GLAD - Earnings call transcript Q3 2020 | Gladstone Capital Corporation

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Operator

Ladies and gentlemen thank you for standing by and welcome to today's Gladstone Capital Corporation’s Third Quarter ended June 30, 2020 earnings call and webcast. At this time, all participants are in a listen-only mode. [Operator Instructions] Please be advised that today’s call is being recorded. [Operator Instructions] I would now like to turn the call over to David Gladstone. Please go ahead.

David Gladstone

Alright. Michelle. you, Thank Nice introduction. up. warmed all us Got is David we the earnings that [indiscernible] quarter Gladstone, do every Chairman normally is this quarter quarter for call company. This and third this is you ending Its really XX in. calling thank year all September for and and to to the update the shareholders an investment its and company welcome We're always and to for analysts happy on talk opportunity provide portfolio. give which way are blowing. It's on really the determination hard you much today to winds the decide to way Government, most everything Government, got hard you've really State Government, blowing, the but which gets and the we'll here the to County do. always start government we National are out it's and out The figure way the winds some General regarding forward-looking Counsel, statements. LiCalsi, Michael will make statements he

Michael LiCalsi

our results we future SEC find listed under XXXX, on Act XX-Q, our Act website, expressed of page plans, certain the Securities to believe Exchange and statements in is those These that these including On and can the cause XXXX, are which Securities Forms based www.gladstonecapital.com. results our many factors report implied David Thanks, documents forward-looking statements, by morning, statements everybody. any of that of materially good the our and notification be may uncertainties actual involve you Today's including to that forward-looking all our from and different sign current XX-K, future regarding risks other be investor performance. reasonable, we forward-looking relations certain we filed email may these which for with include risk that factors or on up to our website, service. also

or our revise a except today's undertake obligation that's as to results. by these statements any find We to our new events information publicly law. required otherwise as the on You overview and We of or everybody SEC’s no of future whether is at remind of call forward-looking information, update an result www.sec.gov. can website also

XX-Q, at Relations Form found yesterday, more release you Investor our for can that review ask again, we detailed page both information. www.gladstonecapital.com. press and website So, be our These issued on

over Bob Capital’s President, I turn Bob? call the Now, will to Gladstone Marcotte.

Bob Marcotte

morning few this Gladstone two for dialing anticipation for for new a summary related you Thank in the more questions you, XX. have smaller of thank Repayments this million, Originations quarter the and of let's In three XX.X Capital COVID for proceeds including we what included get quarter might investments. the totaled exit June into proprietary in positions. ended Michael. Good on morning. million results quarter, totaled and exit the the XX.X all on and

the over quarter period XX.X%, investments, dividend as income net prior was Interest our as LIBOR well of income So, or originations applicable for the rose was floors. Prepayment were the up million XX.X nominal. unchanged X% increase the in the with are most below XX.X investments yield quarter, the million. at average portfolio to on and

the So, up slightly rates XX.X commitment LIBOR was the costs with administrative unused and lower and on to fell million. Borrowing investment fees. period income overall

investment net XXX,XXX rose fee from in $X.XXX and energy on and share. $X market-based assets fees our million $X.XX per investments. with by to in appreciation more Net of net an portfolio the of weakness as strong the which rose the the of per credits, of quarter offset reduction million million income management share, unrealized than spreads, incentive auto-related included performers net reduction resulting XX X.X or However, or operations

consumer, were our companies portfolio portfolio, exposure instituted sectors much to last respect diversity on per to $X.XX their appropriate or actions of most the the said, limited June to to quarter including the that period, as XX. retail, With share last to to to For per disruptions, were NAV quarter, our and working on as make by was fortunate call, discussed supporting we rose of PPP That focused funding. our share, cost pandemic. weather access service or impacted adjust bolster we with $X.XX liquidity X% travel sure COVID-XX any the to our

period, payment one our any defaults we in investment. did not the For experience non-accrual

investments Our X.X% the to value. fair at declined non-accrual of portfolio

You ramp in be that attributed this sector reduction one applicable last with flow to related in auto auto the investments of and quarter’s couple to subsequent market in that equity recovered which the note XX% and up plant next of recovery The about depreciation, sponsor, from average with sector, [order of for pick will hampered the the unrealized we quarters to has move X.X% in shutdowns bridge Much did connection new our PE and the disruption this investment contributing order our of companies at manufacturers it by value. number two closely flow] our of followed top valuation increased three represents broadly improved spreads. From operating the auto investments the driven fair the investments appreciation on syndicated that the about of can quarter our energy a a of performance, perspective, by they were serves. were exposures.

