Greetings, and welcome to Gladstone Investment Corporation's Second Quarter Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Erich Hellmold, General Counsel. Please go ahead.

Thank you, Donna, and good morning. This is Erich Hellmold, General Counsel of Gladstone Investment. This is the earnings conference call for the second quarter ended September 30, 2025, of the 2026 fiscal year for shareholders and analysts of Gladstone Investment, listed on NASDAQ under trading symbols GAIN for the common stock, GAINN, GAINZ, GAINL and GAINI for our 4 different registered notes. Thank you for all calling in. We're happy to provide updates to our shareholders and analysts and provide our view of the current business environment. Two goals for our call today are to help you understand what has happened and give you our current view of the future. Now we'll hear from Catherine Gerkis, our Director of Investor Relations and ESG to provide a brief disclosure regarding certain regulatory matters concerning this call and report.

Good morning, everyone. Today's call may include forward-looking statements, which are based on management's estimates, assumptions and projections. There are no guarantees of future performance, and actual results may differ materially from those expressed or implied in these statements due to various uncertainties, including the risk factors supported in our SEC filings, which you can find on the Investors page of our website, gladstoneinvestment.com. We assume no obligation to update any of these statements unless required by law. Please visit our website for a copy of our Form 10-Q and earnings press release for more detailed information. You can also sign up for our e-mail notification service and find information on how to contact our Investor Relations department. We are also on X, @GladstoneComps as well as Facebook and LinkedIn, keyword for both is The Gladstone Companies. Now I will turn the call over to David Dullum, President of Gladstone Investment.

Thanks, Catherine, and good morning to everybody, and also thank you for being on the call. I am again pleased to report that our second quarter of fiscal '26, we experienced strong performance. This was driven by the continued growth in the portfolio and the results also of our existing portfolio companies. We ended the second quarter with adjusted NII of $0.24 per share, which is sufficient to cover our monthly distributions to shareholders and our total assets of $1.1 billion are up $90 million from the end of the prior quarter. Now this increase quarter-over-quarter in assets resulted from one new buyout investment during the current quarter along with appreciation of our investment portfolio, I should say, net appreciation. With the new buyout investment, we currently have 28 operating companies and a very healthy pipeline for new acquisitions, which we'll discuss a little further. To date and through the first 6 months of fiscal year '26, we have invested approximately $130 million in three new portfolio companies, and this compares to a total of $221 million which we invested in all of fiscal year '25. So we're at a pretty good run rate relative to where we were in fiscal '25. Now these new investments, they are in line with our strategy to continue growing our portfolio through the acquisition of operating companies at what we deem to be attractive valuations. Now as usual, these acquisitions are made with a combination of our equity and debt, where we look to generate capital gains on the equity when we exit the business and the operating income from the debt securities that we hold for the monthly distributions to shareholders. From our operating income, we were able to maintain our monthly distribution to shareholders of $0.08 per share, or $0.96 per…

Thank you, Dave, and good morning everyone. Looking at our operating performance for the second quarter, we generated total investment income of $25.3 million, up from $23.5 million in the prior quarter. The increase was primarily driven by an additional $1 million of interest income resulting from the continued growth of our debt investment portfolio. The weighted average yield on our debt investments decreased from 14.1% to 13.4% during the quarter. However, after adjusting for the collection of past due interest income from investments that had previously been on nonaccrual status, our portfolio's weighted average yield increased modestly from 13.1% to 13.2%. This improvement reflects our recent buyout debt investments which generally include interest rate floors in the 13% to 13.5% range. Excluding nonaccrual investments, the weighted average interest rate floor of our current debt portfolio was 12% as of September 30. We believe these elevated interest rate floors positions us well to mitigate potential compression in net interest income in the event of future declines in SOFR. Additionally, we experienced a $0.7 million increase in dividend and success fee income, the timing of which can be variable. Net expenses for the quarter were $21 million, up from $14.5 million, the increase was primarily due to the increase in incentive fees, which included a $5.1 million increase in capital gains-based incentive fees as well as a $0.3 million increase in income-based incentive fees. Interest expense increased in the current quarter due to the timing of borrowings for new investment activity from both the current and prior quarter, partially offset by our ATM sales in the current quarter. This resulted in net investment income of $4.3 million compared to $9.1 million in the prior quarter. Overall, portfolio company valuations in the aggregate were up $54.5 million. The increase was a result…

