Gladstone Investment Corp (GAIN) 2015 Q1 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Gladstone Investment Corporation's first quarter earnings call. At this time, all participants are in a listen-only mode. Later, there will be a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, this conference is being recorded.

I'd now like to turn the conference over to David Gladstone. Sir, you may begin.

Thank you, Shannon. Nice introduction.

Hello and good afternoon, this is David Gladstone, Chairman and this is the quarterly earnings conference call for shareholders and analysts of Gladstone Investment. Common stock trading symbol is GAIN and we have three preferred stocks; one is GAIN with an O, another one again GAIN with a P, and then GAIN with an N. So three different versions of that. We thank you all for calling in. We are happy to talk to our shareholders and potential shareholders. We love to give updates on our Company and our portfolio, and our business environment. We wish we could do this more often, and you all have an invitation to stop by and say hello, if you're in the Washington DC area. We're in a suburb known as McLean, Virginia. Please stop by and say hello. A lot of people here, you'll meet some very fine people.

And now, you'll hear from my General Counsel and Secretary, Michael LiCalsi. Michael is also the President of Gladstone Administration, which serves as an administrator to all the Gladstone funds and related companies, and he'll make a statement regarding forward-looking statements. Michael?

Good afternoon, everyone.

This conference call may include statements that 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. And these forward-looking statements inherently involve certain risks and uncertainties and other factors, even though they are based on our current plans, which we believe to be reasonable. And many of these forward-looking statements can be identified by the use of words such as anticipates, believes, expects, intends, will, should, may, and similar expressions.

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 those factors listed under the caption Risk Factors in this Form 10-Q filing, and our Form 10-K filing, and our registration statement as filed with the SEC, all of which can be found on our website www.gladstoneinvestment.com or the SEC's website, www.sec.gov. And the Company undertakes no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events or otherwise, after the date of this conference call, except as required by law.

Please also note that past performance or market information is not a guarantee of future results. Please take the opportunity to visit our website gladstoneinvestment.com and sign up for our email notification service. You can also find us on Facebook, key word, The Gladstone Companies and on Twitter at GladstoneComps. And the presentation today will be an overview. So we ask that you read our press release issued yesterday and also to review our Form 10-Q for the quarter ended June 30, 2015, which we filed yesterday with the SEC. Those can be accessed on our website, gladstoneinvestment.com.

And before I forget, we're having our annual stockholders' meeting tomorrow, August 6, 2015 and everyone is invited. Please make sure you vote your shares to help us avoid costs associated with the solicitation campaign, if you have not voted your shares, let me tell you how you can vote. You can cast your vote quickly and easily by signing and dating, mailing in your proxy card accompanying your proxy statement or by calling in 1800-690-6903 to vote over the telephone, toll free or by voting over the Internet at www.proxyvote.com. And please note the voting over the phone or Internet will require, you have your proxy control number available, and that number is printed on the proxy card that accompanies your proxy statement that you received in the mail.

Stockholders with questions on [how to vote are] strongly encouraged to contact our proxy solicitor, Georgeson Incorporated, at 1-800-790-6795 or you can call us at 866-366-5745 and stockholders may also vote by attending the annual meeting in person, which will be held tomorrow at 11:00 AM Eastern Time at our corporate headquarters located on 1521, West Branch Drive, Suite 100 in McLean, Virginia. If you are unable to attend, please vote your shares using one of the methods I described earlier.

Now, I turn to David Dullum, the President of Gladstone Investment for an update on the fund's performance and outlook.

Thank you, Mike.

So our Company, Gladstone Investment, is a fund focused on buying middle-market US businesses with the annual sales generally between $20 million and $100 million. Our funding structure in any buyout usually consists of secured first and second lien debt in combination with a direct equity investment giving us a significant ownership position. This combination of debt and equity produces a mix of assets, which is the basis of our strategy for Gladstone Investment. So the debt portion of our investments provide income to pay and grow our monthly distributions, while we look for the equity portion to increase in value and provide capital gains from time to time. So with our continued growth in operating income and the periodic realized gains that we've recognized, our Board was able to declare a common share distribution of $0.0625 per share per month for April through September, which is a run rate of $0.75 per share per annum, which represents an over 4% increase year-over-year.

