Gladstone Investment Corp (GAIN) 2018 Q3 法說會逐字稿

Good day, ladies and gentlemen, and welcome to Gladstone Investment Corporation's Third Quarter ended 12/31/2017 Earnings Call and Webcast. (Operator Instructions) And as a reminder, this conference call is going to be recorded.

Now I would like to turn the conference over to Mr. Gladstone.

Thank you, James. And hello, and good morning to all of you out there that have called in. This is David Gladstone, the Chairman and this is the quarterly earnings conference call for the shareholders and the many analysts that follow Gladstone Investment's common stock traded on NASDAQ GAIN. And we do have 3 preferred stocks, GAINO, GAINN and GAINM. So 3 of those out there, that you can choose from. Thank you all for calling in. We're always happy to talk to our shareholders and potential shareholders and analysts. We would like to give you an update on the company and its investments and the current business environment. I wish we could do this more often, but we only get to do it once a quarter. Also you have an invitation, that if you are in the McLean, Virginia area, we're located just outside Washington, D.C., please stop by and say, hello. We have over 60 people and it's a fine business environment, just come by and say, hello.

Switch over now to our General Counsel and Secretary, Michael LiCalsi. Michael is also the President of Gladstone Administration, which serves as the administrator for all of the Gladstone public funds and related companies. He'll make a brief statement regarding forward-looking statements. Michael?

Thanks, David. And good morning. Today's call may include forward-looking statements under the Securities Act of 1933, the Securities Exchange Act of 1934, including those regarding our future performance. These forward-looking statements involve certain risks and uncertainties and other factors even though they are based on our current plans, which we believe to be reasonable. Many factors may cause our actual results to be materially different from any future results expressed or implied by these forward-looking statements, including all Risk Factors listed in our Forms 10-Q, 10-K and other documents that we filed with the SEC. All those documents can be found on the Investor Relations page of our website, www.gladstoneinvestment.com and on the SEC's website, and their website address is, www.sec.gov.

Now we undertake no obligation to publicly update or revise any of these forward-looking statements whether as a result of new information, future events or otherwise, except as required by law. We also note that past performance or market information in today's presentation is not a guarantee of any future results. We ask that you visit our website gladstoneinvestment.com, so you could sign up for our e-mail notification service. We can also be found on Twitter, our Twitter handle is @GladstoneComps and on Facebook, and the keyword there is The Gladstone Companies.

Today's call is simply an overview of our results through December 31, 2017. So we remind everybody to review our press release and Form 10-Q both issued yesterday for more detailed information.

Now let's turn the presentation over to Gladstone Investment's President, David Dullum. Dave?

Thanks, Mike. And good morning to all the shareholders and analysts. We appreciate you being here. So I'm pleased to report that we had another strong fiscal quarter, which ended December 31 for Gladstone Investment. Our net investment income increased $0.23 per share, to $0.23 from $0.18 per share last quarter. And we also closed on a new buyout investment. The net asset value, which, of course, is our book value increased by $0.27 per share to $10.37 from $10.10 the last quarter. So -- and based on our results, in October, we were also able to announce an increase of over 1.5% in our monthly distribution rate to common stockholders going from $0.064 per share, roughly $0.77 on an annual basis to $0.065 per share or $0.78 per share on an annual basis. We also paid another supplemental distribution of $0.06 per common share in December, which was our second planned semiannual supplemental distribution. Now we expect that a significant portion of these supplemental distributions actually will be made from capital gains. Our stock price actually increased to $11.16 and was trading above NAV of $10.37 as of December 31. Now this is an increase of $2.70 or 30% over our stock price of $8.46 at the end of last year. Now while the market has been in turmoil for this past week and we actually closed at $9.40 yesterday, this increased stock price at quarter end is encouraging at least to me, as I believe, that we are beginning to receive recognition for the value of the equity component in our buyout business model. And actually, even from a yield perspective with the annual run rate of monthly distribution now of $0.78 and the $0.12 supplemental, so in other words, a total of about $0.90 per share, still provide -- it would provide a yield of almost 8% when the stock was over $11 a share.

