Greetings. Welcome to the Gladstone Investment First Quarter Earnings Call. Please note, that this conference is being recorded. I will now turn the conference over to David Gladstone, Chief Executive Officer. Mr. Gladstone, please go ahead.

All right. Thank you, Rob. Nice introduction. This is David Gladstone, Chairman of the Gladstone Investment. This is the first quarter for fiscal year 2023. It ended June 30, 2022, earnings and conference calls for shareholders and analysts. Gladstone Investment is listed on NASDAQ under the trading symbol GAIN, and that's for the common stock. We have two preferred stocks. One is GAINN, and the other is GAINZ. Thank you all for calling in, we're always happy to provide updates to our shareholders and to the analysts that follow our stock. So to give you some idea of the current business environment that we're in is, well, that's what we've done for the past quarter. So, now I'm going to turn it over to our General Counsel, Michael LiCalsi, and he'll give you the things that he has to talk about.

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. So 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 listed on our Forms 10-Q, 10-K and other documents we filed with the SEC. You can find these on the Investors page of our website, gladstoneinvestment.com. You can go to the SEC's website at sec.gov. And 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 any future results. We ask everybody to visit our website once again, gladstoneinvestment.com, sign-up for our e-mail notification service. You can also find us on Twitter @GladstoneComps and on Facebook, keyword there is, The Gladstone Companies. Today’s call is an overview of our results through 6/30/22. So we ask that you review our press release and Form 10-Q, both issued yesterday for more detailed information. Let's turn it over to David Dullum, President of Gladstone Investment, Dave?

Good morning, everyone, and thank you, Mike. We are pleased to share that GAIN achieved strong results in the first quarter of fiscal year '23, building on a solid fourth quarter in fiscal year '22. These results demonstrate the strength and stability of our portfolio companies, even amidst ongoing challenges like inflation and supply chain issues. As of June 30, 2022, we reported an adjusted net investment income of $0.25 per share and total assets of approximately $743 million, a slight increase from $740 million on March 31, 2022. The quarter was active in terms of deal activity, with a new buyout investment of $21 million completed right at the quarter's end. Shortly after, in the first week of July, we made an additional planned investment of $39.1 million in equity to acquire Dema Plumbing, now forming our new portfolio company, Dema Mai. Earlier in the quarter, we also invested about $6.4 million in an add-on acquisition for one of our existing portfolio companies, which is part of our strategy to grow our platforms. We successfully exited one of our portfolio companies, yielding both capital gains and income. We maintained our monthly distribution to shareholders at $0.075, or $0.90 annually, and issued a supplemental distribution of $0.12 per share in June 2022. We expect to continue facilitating future supplemental distributions as we realize capital gains from our equity investments. Our buyout strategy is effectively generating income for shareholder distributions and capital gains, supporting our supplemental distributions. Most of our portfolio companies are experiencing improved valuations, which is crucial as 27.1% of our assets at cost comprise equity securities. Our balance sheet remains solid with low leverage and a strong liquidity position, having no outstanding balance on our credit facility as of June 30. This enables us to support our portfolio companies through add-on acquisitions and interim financing while pursuing new buyout opportunities. Looking ahead, buyout values are moderating, but the market remains competitive with strong deal flow. We will continue to be patient and selective in our due diligence while actively pursuing acquisitions. After June 30, we invested $30 million to recapitalize Horizon Facilities Services, enhancing our investment in that strong business to $57.7 million, which will positively impact our current quarter results. In summary, our portfolio is in good shape, with a liquid balance sheet, active buyout activity, and prospects for solid earnings and distributions over the next year. Now, I'll turn it over to our CFO, Rachael Easton, for more details. Rachel?

