Q1 2025 Gladstone Investment Corp Earnings Call
Rachel: www.globalonenessproject.org
Operator: Greetings, and welcome to the Gladstone Investment Corporation first 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. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.
Operator: Greetings, and welcome to the Gladstone Investment Corporation, First Quarter earnings call. At this time, all participants are going to listen-only mode.
Speaker Change: Greetings, and welcome to the Gladstone Investment Corporation first 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. If anyone should require operator assistance during the conference, please do so at this time.
Operator: A brief question-and-answer session will follow the formal presentation. If anyone requires operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is important.
Speaker Change: 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, Chairman of Gladstone Investment Corporation. Thank you, Mr. Gladstone. You may begin.
Operator: As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, David Gladstone, Chairman of Gladstone Investment Corporation. Thank you, Mr. Gladstone. You may begin.
David Gladstone: It is now my pleasure to introduce your host, David Gladstone, Chairman of Gladstone Investment Corporation.
Unknown Executive: Thank you, Mr. Gladstone. You may begin.
David Gladstone: Well, thank you.
David Gladstone: Well, thank you. This is a good morning. This is David Gladstone, Chairman of Gladstone Investments. This is the first quarter of the fiscal year ending June 30, 2024.
David Gladstone: This is Good morning. This is David Gladstone, Chairman of Gladstone Investment. This is the first quarter of fiscal year ending June 30, 2024. Our conference call for shareholders and analysts of Gladstone Investment listed on NASDAQ. I know the trading simple GAIN for the common stock and gain in and gain Z and gain L for three different registers. Thank you all for calling in. We are always happy to provide an update for our shareholders and analysts and provide our view of the current business environment.
Speaker Change: Well, thank you. This is good morning. This is David Gladstone, Chairman of Gladstone Investment. This is the first quarter for a fiscal year ending June 30, 2020, for earnings conference call for shareholders and analysts of Gladstone Investment, listed on NASDAQ under the trading symbol G-A-I-N.
David Gladstone: Our next conference call is for shareholders and analysts of Gladstone Investments, listed on NASDAQ under the trading symbol G-A-I-N for the common stock and gain N and gain Z and gain L for the three different registered notes that we have outstanding. Thank you all for calling in. We're always happy to provide an update for our shareholders and analysts and provide our view of the current business environment. The two goals of this call are to help you understand what happened to your company and give you our current view of the future. And now we'll hear from our General Counsel, Michael LiCalsi, who's going to talk about forward-looking statements. Thanks, David. Good morning, everybody.
Speaker Change: for the common stock, and Gain N, and Gain Z, and Gain L for the three different registered notes that we have outstanding.
Speaker Change: Thank you all for calling in. We are always happy to provide an update for our shareholders and analysts.
David Gladstone: Two goals for this call are to help you understand what happened to your company and give you our current view of the future.
Speaker Change: and provide our view of the current business environment. Two goals of this call is to help you understand what happened to your company.
Michael LiCalsi: And now we're here from our General Counsel, Michael LaCalsi, who is going to talk about forward-looking statements.
Michael LiCalsi: and give you our current view of the future. And now we'll hear from our General Counsel, Michael LiCalsi, who's going to talk about forward-looking statements.
Michael LiCalsi: Thanks, David.
Michael LiCalsi: Good morning, everybody. Today's call may include forward-looking statements and 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're based on our current plans, which we believe to be reasonable. Now, many factors may cause our actual results to be materially different. For many future results, express their implied that these forward-looking statements, including all the risk factors. You can find them in our forms 10-Q and 10-K and other documents that we follow with the SEC.
Michael LiCalsi: 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're based on our current plans, which we believe to be reasonable. However, many factors may cause our actual results to be materially different.
Michael LiCalsi: Thanks, David. Good morning, everybody. Today's call may include forward-looking statements in the Securities Act of 1933 and the Securities Exchange Act of 1934, including those regarding our future performance.
Michael LiCalsi: These forward-looking statements involve certain risks and uncertainties and other factors even though they're based on our current plans, which we believe to be reasonable.
Michael LiCalsi: For many future results expressed or implied by these forward-looking statements, including all the risk factors, you can find them in our Forms 10-Q and 10-K and other documents that we file with the SEC. They can be found on the Investors page of our website, www.gladstoneinvestment.com, or on the SEC's website, which is www.sec.gov. Now, 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. Please also note that past performance or market information is no guarantee of any future results.
Michael LiCalsi: The many factors may cause our actual results to be materially different.
Michael LiCalsi: For many future results expressed or implied by these forward-looking statements, including all the risk factors, you can find them in our Forms 10-Q and 10-K.
Michael LiCalsi: And they can be found on the Investors page of our website, www.gladstoneinvestment.com, or on the SEC's website, which is www.sec.gov.
Michael LiCalsi: and other documents that we file with the SEC and they can be found on the investors page of our website www.gladstoneinvestment.com or on the SEC's website which is www.sec.gov.
Michael LiCalsi: Now, 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.
Michael LiCalsi: Now, 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. Please also note that a past performance or market information is no guarantee of any future results.
Michael LiCalsi: Please also note that past performance or market information is no guarantee of any future results.
Michael LiCalsi: We ask that you visit our website. Once again, it's gladstoneinvestment.com. Sign up for our email notification service. You can also find us on Twitter, which is at GladstoneComps, or on Facebook. The keyword there is the Gladstone Company, and today's call is an overview of our results through June 30, 2024. So please review our press release and Form 10-Q, both issued yesterday, for more detailed information. Thank you all. With that, I turn it over to Gladstone Investments President Dave Dullum. Dave? Hey Mike,
Michael LiCalsi: We ask that you visit our website. Once again, it's GladstoneInvestment.com. Sign up for our email notification service. You can also find us on Twitter, which is at GladstoneComps, or on Facebook. Keyword there is the Gladstone Companies.
