Gladstone Investment Q3 2025 Earnings Report

Gladstone Investment EPS Results

• Actual EPS: $0.23
• Consensus EPS: $0.24
• Beat/Miss: Missed by -$0.01
• One Year Ago EPS: N/A

Gladstone Investment Revenue Results

• Actual Revenue: N/A
• Expected Revenue: $22.88 million
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

Gladstone Investment Announcement Details

• Quarter: Q3 2025
• Date: 2/12/2025
• Time: After Market Closes
• Conference Call Date: Thursday, February 13, 2025
• Conference Call Time: 8:30AM ET

Gladstone Investment (NASDAQ:GAIN) (NASDAQ: GAIN) is a publicly traded business development company (BDC) that focuses on providing debt and equity financing to U.S. middle-market companies. As an externally managed closed-end fund, Gladstone Investment seeks to generate current income and capital appreciation for its shareholders by originating senior secured debt, subordinated debt and equity investments. The firm typically targets established businesses with revenues between $10 million and $150 million, across a range of industry sectors including business services, health care, industrials and specialty manufacturing.

The company’s investment strategy centers on deploying capital through first-lien and second-lien term loans, mezzanine debt and equity co-investments, often including warrants or other equity kickers. By structuring transactions with an emphasis on downside protection and yield enhancement, Gladstone Investment aims to achieve attractive risk-adjusted returns while maintaining a diversified portfolio. The fund may also participate in follow-on financings and recapitalizations designed to support growth initiatives, acquisitions or management buyouts.

Founded in 2005 and headquartered in McLean, Virginia, Gladstone Investment operates under the management of Gladstone Management Corporation, an affiliate of Gladstone Capital Corporation and the GladstoneFunds. The external management structure aligns the interests of the adviser and its affiliates with those of the BDC’s shareholders, as management fees and incentive fees are tied to the company’s investment performance and asset growth.

Gladstone Investment serves companies across the United States, with a particular emphasis on regions that host a high concentration of established middle-market businesses. The firm’s leadership team is led by President and Chief Executive Officer Robert A. Gladstone, who brings decades of experience in private credit, equity investing and corporate finance. Together with its board of directors and investment professionals, Gladstone Investment continues to leverage its sourcing capabilities and underwriting expertise to support private companies and deliver consistent returns to its investors.

Gladstone Investment Q3 2025 Earnings Call Transcript

Key Takeaways

• Gladstone reported adjusted NII of $0.23 per share and grew total assets to approximately $1.1 billion from $869 million in the prior quarter.
• The firm deployed a record $188 million of new capital across three acquisitions and is evaluating dividend recapitalizations at select portfolio companies.
• Gladstone issued $126.5 million of 7.875% notes due February 2030, upsized its credit facility to $250 million, and maintains low leverage with strong liquidity.
• The company sustained its $0.08 monthly dividend and paid a $0.70 per share supplemental distribution from realized capital gains, supporting an estimated 12.5% yield.
• NAV rose to $13.30 per share from $12.49, driven by $37.3 million of unrealized appreciation, even as four portfolio companies remain on non-accrual with signs of improvement.

Presentation

[Operator]

Greetings, and welcome to Gladstone Investment Corporation Third Quarter Earnings Call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce Mr. David Gladstone, Chief Executive Officer. Thank you, sir. You may begin.

[David Gladstone, Chairman & CEO at Gladstone Investment]

Well, thank you, Sherry. This is David Gladstone, Chairman of Gladstone Investment. This is the earnings conference call for the third quarter ending 12/31/2024. And we're now into the fiscal year for 2025 for 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 GAINL and GAINI for the four different registered notes. So thank you all for calling in. We're always happy to provide updates to our shareholders and analysts and provide you 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?

[Michael Licalsi, General Counsel & Secretary at Gladstone Investment]

Absolutely. Thanks, David, and 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 see in our Forms 10 Q, 10 K and other documents that we file with the SEC.

[Michael Licalsi, General Counsel & Secretary at Gladstone Investment]

You'll find these on the Investors page of our website, gladstoneinvestment.com or on the SEC's website, which is 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. 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.com, sign up for our email notification service. You can also find us on Twitter gladstonecomps and on Facebook, keyword The Gladstone Companies.

