Gladstone Investment Corporation Price & Performance (GAIN)

Well, thank you, Sherry. This is David Gladstone, Chairman of Gladstone Investment. This is the earnings conference call for the third quarter ending 2024 and we're now into the fiscal year for 2025 for our shareholders. This is for shareholders and analysts of Gladstone Investment listed on NASDAQ under the trading symbol GAIN And as for the common stock, we've got some other ones that notes in preferred GAINN and GAINZ and GAINZ And GAINI for the four different registered notes.

So thank you all for calling in.

Always happy to provide updates to our shareholders and analysts and provide view on our current business environment as well as our two goals: one, to help you understand what happened to us in the past and also give you a current view of the future. And now we'll start with our General Counsel, Michael DeCalsi. Michael, are you ready to go? Absolutely. Thanks, David. Good morning, everybody. Today's call may include forward looking statements under the Securities Act of 1933 and 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're based on our current plans, which we believe to be reasonable, And 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 the risk factors you've seen in our Forms 10 Q, 10 ks and other documents that we file with the SEC. And find these on the Investors page of our website, gladstoneinvestment.com Gladstone. On the SEC's website, which is www.sec.gov. 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.

And please also note that any past performance or market information is not a guarantee of any future results. We ask everyone to visit our website, once again, gladstoneinvestment. Sign up for our e mail notification service, You can also find us on Twitter at GladstoneComps and on Facebook keyword The Gladstone Companies. Today's call is simply an overview of our results through 12/31/2024 So we ask that you review our press release and Form 10 Q both issued yesterday for more detailed information. And with that, I'll turn it over to Gladstone Investments' President, Dave Dallum. Dave? Thank you, Mike, and good morning, everyone. So for this third quarter of fiscal year twenty twenty five, I am pleased to report that the GAIN team produced So we ended the third quarter, which is twelvethirty onetwenty four with adjusted NII of $0.23 per share total assets of about $1,100,000,000 which is up from $869,000,000 at the end of the prior quarter.

Now we believe this increase in assets and the investing momentum should continue as we are seeing a good volume of attractive buyout opportunities. We have also added new and experienced talent to our investing team, which helps support our continuing growth in the management of our current portfolio of 20 which is extremely important given our model of of buying and working with these companies over time. Now this quarter, we successfully acquired three new companies deployed over $187,000,000 of new capital making it our single largest investment quarter. We also have been actively evaluating potential dividend recaps at a few of our existing portfolio companies and we hopefully will have some results on that shortly.

We view these recaps as important opportunities as they allow us to increase our investment in companies where we actually have a strong We maintained our monthly distribution to shareholders of $0.08 per share or $0.96 per share on an annual basis and we paid the previously declared supplemental distribution of $0.7 per share during the quarter. Now this supplemental distribution, as you know, which we've done in the past, are direct results of our buyout strategy, and the goal of rewarding our shareholders with meaningful supplemental distributions from the realized capital gains that are generated on the equity portion when we exit a business or sell a business. As our portfolio goes through the various maturity cycles, constructively harvest these gains again for the benefit of shareholders. And along with investing in new portfolio companies and adding assets, we try to balance the timing of these exits with a necessary level of debt assets that indeed produce income which supports our monthly dividends and over time the growth of those monthly dividends. Now during the quarter, we successfully issued $126,500,000 in new publicly traded 7.875% notes, which mature in 02/1930. Our balance sheet continues to be strong with low leverage and a very positive liquidity position given that added availability in our credit facility.

So we continue providing the support to our portfolio companies including for add on acquisitions, which we're very active with as well. Dividend recaps as I mentioned and any interim financing if the need arises while we continue to actively grow our assets through new biomes. Which of course is our main thrust. So the outlook, there is significant liquidity in the M and A market. This makes it a very competitive environment with certainly upward pressure on valuations. However, we're in the mix and we will aggressively compete for new acquisitions that we believe fit our buyout model maintaining our principles of being a value investor generating income on a current basis with the upside through the capital appreciation. So we're actively involved in a number of near the end on diligence on a few companies. So hopefully, we'll see some of this activity coming to fruition. So in summing up the quarter, and looking forward, we believe the State of Rhode Island is very good. It's growing. We have a strong liquid balance sheet. And a high level of buyout activity and the prospect of continued very good earnings and distributions over this next year. So with that, I'm going to turn it over to Taylor Ritchie, our CFO and have him give you some more details in that regard.

