管理層發言
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. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, David Gladstone, Chairman of the Gladstone Investment Corporation. Thank you, Mr. Gladstone. You may begin.
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, 2024 earnings conference call for shareholders and analysts of Gladstone Investment listed on NASDAQ under the trading symbol GAIN for the common stock and GAINN and GAINZ and GAINL for the three different registered notes that we have outstanding. 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. 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. Today's call may include forward-looking statements into 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 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 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. 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. 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 @GladstoneComps, or on Facebook. Key word there is The Gladstone Companies. 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. With that, I turn it over to Gladstone Investments President, Dave Dullum.
Hey, Mike. 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 for fiscal year ‘25, which ended March ‘24. We ended the first quarter of fiscal year ‘25 on 6/30/24 with adjusted NII of $0.24 per share and total assets of $914 million. 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 existing portfolio companies. 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 to one of our existing portfolio companies, where we actually have a significant equity position. So, this follows some of the other important add-on activities at 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, enhancing 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 is a challenge. Now the stability of our operating model allowed us to maintain our monthly distribution to shareholders at $0.08 per share or $0.96 per share on an annual basis. Recall that we paid $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 buyout strategy and 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. Now, since exits generally involve a pay down of our debt, we strive to balance the timing of these exits without sacrificing the level of debt assets that produce the income to support the monthly dividends and their growth. Our balance sheet continues to be strong with low leverage and good availability on our credit facility. Now, we currently have four companies on non-accrual, two of which we just placed 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. 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. 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. There is significant liquidity in the M&A market and it is a very competitive environment with upward pressure 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.
We currently are actively working on a number of new bids in various due diligence phases. 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.
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. This was due to decreased interest income as a result of two portfolio companies going on non-accrual status and lower success fee 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 incentive fees, which is due to the net impact of realized and unrealized gains and losses as required under U.S. GAAP and income-based incentives. 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 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. 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 30, 2024, we had certain loans to two portfolio companies placed on non-accrual status, bringing the total to four companies on non-accrual. 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. 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.
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 industry rebound. We anticipate bringing this company back on accrual in the near term. 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. 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. Our NAV decreased to $13.01 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 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. 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. 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 30, 2024, of 216%, providing plenty of cushion to the required 150% coverage.
Consistent with prior quarters, distributable book earnings to shareholders remains 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. 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. 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. The team has reported solid results for the quarter ending June 30, ‘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. 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.
分析師問答
Thank you. We will now be conducting a question-and-answer session. Our first question comes from the line of Mickey Schleien with Ladenburg Thalmann. Please proceed with your question.
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 NII per share could decline below your distribution, assuming no changes in the size of the portfolio or its credit quality. So GAIN has a great track record of not cutting the dividend and I like to understand what levers you can pull to avoid that scenario and would the board be comfortable with NII running below the dividend for a while?
Yes, thank you for the question. I'm not sure I can answer it exactly as you're asking. What I can say is that as we look ahead and make our projections, we do not foresee a decline in our spread that would lead us to consider cutting our dividend. This is not something we are looking to do. Additionally, we supplement our spread income with other income generated during any given period from our portfolio. Consequently, we expect to have total net investment income available for distribution that exceeds our current run rate dividend. Rachael, would you like to add anything?
Yes, absolutely. Good morning, Mickey. You know, as you said, as rates come down, we will 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, the potential for narrowing spreads, there's no real concern given the way we structure our deals. Our debt portfolio has floored generally in the 11.5% to 12% range. And we look at that as protection in a lower interest rate environment.
Yes, which is how we've always managed it, actually, which is why we've been able to keep, not like a typical lender, if you will, we've been able to manage that. Plus we again harvest dividends when we can from the equities on our portfolio as well. And so again, we would not anticipate the scenario that you suggested.
And Mickey, just that…
Rachael, could you just. Yes, I'm sorry.
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 the dividend. So I don't anticipate that slowing down this company.
Yes, I appreciate that. Rachael, could you repeat what the average sofa floors are on your debt investments?
In the aggregate there's between 11.5% to 12%.
Okay. Give me a second. 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?
