GLAD - Earnings call transcript Q3 2019 | Gladstone Capital Corporation

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Operator

Good day, ladies and gentlemen, and thank you for standing by and welcome to the Gladstone Capital Corporation's Third Quarter Earnings Call. At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session and instructions will be given at the appropriate time. [Operator Instructions]

As a reminder, today’s conference maybe recorded. pleasure the my Mr. over now is to call turn to, It Gladstone. David yours. Sir, the floor is

David Gladstone

Thank everyone. is and the you David conference you for hello for quarter Gladstone, This calling call XXXX. Chairman is ending in. calling June and Again, Capital in. this Gladstone the XX, earnings Thank quarterly for you thank for

investment updates shareholders welcome the and are happy on company We the analysts always to and talk portfolio. and its to with provide our opportunity

off with Counsel start LiCalsi, Now he statements General we to are our Michael and with is going forward-looking some make statements.

Michael LiCalsi

Today’s Thanks, be certain David, Exchange and may risks reasonable. are based and our to future current statements good of regarding the those morning. under Act the uncertainties which Securities that XXXX performance. including and we our believe report Securities on These involve forward-looking statements plans, XXXX, of Act include forward-looking

including expressed our documents future cause file SEC. by these Any from different factors with that results statements, any risk materially may to and or the other implied XX-Q, be XX-K all our factors results we actual forward-looking Forms on

on to these revise of on which except our result a the future these or www.sec.gov. required statements information, website events which no specifically look is find otherwise or as on page the SEC's can You law. is undertake whether as We or publicly www.gladstonecapital.com, update Investor obligation Relations website, forward-looking any of new by

and website, The to the our our Twitter also opportunity We is found e-mail can the keyword, We Gladstone once gladstonecapital.com. there also service. be Please handle Facebook, ask to you up @GladstoneComps notification visit again, Companies. sign for take on on

Investor yesterday we both page overview to of website. an you release our more on can information. our of Today's Those issued detailed and the review found ask be Form call results, Relations press our so XX-Q, for is

over that, Bob Capital's Bob? presentation turn the President, Gladstone With I'll to back Marcotte.

Bob Marcotte

let's with prior the Originations Good And us the today ended at our morning. XXXX. headlines strong for proprietary investments. and call syndicated Gladstone minutes Capital were few we as new for spend to now, included million this two three and on get dialing-in Thank quarter into for morning. quarter a XX, investments $XX in referenced you the June all

repayments than included and and the $XX prepayment were which of one investment top-five Tech, at senior which anticipated the $XX debt was par IA Exits at higher million in million prepaid of fee. our prepayment at our plus was

Net average prior originations to the on to all on rose average small portfolio yields the movements. in decline offset the slightly other quarter. prior million quarter Interest by interest-bearing as investment our after $XX.X the on investment million increase the from a from quarter were income thus was portfolio $XX.X portfolio the XX.X%

prepayment exit IA million to Prepayment which prepayment of fees the fees $XXX,XXX, the the $XX.X or in fee fees, excess including and and X.X% million on investment $X.X quarter higher rose our lifted March quarter. total income – to dividend than Tech income

average our with Our were and rose quarter utilization borrowing-related of the associated slightly unchanged fees commitment line the on as borrowings the credit costs fell on lower quarter.

at net credit $X.X the with fees a operating investment unchanged share rose, were expenses slightly and management increased million up was or income incentive increased and the income to investment Net incentive as quarter compared fee $X.XX prior fees as decline.

XX. at of The the appreciation per the $X.XX $X.X or per and assets portfolio NAV to X.X% as share to $X.XX in million quarter to share net per June operations or net from share the $X.XX on quarter of million rose rose $X.X result a

the investments falling the activity while fair portfolio lien XX% portfolio. secured at With portfolio, all senior respect as investment the mix value asset assets to X% with to the overall portfolio resulting of XX% shifted end of the of quarter of slightly the second to the in our the rose

investment. a the interest A non-core better and of of exit fund this quarter from the FedCap defense visibility for appreciation sector major the realized in into our the exit that investment depreciation and was loss contributor the potential from portfolio improvement Lignetics. unrealized opportunities ADC’s continued to results operating Detracting was in momentum in a equity