[Michael Licalsi, General Counsel & Secretary at Gladstone Investment]

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 Dullum. Dave?

[David Dullum, President at Gladstone Investment]

Thank you, Mike, and good morning, everyone. So for this third quarter of fiscal year 'twenty five, I am pleased to report that the GAIN team produced consistent positive quarterly results, while we expanded our portfolio of operating companies. 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 26 operating companies, which is extremely important given our model of buying and working with these companies over time.

[David Dullum, President at Gladstone Investment]

Now this quarter, we successfully acquired three new companies, deployed over $188,000,000 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 management team and we have confidence in the business, which will help support our future equity gains. 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 and 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.

[David Dullum, President at Gladstone Investment]

As our portfolio goes through the various maturity cycles and the equity values increase, we will continue to 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 buyouts, which of course is our main thrust.

[David Dullum, President at Gladstone Investment]

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, while maintaining our principles of being a value investor, generating income on a 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 Port Royal is very good.

[David Dullum, President at Gladstone Investment]

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?

[Taylor Ritchie, CFO at Gladstone Investment]

Great. Thank you, Dave, and good morning, everyone. Looking at our operating performance, in the third quarter of fiscal year 'twenty five, we we generated total investment income of $21,400,000 down slightly from twenty two point six million dollars 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 variable, as well as a $500,000 decrease in interest income. 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 SOFA rates throughout the quarter.

[Taylor Ritchie, CFO at Gladstone Investment]

These decreases were partially offset by a 700,000 increase in successfully 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 losses during the quarter and accrued as required under the GAAP in addition to a $1,300,000 increase in our income based incentive fee. These expense increases were partially offset by a $2,200,000 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 in the prior quarter.

[Taylor Ritchie, CFO at Gladstone Investment]

We believe that adjusted net investment income is a useful 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 accrual status or exit the investments when possible. In particular, we continue to see improvement in two of these companies as they are back to generating a profit.

[Taylor Ritchie, CFO at Gladstone Investment]

Valuations in aggregate were up 37,300,000 across the portfolio. This unrealized appreciation was driven by higher valuation multiples across the portfolio and increased performance at a number of our portfolio's 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.

[Taylor Ritchie, CFO at Gladstone Investment]

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. During the quarter, we successfully issued $126,500,000 of new publicly traded 7.875% notes maturing in 02/1938. 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 $250,000,000 resulting in a $50,000,000 increase in overall capacity.

[Taylor Ritchie, CFO at Gladstone Investment]

With our four public note issuances, we have long term fixed rate capital inflows. 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 and the additional available capital from our line of credit will allow us to drive before the growth as new buyout opportunities emerge. Overall, our leverage remains in a strong position with an asset coverage ratio as of 12/31/2024, of 185.9%, providing cushion to the required 150% coverage. Consistent with prior quarters, distributable earnings to shareholders remain strong.

[Taylor Ritchie, CFO at Gladstone Investment]

We started the fiscal year with $20,000,000 or $0.55 per share in spillover and our monthly distribution remains at $0.08 per 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 supplemental distribution as a result of the successful exit of an existing portfolio company. We will look to continue funding future supplemental distributions 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 distribution paid so far in fiscal year twenty twenty five, our aggregate estimated fiscal year distributions were due at about 12.5% using yesterday's closing price of $13.31 This covers my part of today's call. I'll now hand it back over to you, David, to wrap us up.

[David Gladstone, Chairman & CEO at Gladstone Investment]

Well, thank you. Very nice, Taylor. You do a good job and nice for Dave and Michael. That's good information for our shareholders. We're all in the 10 Q we filed with the

[David Gladstone, Chairman & CEO at Gladstone Investment]

SEC yesterday to 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 that ends March. We believe Gladstone investment is an attractive investment for investors seeking continuous monthly distributions and then we also often pay supplemental distributions gains and other income that we get. The 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 the analysts and shareholders who want to ask some questions.

