Gladstone Investment Corporation (NASDAQ: GAIN) (the “Company”)
today announced earnings for its second quarter ended September 30,
2018. Please read the Company’s Quarterly Report on Form 10-Q filed
today with the U.S. Securities and Exchange Commission (the “SEC”),
which can be retrieved from the SEC’s website at www.sec.gov or
from the investor relations section of the Company’s website at
www.gladstoneinvestment.com.
Summary Information:
(dollars in thousands, except per share data (unaudited)):
|
|
September
30,2018 |
|
June 30,
2018 |
|
Change |
|
%Change |
|
For the quarter ended: |
|
|
|
|
|
|
|
|
|
Total investment income |
|
$ |
13,091 |
|
$ |
15,504 |
|
$ |
(2,413 |
) |
(15.6 |
)% |
Total expenses, net(A) |
|
17,085 |
|
15,446 |
|
1,639 |
|
10.6 |
|
Net investment (loss) income(A) |
|
(3,994 |
) |
58 |
|
(4,052 |
) |
NM |
|
Net realized (loss) gain |
|
(4,543 |
) |
14,108 |
|
(18,651 |
) |
NM |
|
Net unrealized appreciation |
|
38,901 |
|
18,161 |
|
20,740 |
|
114.2 |
|
Net increase in net assets resulting from
operations(A) |
|
30,364 |
|
32,327 |
|
(1,963 |
) |
(6.1 |
) |
Net investment (loss) income per weighted-average
common share(A) |
|
(0.12 |
) |
— |
|
(0.12 |
) |
NM |
|
Adjusted net investment income per
weighted-average common share(B) |
|
0.10 |
|
0.20 |
|
(0.10 |
) |
(50.0 |
) |
Net increase in net assets resulting from
operations per weighted-average common share(A) |
|
0.93 |
|
0.99 |
|
(0.06 |
) |
(6.1 |
) |
Cash distribution per common share from net
investment income |
|
0.20 |
|
0.21 |
|
(0.01 |
) |
(4.8 |
) |
Cash distribution per common share from realized
gains(C) |
|
— |
|
0.05 |
|
(0.05 |
) |
(100.0 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average yield on interest-bearing
investments |
|
12.9 |
% |
13.0 |
% |
(0.1 |
)% |
(0.8 |
) |
Total dollars invested |
|
$ |
900 |
|
$ |
30,052 |
|
$ |
(29,152 |
) |
(97.0 |
) |
Total dollars repaid and collected from sales |
|
743 |
|
32,062 |
|
(31,319 |
) |
(97.7 |
) |
|
|
|
|
|
|
|
|
|
|
As of: |
|
|
|
|
|
|
|
|
|
Total investments, at fair value |
|
$ |
665,117 |
|
$ |
629,318 |
|
$ |
35,799 |
|
5.7 |
% |
Fair value, as a percent of cost |
|
111.9 |
% |
105.4 |
% |
6.5 |
% |
6.2 |
|
Net assets |
|
$ |
403,574 |
|
$ |
379,808 |
|
$ |
23,766 |
|
6.3 |
|
Net asset value per common share |
|
12.30 |
|
11.57 |
|
0.73 |
|
6.3 |
|
Number of portfolio companies |
|
32 |
|
33 |
|
(1 |
) |
(3.0 |
) |
|
|
|
|
|
|
|
|
|
|
(A) Inclusive of $7.1 million, or $0.22 per
weighted-average common share, and $6.5 million, or $0.20 per
weighted-average common share, of capital gains-based incentive
fees accrued during the three months ended September 30, 2018 and
the three months ended June 30, 2018, respectively. These fees were
accrued in accordance with United States generally accepted
accounting principles (“U.S. GAAP”), where such amounts are not
contractually due under the terms of the investment advisory
agreement for the respective periods. Also see discussion under
Non-GAAP Financial Measure – Adjusted Net Investment Income
below. (B) See Non-GAAP Financial Measure —
Adjusted Net Investment Income below for a description of this
non-GAAP measure and a reconciliation from Net investment
income to Adjusted net investment income, including on a
weighted-average per share basis. The Company uses this non-GAAP
financial measure internally to analyze financial results and
believes that this non-GAAP financial measure is useful to
investors as an additional tool to evaluate ongoing results and
trends for the Company. (C) Estimates of tax
characterization made on a quarterly basis may not be
representative of the actual tax characterization of distributions
for the full year. Estimates made on a quarterly basis are updated
as of each interim reporting date.
