasing the capacity to $200 million.
Adjusted net investment income, which is net investment income or loss exclusive of any accrued capital gains based incentive fees for the quarter was $9 1 million or 26 cents per share up two cents from $8 1 million or 24 cents per share in that prior quarter. We continue to believe that adjusted net investment income is a useful and representative indicator of our ongoing operations.
Consistent with the prior quarter at December 31st 2023, we continue to have three portfolio companies that are on non accrual status and we will continue working with those companies to get back on accrual status when possible.
Okay.
We believe that maintaining liquidity and flexibility to support and grow our portfolio are key elements of our success with our three public notice Sean says, we have long term fixed rate capital in place and as announced yesterday, we have amended and expanded our credit facility, increasing the capacity to 200 million and as of Yesterdays release, we had over 120 million available.
Rachel Easton: And as of yesterday's release, we had over $120 million available of that capacity. Additionally, during the quarter, we were very successful with our common stock ATM program, raising approximately $21 million in net proceeds, as well as an additional $7.7 million in net proceeds raised in January, with all sales being accretive and above the then current NAV. We anticipate continuing to be active in the ATM program. Overall, our leverage remains relatively low, with an asset coverage ratio at December 31, 2023 of 207%, providing plenty of cushion to the required 150% coverage. The price decreased to $13.01 per share for the quarter compared to $14.03 per share at the end of the prior quarter. The decrease was primarily driven by $1.36 per share in net unrealized depreciation on investments and $1.24 per share of distributions paid to common shareholders during the quarter, of which $1 per share related to supplemental distributions.
All of that capacity.
Additionally, during the quarter, we were very successful on our common stock ATM program, raising approximately 21 million in net proceeds as well as an additional $7 7 million in net proceeds raised in January with all sales being accretive and above that in current NAV, we anticipate continuing to be active in the ATM program.
Overall, our leverage remains relatively low with an asset coverage ratio at December 31, 2023 of 207%, providing plenty of cushion to the required 150% coverage.
Our NAV decreased <unk> 13 of one per share for the quarter compared to $14 three per share at the end of the prior quarter. The decrease was primarily driven by a $1 30, 36 cents per share and net unrealized depreciation on investments and $1.24 per share of distributions paid to common shareholders during the quarter of which a dollar per share.
Related to supplemental distributions. These decreases were partially offset by a $1 27 per share of realized gains on investments and 28 cents per share of net investment income.
Consistent with prior quarters distributable book earnings to shareholders remain strong we started the fiscal year was 32 million or <unk> 95 cents per share in spillover in our monthly distribution remains consistent at eight cents per share per month for an annual run rate of 96 cents per share. During this past quarter in November and December 2023 we paid an aggregate.
Rachel Easton: These decreases were partially offset by $1.27 per share of realized gains on investments and $0.28 per share of net investments. Consistent with prior quarters, distributable book earnings to shareholders remain strong. We started the fiscal year with $32 million, or $0.95 per share in spillover, and our monthly distribution remains consistent at $0.08 per share per month for an annual run rate of $0.96 per share. During this past quarter, in November and December 2023, we paid an aggregate dollar per share supplemental distribution. We look to continue funding future supplemental distribution as we recognize realized capital gains in the equity portion of our act. Using the monthly distribution run rate of $0.96 per share per year and $1.24 per share in supplemental distributions paid so far in the fiscal year 2024, our aggregate estimated fiscal year distributions would total at least $2.20 per common share, or a yield of about 16% using yesterday's closing price of $30.96. This covers my part of today's call. Back to you, David. Oh, thank you very much.
Dollar per share supplemental distributions, we look to continue funding future supplemental distributions as we recognize realized capital gains on the equity portion of our assets.
Using the monthly distribution run rate of 96 cents per share per year, and $1 24 per share in supplemental distributions paid so far in the fiscal year 'twenty 'twenty four our aggregate estimated fiscal year distributions with total at least $2.20 per common share or a yield of about 16% using yesterday's closing price of $30.
96 cents.
This covers my part of todays call back to you David.
Thank you very much that was very very good quarter no.
Children, Dave He's done a great job, Eric good information for our shareholders.
This cool call in the 10-Q filed yesterday with the Securities and Exchange Commission should bring everyone up to date.
Team has reported solid results for the quarter ending December 31st including the add on investments in exit activity associated with net realized gains.
We believe the team is in a great position to continue these successes through there.
Fiscal year <unk>.
Fiscal year ends March 31, 'twenty 'twenty four.
