Gladstone Inv (NASDAQ:GAIN) reported fourth-quarter financial results on Wednesday. The transcript from the company's fourth-quarter earnings call has been provided below.

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Summary

Gladstone Inv reported solid financial performance for the fiscal year ending March 31, 2026, with an adjusted NII of $0.88 per share and a portfolio fair value increase of 34% to $1.3 billion.

The company invested $163 million in four new buyout investments, contributing to the growth of their investment portfolio, and maintained a monthly shareholder distribution of $0.08 per share.

Management expressed optimism about the future, despite macroeconomic challenges, and highlighted the strategic advantage of offering both debt and equity financing in transactions.

Full Transcript

OPERATOR

To Gladstone Investment Corporation Fourth Quarter and year end Earnings Conference Call at this time all participants are on a listen only mode. A question and answer session will follow the formal presentation. If anyone requires operator assistance during the conference, please press Star0 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, David Gladstone. Thank you. Please go ahead.

David Gladstone

All right, thank you all for calling in. This is the earnings conference call for the fourth quarter as well as fiscal year ending March 31, 2026 for shareholders and analysts of Gladstone Investments listed on NASDAQ under the symbol GAIN for Common stock. And then we have several others that GAINZ, GAIN I and GAIN G registered notes that we sold in the past. Thank you for all calling in. As always, happy to provide you updates to the shareholders and to the analysts who are following us and we're trying to tell you about the current business environment and the two goals for this call is to have you understand what has happened and give you some current view on the future. Although we're all in the same boat trying to figure out what's going to happen in the future. Now I'll hear from Kathryn Gurkhes, our Director of Investor Relations and SEC to provide a brief disclosure regarding certain regulatory matters concerning the call today. Kathryn, go ahead please.

Kathryn Gurkhes (Director of Investor Relations)

Thank you and 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 10K 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 Twitter @GladstoneComps as well as Facebook and LinkedIn. Keyword for both is the Gladstone companies. Now I will turn the call over to David Dullum, CEO and President of Gladstone Investments.

David Dullum (CEO and President)

Thank you Kathryn. So good morning everyone and I'm very pleased to report that gain again produced solid results for this fourth quarter and the fiscal year ended March 31, 202026. We also continue to see growth in our investment portfolio through new buyout investments and the improving performance at a number of our existing portfolio companies. In addition, for the fiscal Year we generated adjusted NII of $0.88 per share, and we increased the total fair value of our portfolio to 1.3 billion as of March 31, 202026, which is a 34% increase from the 979 million that we reported in the prior year. Now, this increase year over year in assets resulted from a couple of things. One, we had four new buyout investments along with appreciation of our existing investment portfolio and indeed increase in our NAV per share fairly significantly. We currently have 29 operating companies and a very healthy pipeline for new acquisitions. Just quickly reviewing for 2026, we invested approximately 163 million in the four new portfolio companies I mentioned, and this compares to about $221 million which we invested in the prior year. These new investments are consistent with our buyout strategy, growing the portfolio through the acquisition of operating companies at attractive valuations where we generally are the majority economic owner. We also make acquisitions through a combination of the equity and the debt investments, with the equity providing the potential upside through capital gains upon exit and the debt securities are generating its operating income to support our monthly distributions to shareholders. At this point, I'd just like to note here that we do set floors on the debt securities that we use when we make these acquisitions, so that gives us the opportunity to maintain a level of income above our cost of capital so that we are really not susceptible to as much the spread compression as others might exhibit in this environment. So our equity investments represent a significant ownership position in our portfolio companies and we look to the capital gains as major contributors to the additional dividend payouts to shareholders, which we have demonstrated pretty significantly in the past. So this is also one factor that does differentiate us from other traditional credit BDCs. From our operating income, we maintained our monthly distribution to shareholders of $0.08 per share or $0.96 per share on an annual basis. We also made supplemental distributions during fiscal 2026 to shareholders of $0.54 per share per share, which came from these capital gains that I mentioned earlier and which again are a fairly important part of our overall model. And since inception, in fact in 2005 and through this time of 331 2026, we've invested in 66 buyout portfolio companies for an add on rating of approximately 354 million in net realized gains and 45 million in other income on exit. So again, this is our plan, our strategy, which we hope to continue in the future. Now, at this point it's very important. I'd like to make an introduction to Erica Hyland, who will become our president on October 1st. I'm very honored to do this. Erica has been a Managing Director of Gladstone Investment for a number of years, recently was promoted to Executive Vice President. She has been instrumental in managing a number of our successful investments, very active in our outreach and investment generation programs, and Erica will become President in October 1st as mentioned and we're very much looking forward to that. I'm looking forward to working with her as we continue growing. So with that, I'm going to ask Erica to have a discussion on our outlook and a few other comments.

