Gladstone Capital (GLAD) 3 May 232023 Q2 Earnings call transcript

Greetings, and welcome to the Gladstone Capital Corporation's Second Quarter Earnings Call. [Operator Instructions] 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.

for introduction, Latoya, everybody. good you, thank that and nice morning, And March is this Capital for ending and Gladstone, for XXXX. the quarter This Chairman, call is David earnings conference the XX, Gladstone

shareholders Virginia. We're update D.C., We're you minute the all report. welcome Washington, and and and It's here you Bob to happy in, company. a XX to with outside opportunity but on degrees. come the will follow in. you Thank up that for always us this cool talk Nicole warm fine about calling of We're a our analysts good McLean, a and to

Now forward-looking we'll who regarding statements. LiCalsi, Michael? Michael our hear General Counsel, statement will make a from

the of based of Exchange current involve Securities the we Securities David. forward-looking including performance. uncertainties XXXX, and that Act are on may Thanks, Today's everybody. under Good XXXX Act morning, regarding risks and statements report believe These reasonable. our our those certain to future be which statements include plans, forward-looking

many these other materially future with implied XX-Q, on and different Forms or results we results that all expressed may from by to be our cause the Now statements, risk factors SEC. any including XX-K the listed our file documents forward-looking actual factors

on You gladstonecapital.com. of can find the our them page Investors website at

sign you're the SEC's on documents for while is and can our also also there, the find you up website, Now you e-mail can notification service www.sec.gov. which

you more the and XX-Q, of Again, are detailed our everyone both of events revise otherwise, that publicly results, remind issued on or of to that review press no any our these release by for overview future we Form page Now a website. obligation found is required information. call those law. except our yesterday whether or update Investors result forward-looking so we of undertake new today's information, as We an statements, as ask

the Marcotte. Bob turn to Gladstone call I'll that, With over Capital's President,

cover I'll this to for balance call highlights financial last all results position. the our thank and some and the some quarter for of capital for dialing period with turning Michael. CFO, our and outlook morning. you, you before Good morning, the and our conclude review the of Schaltenbrand, XXXX, Thank liquidity in the on for Nicole to comments

XX with quarter So weighted million to $XX short-term companies. and portfolio primary and period, $XX our were quarter add-on were for yield by XX.X%, increase period. million, for basis existing points results. in the Originations the to lifted beginning repayments last behind on rates which rose balance portfolio the for rebounded driver the million $XX investment investment $XX our modest the average investment ending Higher to million included by the so our to income. investments of total Amortization X%

rates. Borrowing higher costs up quarter $XXX,XXX with as increased SOFR well, the on

quarter. $XXX,XXX rose with management assets new unchanged interest margin fee fees million associated for However, increase deal fees our the X.X% of $X.X investment were at net Net credits as $XX.X yields. higher in to incentive offset million the closing or

quarter combination lifted our under and $X.XX. in appreciation lift and for equity increased to realized share million investment NAV to Net for undistributed per issuance the with gain and to of ATM income the by or unrealized XX% over earnings The period just $X.XX combined program the XX.X%. net million, increased interest $X.XX quarter. our at which share per income $X.X on to $X.X accretive for net combined came The portfolio ROE share the the

XXX%. dividend announced the the interest income, on or adequate monthly we which and earnings quarter's in by recently performance portfolio increase an last $X.XX of $X.XX increase annually, net covered Based margin

or investment, modest to quarter continues debt assets we in representing favorable with only nonearning at portfolio ended perform From value. leverage cost well and generally X portfolio the and and fair of with metrics liquidity X.X% $X.X a perspective, million our profile,

