Full Circle Capital's CEO Discusses F2Q2014 Results - Earnings Call Transcript

Feb.11.14 | About: Full Circle (FULL)

Full Circle Capital Corporation (NASDAQ:FULL)

F2Q2014 Earnings Conference Call

February 11, 2014 11:00 AM ET

Executives

Stephanie Prince – Vice President-Investor Relations

John Stuart – Co-Chief Executive Officer and Chairman

Gregg Felton – Co-Chief Executive Officer and President

Michael Sell – Chief Financial Officer, Treasurer and Secretary

Analysts

Andrew Kerai – National Securities

Casey Alexander - Gilford Securities

Mickey Schleien - Ladenburg Thalmann

Alan Brochstein - 420 Investor

Operator

Welcome to the Full Circle Capital Second Quarter Fiscal 2014 Earnings Conference Call. At this time, all participants are in a listen-only mode. Following management’s prepared remarks, we will hold a Q&A session (Operator Instructions). As a reminder, this conference is being recorded today, February 11, 2014.

I would now like to turn the conference over to Stephanie Prince. Please go ahead, ma’am.

Stephanie Prince

Thank you, Brent, and good morning, everyone. This is Stephanie Prince from LHA. Thank you for joining us for Full Circle Capital Corp.’s second quarter of fiscal 2014 earnings conference call for the quarter ended December 31, 2013.

With me this morning is John Stuart, Full Circle’s Chairman and Co-Chief Executive Officer; Gregg Felton, President and Co-Chief Executive Officer and Michael Sell, Chief Financial Officer.

If you’d like to be added to the company’s distribution list, please send an email to info@fccapital.com. Alternatively, you can sign up under the Investor Relations tab on the company’s website. The slide presentation accompanying this morning’s conference call can also be found on Full Circle’s website under the Investor Relations tab at fccapital.com.

Before I turn the call over to management, I’d like to call your attention to the customary Safe Harbor statement regarding forward-looking information. Today’s conference call includes forward-looking statements and projections, and we ask that you refer to Full Circle’s most recent filings with the SEC for important factors that could cause actual results to differ materially from these projections.

Full Circle does not undertake to update its forward-looking statement unless required by law. To obtain copies of the latest SEC filings, please visit Full Circle’s website under the Investor Relations tab.

I’d now like to turn the call over to John Stuart, Chairman and Co-CEO of Full Circle Capital. John?

John Stuart

Thank you, Stephanie. And thank you everyone for joining us on the call this morning. Today I will begin our discussion with an overview of our strategy and results for the second quarter. Gregg will then review the portfolio activity and composition as well as Full Circle’s forward opportunities, and finally, Mike will provide a detailed discussion of the quarter's results.

Slide 3 accompanying the webcast gives an overview of our investment strategy which we’ve discussed with you many times before. As Gregg will discuss later in our call, we continue to build out our origination platform to include a broader set of investment options while staying within our credit parameters. While our focus remains on lower middle market direct origination, we're also employing an opportunistic approach to our investment growth program as seen in the recent secondary purchases to exploit market inefficiencies, as well as in certain cases through structuring our credit investments with a greater degree of equity upside.

Turning to Slide 4. We provide some high level details about our second quarter results. During the quarter we recorded net investment income of $1.9 million or $0.25 per share, the highest quarterly level since our IPO. These results represent an increase of 53% compared to NII of $1.2 million or $0.16 per share that we reported in the first quarter of the year.

We reported a net decrease in net assets from operations of $1.2 million or $0.16 per share. This primarily reflects the negative unrealized fair value adjustments during the second quarter. Our net asset value was $7.09 per share at December 31, down from $7.48 at September 30. $0.34 of this decline was due to quarterly fair value adjustments and $0.07 was from realized losses.