Erica Hyland (Managing Director, Executive Vice President)

So Erica, thank you Dave, and I am proud to partner with you to help lead our fund going forward. There are continued acquisitions that fit our model. This is where we provide both equity and debt to complete the transaction with a meaningful fixed charge coverage and an interest income yield on our total investment in excess of our cost of capital. As mentioned earlier, we closed on four new investments during the fiscal year. We continue to be in varying stages of diligence on possible new opportunities, including accretive add on acquisitions to existing portfolio companies, and we are in review and negotiation with a number of other new opportunities. This activity could lead to closing on new buyout investments and accretive add on acquisitions as we begin fiscal year 27. As to our existing portfolio, most of the companies have experienced experienced positive results to date as reflected in our nav increase. Though we continue to be cautious due to macroeconomic landscape and therefore the impact on demand and margin. We are working with all of our portfolio companies in evaluating supply chain alternatives and cost efficiencies as we continue to navigate the current environment. Back to you Dave.

David Dullum (CEO and President)

Thanks Erica. So in summing up the year, our current portfolio is in solid shape. We have a strong and liquid balance sheet which you'll hear about in a few minutes, and a very good level of potential portfolio activity with the prospect of continued strong earnings and distributions over the next year while we continue to navigate the challenges, as Erica mentioned, of this macroeconomic landscape that we find ourselves in. So with that I'll turn it over to our CFO Taylor Ritchie to go into some more detail.

Taylor Ritchie (Chief Financial Officer)

