Gladstone Investment Corporation
Q1 2015 Earnings Call Transcript

Published: 5 Aug 2015

[Operator:]

Good day, ladies and gentlemen and welcome to the Gladstone Investment Corporation’s First Quarter Earnings Call. At this time, all participants are in a listen-only mode. Later, there will 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, sir you may begin.

[David Gladstone:]

Thank you, Shannon. Nice introduction, hello and good afternoon. This is David Gladstone, Chairman and this is the quarterly conference call for shareholders and analysts of Gladstone Investment. The common stock trading symbol is GAIN and we have three preferred stocks one is GAINO, GAINP and GIANN, so three different versions of that. We thank you all for calling in. We are happy to talk to our shareholders and potential shareholders. We love to give updates on our company and our portfolio and our business environment. We wish we could do this more often and you all have an invitation to stop by and say hallo if you're in the Washington DC area. We're in the suburb known as McLean, Virginia. Please stop by and say hello, a lot of people here you will meet some very fine people. And now we'll hear from my General Counsel and Secretary, Michael LiCalsi, and Michael is also the President of Gladstone Administration which serves as the Administrator to all the Gladstone funds and related companies and he will make a statement regarding forward-looking statements. Michael?

[Michael LiCalsi:]

Good afternoon, everyone. This conference call may include statements that constitute forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934, including statements with regards to the future performance of the Company. And these forward-looking statements inherently involve certain risks and uncertainties and other factors even though they are based on our current plans, which we believe to be reasonable. And many of these forward-looking statements can be identified by the use of words such as anticipates, believes, expects, intends, will, should, may and similar expressions. There are many factors that may cause our actual results to be materially different from any future results that are expressed or implied by these forward-looking statements, including those factors listed under the caption Risk Factors in this Form 10-Q filing and our 10-K filing and our registration statement as filed with the SEC, all of which can be found on our Web site at www.gladstoneinvestment.com, or the SEC’s Web site, www.sec.gov. And the Company undertakes no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events or otherwise, after the date of this conference call except as required by law. And please also note that past performance or market information is not a guarantee of future results. Please take the opportunity to visit our Web site, gladstoneinvestment.com and signup for our e-mail notification service. You can also find us on Facebook, keyword The Gladstone Companies, and on Twitter at GladstoneComps. And the presentation today will be an overview, so we ask that you read our press release issued yesterday and also to review our Form 10-Q for the year ended June 30, 2015 which we filed yesterday with the SEC. Those can be accessed on our Web site gladstoneinvestment.com. And before I forget, we're having our Annual Stockholders Meeting tomorrow August 06, 2015 and everyone is invited. Please make sure you vote your shares to help up avoid costs associated with the solicitation campaign, if you have not voted your shares let me tell how you can vote, you can vote you can both cash to vote quickly and easily by signing and dating mailing in your proxy card accompanying your proxy statement or by calling in 1800-690-6903 to vote over the telephone toll free or by voting over the Internet at www.proxyvote.com. And please note that voting over the phone and Internet will require that you have your proxy control number available and that number is printed on the proxy card that accompanies your proxy statement that you received in the mail. Stockholders with questions on how to vote are strongly encouraged to contact our proxy solicitor Georgeson Incorporated at 1800-790-6795 or you can call us at 866-366-5745 and stockholders may also vote by attending the annual meeting in person which will be held tomorrow at 11 AM Eastern Time at our corporate headquarters located on 1521 Westbranch Drive, Suite 100 in McLean, Virginia. If you are unable to attend please vote your shares using one of the methods I described earlier. Now let’s turn to David Dullum the President of Gladstone Investment to give an update on the Fund’s performance and outlook.