I just think Gladstone investment is an attractive investment for investors at this point in time. He got monthly distributions and then you got supplemental distributions from the potential capital gains and other income.
David Gladstone: That was a very, very good quarter, Rachel, and Dave, you've done a great job, and Eric, good information for our shareholders. This call and the 10-Q filed yesterday with the Securities and Exchange Commission should bring everyone up to date. The team has reported solid results for the quarter ending December 31st, including the add-on investments and exit activity associated with net realized gains. We believe the team is in a great position to continue these successes through the remainder of the fiscal year, and that fiscal year ends March 31st, 2024. I just think Gladstone Investments is an attractive investment for investors at this point. You get monthly distributions, and then you get supplemental distributions from potential capital gains and some other income.
The team hopes to continue of course to show you a strong return and rather than keep talking about it lets get some questions from the analyst.
And shareholders that are on the line. So operator, if you'll come on in and or manage that that'd be good.
Yeah.
Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad, 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 star keys, one moment, please while we poll for questions.
Operator: The team hopes to continue, of course, to show you a strong return. And rather than keep talking about it, let's get some questions from the analysts and shareholders that are on the line. So, operator, if you'd come on and manage that, that'd be good. Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question area. You may press star 2 if you would like to remove your question from. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start button.
Our first question comes from Mickey Schlein from Ladenburg Capital. Please proceed.
Yes, good morning, everyone.
Dave I wanted to understand from you how your portfolio companies are progressing in terms of their revenues and margins are all outside of consumer. We're all aware that you know the consumer facing companies have headwinds, but are you seeing any trends in the rest of the portfolio.
Hey, Mickey good morning, nice to talk to you.
Not truly not really where we're seeing I would say pretty consistent.
Not decline, but slow slower call it growth, but things are holding up pretty well across the board cost of materials in some cases and distribution costs, which impacted some of our industrial companies et cetera from the supply chain side I would say those who have eased a bit. So that's obviously held on.
Operator: One moment, please, while we poll for questions. Our first question comes from Mickey Schlein from Ladenburg Capital. Yes, good morning, everyone.
On that end, but frankly, all all in all we are seeing I would say a fairly you know just again moderate.
David Gladstone: Dave, wanted to understand from you how your portfolio companies are progressing in terms of their revenues and margins outside of consumer. We're all aware that, you know, the consumer facing companies have headwinds, but are you seeing any trends in the rest of the portfolio? Hey, Mickey.
Boeing's go slow, but nothing dramatic one way or the other.
Interestingly some of our consumer products companies actually are doing reasonably well you know, even though as you said the consumer side tends to be a little bit slower right now, but generally I'd say pretty stable.
David Gladstone: Good morning. Nice to talk to you. Not really, not really. We're seeing, I would say, pretty consistent, not decline, but a little slower, call it growth, but things are holding up pretty well across the board. Cost of materials, in some cases, and distribution costs, which have impacted some of our industrial companies, etc., from the supply chain side.
But that's good to hear.
Dave in terms of the deal flow, we're hearing that.
Part of what we're seeing I'm not I'm not sure. That's the case with you, but part of what we're seeing is the private equity funds conducting dividend recaps for their stronger performers are in order to attract some you know our results for themselves and for their shareholders and is that something you are considering.
<unk> doing or.
David Gladstone: I would say those have eased a bit, so that's obviously held on that end. But, frankly, all in all, we are seeing, I would say, a fairly, you know, just again, moderate going, go slow, but nothing dramatic one way or the other. Interestingly, some of our consumer products companies are actually doing reasonably well, you know, even though, as you said, the consumer side tends to be a little bit slower right now, but generally, I'd say pretty stable. That's good to hear.
The near future for some of your better performing companies, which also may help optimize their balance sheets.
Right right nothing honestly right now as you know we have done a couple of of dividend recaps over the last couple of years. One company in particular, we did a couple of them actually with that company and then one other one we did one last year and those were for all the reasons you mentioned, but as of right now.
It's not something we are always looking at it because it is a good way, especially if it's a good business that we like and we're able to sort of stay involved in a very meaningful way as you say extract some value for shareholders and for the management teams by the way those companies at any time, we've done it it's always been in sync.