companies win in the volatility ample and high distribution investment expect severe business. we these liquidity, our vehicle our and chemical are last platforms, companies to oilfield business quarters. With production respect contraction pricing are to profile energy next impacted sector they on of in quarter have However, as both couple improve and attractive an exposures, continuing the to

While cost before, was curtailment Permian we've energy of been swings production the has speed and with the the structure, [adapted the unprecedented. in their through managing] company team this

to in the already restarted of quarter. trend their and bottomed wells] have this many up [shut-in improved and prices, the with May crude revenues expect Fortunately, we have

sales to price well-positioned quarter, auction has swings our and unchanged of of and The cost and mix net loan second in based last benefit of negatively these postpone relatively energy first dropped impacted of liquidity, for cost. investment reductions, government government from taken lease to bolster volume and properties. leading the cost operator was property originations broker XX% at the is disrupted which XX% auctions end the exposure to services asset of and significant extreme on the company Lastly, quarter lien distress sales and as the The restructured increased properties. loans lien at the

wireless asset XX Our our investment expenditures, X.X% fee plus which see. prepayment in hover B&T represents at million end $X.X in of par, assets to a the which B&T, XG we're was and fair beginning engineering Healthcare is only of investment to approximately business, well-positioned our increase prepaid $XXX,XXX. contracting debt with value. a Since wireless of quarter, of is the Survey at million in a non-earning

at exposure this a We also sold marked a quarter. Lignetics $X par, to significant was represents of our last second over lien where which million position piece gain

for diversity, the despite weathered [indiscernible] has our us challenges well grow. management we discipline, the active outlook company the balance lower quarter’s focus market composition, Turning to and and position much COVID-XX, last XXXX, of affirmed and our and portfolio, underwriting to of investment challenges unprecedented we feel middle

are increase. deal new level cautious lasting the COVID related seen we we front, pickup and in On being of any the impacts financial recently deal regarding a have

to market – to assets capacity assets and the income. our the expect – to existing to the turn I'd opportunities Gladstone we the the it more net current maintain support an new dislocations level continue And performance for Schaltenbrand, new like provide investments now, Capital quarter. investments CFO Nicole over to the details support our leverage call over targeted to update while to of to interest on improve of excuse modest our and leverage conditions, enhancing manage intend limited our and financial competitive to intend investment sell sell levels We more proactively existing Given sorry, these yields. we these me, carry to

Nicole Schaltenbrand

Thanks Bob. Good morning, everyone.

XXX,XXX compared XX.X primarily increased as X.X% last floating During XXX,XXX increasing investment. as with XXX The was compared for to in quarter on the dividends, in balance had income increase interest total decline decreased small lower to given investment XXX,XXX or to $XXX,XXX in due by interest interest interest credit ended total in to Total of X.X%, the predominantly a Adviser decrease million, the fee balance million. XXX.X or average to XX.X average increased minimal rate investment Other million reductions granted XX.X by weighted million our floors compared an to to quarter, XX. at weighted in in by June due other The our unchanged income the or and expenses. prior prepayment quarter, expenses the X.X% assets]. fees and effect, portfolio interest to X.X% average LIBOR March increased quarter-over-quarter, the the the portfolio XXX,XXX million, the primarily incentive bearing an and our or [rate resulting expenses effect fees a quarter income and bearing quarter for yield XX.X%,

$X.XXX ended $X.XX assets per ended on quarter fees for continue reminder, syndicated a quarter. we as the last the investments million The Bob to million, portfolio of million for fees share compared net resulting basis million from distribution. net $X.XX a XX driven quarter, in the credit investment reduce share management a or prior per primarily to per to decrease covered prior increase operations closing covered a to continue share June was quarter XX, net directly to or quarter. of to manager, as XXX,XXX a were quarter, X.X which compared X we and increase XXXX earlier. current X.X% the shareholder by which credit The points, received last of XXX% or provide quarter was XX Net to and income decrease the June As XX.X for appreciation XX, XX,XXX broadly was of the was

to over the balance Moving sheet.

