管理層發言
Greetings, and welcome to Gladstone Investment Corporation's Second Quarter Earnings Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Erich Hellmold, General Counsel. Please go ahead.
Thank you, Donna, and good morning. This is Erich Hellmold, General Counsel of Gladstone Investment. This is the earnings conference call for the second quarter ended September 30, 2025, of the 2026 fiscal year for shareholders and analysts of Gladstone Investment, listed on NASDAQ under trading symbols GAIN for the common stock, GAINN, GAINZ, GAINL, and GAINI for our four different registered notes. Thank you for all calling in. We're happy to provide updates to our shareholders and analysts and provide our view of the current business environment. Two goals for our call today are to help you understand what has happened and give you our current view of the future. Now we'll hear from Catherine Gerkis, our Director of Investor Relations and ESG to provide a brief disclosure regarding certain regulatory matters concerning this call and report.
Good morning, everyone. Today's call may include forward-looking statements, which are based on management's estimates, assumptions and projections. There are no guarantees of future performance, and actual results may differ materially from those expressed or implied in these statements due to various uncertainties, including the risk factors detailed in our SEC filings, which you can find on the Investors page of our website, gladstoneinvestment.com. We assume no obligation to update any of these statements unless required by law. Please visit our website for a copy of our Form 10-Q and earnings press release for more detailed information. You can also sign up for our e-mail notification service and find information on how to contact our Investor Relations department. We are also on X, @GladstoneComps as well as Facebook and LinkedIn, where the keyword for both is The Gladstone Companies. Now I will turn the call over to David Dullum, President of Gladstone Investment.
Thanks, Catherine, and good morning to everybody. Also, thank you for being on the call. I am pleased to report that in our second quarter of fiscal '26, we experienced strong performance. This was driven by the continued growth in the portfolio and results from our existing portfolio companies. We ended the second quarter with adjusted net investment income (NII) of $0.24 per share, sufficient to cover our monthly distributions to shareholders. Our total assets of $1.1 billion are up $90 million from the end of the prior quarter. This quarter-over-quarter increase in assets resulted from one new buyout investment during the current quarter, alongside the net appreciation of our investment portfolio. With the new buyout investment, we currently have 28 operating companies and a very healthy pipeline for new acquisitions. To date, and through the first six months of fiscal year '26, we have invested approximately $130 million in three new portfolio companies, which compares to a total of $221 million invested in all of fiscal year '25, indicating a solid run rate compared to where we were. These new investments align with our strategy to continue growing our portfolio through the acquisition of operating companies at attractive valuations. As usual, these acquisitions are made with a combination of our equity and debt, as we aim to generate capital gains on the equity upon exiting the business and operating income from the debt securities that we hold for monthly distributions to our shareholders. From our operating income, we maintained our monthly distribution to shareholders of $0.08 per share, or $0.96 per share annually. We earned our ability to distribute from the income we generated. Since our inception in 2005, and through this period ending 9/30/2025, we have invested in 65 buyout portfolio companies for an aggregate of approximately $2.2 billion, exiting 33 of these companies. This leaves total investments currently valued at approximately $1.1 billion, having generated about $335 million in net realized gains and $45 million in other income and exits during that period. Now let's turn to the outlook, which is probably the most important part—where we stand today and our perspectives going forward. There is very good liquidity in the M&A market, which creates a competitive environment as we strive to make new acquisitions at reasonable valuations. We are, however, facing some uncertainty with potential tariff impacts and an economy that appears to be slowing, affecting the evaluation of new opportunities. In this climate, we believe we can navigate these challenges carefully and seek reasonable valuations. Not every business is impacted equally, which both creates opportunities and adds uncertainty. We feel equipped to compete effectively for acquisitions fitting our model. As mentioned earlier, we've been active, closing on three new investments during the first half of the fiscal year while also in the final stages of diligence on new opportunities and actively negotiating several others. Our activity level is strong, keeping me optimistic about closing on new buyouts during the remainder of our fiscal year. Regarding our existing portfolio, a few companies are consumer-focused, and while they have reported good results to date, we remain cautious due to supply chain disruptions and tariff costs that may affect consumer prices, demand, and margins. We are working closely with all our companies to evaluate supply chain alternatives and production strategies as we navigate the current environment. We remain proactive in assisting our businesses operationally, and we feel positive about our position. Summarizing the quarter and looking ahead, our current portfolio is in good shape, with a strong and liquid balance sheet and a robust level of buyout activity, alongside the expectation for continued solid earnings and distributions while we address the uncertain economic landscape. Now, I’ll turn it over to Taylor Ritchie, our CFO, for more detailed information.