Just generally, we'd like to indicate how we are different from other BDCs or other finance type companies in that what we do is we take a significant equity position in the companies that we invest in and this differs from some of the other public BDCs that are predominantly debt oriented and generally referred to as credit type BDCs. So for instance, the proportion of equity to debt for the investments in our portfolio we will see is approximately 25 to 75 ratio, most other BDCs' portfolios are somewhere closer to about 10 to 90 proportion of equity to debt with their equity generally coming through warrants that are issued with a debt that they place or a small co-investment [through in with] the primary equity sponsor in any one transaction.

As for more traditional private equity funds, which are generally 10-year private partnerships with a longer liquidity horizon for their investors, we are different in that as a publicly traded entity, our structure allows daily liquidity for shareholders. So allowing essentially ownership in portfolio companies that we buy through a public vehicle, which provides liquidity to shareholders. Also, we are able to keep an investment generally longer in our portfolio, while we generate income prior to an exit thereby creating the gain on equity.

Now, exit strategies. On previous earnings calls, we have discussed the topic of selling or exiting companies realizing capital gains through portfolio company exits is very much a component of the value proposition of an investment in our Company. And I would like our shareholders to know that we do develop and manage plans around the exiting of these companies from time to time.

These are generally based on the market conditions and our assessment of the risk and return in continuing to hold an investment versus exiting. We are currently evaluating possible sales over the next several months. So, so much more to come on these as we move further into our fiscal year, which ends March 31, 2016. We should note that although we may hold our investments for long periods of time, we do quarterly equity valuations of our portfolio, which can be volatile and not always representative of the potential value, which we might obtain on an exit. It is important therefore that we do look for the possible future realizable equity portion of our assets as one aspect of the overall future value of our Company.

Since June of 2010, we've exited five of our management-supported buyout investments and generated as a result of that, about $54 million in realized capital gains. Now, while the buyout market is still somewhat seller friendly, we must keep in mind that while if we were to sell a portfolio company in this market and it may be tempting, it would reduce the income producing asset base and then we would be challenged to incrementally replace that investment obviously in a higher purchase value environment in the current time.

So, let's look at though our deal generating activities and how we do that. Our deal generating activities do have a very high priority and our recent press releases do reflect the results of our continued growth in making new buyouts. We do [buyouts] as a result of having a broad and deep geographic footprint with offices in New York City, Los Angeles, Chicago and here in McLean outside of Washington, DC. We primarily market ourselves through what we call independent sponsors, middle market investment bankers and other sources that help create proprietary investment opportunities. We do not depend on others to negotiate or structure our investments for us. Generally, our investments include partnering with the management teams of these companies and other sponsors that would be involved in the purchase of any business. Our strategy of providing a financing package, which includes both the secured debt and the majority of the equity is a competitive advantage as it gives the seller the independent sponsor, if there is one involved, and the management team, a very high degree of comfort that the purchase and the transaction will occur at least from the financing perspective. In addition actually to outright purchase, we occasionally may find opportunities to partner with a business owner who will sell a portion of their company to us and then use that capital to grow the business.

So where do we focus our efforts? Generally, we invest in companies with consistent operating cash flow or as we call it EBITDA, which means earnings before interest, taxes and depreciation, generally of at least $3 million and we like it to obviously have a potential to be able to expand that cash flow. Some areas of interest from an industry perspective that we focus on are in light, specialty manufacturing, specialty consumer products and services, industrial products and services, occasionally aerospace and energy, although we've not done much of that recently and those typically are the four broad areas of industries that we focus on.

Now, as to the types of investments, generally, our investments as briefly mentioned are secured debt investments and those investments will carry a first lien typically also a cash yield, which is going to be in the mid to the high teens and that helps to balance the equity portion of the investment when we make it, which gives us a blended current cash yield which does help support our distribution expectations to shareholders. We generally also have an additional yield enhancer on these loans, which we generally call a success fee and usually these are paid in cash on a change of control or in some cases, in advance at the portfolio company's option. Further, the equity portion of our investments, we generally target to create a minimum of two to three times cash-on-cash return.

Now, let's look at the actual origination activity for this first quarter which ended June 30, 2015. We are pleased to report that during the first quarter, we invested $17 million in one new deal and existing portfolio companies, which continues our strong origination activity into this fiscal 2016. We also successfully exited one small portfolio investment. Specifically in May, we purchased Brunswick Bowling Products through a combination of secured first lien debt and an equity investment for a total of about $16.3 million. Brunswick which is headquartered in Muskegon, Michigan is a leader in the recreation industry, providing industry expertise, products, installation and the maintenance for the development and renovation of new and existing bowling centers as well as mixed-use facilities across the entertainment industry. In June, we also sold our investment in Roanoke Industries Corp., which resulted in a realized gain of $200,000 and a full repayment of our secured first lien debt of $1.7 million.