Majority of the unrealized losses relate to under-performance at two companies in the portfolio – ProGrade Ammo Group and Modular Process Controls. ProGrade continues to be a turnaround while MPC has seen a delay in the conversion of its project based new business pipeline. We're monitoring both companies very closely and are encouraged by the additional resources that both management teams have invested in each business.

Also impacting the unrealized loss was approximately $400,000 relating to the reversal of prior period unrealized gains in four companies that paid off in the quarter. This partially contributed to the $1.2 million in fee income that we recognized in the quarter as well.

On February 6, our Board of Directors declared the monthly distributions for the fourth fiscal quarter. Stockholders of record on April 30, May 30 and June 30, 2014 will receive dividend payments of $0.067 per share in the middle of each following month. This provides a quarterly distribution of $0.20 per share or an annualized distribution rate of $0.80 per share. This equates to a 10.9% yield based on the February 7 closing price of $7.39 per share.

The exact record and payment dates for the next three monthly distributions are detailed here on Slide 4 as well as on the first page of the earnings release we issued last night, which is also available on our website, if you did not receive it.

As we said on last quarter's earnings call, when we lowered the distribution rate to the current level it is our belief that the new rate of distribution represents the near-term earnings potential of the company, assuming normalized level of investment in the portfolio and deployment of our current liquidity.

I’ll now turn the call over to Gregg.

Gregg Felton

Thanks, John. Start with Slide 5 which details the portfolio activities during the second quarter. During the quarter, we funded new origination of $5 million to 1 borrower. Full Circle funded the purchase of a $5 million position in a senior secured loan facility to Esselte Holdings, a global manufacturer and distributor of office supplies.

The loan currently carries a floating rate of 10 and three quarters percent and our position is part of a larger $142 million facility. Esselte is a company with which I'm quite familiar having followed the company over the past few years and meaningfully participated in this credit facility in my prior funds at Goldman Sachs. The facility is well-placed given the size of the issuer, low leverage and significant collateral support.

During the quarter we received prepayments and realizations totaling $19.7 million. This includes realizations from five portfolio companies that paid off the par value plus accrued interest as well as prepayment and success fees. Payoffs were from Coast Plating, proposed CSL Operating, Employment Plus, iMedx and Franklin Place Shops.

As we previously stated, success fees and early termination fees from these realizations totaled $1.2 million in the quarter. While these fees are generated on an irregular basis they are an important part of our return profile.

Slide 6 details the portfolio activity subsequent to quarter end through today. This includes the securities purchase agreement executed with Advanced Cannabis Solutions for $30 million of senior secured convertible notes plus warrant. This transaction received a lot of attention, so it deserves at least a few minutes of this call.

First, we consider multiple ways to participate in the cannabis space and decided the most attractive risk-adjusted investment within the underlying real estate being used by providers in those states where cannabis is legal. In particular because local laws require the cannabis be grown locally, demand for suitable real estate has been on the rise.

Our investment structure is a loan to an operating company with a first lien mortgage on the portfolio of real estate assets that we finance. The real estate collateral provides downside asset support but we structured our investment as senior secured convertible notes in order to participate in ACS’ trajectory growth given the attractive lease rates on its properties.

Our initial investment was in warrants that give us the right to acquire 1 million shares of ACS common stock at an exercise price of 550 per share. We paid half a million dollars for these warrants or $0.50 per share. We have yet to fund the first $7.5 million of convertible notes as our funding remains subject to a variety of conditions including the acquisition of identified properties. The initial $7.5 million funding carries a coupon of 12% per annum and a conversion price of five dollars per share which remains very attractive based on the ACS’ closing price yesterday of $13 per share.

Our purchase agreement provides us with the right to fund the ACS’ future real estate purchases and we intend to bring in partners alongside us in the facility which may provide additional returns to the fund.

