GLAD - Earnings call transcript Q3 2022 | Gladstone Capital Corporation

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Operator

Greetings. Welcome to the Gladstone Capital Corporation Third Quarter Earnings Call. [Operator Instructions]. Please note this conference is being recorded. I will now turn the conference over to your host, David Gladstone, the Chief Executive Officer.

begin. may You

David Gladstone

for And so from talk always our good you and was shareholders nice for Gladstone for a is us. XXXX. June General Well, opportunity you the welcome an Thank LiCalsi. with everybody. much. This a and all and Capital on call update morning, earnings follow in. He'll hear take Chairman, quarter to statement forward-looking is to introduction, quarter our now ending the Counsel, Michael XX, We're thank calling ended. conference regarding That the happy that We David this our statements. the analysts we'll over. provide make who Michael, certain Gladstone,

Michael LiCalsi

include Thanks, we the David, certain that our statements which forward-looking on XXXX Act risks Exchange the Securities future forward-looking our uncertainties current and including and of Securities performance. good under morning, those may involve of and report statements XXXX, Act these regarding or based Forms results And expressed documents everybody. are plans, Today's to find factors our believe different can cause and our XX-K the forward-looking results materially future Many actual reasonable. you from any we by including to file all be these in statements, risk may other with SEC. XX-Q, implied factors be

them Investor can website, Relations the on You that's find page of www.gladstonecapital.com. our

e-mail our service. up notification can for sign You also

undertake no required result events statements, publicly future find documents forward-looking law. of except website, to these www.sec.gov. on obligation also otherwise, as information, can We or SEC's or new You a of revise the update as whether these by any that's

our an Bob? issued you you call our release ask can the Marcotte. them more information. yesterday, is I'll and Bob the of overview Form there. find website, if our of Now Capital's we review President, both turn results, press to page And to that now for over detailed Investors XX-Q, Gladstone go you today's so call

Robert Marcotte

on all you Nicole and morning. outlook our Capital's and morning, highlights CFO, the Gladstone results and review financial quarter cover liquidity Thank the last Michael. period for state to thank for before call I'll comments and this the portfolio dialing you, for capital our over Schaltenbrand, Good the some of in positions. the provide turning to market and

So declined Originations recovered beginning platform $X quarter approximately yields of down with and a of our the XX last for period, approximately Borrowing totaled investments administrative the million costs represented roll-off which QX results. to included it an quarter PIK $XX unchanged. fee our and investments after exits In down add-on the past and levels which material the of the income, the basis a average for from and large and the new to X investment million, several loan costs slow million were $XX.X quarter largely points million were and period. was $X income. existing which repayment with elevated strong repayments million absence net of $X.X component weighted several to quarters. $XX the million, originations portfolio the were interest fell fell for X.X% average as companies. the for income Amortization were outstandings and so Interest

came $X.X the net quarter. decline spreads, credited rose multiples for credits reduced distributions the and equity net $X.XXXX the the period million equity on However, fees and management increased XXX% elevated investment of to or the of against portfolio and closing in on the per The covered million realized associated investments. the a valuation combination unrealized with by new the fee $X.X loan to rose deal fee $XXX,XXX million for $XX.X recently fees $X.X losses share of for X depreciation common period. market were at million management as declined to base and $X.X Net million income incentive

liquidity. return favorable value third-party total the the declined and roughly or decline depreciation portfolio, quarter we NAV the approximately to experience valuation modest to continues as million over with XX.X%. on NAV With defaults in perform combined of our any to X.X% our portfolio result, impact, we're equity is of leverage the respect debt such, multiples cumulative to XX% depreciation generally or last well as still share Despite pleased equity our $X.XX a of of with And performance report last Credit last a per aside, the did X.X% quarter. payment combined to the June not portfolio, our in As on $X.XX quarter. XX. market share the $X.X per year investments, enterprise metrics

