Greetings, and welcome to the Gladstone Investment Corporation First Quarter 2026 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the call over to your host, Mr. David Gladstone, Chairman of Gladstone Investment Corporation. Thank you. You may begin.

Thank you, Melissa, and good morning for everybody. Thanks for you all for calling in. We love these earnings conference calls. The first quarter ending June 30, 2025 of the 2026 fiscal year, and this is for shareholders and analysts of the Gladstone companies -- Gladstone Investment companies. And we've got some common stock. You know it as GAIN G-A-I-N, and we do have 3 others G-A- I-N-N, N-N at the end and G-A-I-N-Z and G-A-I-N-L and G-A-I-N-I. All right. I might want to read some of those. Thank you all for calling in. We're always happy to provide an update to our shareholders and the analysts who follow us and look at the current business environment as well as the other goal, which is to give you a current view of our view of the future and understands what's happening. And now we'll hear from Catherine Gerkis. Catherine is Head of Investor Relations and ESG and provides a brief disclosure of certain regulatory matters concerning this call in. Catherine?

Thank you, David, 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 10-Q and earnings press release, both issued yesterday for more detailed information. You can also sign up for our e-mail notification service and find information on how to contact our Investor Relations department. We are also on X @GladstoneComps as well as LinkedIn and Facebook. Keyword for both is the Gladstone Companies. Now, I will turn the call over to David Dullum, President of Gladstone Investment.

Thank you, Catherine. And so good morning to everybody. Happy to be here and to report that for the first quarter of fiscal year '26 that GAIN produced very positive earnings results, and we also, very importantly, had increased level of investing activity. So we ended this first quarter with adjusted NII of $0.24 per share, which is sufficient to cover our monthly distribution to shareholders, and we also got our assets up to about $1.1 billion, which is slightly above from $1 billion at the end of the prior quarter. Now, this increase quarter-over-quarter in assets did result from really 2 new buyouts during the current quarter. Additionally, we closed on a new portfolio company subsequent to the quarter end, which is resulting in our current portfolio of 28 operating businesses. So to date, for fiscal '26, we have invested approximately $130 million in 3 new portfolio companies, and this compares to a total of $221 million, which we invested in all of fiscal '25. So recognizing this is the first quarter, we certainly look forward to hopefully exceeding what we did in fiscal '25. These 2 investments also are in line with our strategy where we continue growing the portfolio through acquisition of operating companies at hopefully attractive valuations. And as usual, these acquisitions are made with a combination of our equity and the debt investments from our balance sheet where we look to generate capital gains on the equity when we exit the business and then obviously, the operating income from the debt securities, which goes towards paying off monthly dividend distributions. So 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 a supplemental distribution of $0.54 per share in…

Thank you, Dave, and good morning, everyone. Looking at our operating performance for the first quarter of the fiscal year, we generated total investment income of $23.5 million, down from $27.5 million in the prior quarter. This was primarily due to the prior quarter, including $4.2 million of success fees and dividend income, which did not reoccur as the timing of such income is variable. The decrease in total investment income was partially offset by an increase in interest income, including the collection of $1.5 million of past-due interest from a portfolio company that was previously on nonaccrual status. Net expenses for the quarter were $14.5 million, down from $20.3 million. The decrease was primarily due to the decrease in incentive fees, which included a $2.3 million decrease in income-based incentive fees as well as a $2.3 million decrease in capital gains based incentive fees. Interest expense decreased in the current quarter due to the timing of the portfolio company exit in the prior quarter and the timing of our new investment activity in the current quarter. We also had an increase in credits to fees from the adviser due to the new investment activity previously mentioned. This resulted in net investment income for the quarter of $9.1 million compared to $7.2 million in the prior quarter. Overall, portfolio company valuations in aggregate was down from $1.0 million. This unrealized depreciation was driven by decreased performance at some of our portfolio companies partially offset by higher valuation multiples across the portfolio and increased performance in a number of our other portfolio companies. Adjusted net investment income, which is net investment income exclusive of any accrued or reverse capital gains-based incentive fees, was $8.9 million or $0.24 per share compared to $9.4 million or $0.26 per share in the prior quarter.…

Thank you, Taylor. You did a nice job, so did Dave, Catherine and all of that's good information for our shareholders, and this call and the 10-Q we filed with the SEC yesterday should bring everyone up-to-date. Team has reported solid results for the quarter ending June 30, 2025, including multiple new investments and greater liquidity position with our portfolio. So we're in a good position to grow and we look to Dave and his team to continue to grow and pay out extra dividends as well as wonderful quarterly dividends. Gladstone Investment is an attractive investment for investors seeking continuous monthly distributions and supplemental distributions from potential capital gains and other income. Team hopes to continue to show you a strong return for your investment in our fund. Now, let's have some questions from our analysts as well as shareholders and anybody else that has a question. Operator, would you come on it?

