Good day, ladies and gentlemen, and welcome to Gladstone Investment Corporation's first quarter ended June 30th, 2019 earnings call and webcast. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will follow at that time. If anyone should require operator assistance, please press star and zero on your touchtone telephone. As a reminder, this call is being recorded. I would now like to introduce your host for today's conference, David Dullum. Mr. Dullum, you may begin.
Well, thank you, Sarah. This is the quarterly earnings conference call for the shareholders for June 30th, 2019. We also invite our analysts in. Hopefully they'll ask some questions. This is the common stocks traded on Nasdaq, GAIN. Its two preferred stocks. One is GAINM. The other is GAINL. I want to thank you all for calling in. We're always happy to provide an update to our shareholders and analysts to provide for a view of the current business environment. There's two goals here. One, to help you understand what happened in the past. Also to give you a view of the future. We'll start out with Michael LiCalsi. He's our General Counsel. Mike?
Good morning, everyone. Today's call may include forward-looking statements under the Securities Act of 1933, the Securities Exchange Act of 1934, including those regarding future performance. These forward-looking statements involve certain risks and uncertainties and other factors. We know they're 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 file with the SEC. You can find all these on our website, www.gladstoneinvestment.com, or even on the SEC's website, which is www.sec.gov. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.
Please also note that any past performance information or market information is not a guarantee of future results. We ask that you take the opportunity to visit our website, once again, gladstoneinvestment.com, sign up for our email notification service, which can also be found on Twitter, @GladstoneComps, and on Facebook, keyword there is The Gladstone Companies. As a reminder, today's call is simply an overview of our results through June 30, 2019. We ask you to review our press release and the Form 10-Q, both issued yesterday, for more detailed information. With that, we can turn the presentation back over to Gladstone Investment's President, David Dullum. Dave?
Hey, Mike. Thank you very much, welcome and good morning to everyone, our shareholders and analysts. I'm pleased to report very solid operating earnings and results for this quarter into June 30, 2019, which is the first quarter, of course, of our fiscal year, which ends 03/31/2020. Our adjusted net investment income for the quarter was $0.25 per share, up from $0.23 per share last quarter, which was greater than our quarterly dividend of $0.20 per share. Based on the mix of our current portfolio, sustainability, and the income-generating potential, I'm encouraged for the outlook of the balance of the fiscal year ending 03/31/2020. Also in June, we made one new buyout investment for about $39 million and exited two buyout investments in April.
With these exits, and since inception for this fund in 2005, we have actually exited 18 portfolio companies and generated approximately a 4.2 times cash-on-cash return on the equity portion of those investments. Same time, while we continued to grow total assets, increase our monthly distributions to shareholders. Additionally, at this quarter end, our net asset value, or NAV, remains strong at $12.29 per share. We maintain our monthly distributions at an annual rate of $0.82 per common share. Reflecting our good results in the capital gain realization area, we made a $0.09 per common share distribution in June as the first of our semi-annual supplemental distributions program for the calendar year 2019. This is an increase actually from the $0.06 per share that we made in December of 2018 as the second semi-annual supplemental for calendar 2018.
Our board also recently approved a one-time additional supplemental distribution of $0.03 per common share, which is to be paid in September. This one-time distribution is related to the realized gains that were generated with the recent exits and the associated deemed distribution that we made earlier this year. As a reminder, we generated significant net realized gains in the last fiscal year, which ended March 31, 2020, sorry. We made the decision to retain a large portion of these gains, pay the required tax, and declare a deemed distribution to common shareholders. We do this because we believe it's a prudent way to maintain capital for reinvestment and growth of the portfolio, and we may consider doing this again when we create additional capital gains.
Quickly turning to the outlook of where we are today and as I look forward, the buyout environment, which is where we operate, it continues to be extremely competitive, even though we're still focused on buying companies that are accretive to both income and the equity portions of our assets. The good news is we are seeing a pickup in new investment activity, and as mentioned, we made one new acquisition in June, and we are evaluating a number of other potential opportunities. We anticipate continuing to pay the semi-annual supplemental distributions as the portfolio matures and grows, and we're able to manage exits and realize additional capital gains.
