Good day, ladies and gentlemen, and welcome to the Gladstone Capital Corporation's First Quarter Earnings Call and Webcast. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to hand the conference over to David Gladstone, Chairman. Please go ahead, sir.

Okay. Thank you, Karen, nice introduction. Hello, everyone. This is David Gladstone, Chairman, and this is the first fiscal quarter earnings conference call for the shareholders and analysts of Gladstone Capital. The common stocks trading symbol is GLAD, and the preferred stocks trading symbol is GLADO. Thank you all for calling in. We're always happy to talk to all our shareholders and analysts and welcome this opportunity to provide an update of the company, and our investment portfolio. As always, an invitation is open to all of you to visit us, well not all at the same time, all of you to visit us at our offices in McLean, Virginia, outside Washington DC. We also have some offices in Chicago, New York, and Los Angeles. Those are primarily loan production offices. We're founded in 2001 and the team has grown to about 65 people across four different Gladstone funds and today we represent just under $2 billion in assets under management. So we've grown very nicely during that period. And now, we'll hear from our General Counsel and Secretary, Michael LiCalsi. He's also the President of Gladstone Administration, which is the administrator to all the Gladstone funds and related companies, and he'll make a statement regarding forward-looking statements. Michael?

Good morning, everyone. This conference call may include forward-looking statements within the meaning of the Securities Act of 1933, and the Securities Exchange Act of 1934 including statements with regard to the future performance of 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 words such 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 listed under the caption Risk Factors in our Form 10-K filing and our registration statement as filed with the SEC, all of which can be found on our website at www.gladstonecapital.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 except as required by law. And please also note that past performance or market information is not a guarantee of any future results. We ask that you visit our website and sign up on our email notification service. You can also find us on Facebook; key word, The Gladstone Companies and follow us on Twitter at GladstoneComps. You can read our earnings press release issued yesterday and also review our Form 10-Q for our first fiscal quarter ended December 31, 2015, also filed yesterday with the SEC. And you can access the press release and the 10-Q on our website gladstonecapital.com and on the SEC's website as well. An audio presentation of this call will be archived on our website. And we would like all of you to visit us for our Annual Stockholders Meeting. We will be having that meeting on Thursday, February 11, just two days from today, at 11:00 a.m. Eastern Time at our headquarters which is at 1521 Westbranch Drive, Suite 100, that's our main office, in McLean, Virginia. If you're not coming to the meeting or even if you are please vote your shares using your proxy so that we get enough votes then to ensure a quorum. There are four ways you can vote before the meeting. One is by mailing in your proxy card. Two, is by calling (800) 690-6903. However if you do call in you'll need your proxy card with your proxy control number to give it to the operator or by going to www.proxyvote.com and voting online. At that point you'll need your proxy control number as well. You can also call your brokerage firm and they can help you get your vote in. And now, we'll begin by hearing from Gladstone Capital's President, Bob Marcotte.

Thank you, Michael. Before diving into the results for the quarter, I would like to provide a brief review of Gladstone Capital. GLAD, as we're commonly referred to, is the lending fund within The Gladstone Companies. We provide cash flow based loans to privately held, US-based, lower middle market businesses, we generally define as having $3 million to $15 million of earnings before interest and taxes. Our target asset mix is for loans to represent approximately 90% of our portfolio, with equity co-investments representing the balance. Our loans are used to provide private equity buy-outs, make acquisitions or to provide flexible capital solutions to grow our business. As David mentioned previously, GLAD was one of the first BDC's focused on lending to the lower middle market, and our experience in continuing to focus on this sector is a core part of our value proposition. The majority of our investments are senior secured loans to growth-oriented or recession or resistant businesses. Our investments are generally made in concert with private equity sponsors or owner-operators with significant equity at risk that may include an equity co-investment. We target to make loans $8 million to $30 million but will opportunistically consider smaller positions in broadly syndicated loans from time to time. With that introduction, let's get into the results for the quarter. As many of you may be aware the middle market -- the loan -- middle market loan market for the quarter ended December '15 was slow, in fact the volume of all middle market loans closed dropped in excess of 70% compared to both the prior quarter and the prior year according to Standard & Poor's. In the face of this weak demand and mixed deal quality, we only approved one deal last quarter and the closing split into early January.…