The as the to $X the co-investment depreciation net for in move debt of on $X.X several positions the equity under related nominal appreciation net million. at primarily was investment million quarter portfolio was

the you outlook I'd with our like of on of balance comments. leave couple to for a XXXX, reflecting In

market deal flows moderated, broader of see within further investment outpace expect to continue. and middle the continuing attractive lower and within the growth total, follow-on these While have portfolio. should investment our we're repayments investments portfolio will our market support in opportunities And

our the is based lower have grown mitigate our weighted senior on on secured EBITDA, escalations risk, debt underwriting yield potential service portfolio with loans, XX% nonearning to for continue these leverage erosion overall on associated rigor assets. and to X.Xx average of investments. interest the under the And maintained We've rate helps today, any investment and focus which activity issues our which

actively million, sheet floating modest our rate to to exceeding our to our target our investments would our quarter. additional just and further pace at $XXX portfolio. leverage rates the liabilities to and margin market balance the rate ATM range be expect to permitting, continue leverage up basis We we floating over conditions issue on under quarter, investment interest program $XXX,XXX XX floating be for growth our by this of points net manage within to our least With continue current equity an plan support up

provide call the to quarter. the the turn on financial to like I'd for details Nicole fund's to over some now results Nicole? And Schaltenbrand

Thanks, all. Bob. morning Good

$XX.X the XX% total prevailing assets. on earning on interest yield X% or to increase portfolio based weighted The the quarter, XX.X%, and that basis portfolio points with million rose increase carries rates. income increase rates rose floating floating March to in interest-bearing our of $X.X investment rates average the million the the on an XX the in in During

or million million to was quarter. was $XX.X or to the income million, income The X.X% compared quarter. portfolio prior $X million rose to investment $XXX Other which increased the up balance for $X.X X% unchanged average total $XX.X largely at weighted investment million and

ended investment offsetting which dividend the XX closing supported was higher $XXX,XXX $XXX,XXX of announced Total that by an $X.X management the credits to increase interest new quarter $X.XXX per fees. April. unchanged which or quarter to compared fees quarter-over-quarter $X.XX $X.XXX fee increase Net with quarter and expenses share, with the rose higher the prior as paid for expenses March incentive in were deal per million, share per per exceeded the was share income

from depreciation was as increase assets in per or the quarter $XX million XX, realized net share net by operations resulting valuation impacted March earlier. $X.XX The for Bob and the unrealized covered by ended

sheet. to Moving over the balance

to $XXX total March as $XXX cash million of to of consisting and million XX, value investments other rose As primarily X.XX% due $XXX million. XXXX. of million the of XX advances X/X due of the and and as May $XX XXXX, $XXX quarter, in $XX million under senior to notes notes assets and X million, March of million credit fair at $XXX of assets. And Liabilities of of rose line in of senior consisted our rose end

prior net of assets in unrealized $XX.X with million As share the from from quarter XX, million the ATM end by rose and undistributed issuance $XX.X common under our proceeds gains earnings. net March program of

per $X.XX of XX. share as $X.XX share from December per to XX as rose NAV of March

as quarter with leverage XXX% -- in the rose as assets net the the end of of Our assets. March increase to the of of of end

a the increased again $X.XX in per was effective rate will distribution, following stock and for Gladstone producing which May an the to current our common rate the The determine now to and for meet monthly common month June, run is is for per with about common distributions the $X.XX share. Board run stockholders of stockholders Capital's to of July respect common common per yesterday, monthly April, to annual At at about our rate distribution XX.X%. the distribution yield to $X.XX With share run quarter. stock distribution a price share of

And turn to it now back conclude. I'll David to

all And you. our did shareholders great informing company. and analysts thank Nicole of a of our and job Well, Bob you and Michael, about

In income, delivered increase million distributions good It's to $X.XX solid about share. now Capital. over to assets. about quarter very XX higher growth terrific. the doing months. X% company rate X% We're common leverage investment net Portfolio the X% company. This lifted of in quarter, and $XXX The $XX.X just rose of net to modest originations -- summary, from in is the at per another $XX past which in a million income the to years. it Company the asset low good nonperforming for for the Net XX million. is with and monthly support interest shape Gladstone

raise you and I dividend, out lending we the in up well, Nicole to, when area. it's find can a the sure Bob it and better not love get yield. I'm there anything XX.X%

of partners to to knitting our private supporting management large I its the This these gives the investing. loans its market which strategy equity support and to pay looking growth in middle to of experienced attractive support and company and an have for the good to the businesses. growth-oriented summary, midsized shareholder, are shareholders great investments are These acquisition to of teams. commitment make raises lower investing Many cash to that a being stick interest-paying funds they continues are dividend. when distributions joy business, us opportunity get ongoing In

you'll if and their talk come of let's and questions. on Latoya, answer operator, some now callers And to the

