Gladstone Investment Management Discusses F3Q2014 Results - Earnings Call Transcript

| About: Gladstone Investment (GAIN)

Gladstone Investment Corporation (NASDAQ:GAIN)

F3Q2014 Earnings Conference Call

February 5, 2014 9:00 a.m. ET


David Gladstone – Chairman

David Dullum – President

David Watson – CFO


Dan Furtado – Jefferies

J.T. Rogers – Janney Capital Markets


Good morning, and welcome to the Gladstone Investment Corporation Quarter Ended December 31, 2013 Conference Call. All participants will be in a listen-only mode. [Operator Instructions]. Please note that the event is being recorded. Now I’d like to turn the conference over to David Gladstone, please go ahead.

David Gladstone

All right, thank you, Keith and hello and good morning [missing] down share and this is the quarterly earnings conference call for shareholders and analysts of Gladstone Investment. Common stock on NASDAQ trading symbol GAIN, we also have a preferred stock that’s traded under the GAIN. And thank you all again for calling in. We’re always happy to talk to shareholders about the company and wish we could do it more often. We hope you take the -- website, where you can sign up for email notices so that you can receive information about the company in a timely fashion. And please remember, if you’re ever in the Washington D.C. area, you have an open invitation to visit, that’s here in McLean, Virginia. So please stop by and say hello [indiscernible] people in the business.

I’ll read now the statement -- our forward looking statements that this conference call may include statements that may constitute forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934, including statements with regard to the future performance of the company. These forward-looking [indiscernible] based on our current plan; we believe those plans to be reasonable. And these forward looking statements can be identified by the use of words such as believe, expect, intent, should and may and similar expressions. There are many factors that [indiscernible] expressed or implied in these forward-looking statements, including those factors listed under the caption Risk Factors in the 10-K and 10-Q filings and our rate statement filed with Securities and Exchange Commission. All of those could be found on our website at and also on the SEC's website. The company undertakes no obligation to publicly update or revise any of the forward-looking statements, whether as a result of new information, future events or otherwise after the date of this conference call.

Please also note that past performance or market information [indiscernible] future results. With that out of the way, we’ll hear from David Dullum, Gladstone President and a board member of the company who covers a lot of interesting things [ph].

David Dullum

Thank you, David, and good morning all. I’d like to start with a brief review of what we do. This really helps to keep the long term line as we really update you on our short term results. Gladstone Investment, as you know provides capital to buyout for businesses. These are usually companies with annual sales between $20 million to $100 million. This is where we provide subordinated debt and equity and occasionally some senior debt transactions. This combination produces a mix of assets for Gladstone Investment which is the basis of our strategy. Our debt investments provide income to pay and grow amongst the dividends and we expect the equity depreciate and provide capital gains from time to time.

This is where we really differentiate some other public BDCs that are predominantly debt focused. So even though we expect the equity portion assets to contribute to the overall value of our company as we grow, for example, last August we sold Venyu solution bank [ph]. The equity portion of this investment generated cash proceeds of approximately $32 million which resulted in a realized capital gain of approximately $25 million and actual dividend income of approximately $1.4 million. In addition, we’d also received full repayment of our debt investment of $19 million and an additional, approximately $2 million success fee income.

Therefore our original investment of $6 million in the equity generated approximately 5.5 time earned including the dividends that we received. The sale of venue is actually our fourth exit from our event supported buyout investment since June of 2010. So the importance here is that these four liquidity events have generated approximately $54.5 million of realized gains in 2010. This has enabled us to offset cumulative losses and we’re now -- I’m happy to say that cumulative realized gain position. So as mentioned in previous calls the realized loss we were required to sell performing syndicated loans by our centers [ph]. Therefore with a continued growth of operating income and these realized gains, the board was also able to declare a monthly dividend of $0.06 per common share for January, February and March 2014.

This amount is actually is the same as last quarter when we increased the monthly dividend rate by 20% from the previous quarter. Though generally as far as origination, how do we keep doing this? Well, we obtain our investment opportunities by partnering with management sponsors as we call them in the purchase. Our strategy here is to provide a financing package which includes both annual equity which gives us, we believe a competitive advantage as it actually helps to solve us with a high degree of comfort that the purchase will actually happen dealing with worse such as ourselves. So the sources for deal generation and we concentrate on higher opportunities are what we call independent sponsors in the market equity.

