Q3 2025 Gladstone Investment Corp Earnings Call

Greetings and welcome to Gladstone investment Corporation's third quarter earnings call. At this time, all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. Please press star zero on your telephone keypad as a reminder, this conference is being reached.

Speaker Change: It is now my pleasure to introduce Mr. David Gladstone, Chief Executive Officer. Thank you Sir you may begin.

Speaker Change: Well. Thank you Sherri. This is David Gladstone Chairman of Gladstone investment and this is the earnings conference call for the third quarter ending December 31st 2024.

Speaker Change: And we're now into the fiscal year for 2025 for shareholders. This is for shareholders and analysts time Gladstone investment listed on NASDAQ under the trading symbol G. A I N S.

Speaker Change: So the common stock and we've got some other ones that notes and preferred.

Speaker Change: G. A I N N N G. A I N Z N G. A I N LNG, Andy I and II.

Speaker Change: Four different registered notes.

Speaker Change: So thank you all calling in we're always happy to provide updates for our shareholders and analysts didn't provide view on our current business environment as well as our two goals one to help you understand what happened to us in the past and also given your current view of the future.

Speaker Change: And now I'll start with our General Counsel Secretary, Michael the calcium Michael are you ready to go.

Speaker Change: Absolutely Thanks, Dave and good morning, everybody. Today's call May include forward looking statements under the Securities Act 1933, and the Securities Exchange Act of 1934, including those regarding our future performance. These forward looking statements involve certain risks and uncertainties and other factors, even though they're based on our current plans, which we believe to be reason.

There are many factors may cause our actual results to be materially different from any future results expressed or implied by these forward looking statements, including all the risk factors and seen our forms 10-Q10-K and other documents that we filed with the SEC and find these on the investors page of our website Gladstone investment dotcom.

Speaker Change: So he sees website www dot FCC that G. L. D. Now we undertake no obligation to publicly update or revise any of these forward looking statements whether as a result of new information future events or otherwise except as required by law. Please also note that any past performance or market information is not a guess.

Speaker Change: 20 of any future results, we ask everyone to visit our website once again Gladstone investment dotcom sign up for our email notification service, but also find us on Twitter at Gladstone comps and on Facebook keyword. The Gladstone companies and today's call is simply an overview of our results through December 31, two.

Speaker Change: 24, so we ask that you review our press release and Form 10-Q, both issued yesterday for more detailed information.

Speaker Change: I'll turn it over to Gladstone Investment's, President David Doll them Dave.

David Doll: Thank you, Mike and good morning, everyone.

David Doll: So for this third quarter of fiscal year 'twenty five I am pleased to report that the gain team produced consistent positive quarterly results, while we expanded our portfolio of operating companies. So we ended the third quarter, which is 12 31 24 with adjusted NII of 23 cents per.

David Doll: Sure total assets of about $1 1 billion, which is up from 869 million at the end of the prior quarter now.

David Doll: We believe this increase in assets and the investing momentum should continue as we are seeing a good volume of attractive buyout opportunities. We have also added new and experienced talent to our investing team, which helps support our continuing growth in the management of our current portfolio of 26 operating companies, which is extremely.

David Doll: Portland, given our model of buying in and working with these companies over time.

David Doll: Now this quarter, we successfully acquired three new companies deployed over 100, any sacred for $87 million of new capital, making it our single largest investment quarter. We also have been actively evaluating potential dividend recaps at a few of our existing portfolio of companies.

David Doll: And we hopefully will have some results on that shortly.

David Doll: We view these recast as important opportunities as they allow us to increase our investment in companies, where we actually have a strong management team and we have confidence in that business, which will help support our future equity gains.

David Doll: We maintained our monthly distributions to shareholders of eight cents per share or 96 cents per share on an annual basis and we paid the previously declared a supplemental distribution of <unk> 70 cents per share during the quarter.

David Doll: Supplemental distribution as you know we have done in the past are direct results of our buyout strategy and the goal of rewarding our shareholders with meaningful supplemental distributions from the realized capital gains that are generated on the equity portion when we exited a business or sell the business.