So what is our business model that's producing these results? As we know, we focus on the buyouts of U.S. businesses with annual earnings before interest, taxes, depreciation and amortization, or as we call it EBITDA, generally the amounts for that is between $3 -- $3 million and $20 million. And the structure that we use for funding our buyouts consists of secured first or second lien debt, in combination with a direct equity investment for a significant ownership position. So this means that we are different from the traditional credit-oriented BDCs and that the target proportion of the equity-to-debt for investments in our portfolio is around 25% in equity and about 75% in debt at cost. And when you compare this to most other credit oriented BDCs, you'll see that typically their portfolios are more like around 10% equity and 90% debt.

So our model, we believe, leads to a stockholder value proposition. Clearly, it's different and it's as follows: first, the debt portion of our investments provides the steady income to pay, and we think over time, obviously, grow our monthly distributions. As I mentioned earlier in this regard, we increased our monthly distributions to an annual run rate of 78% -- $0.78 per share; secondly, along with the debt investments, we purchased equity securities, and therefore, we own significant equity positions in each portfolio company. So an increase in the equity value provides capital gains and other income over the life of the investment or upon the exit. These potential gains and other income may then be distributed to our stockholders in the form of supplemental distributions. And to this point, again, we paid the first 2 of such planned supplemental distributions in the amount of $0.06 per share to common stockholders in each of June and December, 2017; and third, we are a provider of a large portion of the equity, usually the majority, and most of the debt in our transactions. Therefore, we have an advantage to -- I believe, to credit BDCs and lenders, in that we can exercise influence on the companies we buy, not only by limiting the risk of our debt being refinanced, but also our participation and involvement with the management teams, which provides an interaction with the company similar to a traditional private equity fund, and as we are significant owners in the business.

So let's talk about some performance. Last May, we made an initial scorecard report on the results of our performance with the fiscal year ended March 31, 2010, being the starting point. Now from time to time, we will continue to provide these highlights of our relative performance on a quarterly basis and I'll touch on it now for this quarter. The highlights from March 31, 2010, through December 31, 2017, were as follows: one, we had excellent growth in net assets, increasing our NAV per share by $1.63, so from $8.74 at March 31, 2010, to $10.37 at December 31, 2017. We increased the annual run rate of our regular monthly distributions per common share by $0.30, going from $0.48 in 2010 to $0.78 per share in October, 2017. And we also delivered on our buyout strategy. So from March 31, 2010, through December 31, 2017, we've actually exited 11 buyout investments, generating significant net capital gains. Now while exiting, we've also been obviously making new acquisitions, so even with this rotation, if you will, we today have 34 companies in the portfolio. So it's a process of making acquisitions, good exits and also continuing to -- to continue to make additional acquisitions. So we maintain a level of portfolio breadth, if you will. And further, the exit activity has allowed us to pay these first 2 supplemental distributions of $0.06 per common share each of June and December 2017, which then we expect to continue these supplemental distributions on a semiannual basis.

So let's look about going forward and exits, since I talk a lot about that. And as we continue with new buyouts in the building of our investment portfolio, as we must, we'll also manage the sale, the turnover, if you will, or the exit in the portfolio consistent with the strategy of providing these realized capital gains from the equity portion of the portfolio. We clearly will be guided by market conditions, assessing the risk return and continuing to hold an investment versus exiting, and to remain sensitive to preserving our portfolio of assets, which does produce the income for the monthly distributions. Regarding that from inception in 2005 through December 2017, our buyout liquidity events exits have achieved an aggregate cash-on-cash return on the equity portion of those investments of approximately 3.4x, which created a total increase to our net assets of about $107 million.

Now on the new deal side, our new buyout generation activities continues to have, obviously, a very high priority. And so to develop these new investment opportunities, our deal team calls on the independent sponsors, as we call them, middle market investment bankers, and other sources that help to create somewhat of a proprietary investment list of opportunities.

