GAIN - Earnings call transcript Q3 2022 | Gladstone Investment Corporation

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Operator

Greetings and welcome to the Gladstone Investment Corporation’s Third Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, David Gladstone, Chief Executive Officer.

David Gladstone

Alright. Peter. you, Thank everybody. Good morning, David Gladstone, Investment. is of Chairman This Gladstone of year ending This is XX, fiscal quarter third the March our XXXX. This for is shareholders call and analysts the of Gladstone earnings conference Investment. for NASDAQ preferreds, two and GAINZ notes. trading listed we registered GAIN under the is stock and on symbol Company GAIN the for common have the in. for Thank you calling all

We are the updates of current the provide view shareholders our always for happy business to and and environment. analysts

best our to are also two you of what has views here and the LiCalsi. we our and Our happened And give you Michael of understand help guess current General the now, goals Secretary, Micheal? future. hear Counsel from

Michael LiCalsi

including And which our reasonable. we Thanks, plans, factors file implied statements even may may and on to of those include Forms we all expressed future forward-looking other David. performance. Securities involve results any by call our believe SEC. based uncertainties current Securities Act and Today’s and results XXXX the Risk materially the morning, or Good forward-looking these and cause certain statements XX-K on documents XXXX, statements, Exchange other actual risks to regarding though These everybody. our forward-looking are under the they of Act different XX-Q our listed future with that including from be many Factors factors and be

our gladstoneinvestment.com or that’s website the find can of that’s the these all www.sec.gov. website, page You Investors on SEC’s

events revise otherwise update to of obligation or Now these by future publicly no a of required law. except whether or we result forward-looking undertake any new information, as statements as

gladstoneinvestment.com, for notification take opportunity guarantee of once website market or ask to Now, a visit service. any not everybody past our please We also performance that e-mail sign-up is note future our the results. to information again,

XX/XX/XXXX. keyword, Companies. our through The You @GladstoneComps can call on an simply of find Twitter Today’s results Gladstone overview is us Facebook and on also

that, yesterday And more So review Form detailed XX-Q we issued and with our President I it of David over you release to will Investment. both for Dullum, ask Dave? that turn information. press Gladstone

David Dullum

so, analysts. wish to who and is first CFO, happy you will much very in and Rachael good quarterly Thanks with first, and our I Mike. her team our this have us shareholders from Very all her morning December. joined hear Hey, to her to call. welcome Easton, And our And shortly.

there portfolio companies that, result decreased X/XX/XX two period. future today also of our as at our by very ‘XX X/XX/XX as chain if very portfolio assets from we primarily the we we real Gladstone costs, earnings. our I during adjusted delays, supply cost. challenges of companies expect as XX/XX as did report of a be values And So as offset trends. operating economy, at progress shortages, holdings, know, to were million XX% assets the continues pre-COVID obviously, that of really another to most quarter am $XXX importantly, make inflationary but our million happy on are labor good with experienced of portfolio of third increased due year result, for partially those, The And towards our material make finish status. of strong successful exits a will, many a that, in most well while the fiscal what facing of companies add-ons recovery to balance a few per $X.XX fiscal a share, portfolio will up which to is of for Investment. continued existing progress you the that’s the to though and and these and NII taken equity quarter sheet, which we of and ended $XXX In off this good total of And most

share per able in share in were though be And is subsequent another per supplemental $X.XXX share $X.XX on $X.XX per $X.XX we we of or were supplemental XXXX. quarter this declared December distribution our which of in And a to to paid annual share also distribution February, able distribution of We pay per to XXXX. an basis. maintain to monthly end, month

So year the $X.X income we in during and two that of net exited portfolio this companies quarter resulted success fiscal of fee a million gain realized of ‘XX, $XX million.