Thank you, Dave, and good morning everyone. In the second quarter, we generated total investment income of $25.3 million, an increase from $23.5 million in the previous quarter. This rise was mainly driven by an additional $1 million in interest income from the growth of our debt investment portfolio. The weighted average yield on our debt investments decreased from 14.1% to 13.4% during the quarter. However, after accounting for past due interest income from investments that had been nonaccrual, our portfolio's weighted average yield slightly improved from 13.1% to 13.2%. This increase reflects our recent buyout debt investments that typically have interest rate floors between 13% and 13.5%. Excluding nonaccrual investments, the weighted average interest rate floor of our current debt portfolio was 12% as of September 30. We believe these higher interest rate floors prepare us to manage potential decreases in net interest income if SOFR declines in the future. Additionally, we saw a $0.7 million increase in dividend and success fee income, although the timing of this can vary. Our net expenses for the quarter rose to $21 million from $14.5 million, primarily due to an increase in incentive fees, which included a $5.1 million rise in capital gains-based fees and a $0.3 million increase in income-based fees. Interest expenses went up this quarter due to the timing of borrowings for new investment activities from both the current and prior quarters, partially offset by our ATM sales during the quarter. This resulted in net investment income of $4.3 million compared to $9.1 million in the previous quarter. Overall, the valuations of our portfolio companies increased by $54.5 million, which came from net unrealized appreciation of $35.3 million and $19.1 million in reversals of unrealized depreciation related to our restructuring of investments in J.R. Hobbs. The unrealized appreciation was somewhat countered by lower valuation multiples across certain portfolio companies and decreased performance in some others. Adjusted net investment income, excluding any accrued or reversed capital gains-based incentive fees, was $9.2 million or $0.24 per share, compared to $8.9 million or $0.24 per share in the previous quarter. We believe that adjusted net investment income remains a key measure of our ongoing performance as it removes the impact of capital gains-based incentive fees recorded under U.S. GAAP that are not yet contractually due. During the quarter, we reduced the number of portfolio companies on nonaccrual status from four to three. This reduction is a result of the restructuring of our debt investments in J.R. Hobbs, which incurred a $29.9 million realized loss while establishing a new $20 million term loan that is now generating interest. We have confidence in the management team at J.R. Hobbs and believe the restructuring will set the company up for long-term success. Despite ongoing macroeconomic uncertainty, we do not see widespread credit concerns within the portfolio. We are closely engaging with the three companies currently on nonaccrual, working with their management teams to support their efforts to resume accrual status or to pursue exits when appropriate. Following J.R. Hobbs’ transition back to accrual status, our nonaccrual investments now account for 3.9% of our total portfolio at cost and 1.7% at fair value. Our NAV increased to $13.53 per share compared to $12.99 per share at the end of the previous quarter. This increase was mainly due to $1.42 per share of net unrealized depreciation, $0.11 per share of net investment income, and $0.06 of accretion from shares issued through our ATM at prices exceeding NAV. These increases were partially offset by $0.78 per share of realized losses and $0.24 per share in distributions to common shareholders. In terms of our balance sheet, we underlined the importance of maintaining strong liquidity and financial flexibility to support and grow our portfolio. As of yesterday, we had $174 million available under our credit facility. Additionally, we raised approximately $31.1 million in net proceeds through our common stock ATM program during the quarter and plan to keep utilizing this as long as pricing remains favorable to NAV. Looking ahead, we expect to access both equity and debt markets to support what continues to be a healthy pipeline of new buyout opportunities and refinance upcoming debt maturities. Overall, our leverage remains strong, with an asset coverage ratio as of September 30 of 193%, providing what we believe is a significant cushion above the required 150% coverage ratio. Regarding our distributions to shareholders, we ended the previous fiscal year with $55.3 million or $1.50 per share in spillover, which is sufficient to cover our current monthly distribution of $0.08 per share for an annual rate of $0.96, along with the $0.54 per share supplemental distribution paid in June. We will continue to pursue future supplemental distributions as we recognize realized capital gains on the equity portion of future exits. Using the annual monthly distribution rate of $0.96 per share and the $0.54 per share in supplemental distributions paid this fiscal year, our total estimated fiscal year distributions could yield about 10.9% based on yesterday's closing price of $13.79.
