Gladstone Investment Earnings Call Transcript

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DATE

Wednesday, February 4, 2026 at 8:30 a.m. ET

CALL PARTICIPANTS

• Chairman — David Gladstone
• President — David Dullum
• Chief Financial Officer — Taylor Ritchie
• Director of Investor Relations, ESG — Catherine Gerkis

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TAKEAWAYS

• Adjusted Net Investment Income -- $8.2 million, or $0.21 per share, versus $9.2 million, or $0.24 per share, in the prior quarter, excluding capital gains-based incentive fees.
• Total Assets -- $1.2 billion at quarter end, up $92 million from the prior quarter, reflecting new buyout investment and portfolio appreciation.
• Total Investment Income -- $25.1 million, down slightly from $25.3 million in the prior quarter, primarily due to lower dividend and success fee income.
• Net Investment Loss -- $6.5 million, compared to net investment income of $4.3 million in the prior quarter, driven by a $9.9 million increase in capital gains-based incentive fee accrual.
• Net Asset Value (NAV) -- $14.95 per share, up from $13.53 per share in the prior quarter, with the increase driven by $1.77 per share of net unrealized appreciation and $0.09 per share of net realized gains.
• Portfolio Companies -- 29 operating companies following one new buyout investment in the quarter.
• New Investments -- $163 million invested in four new portfolio companies for fiscal 2026 to date, compared to $221 million for all of fiscal 2025.
• Monthly Common Dividend -- Maintained at $0.08 per share monthly, or $0.96 per share annualized.
• Supplemental Distribution -- $0.54 per share paid in the current fiscal year; aggregate of $3.26 per share across 13 supplemental distributions over five years, alongside $4.68 per share in monthly distributions during that period.
• Non-Accrual Investments -- Three companies remain on non-accrual, representing 3.8% of the total book portfolio at cost and 1.5% at fair value.
• Portfolio Yield -- Weighted average yield decreased from 13.2% to 12.9%; weighted average interest rate floor (excluding non-accruals and revolving lines of credit) at 12.1% as of quarter end.
• Interest Rate Floors -- Over 50% of the debt portfolio currently at contractual interest rate floors, with new debt investments underwritten with 13%-13.5% floors.
• Asset Coverage Ratio -- 201% at quarter end, providing cushion above the 130% required threshold.
• Leverage and Liquidity -- $74.8 million in 8% notes fully redeemed via issuance of $60 million in 6.875% notes and borrowings under a line of credit; $300 million total credit facility commitment achieved after including City National Bank.
• Distributable Income -- $108.7 million, or $2.73 per share, at quarter end, reflecting net unrealized appreciation and spillover income.
• Spillover Income -- $22.9 million, or $0.58 per share, available as of quarter end.
• Expense Movements -- Net expenses of $31.6 million, up from $21 million in the prior quarter, mainly from higher capital gains-based incentive fee accrual and increased base management fees.
• ATM Equity Issuance -- $3.2 million net proceeds raised through the at-the-market equity program; activity was limited due to the stock price relative to NAV.

SUMMARY

Gladstone Investment Corporation (NASDAQ:GAIN) reported an increase in NAV per share, reflecting significant unrealized appreciation across its portfolio. The company’s liquidity position improved through a reduction in interest costs as it refinanced higher-rate debt and expanded its credit facility, enhancing financial flexibility. Market competition remains robust for new platforms and add-on acquisitions, yet management states its disciplined strategy and structural features—such as interest rate floors—mitigate yield risk from declining benchmarks.

• President Dullum emphasized that the largest unrealized NAV gains on key investments—Shilling, Old World, and SFEG—were driven by EBITDA growth, not multiple expansion.
• Chief Financial Officer Ritchie stated, "over half of our debt portfolio currently at their interest rate floors," mitigating rate decline risk and preserving cash flow visibility.
• The company maintained its target capital structure for new investments, typically allocating approximately 70% to debt and 30% to equity, according to Dullum.
• The three portfolio companies on non-accrual continue to generate positive EBITDA, and management expressed increased confidence regarding their potential return to accrual or exit events in the near term.
• The pipeline was described as "very healthy," with sector opportunities present in both business services and manufacturing; management noted a measured approach to consumer-facing investments due to tariff impacts.
• Chief Financial Officer Ritchie indicated that changes in discount rates have limited impact on portfolio valuation methodology, as fair value is primarily determined through TEV multiples rather than discounted cash flow models.
• Dullum addressed questions regarding artificial intelligence exposure, stating the portfolio is more likely to benefit from AI-enabled efficiency than face material risk from technology disruption.

