In March, Greetings, and welcome to the Gladstone Investment Corporation 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. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. David Gladstone, Chief Executive Officer. Thank you, sir. You may begin.

Well, thank you, Latonya, and good morning to everybody. This is David Gladstone, Chairman of Gladstone Investment. And this is the earnings conference call for the third quarter ending 12/31/2025 for the 2026 fiscal year. And it is the March 31 year. We hope we get all of our shareholders on board and analysts in order to tell you about the future of the company. We are listed on NASDAQ under the trading symbol GAIN for the common stock, and then we have three preferred stocks: Gain N, Gain Z, and Gain I. Three different registered notes. Thank you all for calling in. We are always happy to provide updates to our shareholders and analysts and provide a view of the current business and the environment that we are in. Two goals of this call are to help you understand what happened to us during the last quarter and give you our current view of the future. And now we will hear from Catherine Gerkis, our Director of Investor Relations in ESG, to provide a brief disclosure regarding certain regulatory matters concerning this call. Catherine, go ahead.

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

Thanks, Catherine, and good morning to everybody. So I am pleased to report again that the '26, which as David Gladstone mentioned, ends on March 31, that we continue to build on the prior quarters, a very strong performance in this fiscal year. Driven by our continued growth in the portfolio and the results of our existing portfolio companies. So we ended the third quarter with an adjusted NII of $0.21 per share, total assets of about $1.2 billion, which is up about $92 million from the end of the prior quarter. Now this increase quarter over quarter in assets resulted from one new buyout investment during the current quarter along with fairly significant appreciation of our investment portfolio. So with the new buyout investment, we currently have 29 operating companies and a very healthy pipeline for new acquisitions. In this regard, to date, for fiscal 2026, we have invested $163 million, which is in four new portfolio companies, which compares to about $221 million that we invested for all of fiscal year 2025. These new investments are consistent, of course, with the buyout strategy where we grow the portfolio through the acquisition of operating companies at attractive valuations, and where we generally are the majority economic owner. We also make our acquisitions through a combination of equity and debt, and with the equity providing the potential upside through capital gains upon exit, and the debt securities, of course, generating the operating income, which supports our monthly distributions to shareholders. And that is a very important aspect of our portfolio. So this is one of the factors that in fact differentiates us from other traditional credit BDCs. The aspect that we provide both the debt and the equity when we make an acquisition. So from our operating income, we maintained…

As to our existing portfolio, most of the companies have experienced very good results to date and this is reflected in a very significant increase in our net asset value. And though we continue to be cautious due to supply chain disruption, tariff, and the other issues going on in the economy, we feel very good about where we are with our portfolio companies. We are working with all of our companies in evaluating things such as supply chain alternatives, other cost efficiencies that we need to help navigate the current environment. So in summing up the quarter and looking forward to the rest of the fiscal year, our current portfolio is in good shape. We have a strong and liquid balance sheet. A good level of buyout activity with a prospect of continued good earnings and distributions over the next year. So with all of that, while we hope to navigate the challenges of this uncertain economic landscape. So I will turn it over to our CFO, Taylor Ritchie, and he can tell us a bit more detail. Taylor?

Thank you, Dave, and good morning, everyone. Looking at our operating performance for the third quarter, we generated total investment income of $25.1 million, down slightly from $25.3 million in the prior quarter. The decrease was primarily driven by a decrease in dividend and success fee income, partially offset by additional interest income resulting from the continued growth of our debt investment portfolio. The weighted average principal balance of our interest-bearing investments was $699 million in the current quarter, representing an increase of $30 million compared to the prior quarter. After adjusting for the prior year's collection of past due interest income from investments that were previously on nonaccrual status, our portfolio's weighted average yield decreased modestly from 13.2% to 12.9%. This 24 basis point decrease is in line with the 32 basis point decrease in SOFR during the quarter and was mitigated by the interest rate floors included in each of our debt investments. Excluding non-accrual investments and revolving lines of credit, the weighted average interest rate floor for our debt portfolio was 12.1% as of December 31. We continue to underwrite our new debt investments with elevated interest rate floors in the 13% to 13.5% range to mitigate potential declines in SOFR. With over half of our debt portfolio currently at their interest rate floors, we believe our yield is well protected against future rate declines. Further, the overall interest rate floors will offset higher interest expense that will result from the future refinancing of our low-cost long-term debt that will be maturing in the coming quarters and years. Additionally, dividend and success fee income declined by $400,000 quarter over quarter. Dividend income from our equity investments is dependent on the portfolio company's ability to pay the distribution, while also having sufficient earnings and profits to support the…

Well, thank you. Very nice, Taylor, and nice by Dave Dullum and Catherine as well. And this will tidy over our shareholders until the next call, which will be at the March, the annual, as well as the third quarter. The call and Form 10-Q should bring everyone up to date. We have reported solid results for the quarter ending 12/31/2025, including new investment activity and a strong liquidity position. To grow the portfolio throughout the fiscal year. We believe Gladstone Investment is a very attractive investment for investors seeking continued monthly and some supplemental distribution from potential capital gains and other income. The team hopes to continue to show you a strong return on investment in our funds. Now let's stop for some questions from the analysts and other shareholders. Please come on, Mathewa. Thank you.

