Good day, ladies and gentlemen, and welcome to the Gladstone Investment Corporation's Second Quarter Earnings ended September 30, 2017 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I would like to introduce your host for today's conference, David Gladstone, Chairman. You may begin.

All right. Thank you, Glenda. Nice introduction. Hello and good morning to all of you out there. This is David Gladstone, and this is the quarterly earnings conference call for shareholders and hopefully we have a few analysts on the phone as well. This is for Gladstone Investments, stock trading symbol is GAIN and we have 3 preferred stocks. Thank you all for calling in. We're always happy to talk to our loyal shareholders, potential shareholders and analysts. I'd like to give you an update on the company and the investments that we're doing and what's going on in the business environment. I wish we could do this more often. Also, you have an invitation to stop by our McClean, Virginia office. It's located just outside of Washington D.C. Please stop by and say hello if you're in the area. There's a lot of people here. Many of them are on the road so you won't see them, but 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 to all of the Gladstone public funds and related companies. He'll make a brief statement regarding forward-looking statements and some other important information. Michael?

Thanks, David. Today's report 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 are 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. These can be found on the investor relations page of our website, www.gladstoneinvestment.com, or 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. Please take the opportunity to visit our website, once again, gladstoneinvestment.com. Sign up for our e-mail notification service so you can keep up to date on the company. You can also find us on Facebook, the keyword there is The Gladstone Companies. And we have our own Twitter tag and that's @GladstoneComps on Twitter. Today's call is just an overview of our results. Therefore, we ask you to review our press release and our Form 10-Q which we filed with the SEC yesterday for more detailed and complete information. Those of course can be found on our website as well. Now please, we will move the presentation over and pass the baton over to Gladstone Investments' President, David Dullum. Dave?

Thanks, Mike. Good morning, everyone. So today I'm pleased to report that Gladstone Investment had another strong fiscal quarter which ended 9/30/17. Our net investment income increased to $0.18 a share over last quarter at $0.17 a share and we also had the closing of one new buyout investment. The net asset value, which is our book value, also increased by $0.22 per share primarily as a result of a $7.8 million net unrealized appreciation during this period. 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 shareholders and that's from $0.064 per share or roughly $0.77 annually to $0.065 per share monthly or $0.78 per share annually. We also announced an additional supplemental distribution of $0.06 per common share to be paid in December which indeed is our second planned semiannual supplemental distribution. So similar to the distribution paid in June, we expect the December distribution to be made again primarily from capital gains. We also have seen our stock price increase to closing yesterday at $10.26 per share which is an increase of about $1.73 over the past year or roughly 20% from $8.53 as of October 31, 2016. So this is encouraging certainly to me because I believe that the market is now beginning to recognize the success of what our business model is in that the stock price also now is above our NAV per share of roughly $10.10. So you may say, well what is that business model? Well we focus on the buyouts of US businesses with annual earnings before interest, taxes, depreciation and amortization, otherwise known as EBITDA, generally between the ranges of about $3 million on the very low end and about $10 million on…

All right, thank you, Dave. That was a good report. Michael's was a good report and you did a good job of filling in for Julia. But nonetheless, we're looking forward to Julia coming back. We are reporting some significant accomplishments for the quarter in addition to the new buyout investment. It did what has taken us a while to get to. We increased the regular monthly distribution and again, declaring, we declared another supplemental distribution to common shareholders. Continued strong performance of the companies that we're invested in as shown by the net asset value. It went from $9.88 to $10.10 so you can see the portfolio is getting better. I because we can continue this success going into the second half of the fiscal year which ends March 31, 2018. The economy today is really strong. It seems to be hitting on all cylinders. I always have concerns when it's this nice out there. To counter the unforeseen, we are building a very strong balance sheet and I think we'll be in great shape if something should come along. Now if Congress will just deliver changes on the tax code and some changes to the health insurance problems, I think the US midsized businesses like the ones we finance will really take off. And it would be impossible to have a better economy than we have today, but hopeful that the president will name today the Fed Chairman Powell, that would be terrific. That would mean a continuation of what's going on in a lot of places. In October our Board of Directors increased the monthly distribution to common stockholders from $0.064 to $0.065. That's for October, November and December of 2017. I'm pretty optimistic that we can continue that $0.78 per share and that's up from $0.77,…

[Operator Instructions] Andrew Stapp, Hilliard Lyons.

I guess I'll start out with the pipeline for new investments. Just wondering how they compare to a quarter ago.

So, Andy, it's Dave Dullum. I'll say that it feels a little bit stronger. We probably have gotten more that we're spending more serious time on than we might have a quarter ago. But it continues to be a slog, but I think seeing a little bit of an uptick.

Okay, and the -- excuse me, last quarter you talked about Alloy Die possibly going on accrual status. I think it realized another $1 million of depreciation in the quarter. Could you provide an update on this?

