Well, thank you so much. That was a nice introduction, and good morning, everybody. This is David Gladstone, Chairman, and this is the earnings conference call on Gladstone Capital for the quarter ending June 30, 2022. Thank you all for calling in. We're always happy to talk with our shareholders and the analysts who follow us. We welcome the opportunity to provide an update for our quarter that ended. And now we'll hear from our General Counsel, Michael LiCalsi. He'll make a statement regarding certain forward-looking statements. Michael, take over.

Thanks, David, and good morning, everybody. Today's report 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 that are 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 you can find in our Forms 10-Q, 10-K and other documents we file with the SEC. You can find them on the Investor Relations page of our website, that's www.gladstonecapital.com. You can also sign up for our email notification service. You can also find these documents on the SEC's website, that's 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. Now today's call is an overview of our results, so we ask that you review our press release and Form 10-Q, both issued yesterday, for more detailed information. And if you go to the Investors page of our website, you can find them there. I'll now turn the call over to Gladstone Capital's President, Bob Marcotte. Bob?

Thank you, Michael. Good morning, and thank you all for dialing in this morning. I'll cover the highlights for last quarter and provide some comments on the state of the portfolio and market outlook before turning the call over to Nicole Schaltenbrand, Gladstone Capital's CFO, to review our financial results for the period and our capital and liquidity positions. So beginning with our last quarter results. Originations for the quarter recovered after a slow Q1 and totaled $67 million for the period, which included three new platform investments and several add-on investments to existing portfolio companies. Amortization and repayments were $6 million, so net originations were strong at $61 million for the period. Interest income for the quarter fell 2.8% to $12.6 million as the average outstandings were down approximately $8 million and the weighted average loan yields fell approximately 20 basis points with the roll-off of an investment that represented a large component of our PIK interest income. In the absence of material exits and repayment and fee income, it declined to $1.2 million, which was down from the elevated levels of the past several quarters. Borrowing costs and administrative costs were largely unchanged. However, net management fees declined by $1.8 million to $2.5 million as the new deal closing fees credited against the base management fee rose to $1.1 million and incentive fee credits were $400,000 for the quarter. Net investment income came in at $6.9 million or $0.2025 per share and covered 100% of the recently increased common distributions for the period. The net realized and unrealized losses on the portfolio for the period rose to $12.5 million on a combination of loan depreciation associated with elevated market spreads, reduced equity valuation multiples, and the decline of two equity investments. As a result, NAV declined $0.37 per share or 3.9% to $9.12 per share as of June 30. Despite the last quarter NAV impact, we're pleased to report our cumulative return on equity over the last year is still 14.9%. With respect to the portfolio, our portfolio continues to perform well with generally modest leverage metrics and favorable liquidity. And as such, we did not experience any payment defaults last quarter. Credit performance aside, the third-party market valuation of our debt investments, combined with a 4.3% decline in the enterprise value multiples on our equity portfolio, combined to total approximately $5.2 million of depreciation or roughly 45% of the depreciation in the quarter. During the quarter, we also completed the restructuring of Circuitronics, which had been a challenge for some time. And coincident with the relocation of the manufacturing operations and exiting bankruptcy as Lonestar EMS, we recognized $8.5 million of depreciation previously accrued. Lastly, most of the balance of the unrealized depreciation for the quarter is associated with two equity positions in modestly leveraged businesses, which experienced isolated revenue shortfalls, and we expect to recover over the balance of 2022. The asset mix as of the end of the quarter continued to shift in favor of first lien loans, which rose to 74% of assets at fair market value. Looking over the balance of '22, there are a couple of comments I'd like to leave you with. We have a number of new proprietary investments or follow-on investments to existing portfolio companies we anticipate closing in the near term. In addition, we expect near-term prepayment activity to moderate in the face of higher rates and market conditions, and net originations to remain elevated for the balance of the year. We'll be closely managing our leverage within the target range of 90% to 110% of NAV going forward. Consistent with a tighter credit environment, we also expect to see an improvement in pricing and relative leverage metrics in the new originations over the balance of the year. We continue to be well positioned to benefit from the increase in short-term rates, with 93% of our investment portfolio subject to floating rates. And as of June 30, 71% of our debt was at fixed rates. Now that LIBOR has increased above the average LIBOR floor in the portfolio of 1.16%, we expect that for each 75 basis point increase above the level as of June 30, which was 1.8%, we will increase our quarterly net interest margin by $0.5 million and NII per share by $0.01. We will continue to assess the outlook for portfolio growth and net interest income increases to sustain any future increases to the shareholder distributions. And now I'd like to turn the call over to Nicole Schaltenbrand, the CFO for Gladstone Capital, to provide some details of the fund's financial results for the quarter. Nicole?

