Good day, ladies and gentlemen, and welcome to the Gladstone Investment Corporation's Third Quarter Earnings ended 12/31/2017 Earnings Call and Webcast. At this time all lines are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] And as a reminder, this conference is going to be recorded. Now, I would like to turn the conference over to Mr. Gladstone. You may begin.

Thank you, James. And good morning to all of you out there that have called in. This is David Gladstone, the Chairman and this is the quarterly earnings conference call for shareholders and the many analyst that follow Gladstone Investment's common stock traded on NASDAQ, GAIN and we do have three preferred stocks GAINO and N and M, so three of those that's out there that you can choose from. Thank you all for calling in. We're always happy to talk to our shareholders and potential shareholders and analysts. I'd like to give an update on the company and its investments and the current business environment. I wish we could do this more often, but we only get to do it once a quarter. Also, you have an invitation that if you're in the McClean, Virginia area, we're just outside of Washington D.C. Please stop by and say hello. We have over 60 people and its fine business environment, just come by and say hello. Now we hear from our General Counsel and Secretary, Michael LiCalsi. Michael is also President of Gladstone Administration, which serves as the administrator for all the Gladstone public funds and related companies. He'll make a brief statement regarding forward-looking statements. Michael?

Thanks, David. Today's call may include forward-looking statements under the Securities Act of 1933 and the Securities Exchange Act of 1934, including those with regard to our future performance. These forward-looking statements involve certain risks and uncertainties and other factors, even though they're based on our current plans, which we believe to be reasonable. 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 in our Forms 10-Q, 10-K and other documents that we file with the SEC. Also these can be found on the investor relations page of our website, www.gladstoneinvestment.com and on the SEC's website, www.sec.gov. We undertake no obligation to publicly update or revise any of these forward-looking statements whether as a result of new information, future events or otherwise, except of course as required by law. We also note that past performance or market information in today's presentation is not a guarantee of any future results. We ask that you visit our website, gladstoneinvestment.com, so that you can sign up for e-mail notification service. We can also be found on Twitter. Our Twitter handle is @GladstoneComps and on Facebook, the keyword there is The Gladstone Companies. Today's call is simply an overview of our results through December 31, 2017. So, we remind everybody to review our press release and Form 10-Q, both issued yesterday for more detailed information. Now let's turn the presentation over to Gladstone Investments' President, David Dullum. Dave?

Thanks, Mike and good morning go all the shareholders and analysts. I appreciate you being here. So, I'm pleased to report that we had another strong fiscal quarter which ended December 31 for Gladstone Investment. Our net investment income increased to $0.23 per share to $0.23 from $0.18 per share last quarter and we also closed on a new buyout investment. The net asset value, which of course is our book value increased by $0.27 per share to $10.37 from $10.10 the last quarter. So based on our results, in October we were also able to announce an increase of over 1.5% in our monthly distribution rate to our common stockholders going from $0.064 per share or roughly $0.77 on an annual basis $0.065 per share or $0.78 per share on an annual basis. We also paid another supplemental distribution of $0.06 per common share in December, which indeed was our second planned semiannual supplemental distribution. Now, we expect that a significant portion of these supplemental distributions actually will be made from c capital gains. Our stock price actually increased to $11.16 and was trading above the NAV at $10.37 as of December 31. This is an increase of $0.270 or 30% over our stock price of $0.0846 at the end of last year. Now, while the market has been in turmoil for this past week and we actually closed at $9.40 yesterday, this increased stock price at quarter end is encouraging. At least to me, as I believe that we're beginning to receive recognition for the value of the equity component in our buyout business model and actually even from a year perspective with the annual run rate of monthly distribution now at $0.78 and the $0.12 supplemental in other words the total of about $0.90 per share would…

