Gladstone Capital (GLAD) 6 Feb 242024 Q1 Earnings call transcript

Greetings, and welcome to the Gladstone Capital Corporation First Quarter 2024 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. David Gladstone, Chairman and CEO of Gladstone Capital Corporation. Thank you.

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XXXX. so and David you you call good everyone. to December morning, Gladstone in. for Well, always We're and much, this is happy XX, Erich ending of hear from quarter that our Gladstone, share information your for with to conference you is and This some all and company Capital need he'll calling company and you you General you course, Bob thank Counsel, talk the Hellmold and Thank before about this the we'll and for tell earnings get Erich. listen started, go and know Assistant stuff to ahead,

XXXX which and Thank involve Act include Today's Exchange are be statements regarding the and may of plans, good we or XXXX, these may believe to our all with including of actual and future risks forward-looking and results our XX-Q, other statements, report based file different statements the morning. risk implied XX-K any materially forward-looking results you, upon performance. These we documents expressed current by Forms those including factors future Securities under our cause in David, that forward-looking uncertainties our certain from factors SEC. Act be the Securities reasonable. Many to

information, website law. forward-looking otherwise, on by new result SEC's can any of where can revise up Those the as of to statements, future page www.sec.gov. for required except service events be as publicly whether a found no on also obligation sign you or or e-mail Relations website, www.gladstonecapital.com, We the these or of our update Investor our undertake notification at

information. ask review website. our page those and Today's Again, of Investors results, press of detailed our can yesterday issued so overview release call for found be the that more is on you we Form XX-Q our an

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

for highlights in some regarding this last balance for the comments the morning. the Good outlook I'll cover you dialing all 'XX. for quarter morning. Thank and fiscal of

over our Nicole to call for the of Schaltenbrand turning the the details review results Before to period. financial

So portfolio rebounded and beginning existing one last with totaled companies. several new originations $XX including company results, portfolio and quarter's our million, quarter last

resulting be originations modest, million, on was average costs income issuance our million in $XX for the total amortization period. million Repayments debt portfolio yield SOF portfolio assets bank decline lower interest totaled September $XX XX.X%. a so in quarter average slightly continue given $XX combined consistent declined to with so our borrowings the placement. which the Borrowing with also Average and quarter. earning were to Short-term the declined at our the rates unchanged, equity period net X% weighted for investment for in

XX net and the by X.X% $XX.X Higher months. a for the As per over $X.XX million rose for X.X% interest net XX.X% the ROE quarter realized interest portfolio net advisory our result, for The lifted which million, to to to credits net and million just income last the our lifted quarter. improved unrealized in period the the fee originations totaled $XX.X income gains for and $X.X investment income XX.X% or share.

quarter With assets with XX% and at well at X perform earning representing portfolio of cost representing respect portfolio, with debt million ended the continues or $X.X the fair to senior we of value. our portfolio, non the to asset only X.X%

of a small compare most portfolio headwinds portion seem our to where prioritize monitoring consumer-facing sectors, prevalent which portfolio. areas is be mostly in to fortunately continue which our revenue to We be

leave quarter's sectors is you our 'XX $X.X an a supporting to for performance equity net and reflecting million. of deal of investments the additional of Depreciation fiscal And I'd quarter on incumbent certainly was appreciation industry demonstrated by activity an our debt led across million near-term of with. contributed totaled first variety the our million, of of outlook, businesses quarter the co-investments $X.X in benefit position $X.X comments slow Last the appreciation our growth-oriented otherwise broad-based while like a our which environment. few deal

short-term are as expected PE extended periods are with improved, seek we new expected flow to along assets. decline supporting are for to liquidity a increase and their their or continuing and ways capitalize generate to to PE seasoned over said, bring grow of the dealing has investments to the performing potential grow to sponsors to hold more expect with prepayment our we and balance and That businesses well originations as interest to their market activity events investors. more know investments deal year way sponsors rates creatively low-risk --

ended the our leverage bank credit of ample conservative at NAV under XX% with position just availability bank We a and quarter facilities. --

positioned our continue of So to over fee our income to distributions we're assets very and well year. the balance to grow earning shareholder the support

to over financial review detail detailed call the the fund's -- turn results. I'll to now Nicole And

Bob. Thanks, Good morning.

