Gladstone Investment Corporation
Q4 2020 Earnings Call Transcript

Published: 12 May 2021

[Operator:]

Greetings and welcome to Gladstone Investment Fourth Quarter and Year End Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to Mr. David Gladstone, Chief Executive Officer. Please proceed, sir.

[David Gladstone:]

Alright. Thank you, Atalia. Good morning to all of you out there. This is David Gladstone, Chairman and this is the fiscal year ending for 2021 for this fund. And shareholders and analysts, hopefully you will ask us some good questions at the end. We are listed on NASDAQ under the trading symbol GAIN for the common stock and we have got two other trading out there, GAINL for the preferred stock 6.275% and then GAINM for the registered note at 5% matures in 2026.

[Michael LiCalsi:]

Thanks, David. Good morning, everybody. Today’s call may include forward-looking statements under the Securities Act of 1933 and the Securities Exchange Act of 1934, including those regarding our future performance. These forward-looking statements involve certain risks and uncertainties and other factors even though they are based on our current plans, which we believe to be reasonable. Now, many factors may cause our actual results to be materially different from any future results expressed or implied by these forward-looking statements, including all risk factors listed on our Forms 10-Q, 10-K and other documents we filed with the SEC. You can find them all on the Investors page of our website which is www.gladstoneinvestment.com or the SEC's website which is www.sec.gov. Now, we undertake no obligation to publicly update or revise any of these forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. And please also note that past performance or market information is not a guarantee of any future results. Now, please take the opportunity to visit our website once again, gladstoneinvestment.com and sign-up for our e-mail notification service. You can also find us on Twitter @GladstoneComps and on Facebook keyword there is The Gladstone Companies. But today’s call is simply an overview of our results through March 31, 2021, so we ask you review our press release and Form 10-K both issued yesterday for more detailed information. Now, with that, I will turn the presentation over to Dave Dullum, President of Gladstone Investment. Dave?

[Dave Dullum:]

Hey, Mike. Thanks much and good morning, likewise to everybody. Certainly, I am happy today to report that we have come through the fiscal year 3/31/21, with a minimum of COVID scars. We did end the year with an adjusted NII of $0.69 per share with the last two quarters really importantly showing a recovery trend with the adjusted NII per share at $0.20 and $0.24 respectively. I wanted to say that this trend really an income level reflects the COVID impact on the first two quarters, where we did limit the other income from portfolio companies and obviously where we reduced some interest income as well.

[Julia Ryan:]

Good morning. Thanks, Dave. Looking at operating performance for the past year and quarter fiscal 2021 certainly had its challenges, but we are happy to report the positive trends during the latter part of the year, resulting in total investment income of $56.6 million, adjusted NII of $0.69 per share and over $11 million of net realized gains on investments. We are also excited about our financing success during the last fiscal quarter with the issuance of our 2026 notes, the redemption of the Series D term preferred stock and the extension of our credit facility. As for the most recent quarter, we generated adjusted NII of $6.7 million or $0.20 per share as compared to $8 million or $0.24 per share in the prior quarter. We continue to believe that adjusted NII is a useful and representative indicator of our operations. Investment income declined slightly quarter-over-quarter as the decrease in other income which was due to the investment transactions in the prior quarter was partially offset by an increase in interest income. As Dave mentioned, two of our loans will return to accrual status during the quarter and we believe we can expect further improvement going into this new fiscal year for us. Net expenses increased by $2.4 million compared to the prior quarter, which was primarily driven by a $1.8 million increase in the capital gains based incentive fee, which was due to the net impact of realized and unrealized gains and losses in the current quarter. Again, to reiterate, the fee is not yet contractually due. We believe that maintaining liquidity and flexibility to support and grow our portfolio are key elements of our success.

[3/31/21:]

With that in mind, and as previously announced in April 2021, our Board of Directors declared another $0.06 supplemental distribution to common shareholders to be paid in June of 2021. Assuming the current monthly distribution run rate of $0.84 per share per year and estimating $0.12 per share in supplemental distribution, the total of which has not yet been determined or declared, our annual distributions would total $0.96 per common share, which would result in a yield of about 7% using yesterday’s closing price. And this covers my part of today’s call. Back to you, David.

[David Gladstone:]

All great, Julia, very nice work. You and Dave and, Michael have informed shareholders and along with that 10-K that you filed yesterday, which is one of the largest ones I’ve ever seen, I think the people who are following our stock have plenty of information about how strong we are. Our team has reported solid results for the fiscal year, including financings, buyout investment transactions and exit activity with significant realized gains. We believe the team is in great position to continue to succeed for our fiscal year ending March 31, 2022. I personally believe that Gladstone Investment is one of the attractive investments for investors seeking continuous monthly distributions of income that we’re generating and supplemental distributions from potential capital gains. I think the record during the year in which COVID-19 and the government’s reaction to it has been extremely good. Assets increased from $576 million to $644 million, net assets up from $11.17 to $11.52, all this while paying a steady dividend. So those of who love dividends like me, have enjoyed going right through this recession for COVID-19 with our dividend being paid. So great job by the team that’s running quite some investment. Now let’s stop and have our operator come on, and we’ll have some questions from the analysts or any other shareholder out there.

[Operator:]

[Kyle Joseph:]

Hi, good morning. Thanks very much for having me on. Quick question, in terms of the markets you guys focus on, just want to get a sense for where spreads and pricing is kind of in contrast to pre-COVID levels?

[Dave Dullum:]

Hey, Kyle. Good morning. It’s Dave. I won’t answer the question really in terms of spreads, if you will, because as you know, what we – the market we’re at, looking to buy companies, right? So what I’d say is not much change, to be honest, because we think of it more around enterprise value of companies that we’re looking to buy. And I’m saying pre-COVID multiples for good companies, not great companies, good companies was pushing 7x trailing EBITDA. We’re seeing, frankly, that same sort of environment, in fact, even some elevated multiples. And the trickier part, frankly, is that a number of companies that went through COVID, some did very, very well, relatively speaking. Others obviously did not do as well. So the thing you’ve got to really look through our what’s called COVID adjustments which are financed way into EBITDA, so that’s really the tricky part. But having said all of that, I’d say, generally, from an enterprise value perspective and therefore, the challenge we have on looking to buy a business, the multiples, are still fairly high and really requires some rigor in seeing how you ultimately get a return on it? That helps.

[Kyle Joseph:]

Very helpful. Thanks. And then on non-accruals, great to see two investments turn back on. Just curious, would you say this resulted from kind of broader economic improvement or is it specific things you’ve done at these companies that resulted in them being – going back on accrual?

[Dave Dullum:]

Yes. I would say, and then Julia should certainly answer it here, I’d say a couple of things, one, generally, things that we have been, as you know, work on with our portfolio companies, whether that’s a change in management or improved management or that sort of thing, I’d say it’s a combination, frankly. Generally, their business were improving, but they also were doing a good job managing the companies. And as we said in there, hopefully, there are a couple more. And if that all happens here by the end of this calendar year, we pretty much could be out of all our non-accruals with maybe exception of one company.

[Kyle Joseph:]

Okay, helpful. Thanks for answering my questions.

[David Gladstone:]

Okay. Second question.

[Operator:]

There are no further questions in queue at this time. I would like to turn the call back over to Mr. Gladstone for closing comments.

[David Gladstone:]

Alright. Thank you for calling in. I wish you had more questions. We’d like to answer any questions that are out there floating around. But at this point in time, we’ll see you next quarter. And that’s the end of this call.

[Operator:]

Thank you, ladies and gentlemen. You may disconnect your lines at this time, and have a great day.