GladStone Capital

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GladStone Capital

  1. 1. Gladstone Capital Corporation Quarterly Overview for the period ended June 30, 2012
  2. 2. Legal DisclaimerThis presentation may include forward-looking statements. These forward-lookingstatements include comments with respect to our objectives and strategies, and the resultsof our operations and our business.However, by their nature, these forward-looking statements involve numerous assumptions,uncertainties and opportunities, both general and specific. The risk exists that thesestatements may not be fulfilled. We caution readers of this presentation not to place unduereliance on these forward-looking statements as a number of factors could cause futurecompany results to differ materially from these statements.Forward-looking statements may be influenced in particular by factors such as fluctuationsin interest rates and stock indices, the effects of competition in the areas in which weoperate, and changes in economic, political, regulatory and technological conditions. Wecaution that the foregoing list is not exhaustive.When relying on forward-looking statements to make decisions, investors should carefullyconsider the aforementioned factors as well as other uncertainties and events. 2
  3. 3. Overview• Gladstone Capital Corporation • Business Development Company (BDC) with publicly traded common and preferred stock • Common stock (NASDAQ: GLAD) • Preferred stock (NASDAQ: GLADP) • Managed by Gladstone Management Corporation, an investment adviser registered with the SEC that manages more than a billion dollars • One of a family of funds known as The Gladstone Companies (www.gladstone.com) • Focused on investing in senior and junior debt of private U.S. businesses • Went public in 2001 and has never missed paying a dividend • Current common stock dividend is $0.84 per share (per year); paid monthly at $0.07 per share • First preferred stock dividend was paid in December 2011; annual rate is 7.125% or $0.1484 per month per share• Current Portfolio • Over $299 million at fair value in total investments as of June 30, 2012 • Invested in 55 companies, 28 states, 21 industries as of June 30, 2012 Disclaimer: Past performance is not an indication of future performance 3
  4. 4. What is Gladstone Capital?• Gladstone Capital Corporation is a publicly traded business development company (BDC) that primarily invests in debt securities generally consisting of senior term loans, second lien term loans, and senior subordinate term loans in small and medium-sized U.S. businesses• The company seeks to: • Lend to companies with proven cash flow and successful track records led by great managers • Pay monthly dividends to common and preferred stockholders• A company operated by an experienced management team, as discussed in the following slides 4
  5. 5. Experienced Management TeamDavid Gladstone, Chairman & CEO• Over 25 years of experience investing in mid-sized and small private businesses• Current Chairman and CEO of all three Gladstone public funds; these are public companies #7, #8 and #9 in his career• Past Chairman of Allied Capital and American Capital• MBA from Harvard Business School; MA from American University; BA from University of Virginia 5
  6. 6. Experienced Management TeamTerry Brubaker, Vice Chairman & COO Chip Stelljes, President & CIO• Over 25 years experience in managing • Over 25 years experience, currently also Vice businesses Chairman and CIO of Gladstone Commercial• Currently Vice Chairman and COO at and Gladstone Investment Gladstone Commercial and Gladstone • Supervises all investing and due diligence, Investment reviewing hundreds of opportunities and• Previously on the acquisition team that supervising extensive due diligence on each helped James River Corp. grow from $200 new investment million to $7 billion in revenue • Past EVP at Allied Capital, making loans to• Was group VP of two operating divisions middle market companies with and without inside James River with 2,300 employees, real estate $440 million in revenue and 14 locations • Past partner of Camden Partners, a fund• After James River, CEO of two businesses investing in communications, healthcare and with 800 employees, $250 million in revenue business services and 4 locations • Past partner of Columbia Capital, a fund• Former consultant with McKinsey & investing in communications and information Company technology• MBA from Harvard Business School; BSE in • MBA from University of Virginia Business Aeronautical Engineering from Princeton School; BA in Economics from Vanderbilt University University 6