We do believe there is a strong positive origination trend as we continue through our second quarter of fiscal 2016, as we are in various stages of a diligence phase on a few new investments, which we hope will close some time in the upcoming fiscal quarters. In this regard, and as a subsequent event to the first quarter, we did announce beginning of this week that we acquired a company called GI Plastek that was on July 31 with a total financing of the equity and debt of approximately $21 million. So we continue expanding our marketing efforts and growing our presence in the marketplace.

So in summary, our goal for GAIN is to continue to strategically add accretive investments and position our existing portfolio for potential exits. Thus we expect maximizing distributions to shareholders with solid growth in both the equity and the income portion of our assets.

So that takes care of my part of the presentation. I'll turn it over now to Julia Ryan, our CFO, so she can fill in some of the details on the financial performance. Julia?

Thanks, Dave and good afternoon, everyone.

The big news this quarter, as Dave mentioned, is that we originated one new deal and successfully exited one existing investment. We also raised almost $44 million of capital consisting of over $40 million Series C preferred stock and over $3 million of new common stock, which was the over-allotment of our $24 million March common offering. This additional capital affords us flexibility to continue to expand our balance sheet for future new deals.

Through this quarter's originations, together with highly successful originations last year, we achieved another very strong quarter with over $12 million in total investment income and over $5 million in net investment income. So we're also pleased to announce that our portfolio continues to perform resulting in over $3 million of net appreciation, which was driven by improvements in operating performance, as well as increases in market comparables of certain portfolio companies. The cumulus effect of these positive trends resulted in a net asset value of $9.24 per share as compared to $9.18 per share at March 31.

On the balance sheet side of the end of June, we had $502 million in assets, consisting of $481 million in investments at fair value, $6 million in cash and cash equivalents, and $15 million in other assets. Our portfolio's allocation at cost is currently $377 million of debt securities and a [$140 million] of equity securities for 73%-27% split between debt and equity. Our liabilities in equity at June 30 consisted of approximately $90 million in borrowings outstanding on our credit facility, $122 million in term preferred stock and $10.5 million of other liabilities in addition to $280 million in equity.

Listeners will remember that in March 2015, we completed the offering of 3.3 million common shares for net proceeds of approximately $23 million. Following on the heels of that successful capital raising in fiscal 2015 in April, we closed on the over-allotment of the common share offering and issued an additional 495,000 common shares for net proceeds of $3.4 million. In May, we issued approximately 1.6 million shares of our newly issued 6.5% Series C term preferred stock and generated net proceeds of $38.6 million.

These financing successes have allowed us to raise capital to support our deal origination activities over the past several months and provide flexibility for future originations. We will continue to monitor and explore additional ways to raise capital to fund deal flow over the upcoming months while also meeting our BDC leverage requirements. As I mentioned, our net asset value was $9.24 per share as of June 30, which is a $0.06 increase since March 31, and primarily results from strong operating performance in the current quarter, including the previously mentioned appreciation.

Consistent with the fourth quarter of fiscal 2015, we continue to use an external third-party evaluation specialist to provide additional data points regarding market comparables and other information related to certain of our more significant equity investments. We will continue this practice and we'll plan to generally update the externally provided data on an annual basis for all of our significant equity investments.

Moving over to the income statement for the June quarter end, total investment income was $12.7 million versus $11.2 million in the prior quarter. Total expenses net of any credits were $7.5 million versus $6.2 million in the prior quarter, leaving net investment income of $5.2 million versus $5 million in the prior quarter. The increase in net investment income quarter-over-quarter was primarily due to higher interest income as a result of holding a larger portfolio, which was partially offset by the additional cost incurred in originating and carrying the portfolio which includes financing costs and management fees. As mentioned on previous calls, other income has historically been as high as 16% of our total investment income as compared to about 10% during the latest quarter. We expect that other income, which is primarily composed of success fees and dividend income, will remain meaningful but variable from quarter-to-quarter.