Michael LiCalsi: Thank you all.
David Dullum: Please, with that, I turn it over to Gladstone Investment's president, Dave Dahlem. Dave.
Michael LiCalsi: Thank you all. With that, I'll turn it over to Gladstone Investments President, Dave Dullum. Dave? Hey Mike, thank you very much and everyone, welcome.
David Dullum: Hey, Mike. Thank you very much.
Dave Dullum: Thank you very much and everyone, welcome. We are pleased to report again that the GAIN team produced very good results for the first quarter of fiscal year 25, which ended March 24, 25, sorry, following on the previous solid fourth quarter and annual results for fiscal 24. We ended the first quarter of fiscal year 25 on 6-30-24 with an adjusted NII of $0.24 per share and total assets of $914 million.
David Dullum: Everyone, welcome. We are pleased to report again that the gain team produced very good results for the first quarter for fiscal year 25, which ended March 24. 25, sorry, following on the previous solid fourth quarter and annual results for fiscal 24. We ended the first quarter of fiscal year 25 on 630-24 with adjusted NII of 24 cents per share and total assets of 914 million. So this quarter was very active, both from working on a significant number of new investment opportunities while managing some of the various activities within our 23 existing portfolio companies. Now, while we made no new acquisitions in the quarter, subsequent to the quarter, we invested 18.5 million in the form of secured first lien debt, the fund and add-on acquisition of one of our existing portfolio companies where we actually have a significant equity position.
Dave Dullum: Our NAV decreased to $13.01 per share compared to $13.43 per share at the end of the prior quarter.
Dave Dullum: We are pleased to report again that the GAIN team produced very good results for the first quarter for fiscal year 25.
Dave Dullum: which ended March 24, 25, sorry, following on the previous solid fourth quarter and annual results for fiscal 24.
Speaker Change: We ended the first quarter of FY 25 on $630.24 with adjusted NII of $0.24 per share and total assets of $914 million.
Dave Dullum: So, this quarter was very active, both from working on a significant number of new investment opportunities, while managing some of the various activities within our 23 existing portfolio companies.
Dave Dullum: Now, while we made no new acquisitions in the quarter, subsequent to the quarter end we invested $18.5 million in the form of secured first lien debt to fund an add-on acquisition of one of our existing portfolio companies where we actually have a significant equity position.
David Dullum: So this follows some of the other important add-on activities that a few of our portfolio companies over the past year. Now, as I've mentioned on prior calls, these add-on opportunities allow us to increase our total investment, build value in the companies where we know the management team and where we have a strong belief in its future, and enhance the opportunity for future equity gains. Now, this activity is not a substitute for making new acquisitions and is a component of our investing strategy, as it allows us to continue building our assets and income, certainly in times when valuations through new acquisitions are a challenge.
Speaker Change: So this follows some of the other important add-on activities that a few of our portfolio companies over the past year.
Speaker Change: As I've mentioned on prior calls, these add-on opportunities allow us to increase our total investment, build value in the companies where we know the management team and where we have a strong belief in its future, and enhancing the opportunity for future equity grains.
Speaker Change: Now, this activity is not a substitute for making new acquisitions and is a component of our investing strategy as it allows us to continue building our assets and income certainly in times when valuations through new acquisitions is a challenge.
David Dullum: Now, the stability of our operating model allows us to maintain our monthly distribution of shareholders at 8 cents per share, or 96 per share on an annual basis. Recall that we pay at $1.24 of supplemental distributions in fiscal 24, and while we've not paid any during this quarter we're reporting on, our history of supplemental distributions demonstrates the success of the biode strategy and it is our intent to continue rewarding our shareholders with meaningful supplemental distributions from the realized capital gains on exits. As our portfolio, of course, goes through maturity cycles and equity values will increase, we will continue to constructively harvest these gains for the benefits of shareholders.
Speaker Change: The stability of our operating model allowed us to maintain our monthly distribution of shareholders at $0.08 per share or $0.96 per share on an annual basis.
Speaker Change: Recall that we paid $1.24 of supplemental distributions in Fiscal 24.
David Dullum: Now, since exits generally involve a paid on our debt, we strive to balance the timing of these exits without sacrificing the level of debt assets to produce the income to support the monthly dividends and their growth. Our balance sheet continue to be strong with low leverage and good availability on our credit facility. Now, we currently have four companies on non-accrual, which we just put on non-accrual, which represent about 7.8% of the fair value of the debt investments in our portfolio. I really want to stress that this is not indicative of any portfolio-wide concerns. Two of these companies combine to represent approximately 32 million of the total amount of the debt.
Speaker Change: Our balance sheet continues to be strong with low leverage and good availability on our credit facility.
Speaker Change: Now, we currently have four companies on non-accrual, two of which we just put on non-accrual, which represent about 7.8% of the fair value of the debt investments in our portfolio. I really want to stress that this is not indicative of any portfolio-wide concerns.
Speaker Change: Two of these companies combined to represent approximately $32 million of the total amount of the debt.
David Dullum: And both of these are now profitable. We anticipate returning these to accrual status sometime within the next year. We also have meaningful equity holdings in those two companies. So again, this will happen from time to time, but we work with these companies to get them back where they need to be. And again, I do want to stress that our portfolio is functioning at a very high level, and I'm not concerned about having these two companies just recently going on non-accrual status.
Speaker Change: holdings in those two companies. So again, this will happen from time to time, but we work with these companies to get them back where they need to be. And again, I do want to stress that our portfolio is functioning at a very high level, and I'm not concerned about having these two companies as recently going on non-accrual status.