Moving on, we also paid approximately $6 million for $70 million farmout of $256 million senior secured credit facility to PEAKS Trust 2009– 1, which is a special purpose entity holding student loans. This senior secured credit facility is guaranteed by ITT Educational Services and bears interest at LIBOR plus 550 with a minimum LIBOR rate of 2%. Since we purchased this investment at discount it provides for potential capital gains whether through amortization or repayment of the loan. Deal to ward off [ph] this investment assuming no amortization payments is approximately 12.25%. However we do expect some amortization here which would result in greater returns.

Finally we received a full payoff at par plus accrued interest and fees from Global Energy Efficiency Holdings. With this payoff we received $437,000 in fee income which will benefit net investment income in the current third fiscal quarter.

Slide 7 details the metrics of our investment portfolio which continued to remain broadly consistent with prior periods. At December 31, our portfolio totaled $75.9 million, below the $95 million we reached in the first quarter reflecting the five payoffs that I just mentioned. At quarter end, we had debt investments in 18 portfolio companies.

Since I joined Full Circle three months ago, we've been actively building the pipeline of investment opportunities, some of which we have executed already. For example, the two investments that we made subsequent to quarter end illustrate Full Circle’s broadened strategy which now includes convertible debt as well as secondary market purchases. We believe that these types of investments offer attractive incremental sources of origination.

The average size of our debt investments is $3.9 million. We continue to focus on increasing the diversification of our portfolio as we deploy available capital in accordance with our investment philosophy. The weighted average interest rate in the second quarter was 12.48%, first lien secured loans accounted for 90% of the portfolio in the quarter with floating-rate loans representing 78% of the portfolio.

Our loan-to-value was 71% at the quarter end, higher due to fair value adjustments that we previously described. We continued to receive 100% of our interest in cash unlike many of our peers.

Slide 8 digs a little deeper into the composition of our portfolio, highlighting the predominantly floating-rate nature of our portfolio which positions us well for any possible rise in the interest-rate environment.

I’d now like to pass the call over to Mike for a discussion of our financial performance in the second quarter. Mike?

Michael Sell

Thanks, Gregg. Please turn to Slide 9, which provides an overview of the second quarter financial highlights.

For the second quarter of fiscal 2014 net investment income was $1.9 million or $0.25 per share compared $1.2 million or $0.16 per share in the first quarter of the year. The net change in unrealized losses was $2.6 million or $0.34 per share primarily related to fair value adjustments on ProGrade Ammo and Modular Process Control. Realized losses were $0.5 million or $0.07 per share relating to the partial disposition of our loan to MDU communications.

Overall we recorded a net decrease in net assets resulting from operations of $1.2 million or $0.16 per share compared to a net decrease of $2.2 million and $0.30 per share in the first fiscal quarter of 2014. The weighted average share count in the second quarter was 7.6 million shares, unchanged from the first quarter. Net asset value per share was $7.09 on December 31.

Please turn to Slide 10 which highlights the important balance sheet items. On December 31, our total assets were approximately $104 million which includes $21 million in short-term treasury bills. The investment portfolio totaled $75.6 million at fair value.

Total liabilities were approximately $53.7 million, which includes $6.4 million outstanding on our revolving line of credit as well as $21.1 million outstanding on the 8.25% notes we issued in June.

Turning quickly [ph] to the GE payoffs we had $45 million of availability on our credit facility. We raised $13.5 million in new equity capital in January, increased our funding capacity to close to $60 million some of which has been deployed during the current quarter.

I’ll now turn the call back over to John. John?

John Stuart

Thank you, Gregg and Mike. We’d now like to open the call for questions, operator?

Question-and-Answer Session

Operator

(Operator Instructions) And our first question comes from the line of Andrew Kerai with National Securities.

Andrew Kerai – National Securities

Just wanted to touch base on backstop [ph] broadcasting for a second, looks like this is second quarter in a row that’s been sort of category five and you guys aren’t – unexpecting to be repaid fully at par. I just wanted to clarify, you guys is that company still current on the interest payments, correct?