INDUSTRY GLOSSARY

• Non-accrual: Status indicating that interest income on a loan or investment is no longer being recognized due to borrower performance concerns, typically reflecting distressed or impaired credits.
• Spread compression: A reduction in the spread between the interest rate earned on assets (such as loans) and benchmark rates (such as SOFR), often squeezing margins.
• Interest rate floor: The minimum interest rate established in a debt agreement, ensuring a base yield level for the lender even if reference rates decline.
• TEV: Total Enterprise Value; a measure used to value portfolio companies based on EBITDA multiples, including debt and equity capitalization.
• SOFR: Secured Overnight Financing Rate; a benchmark interest rate for dollar-denominated derivatives and loans.
• Spillover income: Earnings retained but not yet distributed, permitted under tax rules to be paid out as future distributions.
• ATM program: At-the-market equity offering program allowing the company to issue shares incrementally at prevailing market prices.

Full Conference Call Transcript

David Gladstone: Well, thank you, Latonya, and good morning to everybody. This is David Gladstone, Chairman of Gladstone Investment. And this is the earnings conference call for the third quarter ending 12/31/2025 for the 2026 fiscal year. And it is the March 31 year. We hope we get all of our shareholders on board and analysts in order to tell you about the future of the company. We are listed on NASDAQ under the trading symbol GAIN for the common stock, and then we have three preferred stocks: Gain N, Gain Z, and Gain I. Three different registered notes. Thank you all for calling in.

We are always happy to provide updates to our shareholders and analysts and provide a view of the current business and the environment that we are in. Two goals of this call are to help you understand what happened to us during the last quarter and give you our current view of the future. And now we will hear from Catherine Gerkis, our Director of Investor Relations in ESG, to provide a brief disclosure regarding certain regulatory matters concerning this call. Catherine, go ahead.

Catherine Gerkis: 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 for more detailed information. You can also sign up for our email notification service and find information on how to contact our Investor Relations department.

We are also on X, at Gladstone Comps, as well as Facebook and LinkedIn. The keyword for both is The Gladstone Company. Now I will turn the call over to David Dullum, President of Gladstone Investment.

David Dullum: Thanks, Catherine, and good morning to everybody. So I am pleased to report again that the '26, which as David Gladstone mentioned, ends on March 31, that we continue to build on the prior quarters, a very strong performance in this fiscal year. Driven by our continued growth in the portfolio and the results of our existing portfolio companies. So we ended the third quarter with an adjusted NII of $0.21 per share, total assets of about $1.2 billion, which is up about $92 million from the end of the prior quarter. Now this increase quarter over quarter in assets resulted from one new buyout investment during the current quarter along with fairly significant appreciation of our investment portfolio.

So with the new buyout investment, we currently have 29 operating companies and a very healthy pipeline for new acquisitions. In this regard, to date, for fiscal 2026, we have invested $163 million, which is in four new portfolio companies, which compares to about $221 million that we invested for all of fiscal year 2025. These new investments are consistent, of course, with the buyout strategy where we grow the portfolio through the acquisition of operating companies at attractive valuations, and where we generally are the majority economic owner.

We also make our acquisitions through a combination of equity and debt, and with the equity providing the potential upside through capital gains upon exit, and the debt securities, of course, generating the operating income, which supports our monthly distributions to shareholders. And that is a very important aspect of our portfolio. So this is one of the factors that in fact differentiates us from other traditional credit BDCs. The aspect that we provide both the debt and the equity when we make an acquisition. 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.

Put this in perspective since inception in 2005, and through 12/31/2025, we have invested in 66 buyout portfolio companies for an aggregate of approximately $2.2 billion and exited 33 of these companies. This resulted in the total investments currently being valued at $1.2 billion while generating approximately $353 million in net realized gains and $45 million in other income on exit. So as we look forward, what we are finding is there is very good liquidity in the M&A market. This creates a very competitive environment for new acquisitions certainly at what we would consider reasonable valuations.

Now while this is challenging, we do seem to be able to compete effectively, as I mentioned, the investments we have made in the fiscal year. So we are out there working hard, effectively competing for these acquisitions that do indeed fit our model. And again, this is where we are both the equity and the debt to complete the acquisition. And one of the things that we do in looking at the debt securities that we do, we need a meaningful what we call fixed charge coverage and income yield on our total investment. So that is indeed in excess of our cost of capital.