Generally, our investments include partnering with management teams in the purchase of a business. And we believe, the financing package, which we provide, includes, and includes both secured debt and the majority of the equity, is a competitive advantage, as it gives the seller and the management team a high degree of comfort that the purchase will occur from the financing perspective, once we've agreed on the primary terms. So we believe that our strict adherence, investment fundamentals and thorough due diligence process have enabled us to provide the shareholder returns that we're provided, in both our consistent regular monthly distributions as well as these supplemental distributions. We are actively reviewing conducting due diligence on a number of new potential investments and we certainly look forward to our new investment announcements. In addition to new stand-alone acquisitions, we are actively pursuing, what we call accretive add-on investments for some of our existing portfolio companies. This is important because this does allow for the building of assets, while accelerating the value creation of these companies. During this period, we had an opportunity to increase our investment in Brunswick Bowling, which we took and subsequent to the quarter end, we made further investments in 2 other companies Schylling and Nth Degree, both to fund important accretive add-ons for those companies. So -- but we're still operating in a buyout environment where the competition for new investment is elevated and the purchase prices being paid are high from a historic perspective and -- which increases the challenge really of closing deals, given the nature of our conservative value approach and expected financial returns. In this regard, though, our latest acquisition ImageWorks, which we closed in November, was at a value, which we believe is consistent with our expectation of returns. So what are those returns? Well, the target for our equity investment is a minimum of 2x to 3x cash-on-cash. And the debt investments, which are generally secured and primarily first lien loans, typically carry a cash yield in the low to mid-teens. These debt cash returns balance the equity portion of our investment, which produces a blended current cash yield to support the stockholder distribution expectation. The debt typically also has a success fee component, which is a yield enhancement that is generally contingent on a change of control, such as a sale or an exit of the business. However, in certain circumstances, these success fees could be paid in advance and generally if the portfolio companies option.

Our investment focus. Generally, we invest in companies that are consistent with consistent EBITDA and operating cash flow and certainly with a potential to grow and expand. The areas of interest that we generally like and that we continue to operate in, are light and especially manufacturing, especially consumer products and services, industrial products and services, we do have some in the aerospace area and some energy we'll look at, but we don't really have anything there right now.

So quick recap of the fund investment activity for the quarter ending December 31. We closed 1 new investment opportunity at $31 million, which is the buyout of ImageWorks, which is a company in the point of purchase display business with a variety of brands and consumer product end markets, very exciting company. And we also invested, as I mentioned, approximately $8 million in existing portfolio companies. So from the standpoint of where we're going and the outlook, we will continue executing our plan, adding accretive investments to grow both the income generating portion and the equity portion of our assets, while we position the portfolio for the exits, thus maximizing distributions to shareholders. We anticipate paying semiannual supplemental distributions if the portfolio continues to mature, and we're able to manage the exits and realize capital gains. The distributions are generally expected to be made from undistributed net capital gains and undistributed net investment income. We and our Board of Directors will evaluate the amount and time of such semiannual supplemental distributions, as we continue to execute our strategy.

So I will now pass this over to Julia Ryan, our CFO, who can give a bit more detail on the fund's financial performance for the quarter. Julia?

Thanks, Dave, and good morning. So starting with the balance sheet, at the end of December, we had over $580 million in assets, which included about $566 million in investments at fair value. On the liability side, the -- they consisted of $96.6 million in borrowings outstanding on our credit facility and about $139 million in term preferred stock at liquidation value, and other liabilities leaving over $337 million in net assets. So our net asset value per share was $10.37 at the end of the quarter, which is an increase of $0.27 compared to the prior quarter. And that, primarily, resulted from net unrealized appreciation of $9.8 million in our investment portfolio.

Now moving over to the income statement for the December quarter. Total investment income was $16.2 million compared to $13.1 million in the prior quarter. Total expenses net of credits were $8.6 million compared to $7.4 million in the prior quarter, leaving net investment income of $7.5 million in this quarter compared to $5.8 million in the prior quarter. Interest income in the current quarter included $1.4 million of payments from 1 of our portfolio companies, which was previously on nonaccrual, and which we had mentioned was in a workout stage at the end of last quarter.