During the no value aggregate or quarter, which assets debt to was cost investments. all value aggregate our two X.X% there debt $X.X non-earning of all or fair investments of X.X% million the and represent $X.X million of change fair an of of

investment are an by additional up Since increased between the investments of our the exits today. earning million, as of quarter, end assets slightly follow-on and repayments and $X closed have we million $X.X total so

proprietary near-term. increased business, near-term the EBITDA particularly we principally We also healthy senior margins lending That have a new a close of to seen for the very to competitive causing to pressures lower inch within in focus past our middle million have sub-$XX outlook, level also deal in flow the deal months. said, several expect With down. respect investments market

follow-on average rates obviously to backlog investment existing expect core net the some and to provide to to are portfolio on and our able outpace interest investments near-term income. current events we companies, be liquidity to expected lift the our interest and much continue anticipated income. increase of to our our fundings not horizon Between Interest

exits remain outlook expected cost we able interest mature next refund of we combination side to other of portfolio issuance realized. as early However, and rate optimistic flip fee market our at we bank our elevated expect to that do are and or declining borrowings. effective The is the income facility lower to capital quarter are existing GLAD X% are through preferred some a continues that and

lift to limitation. the coverage be clearing to hurdle prerequisite asset a is to able minimum refunding the XXX% This last

utilize several from of being of XXX% as probably a any in position XX, additional we of June solid are given leverage to quarters originations our capacity. this coverage away However,

for the of call results like I’d on provide Gladstone now details over Schaltenbrand, the CFO to financial Capital And Nicole? to to the some quarter. turn the Fund’s the for Nicole

Nicole Schaltenbrand

Bob. Thanks, Good everyone. morning,

the as the on $XX.X and Other well investment million other $X.X higher Tech IA X% to as average point XX investments During received. than the to decline interest as yield million income portfolio. quarter, by more the activities $XXX,XXX income prepayment offset total the June fee, average in rose dividends with rose basis

rose $XXX,XXX Total or million $XXX,XXX fees, increase by investment in credits in to X.X% net mainly The fee incentive offset increased a $XXX,XXX net the both for incentive decrease a expenses in fees decrease base investment and management driven quarter net increase by by the fees. net driven $XX.X partially $XXX,XXX Total $XXX,XXX by a on advisor increase quarter-over-quarter. quarter. income is in in an income

were million receipts were and average in new Financing basis our on point at also fees $XXX,XXX origination other to base decrease management is or associated net investments $XXX,XXX unchanged unchanged driven $X.X on with the expenses quarter. the the on quarter. credit expenses by The fees assets XX during

June investment share or income ended quarter and For of our XXX% net was million the $X.XX $X.X covered shareholder XX, per distributions.

to series and preferred $XXX as and $XX and X.XXX% XX, consisting million in $XX.X Moving XXXX borrowings credit million total Liabilities million $XXX $XX rose XXXX of other of fair over June value the senior were of facility, to stock. our sheet, term investments in on notes $X million million by of assets million million $X million consisted $XXX at of our balance cash and assets.

net since million unrealized realized million stock our $XX.X of of the under and common and appreciation with which proceeds portfolio prior net by $X.X ATM issued rose assets million. quarter generated Net end $X.X program

to share a compared issuance shares of an of accretive XXXX. The for increase we June at issued XX, price $X.XX or average in of March $X.XX XXX,XXX of quarter, the of common XXX.X% the XXXX approximately to NAV. the accounted NAV as which For one-third XX, rose $X.XX per ATM $X.XX as

the prior net Our for of leverage as assets from quarter unchanged of ended was in the the increase June despite XX period. XX% assets

current and our of $XXX of of approximately end quarter, of the capacity available line had As of million investment in credit. of the under excess million we $XX

our cash and $X.XX distribution, With paying stockholders in Capital August, common July, distribution respect declared month Board September an share its $X.XX and monthly of common a a which shareholders committed is to annual share. remain of per our to Directors per rate to of per for dividend Gladstone July, has

the common $X.XX to the runrate determine of continues the X.X%, relative to quarter. for common a price which attractive most common be will stockholders with about monthly for is stock rate meet The to yesterday, deal distribution to in our Board distribution and about stock At producing October yield-oriented now the distribution of following the current alternatives.