[Operator Mickey comes question with Instructions] from Our first Schleien Ladenburg.

quarter interest material deceleration inflation weak Bob, decline the pointing in in certainly in service about are and towards trends their and we GDP are With continue in how EBITDA? to And portfolio of the companies' their growth cash how in economy. saw in to revenue obviously consumer coverage? what first you was your you mind, to concerned seems terms U.S. debt be seeing that the ability

the but don't Mickey, focused positions on When have those our visibility, I'll to businesses companies that my most consumer-facing consumer we're at I'll and are with mouthful, businesses, premise, focused best. not -- growth-oriented do start be businesses. of understand and we revenue focusing look a businesses. That's you tend that competitive

relationships, commercial that start with visibility we are revenue So relationships sustaining. and industrial generally

under of that And leverage. that have expand. growth-oriented start you flexible is low be to prior quarters, on when they strategy, turns are investment The capital lower we piece businesses, leverage market providing with And profile. with we this we're tend our businesses we to commented understand do X.X I've start very to middle well a on second overall

we small, organically of start at portfolio And so businesses, when grow look the quickly. fairly does, may And oftentimes deleverages. our it as you will profile it while

$XX you give weighted a some XX% to our basis the EBITDA than And of at greater of the March, that, on end moment, of portfolio as average metrics has million. on of

companies, a of sized very small is most not leverage the and profile. reasonably EBITDA The portfolio, less They're the these under $XX So very and part, there the has half has attractive. similar are leverage balance than very overall of for companies. million

the So when in are we business, companies the roughly and we track, growing we've and companies, smaller profile obviously earlier for got half in have oftentimes, growth their are bigger invested of organically.

health be grow where not industrial, terribly might not same And while basis. technology Not These care, may competitive current we might be at rate differentiation. -- they from concerned might a businesses so or are that those have are about we're expected, the originally is really performance concerned. that where

deterioration negligible all my evaluations in seen as from businesses, indicated of those of I We've our comments. third-party

So again, where are. further affirmation of we

The our interest is of last today. PIK that our income pieces income. I would add, very It's on low the X% portfolio under X

we were this So accrue for if would the be logical portfolio growth business income. seeing to stress, some scenario

Our we've PIK as obviously, going the It's, gone fact, nonearning And our at even in up. quarter. not down from are the past, commented effectively has prior unchanged in assets the moment.

have charge most So math, today's the fixed turns liquidity pressures. if this interest run the part, that. We're coverage material of the going not for concerned. unless not at point, at rates, the of even are And leverage, you you're business. kind not have you seeing deterioration seeing terribly of X.X we to net a at And

Bob, your everybody really which And that I how is segment, understand to for specifically, issues. potential applies is appreciate of spending? helpful. I'd of obviously, is investments the watching terms largest that in-depth in a philosophy debt answer, are the to allocations. more the budget it your to given And these military government cutback your How X exposed aerospace like discussions negotiate in aerospace limit a

separate into Well, I don't know X what that falls maybe and categories. your defense, -- aerospace

is exposure, aerospace, that mix got you've the about large missile-related Defense. and in investments the there's feeding with of you've that The of primes, think and significant them you're also you the represent is a backlogs order And X rocket-related typically talk when referencing probably at pieces the and is moment. are the there armaments. that that bulk got that X NASA of very of and which I credit majority then pieces credit record fact, have of backlog exposure Department today

the for were Lockheed and if extremely And Grumman or of Northrop business, the or today. they you to Martin look backlog well larger some are at doing armaments missile

business the of $XXX that about a talking but companies we're with largest It revenues about be -- approaching to $XX concerned million. happens of We not about are also company. in X million with our it's exposure, portfolio