[Operator Instructions] Our first question comes from the line of Mickey Schleien with Clear Street.

Dave, there's been a lot of discussion about weakness in the M&A market, but you've acquired 3 companies since May, which is a very healthy pace. And I'd like to know, is that just idiosyncratic given the lead time in getting these deals done? Or are you actually seeing better deal flow?

Yes. Thanks, Mickey. And congratulations on your new spot. Glad this would deal with us. No, I would say it is really -- we -- obviously, as you well know, we work really hard at deal flow and certainly in the category of companies that we like to acquire in the general range of $5 million to, say, $10 million, $12 million of EBITDA. It is competitive. There is a lot of money out there, but we are seeing, I would say, a good quality of deal flow and the valuations are still tricky. We've certainly looked at a number of companies and been very interested in them and where we might be willing to pay, say, up to 7 to maybe 7.5x on an EBITDA basis. Some of them are going for 9x, right? So theoretically, we could be even more active if the valuations came closer to where we are, but I would say it's just fundamentally. We are seeing good quality of deals, and we're very active, and we work really hard at it. So not much more than that, I don't think.

Okay. I understand. In your prepared remarks, I think you mentioned the possibility for the economy to slow down, and that's certainly what economists are forecasting as tariffs are implemented, are you seeing any signs yet of a weakening of performance across your portfolio companies?

Yes. Not generally. I would say the activity level is about where it's been. We're seeing ironically in a couple of companies on the consumer side, where we've actually seen an increase in activity, even though tariffs have impacted the cost of our products and funny enough the retailers we deal with in that regard have been willing to absorb that in part just because of the nature of the products. But I would say, overall, it's a general -- we're not increasing really, but we're not seeing significant decrease in activity at this point, just more caution, I'd say the biggest impact, obviously, is how the costs are, in fact, affecting a bit the margins. That's where we're really, I would say, seeing more impact. So as a result of that, we have some of these companies where we clearly had a modest decline in EBITDA, which obviously has led to somewhat a decline in valuations, nothing overly dramatic, but just a squeezing a little bit of margin just because of mainly the tariffs.

That's interesting, but not enough to threaten their ability to service their debt, right?

Correct .

Yes, sir. Okay. And 1 sort of modeling question. And I think Taylor talked about undistributed taxable income. If I adjust it for the write-down of edge, which looks like it's going to happen. It looks like you're carrying about $0.50 of UTI per share, as of the end of the quarter you just reported. Is that a level the Board is comfortable retaining?

I think we're -- we continue to monitor our current spillover level and where we stand as far as using what we already have from ending the fiscal year, which was $1.50 per share. We got rid of 1/3 of that approximately with the supplemental distribution back in June. And we don't necessarily have an exact target that we use to monitor this level considering our fluctuations from quarter-to- quarter with our capital gains accrual. So yes, I mean we are comfortable where we stand right now, and we continue to evaluate it from a quarter-to-quarter basis.

Our next question comes from the line of Sean-Paul Adams with B. Riley Securities.

On Diligent Delivery Systems, that one is coming up due pretty soon. It looks like you actually had a quarter-over-quarter markup on it as well. Is there any color you can add to that name in particular?

Yes. Thanks, Sean-Paul. We are going to keep that rolling on that investment as necessary. It's 1 that we've a little bit of history, you may not be aware of. It's actually a company that we owned many years ago called NDLI, which we actually sold and when we sold it, we just took back a bit of paper, $13 million and a small amount of warrants and it's just been really, frankly, just a debt investment, which, of course, for us right now is unusual. We've been going through working with the senior bank we and they are in concert and there's some restructuring of management that's going on with the company right now. So we'll just keep keeping the business. We're not going to do anything dramatic with it, and we'll roll it as you say. And then over time, we'll get out of it when we get our debt paid out.

