Q4 2024 Gladstone Investment Corporation Earnings Call

Operator: Greetings and welcome to the Gladstone Investment Corporation fourth quarter and year-end earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad.

Greetings and welcome to the Gladstone Investment Corporation fourth quarter and year in earnings Conference call. At this time all participants are in a listen only mode. A brief question answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad as a reminder.

Operator: As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, David Gladstone, Chief Executive Officer. Thank you, sir. You may begin. Okay. Thank you, LaTanya. That's a very nice introduction, and good morning to you all.

This conference is being recorded it is not my pleasure to introduce your host David Gladstone Chief Executive Officer. Thank you Sir you may begin.

Okay. Thank you Latanya, that's a very nice introduction and good morning to you. All this is David Gladstone Chairman of Gladstone investment and this is the fourth quarter and fiscal year end March 31, 2024 earnings conference call for shareholders and analysts of Gladstone investment were listed on NASDAQ.

David John Gladstone: This is David Gladstone, Chairman of Gladstone Investment. This is the fourth quarter and fiscal year-end, March 31st, 2024, earnings conference call for shareholders and analysts of Gladstone Investment. We're listed on NASDAQ under the trading symbol G-A-I-N for the common stock, and then we have three preferred stocks, GAIN-N, GAIN-Z, and GAIN-L, three other registered notes. So I'll turn it over now to Michael LiCalsi, our general counsel, and he'll warm you up with some – no, he's just going to give you the warning.

Under the trading symbol G. A I N for common stock and then we have three preferred stocks game and game at glass gain Z and gain L. Three.

Three other they're registered notes.

So I'll turn it over now to our Michael like calcium General Counsel, then you know warm you up with some no. It's just kind of gave you that [laughter] Shannan gave you the warning.

Michael: Go ahead, Mike Thanks, David Good morning, everybody. Today's call May include forward looking statements under the Securities Act of 1933 in the Securities Exchange Act of 1934, including those regarding our future performance and these forward looking statements involve certain risks and uncertainties and other factors even though.

Michael Bernard LiCalsi: Go ahead, Michael. Thanks, David. Good morning, everybody.

Michael Bernard LiCalsi: 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. And 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. 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 listed in our Forms 10-Q, 10-K, and other documents we file with the SEC.

Michael: They are based on our current plans, which we believe to be reasonable.

Mike: 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 listed in our forms 10-Q, 10-K and other documents we filed with the FCC can find them on the investors page of our website Gladstone investment dot com or on the Sec's website, which is www dot FCC.

Michael Bernard LiCalsi: You can find them on the Investors page of our website, GladstoneInvestment.com, or on the SEC's website, which is www.sec.gov, and we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law. Please also note that past performance or market information is not a guarantee of any future results.

Mike: <unk> Dot G O V and we undertake no obligation to publicly update or revise any forward looking statements, whether as a result of new information future events or otherwise except as required by law. Please also note that past performance or market information is not a guarantee of any future results. Please take the opportunity to visit our website once again that's gladstone.

Michael Bernard LiCalsi: Please take the opportunity to visit our website. Once again, that's GladstoneInvestment.com. You can sign up for our email notification service there. You can also find us on Twitter, where GladstoneComps is the keyword, and on Facebook, where the keyword is Gladstone Company. Today's call is simply an overview of our results through March 31, 2024, so we ask you to review our press release and Form 10-K, both issued yesterday, for more detailed information. With that, I'll turn it back to Dave Dullum, President.

Mike: Investment Dotcom, you can sign up for our email notification service. There you can also find us on Twitter at Gladstone comps is the keyword and on Facebook keyword the Gladstone companies.

Mike: Today's call is simply an overview of our results through March 31, 2024. So we ask you to review our press release and Form 10-K, both issued yesterday for more detailed information with that I'll turn it back to Dave <unk> President.

David A. R. Dullum: Hi Mike. Thanks very much and good morning to all that's on the call. First, obviously, we are very pleased that we're able to report a gain and again produce very good results for the fourth quarter and for the fiscal year ending in March 2024, which follows on the previous solid, very, you know, first three quarters we had for this fiscal year. So for the fiscal year, which ended 3-31-24, we generated adjusted NII of a dollar per share and increased the total fair value of our portfolio to $921 million, which is up pretty significantly from $754 million at the prior year end.

Dave: Thanks, very much and good morning to all that's on the call.

Dave: First of all obviously, we're very pleased that we're able to report gain again produced very good results for the fourth quarter and for the fiscal year ending in March 2024.

Dave: Which follows on the previous solid very you know for those three quarters, we had for this fiscal year.

Dave: So for the fiscal year, which did in 331 24, we generated adjusted NII of $1 per share and increase the total fair value of our portfolio to 921 million, which is up pretty significantly from 754 million in the prior year and now this growth. So net result really of increasing our.

David A. R. Dullum: Now, this growth is the net result, really, of increasing our assets through new buyout activity and incremental financing for add-ons to existing portfolio companies while being reduced by one successful exit where we generated a significant realized capital gain of $43.5 million. So for fiscal year 24, to get to that net number, we invested a total of $184 million, which is up from $134 million in the prior year. Now of this amount, roughly $61 million was invested in two new buyouts, and an additional $123 million was invested as part of add-on investments or recapitalization events at some existing portfolio companies. Now, just for clarification, these recapitalization events were not for bad reasons.