David Gladstone: Dave, in terms of deal flow, we're hearing that part of what we're seeing, I'm not sure that's the case with you, but part of what we're seeing is private equity funds conducting dividend recaps for their stronger performers in order to attract some, you know, results for themselves and for their shareholders. Is that something you're considering doing or in the near future for some of your better performing companies, which may also help optimize their balance? Right, right. Nothing, honestly, right now. As you know, we have done a couple of dividend recaps over the last couple of years. One company in particular, we did a couple with that company, and then one other one; we did one last year, and those were for all the reasons you mentioned.
With the management teams of our portfolio companies, which as you know it's something that's really important to us. So right now I don't I don't see that necessarily and then my only other commentary on the market in general as I mentioned briefly is you know there seemed to have been really kind of a weird last half of last year were a fair number of deals were in the market than they got.
Pulled et cetera, and they seem to be slowly coming back right. Now. So we are seeing a bit of again or the other.
Pick up at least in the deal flow I will tell you that the ones that we're looking at and we're serious about it as usual were going in with values that make sense for us and that seems to be working reasonably well, others, frankly, theres still some crazy values at or at least being being paid and you know we can't compete and those are not going to compete in those.
David Gladstone: But as of right now, it's not something we are always looking at it, because it is a good way, especially if it's a good business that we like and we're able to sort of stay involved in a very meaningful way, as you say, extract some value for shareholders and for the management teams, by the way, of those companies. Anytime we've done it, it's always been in sync with the management teams of our portfolio companies, which is, you know, something that's really important to us. So right now, I don't see that necessarily. And then my only other commentary on the market in general, as I mentioned briefly, is that there seemed to have been a really kind of weird last half of last year, where a fair number of deals were in the market, then they got pulled, etc. And they seem to be slowly coming back right now.
But generally I'd say the outlook looks reasonably good.
Okay. Okay, that's interesting and helpful. David My last question.
The more liquid markets for credits have reopened as you as we all know are you concerned about refinancing risk for some of your better performing investments in in other words.
Could some of these investments go to other suppliers of debt capital at cheaper rates than you're offering them in.
You'd be taken out.
Yeah, No. That's a great question and obviously something we always look at and have looked at over many many years and frankly I can only think of one company where that that actually happened was an unusual circumstance I would say the fact that our capital is.
David Gladstone: So we are seeing a bit of, again, a pickup, at least in the quote and deal flow. I will tell you that the ones that we're looking at, and we're serious about, as usual, we're going in with values that make sense for us. And that seems to be working reasonably well. Others, Frankly, there's still some crazy values that are at least being paid. And, you know, we can't compete in those and are not going to compete in those.
Is that really as you know.
It's a combination of the debt and the equity REIT in the transaction. So the effective yield so to speak as you know comparison, you know too to say, what just pure debt might be even with this environment, where it gets where debt is coming down I would say, we're still very competitive in that regard the relationship with a portfolio of.
David Gladstone: But generally, I'd say the outlook looks reasonably good. Okay, that's interesting and helpful. Dave, my last question. The more liquid markets for credit have reopened, as we all know.
David Gladstone: Are you concerned about the refinancing risk for some of your better performing investments? In other words, could some of these investments go to other suppliers of debt capital at cheaper rates than you're offering them, and you'd be taken out? Yeah, no, that's a great question and, obviously, something we've always looked at and have looked at over many, many years. And, frankly, I can only think of one company where that actually happened was an unusual circumstance. I would say the fact that our capital, as you know, is a combination of debt and equity, right, in the transaction. So the effective yield, so to speak, is, you know, a comparison, you know, to say what just pure debt might be, even in this environment where debt is coming down. I would say we're still very competitive in that regard.
<unk> is probably as important as anything and then the other aspect to that is while as you point out this the spreads might be getting a bit tighter meaning interest rates are coming down the availability still I think leased from what we're seeing is it's not just you know all of a sudden that flood gates have opened so to speak right and then you can get.
All of the catheter you need at low rates. So right now honestly I'm not seeing any challenges for our portfolio of companies in that regard could it happen sure, but I'm not seeing anything right now and so I'm not overly concerned and we're gonna get taken out in any in any situations that you know that we may not may not want to be taken out.
Uh huh.
I understand those those are all my questions. This morning I. Appreciate your time. Thank you. Thank you. Thank you.
David Gladstone: The relationship with the portfolio companies is probably as important as anything. And then the other aspect of that is, while, as you point out, the spreads might be, you know, getting a bit tighter, meaning interest rates are coming down, the availability, still, I think, at least from what we're seeing, is not just, you know, all of a sudden, the floodgates have opened, so to speak, right? And you can get all the capital you need at low rates. So right now, honestly, I'm not seeing any challenges for our portfolio companies in that regard. Could it happen?