Thanks, Dave and good morning. So starting with the balance sheet, at the end of December, we had over 580 million in assets, which included about 566 million in investments at fair value. On the liability side, they consisted 96.6 million in borrowings outstanding on our credit facility and about 139 million in terms of our stock liquidation value and other liabilities leaving over 337 million in net assets. So our net asset value for share was $10.37 at the end of the quarter, which is an increase of $0.27 compared to the prior quarter and that primarily resulted from net unrealized appreciation of 9.8 million in our investment portfolio. Now, moving over to the income statement for the December quarter, total investment income was 16.2 million compared to the 13.1 million in the prior quarter. Total expenses net of credit was 8.6 million compared to 7.4 million in the prior quarter, leaving net investment income of 7.5 million this quarter compared to 5.8 million in the prior quarter. Interest income in the current quarter included 1.4 million of payments from one of our portfolio companies which was previously on non-accrual and which we had mentioned was in a workout stage at the end of last quarter. Other income was approximately 16% of total investment income, which is consistent with last quarter. And as a remainder, other income usually is composed of dividend and success fee income and is a meaningful component of total income, but will be variable between quarters. Net expenses increased by 1.3 million in the current quarter, which was primarily driven by $1.5 million increase in incentive fees and partially offset by 0.6 million decrease in other expenses including a reduction in bad debt expense. The incentive fee includes 0.8 million of capital gains based incentive…

Alright, thank you Julia and Dave and Michael, you all did a good job providing summary information to our stockholders on operations of the company. And I would encourage all of you to read the 10-Q and the Press Release to get more information on the company those are on our website and on the SEC website as well. Just to summarize again, in addition to the one buyout of $31 million and an additional 8 million on our existing portfolio, this quarter was another good quarter. And at the beginning of December quarter, the dividend was raised $0.06 to $0.065 per share per month from $6.4. We had a full quarter increase of the regular monthly distribution and it's continued that. The payment in December of another supplement distribution to common stockholders that was $0.06 per share, that's the second one during that year, so it's got another $0.12 about $0.90 on a run rate basis. And what's more amazing here is the continued strong performance of the companies we invest in, resulting in an increased in net asset value of about $0.27 per share for the quarter, $0.42 for the year-to-date, so it's got a strong basis which will project out really nice. I think the team can continue the success going forward in the fourth fiscal year end quarter that's the quarter that's going to end on March 31, 2018 and it wouldn't be surprising to me to see the calendar year of December 2018 be a strong period for this wonderful dividend paying company. I believe economy is even stronger than it was last quarter, there's some craziness in the stock market, but remember the stock market is not an indicator of the economy. The economy is strong, strong as I've seen it in the last…

Yes, sir [Operator Instructions]. Our first question comes from Mickey Schleien with Ladenburg. Your line is open.

Leading you on a very good quarter, now we're certainly seeing some disappointment amongst some other BDC'S. So, it's nice to see your business performing this well. I have just a couple of sort of housekeeping questions. The $1.4 dollar interest income I think was from precision, it looks like about $1million of that was some sort of retroactive accrual. Is that a correct estimate?

Mickey, this is Julia. The 1.4 million represented the accrual that was not taken in prior quarters because the investment was non-accrual, so that was the past due interest if you will.

Okay, so that's sort of a non-recurring number and the success fee income this quarter, was that driven mostly by the merger of GI in precision or was it something else?

It was not driven by the merger, it was the amount that Dave refers to on these calls that a portfolio company may choose to pre-pay the success fees and that's happened to be the case this quarter.

Okay, and my last question is, can you remind us what your target leverage multiple is and whether you are considering upsizing the size of your credit facility and that's it for me?

Yeah, thanks Mickey. This point no, we are not planning to upsize the facility. We've got capacity in the facility and we've got capability and availability right now and depending on some things coming down the line, may be with exits cash generation, I think we are in pretty decent shape in the current time.

And, your target leverage, Dave?

It's going to be around 65% somewhere in that range, may be 70%.

Okay, appreciate your time this morning, thank you.

Alright, James. Next question?

