Gladstone Investment Q3 2026 Earnings Report

Gladstone Investment EPS Results

• Actual EPS: $0.21
• Consensus EPS: $0.24
• Beat/Miss: Missed by -$0.03
• One Year Ago EPS: N/A

Gladstone Investment Revenue Results

• Actual Revenue: $25.06 million
• Expected Revenue: $25.83 million
• Beat/Miss: Missed by -$768.00 thousand
• YoY Revenue Growth: N/A

Gladstone Investment Announcement Details

• Quarter: Q3 2026
• Date: 2/3/2026
• Time: Before Market Opens
• Conference Call Date: Wednesday, February 4, 2026
• 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 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: NAV jumped to $14.95, driven by $70.2 million of unrealized appreciation (predominantly equity) reflecting higher portfolio EBITDA and valuation multiples.
• Positive Sentiment: Management maintained the $0.08/month distribution (annual $0.96) and highlights total distributable income of $108.7M, while interest-rate floors (weighted average floor ~12.1%; new debt underwritten at 13–13.5%) help protect income as SOFR falls.
• Negative Sentiment: The company reported a GAAP net investment loss of $6.5M (vs. prior-quarter income) as net expenses rose, primarily from a $9.9M accrual of capital gains–based incentive fees, which reduced reported earnings.
• Positive Sentiment: Proactive balance-sheet moves improved liquidity and cost of capital — redeemed $74.8M of 8% notes, issued $60M of 6.875% notes (reducing interest burden by ~110 bps), expanded the credit facility to $300M, and had ~ $171M available.
• Neutral Sentiment: Three portfolio companies remain on non‑accrual (3.8% of portfolio at cost, 1.5% at fair value), but management says EBITDA is positive and expects improving outcomes or exits over time.

Presentation

[Operator]

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. David Gladstone, Chief Executive Officer. Thank you, sir. You may begin.

[David Gladstone, Chairman and CEO at Gladstone Investment]

Well, thank you, Latoya, and good morning to everybody. This is David Gladstone, Chairman of Gladstone Investment, and this is the earnings conference call for the third quarter ending December 31, 2025, for the 2026 fiscal year. That is the March 31st year. We hope we get all of our shareholders on board and analysts in order to, in order to tell you about the future of the company. We're listed on Nasdaq under the trading symbol GAIN for the common stock, and then we have three preferred stocks, GAIN N and GAIN Z and GAIN I. Three different registered notes. Okay, thank you all for calling in. We're always happy to provide updates to our shareholders and analysts and provide a view of the current business and the environment that we're in.

[David Gladstone, Chairman and CEO at Gladstone Investment]

Two goals of this call are to help you understand what happened to us during the last quarter and give you our current view of the future. Now we'll hear from Catherine Gerkis, our Director of Investor Relations and ESG, to provide a brief disclosure regarding certain regulatory matters concerning this call. Catherine, go ahead.

[Catherine Gerkis, Director of Investor Relations and ESG at Gladstone Investment]

Good morning, everyone. Today's call may include forward-looking statements which are 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 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, @GladstoneComp, as well as Facebook and LinkedIn. Keyword for both is the Gladstone Company.

[Catherine Gerkis, Director of Investor Relations and ESG at Gladstone Investment]

Now I will turn the call over to David Dullum, President of Gladstone Investment.

[David Dullum, President at Gladstone Investment]

Thanks, Catherine, and good morning to everybody. So I'm pleased to report again that the third quarter of fiscal year 2026, which, as David Gladstone mentioned, ends in March 31, uh that we GAIN, continued to build on the prior quarters, a very strong performance in this fiscal year, driven by our continued growth in the portfolio and the results of our existing portfolio companies. So we ended the third quarter with an adjusted NII of $0.21 per share, total assets of about $1.2 billion, which is up about $92 million from the end of the prior quarter. Of this increase quarter-over-quarter in assets resulted from one new buyout investment during the current quarter, along with fairly significant appreciation of our investment portfolio. So with the new buyout investment, we currently have 29 operating companies and a very healthy pipeline for new acquisitions.