Of course, it is with our board of directors that we will evaluate this ability to make these additional supplemental distributions, their amount and their timing, as well as further deemed distributions of capital gains. Our CFO, Julia Ryan, is on a temporary family leave and will return at the end of this month. I'm going to actually sub for her and give a quick overview of a little more detail of our financial performance. For the operating results, we ended the June quarter with an NII net investment income of $8.9 million as compared to a net investment income of $5.5 million in the prior quarter. Or NII per share of $0.27 this quarter, up from $0.17 last quarter.
Interest income remained stable while other income increased by about $2.1 million, which is a function of their variable nature and the timing of dividends and success fee income. Our net expenses decreased by approximately $2.2 million in the current quarter, which was primarily driven by a decrease in the capital gains base incentive fee due to unrealized depreciation, which was recognized during the quarter, as well as an increase in credits from the advisor associated with our origination fees that we received on our new investment. These factors were partially offset by an increase in the income-based incentive fee to the advisor, which was also further driven by an increase in our net investment income increase. When adjusting the net investment income to exclude the capital gains base incentive fee accrual, adjusted net investment income per weighted average common share was $0.25 in the current quarter.
Again, this is up from $0.23 per share in the prior quarter. We continue to believe that adjusted net investment income is a useful and representative indicator of operations exclusive of any capital gains-based incentive fee, as net investment income does not include realized or unrealized investment activity, which is associated with a capital gains-based incentive fee. Also, during the quarter end of June 30, we recognized a net realized gain on investments of approximately $500,000, which is primarily a result of the exits that we noted earlier. Quickly looking at some balance sheet items. The total assets as of June 30 increased to $642 million, which compares to about $635 million at March 31. This is as a result of new investment income, investments, and disbursements to existing portfolio companies which exceeded repayments and exits.
Our liquidity remains very strong with over $120 million available under our credit facility with an asset coverage ratio of approximately 287%. Our net assets total about $404 million or $12.29 per share as of June 30, which actually is down $0.11 from March 31, primarily as a result of small unrealized depreciation net of realized gains. In terms of distributions and accruals as of June 30, and on a book basis per the balance sheet, undistributed net investment income and net realized gains in aggregate totaled over $6 million, or about $0.19 per common share. This amount is net of the $50 million deemed distribution, which we declared as of 3/31/2019, and also accounting for the capital gains based incentive fee accrual, which is roughly $22 million. That is not yet due to be paid.
This amount of $0.19 per share would be available for distribution to shareholders in future periods, even if the entire capital gains base incentive fee accrual were to be paid. With that in mind, and as previously announced in July, our board of directors declared monthly distributions of $0.068 per common share for July, August, and September of 2019, and that additional one-time supplemental distribution of $0.03 per common share to be paid in September. Assuming the current monthly distribution rate, which is an annual rate of $0.82, and the $0.18 per share in the supplemental distributions does not including the $0.03 one time, we would have a total of roughly $1 per common share on annual distributions, which is about an 8.8% yield at yesterday's closing price of $11.33.
With that, I'm going to turn it back over to David to wrap up our call. David?
Dave, very good. Michael, good information for our shareholders. That presents the information in the 10-Q filed yesterday, bringing everyone up to date. The team has reported a great start to a new fiscal year, including new buyout investment, two exits with net realized gains, and some add-on investment transactions that they finished. The team is in a good position to continue these successes throughout the fiscal year, March 31st, 2020. We believe Gladstone Investment is an attractive investment for investors seeking continuous monthly distributions and supplemental distributions from potential capital gains and other income. Our team hopes to continue to show you a strong return on your investment in our funds. Just as a note, we're still counting the votes for our annual meeting, so I want to urge all of you to vote your shares. You can do that by calling the 800 number, 800-690-6903.
You'll need your control number. If you don't have any of that and you see a note on your phone that says "Broadridge," that's not spam. That is the people who are counting your votes. Now let's have some questions from our analysts and shareholders. Operator Sarah, would you come on and tell them how to do it?