Well, thank you very much, Taylor. It's nice for you and Dave and Catherine, good information for our shareholders. This call and the Form 10-Q we filed, that should bring us up to date for everyone that follows us. The team has reported solid results for the quarter ending September 30, 2025, including new investment activity, improvements in nonaccrual balances, that's a good one to get out of the way and a strong liquidity position to grow the portfolio through the rest of this fiscal year, which will end on in the next quarter. We believe that Gladstone Investment is an attractive investment for investors seeking continuous monthly distributions and supplemental distributions from potential capital gains and other income that we have. The team hopes to continue to show you a strong return on your investment in our fund. Why don't we slow down now and have some questions from our analysts and other shareholders. So operator, if you'll please come on and ask some questions -- or get some questions.

[Operator Instructions] Our first question is coming from Mickey Schleien of Clear Street.

Taylor, in your remarks, you mentioned that the net unrealized depreciation, excluding the Hobbs reversals due to some companies performing well. Could you give us a sense of which sectors are the strongest in the portfolio? And what sectors you're seeing the most challenges.

Mickey, it's Dave. Taylor sort of pointed at me and said, "Hey, maybe you should take that question." So I'll try and he can jump in. Frankly, it's really truthfully across the board. It's not like our -- a couple of our consumer-oriented companies, we're seeing not only a slight change downwards in multiples in general and one or two that are slightly down in EBITDA, which, of course, combines for -- again, these are not huge, frankly, unrealized valuation decreases are all in line, relatively speaking. But I'd say in that, we've got a couple that are somewhat related to the government sector stuff where there's been some slowdown, if you will, or pushing backwards on some of the activity, clearly because of the shutdown, et cetera, but not anything dramatic. The business are all performing really well. So truly, I can't give you one sector that I would say is not performing worse, let's say, or any others. The oil and gas or energy sector, we've got a couple of pretty good holdings there. They're doing quite well. And there, we've seen multiples pretty much across the board are actually down. And so it's really more a function of where EBITDA on any one of the individual companies is actually up, which is combined to give the sort of unrealized appreciation aspect of it. But the short answer is, relatively speaking, it's pretty broad spread.

Dave, I -- yes. I'm sorry, go ahead, Taylor.

Sorry, I was just going to add in, if you look at the top three portfolio companies that moving up from the quarter, they spread all 3 of our kind of traditional sectors, between SFEG, E3 and Schylling. So we are seeing it kind of across the board.

That's helpful. And Dave, you mentioned the government shutdown, which is obviously a new development since the last earnings call and since your Investor Day in Utah. Could you give us a little more color on how that's impacting the portfolio and which companies are most exposed to that?

Well, the ones that would be most exposed are those that are, where we have direct involvement with services products related, obviously, to military and so on. And again, fundamentally, they're all doing well. I would say it's less of an issue now. We went through a period where we were concerned, let's use that word carefully on maybe pushing back of demand because of the uncertainty from the government, not that the fundamentals of what we needed to do our supply were in question, it was really more whether something might get funded or not. But what we learned actually and what's occurred is it really has not been an issue for our specific portfolio companies. So it's just something we keep an eye on. Again, it had an impact earlier in the year, but it frankly now seems to be smoothing out. So no, I wouldn't want to highlight any one particular of our companies that has got an issue with that because that would be misleading.

And my last question, Hobbs had been an issue for a long time. So it's good to see the restructuring. But I noticed you cut your investment in Hobbs by about half. So did another investor get involved, whether another sponsor or another lender? And how would you describe that company's outlook now?