Thank you. Our next question comes from Henry Coffey with Wedbush. Your line is open.

Yes, good morning everyone. And thanks for taking my call. The most interesting part of the business I guess to me and probably the most troublesome to you all, is when we look at the bottom side of the portfolio, I mean how many opportunities like precision are there where either by the strength of the economy or the work that you can do with the company, are we likely to see gains in investments that have been under pressure as of late?

Just trying to understand the question, Henry, so, each of our portfolio companies and as you saw - when Mickey sort of touched on it, where we actually merged a couple of portfolio companies. We did that for the right reasons. And that, those companies function in a similar product category if you will, allows us to consolidate management and so on. And I think what may be to the point, what this addresses is the way which we think about our business and the companies that we are invested in and frankly which we own. We think of this as a portfolio of operating businesses. We do get involved in working with these companies; which is why you have a PSI that for a while might have gone in non-accrual, we keep working with it, we can get it back off a non-accrual. And over the years we have been in business since '05, we've actually I think only had one company really for a variety of other reasons, that can truthfully, just was completely a loss, if you will, we actually are able to redeem something out of that. So, it's more around, we work at these companies and I think fundamentally - and it reflects itself in the valuations that we see which is we know is partly quarter-to-quarterly for a variety of reasons. But, I think fundamentally the portfolio overall is in good shape and we keep working on creating value by again we merge two or we made add on acquisitions and overtime we are going to exit those and I think the valuations reflects that they are underlined games built in to these companies. I don't know if that answers anywhere near the question you asked, but if not come at me again.

Well, let me just think of it from a different perspective. If I look forward over the next 12 or 18 months and I look not at all the companies that are working so well and have positive fair value to cost ratios, but I look at the companies you've been writing down. What are the prospects that some of those companies see improving fundamentals or improving value given either, what you can do or what –the strength of the economy? How likely are we to see positive gains from the companies that are under pressure right now?

Yeah, I would say, I get the question. So I would say pretty reasonable with most of them. There are one or two that are going to take, I would say, a little bit longer. If you gave me a time frame of the next 12 months, I would tell you that probably - because I know sort of what's happening with some of those companies right now. Most of them, with one or two exceptions are going take a little bit longer, but they are not things that we are worried about that Jesus, they are not going to take the turn, whether be a result of a change in the management team sort of - is most of which we have already done and those are now starting to get traction, overtime I think we are going to see good results frankly form virtually all of them.

And then just in looking at the portfolio at cost, there was the level of secured first lien stay held at about the same. You did have a big jump up in second lien, so can you talk about that a little bit between September and the December quarter?

Henry, this is Julia. As you know sometimes we will restructure that investment from first to second for various reasons sometimes because a senior lender is coming in to take over the line of credit facility position and that was the case this quarter, so nothing pending for the quarter.

Thank you very much.

Our next comes from Kyle Joseph with Jefferies. Your line is open.

Good morning guys. Thanks for taking my questions and again congrats on a solid quarter. I just wanted to step back a little bit and get your perspective on tax reform changes and any potential impacts on your business, on your portfolio companies specifically and demands for buyouts more broadly?

Yeah. Hi Kyle, Dave. As we looked at it as we understand the changes et cetera and trying to evaluate it within our existing portfolio, the general results I would say are tend to be positive. And the reason for that, as you look at it and it's interesting with most of our companies especially the ones that are at a level where the EBITDA is growing, even though you've got the 30% cap et cetera, you find because of the lower tax rate that actually the cash flow, the net cash flow if you will these companies actually is improving in some cases. The ones where you'll have some impact, not huge impact, but some impact might be on those companies that aren't quite performing as well as they should or obviously we have them a little higher levered at the current time for some reason. But, net-net we are not seeing it as going to have any certainly negative impact on our portfolio. If any, it might be a slight positive again because of the cash flow. In terms of going forward and we certainly keep running our models, we've tried to really properly understand it from a competitive perspective. I think given the size of companies that we are looking at, the type of business we are looking at, I think it probably will make the environment a bit more competitive because the company's doing well and growing. It's showing off now perhaps on more cash on an after tax basis. So there may be cases where you know some of our competition might be able to either lever them up a little bit more or may be put a little bit more equity and get the cash up. But, I think it's going to probably stay about the same. You might see some of the much higher performing companies might demand a slightly higher premium, even relative to where deals are today, in terms of multiple EBITDA. But, I don't know that we are going to see a huge impact on the market space that we operate in, besides our assessment based on in our assets we've done so far.

