Gladstone Investment (GAIN) 2 Nov 222023 Q2 Earnings call transcript

Greetings and welcome to the Gladstone Investment 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.

Latonia. you, Thank nice you very good to morning That are introduction listening of that in. all was and This is David Gladstone, Chairman, Gladstone Investment. This XX, ending that is as for the quarter the fiscal ends XXXX. March second year quarter And we to about. September XXXX to you at are talk XX, the ending the get are hopefully as to are of and have all analysts that you the of good well. talking that us as and the GAINN GAIN registered and is we symbol others well to part two ask lots and GAIN about questions we shareholders are that All stock on, notes ready when as listed things GAINZ the we that as common and for

you calling So, all in. for thank

are here view phone two future. and on there is We last help in you to And a the current of to are always happy who provide call. goals to understand to give quarter updates the the what you also happened analysts shareholders and

we General Now, we will as start Michael our out Counsel, Michael? LiCalsi. always with do,

David. forward-looking Act statements call the those under may XXXX, regarding performance. Good include our Securities including Securities XXXX and future of Today’s the morning, Thanks, Act Exchange of everybody.

on statements we though and factors risks involve they forward-looking plans, believe current uncertainties other are and these So, to certain be based our which even reasonable.

website of cause of And to and our that SEC’s of We or forward-looking as the future the revise statements gladstoneinvestment.com, past Investors the whether XX-K including guarantee XX-Q, on opportunity statements, all new e-mail you Now, that’s note performance or we ask be our by which materially listed results market website also no by except for we law. any these our is visit update any We otherwise, any again, undertake not future publicly is expressed website gladstoneinvestment.com a documents may that actual Forms SEC. sign-up a service. our or to many different factors take them required results as filed information, or to risk information obligation our Please events implied page www.sec.gov. from forward-looking once any the result results. find or future other on with factors notification

on on also call an can through find X/XX/XX. @GladstoneComps us of Gladstone and Today’s Twitter our keyword, overview is Companies. The Facebook, simply You results

So press and information. we both detailed will yesterday more With turn that ask it that, Dullum. you I review Gladstone to release our XX-Q over President, for Dave Investment’s issued

previous year another challenging good to a everyone. Mike, for quarter thank are fiscal much We clearly and good we costs. Again, Hey, you ‘XX. Welcome. fiscal quarter inflationary GAIN that follows morning, This rising interest on in very rates had and pleased are of report the the with year. first period solid

ended year X/XX/XX. million, our NII a per of And we fair at fiscal to meeting which $XXX total However, say challenges. which result, investments these $XXX second were was of from $X.XX as share X/XX/XX is value on ‘XX, quarter portfolio are companies of happy up million the at with adjusted and

investing $XX good activity made one million. was this as acquisition and Our deal we fairly quarter new

invested recapitalized also companies. portfolio and We of million $XX existing our one

to recognized company this with our of return increasing settled debt equity when a thereby We $X.X and success the dividend million. million, Now in in investment, connection million. dust million $XX.X of fee investment we of $XX our $X.X preferred received and investment of realized that received income gain a

we should to note were portfolio fee that company. indeed generate So will in I able for income our again, we recapitalizations from and opportunity to have investment actual time gains, increase time. this capital

our other the investment generate we company, to and management business. income increasing are generally Now they as capital know the while team where events these and positive a us in allow gains clearly

So, it’s opportunity. good a

way and create for expensive relatively and meaning frothy value the still therefore reward a within market good buyout us shareholders. competitive, to is the With pretty portfolio this

to we our – Now fund X.X% end, the $X.X invested to increase per to million share acquisition per add-on monthly an to a to me, announced end, dividend $X.XX quarter $X.XXX in portfolio additional of annual our excuse the up companies. run-rate of share a new quarter one from an share. we for subsequent Also subsequent per $X.XX

recognize we supplemental be anticipate – currently fund realized $X.XX December distributions on me, realized per cap excuse as do. a declared exits gains might will we to and potentially recapitalizations that the Additionally, XXXX. in from equity other supplemental this which distribution and future of able We share, of being paid comes of we portion future gains

to strategy income generate bio-focused on capital distributions. gains successfully for continues shareholders both Our distributions to from equity and supplemental monthly