John Stuart

Andrew, that is correct. They are current on the interest payments. We are working through either the disposition of the loan or the disposition of the assets underlying the loan. That is something we have been working through. On the other hand, it has stabilized at its current level and it is paying interest and performing even though we have it marked down in the last two quarters – at a marked down level, that’s correct.

Andrew Kerai – National Securities

And then I just wanted to touch basing in on the MDU Communications as well. The company had an asset sale – I believe they prepaid part of their revolver if I am not mistaken. So why – looks like you took down the interest rate down to 2%. I just wanted to get I guess more clarity around why you have placed them on non-accrual kind of in the interim before I guess they can repay back to that investment?

John Stuart

First, they are going through the sale of their assets. In fact, we expect another closing pretty soon with another paydown, partial paydown. The reason why it’s taking a while to get the loan paid down is their properties are subject to consent or assignment of contract is subject to consent. So that’s going through a closing process, and that’s also factored into our valuation. The reason why the interest rate was brought down that basically had to do with the negotiation with certain stockholders, and when the company entered into its sale agreement. So that’s why it’s brought down to a nominal rate of interest as part of the negotiation with them. I will let Mike answer from a valuation standpoint on MDU.

Michael Sell

Yes, we moved the interest rate down to 2% as part of the restructuring. I think one part of your question was why do we then move into non-accrual? As the unwinding of the company’s assets and liquidity has been occurring, we have been constantly communicating with management regarding kind of a probability based expectation on cash proceeds. As you will note in a scheduled investments, we are currently holding the asset at a bit of a discount reflecting the fact that we expect there will be some shortfall associated with that liquidity. Obviously when you look at the magnitude of the difference between fair value and cost we have, it’s not expected to be extremely significant at this point in time. But given the principal repayments may not be sufficient to get us 100% of par, accruing interest on the position doesn’t seem to be appropriate at this time in time. So we moved it to non-accrual, in the event we get full payoff and then we receive our interest later on, we will then recognize that interest income at that point in time.

Operator

Your next question comes from the line of Casey Alexander with Gilford Securities.

Casey Alexander - Gilford Securities

My question is in relation to ACS. Is it your intention to fully hold that when it’s fully funded, or is it your intention to piece it off to some partners? Or how long do you think it would take to fully fund that deal, because at 30 million, it would be an enormous concentration in your portfolio?

John Stuart

That’s a good observation, Casey. Gregg should take this question, it’s actually his deal.

Gregg Felton

So couple of things, first is you will note that the tranching of the investment reflects an initial $7.5 million funding. That is the amount that we would intend to hold on balance, $7.5 million also carries a $5 conversion price and to be clear that’s our option. So it should be thought of as a 12% first lien piece of paper with the right to convert at $5 should that make sense. As it relates to the additional $22.5 million, which is the $30 million in total, that amount again is a commitment with a lot of conditionality but it would be our expectation and based on the calls that we received from various interested parties, we would expect to bring in participants into the facility but we would like to do that in a way that’s beneficial to shareholders, meaning that we like to consider different ways to participate in the economics at the fund level. There is variety of ways for us to do that. That’s what we are working through.

I should also mention that beyond the $30 million, this is a matter of public record in the documents. We also have a right of first refusal to participate for the period of let’s say 3 years in future floats. So it’s a really good opportunity for us to continue to participate in this attractive space and we would expect even beyond the $30 million to be able to bring in partners into this opportunity.

Operator

Your next question comes from the line of Mickey Schleien with Ladenburg.

Mickey Schleien - Ladenburg Thalmann

I have several questions. I wanted to start with the – going back to the backlog. Can you give us a sense of perhaps the size of the backlog and what sort of transactions are included in the backlog? And when I use the word backlog, I mean deals or you have term sheets, you have some expectations of closing.