[David Dullum, President at Gladstone Investment]

In this regard, to date, for fiscal 2026, we've invested approximately $163 million, which is in four new portfolio companies, which compares to about $221 million that we invested for all of fiscal year 2025. These new investments are consistent, of course, with the buyout strategy, where we grow the portfolio through the acquisition of operating companies at attractive valuations and where we generally are the majority economic owner. We also make our acquisitions through a combination of equity and debt, and with the equity providing the potential upside through capital gains upon exit, and the debt securities, of course, generating the operating income, which supports our monthly distributions to shareholders. And that is a very important aspect of our portfolio.

[David Dullum, President at Gladstone Investment]

So this is one of the factors that in fact differentiates us from other traditional credit BDCs, the aspect that we provide both the debt and the equity when we make an acquisition. So 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. Put this in perspective, since inception in 2005 and through 12/31/2025, we've invested in 66 buyout portfolio companies for an aggregate of approximately $2.2 billion and exited 33 of these companies. This resulted in the total investments currently being valued at $1.2 billion, while generating approximately $353 million in net realized gains and $45 million in other income on exit. So as we look forward, uh what we're finding is there is very good liquidity in the M&A market.

[David Dullum, President at Gladstone Investment]

This creates a very competitive environment for new acquisitions, certainly at what we would consider reasonable valuations. Now, while this is challenging, we do seem to be able to compete effectively, as I mentioned, the investments we've made in this fiscal year. Uh so we're, we're out there working hard, effectively, uh competing for these acquisitions that do indeed fit our model. And again, this is where we're providing both the equity and the debt to complete the acquisition. And one of the things that we do in looking at the um debt securities that we do, we need a meaningful, what we call fixed charge coverage and income yield on our total investment. So that is indeed in excess of our cost of capital. As I mentioned earlier, we closed on four new investments during the first nine months of the fiscal year.

[David Dullum, President at Gladstone Investment]

We are continuing to be in varying stages of diligence on some possible new opportunities, including accretive add-on acquisitions to existing portfolio companies and we're in review and negotiation with a number of other new opportunities. I would just like to, to elaborate on the add-on acquisitions I've mentioned. Given the way in which we manage our portfolio, it's not unusual for us to be constantly looking for acquisitions to add to existing portfolio companies, and indeed, are able to grow the value of our overall investments and portfolio by, by this add-on activity. So this activity all could lead to closing on new buyout investments during the balance of the fiscal year. And as it relates to the income that's generated for the portfolio, there is one word and question that seems to keep coming up.

[David Dullum, President at Gladstone Investment]

We hear about what we call spread compression, and given that interest rates, generally, given SOFR coming down and so on, that these interest rates may be declining. I want to again emphasize that one differentiator for GAIN from other credit-oriented BDCs is that we put floors on our debt securities while we have a stated rate, which indeed is a spread over SOFR. Now, so while we may have seen a decline in yield because SOFR has come down, granted that's coming down from a higher level, we still have the protection of the floors. And I think this is a very important point that we need to stress, and you'll hear more about this from, from Taylor Ritchie, our CFO, in a little bit.

[David Dullum, President at Gladstone Investment]

So again, this floor is usually set high enough, which establishes an effective yield on our total investments, which does help to mitigate this "spread compression" or the decline in SOFR, uh you know, over time. As to our existing portfolio, most of the companies have experienced very good results to date, and this is reflected in a very significant increase in our net asset value. And though we continue to be cautious due to supply chain disruption, tariff costs, and the other issues going on in the economy, uh we, we feel very good about where we are with our portfolio companies. We are working with all of our companies in evaluating things such as supply chain alternatives, other cost efficiencies that we need to help navigate the current environment.

[David Dullum, President at Gladstone Investment]

So, in summing up the quarter and looking forward to the rest of the fiscal year, our current portfolio is in good shape. We have a strong and liquid balance sheet, a good level of buyout activity, with a prospect of continued good earnings and distributions over the next year. So with, with all of that, while we hopefully navigate the challenges of this uncertain economic landscape. So, I'll turn it over to our CFO, Taylor Ritchie, and he can tell us a bit more detail. Taylor?