valuations did of experience increases was in valuation and decline in many a this we even declining aggregate portfolio portfolio our though result our small primarily of had the in at as across multiples, a EBITDA companies. we Now,

liquidity add-on position you with and more facility balance strong Easton, a near a availability and to Our leverage sheet from will continues significant positive with be lot about very this actively companies credit our opportunities financing Rachael loan CFO. hear new This acquisitions our seeking support providing allows us if buyout to and our growing the interim for and need to assets. continue portfolio arises, while

strong the very multiples competition. even our buyout there significant funds, to market the flow the competitive of buyouts, used be still with values is forward, being looking in deal liquidity moderation course, does So and being seem though who of some to determine is in

acquisition diligence and We existing new us. priority with while review high very acquisitions our know will for implementing appropriate. due you and a patient in is aggressively I remain recapitalizations the will process, let companies is seeking as portfolio important selective and and new effort that

we up forward, very is our quarter and So the portfolio looking good. in believe state summing the of

and active of a good over level of balance and activity and have year. sheet strong prospect next We the liquid continued buyout distributions earnings

that? would Rachael, tell of you a all detail more bit about us So little

net year the In prior income XX, of second will September $X.XX per Absolutely. Thanks, $X.X from operating or I the summary share. in This million share start million $X.X of with adjusted the quarter. XXXX. David. $X.XX or the fiscal fund’s Good morning. quarter a generated was up we for performance per investment quarter ended of ‘XX,

that We investment was net prior an useful capital adjusted well million in in $XX.X increase increase of to million net adjusted a gains income debt increase current an by the increase representative operations. is well to $XX.X investment investments NII rates. quarter our the continue believe income, based total in which interest any indicator $X.X a investment $XX.X in The was is income, in to and income of decrease million to $X.X million expenses impacting prior incentive exclusive fees driven as the to we The ongoing increase an total compared in saw million in LIBOR investment as in due from primarily quarter. as quarter, as in net

Additionally, in one status this quarter. had interest accrual increase that income, driving company was previously portfolio on the back on come we non-accrual

non-accrual portfolio elements and capital losses success. key unrealized GAAP. of to believe net status decrease are maintaining that remain on if continue was a U.S. our And flexibility $X.X with impact we on possible. gains-based in portfolio liquidity support to two required The and to decrease forward, as will of Going in by grow primarily companies net working expenses million the there This companies experienced status. those incentive accrued our are We and was back under gains realized we accrual that get driven and due fees.

We XX, million had on our million have credit capital at long-term XXXX September facility. and $XXX.X place available in $XXX

with common we asset leverage NAV. Additionally, XXXX coverage $X.X our approximately program, new of Overall, net which XXX.X%. an in under above proceeds low all is raised million our at stock sales XX, ratio September ATM were of

$X.XX paid of the to $X.XX of Board million and XXXX, investment Consistent at compared offset using distributable to increased per amounts net prior monthly $XX.X new common be of mind, paid during our in shareholders distribution in decrease October a These year, to distributions in announced per $XX.XX unrealized monthly per the of XX. prior With share and net September distribution remain quarters, per share previously share as earnings declared distribution realized investments. per December our quarter Directors primarily The $X.XX year driven this this on and of our $X.X may that run-rate supplemental million and distributions was the NAV in were the supplemental income year with and strong. the appreciation in per $XX.X year, share to million what declined to gains million This $XX.XX per is per indicative book by actually the to share that $X.X and paid of share of be Our noting shareholders. share $X.XX for not quarter. by of year. per partially declared declared run-rate so for maybe far ultimately

my covers you, of fiscal $XX.XX. yesterday’s part common Our Back share per call. closing price today’s about or distributions yield David. year using of This total would a of X.X% to $X.XX

shareholders. in the attractive returns most X% for for company of am of position Rachael. shares. take income. to XX-Q of shares successes Thank believe lot these all and It and that and everyone as continue you company show call as well getting and good We return, the The monthly some Investment of Dave I is yield you Gladstone other you Michael gains to SEC company. an strong the hopes days. are to nice other of the capital you. and as telling I price remainder of hope investment potential care Very solid you XX, and will in our broker the ending at The distributions on we from the for team money funds. year a stock we and great us, given your we strong supplemental as Very the your quarter up-to-date well investment filed over fiscal continuous team and know through This bring continue seeking with our March call have the team distributions yesterday should to nice, a reported has in here these results your is the very this believe good the get was information XXXX.

