Greetings, and welcome to the Gladstone Investment Corporation First Quarter 2026 Earnings Call. As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Mr. David Gladstone, Chairman of Gladstone Investment Corporation. Thank you. You may begin.

Thank you, Melissa, and good morning everyone. We appreciate your participation. We enjoy holding these earnings conference calls. The first quarter ending June 30, 2025, of the 2026 fiscal year is aimed at shareholders and analysts of the Gladstone companies, specifically the Gladstone Investment companies. We have common stock, known as GAIN, along with three other stocks: GAINN, GAINZ, GAINL, and GAINI. Thank you all for joining us. We are always pleased to provide updates to our shareholders and analysts who track our progress and the current business landscape while sharing our perspective on the future. Now, I will hand it over to Catherine Gerkis, Head of Investor Relations and ESG, who will give a brief disclosure on certain regulatory matters related to this call. Catherine?

Thank you, David, and good morning, everyone. Today's call may include forward-looking statements based on management's estimates, assumptions, and projections. There are no guarantees of future performance, and actual results may differ materially from those expressed or implied in these statements. Due to various uncertainties, including the risk factors set forth in our SEC filings, which you can find on the Investors page of our website, gladstoneinvestment.com. We assume no obligation to update any of these statements unless required by law. Please visit our website for a copy of our Form 10-Q and earnings press release, both issued yesterday for more detailed information. You can also sign up for our email notification service and find information on how to contact our Investor Relations department. We are also on X @GladstoneComps as well as LinkedIn and Facebook. Keyword for both is the Gladstone Companies. Now, I will turn the call over to David Dullum, President of Gladstone Investment.

Thank you, Catherine. Good morning to everybody. I am happy to be here and report that for the first quarter of fiscal year '26, GAIN produced very positive earnings results, and we importantly had an increased level of investing activity. We ended this first quarter with adjusted net investment income of $0.24 per share, which is sufficient to cover our monthly distribution to shareholders, and we also increased our assets to about $1.1 billion, slightly above the $1 billion at the end of the prior quarter. This increase quarter-over-quarter in assets resulted from two new buyouts during the current quarter. Additionally, we closed on a new portfolio company subsequent to the quarter end, resulting in our current portfolio of 28 operating businesses. To date, for fiscal '26, we have invested approximately $130 million in three new portfolio companies, compared to a total of $221 million invested in all of fiscal '25. Recognizing this is the first quarter, we look forward to hopefully exceeding what we did in fiscal '25. These two investments align with our strategy of continuing to grow the portfolio through acquisition of operating companies at hopefully attractive valuations. As usual, these acquisitions are made with a combination of our equity and the debt investments from our balance sheet, looking to generate capital gains on the equity when we exit the business and the operating income from the debt securities, which goes towards paying off monthly dividend distributions. From our operating income, we maintained our monthly distribution to shareholders of $0.08 per share or $0.96 per share on an annual basis. We also made a supplemental distribution of $0.54 per share in June, resulting from a successful exit in the prior quarter of one of our portfolio companies and realized capital gains on the equity portion of that investment. We stress that our model is to generate capital gains and pay supplemental distributions as well as continuing to pay the monthly distributions of dividends. To date, we've been able to do that, and since inception in 2005 when GAIN was formed through this period of June 30, 2025, we've invested in 64 buyout portfolio companies for approximately $2.1 billion and exited 33 of these companies. This has resulted in total investments currently valued at about $1 billion while generating approximately $353 million in net realized gains and $45 million in other income on exit. We hope to continue doing that. Turning to the outlook, first of all, I believe there is liquidity in the M&A market, creating a competitive environment for new acquisitions at what we would consider reasonable valuations. However, we're in a bit of uncertainty with the potential slowing economy and tariffs impacting the analysis when evaluating new opportunities. Not every business is affected in the same manner, creating opportunity and adding uncertainty. We seem to be able to compete effectively for acquisitions that fit our model. We've been active, closed on two new investments during the quarter and the third subsequent to quarter end. We are currently in various stages of review and due diligence on a number of new opportunities, remain optimistic for new buyout activity during the remainder of the fiscal year. As for our existing portfolio, we have a few companies that are consumer-focused. While they've performed well to date, we are cautious due to supply chain disruption and tariff costs on prices that may impact demand and margin. We are working with all of our companies to evaluate supply chain alternatives and production strategies to navigate the current environment. In summary, our current portfolio is in good shape. We have a strong liquid balance sheet, a good level of buyout activity, and prospects for continued good earnings and distributions over the next year as we navigate the challenges of this economic landscape. I'll turn it over to our CFO, Taylor Ritchie.