John Stuart

This is John speaking. I will start and then Gregg can fill in. As we don’t really publish a backlog like some other BDCs might do because our experience says it’s never going to be correct, some will close, some won’t close, and it’s hard to pin that down. However I will tell you that as you know we did raise capital last month in anticipation of funding a very what we believe to be a robust pipeline of transactions. There are more than a few transactions that are under term sheet, assigned term sheet that we are working through. There are others that we expect to sign up imminently; in fact perhaps one more tomorrow. So we can’t really give you a dollar figure but suffice to say, we took all of our pipeline into consideration, probability of closing and matched that up against our liquidity needs, requirements and our current liquidity over the last month. So I think we’re feeling pretty good about the pipeline. I hope that it was clear to people on the call that we’re expanding out our origination platform. We use that line a lot and I think Greg can speak to that rather succinctly.

Gregg Felton

Yeah I mean I think – thanks John. I think in particular when we look at the pipeline of opportunity or the backlog as you call it, one of the things that of course we’re seeing by virtue of broadening that origination funnel, that is to say not just looking at the historical and traditional sources of opportunity but looking of course at the secondary market where there are not necessarily a robust number but certainly some interesting opportunity that we’ve referenced on the call, one that we just recently closed we mentioned. But in addition to that, just looking at different ways to structure opportunity in a different perhaps level of opportunity that is coming from looking in a variety of different places. So what we mean by the broadening of origination which we have underlined here is that we’re looking and we think that we have the opportunity to originate quite a bit more perhaps than we have historically. That’s being evidenced in the term sheets that have been signed and it’s being evidenced in the numerics of our pipeline, again that we don’t publish but that we see internally. So we’re very excited about that and I guess I would say just beyond that, we’re happy to obviously detail any of the deals that we’ve printed. We are very focused on providing you additional transparency into the deals as and when we published them. But we feel pretty good about where we sit today.

Mickey Schleien - Ladenburg Thalmann

Thanks Greg, that’s really helpful. I have a couple of questions to follow up on ACS.

John Stuart

Sure.

Mickey Schleien - Ladenburg Thalmann

Can you tell us what process would be required for you to actually exercise those warrants? My understanding is that neither the warrants nor the underlying shares are registered and this is a small development stage company. So I’m trying to get a handle on that process.

John Stuart

Sure. It’s a great question. So the warrants, which again the agreement of which is filed publicly, have registration rights attached. And what that means is that they provide us the right to convert into registered stock once those registration has become effective. That process for this company given its early stage is a multi-month process, so we look at that and discount the probability and think about just the timing as you’re aware of getting through the SEC can be lengthy. That being said, there is something that provides for liquidity in the event that you have underlying restricted shares which is Rule 144, which provides an outside date of six months from the date of the transaction. So six months from the date that we acquired those warrants they would be available to be converted into fungible stock. So I would say that’s the way that you ought to think about it, six months being the outside date or perhaps earlier if that stock is registered.

The same would be true of the convertibles from the time of funding. So obviously we mentioned, we have not yet funded that first convertible. There is a pipeline of opportunity that ACS has. They are obviously looking at all of these specific deals that they have and we’re working closely with them to consider funding that pipeline, right, which we would like to do. So as and when we fund the convertibles, they’ll have the same dynamics which is to say we’ll start to receive a 12% interest payment on those convertibles as they are funded and we’ll have the right to convert into stock which would have registration rights attached. So it would be either several months or six months at the outside date from the date of funding.

Gregg Felton

Six months representing the 144 restrictions.

John Stuart

That’s right.

Mickey Schleien - Ladenburg Thalmann

Right, right. Gregg, or whomever, if you were to value the warrants today and I’m having a hard time doing that myself, what value would you place on them, or at least a range of value that you think might show up on the March 31 SOI?

Gregg Felton

Right. So just for the sake of clarity, everyone should understand on the call that the warrants are reflected at cost as of today and as it relates to how we’ll think about them on the prospective quarter, which is what you’re asking. Mike, do you want to comment there?