David Dullum: So, as far as the outlook is concerned, as I mentioned in the beginning, we are seeing an increase in opportunities for new acquisitions. There seems to be growing momentum and new deals coming to the market, especially as the past few quarters have been relatively quiet. There is significant liquidity in the M&A market and is a very competitive environment with upper fresh on valuations. This means we will aggressively compete for new acquisitions that we believe fit our model of providing debt and equity while maintaining our principles of being a value investor and generating income on a current basis with upside through capital appreciation.
Speaker Change: So as far as the outlook is concerned, as I mentioned in the beginning, we are seeing an increase in opportunities for new acquisitions. There seems to be growing momentum in new deals coming to the market, especially as the past few quarters have been relatively quiet.
Speaker Change: There is significant liquidity in the M&A market and it is a very competitive environment with upward pressure on valuations.
Speaker Change: This means we will aggressively compete for new acquisitions that we believe fit our model of providing debt and equity while maintaining our principles of being a value investor and generating income on a current basis with upside through capital appreciation.
David Dullum: We currently are actively working on a number of new bios in various due diligence phases.
David Dullum: 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, a positive level of biodeactivity, and the prospect of continuing very good earnings and distributions over the next year.
Speaker Change: We currently are actively working on a number of new buyouts in various due diligence phases.
Speaker Change: 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, a positive level of buyout activity, and the prospect of continuing very good earnings and distributions over the next year. For more detail, I'm going to now turn it over to our CFO , Rachael Easton.
Rachael Easton: For more detail, I'm going to turn it over to our CFO, Rachel Easton.
Rachael Easton: Rachel. Thank you, Dave, and good morning, everyone. Looking at our operating performance in the first quarter of 538.25, we generated total investment income of 22.2 million. Down slightly from 23.6 million in the prior.
Rachel Easton: Thank you, Dave, and good morning, everyone. Looking at our operating performance in the first quarter of fiscal year 25, we generated total investment income of $22.2 million, down slightly from $23.6 million in the prior quarter.
Rachael Easton: Corp. This was due to decreased interest income as a result of two portfolio companies going on on a cruel status and lower success be income, which can be variable in timing due to amounts that did not occur to the same magnitude in the current quarter. Net expenses for the quarter were 9.8 million, down from 18.3 million in the prior quarter. This decrease was primarily due to a 9.4 million aggregate decrease in accrued capital gains based on sanctities, which is due to the net impact of realizing unrealized gains and losses as required under US GAAP and income-based incentives.
Rachel Easton: Net expenses for the quarter were $9.8 million, down from $18.3 million in the prior quarter. This decrease was primarily due to a $9.4 million aggregate decrease in accrued capital gains-based incentive fees.
Speaker Change: which is due to the net impact of realized and unrealized gains and losses as required under U.S. GAAP and income-based incentives.
Rachael Easton: This resulted in a net investment income for the quarter of 12.4 million, up from 5.3 million in the prior quarter. Adjusted net investment income, which is net investment income, exclusive of any accrued capital gains based on sanctities, for the quarter was 8.6 million, or 24 cents per share, down slightly but remaining consistent on a per share basis from 8.8 million, or 24 cents per share, on the prior quarter. We continue to believe that adjusted net investment income is a useful and representative indicator of our ongoing operations. As Dave mentioned during the quarter ended June 30th, 2024, we had certain loans to two portfolio companies placed on a cruel status, bringing the total to four companies on non-accrual.
Speaker Change: This resulted in a net investment income for the quarter of $12.4 million, up from $5.3 million in the prior quarter.
Speaker Change: Adjusted net investment income, which is net investment income exclusive of any accrued capital gains-based incentive fees, for the quarter was $8.6 million, or $0.24 per share, down slightly but remaining consistent on a per-share basis from $8.8 million, or $0.24 per share in the prior quarter.
Speaker Change: We continue to believe that adjusted net investment income is a useful and representative indicator of our ongoing operations.
Rachel Easton: As Dave mentioned, during the quarter ended, June 30, 2024, we had certain loans to two portfolio companies placed on nonaccrual status, bringing the total to four companies on nonaccrual. We believe the stress at these two new companies will be short term, and we'll continue working closely with them to get back on accrual status when possible.
Rachael Easton: We believe distress at these two new companies will be short term and will continue working closely with them to get back on a cruel status when possible. In one case, the company is a smaller legacy down investment where we have no equity and we are looking to ultimately have our debt repaid at some time in the future. For the second company, the industry is cycling down a bit right now, and while there is some stress, we do see near-term relief with increasing industry rebound. We anticipate bringing this company back on a cruel in the near term.
Speaker Change: In one case, the company has a smaller legacy debt investment where we have no equity, and we are looking to ultimately have our debt repaid at some time in the future.
Speaker Change: For the second company, the industry is cycling down a bit right now, and while there is some stress, we do see near-term relief, with increasing industry rebound. We anticipate bringing this company back on accrual in the near term.
Rachael Easton: Overall, there are no portfolio-wide credit concerns. These are two specific instances where companies are unable to currently service their debt, and it is not indicative of any portfolio-wide trends. Additionally, we are seeing continuing improvement at one of the companies that has been on non-accrual for some time. They are back to generating a profit, and we continue to work closely with them. Valuation to the aggregate were down 18.9 million. This was driven by lower valuation multiples across the portfolio and decreased performance at a number of our portfolio companies. This was partially offset by increased performance at several other portfolio companies.
Speaker Change: Overall, there are no portfolio-wide credit concerns. These are two specific instances where companies are unable to currently service their debt and it is not indicative of any portfolio-wide trends.
Speaker Change: Additionally, we are seeing continuing improvement at one of the companies that has been on non-accrual for some time. They are back to generating a profit, and we continue to work closely with them.
