Earnings call transcript Q1 2023

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Operator

Greetings. Welcome to the Gladstone Capital Corporation's First Quarter Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded.

will conference I to time, this turn over the Mr. At Chief Executive Gladstone, Officer. David Mr. ahead. Gladstone, please go

David Gladstone

the Thank the introduction, the shareholders with Rob. ending calling Gladstone, the for you, in. Nice welcome Capital and December Chairman, update is everybody. Gladstone to company. happy you opportunity and analysts, David XX, This We're XXXX. and this all the always our is for earnings for Thank call and conference provide quarter good for morning, talk to

Now, Michael? hear Counsel, LiCalsi, we'll our from Michael regarding who General statement a certain will give forward-looking statements.

Michael LiCalsi

Thanks, good David, and morning, everybody.

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

website You the page can www.gladstonecapital.com. Investors find of them our on

notification You also service. up can for sign email

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

you more our our Form Again, can both the you website. our and review overview information. XX-Q, those of an that page on of for press yesterday, is results, so find call ask we Investors Today's issued release detailed

it Bob Marcotte. With that, over to I'll turn Bob?

Bob Marcotte

this all you morning Good morning. and in thank Michael. you, dialing for Thank

over the and as I'll cover call and quarter balance our results before for liquidity CFO, position. our of market last XXXX, for conclude look period turning commentary and the Nicole to the review to Schaltenbrand, financial to some forward we the our with highlights capital

million with were period, portfolio the were So, balance period. add-on results, for $XX our all $XX for the originations million exits modest at repayments $XX existing so by million, beginning for investment which ending and to quarter's fell last the companies. Amortization, quarter were investments

for as Interest weighted X.X% rose $XXX XXX average the rose the $XX.X balance XX% to investment income million. quarter basis yield the rose XX.X% to million, loan points average and to

million income in XX% distributions rose equity period the Fee -- the to and income, number by on total with of rise $XXX,XXX quarter. to for contributed the was $XX.X investment a which year-end

XX% or with SOFR higher $XXX,XXX increased costs rates. Borrowing

$X.X net for a million our interest margin However, also rose or million quarter. to record XX% the $XX.X

Administrative largely unchanged. were costs

in million increase closing by deal However, management the $X.X fee incentive assets, X.X% fees rose investment of quarter. and to compared to associated yields fees net the prior with as credits million or rose down were new $X.X

million, Net the investment $X.XX unrealized per or at $X.XX result, in share. share $X.X $X The came for income portfolio period $X.XX. a and $X.X increased million per realized on million the or losses and declined to to NAV net as XX%

still interest recently upon consider or net net $X.XXX portfolio an performance, generate we our the dividend coming in quarter. for $X.XX income, our lifted we in increases rates last the reduced we'll income, and Based quarter to a able annually, the higher While were also quarters. interest increase XX.X% we increase further monthly ROE leverage a to announced and

portfolio the well modest continues portfolio, liquidity respect with metrics With to generally favorable and perform leverage profile. to

us Adhesives caused value. reclass to and building Edge $X.X fair assets a at which sector headwinds non-earning, to or X.X% auto represents million aftermarket However, of

equity positions little associated of or small in million with several primarily was debt of the to moves portfolio. our stress $X Depreciation for the quarter very performance depreciation with of related

Targus in sale highly leveraged the included equity a income to of gains investments period Capital, is generated in of which the $XX.X for XX% PIK credit, which for exits contributed repayment and Novamark portfolio RXi, million, a the quarter. of the and and Notable Leeds of realized the couple drop

on like the of I'd to balance our with 'XX, a couple for you outlook reflecting leave of comments. In

of us Our exits was balance sheet with in base a quarters. and leverage the ATM our asset range, growth our accretive support last the relative at quarter to issuance to the elevated the last have end quarter target investment of further bit along share coming positioned well

as quarter, companies optimistic debt last by positioned our be and disappointed well lower the we $XXX middle Most debt closed in we lien million and $XX million over equity to continue of year are the of market $XX to balance million last year. grow January, level with NeoGraf, new a While deal, which of first to originations X continue million investments the co-investment. we did to the recently, growth-oriented in was

loans, leverage of our and to managed portfolio investments. which, of our represents have present, rigor to We investments overall increased of investments of our our escalation have rate interest a And underwriting under the X.X secured turns. with to heavily weighted the in at secured face have modest XX% XX% senior fortunate total

floating in quarter, $XXX,XXX floating by at our our quarter. net floating of XX for points the be and rate be would current to With this range basis margin on rates rate $XXX we least million the up up interest the to investments liabilities approximately pace exceeding our expect