Michael Sell

Yeah, I think this is -- given the restricted nature of both the security itself and the underlying, we’ll probably start with an intrinsic value analysis, an option value analysis and work backwards from there in terms of determining what the actual value is. Obviously, the amount of shares that we can convert into is going to weigh into that given the market cap of the underlying entity as well as kind of there is a time premium associated with the potential for – it could be a 144 moment for liquidity which would young potentially move liquidity out six months from this time period today and less obviously at quarter end. Those factors are all going to come into play. Obviously we’re going to utilize -- well maybe not obviously but we are going to utilize our outside valuation agents to give us some insight here both as a means to making sure that we do the best thorough analysis we possibly can here as well as to just have a second set of eyes on this particular transaction.

Mickey Schleien - Ladenburg Thalmann

Mike, given everything you just said, it sounds to me like we can expect some discount to their intrinsic value. Is that a fair statement?

Michael Sell

I would expect that given that the liquidity profile and the restricted nature of the underlying security, I think you would expect some discount to intrinsic value.

Mickey Schleien - Ladenburg Thalmann

Okay. And going to the convertible you obviously have a long ‘relationship’ with this company and therefore the various attractive exercise price and the warrants and exercise price and the convertible, but how should we think about their intent to draw on those convertibles given how deep in the money it is at this point. I mean they could come back to you and say look, we need to renegotiate or we’re going to go somewhere else. So how likely do you feel that they’ll actually take some of that money?

Gregg Felton

It’s a great question and thanks for the question. Let me start by saying that the pricing of the warrants and the convertible price reflects the pricing of the equity at the time at which we began our negotiation. So while it’s fair to say that the conversion price and warrants are very much on the money today, that’s a reflection of where the stock had gone since the time that we had term sheeted this transaction. So that’s the first point.

As it relates to the likelihood of them drawing, I’d say you should consider it extremely high. The reason being that we have a right, contractual right in our agreement be the sole provider. So they don’t have the ability to fund debt away from our financing. They certainly have the ability to fund equity away from our financing, but we believe that the company will look to our debt financing as an attractive solution relative to certainly equity at some point in time. There is a big pipeline of real estate opportunity. The returns that are available as is public on their underlying leases are in the 20s in terms of percent. So there is a very large spread between the 12% cost of money and the 20, mid 20s percent lease rate.

Now the other thing to note to the extent it’s not clear is the $5 conversion price is only on the initial $7.5 million funding. The future convertible fundings would be at a 10% premium to whatever the prevailing price was at the time of funding. So you also have to consider from a cost of money perspective it’s only the first 7.5 that are deeply in the money; the prospective fundings are much more at the money or slightly premium out of the money for the company. But they are required to use our facility for debt financings.

Mickey Schleien - Ladenburg Thalmann

I understand. You said, so you have the right to be the sole source and debt financing.

Gregg Felton

Correct.

Mickey Schleien - Ladenburg Thalmann

But I thought I saw an 8-K from them saying they did a relative – I think like 1 million or $1.2 million private placement of some debt recently. Was that before this – you got this right or was it simultaneous?

Gregg Felton

That’s correct, it was before. So…

Mickey Schleien - Ladenburg Thalmann

Okay.

Gregg Felton

So the sequencing here is they were working on a retail placement with a firm called Spencer Edwards for convertibles. And that convertible placement was done prior to and carved out from our financing. So what I’m referring to is any prospective fundings would have to be through us.

Mickey Schleien - Ladenburg Thalmann

Okay, and I appreciate your patience here. Just a couple more questions. Talking about the PEAKS transaction, you mentioned that ITT has guaranteed the loan, but I looked at ITT’s fourth quarter results and they are generating an operating loss. So I’d like to understand what the nature of the guarantee is.