Good morning everyone. Let's start by reviewing the income statement. Interest income on our debt investment decreased quarter-over-quarter by $200,000 or 2.3% to $9.2 million with the large number of paydowns and exits during this past quarter. Other income increased slightly on the quarter to $900,000 or 8.7% of total investment income. However, interest expense decreased by $300,000 or 28% quarter-over-quarter as the weighted average balance outstanding on our line of credit decreased significantly during the December quarter resulting in an increase in net interest income of $200,000. Non-financing costs, excluding management fees, increased by $300,000 compared to the prior quarter to $1 million as a result of the increase in professional and shareholder related expenses, typically associated with [indiscernible] expenses. Our gross management fees declined on the quarter consistent with the decline in average assets and recent management fee reduction. However, the decrease in the amount of the management fee credit compared to the prior quarter resulted in the total non-financing cost increasing to $3.2 million. For the quarter ended December 31, 2015, net investment income was $4.8 million or $0.21 per share. As we have demonstrated over the last several years, and in the most recent two quarters, our advisor remains committed to crediting fees so that annual net investment income covers our shareholder distribution. The low net investment income on our income statement is where we reflect realized and unrealized changes in the fair value of our portfolio, all non-cash transactions. During the quarter ended December 2015, the combined net realized gains of $15.4 million were primarily due to our sale of Funko which generated a net after-tax gain of $17 million and we recorded net unrealized depreciation excluding reversals of $15.7 million on investments, which Bob covered previously. Moving over to Gladstone Capital's balance sheet. As…

Okay, Melissa, Bob, Michael, all three gave good reports. And in summary for Gladstone Capital the sale of Funko generated nice capital gain of about $17 million on its equity investments which can be invested now yielding additional interest income to enhance the shareholder distributions. Funko which was a co-investment with our affiliate fund Gladstone Investment Corporation traded as GAIN was very successful investment. We sold non-accrual loans during the quarter, was listed at fair value. So that was nice that one out of the way and we restructured another unperforming loan solicitation of a full recovery. I think we will get all of that money back. Significantly paid down our line of credit so that we improved our asset coverage ratio required by the government. We see this quarter as one of setting up the company for a strong performance in the balance of the fiscal year ending September 30, 2016. After the quarter-end, we were able to make a new loan in January of this year that should get us off to a good start in the three quarters that we have left in this fiscal year. And as we look to the future, we're mindful of recent economic trends and indications which suggest potential further slowing of the economy, financial marketplaces are in turmoil, the sell-off of syndicated loans means fewer people are making loans, this reduces the capital available to small and mid-sized businesses, surely hurts the job provision ability of the economy because more of the jobs are created by small business than any other category. Recently the volatility and the share price of many companies like ours and like all of our competitors will likely curtail the ability to raise additional capital, and since we payout all of our income, or most of it…

Thank you. [Operator Instructions]. I do show a question from the line of Bob Brown, a Private Investor.

Yes. First, with regard to the advisor credits in order to maintain the -- help maintain the dividend, in the past years, sometimes you do it at the end of the year, sometimes do it quarterly. What are the thoughts on that going for 2016?

Sure. The idea for the year ending September 30, 2016, is that we do it at the end of the year. What it happened in the past unfortunately, for us, is that when we give a credit we don't ever get it back? So there is no way if you give a credit in the first quarter and then have bounty for the rest of year that you can reclaim that credit. And so as a result we decided to hold to the end of the year and make that credit. It doesn't mean it's any more difficult for the management company to do, but it's just as -- of analyzing things and working in favor of the management company not having to give a credit when a credit is really not due for that year.

So in this first quarter then the management, the $0.21 reflects the full payment of the management fee?

No. Melissa, why don't you answer what the numbers are?

Sure. We did end up crediting. It was about a $300,000 credit in the quarter ended December 31. It is at management's discretion. And you're correct; it has been quarterly or annual. But definitely on that annual run rate our NII will cover distributions. Management has remained committed to that.

Thank you. And you mentioned in terms of the repurchase plan, when does the blackout period and that the -- and that recently the company to start making purchases under the plan?

Three days from now. We usually wait three days for the marketplace to absorb the indication -- information that's in the 10-Q that's been filed.

Got it. Thank you. Okay. Thank you very much.

We have another question please.

I see no additional questions from the queue at this time. I would like to turn the conference back over to Mr. Gladstone for any additional comments.

Well, that's disappointing we'd love to have some more questions. But we understand that I guess we've done a great job in explaining what's going on. So that will end this. And we thank you all for calling in, and we'll see you again next quarter.

Thank you. Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program. And you may now log off and disconnect. Everyone have a good day.