[David Dullum:]

Hi. Thank you, Mike. So our Company Gladstone Investment is a Fund focused on buying middle market U.S. businesses with the annual sales generally between $20 million and $100 million. Our funding structure in any buyout usually consists of secured first and second lien debt in combination with a direct equity investment giving us a significant ownership position. This combination of debt and equity produces a mix of assets which is the basis of our strategy for Gladstone Investment. So, all the debt portion of our investments provide income to pay and grow our monthly distributions, while we look for the equity portion to increase in value and provide capital gained from time to time. So with our continued growth in operating income and the periodic realized gains that we recognized, our Board was able to declare a common share distribution of $0.0625 per share per month for April through September, which is a run rate of $0.75 per share per annum, which represents an over 4% increase year-over-year. Just generally we like to indicate how we are different from other BDCs or other finance type companies. In that, what we do is we take a significant equity position in the companies that we invest in and this defers some of the other public BDCs that are predominantly debt oriented and generally referred to as credit type BDCs. So for instance the proportion of equity to debt for the investments in our portfolio you will see is approximately 25 to 75 ratio, more so the BDCs portfolios are somewhere closer to about 10 to 90 proportion of equity to debt with their equity generally coming through ones that are issued with the debt that they placed or a small co-investment through and with the primary equity sponsoring any one transaction. As for more traditional private equity funds, which are generally 10 year private partnerships with a longer liquidity horizon for their investors we are different in that as a publicly traded entity. Our structure allows daily liquidity for shareholders. So, allowing essentially a ownership in portfolio companies that we buy to a public vehicle which provides liquidity to shareholders. Also, we are able to keep an investment generally longer in our portfolio while we generate income prior to an exit thereby creating the gain on equity. Now exit strategies, on previous earnings calls, we have discussed the topic of selling or exiting companies, realizing capital gains through portfolio company exits is very much a component of the value proposition of an investment in our Company. And I would like our shareholders to know that we do develop and manage plans around the exiting of these companies from time to time. These are generally based on the market conditions and our assessment of the risk and return in continuing to hold an investment versus exiting. We are currently evaluating possible sales over the next several months, so some much more to come on these as we move further into our fiscal year which ends March 31, 2016. We should note that although we may hold our investments for long periods of time, we do quarterly equity valuations of our portfolio which can be volatile and not always representative of the potential value which we might attain on an exit. It is important therefore that we do look for the possible future realizable equity portion of our assets as one aspect of the overall future value of our Company. Since June of 2010, we’ve exited five of our management supported buyout investments and generated as a result of that about $54 million in realized capital gains. Now, while the buyout market is still somewhat seller friendly, we must keep in mind that while we -- if we were to sell a portfolio of company in this market and then may be tempting, it would reduce the income producing asset base and then we would be challenged to incrementally replace that investment obviously in a higher purchase value environment at the current time. So let’s look at though our deal generating activities and how we do that. Our deal generating activities do have a very high priority and our recent press releases do reflect the results of our continued growth in making new buyouts. We do advise as a result of having a broad and deep geographic footprint with offices in New York City, Los Angeles, Chicago and here in McLean outside of Washington DC. We primarily market ourselves to what we call independent