Thanks, Bob. Good morning, everyone. During the June quarter, total interest income declined $400,000 or 2.8% to $12.6 million. The investment portfolio weighted average balance decreased by $8 million to $506 million compared to the prior quarter. The weighted average yield on our interest-bearing portfolio also declined 20 basis points to 10%, most of which was intensified by the PIK interest, which declined 30% to 5.1% of interest income. Other income declined by $3.1 million to $1.2 million. And as a result, total investment income declined to $13.8 million for the quarter. Total expenses increased by $1.7 million quarter-over-quarter as net management fees declined $1.8 million with the $1.1 million of new deal closing fees credited against the base management fee and incentive fee credits of $400,000. Net investment income for the quarter ended June 30 was $6.9 million or $0.2025 per share and covered 100% of our shareholder distribution. The net decrease in net assets resulting from operations was $5.6 million or negative $0.16 per share for the quarter ended June 30, 2022, compared to a net increase in net assets resulting from operations of $8.3 million or $0.24 per share for the prior quarter. The primary drivers for this change were the realized and unrealized valuation depreciation as covered by Bob earlier. Moving over to the balance sheet. As of June 30, total assets rose to $597 million, consisting of $586 million in investments at fair value and $11 million in cash and other assets. Liabilities increased to $284 million as of June 30, 2022, and consisted primarily of $150 million of 5 1/8% senior notes due 2026 and $50 million of 3 3/4% senior notes due May of 2027. And as of the end of the quarter, advances under our line of credit were $80 million. As of June 30, net assets declined by $12.5 million from the prior quarter end with the realized and unrealized valuation depreciation. NAV declined from $9.49 per share as of March 31 to $9.12 per share as of June 30. Our leverage as of the end of the quarter rose with the increase in total assets and the NAV decline and now stands at 91% of net assets. At quarter end, we had in excess of $70 million of current borrowing availability under our line of credit, the revolving period of which ends in October 2023. With respect to distribution, Gladstone Capital has remained committed to paying its stockholders a cash distribution. In July, our Board of Directors declared monthly distributions to our common stockholders of $0.0675 per common share per month for July, August and September, which is an annual run rate of $0.81 per share. The Board will meet again in October to determine the monthly distribution to common stockholders for the following quarter. At the current distribution rate for our common stock and with a common stock price at about $10.99 per share yesterday, the distribution run rate is now producing a yield of about 7.4%. Distributions, in addition to the NAV growth over the past year of $0.60 per share, have resulted in a total return of $1.39 per share or 16.3% in NAV over the past year. And now I'll turn it back to David to conclude.

Thank you, Nicole. That was an excellent presentation. Bob, Michael, and everyone else did an outstanding job informing our shareholders and the analysts who follow our company. In summary, I believe it was another strong quarter for Gladstone Capital. The company closed $67 million in new proprietary originations and add-on investments, bringing our total investments to a new high of nearly $600 million. We have a solid deal pipeline to support continued asset growth in the current quarter. While investment income did see a slight decline due to reduced exit fees, the growth in our investment portfolio, the recent rise in LIBOR, and the potential for increasing the common distribution rate next quarter are all positive signs. To be specific, we had $531 million in loans at the end of the quarter, with 93% being floating rate and 83% senior secured, all current and performing. We also only have $80 million of floating rate debt at Gladstone Capital. I believe we are well positioned to support dividends for our stockholders. On a side note, there's ongoing debate about whether we are in a recession, and I can confirm that Gladstone Capital is not experiencing one. Overall, the company remains committed to its strategy of investing in growth-oriented middle-market businesses with strong management. Many of these investments are backed by mid-sized private equity funds engaged in buyouts, looking for experienced partners to help with the acquisition and growth of the businesses they invest in. We can fulfill that need, providing us the opportunity to offer attractive interest-paying loans and maintain our commitment to pay cash distributions to our shareholders. Congratulations to the team at Gladstone Capital on another good quarter. Now, if the operator could guide us through the process for callers to ask questions, we will take inquiries from those following us.