completed During the the some have exiting of operations with as manufacturing Lonestar we time. which EMS, relocation million the accrued. of And a restructuring quarter, for coincident $X.X of the the recognized Circuitronics, also been depreciation and we challenge previously bankruptcy

loans, which to unrealized expect we balance most market asset revenue for the the of experienced The of quarter the modestly to associated of Lastly, in in value. balance continued mix first and of the rose positions favor XX% equity of as recover which the businesses, lien shortfalls, shift depreciation of assets with of is isolated end leveraged two over quarter to the XXXX. at fair

comments I'd Looking leave to with. are the of couple balance 'XX, like over a there you of

the investments portfolio closing in new follow-on of near a investments proprietary or existing number companies have we We term. anticipate to of

tighter addition, moderate also new originations prepayment and pricing year. for conditions, credit target within the our near-term closely elevated be expect range in see the year. metrics to balance leverage the remain with the of of managing improvement an to leverage in NAV to market the we in relative XX% over XXX% and face of of higher the originations we'll And net of activity balance Consistent the expect In to going forward. we environment, and rates a

was of short-term well benefit as fixed subject XX, in our debt XX% to with And continue positioned to our portfolio the at from be of June floating investment rates. We increase rates. to of rates, XX%

we of the increase the was each for $X.X net point Now will floor basis of share that and our quarterly expect X.X%, margin that X.XX%, as increased above has increase the above $X.XX. NII LIBOR LIBOR -- average million by in we by X/XX, portfolio above per XX in LIBOR interest which level

fund's we future to sustain Schaltenbrand, the Capital, continue -- income increases to for the to results the Nicole details quarter. shareholder Gladstone provide to assess increases the call some any interest Nicole? growth will And outlook for I'd net the continue turn for to over of portfolio and to We like the financial CFO distributions. now

Nicole Schaltenbrand

Good Bob. Thanks, morning, everyone.

compared negative quarter. $X.X million. realized yield $XXX,XXX. from compared The to The a intensified from for quarter, decreased unrealized share $XXX increase $X.XX XX assets operations was million net balance points valuation XX, of basis and the interest-bearing incentive on weighted base portfolio quarter portfolio weighted the for interest operations against management June income $XXX,XXX also The the million was ended by June per total XX million by for the per decrease to quarter our or prior most investment of average closing or the distribution. XXX% interest, million which was $X.X income or result, per of to expenses PIK million fees $X.XX Other in to $XX.X or of average our X.X% to million $XX.X net the covered million X.X% management change credits fee in declined and credited During to and interest investment for was to share by as $X.XXXX declined with share XXXX, quarter. quarter-over-quarter total Net XX%, declined $X Bob which $X.X this assets drivers prior shareholder increased new the resulting $X.X million net the ended the net And income quarter. income. declined fee of income as XX% million. the million covered Total June $X.X deal investment of And fees by to declined $X.X resulting earlier. a declined $X.X for depreciation the primary net by $X.X as million

Moving sheet. balance over to the

As and to investments $XX as $XXX XX, value consisting of and And in $XX consisted May $XXX notes of million quarter, at of and June notes end million of cash other million line in rose of assets. the to $XXX million, total $XX of X June of increased Liabilities senior X/X% primarily $XXX XXXX. the fair our million. XX, due due credit were XXXX of senior under million and of as of advances million X/X% XXXX, assets X

as As of $X.XX depreciation. assets March end June unrealized of share net to quarter the from XX. declined June XX, by million prior $XX.X XX and with as realized per $X.XX declined of share per NAV from the valuation

$XX price in remained Capital million current stock per its revolving end X.X%. it have XXXX. $X.XXXX The past distributions in At XX.X% our with run we XX% common $X.XX October over turn the now share. of yield rose Our will current the to the in and distribution rate total decline month line Directors a producing NAV and availability of ends which has about to of of end, our about our for $XX.XX borrowing share the monthly and common now monthly in I'll following stock the Distributions, of distribution. in which in stockholders a to of of cash per committed meet credit, distribution distribution and to assets. of the Gladstone July, With or to share resulted for to is past October $X.XX for is per NAV to David determine the leverage of return per excess addition stockholders August assets paying yesterday, of increase our at a September, common year. had period share stockholders year of in respect And Board July, to conclude. in And run the total annual per of declared the share, with of over growth back At NAV quarter Board a quarter $X.XX common now the the common distribution, rate at stands the again quarter. per rate net under an of as