Other income was approximately 16% of total invested income, which is consistent with last quarter. And as a reminder, other income usually is composed of dividend and success-fee income and is a meaningful component of total income, but will be variable between quarters. Net expenses increased by $1.3 million in the current quarter, which was primarily driven by a $1.5 million increase in incentive fees and partially offset by $0.6 million decrease in other expenses, including a reduction in bad debt expense. The incentive fee includes $0.8 million of capital gains-based incentive fees, which are new this quarter, and which were required to be accrued under U.S. GAAP, but those are not contractually due under our advisory agreement at the current time and may actually never become payable. As a result of these factors, our net investment income per share increased to $0.23 in the current quarter from $0.18 in the prior quarter. Excluding the capital gains-based incentive fee that is not currently contractually due, net investment income for weighted average common share would have been $0.25.

Current and prior period net investment income again covered current quarter distributions from net investment income by a significant margin as reflected in our distributions coverage ratio of over 177% this quarter. At the end of this quarter, undistributed income and net realized gain, totaled approximately $12 million or $0.38 per common share. We continue to actively manage our undistributed income and net realized gains with the goal to cover and over time increase distributions to stockholders. Besides our regular monthly distributions, we are generally -- which are generally made up from operating income, we expect to make supplemental distributions, like the ones we paid this past June and December.

Now let's turn over to realized and unrealized changes on our assets. We recorded $9.8 million of net unrealized appreciation on investments in the current quarter, which was predominantly due to improved operating performance, and as Dave mentioned, that's generally EBITDA and an increase in comparable multiples of certain portfolio companies. Overall, our fair value to cost was over 99%. We continue to use an external third-party evaluation specialist to provide additional data points regarding market and payables and other information related to certain of our more significant equity investments. Certain loans of 2 portfolio companies are nonaccrual, representing about 3% of the fair value and 4% of the cost basis of our total debt investments at December 31. We are actively working with these companies in an effort to improve operating performance and liquidity and are hopeful they will return to accrual status in the near term.

Our portfolio's approximate allocation between debt and equity securities was 73% debt to 27% equity at cost at the end of the quarter. Our debt portfolio is well positioned for any interest rate increases with about 97% of our loans having variable rates, with the minimum over 4%, and the remaining 3% having fixed rates. The weighted average cash yield on interest-bearing debt investments was 14.2% this quarter, and as I mentioned earlier that included a $1.4 million interest payment related to a loan that was previously on nonaccrual. And this yield excludes success fees on our debt investment.

From comparison purposes, if we had accrued those success fees as we would if they were paid in [net] interest, the weighted average yield on our total debt investment would approximate 15.8% this quarter. At the end of this quarter, unrecognized contractual success fees totaled about $26 million or $0.80 per share, consistent with prior quarter. There is no guarantee that we will be able to collect any or all of the success fees or have any control over the timing of collection. From a credit priority perspective, 100% of our loans are secured with 74% having a first lien priority and the remaining 26% having a second lien priority in the capital structure of the respective portfolio company.

Overall, Gladstone Investment had another quarter of consistently strong operating performance as well as investment transaction successes.

With that, I'll turn the call back over to David Gladstone.

All right, thank you, Julia, Dave and Michael. You all did a good job, providing summary information to our stockholders on operations of the company. And I would encourage all of you to read the 10-Q and the press release to get more information on the company and those are on our website and on the SEC website as well.

Just to summarize again, in addition to the one buyout of $31 million and an additional $8 million in our existing portfolio, I think the first, this quarter was another good quarter. As beginning of December quarter, the dividend was raised $0.06 to $0.065 per share per month from $0.064. And we had a full quarter increase of the regular monthly distribution and have continued that.