And now conclude presentation. David will the

David Gladstone

a report you, report Bob Michael well. and as Nicole. good Good Thank from Okay. and

I our and shareholders are we informed of what think all well the are analysts doing.

good investments the aided assets This originated for continued but by the nonetheless generating is Gladstone investment million than payments more than of some million good new to a in offset than spike more made record and over another $XX.X income fees, growth money. Capital, in $XX significant more quarter

in to portfolio any sheet grow Maintaining we In significant middle with the the we that’s this that in businesses. be to weather balance of investment and specialize there dry lower has believe the area powder enough one. should liquidity recession market a company, kind strong

lend In paying ongoing have buyout partners mid-sized invested are support money can a us summary, businesses to attractive funds company equity for loans that sees Many owned their by a mid-size the business management which to in that the as stockholders. with and private good they commitment to distributions that are these the pay of strength our are interest cash to make chance looking experienced this team. gives

come I particulars. they job some to are We am those now good the ask us more team some ask to there and here in to and have like would get a that great doing from questions out a operator going and

Operator

Henry Mr. will Our queue the you, line of Wedbush. with Thank ahead. in question Instructions] go come Please first Gladstone. [Operator from Coffey

line open. is Your now

David Gladstone

there? you are Henry,

Operator

your line Coffey, is mute. check your Mr. open. Please

Henry Coffey

Can now? you hear me

David Gladstone

Yes.

Henry Coffey

about Sorry that.

challenge? be? offset – as are rates and were managing need with yields on being alternatives you how And that to, there terms that are where how keep in of is spreads affected? are, if had they low low, market And investments cutting prices funding to cost So, to pricing your they as if around

David Gladstone

a know, Henry, part of about floating a obviously, our as significant capital third rate stack, our of debt debt. is bank you

going obviously So that’s it. with down

and we call as X% it. next yield piece going my I our second on in at are a mentioned The out early preferred to comments, quarter that’s

dividend be likely that come of significantly that’s some the and mix preferred. be current rate will than funding expensive there that on going less into floating More will than that to

compression in parts middle are active an there part buy two The been more than area, active the the market continue lower the some as outs. clearly even in those larger spread certainly today be it. probably to marketplace market middle buy is out So more it is challenging of

So funds we’ve seen some margins. on in, coming of pressure incursion other creating some

see So, ramping deal we and conditions up mindful of whatever that focusing. the we flow obviously competitive in are we are very

and yields hit where still love in cost increase would lowering to our are we lower, say, obviously to managing compression. of of at little are would to situation point So, we our this bit be some a rate little are but current the rates bit I a we and able offset a

opportunities But still I are seeing to point, book. think this current investment at accretive our that are positive we

it’s tight. why I dramatically. more So, still we coming But our The see places flow that’s attractive. less asset is and I competitive one growing think think pricing you where of probably incremental growth don’t the from assets reasons managing is are

Henry Coffey

are is So, obviously the different the there the to. up are of different sectors that look, economy of there sectors by administration what is economy affected and

For portfolio you that sort like get? look of do read example, soybean something what at and companies, or agriculture you economic your

and going? if how the is you market, very your obviously, at telling And portfolio negative, by are companies are what stock are business how the economy you conditions look

Bob Marcotte

quite Well, manufacturing chains, which are migration in the is outsourcing. actually expansion, plant of favorable. there on more we’ve past domestic a where certainly had labor focused been is a are seven production what delivery manufacturing, really automation, to well significant always healthy and But manufacturing supply inventory requirements years, as cost, realign their growing five, times, is domestic BDC all smaller people manufacturing, businesses domestic mix

but those So, getting maybe point their a Obviously, stronger. more a challenges, where certainly significant aerospace, to each become whether those or some manufacturing domestic own we have uptick it’s of much businesses, is have opportunity. auto-related are in

businesses services the I areas, seeing some of in strong. we to be think continue other are

pressures, in outlook. activity are other pricing positive categories businesses see certainly and would they you our costs, positive things given basic more We wage but the positive than are and service on think increases still software-related some or in very their probably of

domestic for businesses it’s updraft the So, I that creating swing say a some is for of us. decidedly would

Henry Coffey

Great. Thank much. very you

David Gladstone

question. next Okay,

Operator

Thank you sir.

ahead. go question of next the comes Schleien Please Our line Mickey from Ladenburg. with

line Your is now open.