to will us stop do to give So, our shareholders a analysts, and answer. will and ask some best and maybe questions Question-and-Answer good our we friends now you I we am Session some to ask going

[Operator Instructions] Mickey question from Schleien Our proceed. Thalmann. first comes Ladenburg you. Thank with Please

them rising how in driving interest perhaps and potential in terms of the sell headwind their headwinds you everyone. you ask also to have rates from are for that about about behaving a interest owners think in a of them recession? we to In words, than bigger other you more wiliness to morning, past? pipeline when and have businesses the their the Good business wanted perhaps providing selling is Dave

to is. Thanks we that that where probably there are succession are been And has and down somewhat pure that as, in like a come honestly seeing bit we I that. what of such move Mickey. there have you few Hey, to a as the into I can’t and getting say the what And degree. off question. tell are for or sort Good of not we you unless we actually diligence slowdown and started this there had values are it. that, morning. variables forward. that Obviously, of controlled result that you family-owned into and get other really would sellers back a when situations a finding business

So to love it there value is it’s sell so stick a that rather would bit your to where try if of with to point, they not would it, on. and at they but a

we other be flow – improve they to the – they more would obviously the the can as still exit But I of I keeping exit, private to helping at regardless. looking need really deal point you higher of support. And wouldn’t don’t is still to those frankly. they valuations I say then if of group mentioned, capital a seller we is will than in enough where sort equity that’s value if frankly that, said they firms and having there at that are And going are are other some that demand, regard. all So that, think

a So net-net, struggle. it’s

fundamental includes economy. sort are businesses on Okay, I your that. portfolio companies of the that many appreciate U.S. focused Dave,

or give developing – and you some as So if revenues this interesting are that well I understand their is Fed sense really be of the tightening their would couldn’t to you margins think given how all doing? it just if

are we a feel say of bit slowdown. So, just would little to a I starting

I of As manufacturing, them, don’t services business think know, of have three is I call consumer. sort the especially industries, and categories, we you categories, necessarily what

finding around categories on now. I say said are costs container to back that way And type actually We $X,XXX Even frankly, clearly prices chain on unemployment. supply of certain of good be bit right moderating starting not the the seem then side, a were have the back challenges which impacts seen $XX,XXX $X,XXX challenge the though for in that think think to quality that Also are or the more a would are what’s slowing that that from, we are argument which struggles to those in manufacturing now side, Far that’s But you little labor. China robust labor, be say, improving. looking sake a to a that bit of with bigger are and impacts there we The of bigger dealing to folks see that’s ago, and are importing. per we little I months labor also. obviously, have the side, normal price the continues $XX,XXX in were demand really kind And for of more business pretty know jobs, bit six slowdown that consumer East, container services those cost the we cost. where not is having clearly on importing companies

are we improvement there. So, seeing

So, across slow in nothing to little say I dramatic regard. the board, bit, a that it’s starting would but

their terms meaningfully looks in you all forward interest ratios think higher at ability fund and quarters? and do next those rate curves, what ability coverage have and have company’s to service to couple when you the rates absorb of Dave of just about you made over And debt it of what level you the regarding comments, their like interest interest look cash going concern be to

Right.

know you are floors. plus deals and with our the as structured way LIBOR currently a So,

category We the have at we are are where been you floors, we floors if always much above will. in pretty the our

a increase over with And have of so see to what are now LIBOR above an they been increasing, and bit we starting paying.

floors XX%. say, you speak our because XX.X%, been because our have as total high is to I the relatively yield on So, so portfolio know, would

big not we an are So, seeing right now. impact as

are we The of to if to reduction have have with non-accrual have a of obviously we bit that of to past not give came our off flexibility own deferral way or of which which so and actually be that and But from thing. the because other tight, if way companies. which companies. been two in time-to-time. right said, thing we a companies on a are we have for we while, with big things that those we really problem all know, had in portfolio little companies, to is do non-accrual, now, good these very – we seeing We obviously, which some non-accrual the as the which as were needing speak one these hard And capitalize we slight in any in a got two are currently help a our that on company working Rachael the a

