Yahoo Finance Gladstone Capital Corporation (NASDAQ:GLAD) Q1 2024 Earnings Call Transcript
Gladstone Capital Corporation (NASDAQ:GLAD) Q1 2024 Earnings Call Transcript February 6, 2024
Gladstone Capital Corporation isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Greetings and welcome to the Gladstone Capital Corporation First Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [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. You may begin.
David Gladstone: Thank you very much and good morning everyone. And this is David Gladstone and this is the earnings conference call for Gladstone Capital for the quarter ending December 31st, 2023. Thank you all for calling in. We're always happy to talk to with you and share information about this company and your company. And we'll get started, of course, and hear from our Assistant General Counsel, Eric Helman. And he'll tell you some stuff that you need to know before you listen to Bob. Go ahead, Eric.
Eric Helman: Thank you, David and good morning. Today's report may include forward-looking statements under the Securities Act of 1933 and the 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 the risk factors in our Forms 10-Q, 10-K, and other documents we file with the SEC. Those can be found on the Investor Relations page of our website at www.gladstonecapital.com, where you can also sign up for our e-mail notification service or on the SEC's website, at 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, issued yesterday for more detailed information. Again, those can be found on the Investors page of our website. Now, I will turn the call over to Gladstone Capital's President, Bob Marcotte.
Bob Marcotte: Good morning. Thank you all for dialing in this morning. I'll cover the highlights for last quarter and some comments regarding the outlook for the balance of fiscal 2024, before turning the call over to Nicole Schaltenbrand to review the details of our financial results for the period. So, beginning with our last quarter's results, originations last quarter rebounded and totaled $58 million, including one new portfolio company and several existing portfolio companies. Prepayments -- repayments continue to be modest, which combined with portfolio amortization totaled $22 million, so net originations were $37 million for the period. Short-term SOFR rates unchanged, so the weighted average yield on our investment portfolio was also consistent at 13.9%.
Average earning assets for the period declined slightly, resulting in a 1% decline in our total interest income to $23 million for the quarter. Borrowing costs declined with lower average bank borrowings, given our equity issuance in the September quarter and debt placement. As a result, our net interest income rose 2.3% to $17.5 million for the quarter. Higher net interest income improved originations and advisory fee credits lifted the net investment income by 8.6% to $11.9 million or just over $0.27 per share. The net realized and unrealized gains in the portfolio for the period totaled $8.1 million, which lifted our ROE for the quarter to 19.4% and 14.9% for the last 12 months. With respect to the portfolio, our portfolio continues to perform well with senior debt representing 73% of the portfolio, and we ended the quarter with only one non-earning asset, representing $6.1 million of cost or 0.4% of assets at fair value.
We continue to prioritize our portfolio monitoring in areas where revenue headwinds compare to be most prevalent, which seem to be mostly consumer facing sectors, which is fortunately a small portion of our portfolio. Appreciation for the quarter of $8.1 million was led by the broad-based depreciation of our debt investments, which totaled $6.3 million, while the net appreciation of our equity co-investments contributed additional $1.6 million. And reflecting on our first quarter of fiscal 2024 performance and our near-term outlook, a few comments I'd like to leave you with. Last quarter's deal activity certainly demonstrated the benefit of our incumbent position is supporting growth oriented businesses across a variety of industry sectors in an otherwise slow deal environment.
PE sponsors are dealing with extended hold periods and continuing to see ways to creatively grow or capitalize their investments and supporting performing businesses we know well is a low-risk way to grow our assets. That said, deal flow has improved, and we expect new originations to increase along with potential prepayment activity over the balance of the year as short-term interest rates are expected to decline and PE sponsors are expected to bring more -- their more seasoned investments to market to generate liquidity events for their investors. We ended the quarter with a conservative leverage position at just 83% NAV and ample availability under bank line -- our bank credit facilities. So we're very well-positioned to grow our earning assets and fee income to continue to support our shareholder distributions over the balance of the year.
And now I'll turn the call over to Nicole to review detail -- the fund's detailed financial results.
Nicole Schaltenbrand: Thanks, Bob. Good morning. During the September quarter, total interest income fell $300,000 or 1% to $23 million based on the small decline in average earning assets. The weighted average yield on the interest-bearing portfolio was consistent at 3.9%, and the investment portfolio weighted average balance declined to $658 million, which was down $11 million or 1.6% compared to the prior quarter. Other income declined by $300,000 and total investment income fell by $500,000 or 2.3% to $23.2 million for the quarter. Total expenses declined by $1.5 million quarter-over-quarter as net management fees declined $1.2 million with higher deal closing and advisory fee credits and $700,000 in lower financing costs from the reduction in average bank borrowings.
Net investment income for the quarter ended December 31st was $11.9 million, which was an increase of $900,000 compared to the prior quarter or $0.274 per share, which exceeded the $0.2475 per share dividends paid. The net increase in net assets resulting from operations was $20 million or $0.46 per share for the quarter ended December 31st as impacted by the realized and unrealized valuation depreciation covered by Bob earlier. Moving over to the balance sheet. As of December 31st, total assets rose to $767 million, consisting of $750 million in investments at fair value and $17 million in cash and other assets. Liabilities rose with net originations to $349 million as of December 31st, and consisted primarily of $253 million of senior notes.
And as of the end of the quarter, advances under our $234 million line of credit were $85 million. As of December 31, net assets rose to $418 million from the prior quarter end, with investment appreciation and undistributed earnings. NAV rose 2.3% from $9.39 per share as of September 30 to $9.61 per share as of December 31. Our leverage, as of the end of the quarter, with the asset growth -- rose with the asset growth to 83% of net assets. Subsequent to December 31, we had a small $3 million prepayments of a syndicated second lien debt investment. With respect to distributions, our monthly distributions to common stockholders of $0.0825 per common share was announced for the month of January, February and March, which is an annual run rate of $0.99 per share.
The Board will meet in April to determine the monthly distribution to common stockholders for the following quarter. At the distribution rate for our common stock and with a common stock price at about $10.30 per share yesterday, distribution run rate is now producing a yield of about 9.6%. And now, I'll turn it back to David to conclude.
David Gladstone: Thank you very much. Nicole, you did a great job, and so did Bob and Eric, and you all did a good job. So they've informed our stockholders and analysts that follow the company. So, with your report that you got the 10-Q filed yesterday to shareholders in this call that we're making, it pretty much brought up to-date about everything going on. So in summary, it's just another solid quarter. Sometimes that's pretty boring, but it's pretty nice when we have borrowing profitable quarters. They increased the net investment income by 8% over the prior quarter. That's really good. That gives good coverage over the current common distributions. Strong portfolio performance and generating net portfolio appreciation increased the net asset value by 2.3% from the last quarter.
I love it when that goes up every quarter, and it helps us pay our dividend. For 2023, the whole Glad achieved returns on equity of 14.9%, which compares very favorably with the other business development companies in our peer group. The company is also very well positioned for the coming year as the portfolio is in good shape with modest leverage and very low non-performing assets and a strong balance sheet to support further growth. In summary, the company continues to stick with its strategy of investing in growth-oriented lower middle market businesses with good management teams. Many of these investments are supported by midsized private equity funds that are looking for experienced partners to support via acquisition and growth profile of that business, which they are invested in.
This gives us an opportunity to make an attractive investment paying loans to – on these paying loans that support our ongoing commitment to pay cash distributions. I'm going to stop now, and ask the operator to see if there's anybody that has a question for the Group here today.
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