Mickey Schleien

a good business a Bob, to also the valuation could more everyone. the you bit die that Yes, its is that background trend about of morning give how correlated economy? potential slowdown supported alloy increase? us its And

Bob Marcotte

of lighting symbolic The is business some acquired, some what auto-related Coast was casting as the I and based know when that’s course by days business, have may over deferred we die mentioned the that and It’s aerospace, ADC controlled question. West it businesses. one to and of significant manufacturer between it’s these a expenditures serves Henry’s those changes expenditures some – you management co-investments GAIN. time of a capital and

So, swap of results we’ve going and we of and increase, capital customers large-scale what’s Sales seen have as orders significant. from insights domestic a Between huge refocus a business. corporate are that there. what significant management, that significant. in inflow out and multinational The listing has been on

the at and runrate flow expansion, dramatically this point, is very cash three in Margin business up over the that last years.

the the where corner on cash original and was building it’s we in a our market equity and that well turned reflected has that’s business investment currently it’s feel they So above clearly in and quarter. adjustment the environment, significantly today’s are

endemic would it’s manufacturing I supported the very in is by a think fundamentals. that’s But of underlying what business. strong a I say story So, well domestic

Mickey Schleien

this potentially, or off I’ll that you guess, Dullum you that and as be I guess, that tuck-in could be if nice I reasonable? Is I around. it books will a So, downside, congratulate is your Bob that, indicating that’s guess, potentially somebody profile the could is cash for and like business on refinanced. acquisition are go sounds the turning a nice you flow as Dave

Bob Marcotte

a of assumption guess, that I and pursuing. options business. help That’s regards and those in value exploring the we the ultimate are, between accumulated are his fair that Dave team liability are within We the in

Mickey Schleien

Okay.

your of Just a profile average risk lien investments? your Could versus couple on second EBITDA us how revenue and questions portfolio. you for compares the the first tell borrower your lien

Bob Marcotte

really down. information Obviously, break business don’t We can different. each individual very that be

very versus imagine, you As profiles. business are manufacturer when a different you come a a healthcare up financing business, software you very, can versus with

specifically lump don’t talk a we little that. So, about try directly can and certainly follow-up bit I to with you overall.

are on But investments we the very the across portfolio that and the report by portfolio. secured underlying our approximately required X.X blend leverage have which of the all across entire is X.X, metrics obviously lenders times exacting

market the will relative that’s middle significantly So, that where to probably might when you think that. about probably closer to market north senior be comps, of be

Mickey Schleien

That’s do sponsored for helpful. there interested and just a in lower at you tend with just when in a to LTVs approach prefer second Perhaps order liens, get you ask lien? could conceptually, is I second follow-up deals you look to or different

Bob Marcotte

increase, moves would That’s an interesting with question lot the and probably when starts become say, a the I to market more lien certainly leverage second challenging. conditions.

levels we You the and sponsorship marketplace, because that. last syndications number lower felt will we leverage of note second in quarter that lien support the have closed and equity equity the the warranted significant a

where differentiating sponsor were a that’s So, clear example us. and a factor equity for

looking the equity. relates to verification on lien many not reduce their it proprietary sponsors leverage and sponsor As restricting the the proprietary transaction. are In second spike marketplace, a to of return deals, second for that’s our in only investments to lien the

comfortable look necessarily are of don’t investments. level that where situation on taking at We that we

when a You we piece detail, second of a also a that might and the unitranche a should of we loan. know are classified lien, times bit is loan that where lien a first we and but inside strip sell-off would there as this originate

but sell-off might turns much the turns classify a expect, inside then leverage leverage So We second loan lien you buyout, a of of rate. a of really first bank to at a as that first four in if it’s we facility. as lien a we would leverage provided two would lower

traditional going an second perspective, like. and are lower we collateral be would what perspective, lien and a look than leverage from to from overall control a So

lien continue those certainly either So, assets. equity for is we most to control fashion deal second part the in important proprietary there our of think angle. I portfolio, work but exert over It’s an a to we the in that a or part large significant continue syndicated a

Mickey Schleien

color, as helpful That’s a don’t. second appreciate as I to many your second this your peers time you. understand. I morning. which of opposed particularly lien Thank lien labeling

Bob Marcotte

Mickey. you, Thank

David Gladstone

Do we have questions? other any Okay.

Operator

program queue. or additional questions turn the David any comments. no am in over I to additional I’ll showing closing for the back

David Gladstone

Thank you and about for today That’s the to great right. presentation. the in listening we this of three months. The shape all look in to All is call. see company end

Operator

you Thank our you of to today’s our attendees concludes presenters and all for to thank us. joining This call.

You may wonderful a now disconnect have and day.

Gladstone Capital (GLAD) 6 Aug 192019 Q3 Earnings call transcript