Occasionally, in addition by purchase, we might find in these departments with the business owner who will also sell a portion of this company to us and use that capital to grow the business. Looking at our activity for the quarter which ended December 31, 2013, we closed three new investments, totaling $3 million -- and a combination of debt and equity to purchase [indiscernible]. ADC is a manufacture of high quality finished aluminum and [indiscernible] in the aerospace, defense after-market automotive and industrial applications.

In December, we invested $13 million in combination again, debt and equity to purchase Behrens Manufacturing, LLC. Behrens is a manufacturer and [indiscernible] plastic, galvanized steel utility products and containers. Also in December we invested $13 million again [indiscernible] remain to provide an aftermarket and OEM replacement automotive parts which it sells to both wholesale channels and also in So key [indiscernible] the affiliated fund actually Gladstone Capital Corporation invested $18.1 million in addition to our $42.3 million as a co-investor. Further in October we received a full repayment of our debt investments in Channel Technologies Group, LLC which was an amount of approximately $16.2 million.

Simultaneously, we invested $1.3 million in additional preferred and common equity securities in Channel. So at this point we had no debt outstanding in Channel but they’re not essentially an equity investor. Also in December 2013, we received a full repayment of our remaining debt investments Cavert II Holding Corp which was an aggregate amount of approximately $6.1 million, so both of these pay offs resulted in prepayment and success fees income totaling $1 million. We also sold two what we consider distressed portfolio companies during the quarter which resulted in a $12.1 million aggregate realized loss. However these sales were accretive to our net asset value in aggregate by approximately $5.7 million and reduced our non- accruals outstanding.

Regarding our new deal pipeline that team again is very focused and engaged on active marketing and deal generating activity, the results of the last quarter reflect that and we continue to try to find opportunities which will fit out investment parameters which roughly our valuations relative to the EBITDA are approximately 6.5 times. Today’s market, it's a bit sloppy and it's frequently we do see opportunities with higher valuations in these and we tend to avoid them. Occasionally ago we might pursue one of these if there is some unique characteristics to the particular transition. So we are encouraged by our marketing efforts which reflected our new deal activity, we are growing our presence in the market place and we’re providing the foundation we believe to continue our growth trends.

So in summary, our goal for this fund is to maximize distributions to shareholders with solid growth in both the equity and the income for several assets. And David this concludes my part of presentation.

David Gladstone

All right, Dave Dullum thank you for that, that was good and now we’re with David Watson and hear other financial side of the statement.

David Watson

Sure, thank you. Good morning everyone, as Dave discussed we had a lot activity this quarter including the three new deals, two substantial repayment and two sales. As far with the factor where we had three wins [indiscernible] generate substantial other income for us and developing a lot of own volatility. And in fact in early 2010 we have generated almost $23 million in other income for large portfolio but it didn’t accounted for about 21% of our total income over that period. However even though we are consistently generating this type of income over the long-term it is very lumpy and we could go [indiscernible]. In order to better understand all the [indiscernible] performance over the last few quarters if one must exclude the impact of the new deal other incomes and taxes from our financials. Our net debt and income quarter-to-quarter would be considered it.

In terms of those [ph] in mind I will get you to the details of our financials. Regarding our balance sheet, at the end of the December quarter we had $318 million in assets consisting of 291 million in investment at fair value, $15 million in cash and cash equivalents and $12 million in other assets. At our top spaces, 73% or of our portfolio assets consisted of gas investments and 27% or $98 million to clear up equity securities which we all hope will produce capital gains. Included in the cash and cash equivalents is $10 million U.S. treasury securities purchased through the use of borrowed funds at quarter end to satisfy our assets diversification requirements. The amount of these T-bills that we have had to purchase has generally been coming down consistently over the past year. I am happy to report that we would have passed the diversification requirements over the past two quarters without purchasing any T-bills. However we will continue to utilize the purchase of T-bills so we are 100% confident with our margins over there on the test.