Thanks, Dave, and good morning, everyone. I'll start with a summary of the fund's operating performance for the quarter ended June 30, 2022. In the first quarter of the fiscal year 2023, we generated adjusted NII of $8.3 million or $0.25 per share. This was a decrease of $8.7 million from $8.7 million or $0.26 per share in the prior quarter. We continue to believe that adjusted net investment income which is net investment income exclusive of any capital gains based incentive fees is a useful and representative indicator of ongoing operations. Total investment income increased quarter-over-quarter to $19.3 million from $19.2 million, primarily due to an increase in dividend and success fee income in the current quarter. For comparative purposes, in the prior quarter, we did collect some past due interest income from a portfolio company that was previously on nonaccrual status. No such collection took place in the current quarter. Consistent with prior quarter at 6/30/2022, three of our portfolio companies were on nonaccrual status. We are working closely with those companies and currently anticipate one company is on track to be of nonaccrual in the near-term. Net expenses decreased by $0.6 million this quarter compared to the prior quarter, which was primarily driven by a decrease in accrued capital gains based incentive fees due to the net impact of realized and unrealized gains as required under U.S GAAP. And this was partially offset by an increase in estimated excise taxes. We believe maintaining liquidity and flexibility to support and grow our portfolio are key elements to our success. We have long-term capital in place and at 6/30 have the full availability under our credit facility. Our leverage is low with an asset coverage ratio at 6/30/2022 of 261.9%. Our NAV per share remained fairly consistent at $13.44 per share at 6/30. This is compared to $13.43 per share at 3/31/2022. The increase was primarily due to $12.5 million of unrealized appreciation of investments, $7.4 million of net investment income and $4.5 million of realized gains on investments. These amounts were partially offset by $12.3 million related to the reversal of unrealized appreciation on exits and a $11.5 million of distributions paid to common shareholders. Consistent with prior quarters, distributable bulk earnings to shareholders remain strong. Assuming the current monthly distribution run rate of $0.90 per share per year, and $0.12 per share in supplemental distributions that have been paid to date, noting that this only represents the amount paid during the first quarter of this fiscal year and may not be indicative of what is ultimately declared. Our fiscal year distributions would total $1.02 per common share, or yield about 6.9% using yesterday's closing price of $14.87. This covers my part of today's call. I'll send it back to you, David.

All right. Thank you very much. Very nice report Rachel and a good one from Dave and Michael. This information to our shareholders, that presentation combined with the 10-Q filed with the SEC yesterday should bring everybody up to date. We are in a great position to move forward. Team has reported solid results for the quarter ending including a new buyout investment and an exit. We believe the team is in great position to continue these successes through the remainder of our fiscal year ending March 31, 2023. As I say every time, we believe Gladstone Investment is an attractive investment for investors seeking continuous monthly distributions and supplemental distributions from potential capital gains and other income. The team hopes to continue to show you strong returns on the investment of our fund. Now let's have Rob come on, and we can get some questions from our analysts and shareholders.

Thank you, Mr. Gladstone. Thank you. We have a question coming from line of Mickey Schleien with Ladenburg Thalmann. Please proceed with your question. I'm sorry about the technical issue there. Please go ahead, sir.

Dave, can you hear me?

Yes, Mickey.

Yes, Mickey.

Good morning, everyone. I want to start by congratulating you, Dave, and your team on an impressive quarter, especially in what has generally been a tough period for the BDC sector. Dave, I have a high-level question for you. Given your extensive experience in the buyout sector, we are seeing a level of economic volatility that we haven't encountered in quite some time. I'm interested in your perspective on how the pipeline is evolving, how buyers and potential sellers are responding, and whether this will be beneficial or challenging for you.

Yes, Mickey, that's a great question. It's interesting, I feel right now compared to let's say, roll the clock back 3, 4 months ago, when we all obviously believed and felt like we're in somewhat of a, either certainly recessionary type, or certainly somewhat of a slowdown, we certainly see that through some of our portfolio companies and all the stuff we read, and obviously, the inflationary costs. Having said that, we saw kind of an activity level that was ramping up on the buyout side. It feels right now based on our pipeline, and what we're looking at, like it's slowing down a bit. But honestly, I will tell you that we have seen and we're working on three or four really good companies with add-on acquisitions. And frankly, we did not get there in the final analysis because of valuation. So that says that there are still folks out there, as I sort of alluded to, that are willing to pay up for companies at multiples that, truthfully, we feel are a little bit aggressive. Given all as you say, what I do think are clearly going to be headwinds for the results of most of the types of companies that we look at. And you don't have to have much of a headwind to help knock off a $1 million or $2 million of EBITDA off of a $10 million to $15 million EBITDA company and obviously have an impact on valuation, going forward and certainly returns. So I guess my way of saying it is I think that it's going to be a bit of a headwind. And I think I would expect that we might see some moderation in valuations going forward. And to the extent though, that, our model fits some of those kinds of deals. And because again, we bring our own capital, we have a bit more flexibility than a typical buyout fund that's going to go and raise the capital and the leverage from banks might get tighter, frankly, and obviously more expensive, that might give us a bit of an advantage. Is there a huge advantage? I'm not sure because I still think there is aggressiveness in the buyout funds wanting to just get deals done truthfully. So long way of saying it. As of right now, I'd say it's more of a neutral to potentially a slight opportunity for us looking forward.

