GAIN - Earnings call transcript Q4 2017 | Gladstone Investment Corporation

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Operator

Good day, ladies and gentlemen, and welcome to the Gladstone Investment Corporation Fourth Quarter and Year Ended 03/31/2018 Earnings Conference Call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. [Operator Instructions] And as a reminder, this conference call is being recorded. I would now like to turn the conference over to David Gladstone. begin. Please

David Gladstone

conference Hello Gladstone, to This common Chairman quarterly year-end Latoya. This of is stock, good and and David shareholders is of earnings on and NASDAQ, you, Gladstone all morning you. the analysts at Thank of for Investment's different call Gladstone all a so an that and an M, stocks GAIN They N, do lot you and there. GAIN, and three have with we O, can and by go then of stocks. an out have preferred start you we Investment. have

all, First you of thank in. all for calling

always shareholders, its we environment. we Please could I'd by update but if analysts. of to all Also, of and where we're outside are it out We once you located your I McClean, wish on area, do happy hello. you view invitation talk an business only investments Virginia stop potential shareholders a just an there's current and D.C. often, this say quarter. to you give to to by do provide come and and company our more Washington like the

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hear make Michael a we the few statements of He'll from Counsel now forward-looking Michael all General the Michael? LiCalsi. for administrator will So Administration, which Secretary, and funds is companies. related and President the as also our Gladstone serves Gladstone statements. public regarding

Michael LiCalsi

and listed though results all or certain statements the factors SEC. on performance. may we call future including other at the uncertainties our our we forward-looking found by Securities statements regarding on the or can XXXX, XX-K, our plans, on be Today's under implied forward-looking of XXXX forward-looking website our Securities results with Act all be reasonable. those Relations which morning. good These future believe specifically and any the current include expressed other and website, many These they're to SEC's David, filed may and page, documents materially to these involve Exchange actual that Act statements, the Risk in www.gladstoneinvestment.com, from even Thanks, including of based Forms www.sec.gov. The and Factors different factors, cause XX-Q be risks Investor our

results. our note we performance to that market revise whether once required And as law, ask past guarantee forward-looking new service. as information publicly While also obligation you our not again, that except no of otherwise, information, please undertake these or result email future notification of events any update is a or statements future of for up or sign a visit website any we gladstoneinvestment.com, by

find of page overview can The more found XXXX, the detailed we information. @GladstoneComps us be You our call is Gladstone Relations Facebook, the there Today's Press Investor review both you those yesterday Release and that ask and website. on Again, our March is also Form XX-Q, Companies. so results keyword our on simply can through Twitter, on of issued XX, an for

presentation President, to Dullum. David I'll Investments' back Dave? turn the Now over Gladstone

David Dullum

pleased very fiscal were very to much from in values to a or per able and increase another end net the report year welcome Hey, share to $X.XX the all by share I'm year today to good participants. to from to a for $X.XX share. per $XX.XX Gladstone $XX.XX value actually We share XX/XX/XX in a fiscal from our strong book XX/XX/XX. had Investment months the third Mike. $XX.XX very Thanks ended XX/XX/XX quarter XX and and asset to the that quarter

business to as results $X.XX annual very per achievement quarter-to-quarter. plans on our can indicator We year-over-year growth a of of basis happy also per growth is a experienced income these year-over-year swings I'm the our significant our with in as experience in from $X.XX adjusted good XX.X% of net recently an as investment share. we we share think