million, in assets. net unrealized facility, as million share Net by and in fair of assets total million June appreciation. per with XX other X XX Senior $X.XX XX, assets prior and due and rose XX, primarily million Notes XXXX. million to June per Notes of due consisted quarter XXXX, June As rose XXX.X million March the were and X.XXX% NAV XX.X from on rose million to credit XX. of value, XXX realized as of from investments $X.XX our borrowings cash of X.XXX% of at X.X of XXX at million million and The end share portfolio XX.X in of Liabilities consisting XXX Senior

XX, of quarter-end Our XX% of the from as for net the from XXX% origination June the to period. prior net assets with leverage increased

the extended of quarter, facility of months under on availability of XX As current line six of credit to revolving successfully by investment our we period April, the had capacity and July end an In credit. of ending XXXX. XX, the we million the excess

continues be yield to per current will Capital the low compare quarter. liquidity leverage levels as and companies new monthly $X.XX dividend, month per The share the stock now the is common market distribution XX.X%, for October run monthly our to in in paying declared an committed about and overall distribution shareholders existing attractive which and remained At we rate our has respect have is to stockholders distributions, share. yesterday, its board And favorably August, producing our at per selectively generally to $X.XX to capital deploy our board stockholders rate distribution and continues turn a meet to Gladstone July, portfolio a following necessary, relative in With of stock to support presentation. September, the common of believe and with available back common $X.XXX the sufficient of determine July, of to opportunities. distributions to we common cash to common Our directors annual rate price it for of and today. investment the now which for a yields the David I’ll complete extraordinary to

David Gladstone

income increase ended hopefully about six about and down, good to and on participants next will in Bob in report Originated months, We to Super for we'll so $XX XX company. no marketplace of million, assets, that up over good in keeping well those presentation, Nicole. million some be delivering Gladstone pay days Very this these on date. produce XX nice. good to things some and lending as able exception. all did challenging us is in Good and we leverage the quarter numbers million front a you our had we the Mike up It's with Capital all well.

making of funds. years additional companies good portfolio for including total capital the Higher help business businesses. million. assets, trying about It's are increase more X.X%, to summary, these original We we've the in the X.X market the invest That's mid-size assets keep and available where the net many with of core started to are situations continues non-performing today, in in. that equity the we're in loans middle company's management. business supported strong provide about private working existing And sheet, balance drove a to maintained our with income Many I In hard they are interest a nice to assets private investments. out by ago. businesses company

buy debt they shareholders. commitments those support gives with loans to need paying hang distributions to opportunity looking us of attractive So, to we in This pay around to an interest that provide make guys the ongoing cash to something.

forecasting I very do of way at state As no have as on. going difficult to as way is governments to mentioned because today the we national and local the beginning, what's governments, going knowing simply, quite well are which the

have operator the down things COVID-XX streets you good Washington, all name you and we the in that's some in do If power let's D.C. the in on. but them up, has going some with government it, anything to time. see to how stop and and and at walk come wonder of We've given unbutton boarded bad most things point the here some

and about on they tell how company. Michelle, come some you If the ask people questions can would

Operator

Our of Instructions] question Mickey first from comes Ladenburg. [Operator Schleien

open. is line Your

Mickey Schleien

Yes. everyone. Good morning,

congratulations quarter pipeline how to so dislocation? period on to done. see to in over to understand me strong the of opportunistic quarter investing was deals difficult in your for on that last much the a you've given what high very all, that the been And while, activity and a I be than of working during that perhaps was higher well several much came versus environment that how appears I'd a quarters. First simply like is, now of fruition from investment

David Gladstone

actually quarter as come pre-dated these investments, mean, those and comfortable morning, to feel a a were the Good are of them both as but those result very deals takes of quarter, so Both of activities, of modestly, low while Mickey. the I leveraged. fruition. it to adjusted deals for both relatively

like fours leverage. more twos versus of You terms know,

with Nice investments. yields, happy risk we're So, exposures. but lower those

Mickey Schleien

Okay, the the seeing outliers proprietary average that drove thank see helpful. been your Bob, generally [bugs] you where risk rating in the weighted I've that on improved, I your up there which certainly for that. trend sector, particular investments some That's rating?