NM = Not Meaningful
Highlights for the Quarter: During the
quarter ended September 30, 2018, the following significant events
occurred:
• Portfolio Activity:
- Exited one investment, which resulted in a realized loss of
$3.6 million; and
- Invested $0.9 million into existing portfolio companies.
• Financing Activity:
- Issued 2,990,000 shares of 6.375% Series E Cumulative Term
Preferred Stock (“Series E Term Preferred Stock”) at a public
offering price of $25.00 per share. Gross proceeds totaled $74.8
million and net proceeds, after deducting underwriting discounts
and offering costs borne by us, were $72.1 million. The Series E
Term Preferred Stock incorporates the amended asset coverage
requirements of the Small Business Credit Availability Act (the
“SBCAA”) (200%, as it applies to the Company currently, and 150%,
as it will apply to the Company effective April 10, 2019).
- Voluntarily redeemed all outstanding shares of our 6.750%
Series B Cumulative Term Preferred Stock (“Series B Term Preferred
Stock”) and our 6.500% Series C Cumulative Term Preferred Stock
(“Series C Term Preferred Stock”), each of which had a liquidation
preference of $25.00 per share, using proceeds from the issuance of
the Series E Term Preferred Stock along with borrowings under the
Fifth Amended and Restated Credit Agreement dated April 30, 2013,
as amended (“Credit Facility”). In connection with the voluntary
redemption of our Series B Term Preferred Stock and Series C Term
Preferred Stock, we incurred a loss on extinguishment of debt of
$1.7 million.
- Amended our Credit Facility which, among other things,
increased the facility size, reduced pricing, extended the
revolving period and maturity date, and conformed asset coverage
requirements to the amended requirements of the SBCAA (200%, as it
applies to the Company currently, and 150%, as it will apply to the
Company effective April 10, 2019).
• Distributions and Dividends:
- Paid the following monthly cash distributions to common
stockholders and dividends to preferred stockholders for each of
July, August, and September 2018:- $0.067 per common share,
per month; and- $0.13020833 per share to holders of our 6.25%
Series D Cumulative Term Preferred Stock (“Series D Term Preferred
Stock”).
- Paid the following dividends to preferred stockholders for each
of July and August 2018:- $0.140625 per share, per month, for
the Company’s Series B Term Preferred Stock (which was fully
redeemed on August 31, 2018); and- $0.135417 per share, per
month, for the Company’s Series C Term Preferred Stock (which was
fully redeemed on August 31, 2018).
- Paid a combined dividend to the holders of the Company’s Series
E Term Preferred Stock for the pro-rated period from and including
the issuance date, August 22, 2018, to and including August 31,
2018, plus the full month of September 2018, which totaled
$0.17265625 per share.
Second Quarter Results: Net
investment loss for the quarter ended September 30, 2018 was $4.0
million, or $0.12 per weighted-average common share, while net
investment income for the quarter ended June 30, 2018 was $0.1
million, or $0.00 per weighted-average common share. This decrease
was a result of the decrease in total investment income and the
increase in total expenses, net of credits, quarter over
quarter.
Total investment income during the quarters ended September 30,
2018 and June 30, 2018 was $13.1 million and $15.5 million,
respectively. The quarter over quarter decrease was due to a $1.4
million decrease in interest income, primarily due to one
investment being placed on non-accrual during the current quarter
and the exit of one investment towards the end of the prior
quarter, and a $1.0 million decrease in other income, as the timing
of dividend and success fee income can be variable.