Okay any questions any further questions from people.
Our next question comes from Kyle Joseph from Jefferies. Please proceed.
Hey, good morning, Thanks for taking my question.
Just wanted to get your thoughts on leverage obviously, you guys have a lot of dry powder right now and it sounds like you're getting more optimistic about deal flow in the 'twenty four but just talk about you know where your where you're comfortable taking leverage to if we do get that deal flow or is it really just more of a function of the market and what deals get done.
Hi, all good morning, I'm, you know I think what you said a function of the market and why and what deals we get done. So as you know, we we keep a pretty conservative leverage profile I think compared to the BDC peer group.
David Gladstone: Sure. But I'm not seeing anything right now. And so I'm not overly concerned that we're going to get taken out in any situations that, you know, we may not want to be taken out. I understand. Those are all my questions this morning. Thank you. Thank you. Okay, any questions, any further questions from people? Our next question comes from Kyle Joseph from Jeffries. Please proceed.
And that's something we do believe is really important but it's also to provide us the flexibility to support that potential new deal flow. So we want to be able to you know be in a position where if if we need to to fund new deals we have the ability to take on additional borrowings in it it doesn't threaten breaking that 150% test.
Kyle Joseph: Thanks for taking my questions. I just want to get your thoughts on leverage. Obviously, you guys have a lot of dry powder right now, and it sounds like you're getting more optimistic about deal flow into 24. But just talk about where you are, where you're comfortable taking leverage if we do get that deal flow, or is it really just more of a function of the market and what deals get done. Kyle, good morning. You know, I think what you said is a function of the market and what deals we get done. So, as you know, we keep a pretty conservative leverage profile, I think, compared to the greater BDC peer group. And that's something we do believe is really important, but it's also to provide us with the flexibility to support that potential new deal flow. So we want to be able to, you know, be in a position where if we need to fund new deals, we have the ability to take on additional borrowings, and it doesn't threaten, you know, breaking that 150% test.
And karla.
Just briefly add to that and as Rachel said.
In her part of the call we've had a fairly successful ATM program of course, which you know we started to put in place being able to and we're very rigorous on.
What the Cushing is if you will relative to NAV and we're going to stick with that so we're not going to do anything crazy there, but it gives us the ability to you know, especially looking forward and the expectation hopefully we can start doing some newer deals and obviously using some of this leverage that were likewise, providing the support from the equity side U S.
Rachel said, you know be able to maintain a level of the coverage ratio, that's not going to put us at risk in that regard so.
Okay.
Got it.
Very helpful. And then one follow up for me just talking about the competitive environment.
Essentially lower middle market and private equity.
Rachel Easton: And Kyle, I might just briefly add to that, and as Rachel said in her part of the call, we've had a fairly successful ATM program, of course, which, you know, we sort of put in place, being able to, and we're very rigorous on what the cushion is, if you will, relative to NAV, and we're going to stick with that. So we're not going to do anything crazy there, but it gives us the ability to, you know, especially looking forward and with the expectation that, hopefully, we can start doing some newer deals and obviously using some of this leverage, that we're likewise providing the support from the equity side to, as Rachel said, be able to maintain a level of the coverage ratio that's not going to, you know, put us at risk in that regard. I got it.
Have you been seeing obviously affect deal flow to pick up but on.
On the other side from the competition and you know it has the market really changed as you've seen rates go from essentially zero to.
Substantially higher even with some potential cuts this year.
Yeah, I don't I would say the market really what we're seeing and what kind of got reflected I think.
Near the end of last year at least from our perspective may not be across the board, but I can only speak from our our vision is that the rates.
Rates coming going up of course helped to slow down the ability for not only the the cost but also the amount of leverage was being available. So those deals I think that we're getting done where to some extent, perhaps being over equity highs. If you will are to get the deals done were seeing that might change a little bit but not.
Dave Dellum: Very helpful. And then one follow-up for me, just talking about the competitive environment for essentially lower middle market private equity. You know, have you seen, obviously, you expect the overflow to pick up, but you know, on the other side would be competition. And you know, has the market really changed as we've seen rates go from essentially zero to substantially higher, even with some potential cuts this year? Yeah, I would say the market really what we're seeing and what kind of got reflected, I think, near the end of last year, at least from our perspective, may not be across the board, but I can only speak from our view, is that the rates going up, of course, helped to slow down the ability for not only the cost but also the amount of leverage was being available.