So results stockholders based to from announce $X.XX were this a share. $X.XX on in to important. an able common April, over distribution we in results, our are And to annual the rate year X% increase

continuation able supplemental We payment per with of our semi-annual made be were share a to capital be of significant also announce supplemental program will made portion a in expect gains. the fully common $X.XX of distributions June We XXXX. from to of these that distributions

differentiator the one the minus have investment cost. of includes proportion the the is and to XX% Wells around on in seen is equity XX% increased are portfolio XX% These investments that investments more BDCs increase around find that which was typically from buyouts range EBITDA, income us other equity I that, $XX range that at buyout Earnings lien or is have funding distribution as that do or been and at debt we recognize of our target it's position in the a Depreciation businesses. and compared of that when not it million. equity the that roughly also XX% and the XX% value of which credit-oriented in importantly such with and model Taxes, our BDCs portfolio Index, generally beginning debt. ownership for but the the the provide. U.S. to XX% we And debt the a BDC our in model. as it total XX% for and And do to Before we keep Amortization only our the reinvestment equity stressing The we Fargo dividends the has and is having, consist stock the first market a X%. is investment the This generally then significantly that structure secured $X addition In most equity We the second also in as combination their significant price between price of these outperformed we and encouraging use debt in companies year to BDCs to year-over-year, and credit-oriented the in this Interest, for differentiated of from million capital investment of you'll and growth strategy call business we've of majority to return equity-to-debt traditional believe the in business which is stock component buyouts have direct

the pays interest success in in and the grow past. monthly we've of So fees sort on to as able therefore, the able over the distributions are steady this do debt certain been which portion our time provide to income investments our of and

again run share. As increase to April, able to our distributions we of $X.XX I mentioned rate annual per earlier, were an in monthly

when each significant look so the do capital position increasing a with other actually that portfolio own the for investment over income increasing the value we an equity Secondly that of company, investment. thus exit that provide equity in and we or life we gains

we these and and these So that the of gains program form supplemental may cap income then other be potential the distributions in to distributed stockholders started. our

to distribution two to So X% other the April June each stockholders paid then of this June amount and in we of in and this we'll of point, $X.XX XXXX supplemental per December plans' such we share XXXX. year, first which the distributions of declared dictate common of in this in

the which the we typical are lenders influence of being believe and important Thus, companies company some we a transactions which significant debt refinanced, us the interaction advantage equity credit-oriented of to approach where that debt of this also gives the over limiting investment provider have and and BDCs in is a an of differentiated the most private with an and able this uses portion all equity the terms the that by involvement and have value in being preserving the majority time. the Third, risk of we that management not extremely participation our over building to traditional buy. only provides but fund of and we with similar

is in essentially at to the about about million XX/XX/XX of investments time. this grown $X.XX a share, which XX/XX/XX, our What from look about distributions supports for Now monthly growth look to assets we've of of at from This our regular let's XXXX. speak of fiscal the is from our scorecard, have of debt I'd just $XXX to historical quick and increase this at 'XX year performance, the and total we recent ability $XXX $XXX $XXX the 'XX period value, in what from then? fair then our annually to like take have year has fiscal this million to so done gone in grown million April a common share share to $X.XX million. period to costs have Well, per sort to at portion $X.XX four-year the per almost in

has million about the from $XXX addition, about grown portion equity million. at to In cost $XXX

future. of exits income companies company over and Again, aggregate equity we're period. period, companies, cash-on-cash or a very return will portion it this approximately proving that the in to from million at taken which and you activity those model Our generating or we if At when our our inception allowed exits of achieved look has of we out. objective in equity the cap net This the us gains that have XX/XX/XX, and XX value of on to will, X.Xx. the over XX generated exit again and are aspect continue with our equity share point, these assets asset four-year of exit was in on other to million deliver an portfolio same $XX.XX $XX equity exit. we These the the having about that companies public, XXXX gains growth important increased has from investments on through at net exited from realized portion $XX $X.XX buyout our business equity, is in XX XX/XX/XX

an building strategy Going we'll need portfolio, portfolio. Clearly, be saying return our will continue continue providing these of always income producing the and market the of forward continuing remained guided keep with some or turnover of we exiting when we it manage which of so the exit gains we equity realized selling portion certainly versus needs it you capital in sale portfolio, the as help of from to if buyouts and must investment to and hold to by and to risk sensitive and consistent assessing assets conditions, companies our with distributions. a or to for be month we portfolio the preserving be also new investment as to our our