As for our liability, we had $93 million, consisting of $40 million in terms preferred stock, $36 million in borrowing outstanding on our $105 million three year credit facility, $5 million in secured borrowings, $9 million borrowed with a short term loan and $3 million in other liabilities. In all as of December 31, we had $225 million in net assets or $8.49 per share. Today, we have investments at fair value of $291 million, cash of $3 million, $24 million of borrowings on our $105 million credit facility and $5 million in secured borrowings. In other words, we have over $70 million in other capital to deployment and new investment for any differential property.

Moving over to the income statement from the December quarter end, total investment income was $8.7 million versus $11.4 million in the prior quarter, total expenses including credits were $4.3 million versus $5.1 million in the prior quarter leaving net investment income of $4.4 million versus $6.2 million for the prior quarter a decrease of 29%. This was primarily due to the $1.9 million success fees and $1.4 million in dividend income, partially offset by an increase of the incentive fee related to the sale of Venyu in the prior quarter. I’ve mentioned earlier since early 2010, other income had accounted for over 21% of our total income on average. Last quarter it was 32%, this quarter it was 13% and over few quarters the average of 24% which is slightly above our historical average.

Our baseline earnings which excludes the impact of other income related to the incentive fee for the last quarter remained stable this quarter. We continue to expect volatility in our net investment income for the foreseeable future, so in total our net investment income which was $0.17 per common share increased 29% over the prior quarter of $0.24 per common share. We think it is important to take a moment to touch on the significant steady growth that we have had in our portfolio in the income since we restarted our origination efforts in late 2010. The year-over-year net growth rate since the time in a size of our weighted average interest bearing assets has been 22.5%. The year-over-year net growth rate over the same period in the amount of cash interest income recorded has been 27%. In addition our weighted average yield on interest-bearing debt investments has increased to 12.7% in the current quarter, up from 11.3% in late 2010. Keep in mind we often have success fee as the components of our debt investment but they are excluded from our reported yields, said fees are contracting due upon the sale of a portfolio company, although portfolio company together.

So as of December 31, approximately 79% of our interest-bearing debt has associated success fees with the weighted average contractual rate of about 3.1% per annum. Success fees owed to us are approximately $15.2 million which is about $0.51 per share. We generally do not accrue these success fees on our balance sheet. So for comparison purposes, we have accrued new success fees as we would take any average yield of interest-bearing assets would approximately 15.8% during the December quarter. Again there is no guarantee that we will be able to collect all success fees or have any control over their timing. Overall, we believe the timing of portfolio and yield growth and our debt level for loan has positioned the company well for the future and in part has enabled us to increase our dividend rate on our common stock by 50% since late 2010.

Let's turn to realized and unrealized changes in our assets. Realized gains and losses come from actual sales or disposals of the investments. Unrealized appreciation and depreciation comes from our requirement to mark our investments to fair value on our balance sheet with the change in fair value from one period to the next recognized in our income statement. Unrealized appreciation and depreciation is a non-cash event. So as we mentioned earlier, we generated approximately $15 million in realized gain of last quarter for the sales of Venyu and Venyu together with three other earlier events had generated $55 million in realized gains in early 2010 and we’ve overcome our cumulative for realized loss in this fashion that were primarily incurred during the recession and in connection with the sale of performing syndicated loans at a realized loss to pay off the former loan. We are happy to say we’re in a realized gain positions. We took this opportunity during the three months ended December 31 to strategically sell two of stressed portfolio companies as number of management team and other business owners.

[Indiscernible] were created to our net asset value and aggregated by $5.7 million and released our non-accruals outstanding. As for our unrealized activities, the net unrealized depreciation of our portfolio in the quarter ended December 31st was approximately $2.3 million. It concludes reversal of $13.2 million in aggregate unrealized depreciation, primarily related to action packed root sales. Including reversals we have $15.5 million in net unrealized depreciation for the three months ended December 31st.

This unrealized depreciation was primarily due to decreased equity valuation in several of our portfolio companies. This results in a combination of a quarter-over-quarter decrease and these portfolio companies earnings and decrease in certain comparable multiple used in our methodology to estimate the fair value of equity of our investments.

We are always mindful of the amount of unreliable depreciation on our portfolio, quarter-over-quarter. But as with our other income, we experience a lot of volatility in our evaluations units. As market comparable multiples are difficult to obtain for lower middle market bad economy which would mean bad thing. So during the core of that point, over the last five quarters excluding reversals, we have seen our unrealized appreciation and depreciation fluctuate from midpoint going from zero to $10.4 million in appreciation to $11.4 million of depreciation to $1.7 million of appreciation and finally to $15.5 million of depreciation in the past quarter.

