Good day, ladies and gentlemen and welcome to the Gladstone Investment Corporation's First Quarter Ended June 30, 2018 Earnings Call and Webcast. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to David Gladstone. You may begin.

Thank you, Sonia, and thank you to all for calling in today. This is the quarterly earnings conference call for shareholders and analysts of Gladstone Investment, common stocks traded on NASDAQ under the symbol GAIN, and we have 3 versions of preferred stock out there, GAINO, GAINN and GAINM. So thank you all for calling. And again, we're always happy to do these calls with shareholders and potential shareholders and of course, our analysts, who've been giving you an update on your company and the investment provides a view of where we are in the current business environment. Wish we could do this more often. Also you have an open invitation to come by and see us in McLean, Virginia, located just outside Washington, D.C., so please stop by and say hello. And now we'll hear from our General Counsel and Secretary, Michael LiCalsi. Michael is President of Gladstone Administration, which serves as the administrator to all of Gladstone public funds and related companies. He'll make a brief statement regarding forward-looking statements. Michael?

Thanks, David. Good morning everyone. Today's call may include forward-looking statements under the Securities Act of 1933, the Securities Exchange Act of 1934, including those regarding our future performance. These forward-looking statements involve certain risks and uncertainties and other factors, and they are based on our current plans, which we believe to be reasonable. And 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 listed in our Forms 10-Q, 10-K and all the documents that we filed with the SEC. You can find all these documents on our website, which is www.gladstoneinvestment.com, or on the SEC's website, which is www.sec.gov. And 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 as required by law. Please also note that past performance or market information is not a guarantee of any future results. We ask you also to take the opportunity to visit our website, once again, gladstoneinvestment.com, specifically the Investor Relations page, sign up for our e-mail notification service. You can also find us on Twitter, the handle there is @GladstoneComps. We're also on Facebook, keyword there is The Gladstone Companies. And today's call is simply an overview of our results through the quarter ended June 30, 2018. So we ask you to review our press release and Form 10-Q, both issued yesterday for more detailed information. In addition to this earnings call, we will also have our Virtual Actual Stockholders Meeting later today. If you haven't already done so, please be sure to vote your shares at the meeting. Now I'll turn the presentation over to Gladstone Investment's President, David Dullum. Dave?

Mike, thank you very much and good morning, everyone. I am pleased to report that during this quarter, which obviously ended 6/30/18, we were able to increase our net asset value from $10.85 at 3/31/18 to $11.57, and this was inclusive of during the quarter, where we made a purchase of one new portfolio company called Bassett Creek and we also exited an existing portfolio company, Drew Foam, at a significant realized gain for your fund. And we also were able to increase our net investment income, adjusted net investment income of $0.20 versus $0.21 in the last quarter. So based on all these results and for the year ended 3/31/18 and as we look forward, we were able, in April, to announce an over 3% increase in our annual distribution rate to common stockholders from $0.78 a share to $0.80 a share. We also were able to announce a continuation of our semiannual supplemental distribution program, with a payment of $0.06 per common share, which is made in June of 2018. We hope and certainly expect that a significant portion of these supplemental distributions will be made from capital gains. In addition, we have seen our stock price increase and in fact, also further quarter-over-quarter, such that the total return, which is inclusive of dividends for the June 2018 quarter was around 20%. And we're proud that our 1-year total return as of June 30, was around 36%, and this compares favorably to a BDC index put out by Wells Fargo, where that index actually was the decline of 2% versus our increase of 36% for the year. So this increased stock price is encouraging to us because we believe that the investor community is recognizing the continuing growth of the income and the distribution and also frankly, the…

Thanks, Dave, and good morning, everybody. As of June 30, we had $639 million in assets, which included $629 million in investments at fair value. Our liabilities consist of primarily of a $102.5 million in borrowings outstanding on our credit facility and about $139 million in terms of preferred stock at liquidation value. Our net assets totaled $380 million or $11.57 per share as of June 30, which is an increase of $0.72 from March 31 and is primarily a result of net unrealized appreciation and realized gains. Moving over to the income statement for the June quarter, total investment income was relatively flat compared to prior quarter. And expenses net of credits, were $15.4 million compared to $12.2 million in the prior quarter, leaving a small net investment income as opposed to $3.2 million in the prior quarter. Similar to the prior quarter, this difference was principally the result of the required GAAP accrual of $6.5 million of capital gains-based incentive fees, which I will discuss further in a moment. Interest and other income remained consistent quarter-over-quarter. So net expenses increased $3.3 million in the current quarter and that was primarily the result of $6.5 million of this capital gains-based incentive fee, which was required to be accrued under GAAP but which is not contractually due under our investment advisory agreement. This compares to last quarter's accrual of $3.6 million. The investment advisory agreement provides that a capital gains-based incentive fee is determined and paid annually with respect to realized capital gains, but not including unrealized appreciation if such realized capital gains exceed realized losses and unrealized depreciation. However, under GAAP, a capital gains-based incentive fee is accrued if realized capital gains plus unrealized appreciation exceed the sum of realized capital losses and unrealized depreciation. So really it is…

All right, thank you Julia and Dave and Michael. Good reports. The team reported some great accomplishments during this quarter. I believe we can continue our success going in our second quarter ending September 30. I just wanted to mention one thing before I get into the rest of my presentation. If you look at net investment income, that is the adjusted one at $0.20 and versus the $0.21 per share last quarter, it's a small change, but the reason again is this potential fee that's not due today that we're accruing for some strange reason in the accounting profession. Let's take a look at net operating income was $0.99 per common share versus $0.67 per share last quarter. That's a $0.32 change, which is about a 48% change. So you can see that the net operating income, which takes into account all of the items has gone very strong. Net asset value, up 6.6%, $0.72 a share, up to $11.57, another strong indication that the company's moving forward. And again, investing about $30 million versus $27.4 million last quarter. So the company is cranking along at a very good pace. I think the economy today is getting much stronger. We don't have any way of knowing the future, of course, so we're being very careful to counter any unforeseen things that might happen, we're seeking to build a very strong balance sheet, paying dividends is one of our primary goals. Now that the administration has delivered on the changes in the tax code and continues the reduction in regulations of businesses, I think the U.S. middle-market size businesses, the same ones that we invest in. This is going to be a great year, 2018, and I think we'll look back at 2018 and maybe even 2019 as very strong…

[Operator Instructions] Our first question comes from Kyle Joseph of Jefferies.

I wanted to dig into the yield a little bit. It looks like the portfolio yield has trended up sequentially and year-over-year. Is that a mix shift on spreads in the portfolio? Or is that more of a -- you guys are starting to see the benefit of rising rates in your portfolio?

Kyle, it's a mix of those two. It's definitely the LIBOR component is kicking in now as most of our loans are above the set floor. So as LIBOR increases absent any credit malperformance, you would see that going up in the future.

And then just on the nonaccruals in the quarter, are you seeing any industry-specific weakness? Were these sort of one-off company issues? And just give us a little bit of color on both the inflows and outflows to nonaccruals in the quarter?

Kyle, it's Dave. I'd say it's more company specific for a variety of reasons, whether it be a -- little management issues that we are having to work through, but nothing that I would say certainly is either damaging to the portfolio. We've worked through these things as we talk from time to time and then we'll continue to do so. So I'm not too concerned about where we are with these.

Next question.

[Operator Instructions] And I am showing no further questions at this time. I would now like to turn the call back over to David Gladstone for any further remarks.

Thank you, Sonia, and thank you all for calling in. We'll see you next quarter. That's the end of this call.

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