Dave: Assets through new buyout activity and incremental financings for add ons to existing portfolio companies, while being reduced by one successful exit where we generated a significant realized capital gain of $43 $5 million.

Dave: So for the fiscal year 'twenty four to make up to get to that net number we invested a total of $184 million, which is up from a 134 million in the prior year. This amount roughly 61 million was invested in two new buyouts and an additional $123 million invested as part.

Dave: [noise] of add on investments or recapitalization event at some existing portfolio companies and just for clarification. These recap events are not we're not for bad reasons. They were actually for opportunities for us to to in fact take some cap gains a little bit of income and still maintain a significant.

David A. R. Dullum: They were actually opportunities for us to, in fact, take some cap gains, a little bit of income, and still maintain a significant ownership interest in that particular portfolio company. They were actually on the not buyouts I mentioned; there were two new companies there. And on this recap and add-ons, there were actually four companies that made up that grouping.

Dave: Ownership interest in that particular portfolio company.

Dave: They were actually of the unmet not by US I mentioned, there were two new companies there and on this recap and add ons. They were actually four companies that were made up that grouping. So we continue to pursue add on opportunities as they do allow us to increase our investment in companies, where we do know the management teams and obviously you have a pretty strong knowledge.

David A. R. Dullum: So we continue to pursue add-on opportunities, as they do allow us to increase our investment in companies where we do know the management teams and obviously have a pretty strong knowledge of the business with a strong belief in its future, and therefore are able to continue building value for future equity gains. So you should expect that we will continue to pursue these add-on opportunities going forward. And during the year, we did maintain our monthly distribution to shareholders, which was $0.08 per share or $0.96 per share on an annual basis. We also paid a total of $1.24 per share in supplemental distributions, so we had aggregate annual distributions to shareholders of $2.20 per share for the fiscal year.

Dave: Of the business with a strong belief in its future and therefore are able to continue building value for future equity gains. So you should expect that we will continue to do these add on opportunities going forward.

Dave: And during the year, we did maintain or a monthly distribution to shareholders, which was eight cents per share or <unk> 96 per share on an annual basis. We also paid a total of $1 24 per share in supplemental distributions. So therefore, we had aggregate annual distributions to shareholders of $2 20 per share for the fiscal year.

David A. R. Dullum: Now, clearly, these large supplemental distributions, which we've been able to build on over the years, demonstrate that we are actually having success with our buyout strategy, which allows us to reward shareholders with these supplemental distributions coming from the realized capital gains on the exits that we take, in addition, obviously, to the income that we generate from our monthly distributions. As our portfolio has matured, we've been at this since 2005, and the equity values have increased, we will clearly be able to continue to constructively harvest these gains for the benefit of shareholders.

Dave: Now clearly these large supplemental distributions, which we've been able to build actually on over the years demonstrates you know they were actually having success with our buyout strategy, which allows us to reward shareholders with the supplemental distributions coming from the realized capital gains on the exits that we take in addition, obviously to the income which we.

Dave: Right from our monthly distributions.

Dave: As our portfolio has matured we've been at this since 2005 and the equity values of increase we clearly will be able to continue to constructively harvest. These gains for the benefit of shareholders. As you. All know we are able to because of our model being some of these companies for a long period of time and really it's too.

David A. R. Dullum: As you all know, we are able to, because of our model, be in some of these companies for a long period of time, and really, it's to the benefit of shareholders that we don't have to exit companies too rapidly unable to maintain them. So, we will continue to balance the timing of the exits while maintaining the level of our assets that produce the income that we need to support the monthly dividend levels that we are currently able to have and, hopefully, over time, continue to grow them.

Dave: The benefit of shareholders that we're not having to exit companies too rapidly unable to maintain them. So we will continue to balance the timing of the exits while maintaining the level of our assets that produce the income that we need to support the monthly dividend levels that we currently are are able to have and hopefully over time continue to grow.

Dave: Of them.

David A. R. Dullum: So actually, since our inception in 2005 and through this 331-24 period, we've actually invested in 58 buyout portfolio companies for an aggregate of approximately $1.7 billion, and exited 31 of these companies. And this has resulted in our total assets growing to the $921 million I mentioned earlier, while we generated approximately $290 million in net realized gains and about $42 million in other income on the exits of these companies, again, reinforcing our goal and our function as a fundamental private equity type fund but providing monthly distributions to shareholders as well as the additional capital gain. Our balance sheet is strong. We got low leverage.

Dave: So we actually had since our inception in 2005 and through this 331 24 period, we've actually invested in 58 buyout portfolio companies for an aggregate of approximately 1 billion seven exited 31 of these companies and this has resulted in our total assets growing to the 921 million I mentioned earlier.

Dave: While we generated approximately $290 million and net realized gains and about $42 million in other income on the exits of these companies again, reinforcing our goal and our function as a fundamental private equity type fund, but providing monthly distributions to shareholders as well as the additional capital gains.