But months going good so frankly driver next not sure. that’s chance, nine affect sometime results six not non-accrual, think the of forward. to huge, the other our I would to one very them it months come off in one will a

sort period Dave. that housekeeping weighted points, appreciate only average portfolio’s of questions, last increased XXX questions. but basis of LIBOR Couple basis during XX I climbed The yield points. that more

just LIBOR You high there change I LIBOR your else that talked should were floors that for accounts that understand? or floors, about is so something that

right are there. you So,

X% to Our generally around X% across portfolio. floors the are

that see well. yield continues LIBOR we to lift as increase quarter, should now this So, as

Okay.

in comfortable the if of last the just are question see middle than current what of view market. on balance floors debt-to-equity You or are market sort leverage, with your what’s is my that in higher sheet you environment? typical And level

that’s comfortable that about are we at with. and are I we level now a think XXX% Right

our million out on are We credit. of line we at have about current $XX –

I we of metrics. holistically don’t at were have there. that. leverage to lot our a conservative business looking we it at And room think we So, our look structure. And But and we are think capital I change our in

acquisitions be some making out. Yes. we Rachael as look the we news, this will as have is And good we and start, the year, capacity. new pointing hopefully, obviously, That’s forward

say, to In XXX% I where terms we look it. is probably get nervous, be it kind range would of in the the to start at sort ratio, would we where around we start of call if leverage of little start a to

you and we were an As this raising program put until of year common aggressively, raising we know, in were moving in earlier stock ATM not prices started everybody. but we for course, down

So, clearly are to we are back we slowly about now.

little We bit are a now. below

said, forward we new balance as But from any think gradually forward, reinforce add Rachael that level are of and be certainly go sort some prices, as even perspective, up, now So, to common, and as we perspective, acquisitions, not capital some sheet raise probably we going will the next shape as and it we with leverage my we hopefully that both move we right certainly in we look new are will a match in of up acquisitions halfway year would stock this right thinking. as start equity are will and really to we with good to prices – look from back forward shape, at decent now, through That a good thereabouts. pretty we be making.

your me as for morning. it Thank time, That’s I you. always. Okay. appreciate this

Mickey. Thanks

Thank you.

So, question. our next

question with Joseph Jefferies. from [Operator Kyle comes Please proceed. Our Instructions] next

guys thanks morning my Good taking Hey. and questions. for

see the competitive our then would you be in Just capital for curious buyouts, the in some rise, guys. the you disruptions of competitive terms And on your to of commentary kind rates of continue regarding ultimately priorities, focus in for middle add-on acquisitions outlook near-term terms if there. things remaining market what you allocation

Yes. to good talk to Kyle, Hey, you.

making we So, some have those. add-ons, of yes, been

we one that to on business. of continuing added we quarter, past companies this our and grow mentioned to we are As portfolio

mentioned, some us add-ons. of way that’s to that are recapitalizations I the sensible, another with good good the We us for it. That’s are to do way for companies looking as do for aggressively

leverage certainly rates In words, In are other there what impact for the equity for getting rate clearly funds, them little terms declining around for even. to of it’s rise, competitiveness, leverage, being get that think. where so is starting meaning is are is them as made competition, the we tougher the the a available private our see we traditional the bit, they for getting to

total mean So, it’s – that because with are thereby we right, package. that more our bring the own us we should leverage competitive and we

but having frankly, also are that, on more equity. we some We of equity is being aggressive just that, the seeing private firms, said seeing are what

So, less deal. And in more other equity will the down road, lay that words, they putting regard. in they that’s are the thinking leverage, in that some off presumably

it’s are So, the And it struggle, seeing, not not it’s doesn’t we answer a way still our really model, for would some are and we multiples to the pay work short that still be, the to it’s competitive. of going go. right because

do will keep And will we we of but job this to make. we make I So, a while us to take being good year, a like acquisitions patient. to it’s think kind going would the

for it. helpful. question. my Thanks answering Very Got

Next question, please.

questions closing if any so There at for comments you Mr. Q&A have further time. End are Gladstone, queue no in this the of group?

we on that’s this like missing Well, are said, out we so questions, good one.

in questions, have hear wait the next till will Thank time. hopefully for That’s you to really of in. tuning all some order end this. We next strong to quarter

This you. does conclude webcast. today’s Thank teleconference

a day. You great and this lines time at have may disconnect your