Yahoo Finance Gladstone Capital Corp (GLAD) Q2 2024 Earnings Call Transcript Highlights: A Detailed Review of ...
Total Interest Income: Rose by $700,000 or 3% to $23.7 million.
Net Investment Income: Declined by 9.7% to $10.8 million.
Net Realized Gains: Increased to $2.2 million.
ROE: Lifted to 22.3% for the quarter.
Net Asset Value (NAV): Increased from $9.15 to $9.90 per share.
Monthly Distributions: Set at $0.165 per share, annual run rate of $1.98 per share.
Portfolio Value: Increased to $812 million in total assets.
Debt Investments: Non-earning debt investments totaled $20.4 million at cost.
Leverage Position: Conservative at just below 89% of NAV.
Release Date: May 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Net originations were $30 million for the period, reflecting continued investment activity.
Total interest income increased by 3% to $23.7 million due to a rise in average earning assets.
Net realized and unrealized gains on the portfolio totaled $12.9 million, boosting the return on equity (ROE) for the quarter to 22.3%.
The investment portfolio continues to perform well with senior debt representing 71% of the portfolio.
Gladstone Capital Corp maintains a conservative leverage position at just below 89% of NAV, with ample availability under the bank credit facility, positioning it well for future growth.
Negative Points
Management fees rose to $5.7 million due to the absence of new deal advisory fee credits.
Net investment income declined by 9.7% to $10.8 million.
Increased interest costs from higher average bank borrowings offset the increase in earning assets, keeping net interest unchanged.
The company ended the quarter with two non-earning debt investments, representing $20.4 million at cost or 1.8% of assets at fair value.
Despite overall portfolio health, there was a small uptick in nonperforming assets.
Q & A Highlights
Q: Mickey Schleien asked about the supply and demand for lower middle market capital and the health of the economy, specifically the outlook for loan spreads in Gladstone's business. A: Robert Marcotte, President of Gladstone Capital Corp, noted that while there is some spread compression, it is less severe in the lower middle market compared to the upper middle market. He explained that Gladstone's focus remains on credits where deals start under $10 million of EBITDA, which are less affected by the price compression seen in larger credits.
Q: Mickey Schleien inquired for an update on the outlook for DKI and BNTDKI, which are relatively small investments. A: Robert Marcotte described DKI as transitioning from a franchise-oriented business to a TPA-type business, which requires changes in marketing and cost structure. For BNTDKI, he highlighted its expertise in wireless engineering and the challenges related to the cyclical nature of CapEx in telecommunications. He remains optimistic about potential strategic exit alternatives for these investments.
Q: Mickey Schleien requested details on the current average EBITDA, debt to EBITDA, and cash interest coverage ratios to gauge the portfolio's risk. A: Robert Marcotte explained that the average figures can be misleading due to the wide range of EBITDA across the portfolio. He mentioned that the overall leverage profile is around four times debt to EBITDA, with interest coverage ratios typically required to be in the range of 1.1 to 1.2 times.
Q: Sean Adams asked for more details on the new nonaccrual WPX and the origination outlook for the rest of the year. A: Robert Marcotte discussed the challenges faced by WPX, a premium brand in the wetsuit market, which experienced a downturn post-COVID. He is optimistic about the brand's new line launch and the potential for recovery. Regarding origination outlook, he anticipates an uptick in prepayment activities and is focused on finding growth opportunities to redeploy capital.
Q: Sean Adams sought clarification on the impact of the fires on WPX and additional color on the situation. A: Robert Marcotte elaborated on WPX's challenges, including changes in consumer behavior and retail channel dynamics post-COVID. He mentioned the company's efforts to reposition the brand with external expertise to capitalize on global sales opportunities.
Q: Sean Adams expressed gratitude for the detailed explanations provided. A: David Gladstone, CEO, acknowledged the appreciation and moved to conclude the Q&A session.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