David Doll: As our portfolio goes through them at various maturity cycles and the equity values increase we will continue to constructively harvest. These gains again for the benefit of shareholders and along with investing in new portfolio companies and adding assets, we try to balance the timing of these exits with the necessary level of debt assets.

David Doll: That indeed produce the income which supports our monthly dividends and over time the growth of those monthly dividends.

David Doll: Now during the quarter, we successfully issued $126 5 million in new publicly traded 7.8, 75% notes, which mature in 2030.

David Doll: Our balance sheet continues to be strong with low leverage and a very positive liquidity position given that added availability on our credit facility.

David Doll: So we continue providing the support to our portfolio companies, including for add on acquisitions, which were very active with us well dividend recaps as I mentioned and any interim financing if the need arises well we continue to actively grow our assets through new buyouts, which of course is our main thrust.

David Doll: So the outlook there is significant liquidity in the M&A market. This makes it a very competitive environment, but certainly upward pressure on valuations. However, we're in the mix and we will aggressively compete for new acquisitions that we believe fit our buyout model, while maintaining our principles are being being a value.

David Doll: Mr generating income on a current basis with the upside through the capital appreciation.

David Doll: So we are actively involved in a number of near the end on diligence on a few companies. So hopefully we'll see some of this activity coming to fruition. So in summing up the quarter and looking forward. We believe the state of our portfolio is very good. It's growing we have a strong and liquid balance sheet and a high level of buyout activity and the <unk>.

David Doll: Prospect of continued very good earnings and distributions over this next year, so with that I'm going to turn it over to Taylor Ritchie, our CFO and have him give you. Some more details in that regard Taylor alright. Thank you David and good morning, everyone looking at our operating profile.

In fiscal year 'twenty five we generated total investment income of $21 4 million down slightly from $22 6 million in the prior quarter. The decrease was due to the prior quarter, including $1 4 million of dividend income that did not reoccur. This the timing of such fees is variable as well as a zero point $5 million decrease in interest.

David Doll: The decrease in interest income was primarily a result of the decrease in weighted average yield on interest bearing portfolio.

David Doll: 14, 5% to 14% due to the decreased suffer rates throughout the quarter.

David Doll: Decreases were partially offset by a seven nine.

David Doll: Increase in capacity.

David Doll: Net expenses for the quarter were $20 2 million up from $15 3 million in the prior quarter.

David Doll: The increase was primarily due to $5 8 million.

David Doll: Capital gains based incentive fees, resulting from the positive net.

David Doll: I don't know why.

David Doll: The crude is required under U S GAAP.

David Doll: Yes.

David Doll: $3 million increase in our income based incentive fee.

David Doll: These expense increases were partially offset by $2 $2 million.

David Doll: In credits to fees from advisor, which were driven by the significant investment activity that Dave discussed previously this.

David Doll: This resulted in net investment income for the quarter of $1 2 million compared to 7.3 months in the prior quarter.

David Doll: Most importantly, adjusted net investment income, which is net investment income or loss exclusive of angry.

David Doll: N of fees for the quarter was 869 or <unk> 23 per share down slightly from $8 9 million or 24 cents per share and a powerful.

David Doll: Adjusted net investment income is a useful and representative indicator of our ongoing operations.

David Doll: Consistent with the prior quarter as of December 31st 2024, we continue to have four portfolio companies on nonaccrual status.

David Doll: For all their no portfolio credit concerns.

David Doll: Continue working closely with these companies and their management teams to get it back on accrual status or exited investments were impossible. In particular, we continue to see improvement in two of these companies as they are back to generating a profit.

David Doll: Valuations in the aggregate were up $37 3 million.

David Doll: Also portfolio. This unrealized appreciation was driven by higher valuation multiples across the portfolio and increased cost.

David Doll: All of these companies, which was partially offset by decreased performance at a few of our other portfolio companies.

David Doll: Our NAV increased to $13.30 per share compared to $12.49 per share at the end of the prior quarter.

David Doll: The increase was primarily a result of a dollar per share of net unrealized appreciation on our investments and <unk> <unk> per share of net investment income. These.

David Doll: These increases were partially offset by 24 cents per share of distributions declared and paid to common shareholders during the quarter.

