Good day, ladies and gentlemen, and welcome to Gladstone Investment Corporation's Fourth Quarter and Year Ended March 31, 2014, Earnings Conference Call. [Operator Instructions] As a reminder, this conference call may be recorded. I would now like to introduce your host for today's conference, David Gladstone. Please proceed, sir.

All right. Thank you, Charlotte, for that nice introduction, and hello, and good morning to all of you out there. This is David Gladstone, the Chairman. This is the quarterly earnings call for shareholders and analysts of Gladstone Investment. We have our common stock NASDAQ trading symbol G-A-I-N. And again, thank you, all, for calling in. We're always happy to talk to our shareholders and potential shareholders We would like to give an update on our company, our portfolio companies and our business environment. I wish we could do this more often. And again, all of you, if you're in the Washington, D.C. area, you have an open invitation to stop by our offices here in McLean, Virginia, just outside of Washington, D.C. Stop by and say hello, you'll see a team of about 60 people and now some of the finest in the business. And now, let's hear it from Michael LiCalsi, our Internal Counsel and Secretary, also serves as President of the Administrator. Michael?

Good morning, everyone. This conference call may include statements that may constitute forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934, including statements with regard to future performance the company. These forward-looking statements inherently involve certain risks and uncertainties and other factors, even though they are based on our current plans which we believe to be reasonable. Many of these forward-looking statements can be identified by the use of such phrases as anticipates, believes, expects, intends, will, should, may and similar expressions. There are many factors that may cause our actual results to be materially different from any future results that are expressed or implied by these forward-looking statements, including those factors listed under the caption, Risk Factors, in our 10-K filing and our registration statement as filed with the SEC, all of which can be found on our website at www.gladstoneinvestment.com or the SEC's website at www.sec.gov. The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this conference call, except as required by law. Please also note that past performance or market information is not a guarantee of future results, and please take this opportunity to visit our website, www.gladstoneinvestment.com. Sign up for our e-mail notification service. We don't send out junk mail, just timely news on our company. You can also find us on Facebook -- keyword, The Gladstone Companies -- and you can follow us on Twitter @GladstoneComps. And now, we will begin the presentation by hearing from Gladstone Investment's President, David Dullum.

Thanks, Michael. My voice is a little bit off this morning, so apologize. Hopefully, it will come through loud and clear. I usually like to start with a very brief review of what it is we do, sort of helps to keep the long-term goals in mind as we update on these calls our short-term results. So Gladstone Investment provides capital for the buyout of businesses, and these usually are the companies with annual sales between $20 million to $100 million. What we do is provide a subordinated debt in conjunction with the equity and, occasionally, some senior debt. This combination produces a mix of assets for Gladstone Investment and is the basis of our strategy, which means our debt investments provide income to pay and grow our monthly dividends, and we expect the equity to appreciate and, of course, from time to time, to generate capital gains. This is also what differentiates us from other public BDCs that are predominantly debt-focused, whereas we are equity-oriented. So for instance, during this fiscal year, we sold a company called Venyu Solutions Inc., which we purchased with its management team back in roughly late 2010. The equity portion of this investment generated cash proceeds of roughly $32.2 million, resulting in a realized capital gain of approximately $24.8 million with dividend income of $1.4 million as well. Therefore, our original $6 million equity investment generated approximately a 5.5x return including the dividends received. So the sale of Venyu, actually, is the fourth exit, so to speak, from our management-supported buyout investments. These 4 liquidity events, all capital gains, have generated approximately $54.5 million in the realized gains since June of 2010. This realized gain -- or these realized gains, I should say, have enabled us to offset the majority of cumulative realized losses…