[Taylor Ritchie, CFO at Gladstone Investment]

Thank you, Dave, and good morning, everyone. Looking at our operating performance for the third quarter, we generated total investment income of $25.1 million, down slightly from $25.3 million in the prior quarter. The decrease was primarily driven by a decrease in dividend and success fee income, partially offset by additional interest income resulting from the continued growth of our debt investment portfolio. The weighted average principal balance of our interest-bearing investments was $699 million in the current quarter, representing an increase of $30 million compared to prior quarter. After adjusting for the collection of past due interest income from investments that were previously on non-accrual status, our portfolio's weighted average yield decreased modestly from 13.2% to 12.9%.

[Taylor Ritchie, CFO at Gladstone Investment]

This 24 basis point decrease is in line with the 32 basis point decrease in SOFR during the quarter and was mitigated by the interest rate floors included in each of our debt investments. Excluding non-accrual investments in revolving lines of credit, the weighted average interest rate floor for our debt portfolio was 12.1% as of December 31st. We continue to underwrite our new debt investments with elevated interest rate floors in the 13%-13.5% range to mitigate potential declines in SOFR. With over half of our debt portfolio currently at their interest rate floors, we believe our yield is well protected against future rate declines. Further, the overall interest rate floors will offset higher interest expense that will result from the future refinancing of our low-cost, long-term debt that will be maturing in quarters and years.

[Taylor Ritchie, CFO at Gladstone Investment]

Additionally, dividend and success fee income declined by $0.4 million quarter-over-quarter. Dividend income from our equity investments is dependent on the portfolio company's ability to pay the distribution, while also having sufficient earnings and profits to support the characterization of the distribution as dividend income. Success fee income is derived from an interest rate associated with our debt investment that accrues off-balance-sheet for both GAIN and the portfolio company, and is not contractually due until a change of control event. However, similar to dividend income, a portfolio company may elect to prepay a portion of this accrual from time to time. Given that collection of both dividend income and success fee income is dependent on multiple factors, the timing of this income will be variable. Net expenses for the quarter were $31.6 million, up from $21 million in the prior quarter.

[Taylor Ritchie, CFO at Gladstone Investment]

The increase was primarily due to $9.9 million, a $9.9 million increase in the accrual of capital gains-based incentive fees. Base management fee expense increased by $0.5 million compared to the prior quarter as a result of new buyout investment activity and a significant increase in unrealized appreciation of our investments. Fee credits from advisor, the level of which is correlated to the timing and volume of new originations, declined $0.4 million quarter-over-quarter. Interest expense decreased $0.2 million in the current quarter due to the timing of the issuance of our 6.875% notes, the redemption of our 8% notes, and new investment activity. This resulted in a net investment loss of $6.5 million compared to net investment income of $4.3 million in the prior quarter.

[Taylor Ritchie, CFO at Gladstone Investment]

Overall, portfolio company valuations in the aggregate increased to $70.2 million. This unrealized appreciation was driven by both increased performance at some of our portfolio companies, along with higher valuation multiples across the portfolio. The increase was partially offset by decreased performance of other portfolio companies. Adjusted net investment income, which represents net investment income or loss, excluding any accrued or reversed capital gains-based incentive fees, was $8.2 million, or $0.21 per share, compared to $9.2 million, or $0.24 per share in the prior quarter. We believe that adjusted net investment income remains an indicative metric of our ongoing and core performance, as it removes the impact of capital gains-based incentive fees, which is an expense recorded under U.S. GAAP each quarter, but is not yet contractually due. For the current quarter, we continue to have three portfolio companies on non-accrual status.

[Taylor Ritchie, CFO at Gladstone Investment]

We've been working closely with each of these three companies, working alongside their management teams to support efforts to return to accrual status or pursuing exits where appropriate. Our non-accrual investments represent 3.8% of our total portfolio at cost and 1.5% at fair value. Our NAV increased to $14.95 per share, compared to $13.53 per share at the end of the prior quarter. The increase was primarily a result of $1.77 per share of net unrealized appreciation and $0.09 per share of net realized gains. These increases were partially offset by $0.24 per share of distributions to common shareholders, $0.16 per share of net investment loss, and $0.03 per share of realized losses associated with the redemption of our 8% notes. Moving on to our balance sheet.

