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David J. Gladstone – Chairman and Chief Executive Officer

Gladstone Capital Corporation (GLAD) Stockholder’s Proxy Call January 11, 2011 9:00 AM ET


Good morning, and welcome to the Gladstone Capital Corporation Shareholder’s Conference Call. All participants will be in listen-only mode. (Operator Instructions)

Please note, this event is being recorded. I’d now like to turn the conference over to David Gladstone. Please go ahead.

David J. Gladstone

All right. Thank you, Emily, for doing all of that. Hello and good morning to all of you out there. This is David Gladstone, Chairman, and this is a special call to explain the items in the proxy for shareholders of Gladstone Capital which have common stock traded on NASDAQ under the trading symbol GLAD, or GLAD.

We do have preferred stock now, and is traded on the New York Stock Exchange under the trading symbol GLADPRA, for Preferred A. Anyway, you can get that, one place you can get that is by going to the New York Stock Exchange, that’s and putting in that symbol and it will come up. It doesn’t show up on a lot of other trading desks.

Anyway, thank you all for calling in. We’re always happy to talk to shareholders. We want you to know that you have an open invitation to visit us here in the Washington, D.C. area. Please stop by our offices in McLean, Virginia, and say hello, I think you will see some of the finest people running the business working here.

We invite you all to come to the Shareholders’ Meeting on February 16, 2012 at 11 AM at the Hilton Hotel, 7920 Jones Branch Drive, that’s here McLean, just a short hop and skip from the office here.

If you’re not coming, then please vote your shares using your proxy so that we can get all the votes in and have the shareholders’ meeting. You can vote your proxy by mailing your proxy card, that’s the easy way to do it. And you can vote by calling 800-690-6903, but if you’re going to call, you’ll have to have your proxy card handy, because you need the proxy control number off of it.

Another way to vote is with the proxy control number in hand, and to go to, that’s, and then you can vote online. And you can always call your broker, and your broker can help you get the voting in as well.

The recent regulations only allow your broker to vote on routine matters, and for example, voting for Directors is a non-routine matter meaning all of the shareholder can vote. As a result, the cost to do your fund and round-up votes and calling all the shareholders and asking them to vote really cost a lot of money just to get a quorum in each year. And that really takes dollars away from, because we pay that as dividends or invested in new investments. More and more government regulations for us to comply with making less profitable for us and other public companies to operate.

Before we begin, let’s read the statement about the forward-looking statements. This conference call may include statements that may constitute forward-looking statements within the meaning of the Securities Act of 1933 and Securities Exchange Act of 1934, including those statements with regard to the future performance of the company. These forward-looking statements inherently involve certain risks and uncertainties, even though they are based on our current plans and we believe those plans to be reasonable.

There are many factors that may cause our actual results to be materially different from any future results that are expressed or implied by these forward-looking statements including all those risk factors under the caption “Risk Factors” in our Form 10-K and all our other filings with the Securities and Exchange Commission. And those can be found on our website at and also on the SEC website. Just to note, 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.

Again, thank you all for calling in. Before starting the matter and the proxy, I want you to know that, we will be having our quarterly call, our earnings call for the quarter ending December 31, 2011 on February 1, at 8:30 AM. So, on this call I’m really not able to answer any of the questions about the 10-Q that we are planning to file for the December 31 quarter, it’s just not ready yet to be filed.

Look for that press release, or better yet, get on our website and sign up for e-mail notification of events at your company so that you get the information when it’s posted. And you can also follow us on Twitter under Gladstone comps or on Facebook under the key words The Gladstone Companies.

I can report to you today that our fund is performing well, and just to make sure we all remember, and our most recent filings show that this fund does not have any investments in any of the troubled sectors of the economy and these are still pretty much troubled areas, for example, we don't have any investments in home mortgages or housing industry. We do not have any in the past and really don’t plan to in the future. We also don't have any investments in suppliers -- to these captive suppliers of U.S. automobile industry.

Now some of our portfolio companies make a few pieces for cars and trucks, but it’s not like those captives that are selling all of their products to one of the – one or two of the large industries up there.

Also know that we’ve not invested in any banks or other financial institutions or service related as the finance such as leasing companies. And finally, you all know that we don't invest in small hi-tech industry and we’ve never invested in startup, so we rewarded all of those areas. But please don't ask me any questions other than one what I’ve just said about the December ending quarter until we release our quarterly numbers, because I can't talk about it.

And I can tell you that we just had our board meeting for January, the January board meeting and the board did declare dividends for January, February and March $0.07 a month, so we are continuing with $0.07 a month. But now let me turn to the proxy. In the proxy, we’ve asked the shareholders to vote on a number of things, some really easy to understand and the others are not too easy.

First of course, we’re asking to re-elect three directors, no need to explain that. Two of the directors would be elected by the common shareholders and one will be elected by the preferred shareholders. That’s the one difference that we have this year. So if you’re a preferred shareholder and you’re listening in, you got a different proxy card to votes from those in the common share side.

That’s the easy side, voting for directors, pretty straight forward. The second one, we’re asking shareholders to approve a proposal to authorize our funds to sell shares that of our common stock at a price below the then current net asset value per share. Many of the business development companies or as we call them BDC’s are asking shareholders to do this because almost all of the BDC stock prices are below net asset value or hovering at net asset value which would make it very difficult to offer new shares unless you have this kind of provision passed by shareholders.