above we market bit, the XX/XX/XX, responsible a which have and manner. a three we we've secondary our where must Now equity in try grow do and consider each we talked those in this as about below early aftermarket in IPO resulted NAV transactions ATM or at the after to discounts capital, offering and Since raised million May for the or equity raising at of past price at From we of of though aggregate approximately and year under in raised was time. which XXXX, this time. our net NAV the $X.X commissions we March proceeds net until prices net in at the

just So for invest that's will forward. periods able various good over as capital very been this offerings progress time have and generating strive gains the been proceeds grow we've NAV constructively able our to we from to while going and these we of the

activities buyout priority generation key is element our Our high have growth. to new a it obviously and a

a which investment shareholder new $XX thorough provide Basset to fiscal made We Johnson buyout process both business. its In in latest which services company right $XX businesses will platform and our XXXX due investment a for aggregating in restoration an regular the space, Creek and two diligence is renovation us in consistent maintain operating about a million which form we the strict about as first distributions. we and April, distributions regard, as simultaneously acquired and invested fundamentals the our to returns as subsequent million well at supplemental Inc., in adherence most monthly investments J.R. year-end Restoration to has called this acquisition enabled

assets that So new due companies. existing and potential a to are build accretive add-on while companies pursuing add-on these add-on we very portfolio investments during XXXX, we new number in two acquisition investments are for actively companies. to of exceptionally the investment continuing some accelerating forward [indiscernible] chilling on both good diligence we and of well And those continue each investments of addition degree and made our within reviewing of conducting this performing creation look the standalone value individual we portfolio to and

higher other Creek Point is values financial is to however just our than a was of given opportunities the [ph], on In Basset we our continue on to challenge value at consistent deals paid buyout with investments were Case much operate in while close in being that latest purchase competition new a we high We number very warranted. believe of at price expected environment value a approach investment a our is we our conservative and frankly for elevated, where which pass returns. returns expectation thought

and past really could So may seem of like a of illustrates low what production year. the investments this look over new rate

both investments, as we However, a of the finding a is make business time in from a when actually if closing value point relatively which we portfolio to it cannot investment, equity, but we opportunity not good only lengthy volume-driven strive is building might for quality build income the to in. as the we be actually not we that were loans be we're of and frame

blended equity to typically success and and portion also stockholder mid-teens. which secured for as expectations. The So supports our a the are change minimum an equity which yield carry cash component of which loans our a us thereby Xx it. investments yield typically current a cash B balance The of to on contingent has receive cash is enhancement of returns exit low sale debt or return yield the is helped to producing generally go debt generally our a our such primarily with it cash-on-cash. investments to the in target distribution control a [ph] investment, These is provide for Xx along lien debt to first and

in may However, certain portfolio company's that be the in paid at circumstance, success option. fee advance

briefly that Again, our to main through is it new manufacturing, and we good buyout on. during industrial have income, the received in actually those investment $XX some one and at result investment a million to right recap, is in consumer two investments of at a year-end investments just for focus areas flow light other mentioned also activity of Our and and gain. such and buyout operating year fiscal -- exit general the products, as another we cash focus is of products repayments I XXXX, using specially specially areas including made services we back We add-ons investments invested subsequent $XX million April. or follow-on EBITDA two sales and

thus to and distributions will assets make add continue from capital and continues what's the to the are portfolio determination made to gains anticipate and manage income-generating undistributed the net execute again our our income. to and net able both be the semi-annual continuing strategy. the plan, of of equity continued of distributions in and as therefore our supplemental such exits potential distributions we're accretive we portion on while We Well, outlook? stockholders. we our companies the to grow distributions positioning investment the paying mature the portfolio undistributed cap realized gains. These semi-annual So executing our amount investments to portion expected board We generally for supplemental timing be we've and exits, maximizing to will as directors our for

year. So of end over the with who it more CFO, quarter financial Julia? our Ryan, performance that, I'll for some turn with Julia go the to on the actual in detail the will