Sure thing. Good morning, everyone. As Dave discussed, we had a decent amount of activity this quarter, which concludes our largest year of origination in the fund's history. Not surprisingly then, we achieved our best year of operating performance with over $36 million in total investment income and $19.3 million in net investment income. We were also really pleased with our net realized gain activity of $8.2 million, which has resulted in the fund to offset the majority of our cumulative realized losses since inception, of which $40 million of the prior losses were incurred primarily during the recession in connection with the sale of performing loans to pay off a former lender. That chapter is fully behind us now, and we are pleased with the position of the fund and our growth prospects. So regarding our balance sheet position. At the end of the March quarter, we had $331 million in assets, consisting of $314 million in investments at fair value, $5 million in cash and cash equivalents and $12 million in other assets. At our cost basis, 73% of our portfolio assets consisted of debt investments of approximately $279 million, and 27%, or $105 million, consisted of equity securities which we hope to produce capital gains. For the first time since June in 2009, we did not purchase U.S. Treasury securities at quarter end to help satisfy our asset diversification requirements. As forecasted, the amount of T-Bills that we have had to purchase has been coming down consistently over the past year due to the increased size of our portfolio in qualifying assets. We would have passed the diversification requirements the last 3 quarters without them. And unless some unforeseen event occurs, we do not expect to have to purchase them in the future. As for our liability,…

All right. Thank you very much, Michael, Dave and David. Those were good, really great summary reports. And since there are summary reports, I hope all of our listeners will read our press releases issued yesterday, and also, yesterday, we filed our Form 10-Q. All of these have a lot of information about our companies. You can access the press release and the 10-K on our website at www.gladstoneinvestment.com and also, on the SEC's website. Now this fourth quarter was another good quarter of growth for this fund, and it builds upon the first 3 quarters for the fiscal year. Our team accomplished a lot during the fiscal year ending March 31, 2014, and these include things like increasing the dividend by 20%, which is in our current monthly rate of $0.06 per share per month, and it's a run rate of $0.72 per year. It's quite an accomplishment move it by 20%. We pay 12 monthly dividends, plus an extra dividend of $0.05 in November. So not only did you get the monthly as you got an extra in November. Increasing the investment income by 7.4% to $0.73 per share during the year, again, another win. And increasing income on top of that, there was a net realized capital gain of $8.2 million. All of those are increasingly showing progress in this company. We invested $126 million in new portfolio companies, and certainly, a record $6 million in existing portfolio companies, and then renewed our line of credit for 3 years, increasing the commitment by 75% up to $105 million, all tremendous things during the year ending March 31. Our biggest challenge today is to sustain the growth that we've accomplished over the last 3 years, and we'll continue to fund new investments that, all of us believe, survive…

[Operator Instructions] Our first question will come from the line of Jeremy Roane from Hilliard Lyons.

On the capital needs front, I see that your cash balance is falling to $4.5 million at the end of the quarter, and you're using a substantial portion of your credit line. How are you thinking about your need for capital going forward?

Well, just like always, we wait into our capital that we have from our line of credit, and at some point in time, when we feel the moment's right, we'll have to raise preferred stock or common stock or some kind of a long-term debt. As you know, yesterday, we finished our preferred stock, new preferred stock in Gladstone Capital. It was well received, and so as a result, I think there'd be no problem in selling additional preferred here. I suspect the same is true at a 9.2% yield. I think we could raise capital here. I really don't like to raise common stock at this point in time, mainly because we're trading below net asset value. But obviously, in order to grow and make everybody get higher dividends, we do common stock. But that's the way we solve our capital needs since, as you know, we pay out all of our ordinary income and don't keep any.

And yes, Jeremy, we were able to -- if you recall, we were able to increase our line of credit pretty significantly over this past year, $205 million. And so that there is always a possibility to increase that, the size of that and that commitment as well.

[Operator Instructions] And it looks like we have a question from the line of JT Rogers from Janney Capital.

Just a general question about the environment right now, sort of the near-term pipeline. What are you guys seeing? And then any sort of anticipation for sponsor activity? Do you think you'll see growing throughout the year, staying stable or falling off?

JT, it's Dave Dullum. Let's say, it's a challenging environment right now. As I mentioned earlier, we have what I think is a good head of steam, looking at a number of opportunities. I think it's hard to predict. Obviously, I would not predict where we'll be, but all I can say is that, relative to the pipeline, we keep filling it, of course, the funnel all over the top. And we're very careful in how would look at these deals. Frankly, there've been a number of that we have not been able to get forward on because of the valuation that we see other folks willing to pay. We're not going to do that. So let's stick into our knitting, keeping, working really on filling the pipeline. And again, I think we'll have another decent year, I look forward to that with just a lot of hard work and as I keep telling our folks around here, a few rather, to generate the investment opportunity. So -- but it's challenging just because of valuations, frankly, that we're seeing.