Taylor thank you Dave and Erica and good morning everyone. I'm happy to share that we ended fiscal year 2026 with our fifth consecutive year of current federal investment income generating $99.1 million compared to $93.7 million in the prior fiscal year. The increase was primarily driven by higher interest income resulting from continued growth in our debt investment portfolio partially offset by lower dividend interesting income, the timing of which can vary from period to period. The weighted average principal balance of our interest bearing investments was $672 million during the fiscal year, representing an increase of approximately 70 million over the prior year. For the year, our portfolio's weighted average yield declined modestly from 13.9% to 13.3%. Importantly, the interest rate floors embedded in each of our debt investments helped mitigate the impact of declining benchmark rates as the 63 basis point decrease in portfolio yield was less than the 82 basis point decline in SOFR during the year. Excluding non accrual investments and revolving lines, the weighted average interest rate floor for our debt portfolio was 12.1% as of March 31. We continue to underwrite our new debt investments with elevated interest rate floors in the 13.5% to 14% range to mitigate potential declines in SOFR. With more than half of our debt portfolio currently under interest rate floors, we believe our portfolio yield is well protected against future rate declines. In addition, these rules should help support earnings as we refinance portions of our existing lower cost long term debt over time. Turning to fourth quarter results, total investment income was 25.2 million, modestly higher than the 25.1 million in the prior quarter. The increase was primarily driven by higher dividend and success fee income partially offset by lower interest income with our quarterly portfolio yield remaining stable at 12.9%. As a reminder, dividend income from our equity investments depends on the portfolio company's ability to make distributions while also maintaining sufficient earnings and profits. Additionally, success fee income is derived from an interest rate associated with our debt investment that accrues off balance sheet and is not contractually due until a change in control event occurs. Because of the realization that both in income and income depends on multiple factors, the timing of these income streams will be variable. Net expenses for the quarter were 35.8 million compared to 31.6 million in the prior quarter. The increase was Primarily driven by a 3.8 million increase in the core account book increase, the $0.4 million increase of base management fee expense, both of which were largely attributable to continued unrealized appreciation across the portfolio. As a result, net investment loss for the quarter was $10.6 million compared to $6.5 million in the prior quarter. Adjusted net investment income, which excludes the accrual of capital gains based incentive fees was 7.99 or $0.20 per share compared to 8.2 million or $0.21 per share in the prior quarter. Overall, portfolio valuations increased 92.5 million during the quarter. This unrealized appreciation was driven by improved operating performance at several portfolio companies along with higher valuation multiples across the portfolio. These increases were partially offset by decreased performance at certain other portfolio companies. We continue to have three portfolio companies on non accrual status. We remain actively engaged with each company and their respective management teams to support operational improvement initiatives, potential return to accrual status, or strategic exits where appropriate. Our non Accrual investments represent 3.8% of our total portfolio at cost and 0.7% at fair value. Our NAV increased to $16.78 per share of net unrealized depreciation of investment. This increase was partially offset by $0.27 per share of net investment loss and $0.24 per share of distributions to common shareholders. As it looks our balance sheet, maintaining strong financial flexibility remains essential to supporting and growing our portfolio. In anticipation of the May maturity of our 5% notes, we issued 190.125% five year notes in February. Subsequent to quarter end, we repaid the outstanding balance with the 5% notes using proceeds from the new issuance along with borrowings on our credit report. Quarter or subsequent to quarter end, we will remain opportunistic and will utilize the program when prices are accretive to NAV. We continue to believe that we are in a strong liquidity position with our ability to access the debt capital market and the public equity market to support both the refinancing of long term debt and our pipeline of new buyout opportunities. Overall, our leverage remains conservative with an asset coverage ratio of 214% and a debt to equity ratio of 0.84 times as of March 31, 2026. Pointing to distributions, we ended the fiscal year with 21.3 million of $0.53 per share in spillover income, which is sufficient to cover our current monthly distribution rate of $0.08 per share for approximately six months. We ended the year with total distributable income of 1 81.5 million or $4.56 per share. Because total distributable income primarily reflects net unrealized appreciation within the portfolio, we expect this value to support monthly and double loan distributions. As appreciated, investments are monetized over time, including the 50% supplement loan distribution. In the current fiscal year, we paid an aggregate of $3.26 per share across 13 supplemental loan distributions over the last five fiscal years in addition to $4.58 per share of monthly distributions during this time. We believe this track record demonstrates our ability to maintain a stable monthly distribution while also delivering incremental shareholder trends, highlighting the strength and consistency of our focused equity oriented investment strategy. Looking ahead, we expect supplementary return strategy with the amount and timing of future payments driven by realized capital gains on our equity investment along with other capital allocation considerations. This concludes my remarks for today's call. I'll now hand it back over to you David to wrap us up.

David Gladstone

Very nice Taylor and good report Dave and Erica and Kathryn. Lots of good information. Hopefully our shareholders are now up to date. This call based on our 10k should bring everyone up to date. The team has reported solid results for the quarter ending March 31, 2026 including new investment activity and strong liquidity positioned to grow the portfolio through the upcoming fiscal year. We believe Gladstone Investment is an attractive investment for investors seeking continuous monthly distributions and supplemental distributions from capital gains and other income. Team hopes to continue to show you strong returns going forward. So Operator, would you come on now? Let's have some questions from our panelists and shareholders and people on the line.

OPERATOR

Thank you. The floor is now open for questions. If you would like to ask a question, please press Star one on your telephone keypad at this time. A confirmation tone will indicate that your line is in the question queue. You may press Star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star keys again, that's Star one to register a question at this time. Our first question is coming from Eric Zwick of Lucid Capital Markets. Please go ahead.

Eric Zwick

For sure the last two quarters it's come in below the dividend level and I think my phone cut out a little bit. Taylor, if you could repeat just where the spillover income stands today and just your thoughts on the dividend level and if the expectation is that the gains that you typically harvest will help support that going forward.

Taylor Ritchie (Chief Financial Officer)

Sure. So we ended the year with 21.3 million 53 cents per share in spillover income. So based on our 8 cent per share monthly distribution rate, that would be spillover sufficient for six months. So half of the next fiscal year would be covered by spillover already. We do look to increase our adjusted NII per share going forward. That will be dependent on deal origination, timing of new investments, where so for rates headed as well as additional fee credits that we collect from time to time from our portfolio companies. So our adjusted NII per share will move around quarter to quarter, but we still feel confident in our 8 cent per share monthly distribution rate and don't really envision that changing.