Yes. No. So we are the only continuing investor. As we mentioned, we did a restructuring, if you will, and that allowed us to really sort of set the table with the dollars we have invested to generate income, as Taylor mentioned, which is a good thing. We've seen a really nice turn in the business there, a business that are a function of the construction-related projects generally in multifamily and, to some extent, commercial down in the Southeast generally, which frankly has continued well. So what they've done very well in the last, I'd say, 9 months to 12 months, is to really realize which are the contracts that they need to take on and we reduce the revenue as a result of that. The revenue run rate order of magnitude, $100 million, which is still pretty significant. But it's caused us to really be critical and not take contracts that while it might be nice to have the revenue might run the risk of not being able to provide any margin, if you will, just because of the nature of the beast. So all in all, I'd say to the management team has done an exceptional job in bringing it to where it is. And now we're looking at positive EBITDA, positive cash flow. And yes, we're happy that we've continued to remain in that investment and now got it at least on an income-producing basis.

The next question is coming from Christopher Nolan of Ladenburg Thalmann.

Taylor, in case I missed it, what was the spillover income per share in the quarter, please?

We don't disclose that quarter-by-quarter just given the fluctuations, and we're really don't manage the spillover on a quarterly basis. We're really looking on an annual basis. But to put it in perspective, again, we started the year with $1.50, which covers the supplemental of $0.54 in June and each month of $0.08. So we really have only been eating into the current -- the spillover that we started the year with. So we still feel comfortable and are confident in where we're going to end the year.

Okay. And then following up on the J.R. Hobbs comments from Mickey, should we look for other restructurings and for the other companies on nonaccrual?

Chris, this is Dave. No, I would say not. I think the other companies that are on nonaccrual for slightly different reasons, they're actually producing income, et cetera. We just have to work through with some of the other folks that are in the investment senior lender and what have you in terms of some certain restrictions, function of covenants. But no, I would not anticipate any restructuring on those other couple of companies.

Okay. Final question is, I noticed there was a slowdown in the ATM issuances quarter-to-date. Does that really reflect just smaller windows where you can accretively issue the shares or just lower seasonal balance sheet growth?

Chris, it's Taylor. Now to confirm, when you say quarter-to-date, are you talking about subsequent to 9/30? Or are you talking about the 9/30 quarter itself?

Subsequent to 9/30, please, the 515,000 common shares issued.

Yes. So subsequent to 9/30, again, with us having the ability to be active on the ATM, but only when we are trading at a price sufficiently above NAV between covering our costs and commissions and then providing a little bit of cushion for any kind of downturn. The trading window for while we were in a position based on our 9/30 NAV, which again increased meaningfully from $12.99, up to $13.53. When factoring in the commission and the cushion, there were only so many days that we were trading above that. And as I mentioned in my prepared remarks, we will continue to utilize the ATM as price remains above NAV and the cushion discount that we factor in.

The next question is coming from [indiscernible] of B. Riley Securities.

I was just wondering if you could provide some more detail or color on the diligence and the conversations you're having for upcoming commitments and general scale and industries.

Yes. So obviously, I have to be a little sensitive to -- with our legal team sitting here with me about what we're saying about those. But seriously, we are as I say, active in a number of companies right now kind of in the final phases of diligence, which means that with any success will sometime in the next month or so, hopefully, see some new acquisitions for us. And then there are others where we're very active constantly in evaluating new businesses with indications of interest, and those turn into letters of intent, if we generally earn a couple of those right now as well. No guarantee that those LOIs, as we call them, that will get accepted because these are competitive processes, as you know. So I'd say right now, all in all, we've given the level of activity, given that when we look at those that are in IOI indication of interest, those that are in LOI, those that are actually in what we call initial review, the level is probably as high as it's been for a while. So subject to just getting through those processes, I think we're in really good shape for adding to the portfolio.

Okay. And then I was just wondering if you could provide more color on the variability of tariff uncertainties, if there's specific holdings or industries that are worse than others in your view?