Yeah, it's moving in the right direction. We've done a good job with the management team. They are really actually doing quite well relatively speaking, and reworked our banking relationships in a positive way. So I think we're getting closer.

The Mountain Corporation realized a fair amount of depreciation in the quarter. Could you talk about the reverse of this deterioration?

Yeah, again, that's one where after we bought it, we had to make some frankly major changes in management team. We've got a great management team in there now. They've been changing some things that the company needed to do from the perspective of its products, the way in which it goes to market. We've added some incremental folks and as a result of that added incremental expense to the business. So it's positive EBITDA and it's again trending in the right direction and it's one of those that I think over time is going to end up being a very good investment. We just have to keep doing what we do when these companies aren't performing quite the way we'd like them to.

[Operator Instructions] Mickey Schleien, Ladenburg.

Perhaps a question for Dave. Clearly the equity markets have been very strong and we've seen multiples rising and that's partly helped support your NAV. So you now have some investments that are valued at very nice gains like Cambridge. I'd like to know how you're feeling about perhaps taking some of that money off the table and your willingness to shrink the balance sheet while these multiples are high and wait for better opportunities down the road.

Mickey, thanks for the comment. Well as you usually ask generally, where is our, why are we not more diversified? The last thing I probably want to do is necessarily shrink the balance sheet just for sake of shrinking. I think the best way to answer your question is back to really my overall approach goals that we have for how we see this company growing. And that is simply we will look to harvest companies as they grow and the value increases so that we can continue showing the results on our equity oriented strategy. At the same time, I don't necessarily feel it's necessary to get a company out of the portfolio because again, we still are very cognizant of growth in NII and also obviously from a distribution perspective. So I guess the best way to say it to you, you're right, it's always interesting to look at and just know that we manage the portfolio from both a growth of assets, a thinking about exits for the right time, maximizing value there. But at the same time, not necessarily reducing the balance sheet at the same time running the risk of reducing our operating income.

Okay, thanks for that. Dave, a couple more questions. We saw some nice upward valuation of Drew Foam and nth Degree. Was that operational or multiples or both? Could you give us a little background there?

Predominantly operational I would say. Both companies are doing very well. Obviously have seen slight pickup in multiples. I don't know, Nicole, if you'd like to add to that?

There was a slight pickup in multiples, but I'd say it was predominantly operational for those two entities.

That's good to hear. And lastly, Dave, I know it's difficult balancing for a company with your business model, but we have NII running a little bit below the dividend, so I'm trying to understand how the board is viewing future potential realized capital gains to cover the dividend from a taxable perspective. In other words, what was their thinking in terms of raising the dividend recently?

Well a couple of things and I certainly welcome certainly Nicole, John, anybody to jump in here. But again, I would come at it this way. First of all, I think about our dividend, even though we pay it monthly and we look at these things monthly and quarterly, I think about covering our dividend from an operating perspective on an annual basis. And the reason I do that is simply that as we've mentioned before, I keep making the point, the other income line item for us is important and is an aspect of our investment thesis. So that's, as we also indicate, it is something we try to manage, we have some ability to manage it. And I look forward as we manage that on an annual basis. So my expectation generally is going to be that we are going to cover our distribution, our operating distribution from our NII which is a component of interest income which incidentally is slightly up this quarter versus last quarter. And then the addition of our other income stream. So that's that aspect. As far as raising the distribution, we felt comfortable with and our Board felt comfortable with where we are operationally and looking forward to being able to do that within a modest range. But we keep trying to give a little bit back to shareholders. The cap gains piece is kind of a separate item now and the good news, again, we are seeing now that we are exiting companies, and you brought it up, on an I now hope a somewhat more consistent basis over the years, we're going to generate net realized capital gains that we're going to be able to give back to shareholders in that regard. I think that's how I'd say it, and Nicole, would you add to that?

I think you pretty much covered it.

I appreciate that, Dave. And if I could, just one last follow-up. I noticed there was a lawsuit between Pioneer Brands and Riverside Technology. I understand there's lawsuits all the time, but could you just tell us what the nature of that was?

I'll be honest with you, it's nothing significant that we would worry about. As you say, these happen from time to time and I can't tell you a good answer on that. It's nothing we need to worry about that's in our purview at this point.

I appreciate all your time this morning.

Thank you. As you can imagine, we are named in lawsuits that happen in our portfolio just because we are a big owner. So most of the time it's not a problem. Next question?

[Operator Instructions] I'm not showing any further questions over the phone lines at this time. I would like to turn the call back over to David Gladstone for closing remarks.

Thank you all for tuning in and we appreciate the questions and we'll see you next quarter. That's the end of this call.

Ladies and gentlemen, thank you for your participation in today's conference. This concludes the program and you may now disconnect. Everyone have a great day.