We will now conduct a question and answer session. Once again, that's star one at this time. The first question comes from Mickey Schleien with Clear Street. Please proceed.

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

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

The yeah. Sorry interesting. I do not know if it is pronounced Shilling or Shelling, but Shilling and Old World are obviously consumer-oriented companies, and we are reading, you know, so much about the k-shaped economy. So what sort of different about those two companies that is allowing them to grow their EBITDA even with the headwinds in the consumer sector?

Yeah. I think the only answer I can give is the products that they make and sell obviously. Shilling is a very interesting business. And they have a very unique product, which makes up a reasonable portion of their overall revenue, something called needle. It is one of these things where you squeeze for a variety of reasons, and they have different types of that. And that product has had huge demand even with, as you point out, forget consumer demand generally, but the whole tariff increases that we have seen in their products, of course, a significant portion comes from the Far East. So even with that, they have literally been able to maintain a level of demand that just frankly has allowed the company to perform at an exceptionally high level. Overall Christmas, obviously, Christmas tree ornaments, you are familiar with those, I think. You have seen them, and, again, they are a well-run business. All of these companies are very well run. They have got great management teams on pretty much, frankly, all of our portfolio companies right now. And they have just been able to, I guess, really the consumer demand side of things, as you say. I do not have any further specific real insights to that other than, again, good management, quality products, and been able to manage through the tariff impacts.

That is really good to hear. Dave, you also recently invested in Rowan Energy. Can you walk us through how you underwrote that deal, particularly how you assess the cyclicality of the energy equipment, fracking, sand filtration sector and what assumptions you made about where Rowan stands in its business cycle?

Mhmm. Best answer I can give you, Mickey, we can certainly chat about this offline if you need and, you know, bring some of the other folks involved that would more directly involved in those companies. But as you know, we have a couple of investments now that are in the energy-related sector. One company in particular, E3, which also had a very interesting and nice increase in valuation, and what we have there is a quality and experienced team running that particularly E3, and that frankly helps us to move off into and to be able to evaluate companies such as, you know, what you mentioned, Smart Chemical is another one. And so we have knowledge and experience within our portfolio to help properly evaluate that. So right now and through those lenses, we feel like where these guys are in their cycle that we still have upside and been able to manage it through valuations, frankly, that also are at a level that are not really, I will use the words carefully, but overpaying, so to speak. But, anyway, it is one that we can talk about in more detail if you really want to later on.

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

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

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

Yeah. The terminology, of course, is pretty broad. Right? AI. Yeah. I guess what I would say is that most of our companies are, to the extent that AI is important, they are actually using it to some degree. And I think you, in fact, if you recall coming out to our conference last year, we had a fair amount of stuff on that, and I think you heard some of that as well. So a number of our portfolio companies are utilizing various aspects of AI, which is enhancing, you know, their either their efficiency and whether it be designing some of the product you mentioned, Shilling. Again, they have actually, for a couple of years now, they have been using some aspect of AI in helping them to really design efficiently some of their products and so on. So I would say, yeah, we are more a beneficiary to some extent than necessarily, as you point out, where we have a tech company that might be directly in that space and there may be real competition for that, I would say we do not have that in our portfolio. So you are correct.

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

Thank you. Who is up next? The next question comes from Christopher Nolan with Ladenburg Thalmann. Please proceed.

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

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

And then in the comment section, you guys said, there is good liquidity in the M&A market. I have heard from other managements where credit is widely available to all these middle market companies, but equity is less so. Do you have a different take on that? And if equity is less prevalent, does that give you a competitive advantage?