[Taylor Ritchie, CFO at Gladstone Investment]

Our ability to maintain sufficient liquidity, financial flexibility, and managing a fluctuating interest rate environment is essential to supporting and growing our portfolio. As part of our proactive balance sheet management, we redeemed the full $74.8 million outstanding balance of our 8% notes, using proceeds from the recently issued $60 million, 6.875% notes and borrowings on our line of credit. This redemption and new debt issuance reduced our interest burden for $75 million of debt capital by approximately 110 basis points. Further, we expanded our credit facility to include City National Bank with $30 million commitment level. As a result of this expansion, we now have a total commitment level of $300 million under our facility, and as of yesterday's release, we had approximately $171 million in our remaining availability.

[Taylor Ritchie, CFO at Gladstone Investment]

During the quarter, we raised approximately $3.2 million in net proceeds through common stock ATM program issuances. While the price level of our common stock limited the number of days we were active on the ATM, we will look to sell under our ATM program in the future when prices are accretive to NAV. We believe that we are in a sufficiently strong liquidity position with our ability to access the debt capital markets and, when possible, the equity markets, to support both the refinancing of upcoming debt maturities and our pipeline of new buyout opportunities. Overall, our leverage remains in a strong position, with an asset coverage ratio as of December 31st 2025 of 201%, providing what we believe to be ample cushion to the required 100% coverage ratio.

[Taylor Ritchie, CFO at Gladstone Investment]

Focusing on our distributions 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 we paid in June. As of December 31st, our estimated spillover was approximately $22.9 million, or $0.58 per share. We ended the quarter with total distributable income of $108.7 million, or $2.73 per share. Total distributable income primarily consists of the net unrealized appreciation of our investments, as well as the GAAP-adjusted balance of our spillover presented on our balance sheet.

[Taylor Ritchie, CFO at Gladstone Investment]

Including the $0.54 supplemental distribution in the current fiscal year, we paid an aggregate of $3.26 per share across 13 supplemental distributions over the last 5 fiscal years, in addition to the $4.68 per share of monthly distributions during this time. This track record reflects our ability to maintain a stable monthly dividend while also delivering incremental returns to shareholders, underscoring the strength and consistency of our focused, equity-oriented investment strategy. Looking ahead, we expect supplemental distributions to remain an important component of our overall shareholder return strategy, with the amount and timing of future payments driven by realized capital gains on our equity investments, along with other capital allocation considerations. This covers my part of today's call. I'll hand it back over to you, David, to wrap us up.

[David Gladstone, Chairman and CEO at Gladstone Investment]

Well, thank you. Very nice, Taylor, and nice to David Dullum and Catherine Gerkis as well. And this will tide over our shareholders until the next call, which will be at the end of March, which will be our annual as well as our quarter. The the call and Form 10-Q should bring everyone up to date. The team has reported solid results for the quarter ending December 31st, 2025, including new investment activity and strong liquidity position to grow the portfolio throughout the fiscal year. We believe Gladstone Investment is very attractive investment for investors seeking continued monthly distribution and some supplemental distributions from potential capital gains and other income. The team hopes to continue to show you a strong return on investment in our funds. Now, let's stop for some questions from the analysts and other shareholders. Please come on, Latoya.

[Operator]

Thank you. We will now conduct a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Once again, that's star one at this time. One moment while we pull our first question. The first question comes from Mickey Schleien with Clear Street. Please proceed.

[Mickey Schleien, Managing Director of Equity Research at Clear Street]

Yes, good morning, everyone. Um Dave, a good portion of the appreciation in NAV this quarter came from uh three investments, Schylling, Old World, and SFE, SFEG. Can you discuss the operational or valuation changes that drove that appreciation for each of those companies?