Dave: Our balance sheet is strong we got low leverage you'll hear more about this from Rachel and we will continue providing support to our portfolio of companies. So they add ons I mention any interim financing if the need arises a while we obviously continue growing the assets through the new buyouts. So quickly looking at the outlook I would say a deal flow.

David A. R. Dullum: You'll hear more about this from Rachael, and we will continue providing support to our portfolio companies for the add-ons I mentioned, and any interim financing if the need arises while we obviously continue growing the assets through the new buyouts. So, quickly looking at the outlook, I would say deal flow is strong. The backlog of new opportunities has been building, and we've actually been hearing from the investment bankers and the other folks that we deal with in finding new opportunities that the backlogs are building. I'd say the quality we're seeing is okay, frankly, but the volume is clearly back to levels that we were seeing before.

Dave: As strong a the backlog of new opportunities has been building and we actually been hearing from the investment bankers and the other folks that we deal with in finding new opportunities that backlogs are building I'd say the quality. We're seeing is it's OK frankly, but the volume is clearly back.

Dave: Two levels that we were seeing before.

David A. R. Dullum: So right now, we're actively working on some new buyout deals, including add-ons, as I mentioned, and these are in varying stages of our buyout process, which is where we put out what we call initial indications of interest. We then go on to what we call a letter of intent, or an LOI, and then, obviously, move into due diligence. And right now, I would say we're in pretty good phases with each of those, and we may, in fact, hopefully, have something we'll be closing in the next, say, three months or so. There is significant liquidity, though, in the market, and it is a strong, competitive environment.

Dave: So right now we're actively working on some new buyout deals, including add ons as I mentioned and these are in varying stages of our buyout process, which is where we put out what we call initial indications of interest are we then go on to what we call a letter of intent LOI and then obviously move into due diligence and.

Dave: Right now I would say we're in pretty good phases with each of those and we may in fact, hopefully have something we will be closing in the next say three months or so.

Dave: So there is significant liquidity, though in the market and it is a strong competitive environment. So as everyone knows on this call. We are pretty conservative we've done it well over the years and we're going to stick with that so while we're going to be aggressively competing for new acquisitions.

David A. R. Dullum: So, as everyone knows on this call, we are pretty conservative. We've done it well over the years, and we're going to stick with that. So while we're going to be aggressively competing for new acquisitions, we are going to be careful in terms of what values we are prepared and willing to pay.

Dave: We are going to be careful of in terms of what values that we are prepared and willing to pay and our portfolio frankly is in a position that we can we can really do that carefully. So I feel very good right now about where our momentum is in the nature of the company. So in summing up the quarter and the fiscal year and looking forward, we believe that the state of our portfolio.

David A. R. Dullum: And our portfolio, frankly, is in a position that we can really do that carefully. So I feel very good right now about where our momentum is and the direction of the company. So, in summing up the quarter and the fiscal year and looking forward, we believe that the state of our portfolio, as I mentioned, is very good. We have a strong liquid balance sheet, an active level of buyout activity, and the continued prospect of very good earnings and distributions over the next year.

Dave: I mentioned is very good we have a strong liquid balance sheet active level of buyout activity continued prospect of very good earnings and distributions over the next year in other words, we have the pieces in place to really maintain our performance so with that I'll turn it over to Rachel Eastern our CFO and she can give you some more detail on the actual performance Rachel.

David A. R. Dullum: In other words, we have the pieces in place to really maintain our performance. So with that, I'll turn it over to Rachael Easton, our CFO, and she can give you some more detail on the actual performance. Right, Rachael?

Rachael Z. Easton: Thank you, Dave. Good morning to everyone on the call. Looking at our operating performance, we finished fiscal year 2024 strong, generating total investment income of $87.3 million, up from $81.5 million in the prior fiscal year. This was driven by an increase in the weighted average yield on our debt investments to 14.4% for the year, as well as interest income earned on new investments made during the year. This increase in interest income was partially offset by lower dividend and success fee income, which can be variable in timing and was due to amounts that did not recur in the current year.

Rachel: Good morning to everyone on the call.

Rachael Z. Easton: At our operating performance, we finished fiscal year 2024 strong generating total investment income of $87 3 million up from 81 5 million in the prior fiscal year. This was driven by an increase in the weighted average yield on our debt investments to 14, 4% for the year as well as interest income earned on new investments made during the year. This increase in inter.

Rachael Z. Easton: Additionally, we ended the year with adjusted net investment income of $34.5 million, or $1 per share, down slightly from $36.7 million, or $1.10 per share in the prior fiscal year, although still more than enough to cover our annual regular monthly distribution of $96 per share. Focusing just on the fourth quarter of FY 24, we generated a total investment income of $23.6 million, up from $23.1 million in the prior quarter. This was primarily due to an increase in success fee income, the timing of which can be a variable, as I mentioned. Net expenses for the fourth quarter were $18.3 million, up from $13.3 million in the prior quarter.

Rachael Z. Easton: This income was partially offset by lower dividend and success fee income, which can be variable in timing and was due to amounts that did not recur in the current year.