The payment in December of another supplemental distribution to common stockholders that was $0.06 per share, that's the second one during that year, so we've got another $0.12, about $0.90 on a run-rate basis. And what's more amazing here is the continued strong performance of the companies we invest in, resulting in an increase in net asset value of about $0.27 per share for the quarter and $0.42 for the year-to-date. So we've got strong basis, which will project out really nice. I think the team can continue this success going forward in the fourth fiscal year-end quarter. That's the quarter that's going to end on March 31, 2018, and it wouldn't be surprising to me to see the calendar year of December 2018 be a strong period for this wonderful dividend-paying company. I believe the economy is even stronger than it was last quarter. There is some craziness in the stock market, but remember the stock market is not an indicator of the economy. The economy is strong, as strong as I've seen it in the last 20 years. And all that selling in the equity markets, I believe, is just program selling, people who had made bets on things being the same for the next year or so have had to cover those bets. Now as the administration has delivered on the change in the tax code and continued to reduce the regulations on businesses, I think the U.S. midsized businesses like the ones we finance, will have even stronger performance during 2018. And we're excited about the new business environment in the U.S., and I look forward to this company continuing to grow at a strong pace.

In January 2018, our Board of Directors declared the monthly distribution of common stock at $0.065 per share per month for January, February and March of 2018. That's an annual run rate of $0.78, and I think Dave Dullum and his team will keep working to increase the dividend, certainly to be ahead of inflation. And don't forget that they're paying an additional supplemental distribution. This is a stock to own, if you want to keep your buying power, because they keep raising the dividend.

If all goes well, we'll see them raise the regular distribution rate. Obviously, there is no guarantee of dividends and -- but that's the goal of the company. Through the date of this call, we've made 151 sequential monthly cash distributions on the common shareholders. In addition, we've made several supplemental distributions, that's over 12.5 years now of continue to pay monthly dividends. As of December 31, 2017, Gladstone Investment had distributed a total of $213 million, that's $8.99 a share on a common stockholder and based on the number of shares outstanding at the time of payment at each of those dividend distributions. At the current distribution rate, the common stock with the common stock price of $9.40 yesterday, the yield on the $0.78 per share is 8.3% yield, little less than 8.3%, but right at that number, and if you add the $0.12 in supplementals, you're up to about 9.6%. This is really a high yield that you can get on comparable risk level investments in my opinion. The 3 Series of Preferred Stocks, they are all yielding somewhere between 6.1% and 6.7% currently, depending on the series. Good place to put money, if you just want a good straightforward dividend.

In summary, Gladstone Investment is an attractive investment for investors seeking continuous monthly distributions and supplemental distributions from potential capital gains. I expect to see a good fourth quarter for fiscal year ending March 31, 2018 and hope to continue to show you strong returns on your investment in our fund.

James, if you come on now, we'll get some questions from the analysts and shareholders out there.

(Operator Instructions) Our first question comes from Mickey Schleien with Ladenburg.

Now we've certainly seeing some disappointment among some other BDCs. So it's nice to see a business performing this well. I have just a couple of, sort of, housekeeping questions. The $1.4 million of interest income, I think, was from Precision. It looks like about $1 million of that was some sort of retroactive accrual. Is that a correct estimate?

Mickey, this is Julia. The $1.4 million represented the accrual that was not taken in prior quarters because the investment was on nonaccrual. So that was the past due interest, if you will.

Okay, so that's sort of a non-recurring number. And the success fee income this quarter, was that driven mostly by the merger of GI and Precision? Or was it something else?

It was not driven by the merger, it was the event that Dave refers to on these calls, that a portfolio company may choose to prepay the success fees and that happened to be the case this quarter.

Okay. And my last question is, can you remind us what your target leverage multiple is? And whether you are considering upsizing the size of your credit facility? And that's it for me.

At this point, no, we're not planning to upsize the facility. We've got capacity in the facility and we've got capability and availability right now and depending on some things coming down the line, may be with exit to cash generation, I think we're in pretty decent shape at the current time.

And your target leverage, Dave?

It's going to be around 65% somewhere in that range, maybe 70%.

Our next question comes from Henry Coffey with Wedbush.