Julia Ryan

everyone. you, $XXX in we included of balance at with as which fair million sheet XX, Starting value. had million Dave, value at fair Thank the and almost and of good March investments assets $XXX morning,

the the primarily end Our $XXX in credit million about of at value. liabilities in under consisted million term and of borrowings preferred outstanding our liquidation stock at $XXX facility year

result this a assets of March Primarily net per quarter. was of $XX $X.XX $XX.XX share which over up $XXX of as from December. Our depreciation as unrealized XX, totaled or million million net

in prior income of $XX.X $X.X million Moving versus the over $X.X was quarter, $X.X March to the million Total credits net investment investment income statements the prior million total to prior in leaving of net the quarter. compared million million $XX.X in were versus $XX.X for quarter, quarter. the expenses, income million

the fee is of incentive As income based with income the advisory that component as over determined Other decline exceed quarter-to-quarter total as capital address incentive gains from moment, investment in gains addressed $X.X companies at $X.X quarter, when prior XX% realized currently Dave of Interest which investment be in-line items compared portfolio Net to recovery occurred was capital is annually previously but under but gains-based income with which can by depreciation. million term of was The accrual capital fees expectations. fee meaningful result and based unrealized depreciation. included was investment a this our current million earlier, and GAAP, year. variable gains primarily principally under from agreement. of the our I a as required capital that such non-accrual. will is quarter, to unrealized Other was gains, decreased success those total as of $X.X GAAP the the driven look income, which million $X.X the not XX% under income of prior was million and capital we a incentive quarter provides dividend If in of that and the due of slightly of realized one income current in full in quarter. accrual including increased by the fees agreement but not a expenses advisory realized respect losses such quarter paid this

However, capital depreciation. capital depreciation under fee gains-base realized and accrued gains GAAP, unrealized a as capital exceed is unrealized realized losses incentive plus

For increase the depreciation GAAP. the accrual gains quarter-end unrealized the incentive of the capital base those, in fee triggered the under year,

investment the per current As income a share per quarter. quarter factors, result prior per of in the these to $X.XX share from $X.XX share net our decreased in

weighted based current would adjusted exclude $X.XX $X.XX based to net the accrual, in prior capital the However, income of been incentive when based with incentive investment gains believe is not capital the in the adjusting include quarter. unrealized per net indicator exclusive fees useful compared share a or average as gains investment that activity gains to quarter, capital of have net realized income investment fee fee. adjusted does income We associated net common investment which investment operations, income incentive itself is any

XXXX, cost a income current $XX.X in million, in bearing the to moving Interest as in income compared of also million $XX.X result in to was income from the success our credits expenses, as total the management which Similar $X.X year, compared Now increase increases of fees, in accrual. over yield. again and small commentary the $XX.X base and in growth earlier dividend portfolio, well higher, was our the increase of million fees $X.X fees incentive year increased incentive inclusive the was of up a GAAP to $X.X asset fiscal both million, prior prior base to a the by year. primarily the the $X.X Total as year. gains GAAP-based year, prior in the million bearings net result the quarter, the as in for was weighted investment of million interest the on totaling accrual fee related average includes Other $XX.X includes year, which capital million. the million

substantial quarter prior XXX% this and a in period growth. to by year is exclude to share net NII our year year. investment share of in from again investment for significant factors, $X.XX in of XXX% per share the per adjust income result which investment the net year accrual, per fee net a the covered current we from margin and income income to in been When and ratio in per compared would a our as capital distributions $X.XX Current investment the the annual fairly these prior income about based quarter net distribution's again As share current reflect adjusted prior $X.XX current have incentive decreased year. $X.XX covered the the is gains

income million realized XX, approximately share. $X.X March per and totaled or $X.XX of net As undistributed gains

with undistributed distributions continue to cover We increase Dave regular income an to make as distributions. we continue of stockholders. or to overtime month our actively net gains goal distributions to our realized and Besides supplemental mentioned, the manage to expect

our Now, changes let's turn to in realized and unrealized portfolio.