about that. not we're typically So concerned

The communications we years And that investment and technology in monitoring you was of other more that a components going down. next Has and than and that opportunities and incursions a we're strategic the business category warfare years activities, its to doing see see ago couple and of space. radar drones think significant number of the about electronic in that falls because made was when think in the continuing well. business can that not is something extraordinarily logically to EBITDA government the is doubled revenue is turn the about type

are and be seeing order new and awards. increased, It coming activities to we has new that in through

which we're in backlog, where obviously the the guess is I significant concerns. good in that we're reduces and So in near-term growing visibility sectors there's sectors are news

hear to Congratulations Bob. I'm quarter. strong on No, glad another that,

Latoya. question next Okay,

Our Raymond Dodd next question is James. with from Robert

we on give before Can a be you front? strong Obviously, needs pushed quarter. still have the the us -- draw think, question of expires? X the side. I from, to Bank. that to give before, revolving doing should October you're was credit period capital us just it obviously with but I that any liability the what this revolving another the on maturing on any on on revolver I additional there? on the you you facility Or color lot out August mean, to T do addressed the color can Or Congratulations year. you period expect

obviously list banks today that going top there's the that of them consider say facility, that to a the to address. in extend facility. on of would in diversity under Robert. of alternatives to be maturity we're have arrangement discussion that an we It that And believe diversify with some our will remiss not a we exposure. I to Obviously, way is on

investment time, I diversify hope the discussions continue over to think represent at to mix. we'll, we the attractive current portfolio, to be conservative looking we those balance term, sheet, conclude an liability but a maintaining a clean and opportunity longer shortly, our

you've support So that where our be But additional and structure. point, able at we're our concerned where are performer to any them. to to feel we're and it, We assets ideas, continue good we're is this liability stock we're and our not got given attract we'll of resources working in performing a open reasonable performing. sector, given the to part

some your X I Got leverage it. average go can following weighted if I are at I fixed Got charge ratio, a And Mickey's kind mean question, weighted get with to basis the sponsors? elements Even The it. across cash portfolio north PIK of average is there discussions where Or there rates is low. back under to in But the even then on the right with started of are point. interest weaker. can't color there? is to probably And any about I that portfolio, any Are have cash where average are mean Like X.X. X, now. it coverage shape? the any but coverage are probably there's of emerging portfolio means rates to portfolio on that just well weighted currently, got obviously interest coverage, you've on where the this? is to discussions great be is

smaller the idiosyncratic -- hurting. been, we customer would and I customer where isolated kind thing. no given the is a in given side customer have have of that always There where risks to market, the shifts say economy replace There's of a

of in expense. There investments growth CapEx. they of EBITDA There's all we haven't additional are need not through pulling So to businesses whether oriented. a it's so remember, whether ton that. And additional seen make to it's most -- it's interest are that these marketing, awards,

get capital There's businesses maintenance businesses. tend very expenditures reinvestments We not high. are in to involved in where the

I'll X and You because those don't that out of this of the cash see At very a give lot businesses is point, flow free of you limited. trucking platforms of business example. kind amount

the We restaurant have in portfolio. a

underlying You under continuing a atypical businesses. It is grow restaurant portfolio has us. is X leverage restaurant would very chain. large That think and to their that's essentially for

free down were? in they it's their extremely locations. new that flow but the And the making is they some Are investments at little a they low. point, leverage cash slowed No, tighter, just

can how based they to coverage So their platform. charge they their expand fixed continue on and want leverage manage their fast to

any that seeing at not issues systemic we're So for causing are us concern point. this

Latoya, ask would you and there's who on see come else question? anybody if to a us wants

it queue in like There to would I no back to this management closing at for further are turn comments. questions time.

That's a such quarter. shame. We had good a

us. until good you'll for end and questions, tuning some the We a up but Thank questions you good and that's program. maybe quarter of next for the of we'll wait all in, dream expected lot

does Thank you. teleconference. conclude today's This

You time, you day. and and this may great for disconnect your your lines a thank have at participation,