Total expenses, net of credits, during the quarters ended
September 30, 2018 and June 30, 2018 were $17.1 million and $15.4
million, respectively. The quarter over quarter increase was
primarily due to $1.1 million of bad debt expense (mainly due to
placing one investment on non-accrual), $0.7 million of tax
expense, and the accrual of capital gains-based incentive fees of
$7.1 million, or $0.22 per weighted-average common share in the
current period, as compared to capital gains-based incentive fees
of $6.5 million, or $0.20 per weighted-average common share, during
the prior period. Such capital gains-based incentive fees are
accrued under U.S. GAAP, but payment is not contractually due under
the terms of our investment advisory agreement. See discussion
under Non-GAAP Financial Measure – Adjusted Net Investment Income
below.
Net asset value per common share as of September 30, 2018
increased to $12.30 compared to $11.57 as of June 30, 2018. The
quarter over quarter increase was primarily due to $38.5 million,
or $1.17 per common share, of net unrealized appreciation of
investments, principally resulting from improved performance and an
increase in comparable multiples used to estimate the fair value of
certain portfolio companies, partially offset by a decline in
performance of certain other portfolio companies. The increase in
net unrealized appreciation was further offset by $4.5 million, or
$0.14 per common share, of realized losses, primarily due to the
exit of one portfolio company and the aforementioned loss on
extinguishment of debt, net investment loss of $4.0 million, or
$0.12 per common share, and distributions paid to common
shareholders of $6.6 million, or $0.20 per common share.
Subsequent Events: After
September 30, 2018, the following significant events occurred:
• Significant Investment Activity:
- In October 2018, we invested an additional $15.0 million of
secured first lien debt into J.R. Hobbs Co. – Atlanta, LLC, which,
together with our existing $21.0 million secured first lien term
loan, resulted in a new $36.0 million secured first lien term loan
due in October 2023.
- In October 2018, we exited our equity investment in Country
Club Enterprises, LLC, which resulted in a realized loss of $7.7
million. As part of this transaction, we received success fee
income of $1.0 million, reduced our existing guaranty to $1.0
million, and amended our existing $4.0 million secured second lien
term loan to have a stated interest rate of LIBOR + 8.0% and mature
in February 2022.
- In November 2018, we sold our investment in Logo Sportswear,
Inc., which had a cost basis and fair value of $10.3 million and
$22.2 million, respectively, as of September 30, 2018. In
connection with the sale, we received net cash proceeds of $22.7
million, including the repayment of our debt investment of $9.2
million at par.
• Certificates of Elimination: In October
2018, we executed and filed a Certificate of Elimination of 6.750%
Series B Cumulative Term Preferred Stock and a Certificate of
Elimination of 6.500% Series C Cumulative Term Preferred Stock,
thereby removing the Certificate of Designation of the Series B
Term Preferred Stock and the Certificate of Designation of the
Series C Term Preferred Stock from the Company’s Amended and
Restated Certificate of Incorporation.
• Distributions and Dividends Declared:
In October 2018, our Board of Directors declared the following
monthly and supplemental distributions to common stockholders and
monthly dividends to holders of our two series of term preferred
stock:
Record Date |
|
Payment Date |
|
Distribution per Common
Share |
|
Dividend
per Share of Series D
Term Preferred Stock |
|
Dividend
perShare of Series E Term
Preferred Stock |
|
October 19, 2018 |
|
October 31, 2018 |
|
$ |
0.068 |
|
$ |
0.13020833 |
|
$ |
0.13281250 |
|
November 20, 2018 |
|
November 30, 2018 |
|
0.068 |
|
0.13020833 |
|
0.13281250 |
|
December 6, 2018 |
|
December 14, 2018 |
|
0.060 |
(A) |
— |
|
— |
|
December 20, 2018 |
|
December 31, 2018 |
|
0.068 |
|
0.13020833 |
|
0.13281250 |
|
|
|
Total for the Quarter: |
|
$ |
0.264 |
|
$ |
0.39062499 |
|
$ |
0.39843750 |
|
(A) |
Denotes supplemental distribution to common stockholders. |
Non-GAAP Financial Measure — Adjusted Net Investment
Income: On a supplemental basis, the Company discloses
Adjusted net investment income, including on a per share basis,
which is a financial measure that is calculated and presented on a
basis of methodology other than in accordance with U.S. GAAP
(“non-GAAP”). Adjusted net investment income represents net
investment income, excluding the capital gains-based incentive
fee. The Company uses this non-GAAP financial measure
internally in analyzing financial results and believes that this
non-GAAP financial measure is useful to investors as an additional
tool to evaluate ongoing results and trends for the Company. The
Company’s investment advisory agreement provides that a capital
gains-based incentive fee is determined and paid annually with
respect to realized capital gains (but not unrealized appreciation)
to the extent such realized capital gains exceed realized capital
losses and unrealized depreciation of investments for such year.