sponsors, middle market investment bankers and other sources that help create proprietary investment opportunities. We do not depend on others to negotiate or structure our investments for us. Generally our investments include partnering with the management teams of these companies, and other sponsors that would be involved in the purchase of any business. Our strategy of providing a financing package which includes both the secured debt and the majority of the equity is a competitive advantage as it gives the seller the independent sponsor if there is one involved and the management team a very high degree of comfort that the purchase and the transaction will occur at least from the financing perspective. In addition actually to outright purchases we occasionally may find opportunities to partner with a business owner who will sell a portion of their company to us and then use that capital to grow the business. So where do we focus our efforts, generally we invest in companies with consistent operating cash flow or as we call it EBITDA which means earnings before interest, taxes and depreciation generally of at least $3 million and we’d like it to obviously have a potential to be able to expand that cash flow. Some areas of interest from an industry perspective that we focused on are in light specialty manufacturing, specialty consumer products and services, industrial products and services, occasionally aerospace and energy although we have not done much of that recently and those typically are the four broad areas of industry that we focused on. Now to the types of investments generally our investments as briefly mentioned are secured debt investments and those investments will carry a first lien typically also a cash yield which is going to be in the mid to the high-teens and that helps to balance the equity portion of the investments when we make it which gives us a blended current cash yield which does help support our distribution expectations to shareholders. We generally also have an additional yield enhancer on these loans which we generally call as success fee, and usually these are paid in cash on a change of control or in some cases in advance at the portfolio of Company’s option. Further the equity portion of our investments we generally target to create a minimum of two to three times cash on cash return. Now let’s look at the actual origination activity for this first quarter which ended June 30, 2015. We are pleased to report that during the first quarter we invested 17 million in one new deal and existing portfolio companies, I think which continues our strong origination activity into this fiscal 2016. We also successfully exited one small portfolio investment. Specifically in May we purchased Brunswick Bowling Products through a combination to secured first lien debt and the equity investment for a total of about $16.3 million. Brunswick which is headquartered in Muskegon, Michigan is a leader in the recreation industry, providing industry expertise, products, installation and the maintenance for the development and renovation of new and existing bowling centers as well as mixed used facilities across the entertainment industry. In June we also sold our investment in Roanoke Industries Corp. which resulted in a realized gain of $200,000 and a full repayment of our secured first lien debt of $1.7 million. We do believe there is a strong positive origination trend as we continue through our second quarter of fiscal 2016 as we’re in various stages of a diligence phase on a few new investments which we hope will close sometime in the upcoming fiscal quarters. In this regard and as a subsequent event to the first quarter we did announce beginning of the suite that we acquired a company called GI Plastek that was on July 31st with a total financing of the equity and debt of approximately $21 million. So we continue expanding our marketing efforts and growing our presence in the marketplace. So in summary our goal for GAIN is to continue to strategically add accretive investments and position our existing portfolio for potential exits. Thus we expect maximizing distribution to shareholders with solid growth in both the equity and the income portion of our assets. So that takes care of my part of the presentation. I’ll turn it over now to Julia Ryan our CFO so she can fill in some of the details on the financial performance. Julia?