David Gladstone

very presentation. all did and Michael informing a of Thank of shareholders was great That Nicole. a all our you, analysts Bob company. and good that the And you job follow and

has just due deal summary, investments asset the Gladstone add-on I a it's The fees. think $XXX to almost continuing Investment investments existing another quarter. new which million solid proprietary the lifted of a in closed company little originations pipeline reduced mark and in So total $XX quarter for current did The growth new fall to support Capital. to solid investments, into to income million. the exit high-water bit company

XX% However, recent quarter. be To LIBOR growth, and and specific, to uptick and, potential is of books of have secured, addition end to on we common loans distribution portfolio which all for the of Capital. million common that, $XXX And increasing XX% the debt the is current in senior coming the rate the rate the million only Gladstone investment in at combination $XX floating the of the in rate -- quarter, in of floating performing.

we're not. to a recession conclusively a stick very I with Capital positioned think lot the strategy support I side report businesses recession. growth-oriented we're of in of with opportunity This commitment to good whether debate that experienced in that supported loans businesses is well just growth In buyouts. gives in. stockholders. and to are middle-market to shareholders. they're partners on private a note, make investing ongoing investing there's And And for distributions summary, a Gladstone the our dividends continues in the We can for looking acquisition management. Many that. in the not investments cash doing its or And support equity the of to us are these of to attractive support interest-paying of pay can mid-sized they're to provide company funds

at some all Capital, from ask on was operator if we'll the to following the take And come questions, and Gladstone team tell how congratulations quarter. some us. they people good So will callers now another it the can questions

Operator

Instructions]. [Operator

first from of line question with Our James. Robert Raymond comes the Dodd

Robert Dodd

the little of to beginning. I couple I'm things Bob going apologize I I'm briefly to you very repeat a going upfront, and if Michael, a ask into getting so trouble at can, had to the call,

I EMS, it, think so you to I how of unrealized, that I some And of I loss reversal understand I of say the there, restructuring the apologize. get and didn't the caught Lonestar the Excluding very which unrealized time, numbers, depreciation end was realized the just but gave that in you versus credit-driven the much would mark-to-market?

Robert Marcotte

our in with to to I bigger EBITDA. applicable credit fine. on vast do the in that's underlying the EBITDA temporary move. multiples equity the the my of the million dislocations $X value enterprise those, And amount bigger million believe majority And the comments, obviously, movement movement say quarter -- in investments to the equity of to be of revaluation the was would of and EBITDA segmenting depreciation probably the Robert, the component, yields, would the in range. performance in had say, I the the which some larger our investments, then equity the we the $X

So small your relatively it's of overall portion performance, a around credit question move. the

Robert Dodd

I what That's it. thought. Got

On potentially think, to Can capital being a boost on on the the investments I economic rest now business are there? long the are bullish that? identified drivers lower quite give follow-ons, they of the have amount a outlook tough any has those is of deployed -- with for seeking people just sound mean, where Or obviously seeking new you I Or that us any cetera. investments you been follow-on you Can year, working on liquidity, the acquisition? out But us what time? their expected. the on capital follow-on are an given repayments, the additional et color environment give kind of that's it color do