However, under U.S. GAAP, a capital gains-based incentive fee is
accrued if realized capital gains and unrealized appreciation of
investments exceed realized capital losses and unrealized
depreciation of investments. Refer to Note 4 — Related Party
Transactions in our Quarterly Report on Form 10-Q for further
discussion. The Company believes that Adjusted net investment
income is a useful indicator of operations exclusive of any capital
gains-based incentive fee, as net investment income does not
include realized or unrealized investment activity associated with
the capital gains-based incentive fee.
The following table provides a reconciliation from net
investment income (the most comparable GAAP measure) to Adjusted
net investment income for the periods presented:
|
|
For the quarter
ended |
|
|
|
September 30,
2018 |
|
June 30,
2018 |
|
|
|
Amount |
|
Per Share
Amount |
|
Amount |
|
Per
ShareAmount |
|
Net investment (loss) income |
|
$ |
(3,994 |
) |
$ |
(0.12 |
) |
$ |
58 |
|
$ |
— |
|
Capital gains-based incentive fee |
|
|
7,125 |
|
|
0.22 |
|
|
6,508 |
|
|
0.20 |
|
Adjusted net investment income |
|
$ |
3,131 |
|
$ |
0.10 |
|
$ |
6,566 |
|
$ |
0.20 |
|
Adjusted net investment income may not be comparable to similar
measures presented by other companies, as it is a non-GAAP
financial measure that is not based on a comprehensive set of
accounting rules or principles and therefore may be defined
differently by other companies. In addition, Adjusted net
investment income should be considered in addition to, but not as a
substitute for or superior to financial measures determined in
accordance with U.S. GAAP.
Conference Call: The Company will hold
its earnings release conference call on Tuesday, November 6, 2018,
at 8:30 a.m. EST. Please call (855) 376-7516 to enter the
conference. An operator will monitor the call and set a queue for
any questions. A replay of the conference call will be available
through November 13, 2018. To hear the replay, please dial (855)
859-2056 and use the playback conference number 4699219. The replay
will be available beginning approximately one hour after the call
concludes. The live audio broadcast of the Company’s quarterly
conference call will also be available online at
www.gladstoneinvestment.com. The event will be archived and
available for replay on the Company’s website through January 6,
2019.
About Gladstone Investment
Corporation: Gladstone Investment
Corporation is a publicly traded business development company that
seeks to make secured debt and equity investments in lower middle
market businesses in the United States in connection with
acquisitions, changes in control, and recapitalizations. The
Company has paid 160 consecutive monthly cash distributions on its
common stock. Information on the business activities of all the
Gladstone funds can be found at www.gladstonecompanies.com.
To obtain a paper copy of our Quarterly Report on Form 10-Q,
filed today with the SEC, please contact the Company at 1521
Westbranch Drive, Suite 100, McLean, VA 22102, ATTN: Investor
Relations. The financial information above is not comprehensive and
is without notes, so readers should obtain and carefully review the
Company’s Form 10-Q for the period ended September 30, 2018,
including the notes to the consolidated financial statements
contained therein.
Source: Gladstone Investment Corporation
Investor Relations Inquiries:
Please visit www.gladstone.com or +1-703-287-5893.
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