[Julia Ryan:]

Thanks Dave and good afternoon everyone. The big news this quarter as Dave mentioned is that we originated one new deal and successfully exited one existing investment. We also raised almost 44 million of capital consisting of over 40 million of Series C preferred stock and over 3 million of new common stock which was the overallotment of our $24 million marked common offering. This additional capital of course has flexibility to continue to expand our balance sheet for future new deals. Through this quarters’ originations, together with highly successful originations last year, we achieved another very strong quarter with over 12 million in total investment income and over 5 million in net investment income. So we are also pleased to announce that our portfolio continues to perform resulting in over 3 million of net appreciations which was driven by improvements in operating performance as well as increases in market comparables of certain portfolio companies. The cumulative effect of these positive trends resulted in a net asset value of $9.20 per share as compared to $9.18 per share at March 31st. On the balance sheet side at the end of June, we had $502 million in assets consisting of 481 million in investments at fair value, 6 million in cash and cash equivalents and 15 million in other assets. Our portfolio of allocation at cost is currently $377 million of debt securities and $140 million of equity securities for a 73%-27% split between debt and equity. Our liabilities and equity at June 30 consisted of approximately 90 million in borrowings outstanding on our credit facility, 122 million in term preferred stock and 10.5 million of other liabilities in addition to 280 million in equity. Listeners will remember that in March 2015, we completed the offering of 3.3 million common shares for net proceeds of approximately 23 million. Following on the heels of that successful capital raising in fiscal '15 in April, we closed on the overallotment of the common share offering and issued an additional 495,000 common shares for net proceeds of 3.5 million. In May, we issued approximately 1.6 million shares of our newly issued 6.5% Series C term preferred stock and general of net proceeds of $38.6 million. These financing successes have allowed us to raise capital to support our deal origination activities over the past several months and provide flexibility for future origination. We will continue to monitor and explore additional ways to raise capital to fund deal flow over the upcoming months while also meeting our BDC leverage requirements. As I mentioned, our net asset value was $9.24 per share as of June 30th which is a $0.06 increase since March 31st and primarily results from strong operating performance in the current quarter including the previously mentioned appreciation. Consistent with the fourth quarter of fiscal '15, we continue to use an external third party valuation specialist to provide additional datapoints regarding market comparables and other information related to certain of our more significant equity investments. We will continue this practice and will plan to generally update this externally provided data on an annual basis for all of our significant equity investments. Moving over to the income statement for the June quarter end, total investment income was 12.7 million versus 11.2 million in the prior quarter. Total expenses net of any credits were 7.5 million versus 6.2 million in the prior quarter, leaving net investment income of 5.2 million versus 5 million in the prior quarter. The increase in net investment income quarter-over-quarter was primarily due to higher interest income as a result of holding a larger portfolio which was partially offset by the additional cost incurred in originating and carrying the portfolio which includes financing costs and management fee. As mentioned on previous calls, other income has historically been as high as 16% of our total investment income as compared to about 10% during the latest quarter. We expect that other income which is primarily composed of success fees and dividend income will remain meaningful but variable from quarter-to-quarter. Our net expenses increased in the current quarter primarily due to higher interest and dividend expense driven by increased borrowings in our credit facility and by our newly issued Series C Preferred Stock. As a result of these factors including the newly issued common stock in March and April our net investment income decreased to $0.17 per common share for the June quarter from $0.19 for the previous quarter. Our net investment income in the prior year spill over amounts covered our quarterly distribution through shareholders of $0.1875 per common share of 100%. Now let's turn over to realized and unrealized changes in our assets. Realized gains and losses result from actual sales or disposals of investments. Unrealized appreciation and depreciation is a non-cash event and is driven by the requirement to mark down investments to fair value on our balance sheet, with the change in fair value from one period to the next recognized in our income statement. During the June quarter, we reported $200,000 in realized gains relating to the exit of one portfolio companies additionally our portfolio went up in fair value by 3.2 million. This change was mainly driven by improvement in performance and an increase in the comparable multiples of certain portfolio companies. As a result for this June quarter end, our entire portfolio with fair valued at 93% of cost up from 92.2% of cost last quarter. All of our portfolio companies are current in payment except for one which continues to remain on non-accrual and this portfolio company represents less than 1% of the fair value and less than 3% of the cost basis of our total debt investment. As far as our portfolio in general, the debt portfolio is well positioned for any interest rate increases that may come about in the future with 81% of our loans having variable rates with a minimum floor and the remaining 19% having fixed rates. The weighted average yield on interest bearing debt investments remain consistent quarter-over-quarter at 12.6% versus 12.5% in the previous quarter. This strong yield excludes any success fees as Dave previously mentioned. It also doesn't include any paid in client or pick income as we do not currently have any debt securities for the fixed feature. Success fees or yield enhancements that are contractually due generally upon a change in control although there are times when the portfolio company can elect to pay it earlier. We generally only recognize success fees in our income statement when they are received in cash. For comparison purposes, if we had accrued these success fees as we would it was a paid in client interest like other BDCs do, our weighted average yield interest bearing assets would approximate 16.3% during the current quarter. And as of June 30, the success fees accruing off balance sheet totalled 27.4 million or approximately $0.90 per common share. There is no guarantee that we will be able to collect all of these success fees or have any control over the timing of the collection. From a credit priority perspective, 100% of our loans are secured with 81% having a first lien priority and the remaining 19% having a second lien priority in the capital structure of the respective portfolio companies. Overall, Gladstone Investment had another good origination quarter which helped the Company generate strong financial results. As previously mentioned, we increased our distribution rate on our common stock and have maintained that increased distribution while still remaining committed to covering our distributions by current or prior year net investment income as we have done consistently over the last four fiscal years. And now I’ll turn the call to David Gladstone.