Thank you very much, Taylor. It's nice for you and Dave and Catherine; this is good information for our shareholders. This call and the Form 10-Q we filed should bring us up to date for everyone who follows us. The team reported solid results for the quarter ending September 30, 2025, including new investment activity and improvements in nonaccrual balances. This is a positive development and a strong liquidity position to grow the portfolio through the rest of this fiscal year, which will wrap up next quarter. We believe that Gladstone Investment is an attractive investment for investors seeking continuous monthly distributions and supplemental distributions from potential capital gains and other income. The team hopes to continue demonstrating a strong return on your investment in our fund. Let's slow down now and take some questions from our analysts and other shareholders. So, operator, if you'll please join us and gather some questions.
分析師問答
Our first question is coming from Mickey Schleien of Clear Street.
Taylor, in your remarks, you mentioned that the net unrealized depreciation, excluding the Hobbs reversals, was due to some companies performing well. Could you give us a sense of which sectors are the strongest in the portfolio? And what sectors are you seeing the most challenges?
Mickey, it's Dave. Taylor mentioned I should address that question, so I'll take a shot at it and he can chime in. To be honest, it's pretty much across the board. Some of our consumer-oriented companies are experiencing a slight decline in multiples and one or two are seeing small decreases in EBITDA. However, these changes are not significant and are relatively typical. We have a few companies connected to the government sector that are facing some slowdown due to the shutdown, but nothing too serious. Overall, the businesses are performing quite well. I can't pinpoint one sector that is underperforming compared to others. The oil and gas sector has some strong holdings that are doing well, although we've noticed a decline in multiples there as well. This situation is primarily driven by the fact that EBITDA for some individual companies is up, contributing to the unrealized appreciation. The concise answer is that, relatively speaking, it's a broad spread.
Dave, I'm sorry, please continue, Taylor.
Sorry, I was just going to add, if you look at the top three portfolio companies that have moved up from the quarter, they span all three of our traditional sectors, including SFEG, E3, and Schylling. So we are seeing this spread across the board.
That's helpful. And Dave, you mentioned the government shutdown, which is obviously a new development since the last earnings call and since your Investor Day in Utah. Could you give us a little more color on how that's impacting the portfolio and which companies are most exposed to that?
The ones that would be most exposed are those that are involved with services and products related, obviously, to military activities. And fundamentally, they're all doing well. I would say it's less of an issue now. We went through a period where we were concerned, but that was mainly about whether something might get funded or not. What we've learned is this has not been an issue for our specific portfolio companies. It’s something we keep an eye on, as there was an impact earlier in the year, but it seems to have smoothed out, so I wouldn’t want to highlight any particular company as having an issue with this.
And my last question, Hobbs had been an issue for a long time. So it's good to see the restructuring. But I noticed you cut your investment in Hobbs by about half. Did another investor get involved, whether another sponsor or another lender? And how would you describe that company's outlook now?
Yes. No, we are the only continuing investor. As we mentioned, we did a restructuring, and that allowed us to set the table with the dollars we have invested to generate income. We’ve seen a nice turn in the business, fundamentally focused on construction-related projects, both in multifamily and, to some extent, commercial sectors in the Southeast, which is continuing well. They've become more discerning in which contracts they take on, reducing revenue while keeping margins intact. Overall, they've done an exceptional job, and we're now looking at positive EBITDA and cash flow. We're pleased to continue our investment in this income-producing operation.
The next question is coming from Christopher Nolan of Ladenburg Thalmann.
Taylor, in case I missed it, what was the spillover income per share in the quarter, please?
We don't disclose that quarter-by-quarter due to fluctuations. We really manage the spillover on an annual basis. To provide some perspective, we started the year with $1.50, which covers the supplemental of $0.54 in June as well as each month's $0.08 distribution. So we're comfortable and confident about our year-end projections.
Okay. Following up on the J.R. Hobbs comments from Mickey, should we watch for other restructurings among the other companies on nonaccrual?
Chris, this is Dave. No, I don’t anticipate any restructurings for the other companies on nonaccrual. They are producing income, but we need to work through some restrictions with senior lenders. I wouldn’t expect restructuring on those companies.