Given our long term view really for investment, we have been pleased with realized value or with the equities of our investments and are generally less concerns about the inherent quarter-to-quarter fluctuation in our evaluation, but from December quarter end our entire remaining portfolio was fair valued at 80.7% of cost down from 81.1% of cost last quarter.

Now let's turn to net decrease and increase in Net Assets from Operations. The term is a combination of net investment income, unrealized net appreciation or depreciation and unrealized gain from loss. For the December 2013 quarter end, this number a decrease of $10.7 million or $0.40 per share or an increase of $14.9 million or $0.57 cents per share in September quarter. The quarter-over-quarter change is primarily due the aforementioned realized equity and unrealized amount over the past two quarters. All the portfolio companies are current in payment except for one, which continue to remain on non-accrual and now represents 4.0% of fair value and 4.3% of our cash base of our of our total debt investment portfolio as of December 31st.

Regarding our interest rate, approximately 81% of our loans have variable rate but they all have a minimum or low in the rating charts. So the low interest rate that we re have experienced over the last several years is for to minimize the negative impact on our ability to make distributions. As of December 31st the weighted average floor on variable rate loan was 2.7% with a margin of 10% resulting in all in rate of 12.7%.

The remaining 19% of our longer pace with a weighted average rate of 11.3%. Over the last three fiscal years and current three years-to-date our net investment income for per share of $2.59 has offerings to this that we have made to our common shareholders by 37% per share or 14%. This has largely been driven income generated in market investments.

Our board continues to maintain a conservative distribution policy to ensure we are no different. As a reminder, we generally have to distribute at least 90% of the possible or net income in capital gains. And as in the past we will continue to utilize our special 85% [ph] which will allow for the quarter a reasonable portion of our income and gains. The balance as of March 31st 2013 was $3.1 million and it has 10% increase with our performance in unique sales during the first nine months of this fiscal year ending March 31st 2014.

Given our tax efficient last quarter the board increased our monthly sustainable distribution rate by 20% to $0.06 per common share and also declared a onetime special distribution of $0.05 per share that was paid in November. We look forward to maintaining this momentum and increasing shareholder value. And now, I will turn the call back over to David Gladstone.

David Gladstone

All right I think that was a great report by David Watson and good report from David Dullum too. To all our listeners out there read our press releases and also obtain a copy of our quarterly report 10 -Q which is involved with the SEC an can be assessed on our website at and on the SEC website as well.

For the quarter ending December 31st major news in the quarter was to increase in dividend of course and continue to invest into new portfolio company, most of those that happened at the end of the quarter, so we didn’t get much bang out of their income. We think the rest of the fiscal year will continue to be good and we'll keep investing and given the liquidity generated from the sales and the expansion of live credit $70 million to $105 million this year. We have plenty of room to borrow under the line and make new investments. So we are out there looking and David Dullum is doing a great job of finding new investments.

We still have other concerns and we have some external things to our operations here that we worry about. Of course it's difficult to invest because so many external things are in the mix. We ask questions about the external items each time we look at and unfortunately we won't have any answers for many of these questions. So of course oil prices could spike and – softer recovery that we are in, all I do is, I think it's still this time, we have massive oil and gas reserves in the United States. The U.S government has just not left businesses developments. I guess transportation for cars and trucks for every business in the United States because transportation is so important.

We’re all worried about inflation, the decision by congress and the president of the U.S to expand the money supply more into [Indiscernible] will ultimately cause serious inflation we believe. It's a bad idea to say we can borrow and spent our way into prosperity and that’s socialistic theory has been disproven here in the U.S as well as in hundreds of other countries all the times.

Extending by the federal government of course to sell out of control and we cannot continue to borrow the government can’t continue to borrow the amount of money as they are doing today it's just unsustainable. The amount of money being spent on the war in Afghanistan still hurts, but we have been told it's going to end this year 2014. I certainly hope that’s true. So terrible news out there that probably -- taxes of all accounts and of course the middle class face the bulk of taxes and they will be ahead of taxes are raised and I just hope congress and the president don’t try to raise taxes again.