[David Gladstone:]

All right, thank you Julia that was a good report and Dave and Michael good reports. During the past quarter, we were able to report some great accomplishments such as good originations, increased value in the portfolio and several successful financing activities, increasing our net investment income and declaring a dividend increase. One of our portfolio companies, as we keep mentioning, has moved closer to being sold. I think we have a couple of buyers, one now moving a little bit further ahead than the others. So, I am hopeful that before the end of the year, end of the quarter, this quarter, that we’ll have some good information for you. To recap; we closed the new investment, 16.3 million; we invested $1 million in an existing portfolio company; increased the net asset value to $9.24 and raised our run rate on amount of distributions by about 4%. And believe we can continue this success going into the second quarter of fiscal 2016 and are already off to a very good start as far as doing things. And we got a lot of things under diligence and documentation phases. So, I think you’re going to see the quarter ending this quarter September 30th looks good. We feel it’s a great time to invest in smaller middle market companies like the ones we invest in. However, these types of companies can be significantly impacted by the economy in which they operate. Although, we have seen some of the positive trends in the recent economic indicators and I think we’re continuing to see the economic recoveries although at a sluggish pace. Just to couple of things to mention to watch out for of course there is still uncertainty around the Federal Reserve’s monetary policies. They keep indicating maybe September that always increases interest rates a bit. But we’re pretty much protected from that. There’s volatility still on the oil and gas industry as they continue to have layoffs 10,000 to 15,000 a month seem to be going away. Low oil prices drove terrific benefits to the economy and also very great benefit to many of the companies that we have investments in. So, our own oil and gas concentrations have been historically minimal, and right now we are just at a zero. Fiscal crisis in the Federal Government is still has a deficit of over 18 billion [indiscernible] this year it just continues to decline as the government spending goes without any end insights. I am not sure when the day of reckoning will come, but we all know that you can’t be doing something like that. Many of the private companies like those in which we invest feel there is far too much regulation and we feel it here in our Company as well; healthcare, financial services and energy emissions, all of those are hindering the performance of a lot of these small and mid-sized businesses and of course job growth since they have produced probably 80% of all the new jobs. In light of all these concerns, our Company, Gladstone Investment, has strengthened its balance sheet in the form of significant new equity. We use new equity to buy and into the list of good portfolio companies. So I think we’re in good shape. I think our companies are in good shape. Despite the past current economic issues, our Fund has continued to make consistent monthly distributions including the increase of our dividend overtime. April and July of 2015 our Board of Directors declared a monthly distribution for our common stockholders at $0.0625 per share and that’s up from $0.06 from the prior year per common share for the each of the six months April through September. Through the date of this call we’ve made 121 sequential monthly cash distributions on our common stock and some bonus extras along the way since investment we paid about over $7 now in dividends. The current distribution rate of common stock with a common stock trading at $7.90 that is where it closed today we got a 9.5% yield and I was very excited about that, I bought a whole lot of shares in mid June and I think this is one that everybody should load up on. We do have three preferred stocks I am not going to go through those in terms of what they are we have one at 7.25, another at 6.75 and then the last one we did at 6.5%. And I think all of these are trading above their original price, so they’re in good shape. In summary, I believe Gladstone Investment is an attractive investment for all of the shareholders its monthly distribution with potential special distributions or increase in capital gains I think it’s a great-great Company. And we’ll continue to be disciplined in our investment approach and focus on making strategic debt and equity investments in good old American middle market businesses. We expect a good quarter for September 30, 2015 and hope to continue to show you a strong return as we go forward for the rest of the year. Let me remind you again what Michael talked about. You need to cast your vote; we sure like to see if everyone is voting. It’s always hard to get enough votes in, in order to have a quorum, you can call 1800-690-6903 and with your proxy card it is toll free. You can also do it on the Web at www.proxyvote.com and you can even note that voting over the phone or the Internet will require you have that proxy control number that Michael mentioned and the number is printed right there on the proxy card the company [indiscernible] you also if you call in they can verify who you are and you can vote the shares that way as well. So give them a call Georgeson at 800-790-6795 or you can call on 800 numbers 866-366-5745 all of these are good ways for you to vote and help us to get the shares in so that we don’t have to have a second meeting. Stockholders also may vote by attending the annual meeting. We’d love to see you. We only see two or three shareholders at our meetings its 11 O’clock Eastern Time it’s here at 1521 Westbranch Drive, you can vote your shares when you come, if you want to. If you are unable attend do vote your shares. And now if the operator will come on we’ll have some questions from our shareholders as well as some of the analysts that may have called in.