Rachael Z. Easton: Additionally, we ended the year with adjusted net investment income of $34 5 million or a dollar per share down slightly from $36 7 million or $1 10 per share in the prior fiscal year, although still more than enough to cover our annual regular monthly distributions of <unk> 96 per share.

Focusing just on the fourth quarter of FY 'twenty four we generated total investment income of $23 6 million up from $23 1 million in the prior quarter. This was primarily due to an increase in success fee income.

The timing of which can be variable as I mentioned in.

Rachael Z. Easton: <unk> expenses for the fourth quarter were $18 3 million up from $13 3 million in the prior quarter.

Rachael Z. Easton: The increase is primarily due to a $4.1 million increase in accrued capital gains-based incentive fees due to the net impact of realized and unrealized gains and losses, as required to be recorded under U.S. GAAP. This resulted in net investment income for the quarter of $5.3 million, compared to $9.7 million in the prior quarter. The fluctuation is primarily due to the large accrued capital gains-based incentive fees recognized in the current quarter; adjusted net investment income, which is net investment income exclusive of any accrued capital gains-based incentive fees, from the quarter of $8.8 million, or $0.24 per share, down slightly from $9.1 million, or $0.26 per share in the prior quarter. We do continue to believe that adjusted net investment income is a useful and representative indicator of our ongoing operations.

Rachael Z. Easton: This is primarily due to a $4 1 million increase in accrued capital gains based incentive fees due to the net impact of realized and unrealized gains and losses as required to be recorded under U S. GAAP.

Rachael Z. Easton: This resulted in net investment income for the quarter of $5 3 million compared to $9 7 million in the prior quarter. The fluctuation is primarily due to that large accrued capital gains based incentive fees recognized in the current quarter.

Rachael Z. Easton: Adjusted net investment income, which is not investment income exclusive of any accrued capital gains based incentive fees.

Rachael Z. Easton: With $8 8 million or 24 cents per share down slightly from $9 1 million or <unk> 26 cents per share in the prior quarter. We do continue to believe that adjusted net investment income is a useful and representative indicator of our ongoing operations.

Rachael Z. Easton: During the quarter ended March 31st, 2024, the number of portfolio companies on non-accrual was reduced to two from three upon the dissolution of one investment. We will continue working with the remaining two companies to get back on accrual status when possible. We believe that maintaining liquidity and flexibility to support and grow our portfolio are key elements of our success. With our three public note issuances, we have long-term fixed-rate capital in place, and as of yesterday's release, we had $135 million available on our $200 million credit facility.

Rachael Z. Easton: During the quarter ended March 31, 2024, the number of portfolio companies on nonaccrual was reduced to two companies from three upon the distillation of one investment we will continue working with the remaining two companies to get back on accrual status one well.

Rachael Z. Easton: We believe that maintaining liquidity and flexibility to support and grow our portfolio are key elements of our success.

Rachael Z. Easton: With our three public note issuance says we have long term fixed rate capital in place and as of Yesterdays release, we had $135 million available on our 200 million credit facility. Additionally, we are very successful on our common stock ATM program. This quarter, raising approximately 19 million and that proceeds on the sale of our one 3 million shares of our common stock with all shares.

Rachael Z. Easton: Additionally, we were very successful in our common stock ATM program this quarter, raising approximately $19 million in net proceeds on the sale of over 1.3 million shares of our common stock, with all shares being accretive and above NAV. Overall, our leverage remains low with an asset coverage ratio at March 31st, 2024 of 219%, providing plenty of cushion to the required 150% coverage. Our NAV increased this quarter to $13.43 per share compared to $13.01 per share in the prior quarter. The increase was primarily driven by $0.88 per share of net unrealized appreciation of investments and $0.15 of net investment income.

Rachael Z. Easton: It's being accretive and above NAV.

Rachael Z. Easton: For all our leverage remains low with a house that coverage ratio at March 31st 2024 of 219%, providing plenty of cushion into the required 150% coverage.

Rachael Z. Easton: Our NAV increased this quarter to 13 43 per share compared to $13 one per share in the prior quarter. The increase was primarily driven by 88 cents per share of net unrealized depreciation of investments and 15 cents of net investment income even off were partially offset by 41 cents per share of realized losses on investments and 24 cents per share of <unk>.

Rachael Z. Easton: These amounts were partially offset by $0.41 per share of realized losses on investments and $0.24 per share of distributions paid to common shareholders during the quarter. However, consistent with prior quarters, distributable book earnings to shareholders remain strong. The end of the fiscal year was $20.1 million, or $0.55 per share in spillover, and our monthly distribution remains consistent at $0.08 per share for an annual run rate of $0.96 per share. During the fiscal year, we've seen an aggregate $1.24 per share in supplemental distribution.

Rachael Z. Easton: Paid to common shareholders during the quarter.

Rachael Z. Easton: Consistent with prior quarters distributable earnings to shareholders remains strong we ended the fiscal year with $20 1 million or 55 cents per share in spillover and our monthly distribution remains consistent at eight cents per share for an annual run rate of 96 cents per share during the fiscal year, we paid an aggregate $1.24 per share in supplemental distributions.

Rachael Z. Easton: As Dave mentioned, we look to continue funding future supplemental distributions as we recognize realized capital gains on the equity portion of our assets.