The trade deficit with China and certain other nations is just terrible. China continues to subsidize all their industries to the disadvantage of our business this year in the United States. This means many of our companies can’t compete with them. We must have a government that will stop China from cheating on this but I don’t think it will be happening in today's marketplace.

The stagnation of the housing industry may be coming to an end, I just read today that mortgage applications are up again this, this seems to be up on market down there and it just is unpredictable at this point in time. But the lenders are again making loans to those who cannot make mortgage payment as they did before and I think we are on pretty solid ground or going to recover. Unemployment in the U.S is still way to high and the numbers you saw the government reported by popular press. Don’t include those working part time that are seeking full time jobs nor does the government include those that stopped looking for altogether.

I think the more realistic number for unemployment rate in U.S today could use some of the old statistics that can provide 15%. In spite of all those negative with small business based in the U.S today it is not disaster many of them hampered down and continue to be strong. However I do want the number of main business that are starting out this year the lowest in 20 years, but I don’t have any impact in future years in terms of small business available for them to -- Like most companies in the U.S some of our portfolio companies have seen a great deal of progress in terms of revenue backlog, however others are seeing good increases and strength there and a few other are seeing great increases. It's a very uneven economy that we are in today were some industries taking off and others falling behind.

Our monthly distribution deployed by the board our directors in January $0.06 per month for each January, February and March of 2014 this is a runway to [inaudible]. And last our board declared and paid a special bonus dividend of $0.05 per common share. And I think when you have capital gains this has been -- it’s all improved –pay out cash dividends. We don’t get much credit in the market place with a road map need and April to consider growth of dividend for April, May and June of 2014, and our current distribution rate of common stock for the common stock 11.98 yesterday and yield on distribution is now very high in my opinion against a little over 9%. One of the reasons we think that yield is high that it should create a much lower yield build in and a build for possible capital gains seems to be fairly for the future.

Please go to our website and sign up for email notifications. We don’t send out junk mails -- on the site. You can also follow us on Twitter using, -- under the keyword Gladstone. I think we’ve driven out about six months. We think everything that's going to be okay and that’s a stock market company. But the economy is not strong and we’re looking for new investments now this call for you, in this call next quarter.

Now I’m going to with a -- take some questions from analysts and some of our shareholders.

Question-and-Answer Session


Yes, thank you. We will now begin the question-and-answer session. [Operator Instructions]. The first question comes from Dan Furtado from Jefferies.

Dan Furtado – Jefferies

Good morning, everybody. Thank you for the opportunity. I just had one or two quick questions, nice quarter. On the capital deployment side, we’ve seen this accelerate nicely in the quarter. Can you help us understand internal focus, so to speak since 2010 and how much do you think is due to the business environment you’re on?

David Dullum

All right, Dave Dullum. I’ll take crack at that. I think it’s obviously a combination of both. I do feel that the business environment is pretty decent. But frankly, our efforts and the touch on this before, we’ve got good focus around all of the Glad – and so we have our GAIN team which is right now approximately 11 folks. I think I had mentioned it in the call, added a managing director in Chicago in the middle of last year. He comes from the private equity world. So we’ve really stepped up our marketing -- focused our direction and frankly our skill set around the type of transaction for -- of our equity with obviously significant debt in these buyouts.

So I would say again, a bit of both, but more around the effort and then fairly doing it all and getting to the areas where we find the types of companies that we are looking to invest in, again you know into sort of three low end to update a $9 million EBITDA and evaluations that we believe makes some sense to ourselves and I'm optimistic about the trend.

Dan Furtado – Jefferies

Great, thank you, for the clarity there. And then is there any noticeable difference on the competitive front or would you consider that to be more or less status quo from the previous couple of quarter?

David Dullum

I’d say it’s probably status quo. Again, when we look at competition, we’re not really into competition regarding just pure debt oriented BDCs recognizing again we bring the debt with the equity when we do a transaction. So for us, again, it’s more just to sit out there and generating opportunities.

David Gladstone

And then what I want you to see in the marketplaces, we’re not reading so much with the other BDCs and activities that are out there in this one, this one end this and some of the running deals in the marketplace. So this was really a buyout firm in the sense that is looking for catalogues and capitals and it's a little bit different than most of BDCs.