[Operator:]

Thank you. [Operator Instructions] Our first question is from Kyle Joseph with Jefferies. You may begin.

[Kyle Joseph:]

I was just hoping to get a little bit more of your thoughts on sort of the middle market we’ve seen more volatility in the broader public markets are the markets that you’re looking at somewhat insulated from that and I’m just asking in the context that you said it remains sellers’ market I’m just wondering if you’ve seen any release there at all?

[David Dullum:]

This is Dave Dullum. I’ll try to answer it from my own perspective it won’t really tie in necessarily to the public markets of course because we deal in private businesses and as I mentioned earlier generally companies were looking at our low end 3 million really up to 7 million or 8 million of EBITDA, in that space what we’re seeing over the last certainly 4, 5 or 6 months that it stays fairly strong if you are a decent company selling, meaning that you probably are able to get the 7 to 8 times multiple for the enterprise value for that company, that’s a challenge. We tend to -- we like to pay more or like five times and so we work really hard at that 5 or 6 times. What I think it is just me thinking that I’m hoping that might moderate a bit over the next year or so in particular since I think the leverage availability driven somewhat by commercial banks et cetera might to some degree put some pressure obviously on the amount of leverage that the equity guys can get to be able to buy a business and that means they will have to probably put more equity in and therefore you might find some moderation of that. But as of right now I would say it’s holding above where it’s been for a while and in our case we just keep working hard to find those decent companies that we can bring some of our benefit to, to be able to buy them at hopefully lower than what the general market themes do want to take. Kyle, do you have another question?

[Kyle Joseph:]

Yes, that’s all right. I was going to ask about the investment in trade. It looks like the fair value of the investment went up a bit quarter-on-quarter I was wondering if you could just talk about the performance of that investment specifically?

[David Dullum:]

We actually are seeing some improvement in that company I won’t go into the detail obviously but we’re seeing a positive trend in EBITDA they are working hard on that and as a result of that it’s gotten a little bit of a bump relatively speaking and that is the one company of course that is a non-accrual right now it’s the only one that we have but they are actually generating positive EBITDA for their fiscal year. So we keep plugging away on that and I hope they will continue to get better.

[Kyle Joseph:]

And then I’ll ask last question, just your yields have been stable overall when we are looking at it ex success fees and what not, is that your outlook for ongoing stability in that portfolio yield or I noticed the yield on the Brunswick investment it was pretty attractive, but what’s your outlook for the yield on the portfolio?

[David Dullum:]

Yes, I’d say pretty stable with where we have been. As you know with the way we structure our deals where we do this combination of equity and debt we have some flexibility to the extent that we obviously are I would say commanding the presence on the right hand side of the balance sheet. So as a result of that we can sort of moderate it, but it is going to stay about where it is as we drive through a fairly hopefully consistent cash flow on the total investment which is what is important for us to obviously from a distribution standpoint.

[Operator:]

Our next question comes from Mickey Schleien with Ladenburg. You may begin.