Rachael Z. Easton: As Dave mentioned, we look to continue funding future supplemental distributions as we recognize realized capital gains on the equity portion of our exit. In the aggregate, we paid $2.20 per share in regular, monthly, and supplemental distributions during this fiscal year, which is a yield of about 15.5 percent using yesterday's closing price of $14.60. That covers my part of today's call. Back to you, David. Okay, thank you.

Rachael Z. Easton: In the aggregate, we paid $2 20 per share in regular monthly and supplemental distributions during this fiscal year.

Speaker Change: About 15, 25% using yesterday's closing price of 14 16.

Rachael Z. Easton: This covers my part of todays call back to you David Okay. Thank you that's very nice Rachel and Nice report by Dave and Michael That's good information for our shareholders. This call in the 10-K filed with the S. E. C yesterday should bring everyone up to date at this point in time.

David John Gladstone: That's very nice, Rachael, and a nice report by Dave and Michael. That's good information for our shareholders. This call in the 10K file with the SEC yesterday should bring everyone up to date at this point in time. The team has reported solid results for the quarter and the year ending March 31, 2024, including the investment and exit activity associated with those net realized gains. We believe the team is in a great position to continue this success for the next fiscal year, which will, Less than a year away, we believe that Gladstone Investment is an attractive investment for investors seeking monthly distributions as well as supplemental distributions from potential capital gains and other income. The team hopes to continue to show you a good, solid return as we go forward with this new year. Now, let's have some questions from our shareholders and analysts that are on the line. Latoya?

David John Gladstone: The team has reported solid results for the quarter and the year ending March 31st 2024, including the investment and exit activity associated with that was net realized gains when we believe the team is in a great position to continue this success for.

David John Gladstone: For the nest next fiscal year, which will.

David John Gladstone: Less than a year away we believe the.

David John Gladstone: Gladstone investment is an attractive investment for investors seeking monthly distributions as well as supplemental distributions from potential capital gains and other income the team hopes to continue to show you a good solid return as we go forward with this new year now, let's have some questions from our.

LaToya: Shareholders and analysts that are on the line Oh yeah.

Operator: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the 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 1 at this time. One moment while we poll for our first question. Our first question comes from Mickey Schleien with Lattinburg Dowman.

LaToya: Thank you we will now be conducting 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. You May press star two if he would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before.

Mickey Max Schleien: With this darkies once again Thats star one at this time, one moment, while we pull for first question.

Mickey Max Schleien: Our first question comes from Mickey <unk> with Ladenburg Thalmann. Please proceed.

Mickey Max Schleien: Yes, good morning everyone. Dave, your fund reported a very nice unrealized gain of 88 cents per share. Apart from the reversal for the mountain, can you highlight what drove that and any themes that would help us understand what caused that appreciation? Sure. Miki, I'll let Rachael have a quick stab, and then I'll, if it's all right, come in and fill in some thoughts behind it

Mickey Max Schleien: Yes, good morning, everyone.

Mickey Max Schleien: Dave Your fun reported a very nice unrealized gain of 88 cents per share.

Mickey Max Schleien: Apart from the reversal for the mountain.

Mickey Max Schleien: Can you highlight what drove that and any themes that would would help us understand what caused that appreciation.

Mickey Max Schleien: Sure.

Rachael: Michelle let Rachel I have a quick stab at it now it's already come in and fill in some thoughts behind that it sounds great. Good morning, Mickey you know looking at the portfolio as a whole from an unrealized depreciation perspective, you know is almost entirely due to performance at many of the portfolio companies, we did see decrease multiples across the.

Rachael Z. Easton: Sounds great. Good morning, Mickey. Looking at the portfolio as a whole, from an unrealized depreciation perspective, it was almost entirely due to performance at many of the portfolio companies. However, we did see decreased multiples across the portfolio. This was offset by decreased performance at a handful of companies, but it was really performance driving the unrealized depreciation we saw. There was a bit in there that was due to the reversal of unrealized depreciation of the mountain as we realized that this quarter with the final dissolution, but really, it was performance at many of our companies. And Dave, if you want to fill in any holes there,

Rachael Z. Easton: This was offset by a decrease performance at a handful of companies, but it was really performance.

Dave: Driving the unrealized depreciation we saw there was a bit in there that was due to the reversal of unrealized depreciation of the mountain as we realized that this quarter with the final dissolution, but really with the performance of many of our companies and David If you want to fill in any any holes, yeah, and I think as we reported in our K where are we.

David A. R. Dullum: Yeah, and I think as we reported in our K, where we show the individual breakdown of portfolio companies for the year ended, we'll notice that a number of those are appreciated relatively significantly. There are a small handful that are off by a million here and a couple of million here, so to speak. A fair amount of that, and based on the portfolio, my personal view, and knowledge of the individual portfolio companies, that those that are slightly off, with the exception of a couple that have been in our portfolio for a while, are all actually performing better, and I feel like we're headed in the right direction on most of them.

David A. R. Dullum: Shows that you know the individual breakdown of portfolio companies for the year ended you know you know this will notice said.