Dan Furtado – Jefferies

Got you. Well, thanks for the clarity David and David. I appreciate it.

David Dullum

Thanks Dan

David Gladstone

Next question.


Thank you. The next question comes from [indiscernible].

Unidentified Analyst

Good morning, I have several questions. I wanted to start marks on B-Dry, Noble and Danco which are now down to the neighborhood of 20% to 25%. I just can't understand how those can still be on the status with marks that low which usually imply, you know a company that’s severely distressed. Can you explain that?

David Dullum

Hey! Mickey, how are you doing? It’s Dave Dullum. Well, first of all three are paid their interest. So that’s a key driver and clearly the concern might be, but I think as you will know and we said many times before, we work very hard with our underlying portfolio companies and so even though as you pointed out, the marks maybe down, we keeping concern more around their ability to service their debt and what's going on with fixing those companies. So at this point, I have to -- all three of those businesses are generating positive cash flow. We see them staying by and large we can have changes from time to time obviously in the portfolio for the longer term. And at this point frankly, I don’t see a rationale for putting them on when indeed they are paying their interest. When something changes obviously, we’ll do that. But I don’t know helps with question.

Unidentified Analyst

Well, I still don’t understand how you get down to a 20% to 25% mark if the borrower is servicing that.

David Dullum

Keep in mind; remember our evaluation which we discussed before is a little tricky, right being we’re valuing both the equity and the debt in all of those companies with the exception actually of Nobel which is relatively very early deal that we did. We have a significant, only just when relatively speaking, so keeping in mind that the debt might be marked out somewhat S&P does that for us. The equity portions however on the one-off can take a relatively significant decline just because the methodologies as you know that we -- for instance I know we have not one of those companies, but another one of our companies that frankly, we had it valued at the quarter end of roughly four times multiple industry by the way for that company is over six times which is a pretty significant change, right. So and frankly again, it’s the combination of both the valuation on the equity portions of those companies obviously being down driving the overall decline versus the fact that they’re -- paid on the debt portion of those securities.

David Gladstone

I think it is one of the assets and how can you get to 75% value -- making their payment. And all I can tell you is that we use a very strict valuation and we think we’ve done a good job. No one knows until I think it shows up what it is. So we’ve been -- perhaps a little too conservative, but at the same time we’re still comfortable with the valuation.

Unidentified Analyst

And a related question, looking at the unrealized depreciation in the quarter excluding the reversal, on my count, most of that was driven by 10 companies which is a large portfolio where it’s remained marked at par. But the board marked down the preferred and the equity investment. At the beginning of your prepared remarks that that in general, the market is choppy and the evaluations are trending above your target which is -- it’s sometimes EBITDA. But when I look at your cues, the board used EBITDA multiples for the preferred equity -- for the preferred and common -- 0.02 turns lower in the current quarter than the previous quarter. And you also mentioned earnings in some cases decreased quarter-to-quarter. But generally speaking, the economy was pretty good in the fourth calendar quarter. So how do you reconcile? I mean I was really surprised that you took that much of a hit on maybe from this fashion.

David Gladstone

This is David Gladstone. I’ll give you an example without getting too specific. But, for instance, I mentioned one of the companies that’s in that tenet that you mentioned roughly -- fairly close example of approximately just under seven times which is not as relevant in this case but also the way in which we come up with the multiples, the multiple use for that particular company was four times, the multiple for the industry and the point you made we would never able to value this company in a normal course or certainly sell it at four times but industry have to kind of company to offset to a two times build their multiple on $7 million, it's $14 million.

So there is an example of where we have a significantly undervalued situation in a really good company just because of the methodology we have been using for our valuation and our waterfalls to come to the underlying equity value, so your point is very valid and it’s a great question, saying I think it points to the tissue around our – what I would consider very, very constraints technology take or just to the underlying equity – you know it’s a methodology we use so that’s what we use. So again there winning for a bump out of office and there are others like that by the way that the market multiple you have been probably applied that lead the turn may be in some things to turns higher than what we used and that would have all these significant impact on the value.