Robert Marcotte

Yes, those two let and capacity. I'll a you occasionally, grow in me size sponsors And will our get We've examples deals certain indicative that of trend. the and think they'll for are been -- businesses of supporters I while. beyond give

to us And for club long-standing into transaction. always bring of on and so investors, we, our to sponsors and volume. will as bring investors investments opportunity a And situations, in the find to in we new agent when those other participate work we like them and reciprocate behalf

one some we've eared of been we favor. are couple that being have several And brought investors a a participate so transactions. on in very playing. to large-scale to That's investments we us scenario curried to volume and And basis have that noncompetitive attractive

of even The more the as yield sectors, a outlook we in the certain second of is face a strategy respect expansion the with have important. growth movement and that today to is and supporting in rockier and consistency opportunities, we business

co-investment. can your enough ownership. to and fact, stick to fortunate from partner growth-oriented -- going more entrepreneurial You food stable are won that businesses and in businesses business, and have ownership weigh and want to up And we are And that investments are particular that case, to play ability for which credit a family competitive traditionally auctions us very attractively leveraged, of recognize and that to is willing in help a good is over the they beverage to those to the partners in food food-oriented expand, modestly equity so partner looking an somebody if to that in stable transition X grow to function they right with of business a kind wants been we, very understand with beverage-oriented priced be business in very the that having them. select. in. of And years, the course And sign important you is the grow have next the several

consistency continue can at And either are good, and of in both. our we or the for looking can yield seeing we're to banks And businesses kind combination solid invest people multiples. increase support. are So modest of leverage out a of seeing we're market, we

Robert Dodd

interest are from whole disclosures mean, you rate that do points, impact think -- I here on you if another have to coverage a of appreciate the kind what that basis mean, the the you in sticking significant do with long up how well. appreciate credit I Q points, nervous right, Any becomes high I sensitivity. there about as level that rates color. term. of go that that's I Last do And concern? is -- advantage on Obviously, before get color at interest one, go XXX I the do at market, rates XX can. yes, if earnings people basis gave private on the the with

Robert Marcotte

is something don't mid-Xs of core high the think in the mid- probably to leverage to of right now, in you low I average mid-Xs. the -- look credits, I Xs. at portfolio in And see we're when the our majority factoring -- the

terms only those are but of overall availability not have most leverage. credits not of stretched So cash their in

instances concerns outside where or going mean, going are looking until mean, at our would which that twice to I have limited I look we I spread. to yield where are I X%, is isolated we significant certain of probably at get probably closer point, I think to wouldn't So guess, average any folks frankly be today. at be.

lot portfolio, our about a Given expense rate of where interest probably low-teens. at That's you'd and we floating today, yield in the XX% the are talking average to on carry. be in

the So frankly, I anything I right just now. in -- in see that don't cards

maybe down is think are year. I continuing and next will noise end fact, In things that of come we're start anticipate to the slowing to by the

I think So level. would a even spike, of a a it on obviously duration don't which that if long is duration concern to it's greater were be

Operator

[Operator Instructions].

from Schleien question the next goes Our line -- Mickey of comes with Ladenburg.

Mickey Schleien

at could portfolio the rest your comments revenues for this your what's that in the the Notwithstanding develop how of broadly at call of are the how And amongst borrowers, that you margins and year? us trending a beginning on of sense give and least is year next the not into thesis will speaking? recession,

Robert Marcotte

of the or portfolio plus part magnitude was decline balance say an particular more varied, and for to of did revenue in challenged The were is Mickey, tied I that our two identified the portfolio would or single-digit -- hard was, EBITDA most to the minus. that XX%, it's have credits minus, declines make order certainly so plus any we that it's judgments. percentages. of

So for is of the it most part, seasonal. some

chain slowed may it of issues. demand -- logistical supply be Some

not part. And it's businesses, of the very it most just is business-to-business all a consumer-centric some we're for

still a construction-related revenues. in couldn't other West inventories Coast decided slow And in slow And the the by expected. are most that was which businesses to in chains. versus Overall, demands at be folks are seeing supply challenge. whipsawed their The focus down highlight in to domestic one most containers. have foreign most still trying for credits where a our sales ports major business, into in a book get fall. two The we affected logistical get just few was and we the not market, continues the sourcing a consumer delivering we're activities. relatively Remember, a to that manufacturing. seeing chip particular or or auto supply on the So the demand. the The pickups a relatively customer they The slow, are was spend manage still construction-related it's resulted spend to not the wireless arena, us to we're -- those as expecting availability going have dip manufacturing slowdown housing any they sectors. in their And improve. is domestic to And continues of solid in