David Doll: Moving onto our balance sheet, we believe that maintaining liquidity and flexibility to support and grow our portfolio is key to our continued success during the quarter. We successfully issued $126 5 million a new publicly traded 775% notes maturing in 'twenty therapy.

David Doll: We raised approximately 2 million in net proceeds under our common stock ATM, while prices were accretive to NAV.

David Doll: After quarter end, we completed an upsizing of our credit facility, bringing our total for that.

David Doll: Resulting in a $15 million increase in overall capacity.

David Doll: It's not for public no they shouldn't.

David Doll: Long term fixed rate capital wise.

David Doll: Yesterday's release, we had approximately $160 million available on our children 59.

David Doll: We believe that the newly issued notes and the additional available capital for mobile.

David Doll: Well allow us to drive portfolio growth.

David Doll: The Chinese market.

David Doll: Overall, our leverage remains in a strong position with an asset coverage ratio as of December 31 2024.

David Doll: Third 85, 9%, providing cushion for their own safety.

David Doll: 50% coverage.

David Doll: Yeah.

David Doll: Let's start with prior quarters.

David Doll: Shareholders remains strong we started the fiscal year with $29.55 per share in spillover and our monthly distributions remain eight cents per share for an annual run rate of 96 cents per share.

David Doll: Along with our consistent dividend during the most recent quarter. We paid the previously declared 70 cents per share supplemental in destination as a result of the successful exit of an.

David Doll: Existing portfolio company.

David Doll: We will look to continue funding future supplemental distributions as we recognized realized capital gains on the equity portion of future exits.

David Doll: Using the monthly distribution run rate of 96 cents per share per year, and seven cents per share in supplemental distributions paid so far in fiscal year 2025, our aggregate estimated fiscal year distributions would deal with about 12, 5% using yesterday's closing price of $13.31.

Speaker Change: This covers my part of today's call I'll now hand, it back over to you David to reconcile well. Thank you very nice Taylor, who do a good job and nice for Dave and Michael That's good information for our shareholders.

Speaker Change: In the 10-Q, we filed with the SEC yesterday should bring everyone up to date.

Speaker Change: The team has reported solid results for the quarter ending December 31, 'twenty 'twenty four and I believe the team is in a great position to continue these successes through the remainder of the fiscal year ends the end of March.

Speaker Change: We believe Gladstone investment is an attractive investment for investors seeking continuous monthly distributions and then we also often pay supplemental distributions from potential capital gains and other income that we get it.

Speaker Change: The team hopes to continue to show you a strong return on your investment in that fund and now I'm going to switch over to analyst and shareholders, who want to ask some questions. So operator, if you'll come on now.

Speaker Change: Get some questions. Thank you Sir.

Speaker Change: We'd 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.

Speaker Change: Press Star two if he would like.

Speaker Change: This shift in the Q and for participants using speaker equipment may be necessary to pick up your handset before pressing the star keys.

Matthew: Our first question is from Matthew <unk> with Jefferies. Please proceed.

Matthew: Good morning, everyone hope, you're well I'm, just curious what changes at Nocturne E three and S. F E G.

Matthew: The unrealized depreciation in the quarter.

Matthew: Hmm.

Matthew: So I'm trying to take each one separately nocturne.

Matthew: <unk> had an increase in both EBITDA and also multiple.

Matthew: That's why we've been actively involved with you know adding on.

Matthew: We bought a lot of fairly large business, there, which was in the Grand Cayman Islands.

Matthew: Which help to add to its operating results. So that was just fundamentals just doing very very well and saw an increase and again, both EBITDA and and multiple was up slightly <unk>. Three is just actually just performing exceptionally well big pick up in in EBITDA and <unk>.

Matthew: Obviously to some extent somewhat in a multiple and.

Matthew: S F E G. The multiple actually did not really change for them or valuation perspective, but we were up and eat the D. A again, that's one that we have made out on acquisitions too and that company is performing exceptionally well so without specific generally to all all of the above so fundamentals are up from an E E.

Matthew: EBITDA perspective, and some extent multiples a little bit help that.