So we’re asking you to do this so that if the stock recovers and gets a little closer to the net asset value and we have a need to issue some new shares. We would want to do this at no dilution or very limited dilution to our existing shareholders. As you all know, our fund must pay out 90% to be a regulated investment company. We have to be at 98% to avoid income tax of any kind and so we normally do that. Every now and then, we pay a little bit of income tax. We don’t want the 90% tax cuts, sometimes we pay out little less than 98 and have to pay $0.02 in taxes for that that we don’t payout.

And this means, really at the end of the day the only way for us to grow is to raise equity or debt. And we’re limited by the law of having less – that we must have less than an amount of our equity in the amount of debt, in other words you can’t go beyond one-to-one and debt to equity as a ratio. So none of the companies like ours in the BDC space are highly leveraged. I really think that’s a good thing, because so many of the finance companies get leveraged up 6 or 7:1 and then they have a few failing years, and all of a sudden they are out of business. So I think this makes the BDC industry much stronger.

In order to grow the assets and the earnings of our fund, we will need to raise equity sometime in the distant future with the stock price so low, it’s just not possible in the current environment except by doing some kind of rights offering.

So if we don’t have this in place, the only way to do it would be with the rights offering. And the rights offerings are very expensive because the short sellers come in, they drive down the stock price and then they buy that stock in the offering. We had that happen to us in 2008, so we don’t want to have to do that again, unless there is some kind of an emergency to have to do it, but if we can get this done or having the shareholders let us sell stock below the net asset value then that obviates the need to do that.

During the overnight offerings, doesn’t let the short sellers come in and push down the stock price. So if we have this in place and add an emergency, the need to raise money on an overnight basis, the short sellers don’t get a chance to come in and destroy the stock purchase price and dilute the existing shareholders. But to do an overnight offering we do need your approval to sell below net asset value. And we’ll be announcing the net asset value for December 31, not to far away. Currently the net asset value atleast at September 31 was $10.16.

Now, let me add one more item, we presently have no intention to sell common stock today, but if the stock was selling at somewhere closer to or at or above net asset value, then we might want to take advantage of raising some common equity, so that we continue to grow the assets and hopefully increase the dividend.

We have asked you to do this each year now for three years in a row; this is the fourth year in a row, we haven’t exercised that privilege in any one of those three years. So again, it’s more of a safety measure. We didn’t use the privilege last year at all, and we went out and raised preferred stock instead. We thought that was a better way of going forward and getting some long-term equity in the firm.

And – but we do need to have this proposal to pass, this along as an alternate to having some kind of rights offering. Then the government requires us to get this item passed each year by shareholders, and each year we go out and do this and it does run up the cost. And I hate to do this, but it’s something that I think we need to do every year.

We recently raised some term preferred as most of you know, and that was a good position, and I think as long as the stock price is down this way, we would be issuing more preferred. But however, I have to let you know that preferred stock is treated by the government and their test as debt, and we’re limited to not having debt plus the preferred stock in excess of our equity capital. So we’ll run out of the ability to issue preferred stock at some time in the future.

And that’s really the end of this Item 2, and we will get to some questions in a moment. But finally, we need shareholders to ratify the selection of our audit committee – that our audit committee has selected, Price Waterhouse Coopers as our independent auditor for the next year and that’s pretty straight forward as well.

Now, I ask you again, please vote your shares. It is ever so costly and time-consuming to get shareholders to vote. The funds spend in the thousands of dollars contacting voters to vote those shares. So please get your votes in as soon as possible. I’d like to pay that money out as dividends rather than spend it on efforts like this.

The dividend by the way is $0.07 a month and that’s a run rate of $0.84 a year. The Board will meet the first part of April to vote and declare the dividend for April, May and June. And I’m hopeful some time in the next year maybe this calendar year that we can start to increase the dividend again.

Folks, as far as we can see out there, the economy is still stalled. I was looking at the 200,000 jobs that were created in December and, lo and behold, in looking at the Bureau of Labor Statistics, find out that transportation was where 47,000 jobs were created. And if you look deeper in that, 47,000 were couriers. I just can’t image that they hired 47,000 couriers. I think there is a little something fishy in the number, but we will have to wait and see if they change that.

There is still a credit squeeze. The banks have curtailed their lending. They have avoided some of the riskier transactions and I think that’s wise in some ways. On the other hand, there are a lot of companies out there that are not able to raise money.

The government is continuing to borrow so much money that I think they are squeezing out a lot of the businesses that want to borrow money. So they are crowding out the little guy in order to keep the government afloat. But we can only see a few quarters out. Our portfolio is doing reasonably well, and we are stewards of your money, so we'll stay the course and continue to be conservative in our investment approach.

Again, I invite you all to come to the Shareholders Meeting February 16 at 11:00 AM at the Hilton Hotel, 7920 Jones Branch Drive in McLean, Virginia. I’d like to see all your shining faces there and come see and meet us. And if you are not coming again please vote your shares, so that we can get all these proxies in and get this going the way we need to go. If you haven't received your proxy, please call your broker get them – get them to send you a replacement.

And now, Emily, if you will come on, we will end this part of it and see if there are any questions from anybody out there.

Question-and-Answer Session


We will now being the question-and-answer session. (Operator Instructions)

David J. Gladstone

We usually don’t get any questions on this one Emily. It’s only when we announce earnings that we have people on there. And this is more for – it will be on our website as well, but it is sort of a way for people to find out what’s going on.


And we are currently not showing any questions.

David J. Gladstone

All right. Well, we will end this and thank you all for listening or being part of it and hopefully we will see at the shareholders’ meeting. That’s the end of this call.


The conference is now concluded. Thank you for attending today's presentation. You may disconnect.

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