As I mentioned earlier, we closed on four new investments during the first nine months of the fiscal year. We are continuing to be in varying stage diligence on some possible new opportunities, including accretive add-on acquisitions to existing portfolio companies. I would just like to elaborate on the add-on acquisitions that I mentioned. Given the way in which we manage our portfolio, it is not unusual for us to be constantly looking for acquisitions to add to existing portfolio companies and indeed are able to grow the value of our overall investments and portfolio by this add-on activity. So this activity all could lead to closing on new buyout investments during the balance of the fiscal year.

And as it relates to the income that is generated for the portfolio, there is one word and question that seems to keep coming up. We hear about what we call spread compression and given that interest rates generally given SOFR coming down and so on, that these interest rates may be declining. I want to again emphasize that one differentiator for GAIN from other credit-oriented BDCs is that we put floors on our debt securities while we have a stated rate, which indeed is spread over SOFR. Now so while we may see a decline in yield, because SOFR has come down, granted that is coming down from a higher level, we still have the protection of the floors.

And I think it is a very important point that we need to stress, and you will hear more about this from Taylor Ritchie, our CFO, in a little bit. So, again, the floor is usually set high enough, which establishes an effective yield on our total investments, which does help to mitigate this quote spread compression or the decline in SOFR over time.

Taylor Ritchie: As to our existing portfolio, most of the companies have experienced very good results to date and this is reflected in a very significant increase in our net asset value. And though we continue to be cautious due to supply chain disruption, tariff, and the other issues going on in the economy, we feel very good about where we are with our portfolio companies. We are working with all of our companies in evaluating things such as supply chain alternatives, other cost efficiencies that we need to help navigate the current environment. So in summing up the quarter and looking forward to the rest of the fiscal year, our current portfolio is in good shape.

We have a strong and liquid balance sheet. A good level of buyout activity with a prospect of continued good earnings and distributions over the next year. So with all of that, while we hope to navigate the challenges of this uncertain economic landscape. So I will turn it over to our CFO, Taylor Ritchie, and he can tell us a bit more detail. Taylor?

Taylor Ritchie: Thank you, Dave, and good morning, everyone. Looking at our operating performance for the third quarter, we generated total investment income of $25.1 million, down slightly from $25.3 million in the prior quarter. The decrease was primarily driven by a decrease in dividend and success fee income, partially offset by additional interest income resulting from the continued growth of our debt investment portfolio. The weighted average principal balance of our interest-bearing investments was $699 million in the current quarter, representing an increase of $30 million compared to the prior quarter.

After adjusting for the prior year's collection of past due interest income from investments that were previously on nonaccrual status, our portfolio's weighted average yield decreased modestly from 13.2% to 12.9%. This 24 basis point decrease is in line with the 32 basis point decrease in SOFR during the quarter and was mitigated by the interest rate floors included in each of our debt investments. Excluding non-accrual investments and revolving lines of credit, the weighted average interest rate floor for our debt portfolio was 12.1% as of December 31. We continue to underwrite our new debt investments with elevated interest rate floors in the 13% to 13.5% range to mitigate potential declines in SOFR.

With over half of our debt portfolio currently at their interest rate floors, we believe our yield is well protected against future rate declines. Further, the overall interest rate floors will offset higher interest expense that will result from the future refinancing of our low-cost long-term debt that will be maturing in the coming quarters and years. Additionally, dividend and success fee income declined by $400,000 quarter over quarter. Dividend income from our equity investments is dependent on the portfolio company's ability to pay the distribution, while also having sufficient earnings and profits to support the characterization of the distribution as dividend income.

Success fee income is derived from an interest rate associated with our debt investment that accrues off-balance sheet for both GAIN and the portfolio company and is not contractually due until a change of control event. However, similar to dividend income, a portfolio company may elect to prepay a portion of this accrual from time to time. Given that collection of both dividend income and success fee income is dependent on multiple factors, the timing of this income will be variable. Net expenses for the quarter were $31.6 million, up from $21 million in the prior quarter. The increase was primarily due to a $9.9 million increase in the accrual of capital gains-based incentive fees.