Gregg Felton

Okay. So ITT actually generates quite a lot of cash flow, well north of $100 million. The reason that you’re seeing a loss is because they actually are taking a write-down to reflect the guarantee of payments to PEAKS which is the transaction that we’re funding. So it is a full and unconditional guarantee of any deficiency that exists if creditors, which is Full Circle now, of the PEAKS Trust should have a deficiency. So we're first lien against portfolio student loans. Those student loans are to support students attending ITT, and ITT guarantees the payment of principal and interest of our finance.

What you will see in the ITT financial statements from the quarter and obviously – or maybe not obviously but we do have additional information on this credit that is not public domain. But what is public from ITT’s financial statements is that they expect to actually start to amortize or pay down some of the PEAKS financing in the current fiscal year. And so I mentioned on the call that we thought of this instrument without the benefit of any amortization, we do expect amortization and ITT to some extent as experiencing those types of write-downs and losses that you are referring to as a consequence of payments that they are having to make to support the financing that we provided.

Mickey Schleien - Ladenburg Thalmann

Okay. And my last question about Modular Process, I see that you reduced the size of the revolver and converted that amount that you reduced into the senior secured term loan portion of the deal. So I like to understand why you did that and what’s going on with the company?

Michael Sell

Yes, this is Mike. It’s a good question. One of the things we did there was -- our revolver has certain dynamics to it that obviously incentivized MPC to do business, and to bring forward contracts that are in process. With the slowdown the revolver didn't have the same kind of metrics on as it did before. So when we were looking at this we took a kind of I guess a split angle on in that we decreased the size of the revolver so that it was appropriately sized for both the near term backlog as well as what could – if there is a decrease, it will still be functional revolving credit, as well as you will note that we split the rates. So we increased the rate on the term loan slightly and we decreased on the revolver slightly so that there was an incentive there for that current book of business to be brought forward by the borrower and that they could then pull capital off of the term, move it into the revolver and decrease the cost of funds, just through generating their operating profits.

John Stuart

In terms of what’s going on there, Mickey, the second half of your question, their business is project – is by nature a project based. They do a lot of work with Fortune 500 clients where sort of budgetary cycles are somewhat long dated. While the backlog in the pipeline and the set of opportunities has been more robust more recently. The conversion cycle has taken a lot longer. It’s very frustrating, it’s frustrating for the company, it’s frustrating for us and by extension for all of you. But we are – we remain encouraged by the build that – the continued build of this pipeline, and as I said in the prepared remarks, we are watching this very closely and we are working in concert with the management team to work through this pipeline and the timing.

We obviously expect to fund them with more working capital to get them through this, to get to the point where those projects become more – could come to revenue and cash flow capabilities. In addition, management has put in a substantial amount of money into the business to fund a good portion of that working capital requirements as well. So we are working through it. It’s, as I said, frustrating but we are encouraged by the expansion of the scope of business, just a little bit discouraged by the timing.

Operator

Your next question comes from the line of Alan Brochstein with 420 Investor.

Alan Brochstein - 420 Investor

I was hoping that you could just speak a little bit about the diligence process, why you decided to do this?

John Stuart

So as I mentioned, I suppose in the prepared remarks, there were a number of opportunities that we were focused on in the sector – the cannabis space is certainly becoming very much more acceptable and many, many states as you know are legalizing the sale, some for recreational but most toward medical purposes. And so it’s a huge market opportunity in terms of the growth. From our perspective we were very focused on what the right way to invest in this market is, by virtue of the fact that there were a number of companies coming and looking for capital, the markets as you know are not providing adequate capital to this market, notwithstanding the growth opportunity.

And so the first question that we had was what was the right investment opportunity. We believe that the real estate investment given our profile made a lot of sense investing in physical assets that had downside protection and by the way alternative use to the extent that for whatever reason, the cannabis use was not there, was important. So the first point was investing in real estate. The second point is with whom to invest, we spend a lot of time looking at different business proposals, different teams, different opportunities and we were very impressed with the Advanced Cannabis management team. We think that they have the right credentials, we think that they have the right positioning in the market. We think they are in the right state, Colorado as a starting point, and importantly, we think that they as a public company have a terrific opportunity to essentially be the leader in the space in terms of positioning themselves to provide physical real estate solutions for growers and dispensaries in those states where it’s legal activity.