Speaker Change: Valuations in the aggregate were down 18.9 million. This was driven by lower valuation multiples across the portfolio and decreased performance at a number of our portfolio companies. This was partially offset by increased performance at several other portfolio companies.
Rachael Easton: Our NAB decreased to $13.1 per share compared to $13.43 per share at the end of the prior quarter. The decrease was primarily driven by $0.52 per share of net unrealized appreciation on investments and $0.24 per share of distributions paid on shareholders. This was partially offset by $0.34 per share of net investments. 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 of yesterday's release, we had over 113 million available on our 200 million credit facility.
Speaker Change: Our NAV decreased to $13.01 per share compared to $13.43 per share at the end of the prior quarter.
Speaker Change: The decrease was primarily driven by $0.52 per share of net unrealized depreciation on investments and $0.24 per share of distributions paid to common shareholders. This was partially offset by $0.34 per share of net investments.
Speaker Change: With our three public note issuances, we have long-term fixed rate capital in place, and as of yesterday's release, we had over $113 million available on our $200 million credit facility.
Rachael Easton: Additionally, we entered into a new ATM program during the quarter in which we have the ability to sell up to 75 million shares of our common stock, and we anticipate continuing to be active in that ATM. Overall, our leverage remains relatively low, with an asset coverage ratio at June 30th, 2024, of 216 per cent, providing 20th cushion to the required 150 per cent cover.
Speaker Change: Overall, our leverage remains relatively low, with an asset coverage ratio at June 30, 2024, of 216%, providing plenty of cushion to the required 150% coverage.
Rachael Easton: Bridge. Consistent with prior quarters, distributable book earnings to shareholders remains strong. We started the fiscal year with $20 million or $55 million share in spillover, and our monthly distribution remains consistent at $0.8 per share for an annual run rate of 96 cents per share. Additionally, we will look to continue funding future supplemental distributions as we recognize realized capital gains on the equity portion of future assets. Using the monthly distribution run rate of 96 cents per share per year, our aggregate estimated fiscal year distributions would yield about 7.3 percent using yesterday's closing price of $13.19.
Speaker Change: Consistent with prior quarters?
Speaker Change: Distributable bulk earnings to shareholders remain strong. We started the fiscal year with $20 million or $0.55 per share in spillover, and our monthly distribution remains consistent at $0.08 per share for an annual run rate of $0.96 per share.
Speaker Change: Additionally, we will look to continue funding future supplemental distributions as we recognize realized capital gains on the equity portion of future exits. Using the monthly distribution run rate of $0.96 per share per year, our aggregate estimated fiscal year distributions would yield about 7.3% using yesterday's closing price of $13.19.
David Gladstone: This covers my part of today's call back to you, David.
David Gladstone: Oh, thank you, Rachael. Very nice report, and Dave and Michael, good information for our shareholders. This call and the 10-Q that we filed with the SEC yesterday should bring everybody up-to-date on what's going on at your company. The team has reported solid results for the quarter ending June 30, 2024, and we believe the team will be in a great position to continue these successes through the remainder of the fiscal year and hopefully into the future.
David Gladstone: Oh, thank you, Rachael. Very nice report, and Dave and Michael, good information to our shareholders. This call and the 10-Q that we filed with the SEC yesterday should bring everybody up to date on what's going on at your company. Team has reported solid results with quarter and 1830-24, and we believe the team will be in a great position to continue these successes through the remainder of the fiscal year and hope on into the future. We believe Gladstone Investment is an attractive investment for investors seeking continuous monthly distributions and supplemental distributions from potential capital gains and other fees, and other income.
David Gladstone: This covers my part of today's call. Back to you, David. Oh, thank you, Rachael. Very nice report. Dave and Michael, good information to our shareholders. This call and the 10-Q that we filed with the SEC yesterday should bring everybody up to date on what's going on at your company.
Speaker Change: The team will be in a great position to continue these successes through the remainder of the fiscal year and hope on into the future.
David Gladstone: We believe Gladstone Investment is an attractive investment for investors seeking continuous monthly distributions and supplemental distributions from potential capital gains and other fees and other income. The team hopes to continue to show you a strong return on your investment. Well, now let's stop with the report and see if we have some questions from analysts or stockholders that they'd like us to respond to.
Speaker Change: We believe Gladstone Investment is an attractive investment for investors seeking continuous monthly distributions and supplemental distributions from potential capital gains and other fees.
David Gladstone: The team hopes to continue to show you a strong return on your investment.
Speaker Change: and Other Income. The team hopes to continue to show you a strong return on your investment. Well, now let's stop with the report and see if we have some questions from analysts or stockholders that they'd like us to respond to.
David Gladstone: Well, now let's stop with the report and see if we have some questions from analysts or stockholders that would like us to respond to. Thank you.
Operator: 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 questions from the queue.
Speaker Change: 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 queue.
Operator: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.
Speaker Change: You may press star 2 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 hold for questions.
Mickey Schleien: Our first question comes from the line of Mickey Schlin with Latinburg Salmon. Please proceed with your question.
Speaker Change: Our first question comes from the line of Mickey Schleien with Lattenberg-Dallman. Please proceed with your question.
David Dullum: Yes, good morning, everyone. Dave, when we look at the forward interest rate curve and consider that all your debt investments are at floating rates and most of your debt liabilities are at fixed rates, there's a scenario where I, I, I, per share could decline below your distribution, assuming no changes in the size of the portfolio or its credit quality. So, so, Dean has a great track record of not cutting the dividend, and I'd like to understand what levers you can pull to avoid that scenario.