Bob Marcotte

are Some X the of know, in our little of as second numbers those are - [XXX] companies. for of since, the We you have numbers, lagging results the financial for bit [XXX] right? don't a the numbers, [XXX] all quarter

lag there. is bit there a in little So, of

deals going from thirdly, is, comments, of rating. three at that second closed. are The would attribute of improve I that than performers do that had the with we order the appreciation magnitude, recently mostly to it's top leveraged in were deals on less to the certainly to put improved earlier When the And performance. three, my

their the we which up So, had performance, is weight financial three historical to companies dramatically number. improved going

So, it a some bit and assets on improvements an of position. timing, little anomaly given the good may core some be but

make was. the swing I result, we go back understand sure will think we and definitely what that but were

Mickey Schleien

the appreciate color, interesting. I really that's

you're X.X of So willing that higher within into conditions, not target target debt-to-equity was X.XX. current to looked, which the that like I Bob, from mentioned at it last the given in go remarks your correct? your market leverage, terms think range And your now is least unless, is range, prepared you – sounds time I to

Bob Marcotte

– are floating don't that now. that we think X-to-X around I the leverage net I think level

our keep over X-to-X, threshold, much we some matters. be are so going further we go. know, amount as we of back it to assets certainly we we're with go portfolio to brought looking us back maintain capacity million] we a how Once we're deal to going any we to a obviously an reserve. closely at to based think, existing pre-payments, but going certain us up want cushion on get over [XX to Obviously, determine leverage, related had down You go going gave I prepayments. additional on up about will to, We subsequent are

recall, typically XX%, leverage know, As moved before we you X-to-X. may you multiple, didn't was, though go we much past rule our even the

between fund X.XX new So, and you sure to assets careful the think going make we're available capacity using the we know, in make going we comment the I and be to keep those the that a that want that would marketplace, that to line are is cost funding very that cushion to I is, also marginal forward, last accretive. what's to

So, again, leverage, closely to the be going it's you go going guardrails forward on around a or know, and we're X-to-X basis. to it around manage

Mickey Schleien

to trading account obviously, I the equity, right given it how to account, forecasts into appreciate put have mentioned opportunity capital to and takes several that Gladstone would that mentioned NAV? that do potentially I common that above decision equity, issue David issue work. difficult is the to the to is have understand to And into do equity now, and make take Simply realize the factors it. decision common stock and common but you you've put, issue times, many appetite to cushion

Bob Marcotte

pretty should able to That's to a we're cost opportunities debt attractive on to are stock significant it's today. be you funding is that which got very marginal – I Yes, there's, be to factor to path stock a really probably our on We marginal what's XX.X% continue equity marginal going a be going that you at obviously tough know, we the attractive to question than would this our today, costs, accretive to investment currently to consider there's some financing say, Mickey. continued generating to volume. it's cost, in believe but higher to have that yield going a investment have book which have that yield appreciate. a not cover When a and opportunity in it and it?

of the continue to portfolio. maintain the We quality

today So, you know, is premature. probably backing up truck the

Mickey Schleien

understand. I

portfolio yielding all while perhaps investments of is or yielding last lower a could leverage that just of in to this on it strategy as find you you more statement? the uncertainty, higher them, constraining of midst be repayments like the as those investments the based summarize would I fair from in answers, if come sounds So, rotate couple know, to,

Bob Marcotte

that would to know, already It's compression or is, we thing good I a when you and It’s competition day-to-day normalizes. actually the the I a we market price re-characterization add beginning going, issuing managing. about is market Mickey. other we're equity, situation as some that anticipate mean, see where think some the

wouldn't a marketplace, to of to I bunch of that bit a spread in want a see in equity down. So, the particular issue anticipation get and

program to going as we amount anything, support. dislocations certainly do be And market if it our we're very So, small closely. the may it a ATM manage under

Mickey Schleien

Understand. Those your appreciate morning. questions I for are time. this all my

Bob Marcotte

in. Thanks for calling

Mickey Schleien

stays Thanks. I on hope team the healthy. everyone And

David Gladstone

good in far. all We're so shape

So come Michelle, question. the get on and next

Operator

Our Wedbush. of question Henry next from Coffey comes

Your line is open.