Okay. Final question is, I noticed there was a slowdown in the ATM issuances quarter-to-date. Does that reflect just smaller windows where you can accretively issue the shares or lower seasonal balance sheet growth?
Chris, it's Taylor. To clarify, when you say quarter-to-date, are you referring to the period after 9/30 or the 9/30 quarter itself?
Subsequent to 9/30, please, the 515,000 common shares issued.
Yes, subsequent to 9/30, with the ability to utilize our ATM, it was limited by when we were trading at prices sufficiently above NAV to cover our costs and provide a cushion for any downturn. The trading window based on our 9/30 NAV, which increased from $12.99 to $13.53, had a limited number of days where we traded above that threshold. As mentioned in my remarks, we will continue to use the ATM as long as pricing remains above NAV with the necessary cushion.
The next question is coming from an analyst from B. Riley Securities.
I was just wondering if you could provide some more detail or color on the diligence and conversations regarding upcoming commitments and general scale and industries.
Yes. I have to be a little sensitive with our legal team present. But generally, we are actively engaged in several companies right now in the final phases of diligence, where we hope to see new acquisitions soon. We're constantly evaluating new businesses, which can lead to letters of intent. There’s no guarantee that these will be accepted as these are competitive processes. However, based on our current activity level, we're in good shape for adding to the portfolio.
Okay. And could you provide more color on the variability of tariff uncertainties, including specific holdings or industries that are more affected?
We’re lucky in many of our companies that import products from China, as they’ve been able to source from other locations. A few companies remain affected by tariff increases, mainly related to consumer products, yet demand remains strong despite those tariffs. Profitability isn't impacted for many. The companies heavily reliant on steel imports may face more challenges; however, most have been able to mitigate issues adeptly. We remain cautious, of course, but it looks like potential reductions in tariffs may be forthcoming.
Our next question is coming from Erik Zwick of Lucid Capital Markets.
This is Justin on for Erik today. I had a question on the J.R. Hobbs preferred position. We noticed it was previously marked at zero, and now it’s marked significantly above the cost basis. Was that a result of the restructuring or more tied to business performance improving?
The primary driver is the restructuring, which essentially eliminated $29.9 million of debt that was ahead of the preferred equity during the valuation process. In the valuation each quarter, as we assess the debt stack, any left-over value will fall into equity fair value.
Okay, that makes sense. You folks had another substantial quarter of net new investments. I was hoping you could expand on how the pipeline looks compared to the last quarter and where you're seeing the most compelling opportunities.
As I mentioned earlier, we are seeing a volume that is probably at a higher level than it has been in the past couple of quarters. This is partly due to our team’s efforts in pursuing opportunities that align with our objectives. We are gradually increasing the size of our investments as we believe larger businesses producing consistent EBITDA will provide better value creation long term. Overall, we are active, putting out numerous indications of interest on good quality businesses. The competitive environment remains strong, but we feel confident about the potential for net new deals moving forward.
Okay. Last one for me. I’m curious about market dynamics and the competitive landscape. We’ve heard larger BDCs are moving down market to smaller deals. Are you noticing any evidence of this among the borrowers you're reviewing?
I want to note that our approach is less about being a credit-oriented fund. We’re looking at businesses to acquire. While some BDCs might be moving downmarket on the debt pieces, we center on the middle market for companies to invest in. We’re also looking progressively at larger businesses because we believe that adds value over time. I wouldn’t say we’ve noticed greater competition due to this trend; however, there is sufficient capital in the M&A world, which makes it somewhat challenging to find suitable businesses at reasonable valuations. Nevertheless, we've been reasonably successful and expect to continue that trend.
The only additional point I’d add is that our competitors, when pursuing potential acquisition targets, are typically other private equity funds interested in the middle market space. While other BDCs may divert to smaller deals, they are often looking at companies outside our focus.
At this time, I would like to turn the floor back over to Mr. Gladstone for closing comments.
Thank you all for calling in. It’s reassuring to see that this place is continuing to thrive, even amid my morning traffic woes. I hope you all found the call valuable. We hope to address more of your questions in the next quarter. That's the end of this message.
Ladies and gentlemen, this concludes today's event. You may disconnect your lines or log off the webcast and enjoy the rest of your day.