Taylor? Great. Thank you, Dave, and good morning, everyone. Looking at our operating performance in the third quarter of fiscal year twenty twenty five, we generated total investment income of $21,400,000 down slightly from $22,600,000 in the prior quarter. The decrease was due to the prior quarter including $1,400,000 of dividend income that did not reoccur as the timing of such fee income is very [indiscernible] The decrease in interest income was primarily a result of the decrease in weighted average yield on our interest bearing portfolio from 14.5% to 14% due to the decreased sulfur rates throughout the quarter.

These decreases were partially offset by 0.79 increase in catastrophe income. Net expenses for the quarter were $20,200,000 up from $15,300,000 in the prior quarter. This increase was primarily due to $5,800,000 increase in capital gains based incentive fees resulting from the positive net impact of realized and unrealized income multi family during the quarter in addition to a $1,300,000 increase in our income based incentive fee.

These expense increases were partially offset by $2.29 increase in credits to fees from advisor, which were driven by the significant investment activity that Dave discussed previously.

This resulted in net investment income for the quarter of $1,200,000 compared to $7,300,000 in the prior quarter.

Most importantly, adjusted net investment income, which is net investment income or loss exclusive of any accrued capital gains based on tenant fees, for the quarter was $8,600,000 or $0.23 per share down slightly from $8,900,000 or $0.24 per share the prior quarter.

We continue to believe that adjusted net investment income is a use and representative indicator of our ongoing operations. Consistent with the prior quarter, as of 12/31/2024, we continue to have four portfolio companies on non accrual status. Overall, there are no portfolio wide credit concerns.

We continue working closely with these companies and their management teams to get back on the growth or exit the investments when possible. In particular, we continue to see improvement in two of these companies as they are back to generating profit. Valuations in aggregate were up $37,300,000 for the quarter, This unrealized appreciation was driven by higher valuation [indiscernible] and increased performance as a number of our portfolio companies which was partially offset by decreased performance at a few of our other portfolio companies. Our NAV increased to $13.3 per share compared to $12.49 per share at the end of the prior quarter. The increase was primarily a result of $1.02 per share of net unrealized appreciation on our investments and $0.03 per share of net investment income. These increases were partially offset by $0.24 per share of distributions declared and paid to common shareholders during the quarter.

Moving on to our balance sheet. We believe that maintaining liquidity and flexibility to support and grow our portfolio is key to our continued success. Publicly traded 7.875% notes maturing in 02/1930. Additionally, we raised approximately $2,000,000 in net proceeds under our common stock ATM, while prices were accretive to NAV. After quarter end, we completed an upsizing of our credit facility bringing our total commitment level to $350,000,000 resulting in a $50,000,000 increase in overall capacity. With our four public note issuances, we have long term fixed rate capital in place and as of yesterday's release, we had approximately $160,000,000 available on our $250,000,000 credit facility.

We believe that the newly issued notes the additional available capital from our line of credit will allow us to drive before the great into buyout opportunities merged. Overall, our leverage remains in a strong position with an asset coverage ratio as of 302024185.9%.

Providing cushion to the required 150% coverage. [indiscernible] shareholders remained strong. We started the fiscal year with $20,000,000 or $55 per share in spillover and our monthly distribution remains at $0.08 per share share for an annual run rate of $0.96 per share. Along with our consistent monthly dividend, during this recent quarter, we paid the previously declared $0.7 per share of stock loan distribution as a result of the successful exit of an existing portfolio company. We will look to continue funding future supplemental distribution as we recognize realized capital gains on the equity portion of future exits. Using the monthly distribution run rate, of $0.96 per share per year and $0.7 per share in supplemental distributions paid so far in fiscal year our aggregate estimated fiscal year distributions were yield about 12.5% using yesterday's closing price of $13.31 This covers my part of today's call. I'll hand it back over to you, David, to wrap us up.

Well, thank you. Very nice, Taylor. You do a good job and nice for Dave and Michael That's good information for our shareholders. All in the 10 Q we filed with the SEC yesterday should bring everyone up to date. The team has reported solid results for the quarter ending 12/31/2024. And I believe the team is in a great position to continue these successes through the remainder of the fiscal year [indiscernible] March.