Our net expenses increased in the current quarter primarily due to higher interest and dividend expense driven by increased borrowings on our credit facility and by our newly issued Series C term preferred stock. As a result of these factors, including the newly issued common stock in March and April, our net investment income decreased to $0.17 per common share for the June quarter from $0.19 for the previous quarter. Our net investment income and a prior year spillover amounts covered our quarterly distributions to shareholders of $0.1875 per common share, 100%.

Now, let's turn over to realized and unrealized changes in our assets. Realized gains and losses result from actual sales or disposals of investments. Unrealized appreciation and depreciation is a non-cash event and it's driven by the 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. During the June quarter, we recorded $200,000 in realized gains relating to the exit of one portfolio company. Additionally, our portfolio went up in fair value by $3.2 million. This change was mainly driven by improvement in performance and an increase in the comparable multiples of certain portfolio companies. As a result for the June quarter end, our entire portfolio was fair valued at 93% of cost up from 92.2% of cost last quarter. All of our portfolio companies are current in payment except for one, which continues to remain on non-accrual and this portfolio company represents less than 1% of the fair value and less than 3% of the cost basis of our total debt investments.

As far as our portfolio in general, the debt portfolio is well positioned for any interest rate increases that may come about in the future, with 81% of our loans having variable rates with a minimum floor and the remaining 19% having fixed rates. The weighted average yield on interest-bearing debt investments remain consistent quarter-over-quarter at 12.6% versus 12.5% in the previous quarter. This strong yield excludes any success fees as Dave previously mentioned. It also does not include any paid in kind or PIK income as we do not currently have any debt securities (inaudible).

Success fees or yield enhancements that are contractually do generally upon a change in control, although there are times when the portfolio company can elect to pay it earlier. We generally only recognize success fees in our income statement, when they're received in cash. For comparison purposes, if we had accrued these success fees as we would if it was a paid-in-kind interest like other BDCs do, our weighted average yield of interest bearing assets would approximate 16.3% during the current quarter. And as of June 30, the success fee accruing off balance sheet totaled $27.4 million or approximately $0.90 per common share. There is no guarantee that we will be able to collect all of these success fees, or have any control over the timing of the collection.

From a credit priority perspective, 100% of our loans are secured with 81% having a first lien priority and the remaining 19% having a second lien priority and the capital structure of the respective portfolio companies.

Overall, Gladstone Investment had another good origination quarter, which helped the Company generate strong financial results. As previously mentioned, we increased our distribution rate on our common stock and have maintained that increased distribution while still remaining committed to covering our distribution by current or prior year net investment income as we have done consistently over the last four fiscal years.

And now, I'll turn the call to David Gladstone.

All right. Thank you, Julia. That was a good report, and Dave and Michael, good reports.

During the past quarter, we were able to report some great accomplishments such as good originations, increased value in the portfolio, and several successful financing activities, increasing our net investment income and declaring a dividend increase. One of our portfolio companies, as we keep mentioning, has moved closer to being sold. I think we have a couple of buyers, one now moving a little bit further ahead than the other. So I'm hopeful that before the end of the year, end of the quarter, this quarter, that will have some good information for you.

To recap, we closed the new investment $16.3 million, we invested $1 million in an existing portfolio company, increased our net asset value to $9.24, and raised our run rate on monthly distributions of about 4%. I believe, we can continue this success going into the second quarter of fiscal 2016, and are already off to a really good start as far as doing things. And we've got a lot of things under diligence and documentation phases. So think you're going to see the quarter ending this quarter September 30, it looks good feel.

I feel it's a great time to invest in smaller middle-market companies like the ones we invest in. However, these types of companies can be significantly impacted by the economy in which they operate. Although, we've seen some of the positive trends in the recent economic indicators, and I think, we are continuing to see the economic recovery, even though it's a sluggish pace. Just a couple of things to mention to watch out for, of course, there's still uncertainty around the Federal Reserve's monetary policies, they keep indicating, maybe, September that always increases interest rates a bit, but we're pretty much protected from that.

There is volatility still in the oil and gas industry as they continue to have layoffs 10,000 to 15,000 a month, seem to be going away, low oil prices though terrific benefits to the economy and also very great benefit to many of the companies that we have investments in. So our own oil and gas concentrations have been historically minimal. Right now, we're just at a zero. Fiscal crisis in the federal government still have a deficit of over $18 trillion this year. It just continues to climb as the government spending goes without any end in sight. I'm not sure when the day of reckoning will come, but we all know that you can't keep doing something like that.