[Operator Instructions] Our next question comes from the line of Erik Zwick with Lucid Capital Markets.

I just noticed that after several quarters of a decline in the yield on the interest-bearing investments, it did increase here in the most recent quarter. Just curious, have you kind of seen a change there? Do you think we've seen a bottom kind of what drove it here? And then kind of what would be your outlook going forward? And I guess maybe taking into consideration the market's expectation that we may see, maybe 100 basis points decline in Fed funds and SOFR potentially?

Sure. Thanks, Erik. So the yield this order picked up, and that was primarily due to that collection of $1.5 million of past-due interest from when the company is on nonaccrual status. So we did have that 1 quarter bump from that. Excluding that collection, our yield was 13.1%. So approximately in line with where we were last quarter. And really, that declined quarter-over-quarter when you back out the collection of pass-due interest is really due to the exit of knock turn at the end of the prior quarter. So I think looking forward, to your point on potential rate cuts and compression, our 3 most recent new deals between Smart Chemical, Sun State and Global GRAB, all have 13.5% floors. And given our spread in the way those terminals are situated, they're going to stay at 13.5% despite any changes in SOFR. So I think that's our goal going forward is to continue to build in that cushion of protection when SOFR is decreasing.

That's great color, and I appreciate the clarification on the yield, excluding that onetime collection. So maybe kind of continuing on that last point, you've been fairly effective in getting floors in on some of these new deals. As you look at your portfolio and in prepared comments, you mentioned there's quite a bit of competition in the market for new deals. Just from a non kind of pricing and spread kind of perspective, but more so on structure, are you seeing any kind of changes from maybe some of your competitors, whether they're bending structure that would potentially kind of weaken the underwriting in the market from a kind of future perspective? Or is that still holding up pretty well at this point?

Yes. Thanks, Erik. For us, again, recognizing the nature of our strategy, if you will, right, where we're buying the business and we're providing the debt and the equity I say this very carefully. We don't have any real direct competitor in that regard in the BDC space. There are others that are similar to some extent that do debt and might take our slightly bigger piece of equity, whether it be through warrants or participation. But recognizing we generally are functioning effectively as the sponsor, right? So we really are competing more with the private equity guys. And so to the extent that they are getting leverage perhaps and where they might be getting leverage at a lower rate, we are competing with them in that regard. However, I'd say for us, it's more around what valuation, the enterprise value is of the business. So if we can get into an enterprise value that works for us, then the ability we have in the structure of the equity and the debt, I don't see changing very much. And I think that's where -- how we're able really to put a floor, like Taylor said in the deal. And if we have to moderate a bit the equity component, it's kind of doing it to ourselves, if you will, the equity piece relative to the debt piece. So we're driving towards fixed charge coverage on the business because that's important to be able to continue paying the interest, obviously, and then obviously modifying the spread to get us to a fixed sort of yield that works for us on our weighted average cost of capital. So a long story short, I would say we're in good shape, plus we also obviously have usually an exit fee, which we built in, which is different than most people use for pick if you will. So I'd say we're in good shape. The real issue for us competitively is finding that enterprise value of the business that fits our profile. And if we keep doing it the way we're doing it, I think we're in good shape there. Long answer. I hope it helps to answer that question.

And Erik, I was going to jump in and just say it as well. A lot of the other BDCs have been seeing a rise in PIK income. We are 1 of the few, if not the only, that has 0 PIK income. Dave did mention the exit fee, that is recorded off balance sheet, and it's not being factored into our income stream until we actually collect that income. So I think that is something that sets us apart from other BDCs in the space.

And last one for me, just looking at the SOI, it looks like ImageWorks had a material increase in the fair value mark this quarter. Anything kind of noteworthy there company-specific or within the industry that drove that market?

No, just that their EBITDA was up and also the multiple was up. So it was just a combination of those 2 things. That's a good business. They're very strong in their market space, good management team, and it's one that we look forward to seeing good results going forward.

So right now, we have no other questions. I'll turn the floor back to you for any final comments.

All right. Well, we thank all of you for calling in and asking questions. And Hopefully, in the next quarter, you'll have a lot more questions for us. We like the questions that come in, gets anything out of the way that someone might not understand. So that's the end of this call, and we thank you all for calling in. See you next quarter.

This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.