The most interesting part of the business to me and probably the most troublesome to you all, is when we look at the bottom side of the portfolio, I mean, how many opportunities like Precision are there, where either by the strength of the economy or the work that you can do with the company are we likely to see gains in investments that have been under pressure as of late?

Trying to -- just trying to understand the question, Henry. So what -- each of our portfolio companies, and as you saw, we -- and Mickey sort of touched on it, where we actually emerged a couple of our portfolio companies. We did that for the right reasons and that, those companies function in a similar product category, if you will, it allows us to consolidate management and so on. And I think what's more -- maybe to the point what this addresses is the way in which we think about our business and the companies that we're invested in and frankly which we own. And we think of this as a portfolio of operating businesses, we do get involved in working with these companies, which is why you have a PSI that for a while, it might have gone on nonaccrual. We keep working with it. We can get it back off of nonaccrual. And over the years, that we've been in business since '05, we've actually, I think only had 1 company really for a variety of other reasons, that truthfully, just was completely a loss, if you will. We actually -- we're able to redeem something out of that. So it's more around, we work at these companies, and I think, fundamentally, and it reflects itself in the valuations that we see, which is we know is spotty quarter-to-quarter for a variety of reasons. But I think fundamentally, the portfolio overall is in good shape, and we keep working on creating value by again, if we can -- we merge 2 or we make add-on acquisitions. And over time, we're going to exit those and I think the valuation reflects that they are underlying gains built into these companies. I don't know if that answers anywhere near the question you asked, but if not, come at me again.

Well, let me just think of it from a different perspective. If I look forward over the next 12 or 18 months and I look not at all the companies that are working so well and have positive fair value to cost ratios, but I look at the companies you've been writing down. What are the prospects that some of those companies see improving fundamentals or improving value, given either what you can do or what the strength of the economy? How likely are we to see positive gains from the companies that are under pressure right now?

Yes, I would say -- I get the question. So I would say pretty reasonable with most of them. There are 1 or 2 that are going to take, I would say, a bit longer. If you gave me a timeframe of the next 12 months, I would tell you that probably because I know, sort of, what's happening with some of those companies right now. Most of them, with 1 or 2 exceptions, are going to take a little bit longer, but they're not things that we're worried about, that Jeez, they're not going to make the turn, whether it be a result of change in the management teams. Most of which we've already done. And those are now starting to get traction over time. I think they are -- we're going to see good results, frankly, from virtually all of them.

And then just on looking at the portfolio at cost. There was the level of secured first lien stay, held at about same. You did have a big up -- jump up in second liens. Can you talk about that a little bit? Between September and the December quarter.

Henry, this is Julia. As you know that sometime we will restructure a debt investment from first to second for various reasons sometimes because if seniors lenders coming in to take over the line of credit facility position and that was the case this quarter. So nothing turning for the quarter.

Our next question comes from Kyle Joseph with Jefferies.

I just wanted to get -- to step back a little bit and get your perspective on tax reform changes, and any potential impacts on your business, on your portfolio companies, specifically and demand for buyouts more broadly?

Hi, Kyle. Dave. We have -- as we've looked at it, as we understand the changes et cetera and trying to evaluate it, within our existing portfolio. The general results, I would say are -- tend to be positive. And the reason for that is, you look at it and it's interesting with most of our companies, especially the ones that are at a level now, where the EBITDA is growing. Even though you've got the 30% cap et cetera, you'll find because of the lower tax rate, that actually the cash flow, the net cash flow, if you will, these companies actually, is improving in some cases. The ones where it will have some impact, not huge impact, but some impact might be on those companies that aren't quite performing as well as they should, or obviously, we have them a little bit higher levered at the current time for some reason. But net-net, we're not seeing it as going to have any certainly negative impact on our portfolio. If anything, it might be a slight positive again because of cash flow. In terms of going forward, and we -- certainly we keep running our models. We've tried to really properly understand it from a competitive perspective. I think given the size of companies that we're looking at, the type of business we're looking at, I think it probably will make the environment a bit more competitive, because the company doing well and growing. It can -- it's throwing off now perhaps more cash on an after-tax basis. So there may be cases where some of our competition might be able to either lever them up a little bit more, maybe put a little bit more equity and get the cash out. I think it's going to, probably, stay about the same. You might see, some of the much higher performing companies, might demand a slightly higher premium even relative to where deals are today in terms of multiple EBITDA. But I don't know that we're going to see a huge impact on the market space that we operate in. At least, that's our assessment based on the analysis we've done so far.