We believe Gladstone investment is a attractive investment for investors seeking continuous monthly distributions and then we also often pay supplemental distribution from potential capital gains and other income that we get. Team hopes to continue to show you a strong return on your investment in our fund and now I'm going to switch over to analysts and shareholders who want to ask some questions. So operator, if you'll come on, let's get some questions.

Thank you, Our first question is from Matthew Herwitz with Jefferies. Please proceed. Good morning, everyone. Hope you're well.

Just curious what changes at Nocturne E3 and SFEG drove the unrealized depreciation the quarter.

So trying to take each one separately. Nocturne, had an increase in both EBITDA and also multiple. That's one we've been involved with adding on. We bought a fairly large business there, which was in the Grand Cayman Islands. Which helped to add to its operating results. So that one is just fundamental. It's just doing very, very well. And so an increase as in again both EBITDA and multiple was up slightly. E3 is just actually just performing exceptionally well. Big pickup in EBITDA and obviously to some extent somewhat in the multiple. And SFEG, the multiple actually did not really change from our valuation perspective, but we were acquisitions to and that company is performing exceptionally well. So without specific generally, it's all of the above. So fundamentals, are up from an EBITDA perspective and to some extent multiples a little bit help that.

Okay, great. Congrats on that.

And then just on the flip side, describe what changes at educators PSI and GALEX Technologies drove the depreciation quarter on quarter?

And maybe what your outlook is there? Yes. So Galaxy going to that one first, was up slightly, EBITDA was down slightly. It's performing well. There's a part of that business that we're working on that it's a combination really has been of three companies performing the same fundamental services to a broad array of customer base from aerospace through industrial manufacturing Company overall has performed well. Just had a slight down tick in EBITDA for the year, but again, I'm not not a concern of any fashion. So that's what caused that one being down slightly. PSI sorry, again, the multiple is slightly up. Again, EBITDA was down. We made some changes over this past roughly about six months in terms of moving one facility, selling a building. There's a lot of moving parts. In that one. And again, that one has three major facilities now. So frankly, the cost of moving was a little bit more than we anticipated. As a result of that, we saw a slight a down to the majority of any decline there in valuation, I think about $2,700,000 relatively speaking, not hugely significant. Educators, both the multiples down slightly and the EBITDA was down slightly, but that's a very solid business and one that we we really feel very good about and are going to plan on keeping that company in our portfolio for quite a while.

Really good management team, nothing unusual there in terms of why the EBITDA was down slightly again relatively speaking, it's been up certainly significantly from when we acquired the business some years ago. So again, a little bit of movement sort of quarter to quarter affecting that valuation, but again, nothing that that to the contrary, I'd say, is a really good business.

Okay.

Thank you for that. I'm sorry, Matthew, go ahead. If I could please If I could squeeze in one more. Just trying to understand how NII per share might change in the quarter we're currently in combining the new investments you made at the end of last quarter and after quarter end plus higher leverage and declining portfolio yields. Are you expecting an increase this quarter or and also how should I think about the credit from the advisor in the quarter you just reported? And could those reverse in future quarters?

Yes. So I'll get a response to that one. So NII much lower because of the large cap gains in incentive fee. So really that's what's putting the depression on NII for the quarter. Tying into the questions you had previously about the fair value changes You could see from the top three investments there with NOK and E3 and SFBG, those were all sizable increases. Obviously, we hope that they continue to increase in value, but that is a pretty large driver of that cap gains incentive fee for the quarter. So it may come down slightly as we see certain valuation changes. Then moving on to the year we continue to keep a blended rate of 11.5% and our focus with high level of rate floors with our portfolio companies is that yes, SOFR may come down, we still expect to have significant interest income from our portfolio companies because of our high interest rate flows that we have in place. Then moving on to the fees from our advisor or credits to the senior advisor. That is tied significantly with new investment activity. So as we have those new investments to come on board, we will have higher free credits.

From quarter to quarter. So there could be some fluctuation in those numbers, but if we continue to expand our portfolio, you'll see those elevated fee credits. Okay, great. Thanks very much.

Okay. Next question please.

Mr. Gladstone, I don't see any more questions at this time. Do you have any close [indiscernible] Yes, it's really sad. We're not getting enough questions We really want people to ask a lot of questions and dig in, but it seems like we must be doing an extremely good job in the market today. Because we don't get many questions. Everybody likes what we're doing. So thanks again to everybody who is a shareholder and We're in enjoy doing this for you and that's the end of this [indiscernible] [indiscernible] This time and thank you for your participation.