Base management fee expense increased by $500,000 compared to the prior quarter as a result of new buyout investment activity and a significant increase in unrealized appreciation of our investments. Credits from the advisor, the level of which is correlated to the timing and volume of new originations, declined $400,000 quarter over quarter. Interest expense decreased $200,000 in the current quarter due to the timing of the issuance of our 6.875% notes and the reduction of our 8% notes. In new investment activity. This resulted in a net investment loss of $6.5 million compared to net investment income of $4.3 million in the prior quarter. Overall, portfolio company valuations in the aggregate increased $7.2 million.

This unrealized appreciation was driven by both increased performance at some of our portfolio companies along with higher valuation multiples across the portfolio. The increase was partially offset by decreased performance of other portfolio companies. Adjusted net investment income, which represents net investment income or loss excluding any accrued or reversed capital gains-based incentive fees, was $8.2 million or $0.21 per share. Compared to $9.2 million or $0.24 per share in the prior quarter. We believe that adjusted net investment income remains an indicative metric of our ongoing and core performance as it removes the impact of capital gains-based incentive fees, which is an expense recorded under U.S. GAAP each quarter but is not yet contractually due.

For the current quarter, we continue to have three portfolio companies on non-accrual status. We have been working closely with each of these three companies, working alongside their management team to support efforts to return to accrual status or pursuing exits where appropriate. Our non-accrual investments represent 3.8% of our total book portfolio at cost and 1.5% at fair value. Our NAV increased to $14.95 per share compared to $13.53 per share at the end of the prior quarter. The increase was primarily a result of $1.77 per share of net unrealized appreciation and $0.09 per share of net realized gains.

These increases were partially offset by $0.24 per share of distributions to common shareholders, $0.016 per share of net investment loss, and $0.03 per share of realized losses associated with the redemption of our 8% note. Moving on to our balance sheet, our ability to maintain sufficient liquidity, financial flexibility, and managing a fluctuating interest rate environment is essential to supporting growing our portfolio. As part of our proactive balance sheet management, we redeemed the full $74.8 million outstanding balance of our 8% notes using proceeds from the recently issued $60 million 6.875% notes and borrowings under our line of credit.

This redemption and new debt issuance reduced our interest burden for $75 million of debt capital by approximately 110 basis points. Further, we expanded our credit facility to include City National Bank with a $30 million commitment level. As a result of this expansion, we now have a total commitment level of $300 million under our facility. As of yesterday's release, we had approximately $171 million from our remaining share of During the quarter, we raised approximately $3.2 million in net proceeds through common stock, which began program issuances.

While the price level of our common stock limited the number of days we were active on the ATM, we will look to sell under our ATM program in the future when prices are accretive to NAV. We believe that we are in a sufficiently strong liquidity position with our ability to access the debt capital markets and, when possible, the equity markets to support both the refinancing of upcoming debt maturities and our pipeline of new buyout opportunities. Overall, our leverage remains in a strong position with an asset coverage ratio as of 12/31/2025 of 201%, providing what we believe to be ample cushion to the required 130% coverage ratio.

Focusing on our distribution to shareholders, we ended the prior fiscal year with $55.3 million or $1.5 per share in spillover. Sufficient to cover our current monthly distribution of $0.08 per share for an annual run rate of $0.96 per share, as well as the $0.54 per share supplemental distribution we paid in June. As of December 31, our estimated spillover was approximately $22.9 million or $0.58 per share. We ended the quarter with total distributable income of $108.7 million or $2.73 per share. Total distributable income primarily consists of the net unrealized appreciation of our investments as well as the GAAP adjusted balance of our spillover presented on our balance sheet.

Including the $0.54 supplemental distribution in the current fiscal year, we paid an aggregate of $3.26 per share across 13 supplemental distributions over the last five fiscal years. In addition to the $4.68 per share of monthly distribution during this time. This track record reflects our ability to maintain a stable monthly dividend while also delivering incremental returns to shareholders, underscoring the strength and consistency of our focused equity-oriented investment strategies. Looking ahead, we expect supplemental distributions to remain an important component of our overall shareholder return strategy with the amount and timing of future payments driven by realized capital gains on our equity investments along with other capital allocation considerations. This covers my part of today's call.

I will now hand it back over to you, David, to wrap us up.