Okay. And then, just on that valuation point. I know you guys have talked about this before, but if you could just refresh my memory on this. I know that you said that there was unrealized depreciation due to lower net income in the quarter. I was wondering, do you all change your valuation multiples, given that we're seeing increasing valuations elsewhere in the market?

Yes. That's a great question. We have -- historically, our methodology, which, of course, is -- it is public and then our board operates under. We've got a methodology where we effectively index the multiple we originally paid for the portfolio companies. So where we frankly generally made good purchases, so to speak, the index, if you will, has generally been -- it fluctuates quarter to quarter, obviously. But generally, it's not really truly reflective of the current marketplace. We will and have, in certain circumstances, made exceptions and a couple of cases back with couple of years ago when we were close on a sale of a portfolio company, we had to acknowledge that we had legitimate offers, if you will, and so we adjusted for that. But it's not something we do as a course normally. And we're kind of looking at it to continue to revise our thinking because truthfully, we probably are using multiples in some cases that are, indeed, below where the market is today certainly from what we're seeing, transactions being completed. But our process keeps us somewhat on a different track.

And JT, just taking backing on that. We used 2 approaches on those multiples. One is from indexes out there that have, what I'll call, an index of small and midsize businesses as a general index. And then in some cases, we have indexes that are specific to the industry. And again, it's very hard to drill down and get an index on a small business area that just don't exist. And so as a result, we have to revert back to the general index, but when we can find an index that's specific to smaller businesses in a particular area, we'll use that. And that's usually higher than what the general index is because the general index obviously has all flavors of businesses in it. I would encourage everyone not to spend a lot of time on valuations and net asset value, simply because it is so tenuous. And I think if you gave a business to be valued to 6 or 7 people, you get 6 or 7 different valuations. Unlike mutual funds, which can look in the index, as well as in their own market and fund exactly what a holding is, we have no way of doing that. And so while we see people paying very high amounts for and multiples for businesses, we're not following that index up. And I don't think it benefits anybody to have a huge net asset value. So we're just being conservative on that in case the world comes down to reality in the near term.

Okay, great. And then just one last question is on Noble Logistics continuing to add capital to that position. I was wondering if you could talk about the trends there, what's your expectation is and when you were making the stalking horse bid?

JT, so this is a company. Of course, Noble -- Noble Logistics was in the portfolio within the 3 couple of years. It is in actually a pretty interesting industry in the same-day delivery business. And without going in a lot of detail or actually very little detail, I'd rather not at this point, but because some of the sensitivities. But they are just -- it is fundamentally sound business. The company continues to and performs well. They chose, they being the company, for a variety of reasons regarding a class action lawsuit, primarily in California that caused them to take the decision position to do the bankruptcy protection and then, in turn, sold the assets. And that gave us the opportunities, as I mentioned, to provide the stalking horse bid which we ended up, of course, being successful. And so what we have now, frankly, is an investment that we believe is a good investment going forward, given the nature of the industry. We've actually seen a lot of activity, frankly, in that industry at fairly high values. So we've got a good management team. I think of it is an effectively a net new investment going forward in perhaps with the most -- the best part of all is essentially the relatively small amount of equity, if you will, that we had to write off, which was from the old investment, and now the new investment effectively also on very significant equity position in the business going forward with the debt that we effectively had before. So I have a good feeling of this business going forward. We just have to keep working with it.

And yes, J.T, just a reminder, like in the past couple of years, we haven't had to support Noble with capital. So this is more of a situation that Mr. Dullum just described. All right. Charlotte, do we have any other questions?

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

All right. Thank you, all, for dialing in. So it's a good call and had a lot of good information out there. So I hope you all have a chance to dig into the details and hope you buy a lot of shares. That's the end of this call.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program, and you may all disconnect. Everyone, have a great day.