September or the earning yield The the million, The to average interest-bearing was in income quarter. $XXX,XXX weighted to consistent During the $XX assets. small weighted balance interest average on X.X%. at which investment portfolio X.X% based declined total average million quarter, down $XX was compared the decline $XXX or prior fell to X% million on portfolio

for Bob or by by investment in higher covered earlier. was management income the for by operations as expenses with The per resulting the per quarter. fell credits X.X% $XX.X and share quarter to fee by $XXX,XXX million, compared ended average million $XXX,XXX $XX.XX valuation prior realized of an was income and reduction per December net dividends or quarter-over-quarter which and December declined share, increase $X.XX $XX.X million share impacted net the the financing quarter by Other in from million unrealized costs paid. exceeded deal fees was for assets million investment closing which $XXX,XXX $XXX,XXX quarter as to advisory $X.X $XX and declined $X.X XX XX lower borrowings. in increase the declined $XX.X the from depreciation Total ended the total income or Net net bank

Moving over to balance the sheet.

$XXX $XXX value XX, As in December Liabilities assets with $XXX of at and of assets. and of credit as of and and million investments of to XX cash $XX total rose of fair in quarter, $XX consisting originations million other million. rose net advances under notes million million, were the of end consisted the primarily $XXX as line senior $XXX December of million our to million

quarter XX, rose $X.XX of as XX end, from per net $XXX the $X.XX As to undistributed assets investment of per of NAV with million rose September December earnings. as share from and appreciation share prior to December XX. X.X%

end the the with syndicated with to asset Subsequent we asset growth net the to prepayment assets. small of a second XX, XX% as a the $X quarter leverage of rose million had growth Our of of December an investment. and of $X.XX debt common is our March, distributions, distributions which the January, With per per run common lien for rate to of stockholders to announced of February monthly share. share month respect annual $X.XX was

for David common rate a to now $XX.XX distribution and rate X.X%. about the of our Board to common determine quarter. meet to conclude. it stock stockholders distribution is monthly per And the following the will distribution At price with about yield run I'll turn now The back April yesterday, stock producing to a at share in for common

a all did very you so a you you great Bob did and Nicole, job, good and much. Erich, job. Thank did and

that the our follow stockholders company. and informed analysts they've So

you XX-Q we're yesterday up call much about this shareholders with making So on. everything pretty report filed to a at your to that brought in got date going that

in So another solid just it's summary, quarter.

it's Sometimes have when quarters. borrowing we profitable but that's nice pretty pretty boring,

current X% last common every by performance the gives income investment over portfolio love really when value increased net goes the generating the and Strong increased the distributions. net asset it They I portfolio that It good. quarter. over That's from quarter. dividend. our coverage us and X.X% it pay the net helps up quarter, prior by appreciation good

of a returns XX.X%, coming assets business the the as sheet The XXXX, good favorably our compares the growth. company portfolio very balance companies which support for also with further shape leverage whole very development and well the Glad is other modest positioned and For group. nonperforming strong year low very in achieved peer to equity with in is on

In teams. for distributions. This I'm now here in. anybody support with going us to gives make cash the stop loans attractive that lower market strategy by growth that summary, investments profile supported funds are stick commitment loans continues see paying they middle of for question investing investment acquisition paying invested to an support there's the an of management equity business these experienced to these opportunity the -- businesses today. has its partners looking are are of to with pay if private to that a group company good our and operator Many midsized which in ask growth-oriented and ongoing the to that on