Certainly. Ladies and gentlemen, if you have a question at this time, please press star then one on your touch-tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Again, that is star then one if you would like to ask a question. One moment for questions. Our first question comes from the line of Kyle Joseph. I'm sorry, Kyle Joseph with Jefferies. Your line is now open.
Hey, good morning, guys, and congratulations on a good quarter. I've gone through the 10-Q briefly, but I was hoping you could give us some more color in terms of credit performance. It looks like there were some moving parts in non-accruals. Can you talk to us about additions, reductions in non-accruals, as well as your outlook for recoveries there?
Hi, this is Nicole Schaltenbrand. I'm acting as the interim CFO while Julia is on leave. There were not that many movements in non-accruals. We had four investments that were previously on non-accrual that remained. BDRI went off as we are working on a restructure with that investment, and the debt portion was converted to equity, so it's no longer listed as a non-accrual.
Kyle, Dave here. There's nothing new to add. Further what Nicole said, actually, BDRI, we exited, and we are working on a couple of those are probably going to come off of non-accrual over the next number of months. As I mentioned earlier, I feel really good about where the portfolio is today. We've got obviously quarter to quarter, we'll have small movements in valuations, just depending on either up or down on EBITDA times some multiples. All in all told, I think we're in great shape on the portfolio.
Yeah. No new items added this quarter as far as non-accruals.
Sorry, I was talking about how non-accruals costs went down and fair value went up. Everything you said explains that. Appreciate that. Last one for me. Obviously, you guys have a unique strategy compared to most BDCs out there. If you could give us an update on your competitive environment specifically, that would be helpful. Thank you.
Yeah, it continues to be difficult, if you want to call it that, or challenging, as I always say. Not any different than it's been for the last six to nine months. We did make one new investment at the end of the June quarter, as I mentioned, which is great. We've got a number that we're working on that are either in, for us, what's called the letter of intent stage, or in fact, even due diligence. Again, stay tuned. I feel good about where we are and where we're going. We're also working on a couple of exits, which could be very beneficial from a cap gains perspective. All in all, I think we're in a pretty good year this year.
Great. Thanks very much for answering my questions.
Thanks, Kyle.
Thank you. Our next question comes from the line of Mickey Schleien with Ladenburg. Your line is now open.
Dave, could we just go back to BDRI, and could you walk us through your strategy for converting their debt and the outlook for capturing some value in those preferred and common shares?
Yeah. Mickey, that entity, we've converted it, and then we exited the company. We no longer own BDRI.
Okay. Did you exit near the fair value?
No.
All right.
Yeah.
I'd also like to ask about the outlook for JR Hobbs. I see that you extended them a credit facility, and then you wrote down your preferred shares pretty sharply. Just an update on what's going on there and the outlook, please.
They are in the HVAC contracting business, and they've actually been growing very dramatically, and that puts some stress on, as you might imagine, working capital. We made an add-on acquisition to that business back earlier in the year. From the fundamentals of the business, they're doing very, very well. We had a couple of contracts that were not properly reported, very frankly, in terms of the profitability. It's a very stable business now and continuing to grow. Again, we had what I would call a temporary blip, in great part driven by fairly aggressive growth, frankly. All in all, they're doing a great job and working capital just needed some incremental working capital, and we were able to provide that.
The decline in the value of the preferreds is just the waterfall from the valuation?
Yes. Exactly.
Okay.
Yeah.
Dividend income, there was $3.1 million from affiliates. I know Jackrabbit was part of dividend income, what was the $3.1 million from?
It was made up of Jackrabbit as well as Brunswick was the rest of our dividend income. That investment was able to pay us a fairly sizable dividend this quarter, making up the $3.1 million.
Was there some specific event at Brunswick that drove the dividend?
No. You got to keep in mind, I try to, of course, talk about this all the time, and with all of our investments, we have a couple of things that we are able to work with. One is those that have dividend income, and especially if they have what's called earnings and profits for tax purposes, where they then are able to actually make a dividend distribution to their shareholders. That's one item. The other, of course, are fees that we generate with those portfolio companies. What we do is, as we work through each portfolio company from time to time, we're able to either generate and have the company pay part of their exit fee, which in other BDCs, as you know, I've talked many times before, would be PIK income, which of course is non-cash. We don't do it that way.