David A. R. Dullum: Good sick a number of those are appreciated relatively significantly. There is you know a small handful that are you know off you know by a million here and a couple of million here. So to speak a fair amount of that and I can tell you based on the portfolio my personal view and knowledge.

David A. R. Dullum: With the individual portfolio companies that those that are slightly off with the exception of a couple that have been in our portfolio for a while that are all actually performing better and I feel like we're ready to hit it in the right direction on most of them, obviously and as Rachel said some of it is a function of of EBITDA being down a little bit in some cases.

David A. R. Dullum: Obviously, and as Rachel said, some of it is a function of EBITDA being down a little bit in some cases, at the same time as multiples being down, but by and large, I'd say there are no major issues in there, just overall, fundamentally just good performance. And frankly, a good handful of these companies performing at a very high level, generating fairly significant individual net gains. I think that's really the key.

David A. R. Dullum: At the same time multiples being down but by and large I'd say there are no major.

David A. R. Dullum: Issues in there just overall fundamentally just good performance and frankly, a good handful of these companies are performing at a very high level generating fairly significant individual net gains and I think that's really the best I can can address on it.

Mickey Max Schleien: Thanks for that, Dave. So, given what you just said, with some strong performers in the portfolio, there's so much demand in private equity for the acquisition of good performing companies. And I know in the past, you've always told me you're sort of, I don't know if reluctant is the right word, but it's hard for you to make the decision to sell something because then you have to replace it. But your phone must be ringing with some pretty good offers for some of these investments. You know, for this coming fiscal year, is it reasonable to assume that you're going to harvest some of those unrealized gains?

Speaker Change: Okay. Thanks for that Dave So.

Mickey Max Schleien: Given what you just said with some strong performers in the portfolio.

Mickey Max Schleien: There, there's so much demand in private equity for the acquisition of.

Mickey Max Schleien: Good performing companies and I know in the past you've always told me, you're you're sort of I would I don't know if reluctant is the right word, but it's hard for you to make the decision to sell something because then you have to replace it but your your phone must be ringing with some pretty good offers for some of these investments.

Mickey Max Schleien: For this coming fiscal year is it.

Mickey Max Schleien: Both to assume that youre going to harvest some of those unrealized gains.

David A. R. Dullum: Well, you know, you make very good points and I think you hit it right. We've always said, I always like to say and it's really true that when we look to exit a business, a lot of it honestly is driven by the management teams, you know, the folks that we're invested with and if they come to us and say, guys, you know what, we need some liquidity ourselves, we really think the time has come, which indeed is, you know, which a couple of the exits we had this past year, Council Press being one, which is very successful.

Dave: Well no you make very good points and I think you hit it right. We've always said I always like to say and it's really true that when we look to exit a business a lot of it honestly is driven by the management teams you know the folks that we're invested with and if they come to us and say guys. You know, what we need some liquidity ourselves or anything.

David A. R. Dullum: The time has come which indeed as you know, which a couple of the exits we had this past year counsel press being one which is very successful and so we listen to that but we generally and again because as you well know our model is really in a good position to allow us to maintain and hold these companies and to exactly the point if we.

David A. R. Dullum: And so, we listen to that, but we generally, and again, because, as you well know, our model is really in a good position to allow us to maintain and hold these companies, and to exactly the point, if we exit something while it's a really good realized gain, we have to, as you say, go and replace it. So, we really need to take a hard look at where we're getting, as you point out, these calls of investment bankers coming at us to take our companies to market and what have you, really almost that reinvestment decision approach, right?

David A. R. Dullum: Exit something was a really good realized gains we have as you say go and replace it. So we really take a hard look at either where were getting as you point out. These calls are the investment bankers coming at us to take our companies to market and what have you really almost at reinvestment decision approach right. So we think about it if we really like the business and the people.

David A. R. Dullum: So, we think about it, if we really like the business and the people, why not reinvest? And we do that on a pretty regular basis as we look at the portfolio. Having said all of that, you know, it's also important to the model for us to regenerate realized gains, as we say for supplementals. So, the best I can say there is it would be more likely over the next year or so that we might have a pretty good exit versus not having one.

David A. R. Dullum: Why not quote reinvest in that and if we do that on a pretty regular basis as we look at the portfolio.

David A. R. Dullum: Having said all of that you know, it's also important to the model to us to regenerate realized gains as we say for supplemental so the best I can say there is it would be more likely over the next year or so that we might have a pretty good exit versus not having one.

Speaker Change: And would be very cautious and which and how we do that the same time, you know maintaining our level of assets to keep generating the income for multi distribution. So it's kind of a balance and it's a really good question and it's one that obviously, we struggled with a very good position with that but I think that's how I would what would add to that Mickey.

David A. R. Dullum: And we'd be very cautious in which and how we do that, at the same time, you know, maintaining our level of assets to keep generating the income for monthly distribution. So, it's kind of a balance, and it's one that, obviously, we struggled with. We're in a good position with that, but I think that's how I would add to that, Mickey.

David A. R. Dullum: That's really helpful, Dave. And I have one last question for you. You and your affiliated companies in the Gladstone universe have a track record of, you know, fixing problem investments. Sometimes we see situations like the mountain that just don't work out, but I can think of others where you've merged companies, you've replaced management, and you recapitalized businesses. So with that in mind, can you tell us what you're doing with Edge and Hobbs, which, if I'm not mistaken, have both been unacquired for a while, and I'm sure you'd like to rectify those. Yeah.

