Gladstone Investment Corporation 5.00% Notes Due 2026 Q3 FY2026 earnings call

• Strong performance in fiscal 2026 driven by portfolio growth and existing portfolio company results.
• Adjusted NII of $0.21 per share, total assets up $92 million from prior quarter.
• New buyout investment led to 29 operating companies and a healthy pipeline; $163 million invested in 4 new portfolio companies in FY2026.
• Debt and equity approach in acquisitions, with debt generating operating income for monthly distributions and equity providing upside through capital gains.
• Portfolio valuations increased $7.2 million, with unrealized appreciation from portfolio company performance and higher valuation multiples.
• Balance sheet management: redeemed $74.8 million of 8% notes, issued $60 million 6.875% notes, expanded credit facility to $300 million commitment level.
• Continued focus on add-on acquisitions to existing portfolio companies to grow overall investment value.

In the third quarter, Gladstone Investment Corporation ended with an adjusted NII of $0.21 per share. Total assets were about $1.2 billion, up approximately $92 million from the prior quarter. The increase in assets resulted from one new buyout investment during the quarter and significant appreciation of the investment portfolio. For fiscal 2026, $163 million was invested in 4 new portfolio companies. The company has 29 operating companies and a healthy pipeline for new acquisitions. The portfolio has total investments valued at $1.2 billion, with $353 million in net realized gains and $45 million in other income on exit since inception in 2005.

• Continuing to work on new investment opportunities, including accretive add-on acquisitions to existing portfolio companies.
• Competitive M&A market, but the company is effectively competing for suitable acquisitions.
• Interest rate floors on debt securities protect against spread compression and declining SOFR.
• Expectation of supplemental distributions remaining an important component of shareholder return strategy, driven by realized capital gains on equity investments.

• Spread compression due to potential decline in interest rates, though interest rate floors mitigate this risk.
• Economic uncertainties, including supply chain disruptions and tariff issues, which could impact portfolio companies.
• Non-accrual investments: 3 portfolio companies on non-accrual status, representing 3.8% of total book portfolio at cost and 1.5% at fair value, with efforts ongoing to return them to accrual status or pursue exits.

Q: 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?

A: 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.

Q: 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?

A: 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.

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

A: 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.

Q: 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?

A: 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.

Q: 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?

A: 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.