Many of the private companies like those in which we invest feel there is far too much regulation and we feel it here in our company as well. Healthcare, financial services and energy, emissions, all of those are hindering the performance of a lot of these small and mid-sized businesses and of course job growth since they produce probably 80% of all the new jobs.

In light of all these concerns, our company, Gladstone Investment, has strengthened its balance sheet in the form of significant new equity. We've used new equity to buy and into the list of good portfolio companies. So I think we're in good shape. I think our companies are in good shape. Despite the past current economic issues, our fund has continued to make consistent monthly distributions including the increase of our dividend over time. April and July 2015, our Board of Directors declared monthly distributions for our common stockholders at $0.0625 per share, and that's up from $0.06 in the prior year per common share for each of the six months, April through September. Through the date of this call, we made 121 sequential monthly cash distributions on our common stock and some bonus extras along the way. Since inception, we've paid about -- over $7 now in dividends. The current distribution rate on common stock with the common stock trading at $7.90 is where it closed today, you got a 9.5% yield. I was very excited about that. I've bought a whole lot of shares in mid-June and I think this is one that everybody should load up on.

We do have three preferred stocks. I'm not going to go through those in terms of what they are. We have one at 7.25%, another at 6.75% and then the last one we did at 6.5% and I think all of these are trading above their original price. So they're in a good shape.

In summary, I believe Gladstone Investment is an attractive investment for all of the shareholders. It's monthly distribution with potential special distributions or an increase in capital gains. I think it's a great company and we'll continue to be disciplined in our investment approach and focus on making strategic debt and equity investments in good old American middle market businesses. We expect a good quarter for September 30, 2015 and hope to continue to show you a stronger (technical difficulty) as we go forward for the rest of the year.

Let me remind you again what Michael talked about, you need to cast your vote. We'd sure like to see everyone voting. It's always hard to get enough votes in in order to have a quorum. You can call 800-690-6903 and with your proxy card, toll free. You can also do it on the web at www.proxyvote.com. You can even note that voting over the phone or the Internet will require you to have that proxy control number that Michael mentioned. And the number is printed right there on the proxy card accompanying proxy statement. You also can, if you call in, they can verify who you are and you can vote through that way as well.

So give them a call Georgeson Inc. at [1-800-790-6795] or you can call on 800 number 866-366-5745, all of these are good ways for you to vote and help us get the shares. And so that we don't have to have a second meeting. Stockholders also may vote by attending the annual meeting. We love to see you, we only see two or three shareholders at our meetings, it's 11 o'clock Eastern Time. It's here at 1521, Westbranch Drive. You can vote your shares when you come if you want to, if you are unable to attend, do vote your shares.

Now, if the operator will come on, we'll have some questions from our shareholders as well as some of the analysts that may have called in.

Thank you. (Operator Instructions). Kyle Joseph, Jefferies.

I was just hoping to get a little bit more of your thoughts on sort of the middle-market, we've seen more volatility in the broader public markets. Are the markets that you are looking at somewhat insulated from that and I'm just asking in the context that you said, it remains a seller's market, I'm just wondering if you've seen any relief there at all.

This is Dave Dullum, I'll try to answer it from our perspective, it won't really tie in necessarily to the public markets of course because we deal in private businesses, and as I mentioned earlier, generally companies we're looking at are low-end $3 million really up to $7 million or $8 million of EBITDA. In that space, what we're seeing over the last certainly four, five, six months that it stayed fairly strong if you are a decent company, selling meaning that you probably are able to get the 7 times to 8 times multiple for the enterprise value for that company. That's a challenge. We tend to -- we would like to pay more like 5 times and so, we work really hard at that 5 times or 6 times. What I think -- this is just me thinking that I am hoping that might moderate a bit over the next year or so in particular since I think the leverage availability driven somewhat by commercial banks, etcetera, might to some degree put some pressure obviously on the amount of leverage that the equity guys can get to be able to buy a business and that means they will have to probably put more equity in and therefore you might find some moderation of that. But as of right now, I would say it's holding about where it's been for a while and in our case, we just keep working hard to find those decent companies that we can bring some of our benefit to where today, we buy them at hopefully lower than what the general market seems to want to pay.

Kyle, do you have another question?

Yes, that's right. I was going to ask about the investment in Shred. It looked like the fair value of the investment went up a bit quarter-on-quarter, I was wondering if you could just talk about the performance of that investment specifically.

