Release Date: August 06, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Gladstone Investment Corp (GAIN, Financial) reported adjusted net investment income (NII) of $0.24 per share, consistent with the previous quarter.
- The company maintained a strong balance sheet with low leverage and good availability on its credit facility.
- GAIN invested $18.5 million in secured first lien debt for an add-on acquisition, enhancing its existing portfolio.
- The company continues to provide consistent monthly distributions of $0.08 per share, with a history of supplemental distributions.
- There is an increase in new acquisition opportunities, indicating a positive outlook for future growth.
Negative Points
- Total investment income decreased to $22.2 million from $23.6 million in the prior quarter, primarily due to decreased interest income.
- Four portfolio companies are on non-accrual status, representing about 7.8% of the fair value of debt investments.
- Net asset value (NAV) decreased to $13.01 per share from $13.43 per share in the previous quarter.
- Valuations in the aggregate were down by $18.9 million, driven by lower valuation multiples and decreased performance at some portfolio companies.
- The competitive environment for new acquisitions remains high, with upward pressure on valuations.
Q & A Highlights
Q: With all debt investments at floating rates and most debt liabilities at fixed rates, could NII per share decline below the distribution, and would the board be comfortable with NII running below the dividend?
A: David Dullum, President, stated that they do not foresee a decline in the spread that would necessitate cutting the dividend. They supplement income with other sources and expect NII to remain above the dividend. Rachael Easton, CFO, added that while yields may compress as rates come down, borrowing costs on their variable debt will also decrease, and their debt portfolio has floors to protect against lower rates.
Q: Can you provide an idea of the pipeline for new acquisitions and the likelihood of closing deals over the next year?
A: David Dullum explained that they are actively working on 15-16 companies at any time, with a goal to close 3-5 new deals annually. The process involves multiple stages, including indications of interest and letters of intent, with a typical timeline of two months for due diligence and deal completion.
Q: What caused the markdowns in Nth Degree, Mason West, and Horizon facilities, and is there a trend?
A: David Dullum noted that markdowns were due to slight downticks in valuation multiples and EBITDA, which can significantly impact dollar values. He emphasized that these companies remain profitable and that the changes are not indicative of broader portfolio issues.
Q: Regarding Diligent Delivery, a new non-accrual, is it expected to return to accrual soon?
A: David Dullum confirmed that Diligent Delivery is expected to have its debt repaid soon, as it is a legacy investment with no equity involved. The company has been paying its interest and is working towards an exit.
Q: What was the source of fee income this quarter, given the lack of activity?
A: Rachael Easton explained that the other income line is variable and includes dividends on preferred investments and success fees. This quarter, a portfolio company prepaid $1.6 million of outstanding success fees.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