Unidentified Analyst

Dave how concerned are you that, I think David Watson mentioned that the bulk of the company saw a decline in their earnings in the fourth calendar quarter versus I guess the previous quarter, how concerned are you with that trend given that you know like I said the economy was fairly decent in the quarter?

David Dullum

Okay, great for that trailing 12, when we do our valuations so you’re always you know how do you think – you have to think about where that the trailing 12 started and you can have again using an example these companies that there may be say during $5 million, $7 million, $8 million EBITDA and if you have a pop-up of couple of hundred thousand dollars times a multiple let’s say four or five times, that’s $1 million of decline in value. The question – the right question you are asking the right question, are we concerned if I hear $200,000 a decline on a trailing 12 quarter in terms of fundamental of the business that the basic answer is certainly not based on our current portfolio. So you have those kind of movements, you know we’re taking companies let’s say looking back over a year ago it might have been coming slowly out of a decline right and so if you lock that up you only find that and we don’t look – do not use that looking forward kind of their EBITDA, that’s where you get this anomaly.

Unidentified Analyst

Okay the point – I guess the point is that it’s not really the quarter, its trailing 12 versus the previous trailing 12. Still – now we are in no more than a month into the last fiscal – I guess you’re starting the season numbers for January, what trends are you seeing so far in your portfolio companies?

David Gladstone

You know probably the end of February for most of the portfolio companies that is not much we can say anywhere if this point out of then a major bad news come to our platform.

Unidentified Analyst

Okay my last question relates to ASH and Berlin [ph] which you know were relatively recent investments you know one in fiscal ‘11 and one in ‘12 which were made one you known the economy me was on an upswing so I like to understand what caused those businesses to deteriorate to the point to take an exit?

David Dullum

Okay, I think we’ve actually you know chatted briefly about this, it’s a first investment that Gladstone Investment need. Back in the side is roughly old 50 investments so the date on that is to be clear so that’s an older cool right.

Unidentified Analyst

Okay so I’m mistaken and that’s an old.

David Dullum

No problem and so that one we frankly had reached the point where that business is I think we sort of talked about those before and frankly got a management team in place, we saw through our opportunity and we thought it was heading to a better, at this point we had the opportunity to essentially take this I call it write-down and let the management have ability really to take that business further, so doing the with the other side of the coin even we would have that write-off certainly. We do have currently in the way attrition have left to another $5 million piece of debt which is actually paying currently, it's actually cash and that company generated positive EBITDA.

So as we say proper and a decent things that we have done and we now have a modest investment in that business that in fact is paying currently. So that is one that was a relatively small investment that we made in let’s say that was in early ’11 I believe and it was one that had an issue right out of the box unfortunately that all the investors mislead, we did not lead that as a direct investment but good news is that a significant portion of our investment in debt and the relatively small in equity and shortly after the transaction we were at the aggregate all of our debt investment and had a link preferred keys. So we also took the opportunity to negotiate with, actually to lead -- actually sell if you will our preferred position back to them and actually got cash out of the deal and then took a write-off of approximately$1.5 million. So the total investment actually given that we got our debt back had a modest relatively speaking actual decline in usual circumstances around the company which really is what’s called as the transaction.


Thank you (operator instructions) and we do have a question from J.T. Rogers of Janney Capital Markets.

J.T. Rogers – Janney Capital Markets

Good morning, thank you for taking my question. Most of my questions have been answered but looking at the other expense line it looks like administration fixation have been turning up over the most recent quarters, so I want to know what’s driving that, you expect that to ease at all the coming year?

David Gladstone

Sure J.T, it’s David, the other expense line kind of positive in December quarter and that’s really the reflective of the excise tax that we had to accrue and pay in the quarter and that was probably a company that you’re not going to see in any of the other three quarters. And that number was less than prior calendar years. And then there is also a company -- as we are playing on more deals and then have a lot more activity in the fund, there is a possibility that deal expense [indiscernible] as well.

J.T. Rogers – Janney Capital Markets

Okay great, thank you.

David Dullum

Do we have some other questions?


Okay, actually there are no other questions at the present time so I’d like to give it to the management for any closing comment.

David Gladstone

Alright, well thank you all for tuning in and we will look forward to seeing some of you at the next meeting at the end of this call.


Thank you, the conference is now concluded. Thank you for attending today's presentation. You may now disconnect the lines, have a nice day.

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