  7. 7. Experienced Management Team David Gladstone Terry Brubaker Chip Stelljes David Dullum Bob Cutlip Chairman & CEO Chief Operating Officer Chief Investment Officer Sr. Managing Director Sr. Managing Director25+ Years Experience 25+ Years Experience 25+ Years Experience 25+ Years Experience 25+ Years Experience Managing Directors and Directors* Buzz Cooper Lud Kimbrough John Sateri Greg Bowie Blair Gertmenian 25+ Years Experience 25+ Years Experience 23 Years Experience 10 Years Experience 10 Years Experience Chris Massey John Freal Jennifer Simpson M. Kipp Kranbuhl Erika Highland 19 Years Experience 25+ Years Experience 12 Years Experience 14 Years Experience 11 Years Experience Bob Pierce David Meier Chris Daniel Chris Lee Kyle Largent 25+ Years Experience 25+ Years Experience 20 Years Experience 11 Years Experience 10 Years Experience Laura Gladstone Matt Tucker Michael Beckett 12 Years Experience 13 Years Experience 17 Years Experience Over 20 professionals concentrating on sourcing, due diligence and portfolio management and 15 professionals in reporting *Directors noted here are not members of the funds’ boards of directors, rather, these are junior Managing Director positions of the Adviser 7
  8. 8. Target MarketWhy we target companies in the lower middle market Smaller companies typically offer a more compelling investment profile than larger ones because of:  Lower purchase price multiples  Lower debt multiples  More protective covenants for lenders  Meaningful equity co-investment and likely multiple expansion upon exit  Small businesses are often less complicated 8
  9. 9. Examples of Loans Made in Private Businesses• Small manufacturer of a product or a service business needs money to grow• Banks will make short-term loans if the business has collateral and solid cash flow• The business gets from us a long-term loan that is the amount of money they need, but at a higher interest rate• We typically get an attractive long-term loan that pays monthly interest that we can pass on as monthly dividends to our shareholders 9
  10. 10. Examples of Area Where We Invest• Electronics o Specialty connectors and cables• Light manufacturing o Manufacturing of small products• Specialty manufacturing o Custom and precision manufacturing• Business services o Service companies with logistic services• Communications o Broadcast, publishing, advertising• Education o Schools and training facilities• Health Care o Treatment centers• Distribution o Parts and metals 10
  11. 11. Industries We Avoid• Housing or Home Mortgage – However, we have invested in one company that makes kitchen cabinets• Banks & Financial Institutions• High-tech Companies or Early Stage Start-ups
  12. 12. Typical Investment Structure Senior & Junior Debt Preferred & Common Stock (95%) (5%) Senior-variable rates with current pay of 8-  Preferred stock 10%  Dividend paid or accrued at 6% to Subordinated-variable with a floor and 8% per year fixed rates with current pay of 12-15%  5 year term 5-year term with interest only paid  A small additional investment in common 1st and 2nd Lien: some collateral and stock reasonable cash flow coverage  Options to own common stock Strong inter-creditor agreement that avoids  Usually accompanied by a “Put” option blockage of interest payments that provide an exit from common stock Reasonable leverage ratios and attractive  Expected gross return is 25% to 30% terms Success fees to enhance the return Expected gross return is 14% to 18%, depending on risk profileDisclaimer: Past performance is not an indication of future performance 12
  13. 13. Track Record• Common Stock traded on NASDAQ (GLAD) – Paying $0.07 per share per month, or $0.84 per share per year• Preferred stock traded on NASDAQ (GLADP) – Paying $0.1484 per share per month, or $1.7813 per share per year• Conservative balance sheet: – Debt to equity ratio of 0.7 to 1.0 as of June 30, 2012 – $87.3 million borrowed on $137 million line of credit as of June 30, 2012• Invested in 55 companies as of June 30, 2012• At June 30, 2012, had eight loans in default, representing 1.9% of our investment portfolio at fair valueDisclaimer: Past performance is not an indication of future performance 13
