Gladstone Investment Corporation 4.875% Notes due 2028 Q2 FY2026 earnings call

• Strong second quarter performance driven by portfolio growth and existing portfolio companies. Adjusted NII was $0.24 per share, covering monthly distributions.
• Total assets rose $90 million from prior quarter, with one new buyout investment and net appreciation. Invested ~$130 million in 3 new portfolio companies in first 6 months of fiscal '26, vs $221 million in fiscal '25.
• Since inception, invested in 65 buyout portfolio companies, exited 33, with $335 million net realized gains and $45 million other income.
• M&A market has good liquidity but is competitive; uncertainty from tariffs and economy impacts acquisition analysis. Active in M&A with healthy pipeline, closed 3 new investments in first 6 months, with more in diligence.
• Some consumer-focused companies face supply chain and tariff challenges, but working on alternatives. Balance sheet strong with $174 million availability under credit facility, raised ~$31.1 million via ATM program. NAV increased to $13.53 per share, distributions maintained at $0.08 per share monthly.

Gladstone Investment Corporation reported strong second quarter performance. Adjusted net investment income (NII) was $0.24 per share, sufficient to cover monthly distributions. Total assets were $1.1 billion, up $90 million from the prior quarter. Total investment income for the quarter was $25.3 million, with net expenses of $21 million, resulting in net investment income of $4.3 million. Portfolio company valuations increased by $54.5 million, with net unrealized appreciation of $35.3 million and a $19.1 million reversal from J.R. Hobbs restructuring. NAV increased to $13.53 per share from $12.99 per share at the end of the prior quarter.

• M&A market has good liquidity but is competitive; looking to access equity and debt markets for new buyouts and refinancing. Expect to continue utilizing ATM program while pricing remains accretive to NAV. Confident in maintaining distributions and potential for supplemental distributions from realized gains.

• Uncertainties from tariffs, potential economic slowdown impacting acquisition valuations. - Supply chain disruptions and tariff costs affecting consumer-focused portfolio companies. - Macro-economic uncertainty could impact credit quality of portfolio companies.

Q: Could you give us a sense of which sectors are the strongest in the portfolio? And what sectors you're seeing the most challenges?

A: Dave Dullum said it's broad across the board, no single sector performing worse; some consumer-oriented and government-related have slight challenges but businesses are performing well.

Q: Could you give us a little more color on how the government shutdown is impacting the portfolio and which companies are most exposed to that?

A: Dave Dullum said companies with direct services related to military are most exposed, but it's less of an issue now as it's smoothing out.

Q: So did another investor get involved, whether another sponsor or another lender? And how would you describe that company's outlook now?

A: Dave Dullum said Gladstone is the only continuing investor, restructuring positioned J.R. Hobbs for long-term success with positive EBITDA and cash flow.

Q: What was the spillover income per share in the quarter?

A: Taylor Ritchie said they don't disclose quarter-by-quarter due to fluctuations, but started the year with $1.50 per share spillover.

Q: Should we look for other restructurings and for the other companies on nonaccrual?

A: Dave Dullum said no, other nonaccrual companies are not expected to be restructured.

Q: Does the slowdown in the ATM issuances quarter-to-date really reflect just smaller windows where you can accretively issue the shares or just lower seasonal balance sheet growth?

A: Taylor Ritchie said it's due to trading above NAV only for certain days after factoring in commissions and cushion.

Q: Could provide some more detail or color on the diligence and the conversations you're having for upcoming commitments and general scale and industries?

A: Dave Dullum said active in final phases of diligence, with many indication of interests and letters of intent, level of activity high.

Q: If there's specific holdings or industries that are worse than others in your view due to tariff uncertainties?

A: Dave Dullum said some consumer-related companies with significant China supply are affected, but most mitigated so far.

Q: J.R. Hobbs preferred position: Was that a result of the restructuring? Or is that more a function of improving business performance?

A: Taylor Ritchie said primary driver was restructuring eliminating debt ahead of preferred, leading to higher fair value.

Q: How the pipeline is looking compared with last quarter and where you're seeing the most compelling opportunities?

A: Dave Dullum said pipeline volume good, gradually increasing size of investments in middle market businesses.

Q: Are you seeing any evidence of larger BDCs moving down market to smaller deals impacting borrowers you're looking at?

A: Dave Dullum said their competitors are private equity funds focusing on middle market, not seeing direct impact on their borrowers.