And over Schaltenbrand. it like to Nicole Nicole? to now, turn I'd

Nicole Schaltenbrand

you, Thank Good Bob. morning.

the assets. rose and the million quarter, prevailing on million rates in XX% During floating $XX.X based earning December $X.X in increase income total increase interest to or

The on of our floating rate. weighted average those portfolio floating investment interest-bearing rose XXX portfolio carries that points the XX% to with on basis the rates XX.X%, in yield the increase

compared which portfolio increased average million, the prior up quarter. balance $XX X.X% was to to investment $XXX million weighted or The

$XXX,XXX quarter. XX% which to total $XXX,XXX, to the income the increased by investment or million Other in $X.X income for contributed increase

deal and net fee by rose rose fees investment million new closing by higher expenses quarter-over-quarter, million average and reduced rose expenses interest higher $XXX,XXX increased Total with $X.X assets, $X.X credits. as management yields

supported an million compared December paid investment $X.X January. per which for the quarter to per Net to $X.XXX was and announced of quarter $X.XX $X.X prior the increase exceeds which share, ended $X.XX the per income in share million, or increase XX was quarter dividends the

The depreciation share and net million per for operations from as December the ended covered realized valuation XX, assets unrealized resulting net by Bob by the quarter was $X.X increase or in impacted $X.XX earlier.

Moving over the to balance sheet.

declined assets. As fair other million, consisting million of total in investments December and XX, cash of to at assets $XX million $XXX $XXX and in value

notes the advances our to Liabilities under quarter credit the million. as $XXX consisted due the million declined X.XXX% primarily to of $XX senior end $XXX the May million of XXXX, XXXX, quarter senior as declined of $XXX and X.XX% line of of and million due end of of notes of

which As more $XX.X million from of and than proceeds prior quarter-end program common by net from assets issuance with offset rose December net of million. XX, realized valuation share under ATM by depreciation, the unrealized our $X.X the was the

XX from as of September as $X.XX December per $X.XX declined share NAV share of slightly to XX. per

assets share of Our assets. of to December decrease net leverage XX% as XX and a total ATM declined issuance with in

which price respect meet annual $X.XX distributions, January, At producing current to distribution $X.XXX monthly the March, common to run yesterday, our stockholders per following to of an rate Capital's at rate in X.X%. stock for $XX.XX With and for is February share, Board share. quarter. Gladstone now distributions for about yield determine of per effective common will to distribution months the common The monthly is share the run April the stockholders was about the rate distribution common common with our of to per stock a increased

now, I'll to David conclude. And turn to it back

David Gladstone

Nicole. you, Thank

informing job Bob, stockholders Michael of did our and and company. great that analysts all a You the are following and

Company didn't but and deleveraging In quarter, summary, it job Capital. another some of close Gladstone exiting the much for a solid good did company. quarter last assets

also investments building existing in the portfolio, additional support but So, company additional coming to the is the capacity quarters.

the common X% quarter up the based structure, about good to was that very shape availability Portfolio line, capital increase million income The the its under announced $XXX non-performing has interest and Net so the last in bank in distributions rates on shape, company assets. was company's in the higher modest interest more there. is low of XX% and great leverage support month. favorable

summary, their and investments This that they equity. growth of midsized of support of us support opportunity lot our partner gives pay shareholders. looking in company we a in usually funds to its invested, are the make partners acquisition growth-oriented have of to an businesses good experienced with business in to strategy ongoing the stick to the are cash which and loans to continues market an to for management. they equity private support distributions commitment interest-paying attractive these middle of with In with investing Many

we'll the how And to ask to us about company. tell questions call Rob, now, the operator,