[David Gladstone, Chairman & CEO at Gladstone Investment]

So operator, if you'll come on now, let's get some questions.

[Operator]

Thank you, sir. Our first question is from Matthew Hurwitz with Jefferies. Please proceed.

[Matthew Hurwit, Equity Research Analyst at Jefferies & Company Inc]

Good morning, everyone. Hope you're well. Just curious what changes at Nocturne E3 and SSEG drove the unrealized depreciation in the quarter?

[David Dullum, President at Gladstone Investment]

So trying to take each one separately, Nocturne had an increase in both EBITDA and also multiple. That's one we've been actively 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.

[David Dullum, President at Gladstone Investment]

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 SSEG, the multiple actually did not really change from our valuation perspective, but we were up in EBITDA. Again, that's one that we have made add on acquisitions to and that company is performing exceptionally well. So, without specific, generally, it's all of the above.

[David Dullum, President at Gladstone Investment]

So fundamentals are up from an EBITDA perspective and to some extent multiples a little bit help that.

[Matthew Hurwit, Equity Research Analyst at Jefferies & Company Inc]

Okay, great. Congrats on that. Thanks. And then just on the flip side, if you could describe what changes at Educators, PSI and Galaxy Technologies drove the depreciation quarter on quarter and maybe what your outlook is there?

[David Dullum, President at Gladstone Investment]

Yes. So Galaxy going to that one first, the multiple 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 downtick in EBITDA for the year, but again, I'm not it's not a concern of any fashion.

[David Dullum, President at Gladstone Investment]

So that's what caused that one being down slightly. PSI, sorry, again, the multiple was 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 was a lot of moving parts in that one.

[David Dullum, President at Gladstone Investment]

And again, that one has three major facilities now. So frankly, the cost of moving was a little bit more than we anticipated. And as a result of that, we saw a slight downtick in EBITDA. So that's really what attributed to the majority of any decline there in valuation, I think about $2,700,000 So 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 really feel very good about and are going to plan on keeping that company in our portfolio for quite a while.

[David Dullum, President at Gladstone Investment]

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 to the contrary, I'd say, is a really good business.

[Matthew Hurwit, Equity Research Analyst at Jefferies & Company Inc]

Okay. Thank you for that.

[David Dullum, President at Gladstone Investment]

I'm sorry, Matthew. Go ahead.

[Matthew Hurwit, Equity Research Analyst at Jefferies & Company Inc]

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 credits from the advisor in the quarter you just reported? And could those reverse in future quarters?

[Taylor Ritchie, CFO at Gladstone Investment]

Yes. So I'll get a response to that one. So NII for the twelvethirty one quarter, it was much lower because of the large cap gains 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 Nocturne E3 and SFPG, those are all sizable increases.

[Taylor Ritchie, CFO at Gladstone Investment]

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 yields, we continue to keep a blended rate of 11.5% and our focus with high level of interest rate floors with our portfolio companies is that, yes, SERFR may come down, but 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 fees from the advisor, that is tied significantly with new investment activity. So as we do have those new investments to come on forward, we will have higher fee credits from quarter to quarter.

[Taylor Ritchie, CFO at Gladstone Investment]

So there could be some fluctuation in those numbers, but if we continue to expand our portfolio, you'll see those elevated fee credits.

[Matthew Hurwit, Equity Research Analyst at Jefferies & Company Inc]

Okay, great. Thanks very much.

[David Gladstone, Chairman & CEO at Gladstone Investment]

Okay. Next

[Operator]

question please. Mr. Gladstone, I don't see any more questions at this time. Do you have any closing remarks?

[David Gladstone, Chairman & CEO at Gladstone Investment]

Yes, 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 enjoy doing this for you and that's the end of this meeting.

[Operator]

Thank you. This will conclude today's conference. You may disconnect your lines at this time and thank you for your

Participants

Executives

• David Gladstone, Chairman & CEO
• Michael Licalsi, General Counsel & Secretary
• David Dullum, President
• Taylor Ritchie, CFO

Analysts

• Matthew Hurwit, Equity Research Analyst at Jefferies & Company Inc