[Operator Jefferies. from Joseph of Instructions] Kyle line comes first Our with question the

your been have lower get where Bob, markets sense Obviously, but in a just been just to on deals. kind spreads Obviously, have be public track middle insulated market. thoughts a seeing get to credit we markets terms of little strong. of been going very more bit tend or the lagged, want in spreads new for you've

million initial tend lot most last not part, compression. $XX have to we point compression. of which there's really for a XX yields. where to the the don't, will level $XX is sponsor-oriented in of overall size, see be some point, definitely occasionally this I grow, capital from and would spreads at see as we basis pricing we say, million deals, upmarket Kyle, And In consistent But our range. us. there in investments, quarter, commented that moved with reasonable the

at rates interest leaves that relatively Certainly, high level. a

like, That's seeing are those market that in now. But as this right robust at point, So not of exactly to we're is where seeing the as not the way but deal pricing we'd today. not compression spread not expecting compression. flow obviously we're rates is People really down. just come much

growth in a higher do Got for in performance, then non to but growth line the EBITDA Very to the obviously, of -- top your were face accruals And quarter, and rates just companies credit get the on and it. how well ongoing continue margins, sense helpful. stable inflation.

mix. it's Well, a obviously

on some certainly increased big assets a As I was of are where higher part investments some said, looking performing probably XX% performers little there's funding XX% more lifts. definitely which our we a EBITDA headwinds. those quarter, bit There's to the and at in

X% to low digits, was you at EBITDA X%. slightly portfolio If look at the roughly overall, single down

definitely to level headwinds, discretionary are Those say are some the anything sectors be to those be business, in it larger health smaller as the like our is where restaurant in cases. of more I've business, anything would consumer-facing care challenge. And is There the would be in sectors. which more impacted second lien credits. where the said tends past, where tend exposure, in most some there those be challenges exposed will there's places I sectors certain in that

And leverage our on portfolio our portfolio. for average significantly second lien in below the average, our is

second lien X. average is Our leverage under something

So in where we we see the be credits lender. senior headline the the pressure, smaller to credit tends it as control where

So in defensive pretty shape overall, cases, of risk underlying Expecting improve. would still things the manage modestly lender we on senior are and consumer say the profile. But the I businesses. we're most those the portfolio of to good to side

The turns overall under of runs EBITDA. the X just for leverage portfolio still at

we've So some value. enterprise cushion got to in relative those cases

Very it. Got helpful.

from Our Instructions] comes question Raymond Dodd the line with [Operator of James. Robert next

Zupas you others the those Congratulations I million, I million I can I portfolio chunky can color that existing And to reserved several think us are like on mean originations? on general. $XX on of were quite another there in -- some the and mean quite characteristics quarter. at If excellent large. $XX you were Bob companies. was more give had

can recapitalization, portfolio companies else. by that So acquisitions anything give us add-on was color, mean, you I those any

number sometimes large a ones. we see than more of It's a handful of add-ons big rather small

of what So where you us the give any can color those size follow-ons? about the drivers

think the happened we in Well, was and range. in lender, actually to the part, so grow big down. went additional the Zupas for to in mean brought million were had We other were And million large. it since I the lender once ones, quarter. fundings continuing most $XX the the up getting expand. we there in is, the and another -- somewhere is $XX follow-on And that company to bring I

credits So of In below went very still cases, it in. where other One point was the both we gotten ALS prior low. went that X actually and were today lead were we up in those leverage quarter. is up. had are There

well and value under In loan manage X. under to XX%. -- And distribution, not is hold take case periods it. sponsors reposition very One with looking and to looking fact, transaction to leverage that in was extended well decided sell part our of escalated to approaching a valuation their a the were