We actually are seeing some improvement in that company, I won't go into detail obviously, but we're seeing a positive trend in EBITDA, they're working hard on that and as a result of that, it's gotten a little bit of a bump relatively speaking and that is the one company, of course, that is a non-accrual right now. It's only one that we have, but they are actually generating positive EBITDA for their fiscal year. So, we keep plugging away on that and I hope they will continue to get better.

Okay, great. And then I'll ask a last question, just your yields have been stable overall when we were looking at ex-success fees and what not. Is that your outlook for ongoing stability and then portfolio yields are, I noticed the yield on the Brunswick investment was pretty attractive, but what's your outlook for the yield on the portfolio?

Yes, I'd say pretty stable where we have been. As you know, the way we structure our deals, where we do this combination of equity and debt, we have some flexibility to the extent that we obviously are, I'd say, commanding the presence on the right hand side of the balance sheet. So as a result of that, we can sort of moderate it, but it's going to stay about where it is as we drive to a fairly hopefully consistent cash flow on the total investment which is what's important for us, obviously from a distribution standpoint.

Operator, would you come on and see if there is another question?

Mickey Schleien, Ladenburg.

I just wanted to circle back to the valuation. I did see that there were some nice movements upwards like Funko and Cambridge and Frontier. But there was also weakness in names like Old World and B&T. Could you just give us some update on the realignment of the valuation process and how are you using the third-party in terms of the number of companies that they've looked at and where do you see that going in the next few quarters.

Mickey, thanks for the question and Julia is going to try to tackle that [and where you can to] see if there is any specific else on that. Julia?

Mickey, on the specialist side or thee third-party involvement, this quarter as we had indicated last quarter, we had five of our significant equity deals being reviewed by this third-party. I think we gave guidance last quarter that we intend to send them between [four and six each] quarter and continue that practice for each of the next succeeding fiscal quarters and then cycle through the entire significant equity investment portfolio every year.

Okay, I understand, fair enough. My next question is related to operating leverage. During the quarter, you posted nice portfolio growth and nice growth in investment income, but it didn't flow through to NII per share mostly due to professional fees and other expenses, can you give us a sense of how much operating leverage there is in the business on a go-forward basis?

I guess, Mickey, the only other thing I would answer on that is it might not show up immediately, keeping in mind that as you pointed out correctly, there is slight relatively speaking downtick in NII per share. But we also did increase, of course, the number of shares kind of in that timeframe. So I think what you're finding is that we're not yet benefiting, so to speak, from those dollars going to work to immediately flow through on the net II per share.

I hate to be too general when I answer that. I think that certainly I think the way to think about it and hopefully we'll continue to increase the leverage as a result of now having the capital to deploy in the deals that we just disclosed, the new deals and as you know, we don't immediately pick up the interest income from the new deals we do. We do get a closing fee etcetera, but not the accompanying pick-up in overall portfolio income. So I would think that we'll see that starting to increase that leverage.

I appreciate that David and that's kind of a good segue to my last question. With the deal that you announced the GI Plastek and I understand that you may have a sale of a portfolio company this quarter, but then again, you may not, if you don't and you fund it with leverage, you're going to be back up to levels which in the past you've sort of max out. If that happens, are you open to an equity offering even at these share prices?

Mickey, we never want to do offerings at the share prices, obviously, but we always need to keep in mind clearly, as we've said before, we are sensitive obviously to the leverage ratio compared to debt to equity. We are in an okay range right now. We have some capacity. All I can tell you is, we keep to manage being aware of the sensitivity of that and obviously the fact that we would rather not be, if we don't need to raising equity at say below NAV, although the good news is we started moving much closer to NAV on the share price. So again, it's something we look at carefully, we manage carefully and we'll do the right thing for the shareholders and the Company.

But Dave (technical difficulty) the shareholder meeting, are you asking for authorization to issue below NAV?

Yes.

You are. Okay, those are all my questions. I appreciate your time. Thanks.

Thank you.

We ask for that every year. It's just a routine, we don't want to have to do some other mechanism if we need money. So this is an easy way. Now, we're not going to raise money just to raise money. A lot of people that are externally managed just raise a lot of money because the fees go up, we are not in that business. We're in the business of making money for our shareholders, first of all, because mainly I'm a good shareholder. So like to see my stock go up and the dividend go up, but the point being here, raising money is we've got pretty good capacity to put a couple more deals on, I think, by the time we put two, maybe three more deals on, we will have to raise some form of equity.