Yes. Well, certainly, some of those, we're fortunate, frankly, in a lot of our companies that would import products, say, from China, which is obviously the big area, have been able to find other sources. There are a couple of companies and part of it, to be honest, because of the demand for the product even though we had fairly significant tariff increase, primarily in a consumer-related company, it didn't affect the demand at all. In fact, demand continued and the profitability of the business pretty significant. So it's really more around those companies, the ones that we have where they use a lot of steel, let's say, or what have they are not particularly impacted. It's really those that are where we have a very significant supply, say, from China specifically. But so far to date, most of our companies that are doing that, we've been able to mitigate it to some degree. But we're cautious just because you never know. I mean, we seem to think that it looks like we might be seeing some pushback now on tariffs, some reductions. And if so, that will be a good thing.

Our next question is coming from Erik Zwick of Lucid Capital Markets.

This is Justin on for Erik today. I had a question on the J.R. Hobbs preferred position. We noticed it was previously marked at 0, and now it's marked well above the cost basis. Was that a result of the restructuring? Or is that more a function of improving business performance?

The primary driver is obviously the restructuring, which eliminated essentially $29.9 million of debt that was ahead of the preferred when you come to the valuation process. So as we look at kind of our waterfall method of coming up with a TEV for the company each quarter, you go through the debt stack, allocate value there and then what is left over will fall into equity fair value. So as we got rid of the debt investments that left over a fair value for the preferred equity piece.

Okay. Yes, that makes sense. And then you guys had another really solid quarter of net new investments. I was hoping you can expand on how the pipeline is looking compared with last quarter and where you're seeing the most compelling opportunities.

Yes. I think as I was indicating a little bit earlier, yes, we are, as I mentioned, seeing a volume that's probably as good as it's been in the last quarter or so, last couple of quarters actually. Part of it is a function of, obviously, I think, and our team doing a really good job getting out there and seeing opportunities that meet what we want to do. The other thing we've been doing frankly, gradually increasing the size of investments that we're making. So per investment, we're actually putting more money to work because we think that the businesses that are a little bit larger, generating more consistent EBITDA will be better value creation over time. So all in all, again, nothing spectacular other than we're active. We're out there. We're putting out a lot of indications of interest on some good quality businesses. It is a competitive environment. But again, I feel like we're in really good shape for net new deals as we look forward. And it's similar to like we've done in the last couple of quarters.

Okay. And last one for me. I'm just kind of curious about market dynamics and the competitive landscape. We've heard some larger BDCs are moving down market to smaller deals. Are you seeing any evidence of this in the borrowers that you're looking at?

Yes. No. And we -- keep in mind that our approach is less than being a credit-oriented fund, if you will, right? We fall in that category of the businesses we're looking at, we're buying them. So when, of course, we bring our debt and our own leverage from our own balance sheet to the transactions. So I would say we don't fall in that broad category of competing necessarily with those folks who might be coming down market on the debt pieces. I think where we are is looking more at the middle market on the companies that we can buy. And as I mentioned, we're increasing, looking at slightly larger businesses for us, relatively speaking, because we think that's where we can, over time, create higher value and consistently put more money to work in both the debt and the equity investments in those particular companies. So I wouldn't say that we're seeing necessarily greater competition because people are coming down market, I'd just say that generally, there is enough capital out there, certainly in the M&A world and where we saw to compete that it is a struggle to some degree, to find these businesses at values that we think makes some sense. But we obviously have been doing it reasonably successfully and think we can continue doing that.

And I think the only thing I would add to that to what Dave just mentioned is really that when we are going after portfolio companies of potential acquisitions, our competitors are typically going to be private equity funds that are focusing on the middle market space. So while other BDCs in the industry may be moving down market, they're often looking at companies that we may not be looking at. So our competitors are a different subset of the industry.

At this time, I would like to turn the floor back over to Mr. Gladstone for closing comments.

Thank you all for calling in. It's nice to know that this place will keep rocking and rolling, even if I'm stuck in traffic as I was this morning, I got to see the new way into Tysons Corner, which is a disaster. Nonetheless, I'm here, still working. I want to thank you all for calling in. And if you have other questions, we'll catch you next quarter. That's the end of this message.

Ladies and gentlemen, this concludes today's event. You may disconnect your lines or log off the webcast and enjoy the rest of your day.