[David Dullum, President at Gladstone Investment]

Sure. Hi, hi, Mickey, nice to chat with you. Yeah, and actually, we had a pretty significant, uh those three you mentioned were large numbers, but we have a number of other companies indeed also that, that had, relatively speaking, pretty significant increase as well. But fundamentally, uh all the ones that were these large increases were fundamentally no multiple change, but pretty much all because of EBITDA increase. So, you know, which is obviously the best, the best situation. So, um yeah, that, that was true of all three of those that you specifically mentioned.

[Mickey Schleien, Managing Director of Equity Research at Clear Street]

That-that's-

[David Dullum, President at Gladstone Investment]

So the EBITDA was. Yeah. Sorry, go ahead.

[Mickey Schleien, Managing Director of Equity Research at Clear Street]

That's interesting. I don't know if it's pronounced Schilling or Schilling, but-

[David Dullum, President at Gladstone Investment]

Schylling.

[Mickey Schleien, Managing Director of Equity Research at Clear Street]

Schylling and Old World are obviously consumer-oriented companies, and we're reading, you know, so much about the K-shaped economy. So what's sort of different about those two companies that, that's allowing them to grow their EBITDA, even with the headwinds in the consumer sector?

[David Dullum, President at Gladstone Investment]

Yeah, I think the only answer I can give is the products that they make and sell, obviously. Schylling is a very interesting business. You know, they have a very unique uh product, which makes up a reasonable portion of their, of their overall revenue, something called NeeDoh. It's one of these things where you squeeze for a variety of reasons, um and they have different types of that, and that product has had huge demand, even with, as you point out, um forget consumer demand generally, but the whole tariff uh increases that we've seen in their products, of course, a significant portion comes from the Far East. So even with that, they have literally been able to maintain a level of demand that just frankly has allowed the company to perform at an exceptionally high level.

[David Dullum, President at Gladstone Investment]

Old World Christmas, obviously, uh Christmas tree ornaments, you're familiar with those I think. Uh you've seen them. And again, they're a well-run business. All of these companies are very well run. Um they've got great management teams on pretty much, frankly, all of our portfolio companies right now. Um and they've just been able to um, you know, to outperform, I guess, really, the consumer demand side of things, as you say. Uh I don't have any further specific real insight to that other than, again, good management, uh quality products, and been able to manage through the uh tariff impacts.

[Mickey Schleien, Managing Director of Equity Research at Clear Street]

That, that's, that's really good to hear. Dave, you also recently invested in Rowan Energy. Uh can you walk us through how you underwrote that deal, particularly, you know, how you assessed the cyclicality in the energy equipment, uh fracking, sand filtration sector, and, and what assumptions you made about where Rowan stands in its business cycle?

[David Dullum, President at Gladstone Investment]

Mm-hmm. Best answer I can give you, Mickey, we can certainly chat about this offline if you need and, you know, bring some of the other folks involved that were more directly involved in those companies. But as you know we, we have a couple of investments now that are in the energy-related sector. Uh one company in particular E3, which also had a very interesting and nice increase in valuation. And what we have there is a quality and experienced team uh running that, particularly E3, and, and that frankly helps us to move off into and to be able to evaluate uh companies such as um, you know, what you mentioned, Smart Chemical is another one. And so we would have, we have knowledge and experience within our uh portfolio to help properly evaluate that.

[David Dullum, President at Gladstone Investment]

So right now, and through those lenses, uh we feel like where these guys are in their cycle, that we still have upside and, and we've been able to manage it through valuations, frankly, that also are at a level that aren't really, I'll use the words carefully, but overpaying, so to speak. Um, but anyway, one that we can talk about in more detail if you really want to later on.

[Mickey Schleien, Managing Director of Equity Research at Clear Street]

I appreciate that. Um Dave, or maybe Taylor, if I look at the table in the press release regarding floor rates, I wanna make sure I understand it. Is it correct to say that about half the portfolio has about 80 basis, 80 basis points of downside in average yields?