David Gladstone: Well, thank you. Very nice, Taylor, and nice by Dave Dullum and Catherine as well. And this will tidy over our shareholders until the next call, which will be at the March, the annual, as well as the third quarter. The call and Form 10-Q should bring everyone up to date. We have reported solid results for the quarter ending 12/31/2025, including new investment activity and a strong liquidity position. To grow the portfolio throughout the fiscal year. We believe Gladstone Investment is a very attractive investment for investors seeking continued monthly and some supplemental distribution from potential capital gains and other income. The team hopes to continue to show you a strong return on investment in our funds.

Now let's stop for some questions from the analysts and other shareholders. Please come on, Mathewa. Thank you.

Operator: We will now conduct a question and answer session. Once again, that's star one at this time. The first question comes from Mickey Schleien with Clear Street. Please proceed.

Mickey Schleien: Yes. Good morning, everyone. Dave, a good portion of the appreciation in NAV quarter came from three investments, Shilling, Old World, and SFEG. Can you discuss the operational or valuation changes that drove that appreciation for each of those companies?

David Dullum: Sure. Mickey. Nice to chat with you. Yeah. And actually, we had a pretty significant those three you mentioned were large numbers, but we have a number of other companies indeed also that had relatively speaking, pretty significant increase as well. But fundamentally, all the ones that were these large increases were fundamentally no multiple change, but pretty much all because of EBITDA increase. So, which is obviously the best situation. So, yeah, that was true of all three of those that you specifically mentioned.

Mickey Schleien: The yeah. Sorry interesting. I do not know if it is pronounced Shilling or Shelling, but Shilling and Old World are obviously consumer-oriented companies, and we are reading, you know, so much about the k-shaped economy. So what sort of different about those two companies that is allowing them to grow their EBITDA even with the headwinds in the consumer sector?

David Dullum: Yeah. I think the only answer I can give is the products that they make and sell obviously. Shilling is a very interesting business. And they have a very unique product, which makes up a reasonable portion of their overall revenue, something called needle. It is one of these things where you squeeze for a variety of reasons, and they have different types of that. And that product has had huge demand even with, as you point out, forget consumer demand generally, but the whole tariff increases that we have seen in their products, of course, a significant portion comes from the Far East.

So even with that, they have literally been able to maintain a level of demand that just frankly has allowed the company to perform at an exceptionally high level. Overall Christmas, obviously, Christmas tree ornaments, you are familiar with those, I think. You have seen them, and, again, they are a well-run business. All of these companies are very well run. They have got great management teams on pretty much, frankly, all of our portfolio companies right now. And they have just been able to, I guess, really the consumer demand side of things, as you say.

I do not have any further specific real insights to that other than, again, good management, quality products, and been able to manage through the tariff impacts.

Mickey Schleien: That is really good to hear. Dave, you also recently invested in Rowan Energy. Can you walk us through how you underwrote that deal, particularly how you assess the cyclicality of the energy equipment, fracking, sand filtration sector and what assumptions you made about where Rowan stands in its business cycle?

David Dullum: Mhmm. Best answer I can give you, Mickey, we can certainly chat about this offline if you need and, you know, bring some of the other folks involved that would more directly involved in those companies. But as you know, we have a couple of investments now that are in the energy-related sector. One company in particular, E3, which also had a very interesting and nice increase in valuation, and what we have there is a quality and experienced team running that particularly E3, and that frankly helps us to move off into and to be able to evaluate companies such as, you know, what you mentioned, Smart Chemical is another one.

And so we have knowledge and experience within our portfolio to help properly evaluate that. So right now and through those lenses, we feel like where these guys are in their cycle that we still have upside and been able to manage it through valuations, frankly, that also are at a level that are not really, I will use the words carefully, but overpaying, so to speak. But, anyway, it is one that we can talk about in more detail if you really want to later on.

Mickey Schleien: I appreciate that. Dave or maybe Taylor, if I look at the table in the press release regarding flow rates, I want to make sure I understand it. Is it correct to say that about half the portfolio has about 80 basis points of downside in average yields?

Taylor Ritchie: Yes, but the way for us to get there, we would need significant decreases and so forth. So it would not just be 80 basis points would get to that level of 12.1% floor. We would need closer to 210 basis points to be able to bring SOFR down to a level where the other portfolio companies would then hit their floors. So there is some wiggle room. And as you could see, with the fact that the basis point decrease right below that table there, the 25, 50, 75, 100% or 100 basis point decreases and so forth. You can see as that decrease occurs, the decrease to the overall rate is not one for one.