I'm going to apologize upfront, I had a little trouble getting into the call, so I'm going to ask you to repeat a couple of things if I can, Bob and Michael, very briefly at the beginning. Excluding Lonestar EMS, the restructuring there, which I understand that the realized loss and the reversal of the unrealized, how much of the unrealized depreciation would you say was credit-driven versus just mark-to-market? And I think you gave some numbers, I caught the very end of it, but I didn't get to that in time, so I apologize.

I would estimate that the amount of credit performance was likely between $2 million and $3 million. Most of the changes this quarter were due to the revaluation of yields, the depreciation of enterprise value multiples related to our equity investments, and some fluctuations in our underlying equity investments, which we think are temporary disruptions in EBITDA. Additionally, a larger EBITDA corresponds to a bigger equity component, which means a more significant EBITDA change. So, in terms of credit performance, it's a relatively minor part of the overall change.

Got it. On the outlook for the rest of the year, lower repayments are expected. However, it seems you are optimistic about the amount of new capital being deployed through follow-on investments. Can you provide more details on the factors driving these follow-on investments? Are they investments that have been developed over a long time, or are they linked to businesses that are now looking for additional capital to make acquisitions? Alternatively, are they aimed at boosting liquidity in light of a challenging economic environment? Can you elaborate on that?

Yes, I have two examples that illustrate the trend. We have been supporters and sponsors of certain businesses for a significant period. Sometimes, these deals increase in size and exceed our capacity. As long-standing investors, we collaborate with our sponsors to locate additional investors to participate in these transactions. When we involve new investors, we appreciate the chance for them to reciprocate by providing us with volume. We have secured some volume from large investors and have built favorable relationships. Several investment opportunities are being presented to us on a noncompetitive basis, allowing us to engage in attractive transactions. The second example relates to yield movement and emerging opportunities. In a challenging economic outlook for certain sectors, our approach to supporting business growth is crucial. It's essential to have partners who understand and are committed to your business. We have been fortunate to engage in several investments in stable food and beverage businesses transitioning from family ownership to more growth-focused ownership. They understand that their ability to expand depends on the right partner. We have successfully competed in auctions within the food and beverage sector, which is traditionally a stable and reliable investment area for facilitating growth. In these instances, we see modest leverage, appealing pricing, and equity co-investment. For businesses planning to grow over the next two years, selecting the right partner is vital. We observe that banks are stepping back from the market, and businesses are seeking stability and support. We are positioned to either enhance our yield or continue investing in solid companies at moderate leverage levels. We are experiencing both scenarios.

I appreciate that information. The primary advantage of the private credit market is the ability to maintain long-term relationships with clients. One more question, if I may. Thank you for the insights on earnings interest rate sensitivity. There are also disclosures in the quarterly report regarding this. Do you believe that if rates increase by 75 basis points or even 150 basis points, at what point should we start to be concerned about interest coverage? How high do rates need to rise before this becomes a major issue?

I don't see any major concerns at the moment. We're currently projecting something in the low to mid-3s. The average portfolio of our core leverage is likely in the mid- to high-3s, and most of these credits not only have cash availability but also have manageable overall leverage. My main worry is limited to a few isolated cases, but I won't be concerned until rates likely approach 5%, which is about double where we stand today. At that point, people will start to look at our average spread and where yields are heading. Given our floating rate at 10% today, the average yield in the portfolio could be in the low teens, which would result in significant interest expenses. Therefore, I'm not anticipating anything drastic right now. In fact, I expect to see some slowdown, possibly leading to a decrease by the end of next year. So even if there were a spike, I don't think it would be prolonged enough to cause major concerns.

Notwithstanding the comments at the beginning of the call that the portfolio is not in recession, could you give us a sense of how revenues and margins are trending amongst your borrowers, at least broadly speaking? And what's your thesis on how that will develop for the rest of this year and into next year?