When we can get an exit fee or a partial exit fee paid, that is cash income to us and report that. Likewise, dividend distribution from one of our portfolio companies. Nothing unusual other than the company's doing very, very well. They had the ability to pay a dividend. We work with our portfolio companies, and we try to manage that as a part of our overall income strategy. We were able to bring it in in that quarter.
I understand. Thanks for that, Dave. Just a couple more questions. Is there a potential for the Virginia taxes on the deemed distribution to be much larger than the $3 million accrual?
No, we do not anticipate that it would be any larger than that amount.
Okay.
We do hope.
Dave, I know you made some I'm sorry?
No, we do hope to have that resolved within this fiscal year.
Okay.
We'll provide a further update on that with our next filing.
All right, you've made the accrual, but you haven't paid them anything yet?
That's correct. Yeah.
All right. Lastly, Dave, I know in your prepared remarks you talked about supplementals, but it was pretty quick. Could we just review that again? Last year, you paid supplemental distributions in the first and the third fiscal quarters, and this year you've declared them in the first and the second quarters. Based on your taxable income position, do you expect more special dividends to be declared in the near term?
The methodology that we're currently under, which our board addresses, is if we do supplementals, it's basically twice a year, as we've done it in the past in June and December. The one we declared this year and paid was in June of this year, and of course, we would hope and anticipate we can do another one similarly in December. The only other issue or difference there was this incremental $0.03 that was declared and will be paid in September. That was actually kind of a leftover, if you want to call it, based on the amount that we anticipated being able to distribute from the deemed distribution. That truly is a one-time, really relative to the deemed distribution.
The supplementals that I refer to on a semi-annual basis, that is a program we'd like to obviously continue, is the one that's going to be paid in June and December. As I mentioned, we were at $0.06 last year per June and December, and we were able to step it up to $0.09 this June and hopefully likewise in this December.
I understand. That's really helpful. Those are all my questions. I appreciate your time. Thank you.
Okay, thanks, ma'am.
Thank you. Our next question comes from the line of Mark Ferron. He's a shareholder. Your line is now open.
Good morning, gentlemen and ladies. Just wanted to congratulate you on a great quarter. I do have one question about the deemed distribution. A lot of tax repercussions with that for the individual investors with retirement savings and 990-Ts and 2439s and all that kind of stuff. I was just wondering in the future, if you planned on a deemed distribution, if there was any chance you would consider maybe 50% of it going straight to the shareholders and the other 50% ending up in the deemed distribution? Thank you.
We evaluate any time, and if we have an opportunity for deemed distribution or cap gains as we take them, we'll evaluate them in the context, as I mentioned in my prepared remarks, in what we think is and believe is in the best interest, obviously, of all shareholders, the value of the company, and the ability to recycle capital in a sensible way for reinvestment as we continue to grow. There are benefits by having it and retaining it. One, you don't have to think too much about potentially doing an equity offering, which could be dilutive to equity shareholders. It's a consideration, and the percentage and the amount will always be under consideration by management and our board at the time. We certainly are not going to set any hard and fast policy at this point.
That sounds great. I understand that the ability to capture that capital and reinvest it for the shareholders is great. One consideration that might introduce some transparency into it all would be the problem with those 2439s and 990-Ts. Maybe when that all gets straightened out in the next few months, there could be some type of announcement on the investor relations board just to clarify for the individual investors. Once again, just wanted to thank you all for the hard work. Fantastic quarter. Fantastic year, and thanks again, guys.
Thanks.
Thank you. There are no further questions on the phone lines at this time. I would now like to turn the call back to Mr. David Gladstone for closing remarks.
All right. Thank you all for calling in, and as mentioned by our last person on the phone, we're working on trying to make sure everybody understands what a 990-T is. Thank you all for calling in to the end of this call.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program. You may all disconnect. Everyone have a great day.