And that is because we start hitting the interest rate floors of more of the portfolio companies.

Mickey Schleien: Okay. Yeah. I understand. And lastly, you know, given sort of typical portfolio companies that you are attracted to, is it reasonable to say that there is sort of limited risk from AI in the portfolio and how are you looking at that in terms of the pipeline?

David Dullum: Yeah. The terminology, of course, is pretty broad. Right? AI. Yeah. I guess what I would say is that most of our companies are, to the extent that AI is important, they are actually using it to some degree. And I think you, in fact, if you recall coming out to our conference last year, we had a fair amount of stuff on that, and I think you heard some of that as well. So a number of our portfolio companies are utilizing various aspects of AI, which is enhancing, you know, their either their efficiency and whether it be designing some of the product you mentioned, Shilling.

Again, they have actually, for a couple of years now, they have been using some aspect of AI in helping them to really design efficiently some of their products and so on. So I would say, yeah, we are more a beneficiary to some extent than necessarily, as you point out, where we have a tech company that might be directly in that space and there may be real competition for that, I would say we do not have that in our portfolio. So you are correct.

Mickey Schleien: Yeah. That is good to hear. Those are all my questions. I appreciate your time this morning. Thank you.

Operator: Thank you. Who is up next? The next question comes from Christopher Nolan with Ladenburg Thalmann. Please proceed.

Christopher Nolan: Hi, thanks for taking my question. As a follow-up to the unrealized gains, were those mostly related to equity gains in the portfolio?

Taylor Ritchie: Yes. So they were predominantly equity. We did have a handful of portfolio companies that experienced debt or debt fair value increases as the overall TV for that portfolio company was increasing. As a result of both multiple increases and EBITDA increases. But the bulk of it, yes, it is equity-driven.

Christopher Nolan: And then in the comment section, you guys said, there is good liquidity in the M&A market. I have heard from other managements where credit is widely available to all these middle market companies, but equity is less so. Do you have a different take on that? And if equity is less prevalent, does that give you a competitive advantage?

David Dullum: Yeah. So I guess, Chris, my response to that might be from my experience, our experience, I think maybe the folks that, let's say, we compete with are traditional BDCs, excuse me, traditional private equity guys, to the extent that they are able to access leverage at more attractive rates, I think that is where, you know, why if they can put less equity in and slightly higher leverage or lower rates, they are doing some of that. I think this gives us an advantage, though, as well because we are bringing, again, the equity and the debt, and we can moderate that so we get the leverage on our own equity.

But I would say that it is competitive, frankly, with the M&A direct M&A shops because valuations, while we are seeing some elevation, frankly. On elevations, the fact that they can get, you know, leverage at lower rates, relatively speaking, makes them pretty competitive as well. So to your point, that might put in less equity, put in a bit more leverage, and be competitive with us even though we are doing the debt and the equity. So it gives us a slight advantage in that when we deal with the management team and we are trying to buy the business, we at least are speaking for the whole capital stack, and we have a bit more certainty there.

Versus, say, a traditional firm that might have to go out and try to raise the debt, whereas we at least can speak for all of it. So it gives us a slight edge, but, yeah, it is a there is a fair amount of capital out there in both that I would say that certainly the debt market and clearly on the equity side. From our experience.

Christopher Nolan: Great. And final question. Given the decline in base rate over the last year or so. Will that have any positive effect in the discount rate used in your evaluate in your fair value calculations for your portfolio companies going forward?

Taylor Ritchie: Okay. Clarify that question again for me, Chris. Say it Sure.

Christopher Nolan: Yes, the risk-free rates have gone down. Even the Fed cuts rates. And does that affect the discount rate used in your discount cash flow evaluations when you are fair value in an investment?

Taylor Ritchie: Well, most of our investments are being fair value using a TEV valuation. So we are really looking at what EBITDA is times the multiple that we are setting for that portfolio company. So using a DCF model is not as prevalent for our overall valuation approach. But yes, you are correct. In theory, that would improve it, but that is not how we are really valuing the bulk of our investments.

Catherine Gerkis: Right.

Christopher Nolan: Great quarter. Very unusual in terms of the dynamics. You know, you guys have a super gap EPS profit and an NII EPS loss and a super jump in on that per share, but good show. Thank you.

Operator: Thanks, Chris. Victoria, you have another question? The next question comes from Erik Zwick with Lucid Capital. Please proceed.