David A. R. Dullum: Yeah.

Mickey: That's really helpful. Dave and one last question for me you in your affiliated companies and the <unk>.

David A. R. Dullum: Gladstone universe have a track record of fixing problem investments.

David A. R. Dullum: You know, sometimes we see situations like the mountain, but just to work out, but I can think of others, where you have merged companies or you've replaced management you recapitalize businesses. So with that in mind can you can you tell us what youre doing with edge and hubs, which if I'm not mistaken have both been on nonaccrual.

David A. R. Dullum: For a while and I'm sure you'd like to rectify those.

David A. R. Dullum: Yeah, yes, so Hobbs first, I think, and you've benefited by being at our meeting last September. I think you got to see some of the management teams, and we really have a very good management team at Hobbs. They actually, without going into detail, are on a positive performance track right now, which is a function of a couple of things. You know, one of the things that really affected them somewhat is that they grew so rapidly with new business and new contracts, and frankly, the pricing of those contracts was perhaps not as good as they should have been.

David A. R. Dullum: Yeah.

Dave: Yes, so hubs first thinking you've benefited by being at our meeting last September I think you got to see some of the management teams and we really have a very good management team at hubs are they actually without going into detail are on a positive performance track right now which is a function of a cup.

David A. R. Dullum: Things you know one of the things that really affected them somewhat as they grew so rapidly.

David A. R. Dullum: With with new business, and new contracts and frankly, the pricing of those contracts were perhaps not as good as they should have been so when certain you know somewhat of a fixed price contracts.

David A. R. Dullum: So when certain, you know, some of them were fixed-price contracts, and, you know, these were percentage of completion, basically. So over time, they were actually losing money on some of those contracts. So we've been able, we believe, to wash most, if not all, of those out, and right now, they've actually reduced the volume. So the top-line number in revenue is lower than it was, say, a year ago, but having said that, the margin, and therefore, the EBITDA, if you will, is now positive and headed in the right direction.

David A. R. Dullum: And these are percentage of completion basically so over time, they were actually were losing money in some of those contracts. So we've been able we believe to wash most if not all of those out and right now they're actually reduce the volume that so the top line number in revenue is lower than it was say a year ago, but having said that the margin.

David A. R. Dullum: And therefore, the EBITDA. If you will is now positive and headed in the right direction. So and again the team is really good team. We've got good folks on the board. So we'll just keep working on that one and you know with any hopefully by a year or so or maybe less we might be back frankly on accrual without one.

David A. R. Dullum: So, and again, the team is a really good team. We've got good folks on the board, so we'll just keep working on that one, and, hopefully, by a year or so, or maybe less, we might be back, frankly, on accrual with that one. Edge has a couple of components to it, and some things are going on with that right now, not necessarily negative. We've made some changes there recently with one aspect of that business, and I don't feel I can comment any more detail on that other than to say that we're working with it, and again, with any luck, we might see some positive effects there, but that's where those two are.

David A. R. Dullum: <unk> has a couple of components to it some things are going on without right now not negative we've made some changes there recently.

Mickey Max Schleien: Thanks for that, Dave, and congratulations to you and your team on the end of a very good financial year for Gladstone.

David John Gladstone: Thank you, sir. I hope you're feeling better, by the way, and I hope again.

Mickey Max Schleien: Thanks a lot. Take care.

Operator: Once again, to ask a question at this time, press star 1 on your telephone keypad. There are no further questions in queue. Mr. Gladstone, I'll turn it back to you. We do have a question just come in from Bryce Rowe with B. Riley. Please proceed.

Bryce Wells Rowe: Thanks. Good morning.

Operator: Busy BDC morning for all of us analysts here, so glad to have an opportunity to ask a question. David, I just wanted to ask you about a comment you made in your prepared remarks. It sounded like maybe opportunities, the volume of opportunities, was up and in a good spot, but maybe the quality of those opportunities was a little more spotty, if you will. Just any thoughts around kind of where that comment came from and what in particular you're seeing with deals that maybe makes them a little less attractive than you'd like them to be? Right. So, thanks, Bryce. And, by the way, I'm happy you were able to get on.

Operator: Maybe opportunities the volume of opportunities was up and and and then it gets spot, but maybe the the quality of those opportunities was a little a little more spotty. If you will just any any any thoughts around kind of where that comment came from and you know what in particular you're seeing.

Operator: You know with with deals that maybe makes it makes them a little less attractive than you'd like them to be.

David: Right. So thanks price and by that I'm I'm happy you were able to get on or if we're gonna Miss Ya I I would say look you know you know from the investment banking side. We definitely are I think companies that were being put on the holding near the end of last year are now starting to flow back into the backlog and theirs.

David A. R. Dullum: We were going to miss you. I would say, look, you know, from the investment banking side, and we definitely are. I think companies that were being put on the holding near the end of last year are now starting to flow back into the backlog. And there are, I feel like, a fair number of new deals that are coming, and we are seeing them. And obviously, we have to be very selective in where we spend our time as we look at new deals.