Operator

questions. line Gladstone. with with Mr. you, is you. question Ladenburg. Please of [Operator Instructions] the first And Schleien your proceed Thank our from Mickey Thank

Mickey Schleien

market quarter? high-level new of a first going a Bob, from prevented that what's give closing you in everyone. on Could morning, Good the during us Yes. the question. sense you originations

Bob Marcotte

Mickey. Good morning,

couple may recall, $XXX to quarters we the think, leading up of well strong you closing, about last assets. so million focused pretty were we As on probably quarter, a had two I of

a thinner. little was pipeline our bit So,

a facing step-up also in We're pretty significant rates. underlying

be were we in sectors, which going rate. little significant taking industries, in support able of a bit think approach which terms conservative to the in being I So, we're that step-up were more we to the

in about we careful are think the that rates, headwinds revenues going not but to the I economic portfolio. are the very only what's being affect underlying

little bit credits of saw more that were we a not clearing, while conservative. So, were number we a

deal think, worried I'm fact of the would time December in in happen have closed to our of too in generally expect to market. tend the what still that the not January those a Don't quarter, time. come, We in than I but quarter we've their about one overall end quarter is and activity tend already to normally the to from level was number blip. fourth we lighter

Mickey Schleien

question And That's to rates. of that. for my next it very rising terms helpful. in leads actually interest Thanks

Fed strong implies know, report, forward XX the points the rate interest jobs another basis you of about as With tightening. January curve

service you do debt? its impacting potentially to see ability the how that So, portfolio's

Bob Marcotte

Yes.

Let me you before. of quick stats give this a about we've and talked couple

the the portfolio. gradually portfolio companies with You is under credits and million. with our nature they to moment, XX% roughly $XX At We our start of EBITDA of smaller have understand to grow.

So $XX million. leaves that that's XX% over

that of under credits Of those X.X. smaller that leveraged issues, those have the most be are concerned credits the XX% would XX% you about probably

typical extremely bank XX% is fact, So, X.Xx. on the we of type the leverage. leveraged, profile the overall face lowly are in where that bordering for majority And stress leverage would credits probably

near that would So, a we're certainly is move but stress. particular rate anything interest meaningful, cause nowhere

our feeling that we're is of the majority I've credits sponsored roughly have absorbing currently as any And of issues portfolio we XX% said are the outstanding. like lowly past, today So, in are the very vast smaller and back. that leveraged

with has come So, that it. supports additional it again

bit little more the I moment, from portfolio. outside think anything at the we would seeing our seen if third-party So, movement stress, of were of way you a evaluations the have in

face majority of and So, since portfolio loan fact the of leverage that just the the well interest affirms were minor, movements our the is in performance the the of it very positioned. I profile think escalating rates the

Mickey Schleien

of understand. did When I you Nicole. for previously one That's Edge? And you right. any And on actually All great last income housekeeping reverse non-accrual? question did maybe explanation, on accrued Edge a Bob. interest sort place

Nicole Schaltenbrand

reverse So, did month. we placed non-accrual on we it effective X, and October one

XXXX So, of the was... than interest was month of less interest, $XX,XXX which September of

Mickey Schleien

I Okay. you. for morning. this appreciate That's it Thank your me time.

Bob Marcotte

Mickey. Thanks,

Operator

from James. with Thank next is Dodd you. questions. line [Operator with the Raymond Instructions] your Robert of question proceed Please The

Robert Dodd

and question you on also Mickey's on sized kind congratulations answer of here. really, leverage quarter, the and the helpful. thank detailed That's to want really say Hi, for the coverage to and interest that by

you pipeline mean, in mean, of in you're if are you're January? like, period? conservative on pipeline, questions, pipeline to -- want it's and forward terms mean, to the up was in more in that you to talked originated remarks it -- in were or kind beyond -- you a a underwrite entries response underwrite of what a Mickey's I and maybe the little the again. I to I looking refill obviously, prepared I about response -- taking businesses in had stacking uncertainty you rank the to quality it, the of you On started -- can, to your you lot willing economic how stance this somewhat that clearly would How given how