David Dullum (CEO and President)

Excellent, thanks, Taylor. And then just looking at some changes in fair values in the notice, the Diligent Delivery Systems, the second lead position was marked down materially from about 76% across down to 4. So just curious if you could provide any update of, you know, what transpired there during the quarter. So. Hi Eric, it's Dave. Pretty much the business is continuing, I would say, on a fairly stable basis. We had a bit of a decline in the ebitda, but still positive and still servicing our interests. It's a function you probably remember of providing service to rent a car, companies at airports and so on. And there's been some diligent. He's asking about Diligent. Oh, I'm sorry. Yeah, I was thinking about something else. Diligent. No, it's actually improving. Even though the valuation is down, believe it or not, the business is actually improving and that's one that is currently on nonaccrual, which we anticipate might indeed be coming off of nonaccrual as we move through the year. No direct expectation on timing, but I believe we might get there. So I feel better about Diligent. Today, even though we did have it marked down, was more a function of where the trailing EBITDA was relative to where the actual business is operating. And we're in a better shape with that today, frankly, than we were even six, nine months ago.

Eric Zwick

Great, thanks for the update there. And then a more positive note, just noticed the preferred equity position and shilling was marked up materially. And having some young kids, I'm guessing maybe that's in part due to the kind of recent surge in popularity of the neato toy. So maybe a two part question. One, what are you seeing in terms of the business trends for that company? And then I guess I have the opportunity to be the most popular person at the dinner table tonight in the eyes of my kids. If you have any insight to when those neatos might be back in stock in the website or on local store shelves.

David Dullum (CEO and President)

Yeah, I think Erica Hyland will take that one. She is involved directly with Schilling and been involved with it for a number of years. Erica?

Erica Hyland (Managing Director, Executive Vice President)

Yeah, I'd love to be able to tell you I could offer you some product, but that's the question of the hour right now from everybody. Yeah, no, they are diligently working on expanding their production capacity with their third party suppliers and trying to meet all of the demand, which as you point out, that product has certainly gone viral in the last several months and they are very much aware of the demand and trying to ramp up capacity as quickly as possible. So I think what you see reflected in the fair market value is, is directly attributable to that and their increased financial performance over the last several months due to that product.

Eric Zwick

Makes sense. Thanks, Eric. And I will say I was able to pick up one toy each for both of my kids at your Investor Day back in the fall. So they are very grateful for that. So thank you. Great. That's all for me today. Thank you.

OPERATOR

Thanks, Eric. Next question. Thank you once again, that is Star One. If you would like to register a question at this time, the next question is coming from Christopher Nolan of Vladenberg Thalman. Please go ahead.

Christopher Nolan

Hi, good morning. This is the second quarter where you have unusually strong unrealized gains. Should we expect that to happen in this quarter?

Taylor Ritchie (Chief Financial Officer)

Taylor? Well, we're still working through Obviously, what the 630 valuation will look like. It's only the middle of May, so the multiples could move one way or the other and that would obviously drive the fair value changes or be a significant component. We will have to see where EBITDA metrics are moving on a company by company basis. And we do feel confident that our portfolio companies are doing well, will continue to do well. As Dave mentioned, a couple of them that are marked down right now, we do feel optimistic that they will begin to turn around. That might not be this quarter, but it could be quarters coming forward or going forward rather.

Christopher Nolan

And I guess as a follow up question, are you finding it to be a strong competitive advantage in the current market where you can invest both debt and equity? Because my sense is private equity investments are not as plentiful as they might have been a couple years ago. And just trying to see how this is working in your favor or against or no real effect.

Erica Hyland (Managing Director, Executive Vice President)

Christopher, this is Erica Hyland. I'll take that one. I'd say yes. The fact that we are able to offer both debt and equity for all of our buyout transactions is indeed a competitive advantage in today's market. Even though there's a lot of liquidity out there, there is still a lot of uncertainty. And private equity firms have had challenges deploying capital and raising capital due to just some of their structural issues with fundraising. And so our ability to provide all the capital for a transaction provides that level of certainty to close to sellers. And that's probably been one of the driving factors for how we've been able to be competitive over the last several years, frankly.