Thank you, Dave, and good morning, everyone. Looking at our operating performance for the first quarter of the fiscal year, we generated total investment income of $23.5 million, down from $27.5 million in the prior quarter. This was primarily due to the prior quarter, including $4.2 million of success fees and dividend income, which did not reoccur as the timing of such income is variable. The decrease in total investment income was partially offset by an increase in interest income, including the collection of $1.5 million of past-due interest from a portfolio company that was previously on nonaccrual status. Net expenses for the quarter were $14.5 million, down from $20.3 million. The decrease was primarily due to a decrease in incentive fees, which included a $2.3 million decrease in income-based incentive fees and a $2.3 million decrease in capital gains-based incentive fees. Interest expense decreased in the current quarter due to the timing of the portfolio company exit in the prior quarter and timing of our new investment activity in the current quarter. We also had an increase in credits to fees from the adviser due to the new investment activity previously mentioned. This resulted in net investment income for the quarter of $9.1 million compared to $7.2 million in the prior quarter. Overall, portfolio company valuations in aggregate were down from $1.0 million. This unrealized depreciation was driven by decreased performance at some of our portfolio companies, partially offset by higher valuation multiples across the portfolio and increased performance in a number of our other portfolio companies. Adjusted net investment income, exclusive of any accrued or reversed capital gains-based incentive fees, was $8.9 million or $0.24 per share compared to $9.4 million or $0.26 per share in the prior quarter. The decrease was due to the net impact of realized gains and unrealized depreciation in the prior quarter compared to the net unrealized depreciation recorded in the current quarter, resulting in a reversal of previously accrued capital gains-based incentive fees. We believe that adjusted net investment income is a useful and representative indicator of our ongoing operations. Consistent with the prior quarter, we have four portfolio companies on nonaccrual status, but there are no portfolio-wide credit concerns. We continue working closely with these four companies and their management teams to get back on accrual status or exit the investments when possible. We anticipate that one of the portfolio companies will return to accrual status during the next quarter. Our NAV decreased to $12.99 per share compared to $13.55 per share at the end of the past quarter, primarily due to a $0.78 per share distribution to common shareholders, including the $0.54 supplemental distribution paid in June, along with $0.04 per share of net unrealized depreciation. These decreases were partially offset by $0.25 per share of net investment income and $0.01 of net accretion from our ATM stock sales. We believe maintaining liquidity and flexibility to support and grow our portfolio is key to our continued success. As of yesterday's release, we had $151 million in availability on our line of credit. Additionally, we raised approximately $19.3 million in net proceeds under our common stock ATM, including approximately $12.8 million subsequent to quarter end. We will continue to raise equity capital through our ATM program while prices remain accretive to NAV to support our portfolio growth as we continue to experience a healthy level of new buyout opportunities. Our leverage remains strong with an asset coverage ratio as of June 30, 2025, of 189%, providing a cushion to the required 150% coverage ratio. Focusing on our distribution to shareholders, we ended the prior fiscal year with $55.3 million or $1.50 per share in spillover, sufficient to cover our current monthly distribution of $0.08 per share for an annual run rate of $0.96 per share, as well as the $0.54 per share supplemental distribution paid in June. We will continue funding future supplemental distributions as we recognize realized capital gains on the equity portion of future exits. Using the monthly distribution earning of $0.96 per share per year and the $0.54 per share in supplemental distribution paid in the current fiscal year, our estimated fiscal year distributions would yield about 10.6% using yesterday's closing price of $14.16. This covers my part of today's call. I'll now hand it back over to you, David, to wrap us up.

Thank you, Taylor. You did a nice job, so did Dave, and Catherine and all of that's good information for our shareholders. This call and 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 June 30, 2025, including multiple new investments and a greater liquidity position with our portfolio. We are in a good position to grow, and we look to Dave and his team to continue to grow and pay out extra dividends as well as our quarterly dividends. Gladstone Investment is an attractive investment for investors seeking continuous monthly and supplemental distributions from potential capital gains and other income. We hope to continue to provide a strong return for your investment in our fund. Now, let's have some questions from our analysts and shareholders. Operator, would you come on?

Our first question comes from Mickey Schleien with Clear Street.

Dave, there's been a lot of discussion about weakness in the M&A market, but you've acquired three companies since May, which is a very healthy pace. I would like to know, is that just idiosyncratic given the lead time in getting these deals done? Or are you actually seeing better deal flow?

Yes. Thank you, Mickey, and congratulations on your new position. We're happy to have you with us. I would say we put a lot of effort into deal flow, especially in the companies we aim to acquire, typically in the range of $5 million to $10 million or $12 million of EBITDA. The market is competitive with a lot of capital available, but we are observing a strong quality of deal flow, although the valuations can be challenging. We've looked at several companies and are very interested in them. Some are valued at 9 times EBITDA, while we might consider paying around 7 to 7.5 times. Overall, we are seeing good quality deals and remain very active; we are just putting in the effort to pursue them.

