Greetings. Welcome to Gladstone Investment Corporation's Quarter Ended December 31, 2020, Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. Please note that today's conference is being recorded. At this time, I will turn the conference over to Mr. David Gladstone, Chief Executive Officer. Mr. Gladstone, you may begin.

Thank you, Rob, and good morning to all of you out there. This is David Gladstone, the Chairman of Gladstone Investment, and this is the third quarter for fiscal year 2021. This is the earnings conference call for shareholders and analysts of Gladstone Investment traded on NASDAQ under the trading symbol GAIN for the common stock and GAINM and GAINL for the two preferred stocks we have outstanding. Thank you all for calling in. We're always happy to talk to our shareholders and analysts and provide a view of the current business environment. Our goal today is to help you understand what happened in the past and give you a view of the future. And I'll turn it over now to our General Counsel and Secretary, Michael LiCalsi, for his reading up.

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. 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 on our Forms 10-Q, 10-K and other documents we filed with the SEC, and these can be found on our website at www.gladstoneinvestment.com or the SEC's website at 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. Please also note that past performance or market information is not a guarantee of future results. We ask that everyone visit our website once again, gladstoneinvestment.com, and sign up for our email notification service. You can also find us on Twitter, @GladstoneComps, and on Facebook, keyword there is The Gladstone Companies. Today's call is simply an overview of our results through December 31, 2020, so we ask you that you review our press release and Form 10-Q both issued yesterday for more detailed information. With that, I'll turn the presentation over to David Dullum. He's the President of Gladstone Investment. Dave?

Thanks, Mike. So good morning, everyone. Given all of the stresses and uncertainties of the past year, I am really pleased to report that we had a really good quarter and another good quarter of operating results. For this quarter, which ended 12/31/2020, we generated adjusted net investment income of $0.24 per share, compared to $0.15 per share for the quarter ended 9/30/2020. Importantly, our total portfolio income improved quarter-over-quarter, largely because we generated what we call other income, which comes from dividend income, exit fees from our portfolio companies. At the same time, our baseline of interest income was pretty consistent. Keep in mind that this other income can vary and probably will continue to vary quarter-to-quarter. However, we look at it and manage this on an annualized basis. Good to see it this quarter relative to last quarter, and hopefully, we can continue that. Throughout most of calendar 2020, primarily due to COVID, we were pretty conservative regarding this other income category. We didn't expect or really pressure portfolio companies because the emphasis certainly for them had to be on preserving their cash flow, which is most important. The good news is we are beginning to experience improvement and stability in those companies affected by COVID. We should be able to generate this other income category during our calendar year 2021. We will continue to closely monitor our portfolio companies with an emphasis on their cash flow and working capital needs. The other good news is that since the start of the pandemic and through December, we did not have to provide much in the way of additional financial support to our portfolio companies due to the COVID impact. Our aggregate portfolio fair values are beginning to stabilize. We've navigated through the spirit of the pandemic, and we had a very positive quarter-over-quarter increase in fair values, including the reversal of appreciation related to the exit of Frontier Packaging. We exited Frontier Packaging in December, which contributed both other income and a realized gain on our equity. We also completed a recapitalization of Old World Christmas, one of our portfolio companies. This is referred to as a dividend recap. Old World has been a strong performer for us. We wanted to retain it in our portfolio. We made a new secured debt investment, allowing the company to repay its bank debt and make a payment to GAIN, creating income and a realized gain on equity. Old World continues as a portfolio company with GAIN, and we are retaining significant ownership interest, which is a very positive transaction. We have solid values, low leverage, and a strong balance sheet, allowing us to make new acquisitions and assist our companies if necessary going forward. Regarding our outlook, we are seeing signs of deal activity picking up. We are pursuing new opportunities, some of which are in the due diligence phase. It remains a competitive environment with high valuations due to considerable liquidity in the buyout market. We continue to be challenged on the new deal front but look forward to seeing some new acquisitions in the next six to nine months. Our focus for the near term is to continue our close involvement with our portfolio companies, provide assistance as necessary, and make new acquisitions. We are maintaining our monthly distributions to shareholders, which we feel good about at the current levels and will continue to evaluate supplemental distributions as capital gains arise. With that, I’ll turn it over to our CFO, Julia Ryan.

Thanks, Dave. Let me start with a summary of the fund's operating performance for the past quarter. We generated net investment income of $6.3 million, compared to NII of $4.4 million in the prior quarter. Interest income remained consistent quarter-over-quarter, while other income increased by $5.2 million due to the investment transactions. We are closely monitoring companies with loans on nonaccrual status; one of those has started making payments again. We expect to see improvement during the remainder of this fiscal year, which ends on March 31. Net expenses totaled $11.1 million in the current quarter compared to $7.5 million in the prior quarter. The increase was primarily related to income-based incentive fees of $2.2 million resulting from the increase in pre-incentive fee NII and $1.8 million of capital gains-based incentive fees. This compares to no income-based incentive fee and a $0.5 million capital gains-based incentive fee in the previous quarter. The change in the capital gains-based incentive fee is due to the net impact of realized and unrealized gains and losses between quarters. As of 12/31/2020, no capital gains-based incentive fee was contractually due. When adjusting net investment income to exclude the capital gains-based incentive fee, adjusted net investment income per weighted average common share was $0.24 in the current quarter, a $0.09 increase compared to last quarter. We completed several investment transactions this quarter, resulting in net realized gains of $9.1 million. We maintain liquidity and flexibility to support and grow our portfolio. We have access under our credit facility of about $96 million as of 12/31/2020. Additionally, we raised about $12.9 million in proceeds under our Series E TPS ATM. Our NAV increased to $11.11 per common share quarter-over-quarter, primarily related to net realized gains. Distributable income to shareholders remains solid. On a book basis, undistributed net investment income combined with net realized gains totaled $14 million or about $0.42 per common share. This amount is already reduced by the book accrual of the GAAP capital gains-based incentive fee, roughly $9 million at 12/31 and which is not contractually due. In January 2021, our Board of Directors maintained the current monthly distribution run rate of $0.84 per common share, representing a current yield of around 8%, excluding any supplemental distribution. This covers my part of today's call. Back to you, David.