Mickey Schleien: Yes, good morning everyone. Dave, when we when we look at the forward interest rate curve and
Speaker Change: David Gladstone, Erich Hellmold, Michael LiCalsi, Erich Hellmold, Michael LiCalsi, Erich Hellmold,
David Dullum: And would the board be comfortable with NII running below the dividend for a while? Yeah, Mickey, thanks for the question. Yeah, I would not. I'm not sure I can answer it really the way you're asking. What I'll tell you is this. Right now, as we look forward, and of course we do our projections and try to understand where our portfolio is, we don't see, frankly, a decline in that spread, where we would be looking to cut our dividend. And as you point out, this is not something that we consider doing. We also remember to supplement our, kind of call it, the spread income with other income that we generate during our, you know, doing any one period of our portfolio.
Dave Dullum: Yeah, Mickey, thanks for the question. Yeah, I would not, I'm not sure I can answer it.
Speaker Change: Really the way you're asking, what I'll tell you is this, right now as we look forward and of course we do our projections and try to understand where our portfolio is.
Speaker Change: We don't see, frankly, a decline in that spread.
Speaker Change: We call it the spread income with other income that we generate during any one period of our portfolio. As a result of that, we would expect that we will continue to have
Rachael Easton: And as a result of that, we would expect that we will continue to have total NII available for distribution above what our, you know, run rate dividend is.
Rachel Easton: Total NII available for distribution Above what our you know run rate Dividend is and Rachel. Would you like to add to that? Yeah, absolutely. Good morning, Mickey You know as you said as rates come down we will you know
Rachael Easton: And Rachel, would you like to add to that? Yeah, absolutely. Good morning, Mickey. You know, as you said, as rates come down, we will, you know, see yields begin to compress. But you did say most of our debt is fixed rate, but we also do have variable debt on our line of credit. So we will also see those borrowing costs come down a bit. You know, we obviously look to maintain the same level of performance across both high and low interest rate environments. And so, even with those narrowing, you know, the potential for narrowing spreads, you know, there's no real concern given the way we structure our deals.
Speaker Change: Michael LiCalsi, Erich Hellmold, Michael LiCalsi, Erich Hellmold, Michael LiCalsi, Erich Hellmold,
Speaker Change: You know, we obviously look to maintain the same level of performance across both high and low interest rate environments.
Speaker Change: and so even with those narrowing you know the potential for narrowing spreads you know there's there's no real concern given the way we structure our deals.
David Dullum: Our debt portfolio has floors generally in the 11 and a half to 12 percent range. And, you know, we look at that as protection in a lower interest rate environment. Yeah, which is how we've always managed it, actually, which is why we've been able to, you know, keep, you know, not like a typical lender, if you will, we've been able to manage that. Plus, we, again, harvest, you know, dividends when we can from the equities on our portfolio as well. And so again, we would not anticipate, you know, the scenario that you've suggested. And I'm sorry.
Speaker Change: Our debt portfolio has floors generally in the 11.5% to 12% range, and we look at that as protection in a lower interest rate environment.
Speaker Change: Yeah, which is how we've always managed it, actually, which is why we've been able to, you know, keep, you know, not like a typical lender, if you will, we've been able to manage that. Plus, we, again, harvest.
Speaker Change: you know, dividends when we can from the equities on our portfolio as well. And so again, would not anticipate, you know, the scenario that you've suggested.
David Dullum: Right, just so you know, Mickey, we have run many of our companies, as you know. We have four of them that are dividend oriented. We've run any number of them over the time in which earnings were lower for several quarters, and we continued paying a dividend, so I don't anticipate that slowing down this company. Yeah, I appreciate that.
Speaker Change: and Michael E. Jester. Yes, I'm sorry.
Speaker Change: Great. Just so you know, Mickey, we have run many of our companies. As you know, we have four of them that are dividend oriented. We've run any number of them over the time in which earnings were lower for several quarters.
Speaker Change: And we continued paying a dividend, so I don't anticipate that slowing down this company.
Rachael Easton: Rachel, could you repeat what the average sofa floors are on your debt investments? In the aggregate, it's between 11 and half to 12 percent.
Speaker Change: Yeah, I appreciate that. Rachael, could you repeat what the average SOFR floors are on your debt investments?
Operator: Okay, give me a second.
Rachel Easton: In the aggregate, it's between 11.5% to 12%.
David Dullum: Okay, that's the total then, Dave. In terms of the pipeline for new acquisitions, could you give us an idea perhaps of how many term sheets you've got out there and the likelihood that you expect some of those to close, you know, over the next year? Yeah, I wish I could give you that specific number. Recognize that at any point in time, and with our deal team, we are working on probably, you know, 15, 16 plus companies. And you know, we have, you know, the process as you know that we go through is, you know, we see an initial investment, we do a fair amount of work on it.
Rachel Easton: Okay, give me a second.
Rachel Easton: That's the total then. Dave, in terms of the pipeline for new acquisitions, could you give us an idea perhaps of how many term sheets you've got out there and the likelihood that you expect some of those to close, you know, over the next year?
Speaker Change: Yeah, I wish I could give you that specific number. Recognize that at any point in time and with our deal team, we are working on probably, you know, 15, 16 plus companies.
David Dullum: We prepare what we call an indication of interest, which goes to the, you know, presumably to the investment banker that brought us the deal, and then assuming we get, you know, accepted at that level that then involves spending time then with the management teams of the companies, getting better knowledge, doing some more due diligence on the side, and then assuming we like what we're seeing, we go ahead and put in what we call a letter of intent, which is approved by our investment committee. And if that is, you know, if that gets accepted by the seller, then of course we move through the final process.