for as in mentioned, million supported companies, acquisitions positive invested which event. $XX add-on is those We existing companies portfolio a which also,

buyout on focused based appreciation. monthly to both generate a income Our our gains successfully strategy supplemental equity to shareholders from the distributions for continues gains our also on entity capital increasing as and distributions therefore capital

strong, balance to and position. continues liquidity positive very Our a be leverage sheet with low very

for this allows if companies add-on So, financing and seeking acquisitions arises, new while opportunities continue to assets portfolio and the our support and grow continuing income. interim providing need buyout to our us actively to

there is really the outlook exhibit expectations the out the a marketplace. there that, this opportunities. continues new in and review acquisition very given buyout we a diligence in we for acquisitions patient new dynamic competition our strong result seeking that’s capital process, amount of new But in selective and very value the So while from and remain market as high purchase though, of aggressively unfortunately to continue

very forward, of So the quarter up in summing our is the good. state looking and portfolio

good and of year prospect and fiscal of this liquid a earnings buyout distributions strong and balance level during sheet activity active and and beyond. the We have

now, to on some will Rachael? detail Easton specifics. have So give more I Rachael those over turn it her and

Rachael Easton

Thanks, Dave.

or of to improvement for quarter, this performance share, the $X.X million or per the prior NII of We adjusted operating per from companies. on as pandemic ongoing far see we quarter. $X.X the million increase $X.XX adjusted our portfolio in of share impact compared to $X.XX continue As an generated NII

maintaining adjusted in the quarter Total net extent unrealized income, in well support flexibility of impact realized decreased as gains prior interest increase with are past dividend XX/XX/XX, required have primarily lower indicator our portfolio Expenses timing as by our of due fees in as on quarter, the variable. and the quarter based investment Consistent companies, of due useful to and believe GAAP to which at this exclusive was in ongoing of income is million success. to of well same grow to liquidity an key recur a collected our We and net and net continue quarter, be is not credit. primarily of the capital believe X which based under by status. $X.X U.S. interest as due income million is fee that decreased current income non-accrual incentive in decrease our portfolio a prior from which operation. driven did to that We as gains income, portfolio companies fees incentive as the continue elements we investment which $X relative investment gains quarter-over-quarter capital decrease any a to representative

With term the we E successful December successful preferred the and of quarter long-term our the $XXX under issuance facility. have million XXXX, and Series in notes credit available the full our exits place capital prior XXXX related redemption stock and of in in

Our low with an asset ratio is XXX.X%. leverage coverage of at XX/XX

common Our quarter. NAV share remained per consistent at compared to prior the $XX.XX

on out especially that capital fees, distributable has million remains reversal depreciation of considering per is $X.X of month prior due. previously by our net gains $X.XX in in share, based which Although this unrealized gains when equates mind that to of and only book With Directors Consistent paid currently unrealized quarters, January change book Board shareholders solid, offset common announced another to the supplemental reduced of investments. in be been earnings with depreciation and incentive exits to about by of $X.XX was no earnings XXXX, distribution of realized of million XXXX. to as February shareholders which $XX.X declared common

per monthly yesterday’s supplemental distributions of year per year and share a in part for you, $X.XX price of current distributions, of common our totaled share This run-rate the per $X.XX the XXXX distribution in call. about or using of covers Back David. today’s X.X% year yield total, $XX.XX. Assuming closing annual my per to per which share $X.XX fiscal

David Gladstone

a presentation, you, Rachael. Thank nice was Rachael. Alright. That

and both forward. our yesterday good quarter We presentation and you believe is you XX-Q these the great add-on position all questions now, team gave Peter of remainder XX I results are that We to to from team the a investments from are in through supplemental looking to continue let’s you these going listening information The nice team a bring has year this on hear. strong for in. exits potential everyone to and XXXX. December return investors investment plus for other calls up-to-date. will in reported think and Dave, is SEC have shareholders of distributions Team the the we solid with forward gains And attractive and ending being hopes some And fund. would filed to Michael fiscal the an with and ending should continue the seeking and of monthly out the that concur Investment on this you show on continuous Gladstone bring And there to distributions all your investment capital income. March me XX, successes

Operator

with [Operator The is Please you. Instructions] from Thank go first question Ladenburg. Schleien Mickey ahead.