Yeah. So I guess, Chris, my response to that might be from my experience, our experience, I think maybe the folks that, let's say, we compete with are traditional BDCs, excuse me, traditional private equity guys, to the extent that they are able to access leverage at more attractive rates, I think that is where, you know, why if they can put less equity in and slightly higher leverage or lower rates, they are doing some of that. I think this gives us an advantage, though, as well because we are bringing, again, the equity and the debt, and we can moderate that so we get the leverage on our own equity. But I would say that it is competitive, frankly, with the M&A direct M&A shops because valuations, while we are seeing some elevation, frankly. On elevations, the fact that they can get, you know, leverage at lower rates, relatively speaking, makes them pretty competitive as well. So to your point, that might put in less equity, put in a bit more leverage, and be competitive with us even though we are doing the debt and the equity. So it gives us a slight advantage in that when we deal with the management team and we are trying to buy the business, we at least are speaking for the whole capital stack, and we have a bit more certainty there. Versus, say, a traditional firm that might have to go out and try to raise the debt, whereas we at least can speak for all of it. So it gives us a slight edge, but, yeah, it is a there is a fair amount of capital out there in both that I would say that certainly the debt market and clearly on the equity side. From our experience.

Great. And final question. Given the decline in base rate over the last year or so. Will that have any positive effect in the discount rate used in your evaluate in your fair value calculations for your portfolio companies going forward?

Okay. Clarify that question again for me, Chris. Say it Sure.

Yes, the risk-free rates have gone down. Even the Fed cuts rates. And does that affect the discount rate used in your discount cash flow evaluations when you are fair value in an investment?

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

Right.

Great quarter. Very unusual in terms of the dynamics. You know, you guys have a super gap EPS profit and an NII EPS loss and a super jump in on that per share, but good show. Thank you.

Thanks, Chris. Victoria, you have another question? The next question comes from Erik Zwick with Lucid Capital. Please proceed.

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

Yeah. I would for us, I would say, Justin, probably not. As I mentioned earlier, because of the availability of leverage lower leverage, so when we are competing for a deal, for us, we still try to stick with our formula. Typically, it is about 70% of our assets or the investment that we make is in debt, in the debt security, 30%, roughly is in the equity security. So when we combine those, we are driving for an effective yield on the total dollars. Relative to our essential cost of capital being very cognizant of, you know, the income aspect of it for dividend distribution, but, likewise, we look for, you know, on the upside, we always try to see a way to say two times cash on cash on the equity side of things. So our model really has not changed. What we have found, yes, indeed, there have been a couple of deals that we have been working on that we liked and we are, you know, we are bidding on, you will. And we were, you know, a couple of turns off on the multiple. But, you know, we stay pretty disciplined. And given what we are seeing out there, I do not see us having to change too dramatically our model. I mean, if we saw something we really like and we could say put a bit more debt on it and generate more income, so long as we were not sacrificing too significantly the equity side of things, we will do that. But, that is not necessary because of the markets just because the way we might look at the deal itself. If that helps.

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

Yes. I would say compared to a year ago, probably similar. I do not certainly not lower. We are seeing them really across all sectors. We have seen recently a few areas. The consumer side of things, as actually Mickey was asking earlier, even though our experience of our portfolio and our consumer companies are doing really well, the consumer side of things are a little bit obviously slower, a great part because again, we talk about tariffs. And so when we look at a new deal, that is a consumer-driven, you have to really be very sensitive to the cost of product because of tariffs and so on, and that has some effect there certainly. It is business services. We are seeing reasonably good things in the business service area. Interestingly enough, on the manufacturing side, seeing things. I just kind of reflected in our portfolio kind of in the aerospace and defense area. Certainly aspects of what the government is doing, etcetera. So we have seen somewhat of a pickup in that area. So generally speaking, I would say pretty much across the board, everything is looking we are seeing about the same certainly as about a year ago. And if there is any one area that might be a little weaker in terms of looking forward, might be somewhat in the consumer area. Other questions? Okay, thanks.

Thank you, Justin. It was good to see sorry, I just got one more. Go ahead. Yes, sir. It was good to see that your nonaccrual was stable quarter over quarter. Just wondering if you could talk about your current outlook for quality and if there are any near-term opportunities to resolve any of the remaining names that are on non-accrual?

Yeah. I would say this. The ones that are currently on nonaccrual in differing degrees, I feel better about them honestly today. If you had asked me that question perhaps a year ago. In part because we are taking some actions. Again, they are all generating actually positive EBITDA. There are some structural reasons why we do not have them back yet on accrual. But between some of the things that we are doing with them, we might even see if a potential exit, and certainly improvement to the point where we actually will be able to get them back on accrual. So I see it as a positive looking forward versus it being a negative. No, I agree. And where we stand with these three companies, there is no or it does not feel like we are in a next quarter it will change, but the outlook is much more positive. And every quarter, it looks more positive. So we are encouraged by where each of the three are trending.

Great. Thanks for the That is all for me today.

Okay. Thanks, sir. Well, Troy, any other questions? There are no further questions at this time. I would like to turn it back to you, Mr. Gladstone, for closing comments.

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

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