Yeah, that's a great color and helpful. And, I think Henry may have touched on this, but just a quick modeling question. In terms of originations in the quarter there's a little disconnect between the Press Release in Page 29 of your Q, was that due to the investments that I think Henry just referred to or could you help me with the disconnect there?

We've to say what the disconnect is, what page is it?

Sure, on the Press Release there's a total dollars investors worth 39 and change and then on Page 29, at the Q total issuances and originations in the quarter was 73 million.

Right the - so prior to this quarter the 10-Q include any non-cash transactions and the merger of PSI and GST would fall in that category, so that's why you see the disconnect.

Okay, perfect that makes sense. Thanks a lot for answering my questions.

Thank you. Okay, James, next question.

Yes sir, [Operator Instructions] Our next question comes from Andy Stapp with Hilliard Lyons. Your line is open.

Good morning, nice quarter.

Thanks, Andy.

You enjoyed some nice valuation gains in some of your preferred most notably in [indiscernible] J.R. Hobbs and Cambridge. Just wondering if you could provide some color on the drivers of these gains?

Sure, most of the drivers are coming from improved performance in these companies. Just quarter-to-quarter we are seeing improvements in EBITDA across the board on a number of our companies and we actually in some cases, I don't have the detail right here in front of me frankly, but we actually saw slight declines in multiples on EBITDA. So, it kind of got offset by improved performance. So overall - and those companies the ones that you mentioned are all companies that are getting to a size and doing some things that are pretty interesting and pretty exciting, so majority of it is performance related.

Okay, could you talk about the historic - the pipeline for mew investments, just wondering if it's supportive of some of the production that you experienced in the most recent quarter?

Yeah, I would say so. As I mentioned it continues to be a challenge as I say the expression I choose its shoe leather and we would continue to push hard, we have to be out there. And all our guys are out calling on the investment bankers, the M&A types et cetera. We've got a number of companies that we are in process on, working on, meaning we've put out indications of interest at value ratios that we think makes some sense. Some of those are not just, as I mentioned standalone new acquisitions but also, but also add on type acquisitions for some of our existing portfolio companies. That again, makes sense and it will help to give accretive to those companies. So, I would say, it's representative of about where it's been, it still continues to be challenging, if we you know, our goals, we could do three, four really good new quality acquisitions in a year. That's a good target for us.

Okay, and lastly would you talk about the outlook for success fees?

Talk about the outlook, so, if you are asking e have success fees as we mentioned built-in to each of our portfolio companies, which can be taken, again either when we exit or actually in cash because, we only take it when cash is paid or if the company chooses to prepay to and so like. The best I could tell you on this is, it's an area that we look at very carefully, it falls into that line item called other income, on our income statement and it is one that is important to us. And, we work with our portfolio companies and the management so that we can sort of look ahead and plan it and manage it. So the best I can tell you is we continue to get them, and we will continue to get them at courses as Julia mentioned. We have a pretty significant dollar amount and per share amount if you want to call it accrued off balance sheet. For that we just have to keep taking it out as we are able to working with our portfolio companies. But, it's a positive income stream for us.

Okay, thank you.

Okay, do we have another question James?

I am showing no further questions in queue. So, I would like to turn it back over to you Mr. Gladstone for closing remarks.

Alright, thank you all for calling in and we appreciate all the good questions. And we'll see you next quarter, at the end of this call.