Mickey Schleien

inflation pretty about sectors diversified morning by which we a Yes, inflation Dave, broad in at in to to and when their feel description. then everyone. your largest ability consumer remarks, how durables, like breakdown ask segment is prepared those protect companies the And on pass mentioned is good services, you there you I’d industry, is you look portfolio’s your margins? those

David Dullum

particular, morning. cost Mickey, question So consumer somewhat – we what part in where from you. labor where of impact. seeing costs, have in us? of costs. increases costs we inflation and first your certainly we where hear in And are might now that specifically so to obviously area, in in are coming there overseas material be some the those Good good we is products and impacting to Basically, because seeing experiencing that’s are is question etcetera is on, raw ability the the indeed products pass transportation on of to been from What when

and customers price are sake customer. example some from accepting are us goes for Walmart, portfolio base of the we’d the customer of in some consumer they one of to of our indeed is argument through for on space, passing increases and So have as which the companies our an actually

sticking being set that pushing regard So, hard it’s to our all aggressive, a and guns the function frankly, of have. just very and that we with in customer

those them putting of So, started some already through. have

it positive doing that trend a certainly in continue we been We that. hope regard – seeing and will have can

Mickey Schleien

us average interest Thanks, that you Is portfolio’s sense there the can Dave. any give coverage? about

David Dullum

mean Average me help you what that? coverage, with just interest exactly by

Mickey Schleien

You will know one okay that’s you. with do that what we if offline

David Dullum

Okay.

Mickey Schleien

remarks, paid elevated maybe about describe Dave, your So, possibly down and chasing the in for of is it than you have M&A deals? anytime to in capital look you to would likely prepared like doesn’t those higher businesses – think multiples come mentioned that’s multiples types when as much are multiples how how interesting pay you historically businesses? your for you soon interest

David Dullum

David it as we companies slowly higher we Well, fixed would it’s would That’s do companies sector so do us are you let out not if and type on important whether of increase But in charge a to coverage coverage like as we is where we hard. most – we of from the where I Yes. think so interest, multiples mentioned the are which look and on. normally we service do not, to at thing, Gladstone see And where Obviously, is for which you our modeling clearly these or Mr. it see function that. may the as on. no, it long and it works model, tend evaluations. know we could do

are short that slowly to on some pay keep we see have will the returns looking And for. our we will on companies, going some competitive of multiples we on still environment. the is these but it’s to a probably So, it that are answer constraints increase

So, ways. find other we have to

in year, get we of last we building As result multiples that a essentially good case, accretion In for one out add-on very it’s the companies. that companies a the of than on buying and a an regard. adding we as that couple example, pay the acquisitions business invested can and the smaller platform in

stuff firm what are pay we’d in that. it’s but to we – So more to pressure very bit is willing to like have forward, little there to. be a we than And definitely will like do just then pay we some going

Mickey Schleien

your that were of – In follow-ons, words, the other And Dave, using on was that are or investments portfolio new type for? tuck-in your acquisitions what it just was you quarter, this described? companies deals what was focused money

David Dullum

quarter. That’s some exactly had where Yes, couple really had right. of We this opportunity good to we a add-ons. companies do

is a companies the able them do that, capital yes. to thing for And so we obviously, positive are provide to the to which help us

Mickey Schleien

Thank have the queue questions. follow-up. Right. get you. Thank couple in more back and a you. I of I’ll

David Dullum

Okay. Thanks.

David Gladstone

Next question?