Mickey, our portfolio is quite diverse, which makes it difficult to draw specific conclusions. The two credits we identified as more challenged did experience a decline in EBITDA, linked to revenue drops around 20%. The rest of the portfolio mostly saw single-digit percentage changes. Some of these fluctuations can be attributed to seasonality, while others might be due to logistical slowdowns and supply chain issues. Additionally, we're predominantly business-to-business, which means we're less affected by consumer spending, housing, or construction trends. The two most impacted areas include one with logistical hurdles due to delays at West Coast ports, which hindered inventory supply for anticipated sales, and another in wireless construction where a significant customer reduced their spending, leading to lower revenues. In general, demand remains relatively strong, especially as most of our businesses focus on domestic manufacturing. This emphasis on domestic production versus overseas sourcing remains significant for many as they navigate their supply chains. We're not witnessing any noticeable slowdown in those areas. The auto market, where we hold some credits, is currently slower but we expect improvement as autumn approaches, particularly as chip availability continues to enhance. On the other hand, we've seen some declines in a few energy-related credits recently. However, two of them are performing exceptionally well, repaying their credits quicker than anticipated. In summary, our main focus on sustainable, growth-oriented domestic businesses remains solid, and we believe whether the sector is up or down by 5%, we are well-positioned with these companies.

That's very helpful, Bob. Just one more follow-up question if I may. We're sort of in this strange environment, where we hear the R word in the media, but we see results like yours, we see a tight labor market, we see corporate borrowers performing generally well. It begs the question, where are we going to be later this year? So what I want to ask about is your thesis on the net originations remaining strong, I guess, you said for the balance of this year. What are the main drivers of that, given at least at the top line, the economy looks like it's slowing down?

Well, I do believe that the deal environment, while the mega deals have slowed down and it's kind of weighing on the markets and certainly some of the larger banks, I believe that there are still significant opportunities for businesses to go through transformational ownership and private equity-oriented owners are still the most likely place where the transformation of that business, whether it's digital or just operational, is going to create value. I see family businesses selling with the idea that we're going to put in new measurement systems, new performance, new technologies, improved efficiencies, better automation. That transformation is part of the reason why I think we will continue to see private equity investing in businesses and affecting those changes and improvements. I don't think that changes because interest rates are up 100 basis points or the housing market dips by 20%. I think there is an ability to transform and create value through managing those businesses. We're seeing that in some of our investments. Secondly, certain sectors are certainly stronger. I will say that one area that we're seeing a lot of activity is in health care. Health care is not going away. There are continuing to be demographic and fundamental changes in the configuration and delivery systems for health care. That's going to be an opportunity for us to go forward. I think the broader thesis of business transformation, domestic manufacturing capability, and supply and demographic growth and changes are creating opportunities. Folks that understand where that is and are willing to dig in and underwrite that business are going to do fine. It just so happens that at the moment there are a lot of folks that are not digging in and are pulling back. It's giving us an opportunity to take on some very nice businesses. I'll give you a point of reference. We were told that in a recent award that we have and in the process of closing, they went to 75 lenders, got dozens of term sheets, and we won the transaction because we understood the business and leaned in to support their growth. That kind of partnership is something that people seek. It's not transactional. It's about your ability to understand and your reputation in supporting businesses and their growth. That's why I think we're winning.

Those are really interesting comments, Bob. And there is data as we know that lower middle-market investments can perform as well or maybe even better than upper middle-market investments. With that in mind and maybe for the benefit of the audience, you mentioned targeting family-owned businesses. What sort of typical EBITDA are you looking at? I know it varies by the sector. But what sort of average EBITDA are the companies that you're investing in generating when you invest?

Typically, they're in, let's say, the $4 million to $6 million to $8 million range. They quickly accelerate. Some of that is probably stripping out cost and improving efficiencies. It's the ability to infuse sales capabilities or acquisitions. We'd like to get them at that size. If we can ride them until they get to $30 million or $40 million, then we've made a lot of money and our partners have made a lot of money as well.

All right. Well, thank you all for calling in, and we hope the next meeting about a month from now will be just as strong as the one you saw. That's the end of this call.

And this concludes today's conference, and you may disconnect your lines at this time. Thank you for your participation.