[Mickey Schleien:]

I just wanted to circle back to the valuation. I did see that there were some nice movements upwards like Funko and Cambridge and some tier but there was also weakness in names like Old World and BNT could you just give us an update on the realignment of the valuation process and how are you using the third party in terms of the number of companies that they looked at and where do you see that going in the next few quarters?

[David Dullum:]

Hi Mickey, thanks for the question and Julia is going to try to tackle that and then we can come see if there is anything specific else on that. Julia?

[Julia Ryan:]

Mickey on the specialist side or a third party involvement, this quarter as we had indicated last quarter we had five of our significant equity deals being reviewed this third party. I think we gave guidance last quarter that we intend to send them between four and [indiscernible] quarter and continue that practice for each of the next succeeding fiscal quarters and then cycle through the entire significant equity investment portfolio every year.

[Mickey Schleien:]

My next question is related to operating leverage, we -- during the quarter, you posted nice portfolio growth and nice growth in investment income but it didn't flow through to NII per share mostly due to professional fees and another expenses, can you give us a sense of how much operating leverage there is in the business on a go forward basis?

[David Dullum:]

I guess Mickey the only other thing I would answer in that is it might not show up immediately, keeping in mind that as you point out correctly and slight relatively speaking downtick in NII per share, but we also did increase of course the number of shares kind of in that timeframe, so I think what you're finding is that we're not yet benefiting so to speak from those dollars going to work immediately flow through on the NII per share and I think that I hate to be too general in answer but I think that certainly I think the way to think about it and hopefully we'll continue to increase the leverage as a result of now having the capital to deploy in the deals that we've just closed the new deals. And as you know we don’t immediately pick up the interest income from the new deals we dually do get a closing fee et cetera but not the accompanying pick up in overall portfolio income. So I would think that we'll see that starting to increase that leverage.

[Mickey Schleien:]

Appreciate that Dave and that's kind of a good segway to my last question, with the deals that you announced the GI Plastek and I understand that you may have a sale of portfolio company this quarter but then again you may not, if you don't and you funded with leverage you're going to see back up to levels which in the past you've sort of maxed out, if that happened are you open to an equity offering even at these share prices?

[David Dullum:]

Mickey, we never want to do offerings at these share prices obviously but we always need to keep in mind clearly as we said before we're sensitive obviously to the leverage ratio compared to debt to equity we're in an okay range right now, we have some capacity. We will -- all I call tell you is we keep to manage being aware of the sensitivity of that and obviously the fact that we would rather not be if we don't need to raising equity I'd say below NAV although the good news is we started moving much close to NAV on the share price. So again it's something we look at carefully. We manage carefully and we will do the right thing for the shareholders and the Company.

[Mickey Schleien:]

And Dave you've mentioned the shareholder meeting, are you asking full authorization to issue below NAV?

[David Dullum:]

Yes.

[Mickey Schleien:]

You're, okay. Those all are my questions. I appreciate your time. Thanks.

[David Dullum:]

We ask for that every year and it's just a routine. We don't want to have to do some other mechanism if we need money, so this is an easy way. Now we're not going to raise money just to raise money out of people that are externally managed we raised a lot of money because the fees go up. We're not in that business. We're in the business of making money for our shareholders first of all because mainly I am a big shareholder so I like to see my stock go up and the dividend go up. But the point being here raising money as we got pretty good capacity to put couple of more deals on I think by the time we put two maybe three more deals on we will have to raise some form of equity. We're pretty much out of raising preferred stock. But if we do sell this one business and get a big chuck of equity and by the way that company is in both companies it's in Gladstone Capital and GAIN and GLAD. So we've got two ways to make money on that one and I think if that happens, we probably would not need to raise any money for maybe six months or a year because it is a powerful reward for us. So any way I don’t know the future, nobody does. We'll just keep plotting along doing couple of more deals and see what the world looks like next time.

[Operator:]

[Operator Instructions] Our next question comes from Jeremy Roane with Hilliard Lyons. You may begin.