Operator

you. Asset question Management. from Adrian Adrian Day ahead. Please is with [Operator Instructions] go next Thank The Day

Adrian Day

morning. Two if I good Yes, may. questions

quick a the say it Just ago you your follow-up a years I would discussion last sort is increase Obviously, was of to the that of be less to the about purely larger than segment sort do Is of had seeing you market, lot there but know – valuation, money? on in many think are yourself, in to that. competition competition we the you to companies. all used due lending competition

reason space, so in new what will And I the going competitors or your who are main are your around seeing is just to you space? call that hang

David Dullum

lower middle market, market? The Yes. slash middle or

Adrian Day

Yes.

David Dullum

Yes.

coming folks also, capital. you but say, I into probably would it’s clearly, more of function business, result, a the Adrian, as So, said much more as a as of yes,

deploy, only equity are who funds, or capital not buying are know, BDCs of lending that’s a let’s are has are not get currently, and with have have call from, also main And they so but the do BDCs, that lenders, we leverage private it, businesses. as only generate who So, right, relatively lot other also been right, leverage compete to banks, third-party inexpensive. pretty, that that we leverage And they competitors they speaking, to on. ability our

to it’s yes, how don’t we have lower of those just both function of assume otherwise, are some are they returns firms the historically I that expected than of that And of kind paying because So, course, those know factoring got of in a prices. those. be

interest base, start occurring although low rates, occurring, whether clearly increasing have not and right. going are which going Now, a or are to started you relatively from

The that impact are So, years it’s leverage, back many not high some help ago, to on frankly and the a might we have mitigated that getting bit, back we a will maybe rates see many, used bit. like the to But folks pretty more in I think was by market. high year a as deals many of of market to number the the came way, function also. it’s us that just side, supply last

far of to talking this are think bit we again, a supply, seeing are we a of bankers. seeing in so So, deal the we to little start but year, going slowdown pickup a investment that,

getting it’s So, day on. and we slugging is out just focus there every what have to

Adrian Day

help non-accrual. was due total you if know my from listen, bit just if investment previously income little question, affected I me may, collections confused. second decline when Okay. your by say was interest I And a I don’t on then you in that can the past of companies

by Do So, to I you previously were able little confused from? companies am a bit you the were non-accrual collect mean that. are

Rachael Easton

took not of right. million place So, collections quarter. It’s We the past non-accruals. in influx had place. same occurred that that’s that did This We from about $X.X see collections quarter. prior exactly this take

Adrian Day

from And the some…? they was be And would same companies. that

David Dullum

Rachael correct, news good a right. said it’s What is not necessarily. No, is a good thing, – there

companies what were were you, non-accrual. quarter, because – we them have some and of to to able were the we extent on take that able the off the had performance to last we So, non-accrual

We some are get paid that also to of able back.

that timing that was the how From comparative have those additional didn’t quarter. necessarily any just companies did in a or We So, basis, that other interest we not paying companies of accrued. either those. occurred

quarter prior interest about quarter comparative, as think our came had way this So, non-accrual. payments that interest we want the to where from a to collecting the relative you if result additional had that in just of normal we it

Adrian Day

I it. got

Okay. sir. Thank Thank you, you.

David Gladstone

Thank you.

question. Next

Operator

ahead. Schleien with is question The Please next Instructions] go from Ladenburg. [Operator Mickey

Mickey Schleien

that the And Dave, the preferred that what does of on drove exit to investment? represent an follow-up, potential shares? Bowling markup Brunswick large

David Dullum

have coming with of business what really Part that is the we consistent do done. always very the methodology it’s that? strong. No, Rachael, on back touch it valuation you frankly, to was want

Rachael Easton

Yes, absolutely.

performance. definitely that So, in was due uptick to an

are We from the pandemic. ongoing impact the an see continuing to of improvement

So, really the the that EBITDA, investment. which to of increased led appreciation

David Dullum

It or like company. was Yes. anything exit This activity any related is that. really good a to not

that We also that a competitive of the ball back year result as end acquisition right almost of on – made had are company. XXXX excited a timeframe, pre an that – of bowling it’s we to

will, we run have the if share XXXX a was So, the you very bowling at in our and up of positive. really large end balls,