So that most There total in of those But in were million a on were investments notable that -- ones. of out couple those couple there turns opportunistic the those fundings. of above consequence of part the be think the point in were at that It capital of the happens I to sponsor. total that positioning was by $X where were dollars others -- to most putting probably a only assets range. case of strongly were the any performing companies. represented of it portfolio dollar X was Those additional we million the out were just

when to where sidelines are wants they some interest the kind Nobody are of now. market are on of the their the take company rates to right and buyers

portfolio improving, year. prepared year. you're remarks the up by goes you're your follow-up. there's Got as going well, maybe it. rest on mean, activity is that from the What's Understood. position here you later the of over going comfort mentioned given And the you deal activity your be it to well. you to expecting accelerates for like talked level I to that growth about prepayment portfolio the year-end flows, in more also be as in I Got it. mean

us I how flat? combined color? more ballpark on flow, to at like mean your you some thoughts increase deal up the what prepayments in to look year-end in going think out work you how give can could portfolio that's increase Any with

if likely that. of prepayments the come million, this or we million maybe Prepayments prepay. investments And to it's is predict. virtually to see $XX toughest we I outpace there's decent-sized pressed at probably pace originations probably $XX $XX somewhere those to in, to between X mean, that point, be the million, to X are thing growth going

in we've million past, $XX generally to quarter. grow think million I targeted a $XX range somewhere to the of the in

you're in or of closings of range quarter X X the amounts deals X get fairly million similar When it's the to seeing normal. also a number That's unheard a talking we're playing. we're in is about, to $XX if deal back are we're market dealing that going up. where and million or that take with So prepayments, to X $XX deals unitranches normal not quarter

deal look at market doing back origination originations running $XXX So to you year I doable. think in if was certainly the ] [ our gross history when per $XXX is

the But us the conservative every where net XX a that is around number sure less want capital slide base. most above to grow not. going we're than continue current cap we for feeling million below good billion-dollar which our We Is and out I'm I and million. funds in to on anything really to putting say, to think conservative to happen large-scale for quarter? slide out the will $XX in which I So assets. given pretty also don't to tend tend the it's SBICs, $XX part, we are put

to And on we million $XX $XX are deal code that to So the that a think, competitive pretty shape profile. are, mix be few other we down. may likely expect with originate. compression some I continue happen may rates come at we bit coming a as little a to more second paper little And down, the spreads positioned rates in lien change But that's guys ZIP are if size good there. pretty obviously there's that out the I of which will well in it's to of million, to negate a look bit.

minus of most expect quarter in a the is But net XX track I record asset that we've I for for a the record, and 'XX. track plus still a part, think averaged balance or growth would

Ladenburg from Our Mickey line the Thalmann. comes of with next question Schleien

target below your quarter, of target in running a your leverage expect climb common the the following liquidity? the to or your on economy Bob, been your invest that Is issuance balance do because your you sheet leverage bit the else? purposeful September level. something as level little view has share Or towards you

Mickey.

And volumes and We've strategic stock that X to doubled and holding we did. issuance. the to when institutional think will of the that factors our up, the count to coming felt result our always have institutional float share they had appropriate note long-term there's in objective as I flattered take advantage. One, in the buyers it increase a there. institutional shares, a were we you to probably showed they that that

investor and was So took We good flow stock us. of strategically, the for it market for it. base the the in advantage

second I in unsettled think in were the to were position strong Bank market a base. summer. the conditions our is we a to capital wanted where little be we relative

going equity the felt on a more strength viewpoint. we gave little that So in us long bit

increase allow continue that and where obviously of say, structure to base to towards equity above to and look a yes, rates strong going us maintain start fixed We're level to we're right or coming the the level I capital contract the are at interest very maintain a probably would continue with to is Lastly, for to spreads now. to our much of to as on cost put it leverage our capital we optimize today. will assets skewed allow Having coverage try dividend to us dividend down. going

grow with the to months. into leverage higher next level XX that of assets XX we'll So over the course

That's helpful. very for me. That's it

floor question-and-answer and to for back final Mr. Ladies turn session. concludes comments. that I'll our Gladstone gentlemen, the

it we you conference That's few questions. some next very I ask wait calling quarter Okay. when this but more wish we'll you I appreciate all end more in. get much. call. We had Thank you questions, the to a for like of questions.

This call. concludes you. Thank conference today's

for this your disconnect your at you lines time. Thank You may participation.