  14. 14. Portfolio Diversification as of June 30, 2012 Gladstone Capital: By Industry at fair value Electronics - 18% Healthcare, education & childcare - 11% Mining, steel & non-precious metals - 10% Broadcast (TV & Radio) - 9% Automobile - 8% Retail Stores - 7% Oil and gas - 6% Aerospace and defense - 5% Printing and publishing - 4% Textiles and leather - 3% Personal & non-durable consumer products - 3% Machiney - 3% Beverage, food and tobacco - 2% Personal, food and miscellaneous services - 2% Diversified/conglomerate manufacturing - 2% Buildings and real estate - 2% Leisure, amusement, movies & entertainment - 2% Home & office furnishings - 1% Telecommunications - 1% Other - 1% 14
  15. 15. Geographic Diversification as of June 30, 2012 We have outstanding investments in businesses in states highlighted in blue 15
  16. 16. Historical Net Investment Income Net Investment Income Total Amount Amount Per FYE September 30 (in millions) Common Share 2005 $17.3 $1.53 2006 $19.4 $1.70 2007 $22.3 $1.69 2008 $26.6 $1.35 2009 $21.0 $1.00 2010 $17.8 $0.84 2011 $18.4 $0.88 2012* $19.3 $0.92 *Annualized based on 9 months operating results Disclaimer: Past performance is not an indication of future performance 16
  17. 17. Gladstone Capital Statistics vs. Public Market BDCs GLAD BDC Median Price/NAV per common share 0.94x 0.99x Debt/Common Equity 69.7% 53.6% Common Dividend Yield 10.0% 9.7% Market Cap (common shares) $176 $305 Source: Raymond James BDC Industry Weekly Newsletter, August 3, 2012 Disclaimer: Past performance is not an indication of future performance 17
  18. 18. We are a Shareholder Focused Company• Maintain the monthly distribution and grow that distribution when earnings increase• Emphasis on stability of income first and growth in income second• Maintain stock liquidity so shareholder may easily buy or sell the stock• Quarterly published reports and quarterly calls to shareholders• Robust informational website (www.gladstonecapital.com) and notifications by e-mail to those who sign up• Shareholder dividend reinvestment plan for common stock• Audited by PricewaterhouseCoopers LLP• Investor Relations Hotline: (866) 366-5745• Adviser with strong reputation (www.gladstone.com) 18
  19. 19. Highlights• Experienced Management Team: Operating team with a successful track record underwriting private businesses• Successful CEO: Has a “brand name” reputation demonstrated by the success of nine public companies• Business Model: Emphasis on deal flow from a proprietary originations network and strategic relationships with banks and LBO funds• Market Opportunity: Right time in the business cycle to take advantage of the lack of funding for businesses• Conservative Underwriting: Focused on the cash flow of the small value-oriented businesses• Focused on Interest Income: Interest payments on our loans allow us to pay dividends to our shareholders 19
  20. 20. Why Own GLAD Stock• Common Stock current yield of 9.7% at August 15, 2012• Preferred Stock current yield of 6.9% at August 15, 2012• 105 consecutive monthly common stock distributions as of August 1, 2012 and prior to monthly distributions, the company paid eight consecutive quarterly distributions• Diversification of borrowers in various states and various industries• Investing in small and mid-sized U.S. businesses with steady cash flows• Liquidity for investors – common and preferred stocks are listed on NASDAQ (GLAD & GLADP)• Management has ownership of the common stock Disclaimer: Past performance is not an indication of future performance 20
  21. 21. Other Information• Website for Gladstone Capital • www.gladstonecapital.com • Contains much more information about our company and the companies in our portfolio• Website for the investment adviser • www.gladstonemanagement.com• Information on all funds managed by the company’s investment adviser • www.gladstone.com• Common Stock traded on NASDAQ (GLAD)• Preferred Stock traded on NASDAQ (GLADP) 21

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