For minimal activity. recorded very the we March realized quarter,

fiscal from of performance gains of the fiscal the Mitchell year. exit companies. of comparable approximately certain such recorded year, our For We which and the in resulted million realized to predominantly million unrealized as which early and we quarter portfolio the fiscal year. in increase million due $XX.X appreciation EBITDA an for Those improved net was of recorded on $XX.X $X.X multiples current operating

to was X.XX. fair XXX% Our cost value at

more these additional external other We our points to Total on data significant loans performance continue specialist be party investments. thus provide companies non-accruals, presenting two to the regarding will valuation equity and to operating an to use debt at third to accrual account. investment return to portfolio are information comparables status they in hopeful companies then and $X.XX. the We're market X% effort to an liquidity related of continue [indiscernible] of with about and and actively improve that working

is XX% and portfolio's The of allocation and for variable on debt debt rates securities debt minimum fees Our rates. yield XX% a having with floor average bearing weighted Risk cash as at loans interest with about rate yields a equity year-end. approximate remaining any our excludes success was well-positioned X% our between increases of of investments to debt cost having XX.X%. XX% was investments. fixed portfolio on The interest

For comparison during if total in would success current approximate fees, the as would of as weighted had interest XX.X% on investments do, the quarter. average accrued if BDCs debt were some yield our we other they we kind paid purposes,

the full structure collection. end over secured year our the and well we operational be as loans having From capital of There's a successes. no another totaled priority lien financing, and to portfolio success the of million and unrecognized fiscal the will Gladstone respective XX% a any $XX contractual about priority companies. timing remaining origination fees guarantee quarter success lien investment collect second a strong having Investment and Overall, as or of share. the first the fees As performance $X.XX of able standpoint, these of or XX% all of any year, of at had credit per exit that are a priority control XXX% or have

the have I'll as And our to done the and past. distributions David rate distributions remaining made committed distribution income our to call consistently we turn increased now have with covering supplemental Gladstone. We in while

David Gladstone

The XXXX good report. thanks two good increased Dullum, quarter full investments Thank as to monthly this of regular as of and during fiscal you, current year. subsequent one and report. new able report Julia, distributions your payment the accomplishments report. Team a declaration supplemental was the well addition great in buyout the two closed, or share supplemental for June Michael, for April year some of Dave that the be distribution year-end rate $X.XX annual paid and XXXX. of distribution another to and per

very economy of companies asset Continued was reduction that support an increase economy the you share. for new great $X.XX strong getting net the performance general many United the company maintaining are or the time. and The strong It's that is fiscal has benefiting We still a is government the on $XX.X real stronger, unsustainable economy, spending. government reduction rate. year in we talking million the the cuts, next invest hope $X.XX a XX, for comes way forward to We government in year of can outstanding, still Germany the success will positive to billion future, continue investments very adapt in now and virtually into best in obstacle quarter. been sheet this course We're the but for spending the I of the administration many we the one to regulations, and from build every to at very now, there's Excess strong we money and printing businesses the be and our believe that per when year the in, unforeseen and predict we March invest no many to War spending. spending. for resulting of to so that balance a I form to Zimbabwe, which a while getting cover to our signs printing $X report the share to we the trouble do of States day. of was they're is you're in $X.XX. the $X.XX of government about The to our Venezuela, of from this the company. strong just of conservative day for notes we some businesses outlook austerity are brought where stockholders that with it's I over see giving keep a economies in World always government and counter worth a are rolling XXXX. looking per downfall money, after going That trying of believe just in It value has numbers total shares look a in there's Venezuela and strong. tax federal current It's the in it