Justin Marca: Thanks. Good morning. This is Justin on for Erik today. Just wondering if you could speak on the current state of underwriting conditions and specifically if you are seeing any pressure on terms or structure given the tighter spread environment?

David Dullum: Yeah. I would for us, I would say, Justin, probably not. As I mentioned earlier, because of the availability of leverage lower leverage, so when we are competing for a deal, for us, we still try to stick with our formula. Typically, it is about 70% of our assets or the investment that we make is in debt, in the debt security, 30%, roughly is in the equity security. So when we combine those, we are driving for an effective yield on the total dollars.

Relative to our essential cost of capital being very cognizant of, you know, the income aspect of it for dividend distribution, but, likewise, we look for, you know, on the upside, we always try to see a way to say two times cash on cash on the equity side of things. So our model really has not changed. What we have found, yes, indeed, there have been a couple of deals that we have been working on that we liked and we are, you know, we are bidding on, you will. And we were, you know, a couple of turns off on the multiple. But, you know, we stay pretty disciplined.

And given what we are seeing out there, I do not see us having to change too dramatically our model. I mean, if we saw something we really like and we could say put a bit more debt on it and generate more income, so long as we were not sacrificing too significantly the equity side of things, we will do that. But, that is not necessary because of the markets just because the way we might look at the deal itself. If that helps.

Justin Marca: Yeah. Thanks. And, Dave, in your prepared remarks, you described the pipeline as very healthy. Can you talk about how it is looking compared to maybe a year ago? And are there any specific sectors where you are seeing better deals than others?

David Dullum: Yes. I would say compared to a year ago, probably similar. I do not certainly not lower. We are seeing them really across all sectors. We have seen recently a few areas. The consumer side of things, as actually Mickey was asking earlier, even though our experience of our portfolio and our consumer companies are doing really well, the consumer side of things are a little bit obviously slower, a great part because again, we talk about tariffs. And so when we look at a new deal, that is a consumer-driven, you have to really be very sensitive to the cost of product because of tariffs and so on, and that has some effect there certainly. It is business services.

We are seeing reasonably good things in the business service area. Interestingly enough, on the manufacturing side, seeing things. I just kind of reflected in our portfolio kind of in the aerospace and defense area. Certainly aspects of what the government is doing, etcetera. So we have seen somewhat of a pickup in that area. So generally speaking, I would say pretty much across the board, everything is looking we are seeing about the same certainly as about a year ago. And if there is any one area that might be a little weaker in terms of looking forward, might be somewhat in the consumer area. Other questions? Okay, thanks.

Justin Marca: Thank you, Justin. It was good to see sorry, I just got one more. Go ahead. Yes, sir. It was good to see that your nonaccrual was stable quarter over quarter. Just wondering if you could talk about your current outlook for quality and if there are any near-term opportunities to resolve any of the remaining names that are on non-accrual?

David Dullum: Yeah. I would say this. The ones that are currently on nonaccrual in differing degrees, I feel better about them honestly today. If you had asked me that question perhaps a year ago. In part because we are taking some actions. Again, they are all generating actually positive EBITDA. There are some structural reasons why we do not have them back yet on accrual. But between some of the things that we are doing with them, we might even see if a potential exit, and certainly improvement to the point where we actually will be able to get them back on accrual. So I see it as a positive looking forward versus it being a negative. No, I agree.

And where we stand with these three companies, there is no or it does not feel like we are in a next quarter it will change, but the outlook is much more positive. And every quarter, it looks more positive. So we are encouraged by where each of the three are trending.

Justin Marca: Great. Thanks for the That is all for me today.

Operator: Okay. Thanks, sir. Well, Troy, any other questions? There are no further questions at this time. I would like to turn it back to you, Mr. Gladstone, for closing comments.

David Gladstone: Okay. Well, thank you. We appreciate all those questions. We hope there are at least double questions next time. We always like to answer your questions because that shows a light on all of the things we are doing. And you have to remember that these are not just portfolio companies. These are platforms, and we are getting people that are coming in and getting money from us because they are getting some of their money that they have made over the years back now. But they have equity and going forward. So it is a bite now and a bite later of income for people who are joining us. We are all oriented toward these platform companies.

And thank you all for appreciating that. It is a different way of running our business, but one that works for us. So thank you all for calling, and next time, we will see you in April.

Operator: Thank you. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a great day.

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