I wish I could provide you with that specific number. At any given time, our deal team is working on about 15 to 16 companies. The process we follow begins with seeing an initial investment, after which we conduct considerable work to prepare an indication of interest, typically sent to the investment banker who presented the deal to us. If that is accepted, we then engage with the management teams of the companies to gain further insights and conduct more due diligence. If we are satisfied with what we find, we move forward with a letter of intent, which requires approval from our investment committee. Once accepted by the seller, we proceed through the final steps of the process. There are many components involved, so I'm not in a position to provide a specific number. It’s a continuous process, and ideally, we aim to close three to five new deals over a 12-month period, with the size of these deals varying.
We also consider our potential for add-on acquisitions. We have set goals for how much we aim to deploy within a year and work diligently to meet those objectives. It involves ongoing activities between indications of interest and letters of intent, ultimately aiming to finalize deals. Once we receive approval to advance, it typically takes around two months for due diligence and deal completion. There are many factors at play, but aligning with our historical performance, our outlook for new deals remains focused, and closing three to five new deals in a year would be regarded as strong performance, consistent with our past results.
Yes, I appreciate that. Rachael made several comments about credit quality, but it was 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?
Well, without going into too much detail, Nth Degree is a good example. That company has a significant EBITDA level, and we noticed a slight decrease in the multiple. It's important to remember that for any of these companies, even a half a turn on an EBITDA company with, let's say, $20 million to $60 million of EBITDA can represent a substantial dollar change. What you’re seeing is more than anything else. I want to emphasize that all the companies you mentioned, including Nth Degree, are exceptional businesses generating significant EBITDA. Mason West is a solid business, and Horizon is also a very good business. They provide labor to the rental car sector, which has experienced some softness, but they remain profitable and are doing well. So we need to be cautious when analyzing these changes. A multiple decline, which is out of our control, along with a slight decrease in EBITDA can lead to a meaningful dollar decline in the asset's actual value. Does that make sense?
I understand. Yes, I understand. And in terms of diligent delivery, which is a new non-accrual, that debt investment still marked at par. I think Rachel may have alluded to that as something you expect to put back on accrual soon. Am I correct or did I misinterpret those remarks?
Yes, that investment is a small debt position we've held for quite some time. It has been generating interest payments reliably and is in the process of a potential exit. They've been working towards this for several years. What we expect, as mentioned, is that we might be able to pay off this debt and close this chapter in the near future. It's important to note that we do not hold any equity in this investment; it's simply a remnant of a previous investment.
And the issues on B&T are just this down cycle and spend by telecom or is that something else?
No, I think it's pretty much spending by telecom that they're actually seeing an uptick in that business right now. And again, I'd say B&T and Hobbs have been on non-accrual for a while. Both companies are profitable. As you know, we work with these companies to help them return to accrual status or to exit those businesses. Right now, I’d say they are both headed in the right direction, and we are just working through what we need to with them. There was a slight downturn not as significant as some of their customers like Verizon and AT&T, which can be challenging. However, the team at B&T has done a really good job. I feel that we are moving in the right direction with them. This situation is somewhat temporary, and we have a piece of revolving line of credit that did not go on accrual.
Yes, I saw that.
Total investment, yes.
And my last question I do appreciate your patience. There was an increase in G&A quarter-to-quarter was pretty meaningful. Rachael, is there any insight you can give us on that, and what's the outlook for G&A?
Yes, so 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.
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.
Thank you. Our next question comes from the line of Bryce Rowe with B. Riley Securities. 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, you know, as we've talked about, 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. 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.
Which is a good thing.
Yes.
Yes, understood. And then in terms of non-accruals, and I guess it relates to that comment about the bad debt expense and other G&A expense. 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 had some level of interest income from those newly non-accrual investments?
Yes, so both companies were placed on non-accrual as of April 1, 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.
Okay. 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 the competitive conditions and trying to get new deals signed up. And Mickey did ask about 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, as trying to suggest, is that you look back over the last quarter or so before this quarter, let's say the deal flow was okay, and the deals that we were seeing, and this affects everybody obviously, we compete with some of those companies, as you might well know from your firm's investment banking side as well, some deals that were being sold, 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 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. However, the appetite from the buy-side is pretty high and people are really striving to get money out. So as a result of that, yes, 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. So I'd say about the same, but the deal flow is higher and better, which is a good thing.
Okay, okay. I think that's it for me. I appreciate the time.
Okay, do we have any more questions?
There are no further questions at this time. I'd like to turn the floor back over to Mr. Gladstone for closing remarks.
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. We appreciate you all being our shareholders, and we'll see you again next quarter. That's the end of this call.
This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.