Christopher Nolan

Okay, thank you. Oh, and congratulations on your promotion.

Erica Hyland (Managing Director, Executive Vice President)

Thank you all Right.

David Gladstone

Do we have another question from the group?

OPERATOR

We're showing no additional questions at this time. Mr. Gladstone, do you have any additional or closing comments?

David Gladstone

Yeah, I'm very disappointed. We want lots of questions and we didn't get them this time. We've done a good job but maybe next quarter you will have some really solid questions for us. That's the end of the question and answer period and we're going to sign off. You got one more?

OPERATOR

No. Okay, who's next? Okay, we did have a late entry. Our next question is coming from Sean Paul Adams of B Riley, please go ahead.

Sean Paul Adams

Hey guys, good morning. Congrats on the quarter. Just really quickly you touched a little bit earlier on the call about one possible non-accrual kind of going through a work through and you know, without any concrete timelines could be, you know, coming off that non accrual. The remaining two. Can you provide just a little bit more color on, you know, if there's any expected workouts coming? It seems like they have some pretty severe markdowns in the portfolio so you know, just a little bit more color on that.

David Dullum (CEO and President)

Sean, it's Dave on the other two. One is quite small investment and probably going to take some action with that. That will frankly probably eliminate the issue. That's one. The other company, B and T is actually performing fairly well. We're working through with the management and so on as to what to frankly do with the business. Nothing drastic but we're on top of it. So I don't expect to see much change with those two companies probably within the next six months at this point. And as I mentioned on the other one diligent, there is a reasonable probability that that will actually come off a non accrual. So I'm not concerned about our non accrual situation. It's you know, relative to the overall total cost of our portfolio and the value of our portfolio. As Taylor mentioned earlier, I feel like we're in pretty decent shape there. So nothing that I could really add that would be of any significance on those.

OPERATOR

We do have a follow up question coming from Eric Zwick of Lucid Capital. Please go ahead.

Eric Zwick

Thanks for taking the follow up as well. So just another kind of portfolio position question. The other a large write up I noticed was the SFEG Holdings. The common there was marked up quite material. So curious if you could provide us an update on the trends you're seeing there and what led to the valuation change.

Taylor Ritchie (Chief Financial Officer)

Taylor, why don't you take it? Well I think that's one where we continue to see the returns from the add on acquisitions we've done, the strategic initiatives that the company's put in place that have really been able to EBITDA in a meaningful way. And then based on market analysis and valuations that we're receiving from third parties, the multiple increased by a meaningful amount as well this quarter.

David Dullum (CEO and President)

Yeah, that's in a number of somewhat related industry categories. I would say it's international in scope. And again, the valuation frankly is purely a function of very solid EBITDA, certainly over the last 12 months and continuing to grow. And then, you know, multiples, we don't, we don't have a crazy multiple on it. That's, that's really causing the valuation to be where it is. So it's just that it's fundamentally, it's a really busy, really good business.

Eric Zwick

It sounds like something, you know, kind of, given those trends, you've put a lot of working capital into it, it'd be something that you'd prefer to continue holding at this point as opposed to monetizing in kind of the near to midterm.

David Dullum (CEO and President)

Well, you know, you never know. And you know, as you know and you watch this and certainly over the years we exit companies when not only we think it might make sense, but frankly when the management teams are in favor of doing that. We've always done it that way. So we don't rush to the exits. If companies are performing well and importantly paying our interest, we like to keep them in a portfolio. But you know, you never know sometimes when there are opportunities that you just cannot ignore. And we'll always keep evaluating those as we move forward.

Eric Zwick

Yeah, makes sense. Opportunity dependent. So great. Thanks for taking my question again.

OPERATOR

Any other questions? We're showing no additional questions at this time.

David Gladstone

Okay, we'll close it up. Sounds like we ran out of questions. We had more people than questions this time. So. Lots of fun in the business these days and market's getting hotter. So tune in next time and we'll tell you some more stories.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.