That's great color and helpful. And I think, Henry may have touched on this, but just a quick modeling question. In terms of originations in the quarter, there's a little disconnect between the press release in Page 29 of your queue. Was that due to the investment that I think Henry just referred to, or could you help me with the disconnect there?

Need to understand what the disconnect is?

What page is it?

Sure. It's -- on the press release, it's the total dollars invested were $39 million and change, and then on Page 29 of the queue, total issuances and originations in the quarter were $73 million.

Right. So the -- required disclosures in the 10-Q include any noncash transactions and the merger of PSI and GIP would fall in that category so that's where you see the disconnect.

(Operator Instructions) Our next question comes from Andy Stapp with Hilliard Lyons.

You enjoyed some nice valuation gains in some of your preferred, most notably in (inaudible) against the JR Hobbs and Cambridge. Just wondering, if you could provide some color on the drivers of these gains?

Sure. Most of the drivers are coming from improved performance in these companies. Just -- quarter-over-quarter, we're seeing improvements in EBITDA on -- across the board and on a number of our companies, and we are actually, in some case, I don't have the detail right here in front of me, frankly, but we actually had -- actually some slight declines in multiples on EBITDA. So it kind of got offset by improved performance. So overall, and those companies, the ones that you mentioned, are all companies that are getting to a size and doing some things that are pretty interesting and pretty exciting. So majority of it is performance related.

Okay. And could you talk about the strength of the pipeline for new investments? Just wondering, if it's supportive of some production that you experienced in the most recent quarter?

Yes, I would say so. It's a -- as I mentioned, it continues to be a challenge. As I say, the expression I choose, it's shoe leather, and we will continue to push hard. We have to be out there and all our guys are all calling on the investment bankers, the M&A types et cetera. We've got a number of companies that we are in process on, working on, meeting with them to put out indications of interest at valuations that we think make some sense. Some of those are not just, as I mentioned, standalone new acquisitions, but also add-on type acquisitions, which for some of our existing portfolio companies that again make sense and it will help to give -- accretive to those companies. So it's -- I would say, its representative of about where it's been. It still continues to be challenging. If we -- our goal is if we could do 3, 4 really good new quality acquisitions in a year, that's a good target for us.

Okay. And lastly, would you talk about the outlook for success fees?

Talk about the, I'm sorry?

Success fees.

So if you're asking, we have success fees, as we mentioned, built in to each of our portfolio companies, which can be taken, again either when we exit or actually in cash, because as you know, we only take it when cash is paid. Or if the company chooses to prepay to -- and so on. Best I can tell you on this, it's an area that we look at very carefully. It falls into that line item called other income on our income statement and it's one that is important to us. And we work with our portfolio companies in the management, so that we can sort of look ahead and plan it and manage it. So the best I can tell you is, we continue to get them, and we will continue to get them. Of course, as Julia mentioned, we have a pretty significant dollar amount and per share amount if you want to call it, accrued off balance sheet, for that we just have to keep taking it out, as we are able to doing working with our portfolio companies, but it's a positive income stream for us.

Okay. Do we have another question, James?

I'm showing no further questions in the queue. So I'd like to turn it back over to you, Mr. Gladstone, for closing remarks.

All right. Thank you all for calling in, and we appreciate all the good questions, and we'll see you next quarter. That's the end of this call.

Thank you, ladies and gentlemen. That does conclude today's conference. Thank you very much for your participation. You may all disconnect. Have a wonderful day.