All right, Julia, a very nice presentation. Thank you, Dave and Mike, for all this good information for our shareholders, presented in the Form 10-Q filed yesterday. That should get everyone up-to-date on all that we've been doing. The team is in a good position to continue these successes through the remainder of the fiscal year ending March 31, 2021, and manage the portfolio through the current uncertain times. I believe Gladstone Investment is an attractive investment for investors seeking continuous monthly distributions and potential supplemental distributions. The team hopes to continue showing strong returns as they did this quarter. But now, I will stop and ask the operator to come on and let’s get some questions from those on the line listening to us.

Our first question comes from Ryan Carr with Jefferies. Please proceed with your questions.

Hi, good morning, guys. Thanks for taking my question. The first question is specifically on the other income. I know you mentioned it at the beginning of the call. It's not a usual thing to see it that high in the quarter. I am curious about your thoughts on the cadence of that line item going forward given the deal activity you have going on.

Yes, as I mentioned, it is inconsistent quarter-over-quarter, primarily driven by two things: dividends from our portfolio companies and exit fees or success fees. Generally, for a company to pay out dividends to us, they need to have earnings and profits. However, in this past quarter, due to the exit transactions like Frontier Packaging and the Old World Christmas recap, those companies were able to payout accumulated dividends. So you may see less of that going forward, dependent on those exits and the ability of companies to have earnings. We also do not have PIK, meaning we do not take income until cash is actually received. So, we'll continue to look at it on an annual basis, even though there will likely be inconsistencies between quarters.

Thank you very much. The second question is on the dividend. With NOI improving over the past several quarters, what is your current level of spillover? And beyond that, what are your thoughts on moving forward regarding a special distribution?

Right now, we have roughly $14 million of undistributed income on the balance sheet. That obviously is book basis, so tax numbers can vary. That amount is available for distribution. We had a good amount of spillover at the end of last fiscal year, providing us with a cushion. As we said earlier, we manage our earnings on an annual basis to match annual income to the annual dividend, regardless of fluctuations in income. We are monitoring the portfolio through the end of the fiscal year, and if all remains well, we hope to declare another special distribution.

Great. Thank you very much for answering my questions.

Okay. Next question?

The next question is from David Rothschild, a Private Investor. Please proceed with your questions.

Yes, thank you for taking my question. David, you talked in your remarks about tightness in new deals coming forward. Do you see that bringing down the total earnings of the portfolio going forward?

I wouldn’t say so because we focus on income coming off our existing portfolio. While our activity level with new deals can be cautious, we are seeing more activity with companies looking to be sold. Tightness refers to the high competition due to the money in the private equity world. It does not mean a decline in total earnings but highlights how fast we can add to our assets and increase income, slightly increasing our monthly dividends. I'm cautiously optimistic about the new deal pipeline.

Thanks for the answer. Keep up the good work.

Thank you, sir.

Okay. Next question?

The next question is from Mickey Schleien with Ladenburg. Please proceed with your questions.

Yes. Good morning, everyone. Dave, I wanted to ask you about liquidity at your borrowers. Given the pace of vaccinations and the pandemic's mutations, it appears the pandemic will likely go on longer than originally hoped. How do you feel about your borrowers' liquidity and their ability to see the light at the end of the tunnel?

Thanks, Mickey. Good question. I feel that we have gone through the worst with our portfolio companies. One or two impacted companies that interacted more with the public saw a drop in revenue. However, they have managed to bounce back. We don't see any current need for our portfolio companies to require additional funding. So I'm cautiously optimistic regarding their ability to manage through these times.

That's good to hear, thank you for that. Dave, I also wanted to ask about nonaccruals. Some of your nonaccruals have been on your balance sheet for quite some time. Could you give us any indication of the prospects for bringing some of those back onto the accrual basis?

Right now, there are five nonaccruals, and I think there are a couple that are performing reasonably well. One potentially could come back on by the year's end with another that should follow soon if their activity continues on a positive track. We are proactively working through these issues and anticipate seeing most of them back on an accrual status by the end of this year.

Thank you for that, and thank you for taking my questions. Congratulations on a good quarter, Dave.

Thanks. Next question?

There are no additional questions, Mr. Gladstone.

All right. If there are no more questions, we'll see you next quarter. Thank you for calling in. That's the end of this call.

This concludes today's conference. Thank you for your participation. You may now disconnect your lines at this time.