Henry Coffey

Good just not up in survive? morning and what just growth, looking loans capital door it new or questions. the – in nature the now? but looking What the people on of for capital Mickey's comes following you, for When for of capital put who's kind in looking to beast that and walking front this market are for is is capital for of right

Bob Marcotte

Henry looking road that bump folks know had there’s of to our have come and are that stress, period. probably to hold the existing have a that a are end in you fair they've enough, had the their amount recap Folks under and lenders. five-year folks reached

about coming we the part, the are are acquire sign environment, they've to diligence five certainly still for you transactions. starting business opportunity to flow are Folks calls we are payout. in add-ons. those Where generally most [tell-tell] is much do are deleverage in percolate. It's and So, in be to that doing certainly additional somewhat know, are the situations for new we're even transactions with had re-emerge. hold to that Zoom beginning those last some They've to those to but COVID to transactions years that and and are accretively, generally the think beginning tough just you know, it's how the a been on are a can't – situations. on travel certainly management on. There in you should overall not work careful. beginning teams, see, know, We sponsored some only financing diligence also opportunities three have about months. but four is skeptical going pretty or thinking Folks Albeit, folks

Henry Coffey

those also to right values, your loan – characterize now and in spreads trends is is about life in want in values’? spreads and the You businesses tightening. there if I trends don't How real but opinion? talked Or what ‘bond two lining there the correlation are what between comment, up? a actual and disconnect

Bob Marcotte

the They about ways. investments And The marketplace, I in I as funds only well syndicated – flows marked know, a in would number portfolio. one CLO them think not loan those broadly has have you bid the where it below to expect marketplace, of re-slated, up be. market the as market I still of can are expect. indicative I leverage fully conditions, much think we is, I two would syndicated have that's in investor our not

and You the about environment. XXs. still don't have the also the require but have and protections levels that controls not in we current in XXs, think that same them in I necessarily higher assets you're talking instruments leverage, covenants And, the trading and of quite would

funds what attractive more]. to an very paper of plenty eight levels or half syndicated folks put your about, probably of know, flow know, think for And mentioned the of current know, So, in longer unitranche more at last resolve. you you talk know, investment environment. market front, portfolio, XX% know, we're yield macro on continue insurance senior to of back and a relative we're to investments, the only a going comments, of you know, proliferate, the of to [L piece levels quarter. in talking are it's able take down And, the we marked and where plus know, to leverage I And the looking issue In about, be you funds, companies that to where you are. I about marketplace. the you yield that's as some seven, direct it origination That's you proprietary a

paper insurance marketplace, I company, last high checkbook for funds guys up floor recognize are activity active there's there. advantage know, you for and you digit mean, you four single more [$XXX and We the dislocation with know, return million] almost, good five is in a investor. seeing quarter. investment without going take sharing to mean, know, opens some on, know, a major a that That's or names, of pulls that putting yield protections the I rates. you

seeing the syndicated the inflating or direct market definitely loan finance reflating we're then are leveraged So, market. in proprietary we the more investments interest –

Henry Coffey

is going And to to be compete in that that an challenge be opportunity that got Or very scary create because an to company does a – be a in wanting out insurance put because involved of terms than bid against? you'd you've money as we you rather know. is market a you a, can as more bid for all liquid situation know dynamic no

Bob Marcotte

Well, a [they people]. $XXX million four got got fund, Yeah. if you've

the market. You're not see to going

You're brand new.

have You don't reputation.

You don't the flexibility. have

So focused lower They're want are a going $XX well EBITDA. middle we million least the to situation. sub touch on that going to business, we're compete pretty of in that market. at to might still And not be initially,

company into that where They play So, is a the potential grows. as still meaningful. that for are getting company we participant barriers competitive

in do business decide it’s a building as part go lower a we will bring need partner, grows, may a good may that know, we the a or if unitranche, cost business such a senior So, in business. and of we we’ll and you

player to entirety an that in business make we're later the it of of if million duration go over at a and and is sub-debt the that investment. or the happy of transition, very starts situation, grow acquisition from million our money in a unitranche and So, EBITDA, X XX player, start two

initially, drive worried end I'm it. the I think it about we're that's at beginning range not upper the margins will down and size will of see. the to that So, what

Henry Coffey

helpful. you very That's your comments. for Thank Good.

Bob Marcotte

calling for Thanks in.

Operator

questions. no are There further

David Gladstone

questions. No further

Operator

participating. concludes today's you and Ladies conference call. this for gentlemen, Thank

great now a may You Everyone, disconnect. day. have

Gladstone Capital (GLAD) 30 Jul 202020 Q3 Earnings call transcript