Gladstone Capital Corporation
Q2 2021 Earnings Call Transcript

Published: 5 May 2021

[Operator:]

Greetings, welcome to the Gladstone Capital Second Quarter Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note, this conference is being recorded. I'll now turn the call over to Mr. David Gladstone, Chief Executive Officer. Mr. Gladstone, please go ahead.

[David Gladstone:]

Thank you, Rob, nice introduction. Good morning, everybody. This is David Gladstone, Chairman. This is the quarterly earnings conference call for Gladstone Capital for the quarter ending March 31, 2021. Thank you all for calling in. We're always happy to talk with our shareholders and those analysts that follow us. We welcome the opportunity to give you an update.

[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 www.gladstonecapital.com. You could also sign up for email notification service there, or you can find the documents on the SEC's website and 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. With that, I'll turn the presentation over to Gladstone Capital's President, Bob Marcotte. Bob?

[Bob Marcotte:]

Thank you, Michael. Good morning, and thank you all for dialing in this morning to discuss the results for Gladstone Capital for the quarter ended March 31, 2021. Originations for the quarter were strong, totaling $72 million, including three new proprietary investments. However, we had three exits during the period, which totaled $48 million, so net originations came in at $24 million for the period. Interest income declined slightly to $11.9 million over the prior quarter, driven mainly by a slight decrease in the weighted average portfolio yield. Prepayments and dividend income rose with repayments and lifted total investment income to $12.9 million, which was unchanged relative to last quarter. Borrowing costs increased on the quarter with the closing of an additional $50 million add-on to our five-year senior notes offered last quarter. The add-on was attractively priced to yield 4.28%. And while it reduced our lower cost floating rate line borrowings, we expect floating rate borrowings to increase with asset growth, and should we elect to call our higher cost senior notes due in 2024 later this year.

[Nicole Schaltenbrand:]

Thanks, Bob. Good morning, everyone. During the March quarter, total interest income declined $200,000 or 1.6% to $11.9 million, primarily due to a small decline in the weighted average yield. Investment portfolio weighted average balance increased slightly by $10.7 million or 2.4% to $454.1 million, compared to the December 31st quarter. The weighted average yield on the interest bearing portfolio declined by about 20 basis points to 10.6% compared to the prior quarter, with the increased population of first lien loan. Other income rose by $200,000 compared to last quarter, with the elevated level of prepayment fees realized, and as a result, total investment income for the quarter was unchanged at $12.9million. Total expenses were largely unchanged declining $100,000 or 1.8%, as higher interest costs associated with the additional note offering were mitigated by a decline in administrative expenses, and a reduction in management fees, associated with the elevated originations during the quarter. Net investment income for the quarter ended March 31 was $6.4 million, which was an increase of $100,000 compared to the prior quarter, or $0.195 per share and covered 100% of our shareholder distribution. The net increase in net assets resulting from operations is $21.3 million or $0.65 per share for the quarter ended March 31, 2021, compared to $12.3 million or $0.38 per share for the quarter ended December 31, 2020. The current quarter increase is driven by $16 million of net portfolio of appreciation, as Bob covered earlier, and a $1.2 million loss that we recognized associated with the early redemption of our 2023 notes. Moving over to the balance sheet, as of March 31, total assets were $504 million, consisting of $493 million in investments at fair value, and $11 million in cash and other assets. Liabilities rose to $233 million as of March 31, and consisted primarily of $150 million of newly issued 0.625% senior notes due 2026, and $38.8 million of 5.625% senior notes due 2024. As of the end of the quarter, the advances under our line of credit were $41 million and our weighted average borrowing costs of 4.6%. Net assets rose by $23.8 million from the prior quarter-end with $14.9 million of net realized and unrealized portfolio appreciation, and the issuance of approximately 906,000 common shares under our ATM program, which generated net proceeds of $8.9 million.

[David Gladstone:]

All right. Thank you, Nicole. That was a good presentation. Bob and Michael, you all did a great job in informing our stockholders and analysts that follow our company. In summary, it was a very busy first-half of the fiscal year for Gladstone Capital and the company did well, had a busy six months. For the three months, the team originated about $72 million of new attractively priced investments, and lifted the asset base now over $500 million. Bob and the team also managed to keep non-performing assets low at 1.5% of investments, and posted a substantial level of assets appreciated, which lifted the net asset value sometimes considered our book value by $0.50 to about 6.6% in the last quarter. Enhancing the stability of the company's capital position and flexibility by issuing another $50 million, a very attractive price senior term loans. It's nice to be in this position, because you never know what the economy is going to turn into. Maintaining leverage at a low end of the company's peers provides a capacity to take additional middle market investment opportunities, and grow their earnings in the coming quarters.

[Operator:]

Sure, Mr. Gladstone.

[David Gladstone:]

No questions.

[Operator:]

No questions at this time Mr. Gladstone.

[David Gladstone:]

Okay, so you'll just have to wait till next quarter to ask your questions. We appreciate you all calling in, and we'll see you next quarter. That's the end of this meeting.

[Bob Marcotte:]

Thank you.

[Operator:]

Thank you. This will concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.