To the point, where I think it's again going to be all of a sudden leverage goes back to you know really high you know multiples of EBITDA I think it's still going to be fairly cautious and careful and again I think you know again as I said, even though there are some deals we're seeing where the relative enterprise value.
<unk> you know it might be one or two turns higher than we think it's worth clearly their folks willing to do those deals and if they are I think they are having to do a little bit more equity than that I don't think the the debt side of the equation.
Has gotten to the point, yet where we're back to you know much higher leverage per transaction.
Even at these higher values that makes any sense.
Yeah very helpful. Thanks for taking my questions.
Dave Dellum: So those deals, I think, that were getting done were, to some extent, perhaps being over-equitized, if you will, to get the deals done. We're seeing that might change a little bit, but not to the point where I think it's, again, going to be all of a sudden that leverage goes back to really high multiples of EBITDA. I think it's still going to be fairly cautious and careful.
Yes, Sir Okay next question.
Okay.
Our next question comes from Bryce Rowe from B Riley Securities. Please proceed.
Thanks, a lot good morning.
Hey, Brian Hey, Dave Hey, how are you.
Good.
Awesome.
Hey, I wanted to ask about the the Upsized credit facility, you've had I guess some change.
Dave Dellum: And again, I think, as I said, even though there are some deals we're seeing where the relative enterprise value might be one or two turns higher than we think it's worth, clearly, there are folks willing to do those deals. And if they are, I think they are having to put in a little bit more equity than debt. I don't think the debt side of the equation has gotten to the point yet where we're back to much higher leverage per transaction, even at these higher values, if that makes any sense. Yeah, it was very helpful. Thanks for taking my question. Yes, sir. Okay. Next question. Our next question comes from Bryce Rowe of B. Reilly Securities. Thanks a lot. Good morning. Hey Bryce, Hey Dave,
Changes.
I think he took the the available amount down last quarter and obviously, it's moved back up so maybe there was a bit of a process to get to that higher level could you. Just if you can kind.
Kind of talk about that process and did you add some banks to take the facility just any any kind of.
Detailed there would be helpful. Thanks.
Yeah, absolutely good morning, Bryce. So yes, we were really excited to announce yesterday that we have expanded the credit facility up towards 200 million. When we went through our regular amendment process, which closed in October at the beginning of the quarter and we werent able to announce them in our in our last earnings call we had taken.
It down to 135 million and that was a result of just losing a couple of things during that process. You know we were working on this expansion. Unfortunately, we couldn't get the two to close at the same time. So we were able to increase the facility by bringing in a new bank we brought in fifth third.
Bryce Rowe: Hey, good. Awesome. Hey, I wanted to ask about the sized credit facility you've had. I think you took the available amount down last quarter, and obviously, it's moved back up, so maybe there was a bit of a process to get to that higher level. Could you just, if you can, kind of talk about that process, and did you add some banks to the facility? Just any kind of detail there would be helpful.
We also were able to increase some of one of the other banks are commitments as well to get back up to that 200 million amount and you know we believe us additional capacities is really important in providing flexibility as we contemplate future pipeline and the deal flow process.
Rachel Easton: Yeah, absolutely. Good morning, Bryce. So, yes, we were really excited to announce yesterday that we have expanded the credit facility up towards $200 million. But when we went through our regular amendment process, which closed in October at the beginning of the quarter, and we weren't able to announce in our last earnings call, we had taken it down to $135 million, and that was a result of just losing a couple banks during that process. You know, we were working on this expansion. Unfortunately, we couldn't get the two to close at the same time, so we were able to increase the facility by bringing in a new bank. We brought in Fifth Third, and we also were able to increase one of the other banks' commitments as well to get back up to that $200 million amount. And, you know, we believe this additional capacity is really important in providing flexibility as we contemplate, you know, future pipeline in the deal flow process. Got it. That's helpful. Helpful context, Rachel.
Got it that's helpful.
Helpful context, Rachel and then maybe one for Dave.
You had this this this add on opportunity for an existing portfolio company here here. This quarter can you just talk a little bit about that.
Then other other maybe other opportunities in the pipeline for your existing portfolio of companies to do.
To do an add on acquisition thanks sure.
Sure.
So that particular, one Bryce is a company that we've had in the portfolio for a few years at somewhat of an industrial base business we've been.
Really improving at all around between both from the overall management level et cetera, and we had an opportunity to acquire a fairly substantial size business to bring into it which was really are integrated.
