Gladstone Capital Corporation
Q1 2021 Earnings Call Transcript

Published: 4 Feb 2021

[Operator:]

Greetings, and welcome to the Gladstone Capital Corporation Quarter Ended December 31, 2020 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. It is now my pleasure to introduce your host David Gladstone, Chief Executive Officer. Thank you, sir, you may begin.

[David Gladstone:]

Okay. Thank you, Jesse. That was a nice introduction. and good morning everybody. This is David Gladstone, Chairman. This is the quarterly earnings conference call for Gladstone Capital for the quarter ending December 31, 2020. Thank you all for calling in. We're always happy to talk to our shareholders and the analysts who follow us. We welcome the opportunity to give you an update on how the company is doing.

[Michael LiCalsi:]

Thanks, David, and good morning. Today's report may include forward-looking statements under the Securities Act of 1933 and Securities Exchange Act of 1934, including those regarding our future performance. These forward-looking statements involve certain risks and uncertainties that are based on our current plans which we believe to be reasonable. 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 Forms 10-Q, 10-K, and other documents that we file with the SEC. You can find all these on the Investors page of our website which is www.gladstonecapital.com where you can also sign up for our e-mail notification service. You'd also find these documents on the SEC's website that's www.sec.gov. 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. Today's call is an overview of our results, so we ask that you review our press release and Form 10-Q, both issued yesterday, for more detailed information. Again, you can find this on the Investors page of our website gladstonecapital.com. And with that, I'll turn the presentation over to Gladstone Capital's President, Bob Marcotte. Bob?

[Bob Marcotte:]

Thank you, Michael. Good morning all, and thank you all for dialing in this morning through review of the results for Gladstone Capital for the quarter ended December 31. Originations for the quarter totaled about $29 million, including 2 new proprietary investments. However, repayments and proceeds totaled $34 million, including the exit of one proprietary investment and two syndicated investments, so assets were largely unchanged for the period. Interest income for the period rose to $12.1 million, up slightly over the prior quarter with a small increase in average investments as the portfolio yield was relatively unchanged at 10.8%. Prepayment and dividend income increased with the calendar year-end, which contributed to lifting the total investment income to $12.9 million which was up $300,000 over the prior quarter. Borrowing cost increased $200,000 on the quarter with the closing of $100 million 5-year senior note offering as our lower cost floating rate line borrowings fell pending the call of our higher cost $57.5 million senior notes due in 2023, which was completed in early January.

[Nicole Schaltenbrand:]

Thanks Bob. Good morning all. During the December quarter, total interest income increased $147000 or 1.2% to $12.1 million, primarily due to an increase in the average balance of our interest-bearing investments. The weighted average balance of the investment portfolio increased by $8 million or 1.8% to $444 million compared to $436 million for the quarter ended September 30th. The weighted average yield on our interest-bearing portfolio was relatively unchanged at 10.8% compared to the prior quarter despite the higher first lien loan level and as LIBOR interest rate floors continue in effect for the majority of our floating rate assets. Other income rose by $200,000 compared to last quarter as prepayment fees and dividends lifted total investment income for the quarter by $300,000 or 2.4% to $12.9 million. Total expenses were largely unchanged increasing $100,000 or 2.2% quarter-over-quarter as higher interest costs due to the new note offering were mitigated by a small increase in incentive fee credits. Net investment income for the quarter ended December 31st was $6.3 million and was unchanged compared to the prior quarter and $0.195 per share and covered 100% of our shareholder distributions. The net increase in net assets resulting from operations was $12.3 million or $0.38 per share for the quarter ended December 30th compared to $12.2 million or $0.33 per share for the quarter ended September 30th, 2020. The current quarter increase was driven by $6 million of net realized and unrealized portfolio appreciation covered by Bob earlier. Through last quarter, the portfolio has recovered just under approximately 70% of the unrealized depreciation reported in the March 31st, 2020 quarter associated with the onset of the COVID pandemic. Moving over to the balance sheet, as of December 30 -- 31st, total assets were $459 million consisting of $452 million in investments at fair value and $7 million in cash and other assets. Liabilities declined to $212 million and consisted primarily of the $100 million newly issued 5/8 senior notes due 2026, $57.5 million of 6/8 senior notes due 2023 which were called and subsequently repaid shortly after year end and $38.8 million of 5 3/8 senior notes due 2024. As of the end of the quarter, the advances under our line of credit were artificially low at $16 million and with the subsequent call and prepayment of our 2023 senior notes, line of credit borrowings increased to approximately $73 million or 34% of total liabilities after quarter end.

[David Gladstone:]

Okay. Nice report, Nicole, and good report by Michael and Bob. I think the combination of the 10-Q that you filed yesterday with all the information we've been giving out, certainly bring shareholders up to where we are today. In summary, it was a good quarter again solid. Gladstone Capital as a company did well in delivering on a number of fronts that it works on originated $29 million in new attractively priced investments on the quarter, exited a couple of underperforming syndicated investments and managed to keep nonperforming assets at 1.6% of investments at fair value. This is good position to be in in these unstable times. We enhanced the stability of the company's capital position and flexibility by issuing $100 million of attractively priced senior term notes and maintained leverage that are at the low end of the peers that we compare ourselves to providing a capacity to take additional middle market investment opportunities and grow earnings in the coming quarters. In summary, the company continues to invest in midsized private businesses with good management, many of which are supported by midsized private equity funds and these private equity funds are looking for experienced partners to support their acquisitions and we fill that bill for them. This gives us the opportunity to make attractive interest paying loans to support our ongoing commitment to pay cash distributions to stockholders.

[Operator:]

[Bob Marcotte:]

We must have answered them all.

[David Gladstone:]

No questions, Jesse? Nobody calling in?

[Operator:]

Mr. Gladstone, I don't see any questions coming in at this point. Would you like to make any additional concluding remarks?

[David Gladstone:]

No. I'll just thank everybody for supporting the company. The stocks moved nicely and we're continuing to grow the asset base. I think this will be a good quarter for us ending March 31. So see you all next quarter. That's the end of this call.

[Operator:]

Ladies and gentlemen, this does conclude today's teleconference and webcast. We thank you for your participation and you may disconnect your lines at this time.