David Dullum: So it's a lot of moving parts, if you will. So I'm not in a position or any give you a specific number to be perfectly honest with, it's just that, you know, it's a constant, constant process. And, you know, the way I think of it is, you know, we'd like to be able to, you know, maybe close three to four or five new deals in a 12-month period. I mean, that's kind of our goal. And, you know, the size might vary. And then remembering, too, that we have this whole add-on acquisition. So, again, we have, we have our goals.
Speaker Change: a lot of moving parts, if you will. So I'm not in a position to really give you a specific number, to be perfectly honest with you, just that, you know, it's a constant, constant process. And, and, you know, the way I think of it is.
Speaker Change: You know, we'd like to be able to, you know, maybe close three to...
Speaker Change: for five new deals in a 12-month period. I mean, that's kind of our goal and, you know, the size might vary.
Speaker Change: and then remembering too that we have this whole
Speaker Change: Add-on Acquisition. So again, we have we have our goals. We set in mind how much we think we are able to put out in a year and we strive to do that. So it's a constant.
David Dullum: We set in mind how much we think we are able to put out in a year, and we strive to do that. So it's a constant, constant activity between the IOIs and the IOIs, and then ultimately getting the deals done. And as you know, once we get approval and move forward, you know, it can be a two-month time frame to do due diligence, get the deal done. So that's a lot of moving parts, but consistent with how we've operated in the past, maybe that's more important is kind of what our look forward would be in terms of new deals.
Speaker Change: Michael LiCalsi, Erich Hellmold, Michael LiCalsi, Erich Hellmold, Michael LiCalsi, Erich Hellmold,
Speaker Change: But consistent with how we've operated in the past, maybe that's more important, is kind of what our look forward would be in terms of new deals.
David Dullum: And as I say, you know, if we could close three to five new deals in a year, that probably would be really good performance. And so very supportive, by the way, of the results that we've generated in the past.
Speaker Change: And as I say, if we could close three to five new deals in a year, that probably would be really good performance. And very supportive, by the way, of the results that we've generated in the past.
Mickey Schleien: Yeah, I appreciate that.
Mickey Schleien: Rachel made several comments about credit quality, but it was pretty quick.
Speaker Change: Yeah, I appreciate that
Speaker Change: Rachael made several comments about credit quality, but it was
Mickey Schleien: So I want to back up and ask a couple of questions about that. You mark it down. Anthigree, Mason West, and Horizon facilities. I think that was most of the decline this quarter.
Speaker Change: pretty quick, so I want to back up and ask a couple of questions about that. You mark down Nth Degree, Mason West, and Horizon facilities. I think that was most of the decline this quarter. You know, is there some trend there, or you know, can you give us some insight as to what happened with those companies?
David Dullum: You know, is there some trend there or, or, you know, can you give us some insight as to what happened with those companies? Well, I think without going into a lot of the detail, Nth degree, pick that as an example. Now, that's a company that has a very significant EBITDA level, and I think there we had a slight down-tick in the multiple, and you've got to keep in mind in any of these companies, right? If you have even, you know, almost a half a turn on an EBITDA company doing, let's say, 20 to 60 plus million dollars, EBITDA, which in some cases, that's true.
Speaker Change: Well, I think without going into a lot of the detail, Enth Degree, you picked that as an example. Now, that's a company that has a very significant EBITDA level, and I think there we had a slight downtick in the multiple, and you've got to keep in mind that any of these companies,
David Dullum: That's a fairly significant dollar movement, so I think what you're seeing is that more than anything else. I will say to you that all of those companies that you mentioned, Nth Degree, of course, is an exceptional business generating very, very significant EBITDA. Mason West is a very solid business. Horizon is a good, very good business. They're the one that provides labor to the rental car business, and there has been softness in that market. No surprise there. Having said that, they are still very profitable, doing very well, and so again, I think you've got to be careful when we look at some of these changes.
Speaker Change: 60 plus million dollars, viva DA, which in some cases that's true. That's a fairly significant dollar movement.
Speaker Change: So I think what you're seeing is that more than anything else, I will say to you that
Speaker Change: All of those companies that you mentioned, Nth Degree, of course, is an exceptional business generating very, very significant EBITDA. Mason West is a very solid business. Horizon is a very good business. They're the one that provides.
Speaker Change: [inaudible]
David Dullum: When you do have both a multiple coming down, which we of course don't control, and likewise a small down tick, even in EBITDA, that it can relate to a, or translate into a, you know, meaningful dollar decline in the actual value of the asset. Does that make sense? I understand. Yeah. I understand.
Speaker Change: changes when you do have both a multiple coming down which we of course don't control and likewise a small downtick even in EBITDA that it can relate to a or translate into a you know meaningful
Speaker Change: $1 Decline in the actual value of the asset.
Mickey Schleien: And in terms of diligent delivery, which is a new non-accrual, that investment still marked at par, I think Rachel may have alluded to that as something you expect to put back on a cool soon.
Speaker Change: Does that make sense? I understand. Yeah, I understand.
Speaker Change: And in terms of diligent delivery, which is a new non-accrual.
Speaker Change: that investment is still marked at par.
Speaker Change: I think Rachael may have alluded to that as...
David Dullum: Am I correct, or did I misinterpret those remarks? Yeah, that one, that is, I think, as was alluded to, is where we only have that small debt investment, if you will. It's a legacy; it has been, frankly, paying its interest really good. It's been going through a process potentially of an exit of some sort. You know, they've been working on it over a number of years, and so on. And so what we anticipate, I think what she was alluding to, and Rachel can correct me here, is that that's one that we would hope and anticipate, maybe we actually get the debt paid off, and we're done with it sometime in the next, you know, the next period.
Speaker Change: Something you expect to put back on accrual soon. Am I correct or did I did I misinterpret those remarks? Yeah, that one that that is I think as was alluded to is is where we only have that small
Speaker Change: Dead investment, if you will. It's a legacy. It has been, frankly, paying its interest really good. It's been going through a process potentially of an exit of some sort.