Matthew: Okay, great congrats on that.

Matthew: And then just on the flip side.

Matthew: If you could describe what changes that educators P S iron and Galaxy technology through the depreciation quarter on quarter and maybe what your outlook is there yeah. So galaxy going to that one first the the multiple was up slightly.

Matthew: EBITDA was down slightly at its performing well, there's a part of that business that we're working on that it's a combination really has been of three companies performing the same fundamental services.

Matthew: To you know a broad array of customer base from aerospace through industrial manufacturing company. Overall has performed well just had a slight down down tick in the in your EBITDA for the year, but again I'm not it's not a concern of any fashion. So that's what caused that one being down slightly.

Matthew: P. S. J P. S. I, sorry, again, the multiple is slightly up again EBITDA was down we made some changes over this past roughly about six months.

Matthew: In terms of moving one facility selling a building it was a lot of moving parts in that one and again that one has three major facilities now so frankly, the cost of moving was it a little bit more than we anticipated and as a result of that we saw a slight downtick in EBITDA. So that's.

Matthew: Really what attributed to two the majority of that any decline there in evaluation I think about $2 $7 million, so relatively speaking not hugely significant educators.

Matthew: Both the multiple was down slightly and the EBITDA was down slightly but that's a very solid business and one that we were you know really feel very good about and end up are going to plan on keeping that company in our portfolio for for quite a while are really good management team nothing unusual there in terms.

Matthew: Of why you know the EBITDA was down slightly again relatively speaking it's been off certainly significantly from when we acquired the business. Some years ago. So again, a little bit of movement sort of you know quarter to quarter affecting that valuation, but again nothing that did that to the contrary I would say is a really good business.

Matthew: Okay. Thank you for that.

Matthew: Oh I'm sorry, Matthew go ahead. Please.

Matthew: If I could squeeze in one more I'm just trying to understand.

How NII per share might change in the quarter were currently in.

Matthew: Combining the new investments you made at the end of last quarter after quarter end plus higher leverage in the <unk>.

Matthew: Mining portfolio yields.

Matthew: What are you expecting an increase this quarter or and also how should I think about the the credits from the advisor and the quarter, you just reported and could those reverse in future quarters.

Matthew: Yeah, So I'll get a response to that one so NII for the 12 31 quarter. It was much lower because of the large cap gains incentive fee. So really that's what's playing the depression on NII for the quarter.

Matthew: Right into the questions you had previously about the fair value changes.

Matthew: You can see from the top three investments there with nocturnal 30, and that's up a G. Those are all sizable increases.

Matthew: Obviously, we hope that they continue to increase in value, but that is a pretty large driver of that cap gains incentive fee for the quarter. So it may come down slightly as we see certain valuation changes.

Matthew: Then moving on to the yields we continue to keep a blended rate of 11, 5% and.

Matthew: Our focus with high level of.

Matthew: Interest rate floors with our portfolio companies is that yes, sorry for may come down.

Matthew: We still expect to have significant interest income from our portfolio companies because of our high interest rates we have in place.

Matthew: Then moving onto the fees from our advisor or credits.

Either that is tied significantly with new investment activities. So as we do have those new investments have come on board and we will have higher food credits.

Matthew: From quarter to quarter, so there could be some fluctuation in those numbers, but if we continue to expand our portfolio.

Matthew: Fee credits.

Okay, great. Thanks very much.

Matthew: Okay next question please.

Speaker Change: As a reminder, this star one on your telephone keypad, if he would like to ask a question. We will just pause for a brief moment to see if there's any final questions.

Speaker Change: Mr. Gladstone I don't see any more questions. At this time do you have any closing remarks.

Speaker Change: Yeah, it's really sad, we're not getting enough questions. We really want people to ask a lot of questions and dig in but it seems like Oh, we must be doing an extremely good job in the market today, because we don't get many questions everybody likes what we're doing so thanks.

Speaker Change: Thanks, again to everybody, who is a shareholder and when joy doing this for you and that's the end of this this.

Speaker Change: Meeting.

Speaker Change: This will conclude today's conference you may disconnect your lines at this time and thank you for your participation.