Of at pretty back now to are decline XXXX, that’s were through saw course, where XXXX. the COVID picking end up we of reflects. And close a we we that because to of all

Mickey Schleien

news, floor? of Dave. debt good portfolio’s all, That’s modeling welcome, of Rachael, the LIBOR couple first questions. What and is a average more

David Dullum

LIBOR own our it. our assets, of most are, – put But them put on we we its our also have floor So, LIBOR floor, a plus. we

XX%. So, around it’s generally

Mickey Schleien

a or that Dave, advisor this the the give on the the it can was fee, What line Rachael, from And us And for big to bit credit is base outlook what item? was color of you management the that? little large quarter. Okay. nature of particularly

Rachael Easton

absolutely. Yes,

due fee the do. advisor Pioneer then and Square the to that fees against to that’s primarily Brands, So, this to paid our being associated quarter was credited asset with a fee

comparable So, quarter-over-quarter. is not It’s going to… really that

David Dullum

we would this make when as the us have transaction, the some Mickey, credit the back a because fee, interaction fee also where the a company, for that advisor an Yes. of quote, they you do exit when we management and collect and advisor, if through then we to know, to of way generate the with both acquisition, we actual our some that of GAIN. is the fee from a we advisor relationship

we a inconsistent, have So to when we right. when have It’s occur generate fee. we acquisitions again, said, it’s or as going both if Rachael dispositions

it management back to overall, paid again, transaction And function collecting, to positive in the getting advisor us the them. it’s crediting a essentially just fee it’s, our a through of it’s and so the money

Mickey Schleien

pretty it number just that was was understand I accounting, large. Yes. David the

David Dullum

good that exit. But was a

Mickey Schleien

And that was was your income – us to estimated is It insight it exit. what on how a following that? Can distribute exits? good and Yes. you you give expect very undistributed these congratulations. taxable any No,

Rachael Easton

now million have income on and the $XX.X balance sheet. is Well, right we this so GAAP undistributed the

obviously, amounts to I there. don’t know So some for are there. we if outlook want Dave, differences these of tax to forward to have available But distributions and our kind book more you do speak

David Dullum

get know, $X.XXX all, call I get we Mickey, if want possible. able annual would ourselves, will the approach to don’t distributions, on not of and – we have policy it anyway. trying an is slowly to model first plan ahead try to But large. Yes, our that. you want on we certainly we we focus of well, up as And that increment of a monthly We has think $X.XX basis. to all never know you to good as companies keep I been first for by which per the share, Gladstone as to been do It general

mainly we coming able So, on focus year. bit of were that a out And to that increase operating little last we income.

of And that, coming generating. forward, getting some supplementals we And both, of said might the capital distribution, but be now from this on having a other gains start – having thing. then a And taking to classification be from again, gains the as from little income, our But been monthly sort of again result make Now, in we or good over a we that I have head designation come crude a just regard. look might we the that sitting am might capital consider that getting have my income, distributions as this income. we this into an and that cap of then bit start able it’s gain. there be as in increase we for

on blend our supplemental a we from that, distributions going and as distribution, be right to job much a can increasing result suggested now, just of doing of operations monthly would any of But don’t our have as it sort continuing good keep gains. those So, cap a as we forward. change our

Mickey Schleien

questions. was on and appreciate for a all I what congratulations David, your time I thanks explanation. are – Those strong was that Yes, that quarter. my to referring

David Dullum

for your Thanks questions.

David Gladstone

any We other questions? have

Operator

turn for and Ladies questions. would closing I gentlemen, end have back further question-and-answer And no we the like the to are Mr. remarks. the to Gladstone session. call David of reached There

David Gladstone

in. Well, great tuning thank Had you for a all quarter.

call. good I a we see will end time, will this think have That’s and of the quarter next we you the quarter.

Operator

conference. Thank you. concludes today’s This

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

Gladstone Investment (GAIN) 9 Feb 222022 Q3 Earnings call transcript