We're pretty much out of raising preferred stock, but if we do sell this one business and get a big chunk of equity and by the way that company is in both -- both companies, it's in Gladstone Capital and GAIN and GLAD, so we've got two ways to make money on that one and I think if that happens, we probably would not need to raise any money for maybe six months or a year because it is a powerful reward for us. So anyway, I don't know the future. Nobody does. We will just keep plodding along doing couple more deals and see what the world looks like next time.

I appreciate the color, David. Thank you.

Okay. We have any other questions?

(Operator Instructions). Jeremy Roane, Hilliard Lyons.

I just wanted to speak a little bit about the origination activity, and if you could comment on really what you're targeting this year in terms of originations. And also if you could comment on asset sales and possibly the level of those, as you might expect this year and perhaps the timing of those as well, please.

This is David Dullum. As you would know, we have to be a little cautious obviously in specifics both as to origination and also certainly exits. But I'll just say that certainly our -- as we look forward, we certainly think we are in the position of similar sort of origination activity as this past year. And I think the way the quarter has started off -- the year has started off, certainly the first quarter and this recent acquisition we just made, beginning in the second quarter, I think we're on kind of that sort of run rate that we've been on. And looking at backlog, and the work we're doing, I feel reasonably good about that.

In terms of the exit, say or the asset sales, again, we are -- David Gladstone has made a couple of comments around that. We are actively pursuing some things, and we'll keep working through those and sensitive to, again as I said, in my commentary, the idea that we really in selling, we reduced assets. So we don't want to do that just to do it, but indeed to take advantage opportunity of say, the right time to sell is what always we've tried to do in combination with the management teams of the portfolio companies. So, again, I think we look ahead, we look forward, and I think, we think our plans are pretty good to -- similar to what we were looking at last year, certainly from a production perspective.

I know what you're going through, Jeremy. It's really tough to build a model around what we are trying to do. We spend a lot of time forecasting each time we come up with a few more deals, we want to put them on the forecast, and see what they're doing to the balance sheet and the P&L. And it's a very lumpy business, and unfortunately, it's very hard to forecast what the top line in terms of our revenue is going to be, because you don't know how many deals you are going to close. And sometimes, you close a deal that has (technical difficulty) and that will make a very nice income go up, and then, sometimes you're selling something. And as Dave mentioned, when you sell something, you got to turn around or replace it.

One of the things we do is, we look at each deal every year, and we do it on a quarterly basis sometimes, and we try to say, this is our asset plan for that transaction. And if it just happens to be some left over debt that we've already sold equity or we've done some kind of clearing like writing off a piece of equity and we just got debt left, many times, it's better to go ahead and get that debt paid off with the bank coming in, and turning around, and putting that money to work in something that has a significant upside. So we are constantly looking at the portfolio with that color in our eyes looking for those kind of transactions, so that you're constantly working your portfolio, we've got people that spend every day thinking about what to do with one or two, or even a dozen portfolio companies over the next year. And that's just the way this business works unfortunately.

So we don't have a good way of telling you what we're going to buy, what we're going to sell, but I think Dave is right on target, it's probably from a buying standpoint, it'll be much like it was last year unless we find two or three really excellent deals and then it will be bigger.

Thank you very much, that's helpful and then just one more question. Should you do an asset sale perhaps in the next quarter too, where would you guys look to cut your expenses to help manage that bottom line?

Probably wouldn't have to cut any expenses because we would pay off the debt with anything that comes in and Dave has got a pretty good backlog of transactions. So I think anything we sell, we'd probably replace. Remember a lot of the appreciation is in the equity, and that equity has no income on it. And so, we're talking about getting paid off on the debt. Many of the portfolio companies as they go forward get stronger and they find cheaper debt and we encourage them to pay it off because we do on the equity.

So as a result, usually a transaction in which a lot of money comes in is out of the equity section. And so, therefore, it doesn't harm the ability to pay dividends. It just adds money to the company to turn around and invest and increase the dividend. Hope that answers the question.

Thank you very much.

Okay. Operator, do we have any more questions?

I'm sure no further questions at this time. I'd like to turn the call back over to Mr. Gladstone for closing remarks.

All right. Thank you all for calling in. I'll see you again next quarter. Hope we'll have even more news, good news. Thanks a lot, bye.

Ladies and gentlemen, this concludes today's conference. Thank you for your participation and have a wonderful day.