Dave Dellum: And then maybe one for Dave, you had this add-on opportunity for an existing portfolio company here this quarter. Can you just talk a little bit about that? And then, you know, other opportunities in the pipeline for your existing portfolio company to do add-on acquisitions. Sure.
Integrated very nicely with the product and it not only gave us.
Additional capacity manufacturing capacity, but also distribution and access in.
Actually in Europe, and other parts of the country. So we took our company from order of magnitude now I'm not going to give you specifics, but order of magnitude about $40 million to $50 million in revenue to over $100 million in revenue and very significant increase in the EBITDA and I would say that the integration has come along really well.
Dave Dellum: So, that particular one, Bryce, was a company that we've had in the portfolio for a few years. It's somewhat of an industrial-based business. We've been really improving it all around, both at the overall management level, etc. And we had an opportunity to acquire a fairly substantial-sized business to bring into it, which was really integrated very nicely with the product. And it not only gave us additional manufacturing capacity but also distribution and access, in Europe and other parts of the country.
So we've clearly enhance the overall value so feel really good about about that transaction.
Without by the way.
Getting at that particular company in a in a very highly leveraged situation relatively speaking so really really good opportunity. So we will continue and yes. Some of our existing portfolio of companies are seeing some opportunities like that and we continue some of them on the smaller and some of them do not require additional financing from <unk>.
Dave Dellum: So, we took our company from an order of magnitude – now, I'm not going to give you specifics – but an order of magnitude, about $40 million, $50 million in revenue, to over $100 million in revenue, and a very significant increase in EBITDA. And I would say that the integration has come along really well. So, we've clearly enhanced the overall value. So, I feel really good about that transaction, getting that particular company into a very highly leveraged situation, relatively speaking. So really, a really good opportunity. So we'll continue, and yes, some of our existing portfolio companies are seeing some opportunities like that, and we will continue to invest in some of them on the smaller end. Some of them do not require additional financing from investors, per se, because their own balance sheets are strong enough to handle some smaller add-ons where it really makes some sense, whether it be a product line or what have you.
<unk> per se because their own balance sheets are strong enough to handle some smaller add ons, where it really makes some sense, whether they'd be a product line or what have you and so yeah. We continue to do that because frankly as I said in my remarks and you. Appreciate you know if we can keep you know adding value to an existing portfolio company again.
Overall, we know it and it's accretive we are happy to do that and one other company.
Another one of our portfolio companies actually where we where they made a fairly good sized acquisition and we were able to go back in as well and help to to add to that particular investment as well and so yeah. So long and short answer is yes, we're going to continue looking at those opportunities.
Dave Dellum: And so, yeah, we continue to do that because, frankly, as I said in my remarks, and you understand, if we can keep adding value to an existing portfolio company, again, where we know it and it's accretive, we're happy to do that. One other company, another one of our portfolio companies actually, where they made a fairly large acquisition; we were able to go back in as well and help to add to that particular investment as well. And so, yeah, the short answer is yes, we're going to continue looking at those opportunities. That's great! I appreciate your time. Yes, sir.
That's great I appreciate the I appreciate the time.
Yes, Sir thank you.
Question.
This concludes our question and answer session I would like to turn the floor back over to David Gladstone for closing comments.
Thank you I was a good quarter and I think.
The numbers together for the year.
As of March 31.
Bryce Rowe: Thank you. Thank you. Question?
Our best years ever probably be over a billion dollars in assets.
Operator: This concludes our question and answer session. I would like to turn the floor back over to David Gladstone for closing comments. Thank you. That was a good quarter, together for the year-end of March 31st, in our best years ever, and it would probably be over a billion dollars.
Anyway, I don't have a crystal ball, so I have no idea, where what's it really going to happen, but we're guessing that things are back strong and growing.
David Gladstone: Anyway, I don't have a crystal ball, so I have no idea what's really going to happen, but we're guessing that things are back and strong and growing. A lot of people are thinking about business development. Thank you all, and that's the end of this presentation. www.globalonenessproject.org. This concludes today's teleconference. You may disconnect your lines at this time.
A lot of people in <unk>.
Investing world or thinking that business development.
That's one place.
I used to put some months I. Thank you all and that's the end of this presentation.
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.
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Operator: Thank you for your participation, www.globalonenessproject.org Bye! transcript Emily Beynon, www.globalonenessproject.org, The Ultimate Parody Site! www.globalonenessproject.org Subs by www.zeoranger.co.uk, www.globalonenessproject.org
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