And so from our perspective, we are very encouraged when we met with and worked with the management team. They were very focused on doing things that are in a way that’s very consistent with federal guidelines and building a robust compliance infrastructure to support their business which we think is critical. And we finally were able to structure a transaction with this team that we thought made a lot of sense for them and made a lot of sense for our investors. There is clearly a huge opportunity here in the long term. We are thinking about this as a long term opportunity. And that’s the reason why we structured something that gives us the ability to grow with the company. We don’t want to just be single source of capital but what we want to be able to is a long term source of capital. And as I indicated earlier, we’ve got a pipeline of opportunity just with this one company which far exceeds our balance sheet. And we will bring in partners to support that growth over time.

Alan Brochstein - 420 Investor

Can you elaborate on the way you are going to do that in terms of bringing in outside partners to help fund this opportunity?

John Stuart

Yes, there is a number of different ways that we could do that. There is – we received, as you might expect, many calls from people looking to participate in this investment opportunity. We would like to structure it in a fashion that provides the best return opportunity to our investors, and we think that, that there is a number of different sensible ways to structure that. We are working through those types of structures with council as we speak. But ultimately the objective here is to provide those investors who are interested to access to the investment while at the same time providing our investors a fee which is reflective of the fact that they have positioned their capital into this company and really benefit from the syndication of these risks into others.

Alan Brochstein - 420 Investor

And then you obviously have some pretty attractive securities, other analysts are asking how they are going to be carried on the books, it sounds like you guys will be conservative, that these securities themselves have already been sold, similar ones anyway into the public market – the private investors, but that are already sold to others. Would you consider monetizing some of those investments, or how will you address that?

John Stuart

I want to make sure – when you said just the second part of your question just for clarify, when you said some of these assets have been sold to other investors –

Alan Brochstein - 420 Investor

Let me rephrase that. The company has sold convertible notes to other investors through underwriting and they have also – there are warrants out there. So investors clearly have an appetite for these securities, you have gotten very favourable securities, prices on your securities, would you look to monetize them?

John Stuart

I think the answer to that as a fiduciary we would certainly consider any calls that we receive from investors that have interest in purchasing either the warrants for example. We clearly are focused on the pricing and the value there. Somebody on this call asked about how we think about value, whether it’s a valuation technology we’re going to use, if somebody were interested in providing the right type of bid we certainly have to consider that. We are bullish on the long-term prospects for Advanced Cannabis and so we're happy to be a long-term holder of the warrant but clearly we will have to consider any calls that we might receive on that basis.

The more typical call that we've been receiving is relating to being an investor alongside of us in the convertible. And as we said there's certainly a lot of capacity as the company grows and we see significant pipeline of real estate investment opportunity Advanced Cannabis has, certainly allowing folks to co-invest in that particular instrument mix, makes lot of sense, the warrants have been less of a focus for us anyway. But we would of course respond to inquiries if we receive there.

Operator

And so we have no further questions in the queue at this time. Please proceed with your presentation on any closing remarks.

John Stuart

One, thank you everybody for joining on the call today. This is actually the longest call we’ve had since we’ve been public, which also -- we should mention – we’re Gregg, Mike or myself are all available for any additional questions you may have. Please feel free to reach out to us. Obviously there is a lot going on here. We look forward to reporting back to you on our next quarterly call in mid-April and also talking to you in between – mid-way, excuse me. Okay, thank you very much.

Operator

Ladies and gentlemen that concludes your conference call for today. We thank you for your participation and ask that you please disconnect your lines.

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Full Circle Capital (FULL): FQ2 NII of $0.25 beats by $0.01. Revenue of $4M (+29.0% Y/Y) misses by $0.18M.