has of an priced March market Through We with we date happen. XXXX, call, distributions common income the fund. and company are that's show make that investors company, attractive supplemental series XXX U.S. of there. that capital at $X.XX $X.XX seeking If your May declared Investment and and the today, XXXX. at this the supplemental Gladstone the some would benefit share distributions out stock three share, supplemental they distributions. they're additionally yield on declared market in distribution stockholders the excited market. the another distributions look in on stocks a the from At right per perhaps hope distribution made a stockholders yield had things to distribution of these payments The we we over Since X%. $X April, $X.XX December. as X.X% about so of or paid, that distributed market middle gains $XX.XX. most world, per company know investment transactions XXXX, environment the booming love to and wonderful trading is we number strengths to as of the our returns of common the paying monthly regular also two $XX now The and will which currently months dividend increase the yield that's U.S. potential cash supplemental on about but the gone for time the the per to now, people supplemental continuous year. an Directors distributions we've the that about going X.X% of is will to stock distributions, on this XX, That's this the distribution largest sequential of in hope a time middle $XXX for having we've the on in rate last the the of make in and it's distributions The value all some middle new investment this of of shares million distributions That's total the Most know have we and than forever. started from common regular yield $XX, A to in in distributions. $X.X share to there's today. from share. it's guarantee business and a back are no good the ago we're There's supplemental for stockholders. in above yesterday. fees, third additional we're share outstanding while future that too. per yielding $X.XX, X.X% paid the the in summary, and for in and the the the good series that Board Three rate there about from gains is distribution depending company or be increasing certainly our supplemental $X.XX economy out be the $XX.XX about supplemental assumptions much been of stocks make monthly stockholders June the Please a for strong it and the working two out regular at the each on In better there, who yield in common X% annualized XX% run our based common preferred June of anywhere the common about paid out monthly are April share semi-annual paid Current included stock are In up. paid $X.XX price currently per continue our We June and it's year really you certainly about

ask tell some Latoya, so you fun. we and have come some questions let's us would they Now, people good how solid on can can

Operator

[Operator from you. question Instructions] is Thank of Joseph Jefferies. first Kyle The

line Your is open.

Kyle Joseph

Congratulations Good year. good a to the close morning, guys. on

me. for questions two Just

I everything the a on good quarter. think in volatile. yields that been you But covering little just went first, have did the job guys a

the much covered quarter? this from you on why third the to up yield Just picked the second know to call, the the remind quarter. us fourth but in so last I portfolio the third

Julia Ryan

non-accrual. on our Kyle, recovery large we one previously was a that had from of investments

in those recorded probably So third still the are quarter.

Kyle Joseph

it. Got

accurate? So X yields been looks Is it have that, stable. fairly that like

Julia Ryan

accurate. That's

Kyle Joseph

lastly All the on the And competition? right. rates, then impact those rising buyout seeing And given environment in your of we business remind and pricing us the all about asset specifically are talk any follow-up, as can you a impacts terms and have of yet? you

David Dullum

we're of companies own as bringing other the we Hey, yield we that, here. by sort our than remembering of before, own of ability, debt earlier securities establish on to the a would if our will. to the your really, that valuation more, and what Not I mentioned Dave question, have Kyle. relative result say, leverage I you impacted our are

So for is being for paid around the more multiples really us, portfolio the companies. challenge

rise leverage values Now to funds, our opposed might middle But rate to us response interest sort would therefore as market primarily rates be perhaps in is immediate to of impacting my equity lower effect folks that having willing on if help who the I cost that, moderate at said any that are dramatically that around and were pay. theoretically, increases. clearly, which see to to private then of competition

Kyle Joseph

Got it. questions. a answering Thanks lot my helpful. That's for

David Dullum

man. Thanks,

David Gladstone

question? Next

Operator

the Instructions] over back turn further closing for There no are David remarks. questions. I'll call [Operator to you. Thank

David Gladstone

for helping All That's thanks listening this lot Latoya, quarter. right. out next for you all end thanks, us call. a we'll of see and the here you and of

Operator

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

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

Gladstone Investment (GAIN) 16 May 182017 Q4 Earnings call transcript