Bob Marcotte

question. It's say would probably Robert. a interesting of different there, there's an I nuances couple

the regional lot some reports, lot recently of if banks, the think squeezed read tightening the marketplace I have and the constraints of the off, a the banks credit out today. lot markets. of to of capital capital has First released larger conditions of really borrowers folks A private in number moved a of a all of places you

today, are lot we getting being see stuff. So, as we're open of to an awful

somebody that runs seeing are of fund we didn't shouldn't uncertainty What that market to the given because them the deals probably conditions. close the deals couldn't close gamut,

So, stress it's wide deleverage screens credits. think very the our to forward figure and what up a those typically to way have opportunities, is I really momentum to those against historical of of out we're which swath seeing our the to we we in us to underwrite be able feel

the typically things to hit them, news their And to expecting. two, And because 'XX are And happen. seeing current deleverage if two give current buy goes to time to is, that so, and the profile the numbers, as for they we're we're going budgets. us, don't they're going Sponsors targets. us were not not we good their people risks negatively trends to plan, seeing outlooks start on,

or don't can deal -- natural visibility work. the a the there's make falls valuations sponsors the away, they because think So, the

have but seeing it's out based trends of For are today, continued we us, on there, do we deleveraging. things a all that number

smaller Obviously, where do our of businesses. in deal pockets the are those just because those are very there we well. focus sustainability really things doing with credits, is And

So, impacted continued opportunities. electrical trends investing, more we're positively consumption by being driven that be if loop or something other government recycling or or those growth that closed social things are by energy like might or certainly where and see things places in we're are trend going to on and investing vehicles

more might swath So, that what we're the mindful seeing. realistic for credits outlook just the wider 'XX we're bring of of

Robert Dodd

competition but still end given, in of meet for on. of mean, following I to kind that [please] It appreciate necessarily still, are this resulting I there's as somewhat done? right? capital private (ph), Are it. increase -- of point, kind in parameters seeing environment? doesn't businesses that to you seem it other's the everybody's I markets, yes, in that more kind say, us, the And market mean, in I'm Because lending. open. color. spreads... still underwriting you're your probably of you your Got getting the actually deals Is not be, all crowding fewer any

Bob Marcotte

so. don't think I

who often I or insurance them We've and business think preferential company the from them player. we're there, market an consistent to relying position. flaked established was sponsors the certainly get not, getting lender calls some have on got than we're of idea back opportunities. and isn't or banks to the More CLO calls that their on support we'll those

marketplace traditional And to Today, I use XX%. I extra There's risk. of in that generate the in today's no say returns to would like excess reason to stretch something there's over that's is credit no pricing, benchmark, thing for stretch. us mean, reason for that. going our seven given senior a

senior capital and out as stretch there's as what situations great level private right opportunity approaching put second returns had the generating have senior in It's business. money for risk for to subordinated us. us interest is giving We would traditionally is to returns, lien where be tremendous as or no reason it's the the current a current rates, demand long of the

Robert Dodd

really Bob. appreciate Thank I that you, answer. clear

Bob Marcotte

you Thank in. for calling

Operator

At the end now turn Thank I'll time, Mr. the for to floor closing question-and-answer the this remarks. we've back you. of reached Gladstone session.

David Gladstone

door beating Thank to calling junk the in. I would just new out on of market regulators been pretty today. and Okay. that of lot closed guess for you hard. mention there's have all A the banks I their marketplace the of lot a loans. are in them

expect presentation. really quarter. great for going a January, We'll quarter end of And keep forward. you see next is Anyway, strong that that to moving be quarter we're shape us. the this in now, began that's we're in to I this in

Rob? in. So, thank all calling you for

Operator

conclude will Thank conference. This you. today's

disconnect you may time. at lines for this your Thank participation. your You

Gladstone Capital (GLAD) 7 Feb 232023 Q1 Earnings call transcript