[Taylor Ritchie, CFO at Gladstone Investment]

Yes, but the way for us to get there, we would need significant decreases in SOFR. So it wouldn't just be 80 basis points would get to um that level of 12.1% floor. We would need closer to 210 basis points to be able to bring SOFR down to a level where the otheruh portfolio companies would then hit their floors. So there's some wiggle room, and as you can see, with the fact that the basis point decrease right below that table there, the 25, 50, 75, hundred percent or a 100 basis point decreases and so forth, you can see as that decrease occurs, the decrease to the overall rate is not one for one, and that's because we start hitting the interest rate floors of more of the portfolio companies.

[Mickey Schleien, Managing Director of Equity Research at Clear Street]

Okay. Yeah, I understand. And lastly, you know, given sort of the typical portfolio companies that youuh are attracted to, uh is it reasonable to say that there's sort of limited risk from AI in the portfolio? And, and how are you looking at that in terms of the pipeline?

[David Dullum, President at Gladstone Investment]

Yeah, that terminology, of course, is pretty broad, right? AI.

[Mickey Schleien, Managing Director of Equity Research at Clear Street]

Yeah.

[David Dullum, President at Gladstone Investment]

I guess what I would say is that most of our companies are, to the extent that AI is important, they're actually using it to some degree. Uh and I think you, in fact uh, if you recall, coming out to our conference last year, we had a fair amount of stuff on that, and I think you, you heard some of that as well. So a number of our portfolio companies are utilizing uh various aspects of AI, uh which is enhancing, you know, their, either their efficiency and whether it be designing uh some of the product you mentioned, Schilling, again, they've actually, for a couple of years now, they've been using some aspect of AI in helping them to, to um really design efficiently some of their products and so on.

[David Dullum, President at Gladstone Investment]

I would say, yeah, we're more a beneficiary to some extent than necessarily, as you point out, where we have a tech company that might be directly in that space, and there may be real competition for that. I would say we don't have that in our portfolio, so you're correct.

[Mickey Schleien, Managing Director of Equity Research at Clear Street]

Okay.

[David Dullum, President at Gladstone Investment]

Yeah.

[Mickey Schleien, Managing Director of Equity Research at Clear Street]

That's good to hear. Those are all my questions. I appreciate your time this morning. Thank you.

[David Dullum, President at Gladstone Investment]

Thank you. Who's up next?

[Operator]

The next question comes from Christopher Nolan with Ladenburg Thalmann. Please proceed.

[Christopher Nolan, SVP at Ladenburg Thalmann]

Hi, thanks for taking my question. As a follow-up to the unrealized gains, were those mostly related to equity gains in the portfolio?

[Taylor Ritchie, CFO at Gladstone Investment]

Yes, they were predominantly equity. We did have a handful of portfolio companies that experienced debt increases or debt fair value increases as the overall TEV for that portfolio company was increasing, as a result of both multiple increases and EBITDA increases. But the bulk of it, yes, it is equity-driven.

[Christopher Nolan, SVP at Ladenburg Thalmann]

Then in the comments section, you guys said, there's good liquidity in the M&A market. Um I've heard from other managements where credit widely available to a lot of these middle-market companies, but equity is less so. Um do you have a different take on that? And if equity is less prevalent, does that give you a competitive advantage?

[Taylor Ritchie, CFO at Gladstone Investment]

Yeah. So I, I guess, Chris, my response to that might be from my experience, our experience, I think maybe our, the folks that, let's say, we compete with the traditional BDC, excuse me, traditional private equity guys, to the extent that they're able to access leverage at, at more attractive rates, I think that's where, you know, why if they can put less equity in and slightly higher leverage or lower rates, they're, they're doing some of that. I think it gives, gives us an advantage, though, as well, because we're bringing, again, the equity and the debt, and we can moderate that, so we get the leverage on our own equity.

[Taylor Ritchie, CFO at Gladstone Investment]

But I would say that it's competitive, uh frankly, with the M&A, direct M&A shops because valuations, uh while we're seeing some elevation, frankly, on elevations, the fact that they can get, um you know, leverage at lower rates, relatively speaking, makes them pretty competitive as well. So to your point, they might put in less equity, put in a bit more leverage, and be competitive with us, even though we're doing the debt and the equity. So it gives us a slight advantage in that when we deal with a management team, and we're trying to buy the business, we at least are speaking for the whole capital stack, and we have a bit more certainty there versus, say, a traditional firm that might have to go out and try to raise the debt, um whereas we at least can speak for all of it.