Speaker Change: You know, they've been working on it over a number of years and so on. So what we anticipate, I think what she was alluding to, and Rachael can correct me here, is that that's one that we would hope and anticipate. Maybe we actually get the debt paid off and we're done with it sometime in the next, you know, the next period. So yeah, that's where that one comes in.
David Dullum: So yeah, that's where that one, where that one comes in.
David Dullum: That's not one that we have any equity in, and frankly, it's just kind of a hate to say for some of a tag end of an investment we have from before. And the issues on B&T are just down cycle, and spend by telecom, or is that something else? No, I think it's pretty much spend my telecom. They're actually seeing an uptick in that business right now, as a matter of fact. And again, you know, I'd say B&T Hobbes that has been unknown to cruel for a while. I think I alluded to, again, both companies are profitable, where we obviously, as you know, work with these companies to get them back into position. We're at some point, we're either going to clearly get them back on a cruel and or work to exit those businesses.
Rachel Easton: That's not one that we have any equity in, and frankly, it's just kind of a, I hate to say it, but sort of a tag end of an investment we had from before.
Speaker Change: and the issues on BNT are just as downcycled and spend by telecom or is that something else?
Speaker Change: Well, is there something else there?
Speaker Change: No, it's pretty much spend my telecom. They're actually seeing an uptick in that business right now, as a matter of fact. And again, you know, I'd say
Speaker Change: B&T, Hobbs that has been on non-accrual for a while. I think I alluded to, again, both companies are profitable.
Rachel Easton: where we obviously, as you know, work with these companies to get them back in a position where at some point we're either going to clearly get them back on accrual and or work to exit those businesses. But right now I'd say they're both, you know, headed in the right direction and we're just.
David Dullum: But right now, I'd say they're both headed in the right direction, and we're just working through what we have to work through with them. But yes, there was slight, you know, it's not even as much a little bit of a downturn. Some of their customers that they have to work with, people like Verizon, AT&T, what have you, it can be a very challenging customer to some degree, and the team is really there at B&T done a really good job. And I feel like we're, you know, again, in the right direction with those guys. And this was kind of a temporary, and actually we have a line of credit, a revolving line of credit, that is, did not go on on a cruel, actually.
Rachel Easton: working through what we have to work through with them but yes there was slight you know it's not even as much a little bit of a downturn as some of their customers that they have to work with people like Verizon, AT&T what have you it can be a very challenging customer to some degree and and the team is really there at B&T done a really good job and I feel like we're you know again in the right direction with those guys and this was kind of a
Speaker Change: David Dullum, Michael LiCalsi, Erich Hellmold, Michael LiCalsi, Erich Hellmold, Michael LiCalsi
Mickey Schleien: So, total investment, yeah.
Mickey Schleien: And my last question, I do appreciate your patience.
Analyst: And my last question, I do appreciate your patience. There was an increase in GNA quarter to quarter that was pretty meaningful. Can Rachel, is there any insight you can give us on that? And what's the outlook for GNA?
Mickey Schleien: There was an increase in GNA quarter to quarter. It was pretty meaningful.
Speaker Change: And my last question, I do appreciate your patience. There was an increase in GNA quarter-to-quarter was pretty meaningful. Rachael, is there any insight you can give us on that and what's the outlook for GNA?
Rachael Easton: Rachel, is there any insight you can give us on that, and what's the outlet for GNA? Yes, so that that will be a one time hit. There was bad debt expense related to the write-off of prior period income related to BNT and diligence.
Speaker Change: Yes, so that that will be a one-time hit. There was bad debt expense related to the write-off of prior period income related to B&T and diligent one-time hit.
Mickey Schleien: Okay, those are all my questions this morning. I appreciate your time. Thank you. Thanks, Whitney.
Speaker Change: Okay, those are all my questions this morning. I appreciate your time. Thank you. Thanks, Mickey. Okay, thank you very much. Do we have anybody else that wants to ask us a question? We would like more questions.
Unknown Executive: Okay, thank you very much.
Unknown Executive: Do we have anybody else that wants to ask us a question? We would like more questions. Thank you.
Operator: As a reminder, if you would like to ask a question, please press star one on your telephone keypad.
Speaker Change: Thank you. As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Our next question comes from the line of Bryce Rowe with B. Riley Securities. Please proceed with your question.
Bryce Rowe: Our next question comes from line of Bryce Rowe with B. Riley's securities.
Bryce Rowe: Please proceed with your question. Thanks a lot. Good morning. I think Mickey handled most of my questions as well. Rachael, I did want to ask about the fee income. I guess it was either other or success fee income here in the quarter. Can you give us a sense for the source of that, given the lack of activity in the quarter? Sure, so as we've talked about it, I think in the past that other income line item is a little bit variable period over period and can be challenging to compare. It's generally made up of dividends on our preferred investments or success fee income from our portfolio companies.
Bryce Rowe: Thanks a lot. Good morning. I think Mickey handled most of my questions as well. Rachael, I did want to ask about, you know, the fee income. I guess it was either other or success fee income here in the in the quarter. Can you give us a sense for the source of that given the lack of activity in the quarter?
Rachel Easton: Sure. So, you know, as we've talked about, I think, in the past, that other income line item is a little bit variable.
Speaker Change: David Dullum, Michael LiCalsi, Erich Hellmold, Michael LiCalsi, Erich Hellmold, Michael LiCalsi,
Rachael Easton: That success fee income, as you said, is generally due upon a change in control or an exit. So oftentimes, some of our portfolio companies, for various reasons, do choose to prepay. So that was the case this quarter. We had one of our portfolio companies choose to prepay about 1.6 million of their outstanding success fees. Okay, this is a good thing. Yeah, understood.