And Dave the follow-up, just think in terms of the sellers mentality. I'm curious whether all the volatility we're seeing is causing some of them to say, I'm at a certain age, I built this business, I'm tired of dealing with problems. Is this a catalyst or time to sell? And secondly, are they being realistic in terms of their ask, or the bid ask spread is still really, really wide? And it's tough to discover the right price to get a deal done.

Yes, I understand your point. For family-owned businesses, where ownership is shared, there is some truth to what you’re saying. They tend to look ahead and recognize that some companies experienced significant growth due to COVID, which has been a major factor. When you review the performance of these companies, especially if you consider their history from 2018 to 2019, it becomes clear that the numbers from the end of 2019 through 2021 are unrealistic. The disparity in bid-ask spreads, to some extent, arises from negotiations regarding the COVID-related surge, which won’t be sustainable moving forward into 2022. Additionally, some sellers and their investment banks may manipulate figures by adjusting EBITDA and making pro forma changes. They aim to justify higher valuations by citing increased container and shipping costs while suggesting that the conditions aren't as dire as they appear. Thus, there’s a mix of seller strategies and buyer skepticism about those inflated numbers. Overall, I believe that strong companies will continue to perform well and maintain good valuations even in this environment. We have some solid companies in our portfolio, and we’re gaining insights from the buy side while also positioning ourselves on the sell side. If companies have solid fundamentals and good management, they will likely attract decent valuations because there remains a demand for quality acquisitions.

Yes, I understand. Dave, my last question, I mean, the Fed to tackle inflation is just going to have to meaningfully impact the consumer given how much discretionary spending, or consumer spending in general represents as a percentage of our GDP. How exposed is your portfolio to that end market and do you have any concerns about weakness in the consumer for the rest of this year and next year?

Yes, clearly we have a portion of our portfolio are consumer products. We call them specially consumer products. We have not seen a lot of effect right now. We are seeing a little bit of a slowdown for some of those companies that sell some product to people like Walmart, obviously Bed Bath and Beyond, which has its own set separate set of issues beyond just the consumer demand. Target, for instance, and so on. So, yes, I think we're going to see some slowdown of portfolios in general, the ones of ours that do sell into that category, we'll definitely see some slowdown. But fundamentally, they're still pretty strong, reasonably well diversified. And each one is kind of a unique set itself. So, yes, I think we'll definitely see slowdown and, I don't know I hope the Fed doesn't keep raising rates too much higher because I don't think that's the problem. I think the issues are more fundamental in supply chain and other costs that we should be trying to rein in not just drive up interest costs. That's a whole different topic.

Yes. Okay. That's it for me this morning. Again, congrats on a solid quarter. And appreciate your time this morning.

Yes, thank you. Appreciate your time. Mickey, just one tag on to that. There are two groups of consumers out there. One, of course at the lower end with less money. And the middle class, I'll say is still got a really strong balance sheet, and they're using that to buy what they want. So there's two pieces in that and you see that in housing, all the startup housing, the new houses. At the lower end, the demand has just evaporated there. In the middle side, there's still demand there for houses. So I'm not sure the numbers we're seeing out of one consumer is going to settle this. So anyway, Rob, can you come on in? Let's have the next question.

And Mr. Gladstone, we have a question from Mark Ferron, a Private Investor. Please go ahead, sir.

Good morning, guys. Fabulous quarter as always. I've got a question that goes back to your long-term stockholders. Has there been any progress on the IRS refunds of the deemed distributions of $1.52 a share. And I guess that was 2019. And then the second deemed distribution in 2020, although you qualified plans. Any insights into that? I know that I've been trying to work with Fidelity and I get zero response. Thank you.

Hi Mark, this is Mike LiCalsi. As you know, we've talked several times and I haven't heard of anyone besides those at TD Ameritrade receiving refunds from the IRS for IRA accounts. We have employees here who hold shares in various brokerage accounts, and none of them have received refunds except for those at TD Ameritrade. However, I can reach out to you offline to see if we can make some progress with Fidelity, but you're definitely not the only one facing this issue.

All right, buddy. Thank you and congratulations on a great quarter guys. Keep up the good work for us little guys. Thank you. Okay.

There are no further questions. There are no further questions Mr. Gladstone.

Okay. Well, thank you all for calling in, and we appreciate the support you've given us and keep the faith. We're going to continue to grow this thing, and Dave Dullum and Rachael have done a good job of keeping everybody informed. So, thank you very much, and we'll see you next quarter. That's the end of this call.

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