[Taylor Ritchie, CFO at Gladstone Investment]

So it gives us a slight edge, but, yeah, it's, there's a fair amount of capital out there, in both the. I'd say that certainly the debt market and, and clearly on the equity side, from our experience.

[Christopher Nolan, SVP at Ladenburg Thalmann]

Great. Great. Final question, given the decline in base rates over last um year or so, will that have any positive effect in the discount rate used in your value, in your fair value calculations for your portfolio companies going forward?

[Taylor Ritchie, CFO at Gladstone Investment]

Okay. Clarify that question again for me, Chris.

[Christopher Nolan, SVP at Ladenburg Thalmann]

Sure.

[Taylor Ritchie, CFO at Gladstone Investment]

Say, say it again.

[Christopher Nolan, SVP at Ladenburg Thalmann]

Sure. Yeah, the risk-free rate's gone down, you know, when the Fed cuts rates. Um and does that affect the discount rate used in your, um discounted cash flow evaluations when you're fair valuing an investment?

[Taylor Ritchie, CFO at Gladstone Investment]

Well, most of our investments are being fair valued using a TEV valuation, so we're really looking at what EBITDA is times the multiple that we're setting for that portfolio company. So using a DCF model isn't as prevalent for our overall valuation approach. But yes, you are correct. In theory, that would improve it, but that's not how we're really valuing the bulk of our investments.

[Christopher Nolan, SVP at Ladenburg Thalmann]

Great. Um great quarter. Very unusual in terms of the dynamics. You know, you guys had a super GAAP EPS profit and a NII EPS loss and super jump in net per share, but good job. Thank you.

[Taylor Ritchie, CFO at Gladstone Investment]

Thanks, Chris.

[David Gladstone, Chairman and CEO at Gladstone Investment]

Latoya, you have another question?

[Operator]

The next question comes from Erik Zwick with Lucid Capital Markets. Please proceed.

[Analyst at Lucid Capital Markets]

Thanks. Good morning. This is Justin. I'm for Erik today. Just wondering if you could speak on the current state of underwriting conditions and specifically if you're seeing any pressure on terms or structure given the tighter spread environment?

[David Dullum, President at Gladstone Investment]

Yeah, for us, I would say, Justin, probably not. Um you know, as I mentioned earlier, because of availability of leverage, lower leverage, so when we're competing for a deal, um for us, we still try to stick with our formula. Uh typically, you know, it's about 70% of our assets or the investment that we make is in debt, in the debt security. 30%, roughly, is in the equity security. So when we combine those, we're driving for an effective yield on the total dollars relative to our essential cost of capital, being very cognizant of, you know, the income aspect of it to, for dividend distribution. But likewise, we look for um, you know, on the upside, we always try to see a way to pay 2x cash on cash on the equity side of things.

[David Dullum, President at Gladstone Investment]

So our model really hasn't changed. Um what we have found, yes, indeed, there have been a couple of deals that we've been working on that we liked and we're, you know, we're bidding on, if you will, and we were, you know, a couple of turns off on the multiple. Uh but, you know, we stay pretty disciplined. Uh and given what we're seeing out there, I don't see us having to change too dramatically our model. I mean, if we saw something we really liked and we could, say, put a bit more debt on it and generate more income, uh so long as we weren't sacrificing too significantly the uh, the equity side of things, we will do that.

[David Dullum, President at Gladstone Investment]

But uh, that's not necessarily because of the market, it's just because the way we might look at the deal itself. If that helps?

[Analyst at Lucid Capital Markets]

Yeah, thanks. And, Dave, in your prepared remarks, you described the pipeline as very healthy. Can you talk about how it's looking compared to maybe a year ago? And are there any specific sectors where you're seeing better deals than others?