Okay. I understand. In your prepared remarks, you mentioned the possibility of the economy slowing down, and that's certainly what economists are forecasting as tariffs are implemented. Are you seeing any signs yet of a weakening of performance across your portfolio companies?

Yes. Not generally. The activity level is about where it's been. Ironically, in a couple of companies on the consumer side, we've actually seen an increase in activity, even though tariffs have impacted the cost of products. Retailers we deal with have been willing to absorb that, given the nature of the products. Overall, we're not seeing a significant decrease in activity, just more caution. The biggest impact is how the costs are affecting margins. We have some companies with a modest decline in EBITDA, leading somewhat to a decline in valuations due to the tariffs.

That's interesting, but not enough to threaten their ability to service their debt, right?

Correct.

Yes, sir. Okay. And one sort of modeling question. I think Taylor talked about undistributed taxable income. If I adjust it for the write-down of edge, which looks like it's going to happen, it appears you're carrying about $0.50 of UTI per share as of the end of the quarter you just reported. Is that a level the Board is comfortable retaining?

We continue to monitor our spillover level and where we stand in terms of using what we already have from ending the fiscal year, which was $1.50 per share. We got rid of about one-third of that with the supplemental distribution back in June. We don’t have an exact target to monitor this level, considering our fluctuations from quarter to quarter with our capital gains accrual. We are comfortable with where we stand right now, and we continue to evaluate it quarter-to-quarter.

Our next question comes from the line of Sean-Paul Adams with B. Riley Securities.

On Diligent Delivery Systems, that one is coming up due pretty soon. It looks like you had a quarter-over-quarter markup on it as well. Is there any color you can add to that name in particular?

Yes. Thanks, Sean-Paul. We'll keep that rolling on that investment as necessary. It's one we've a little history with. It’s actually a company that we owned many years ago called NDLI, which we sold. When we sold it, we took back a bit of paper, $13 million and a small amount of warrants. It’s just been a debt investment for us right now. We're working with the senior bank, and there’s some management restructuring happening with the company. We'll continue to manage the business and will exit when our debt is paid out.

Our next question comes from Erik Zwick with Lucid Capital Markets.

I just noticed that after several quarters of a decline in the yield on interest-bearing investments, it did increase here in the most recent quarter. Have you seen a change there? Do you think we've seen a bottom? What drove it here? And considering the market's expectation that we may see around a 100 basis points decline in Fed funds and SOFR potentially?

Sure. The yield did pick up, primarily due to the collection of $1.5 million of past-due interest from the company that was previously on nonaccrual status. We had that one quarter bump from that collection. Excluding that, our yield was 13.1%. The decline quarter-over-quarter when backing out the collection of past-due interest is due to the exit of another company at the end of the prior quarter. Looking forward, our three recent new deals between Smart Chemical, Sun State, and Global GRAB all have 13.5% floors. Given our spread in those terminals, they'll stay at 13.5% despite any changes in SOFR. We aim to build that cushion of protection when SOFR decreases.

That's great color, and I appreciate the clarification on the yield, excluding that one-time collection. Continuing on that point, you’ve been effective in getting floors in on some of these new deals. Are you seeing any changes from competitors who may be bending structure that could weaken underwriting from a future perspective, or is everything still holding up well?

Thanks, Erik. In our strategy, where we’re buying the business and providing debt, we don’t have any direct competitors in our BDC space, though there are others that do similar activities. We mainly compete with private equity firms. Their leverage can affect us in the market. Our focus remains on finding businesses at valuations that work for us. If we proceed properly with the way we’re doing things, we’re quite solid. That covers my perspective regarding the competition. I hope that answers your question.

And Erik, I want to add that many other BDCs are experiencing a rise in PIK income, while we maintain 0 PIK income. The exit fee we mentioned is recorded off-balance sheet and isn't factored into our income stream until we collect that income. This distinction sets us apart from other BDCs in the space.

Lastly, looking at the SOI, it looks like ImageWorks had a material increase in the fair value mark this quarter. Is there anything noteworthy regarding that company-specific or within the industry that drove that mark?

No, just that their EBITDA was up, and the multiple increased. It was a combination of those two factors. They're a strong business in their market space with good management, and we expect to see good results moving forward.

Right now, we have no other questions. I'll turn the floor back to you for any final comments.

Thank you all for calling in and asking questions. Hopefully, next quarter, you’ll have many more questions for us. We appreciate the inquiries as they clear up anything that may not be understood. This concludes the call, and we thank you all for your participation. See you next quarter.

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