David A. R. Dullum: I feel like a fair number of new deals that are coming and we are seeing them.

David A. R. Dullum: And obviously, we have to be very selective and where we spend our time as we look at new deal. So.

David A. R. Dullum: So the ones that we spend our time on are generally companies that we believe we're going to be able to, frankly, buy for around anywhere from six to maybe seven, seven and a half times EBITDA. And while we've been clearly in some processes where, you know, when we feel like that's a good value, we don't even get to go to a management meeting because there are other people out there that are, you know, eight to nine times more profitable. And so that's part of my comment, Frankly.

David A. R. Dullum: The ones that we spend our time on alright generally companies that we believe we're gonna be able to frankly by for around anywhere from six to maybe seven seven and a half times EBITDA and what we have been clearly in some processes, where you know when we feel like that's a good value we're not even getting to go to management.

David A. R. Dullum: Meeting because there are other people out there that are you know eight to nine times and so that's part of my my comment frankly, and and honestly why those companies look good on the surface I'm sure. They are we don't understand how one so to speak really pays that that kind of multiple so it's really more around a bit of our <unk>.

David A. R. Dullum: And honestly, while those companies look good on the surface, I'm sure they are, we don't understand how one, so to speak, really pays that kind of multiple. So it's really more around a bit of how our model works with what we're seeing. You know, and as you use the word, it's kind of spotty, the quality. You know, it's a little bit so, I mean, there are companies that look good on the surface, but they're smaller.

David A. R. Dullum: Your model works with what we're seeing.

David A. R. Dullum: You know and as you use the word it's kind of spotty. The quality you know it it's it's a little bit solving their companies had vocal on the surface, but they're smaller the EBITDAR less consistent the model the general positions in the market place, it's not clear that have much of a differentiators so to speak but there are <unk>.

David A. R. Dullum: The EBITDA is less consistent. The general positions in the marketplace, it's not clear they have much of a differentiator, so to speak, but they're fundamentally decent businesses, but not something that we feel we could get our arms around. And as you know, if we're doing three or four, even five new deals a year, that's pretty good for us. So we have to be really, really selective. But the activity level, the main part is that the activity level is up, and we are able to actually make some conscientious decisions on how we spend our time to try to get new deals on the books over the next, say, nine months.

David A. R. Dullum: Fundamentally decent businesses, but not something that we feel we could get her arms around and as you know you know if we're doing three or four even five new deals a year. That's that's pretty good for us. So we have to be really really selective but they activity level and main part is hip activity level is up and we are able to actually make some conscientious.

David A. R. Dullum: Decisions on how we spend our time to try to get new deals on the books over the next say nine months or so.

Speaker Change: That's great I appreciate the the color there at the time.

Bryce Wells Rowe: That's great. I appreciate the color there and the time. Okay, man. Take care. Thanks.

Speaker Change: Okay, Ma'am take care, thanks <unk> dimension.

David John Gladstone: Bryce, just to mention that some of our folks are saying that everybody and his mother is trying to put together deals, so there are a lot of what they call independent sponsors out there trying to take a company and call it a beginning roll-up, and we don't believe in some of these fictitious numbers that come through, and so from that standpoint, we're just seeing a lot that we don't like. We may see five or six and then pick one of the best of the lot.

David John Gladstone: Some of our folks are saying that.

David John Gladstone: Everybody and his mother's trying to put together deals. So there are a lot of what they call independent sponsors out there trying to.

David John Gladstone: Take a company and call it a beginning rollup and we don't believe in some of these.

David John Gladstone: Tissues numbers that come through and so from that standpoint, we just seeing a lot that we don't like we may see five or six and then pick one of the best of the lot.

David John Gladstone: There's another thing going on in the marketplace now that has not been mentioned, and that is inflation. Inflation helps everybody out who wants capital gains because things go up in five years, and you get a chance to sell them at a very, very attractive price compared to where you bought them. We've seen some of that, so don't count out inflation because inflation will be here for a good amount of time. And that's all. Do we have any other questions?

David John Gladstone: The other thing going on in the marketplace now that has not been mentioned and that is inflation.

David John Gladstone: Inflation helps everybody out who wants capital gains because things go up in the <unk> in five years, and you get a chance to sell it and very very attractive price compared to where you bought it. So we've seen some of that so.

David John Gladstone: Don't count out inflation, because inflation is here for a good amount of time and that's that's all do we have any other questions.

Operator: There are no further questions in queue. I'll turn it back to you for closing comments.

Speaker Change: There are no further questions in queue I'll turn it back to you for closing comments.

David John Gladstone: Okay, thank you, LaToya. And you guys didn't come up with enough questions this time. Would you please work on that before you come to the next meeting? Thank you very much for attending, and that's the end of this conference call.

Speaker Change: Okay. Thank you Latoya and you guys didn't come up with enough questions. This time would you. Please work on that before you come to the next meeting. Thank you very much for attending and that's the end of this conference call.

Operator: This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a great day.

David John Gladstone: This concludes today's teleconference. You may disconnect. Your lines at this time. Thank you for your participation and have a great day.

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