[David Dullum, President at Gladstone Investment]

Yeah. I'd say compared to a year ago, probably similar. Um I don't certainly not lower. We're seeing them really across all sectors. We have seen uh recently a few areas. The consumer side of things, as actually Mickey was asking earlier, even though our experience of our portfolio and our consumer companies are doing really well, consumer side of things are a little bit obviously slower, a great part because, again, we talk about tariffs. And so when we look at a new deal, let's say, consumer driven, you have to really be very sensitive to the cost of product because of tariffs and so on, and that has some effect there, certainly. Um it's business services, we're seeing reasonably good things in the business service area.

[David Dullum, President at Gladstone Investment]

Um interestingly enough, um on the manufacturing side, uh seeing things as kind of reflected in our portfolio, kind of in the aerospace and defense area. Um you know, there are certainly aspects of with what government's doing, et cetera. So we've seen somewhat of a pickup in that area. So generally speaking, I'd say pretty much across the board, everything is looking, you know, we're seeing about the same, certainly as about a year ago. And if there's any one area that might be a little weaker in terms of looking forward, might be somewhat in the consumer area.

[David Dullum, President at Gladstone Investment]

Other questions?

[Analyst at Lucid Capital Markets]

Okay, thanks.

[David Gladstone, Chairman and CEO at Gladstone Investment]

Thank you, Justin.

[Analyst at Lucid Capital Markets]

It was good to see. Sorry, I just got one more.

[David Gladstone, Chairman and CEO at Gladstone Investment]

No, go ahead.

[Analyst at Lucid Capital Markets]

It was good-

[David Gladstone, Chairman and CEO at Gladstone Investment]

Yes, sir.

[Analyst at Lucid Capital Markets]

It was good to see that your non-accrual list is stable quarter-over-quarter. Um just wondering if you could talk about your current outlook for, for asset quality and if there's any near-term opportunities to resolve any of the remaining names that are on non-accrual?

[David Gladstone, Chairman and CEO at Gladstone Investment]

Yeah, I would say this. The ones that are on, currently on non-accrual, uh in differing degrees, uh uh I feel better about them honestly today than if you'd asked me that question perhaps a year ago, in part because we're taking some actions. Again, they're all generating actually positive EBITDA. There some structural reasons why we don't have them back yet on accrual. Uh but between some of the things that we're doing with them, we might even see a potential exit, uh and certainly improvement to the point where we actually will be able to get them back on accrual. So, uh I'd see it as a, as a positive looking forward versus it being a negative.

[Taylor Ritchie, CFO at Gladstone Investment]

No, I agree. And where we stand with these three companies, there's no—or it doesn't feel like we are in a next quarter. It will change, but the outlook is much more positive, and every quarter it looks more positive. So we are encouraged by where each of the three are trending.

[Analyst at Lucid Capital Markets]

Great. Thanks for the color. That's all for me today.

[David Gladstone, Chairman and CEO at Gladstone Investment]

Okay. Thanks, sir. Latoya, any other questions?

[Operator]

There are no further questions at this time. I would like to turn it back to you, Mr. Gladstone, for closing comments.

[David Gladstone, Chairman and CEO at Gladstone Investment]

Okay. Well, thank you. We appreciate all those questions. We hope there are at least double the questions next time. We always like to answer your questions because that sheds a light on all the things we're doing. And you have to remember that these are not just portfolio companies, these are platforms, and we are getting people that are coming in and getting into us because they're getting some of their money that they've made over the years back now, but they have uh equity in going forward. So it's a bite now and a bite later of, of income for people who are joining us. And we're all oriented toward these platform companies, and thank you all for appreciating that. It's, it's a different way of running our business, but one that works for us.

[David Gladstone, Chairman and CEO at Gladstone Investment]

Thank you all for calling, and next time we'll see you in April. I see you.

[Operator]

Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a great day.

Participants

Executives

• Catherine Gerkis, Director of Investor Relations and ESG
• David Dullum, President
• David Gladstone, Chairman and CEO
• Taylor Ritchie, CFO

Analysts

• Christopher Nolan, SVP at Ladenburg Thalmann
• Mickey Schleien, Managing Director of Equity Research at Clear Street
• Analyst at Lucid Capital Markets