Bryce Rowe: generally do upon a change in control or an exit. So oftentimes some of our portfolio companies for various reasons do choose to prepay, so that was the case this quarter. We had one of our portfolio companies choose to prepay about 1.6 million of their outstanding success fees.
Bryce Rowe: Okay.
Bryce Rowe: Which is a good thing.
Rachael Easton: And then in terms of not a cruel, and I guess it relates to that comment about the bad debt expense in other GNA expense.
Speaker Change: Not accruals and I guess it relates to that that comment about the bad debt expense in other G&A
Rachael Easton: What was the timing of those companies being put on not a cruel. I'm just trying to understand if it's the yield for the quarter or the interest income for the quarter. You know, had had some level of interest income from those newly not accrued investments. Yes, so both companies were placed on not a cruel as of April 1st. So as of the beginning of the quarter, so that yields excludes any income related to B&T or Diligent. So we essentially did not recognize about $750,000 of income we otherwise would have this quarter. Okay.
Speaker Change: What was the timing of those companies being put on non-accrual? I'm just trying to understand if the yield for the quarter or the interest income for the quarter, you know, had some level of...
Speaker Change: interest income from those newly non-accrued investments.
Speaker Change: Yes, so both companies were placed on non-accrual as of April 1st, so as of the beginning of the quarter. So that yield excludes any income related to B&T or Diligent. So we essentially did not recognize about $750,000 of income we otherwise would have this quarter.
Analyst: And then maybe one more for you, Dave, in terms of, I mean, I think you've talked quite a bit in the last, I don't know, 12 to 18 months about, you know, the competitive conditions and trying to get new deals signed up, and, you know, Mickey did ask about a number of term sheets that are out there right now, just kind of curious if there's been any change in competitive conditions, whether, you know, whether more competitive or less.
Bryce Rowe: And then maybe, maybe one more for you, for you, Dave. And in terms of, I think you've talked quite a bit in the last, I don't know, 12 to 18 months about, you know, the competitive conditions and trying to get new deals signed up. And you know, Mickey did ask about the number of term sheets that are out there right now, just kind of curious if there's been any change in competitive conditions, whether, you know, whether more competitive or less. I'd say it's probably about the same that one I call a change. I was trying to suggest is that, you know, you look back over the last quarter or so before this quarter.
Speaker Change: And then maybe one more for you, Dave, in terms of, I think you've talked quite a bit in the last, I don't know, 12 to 18 months about, you know, the competitive conditions and trying to get new deals signed up.
Mickey Schleien: And, you know, Mickey did ask about a number of term sheets that are out there right now. Just kind of curious if there's been any change in competitive conditions, whether, you know, whether more competitive or less.
Speaker Change: Mm-hmm.
Dave Dullum: I'd say it's probably about the same, that one, I call it change.
Speaker Change: I was trying to suggest is that, you know, you look back over the last quarter or so before this quarter, let's say
David Dullum: Let's say the deal flow was okay, and the deals that we were seeing, this affects everybody. Obviously, we compete with some of those companies, as you might well know from, you know, your, your firm's investment banking side as well. Some deals that were being sold back, they backed off of them; they pulled them, what have you. So we went through what I'd call a period of slowdown. So to speak in terms of quality to deals, we're seeing that pick up for sure. So we're seeing deals come back on the market that might have been pulled, that are now coming back.
Speaker Change: The deal flow was okay, and the deals that we were seeing, and this affects everybody obviously, that we compete with.
Speaker Change: Some of those companies, as you might well know from, you know, your firm's investment banking side as well.
Speaker Change: some deals that were being
Speaker Change: Sold, they backed off of them, they pulled them, what have you, so we went through what I'd call a...
David Dullum: However, the appetite, you know, from the buy side is pretty high. And people are really striving to get, you know, get money out. So, as a result of that, yes, it's more, it's as competitive because of the amount of money that's available. And I'd say, though the deal flow, which is the other side of that equation, is picked up. So that's giving us a little more opportunity to see, frankly, more deals that are legitimate that fit our profile that we can compete on. But again, it still is challenging because, you know, multiples are relatively high, you know, for the deal.
Speaker Change: You know, multiples are relatively high, you know, for the deal. So I'd say about the same, but the deal flow is higher and better, which is a good thing.
David Dullum: So I'd say about the same, but the deal flow is higher and better, which is a good.
Analyst: I think that's it for me. I appreciate the time.
Bryce Rowe: I think that's it for me. I appreciate the time.
Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.
Speaker Change: Okay, okay. I think I think that's it for me. I appreciate the time.
Unknown Executive: Okay, do we have any more questions? There are no further questions at this time.
Speaker Change: Okay, do we have any more questions?
David Gladstone: I'd like to turn the floor back over to Mr. Gladstone for closing remarks. Oh, Shucks. I'm sorry.
Speaker Change: There are no further questions at this time. I'd like to turn the floor back over to Mr. Gladstone for closing remarks.
David Gladstone: We don't have more questions. We really enjoy the questions that you give us. But I understand we've given you a lot of answers and take some time to digest that. We appreciate you all being our shareholders, and we'll see you again next quarter.
Mr. Gladstone: Oh shucks, I'm sorry we don't have more questions. We really enjoy the questions that you give us, but I understand we've given you a lot of answers and take some time to digest that.
Mr. Gladstone: We appreciate you all being our shareholders and we'll see you again next quarter. That's the end of this call.
Operator: That's the end of this call.
Operator: This concludes today's teleconference. You may disconnect your lines at this time.
Operator: Thank you for your participation, and have a wonderful day. Thank you.
Speaker Change: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.
Mr. Gladstone: www.globalonenessproject.org