[Jeremy Roane:]

I just wanted to speak a little bit about the origination activity and if you could comment on really what your targeting this year in terms of originations and also if you could comment on asset sales and possibly the level of those that you might expect this year and perhaps the timing of those as well please?

[David Dullum:]

Jeremy I really think Dave Dullum as you know we have to be a little cautious obviously in specifics, both as to origination and also certainly exits. But as you say certainly as we look forward we certainly think we are in a position of similar sort of origination activities this past year. And I think the way the quarter has started, the year started off certainly with the first quarter and this recent acquisition we just made beginning of the second quarter, I think we’re on the kind of a sort of run rate that we’ve been on. And looking at backlog and the work we’re doing, I feel reasonably good about that. In terms of the exit sales or the asset sales, again we are David Gladstone has made couple of comments around that we are actively pursuing some things and we’ll keep working through those and sensitive to again as I said in my commentary the idea that we really in selling we reduce assets so we don’t want to do that just to do it but indeed to take advantage opportunity of say the right time to sell is what always we’ve tried to do in combination with the management teams over the portfolio companies. So, again I think we look ahead, we look forward and I think we think our plans are pretty good to similar to what we were looking at last year certainly from a production perspective.

[David Gladstone:]

And I know what you’re going through Jeremy it’s really tough to build a model around what we’re trying to do. We spend a lot of time forecasting and each time we come with a few more deals we want to put them on the forecast and see what they’re doing to the balance sheet and the P&L. And it’s a very lumpy business and unfortunately it’s very hard to forecast what the top-line in terms of revenue is going to be because you don’t know how many deals are going to close. And sometimes you close a deal that has a lot of fees that will make a very nice income go up and then sometimes you’re selling something. And as Dave mentioned when you sell something you get a turnaround and replace it. One of the things we do is we look at each deal every year and we do it on a quarterly basis sometimes. And we try to say this is our asset plan for that transaction. And if it just happens to be some leftover debt that we’ve already sold the equity or we’ve done some kind of clearing like writing off a piece of equity and we just got debt left. Many times it’s better to go ahead and get that debt paid off with the bank coming in and turning around and putting that money to work in something that has a significant upside. So we’re constantly looking at the portfolio with that color in our eyes looking for those kinds of transaction. So that you’re constantly working your portfolio we’ve got people to spend every day thinking about what to do with one or two or even a dozen portfolio companies over the next year. And that’s just the way this business works unfortunately. So, we don’t have a good way of telling you that what we’re going to buy, what we’re going to sell. But I think Dave is right on target, it probably from an buying standpoint it will be much like it was last year unless we find two or three, really excellent deals and then it will be bigger.

[Jeremy Roane:]

And then just one more question, should you do an asset sale perhaps the next quarter or two, where would you guys look to cut your expenses to help manage that bottom-line?

[David Gladstone:]

Probably we wouldn’t have to cut any expenses because we would pay off the debt with anything that comes in and Dave has got a pretty good backlog of transactions. So I think anything we sell we’d probably replace. Remember a lot of the appreciation is in the equity and that equity has no income on it. And so we’re talking about getting paid off on the debt. Many of the portfolio companies as they go forward get stronger and they find cheaper debt and we encourage them to pay it off because we do own the equity. So as a result, usually a transaction in which a lot of money comes in is out of the equity section and so therefore it doesn’t harm the ability to pay dividends, it just adds money to the Company to turnaround and invest and increase the dividend. Hope that answers the question. Okay. Operator, do we have any more questions?

[Operator:]

I am showing no further questions at this time. I’d like to turn the call back over to Mr. Gladstone for closing remarks.

[David Gladstone:]

All right, thank you all for calling in. And we’ll see you again next quarter hopefully we have even more news further news. Thanks a lot. Bye.

[Operator:]

Ladies and gentlemen, this concludes today’s conference. Thank you for your participation and have a wonderful day.