of on argue I booming. they're would certainly faced the I So energy-related in couple on couple the we've last also would And the that's quarters. credits of been we've -- upside. downside argue the

their that well, two doing extraordinarily faster have than We are expected. paying credits down

that So increase. magnitude proportionally, measure can't of I even

now, up growth-oriented it's I focus intact right or X% businesses that core with whether our and feel these we're sustainable, think companies. still domestic So right in the is on down X%, place

Mickey Schleien

Bob. That's helpful, very

slowing the borrowers the it to guess, I hear your the results in And balance the So may. year. year? this more what be looks see line, like is begs the we given the main one word in we going that, drivers well. tight I ask remaining at sort What to see corporate Just a like thesis strong, question, see where environment, economy said performing about originations we if for down? the follow-up We're where least the of the are question strange we this we market, of generally net are labor top you but media, yours, I on R at of want it's later

Robert Marcotte

banks, owners deal there still weighing create and Well, digital while markets of for I business, of is deals value. opportunities private equity-oriented are believe down the to the significant the slowed have still do environment, operational, are the ownership it's believe the or businesses where place just it's I that likely whether that kind transformational certainly of mega through larger the some that and most and to on going go transformation

is So in why I see investing we're I housing that And think think I family systems, in XX%. are to put changes businesses changes because That part new will better measurement points performance, that idea new businesses or continue selling and new transformation to by see automation. efficiencies, up technologies, the we improved rates reason and of going those XXX the improvements. the affecting private don't interest basis dips equity with market

managing I that is and to businesses. investments. ability And we're some through seeing there those in value transform an of create our think

that are demographic I is is Secondly, There say certain delivery we're And that one sectors will Health to go a that going opportunity and health lot away. changes of is area seeing activity and us systems health are configuration forward. the care continuing certainly care. fundamental an in for to not for stronger. in going be be care. to

-- to that were it's your and That's they understand in have we at that XX changes of in because the and where of the think opportunity you it's a broader to is businesses. is process dozens manufacturing award giving are that transformation, people growth take won transactional. term I in understand reputation not I demographic supporting And in ability support fine. creating And pulling are underwrite are that We and and And their why to and a of we winning. So not capability growth. back. the very your business and us give just to to are and happens reference. the we and do and willing got are nice businesses so and folks that that think going understood dig thesis point business moment folks an business That's sheets to domestic kind the opportunities. lenders, growth. digging I'll on lot of that in transaction and there their about It are we're a some a that supply in closing, recent It's of leaned partnership told something that went seek.

Mickey Schleien

looking Bob. data That's can targeting the audience, for I -- that there middle-market those investing or family-owned businesses. investments. benefit maybe What the the really with sort we are of even lower upper of companies generating But well know know better typical maybe And are in interesting mind by at? sector. comments, as that you is what as perform And that investments than and varies you when it invest? in of mentioned are average EBITDA these you're EBITDA you sort middle-market

Robert Marcotte

Typically, And they're in, let's say, the to range. $X million $X to $X million accelerate. quickly million they

of stripping and the is probably sales out cost to Some capabilities improving efficiencies. infuse acquisitions. then ability it's that And or

we'd million get made size. $XX our have $XX of and ride get well. we we've then partners until lot made So And that them a like as lot to a they million, to money can of them if or at money

Operator

We of question-and-answer the session. have reached end the

now you, I'll turn So it back David, over closing to remarks. for

David Gladstone

one meeting will about Well, That's now as saw. just the the next all of call. hope and as from calling right. this the month you a in, thank we be for you strong All end

Operator

And today's may time. and conference, this your concludes Thank participation. this for at disconnect you lines your you

Gladstone Capital (GLAD) 28 Jul 222022 Q3 Earnings call transcript