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Gladstone Investment (GAIN) Q4 2025 Earnings Call May 14, 2025 08:30 AM ET Company Participants David Gladstone - Founder, Chairman & CEOMichael Licalsi - General Counsel & SecretaryDavid Dullum - PresidentTaylor Ritchie - CFOMickey Schleien - MD - Equity ResearchErik Zwick - Managing Director, Equity Research Operator and welcome to Gladstone Investment Corporation Fourth Quarter and Year End Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer session w ...

Financial Data and Key Metrics Changes - For the fiscal year ended 03/31/2025, the company generated adjusted net investment income (NII) of $0.97 per share, covering the annual dividend of $0.96 per share [5][6] - The total fair value of the portfolio increased to $979 million from approximately $921 million at the prior year end, although it was slightly lower than the $1.1 billion reported at the end of the last quarter [6][9] - Total investment income for the fiscal year was $93.7 million, up from $87.3 million in the prior year, primarily due to increases in dividend and success fee income [13][14] Business Line Data and Key Metrics Changes - The company invested a total of $221 million during the year, an increase from $184 million in the prior year, which included investments in four new portfolio companies and add-on investments [7][8] - The company maintained a monthly distribution to shareholders of $0.08 per share, aggregating to $1.66 per share for the year, including supplemental distributions [8][20] Market Data and Key Metrics Changes - The company noted good liquidity in the M&A market, although it is a competitive environment impacted by tariffs affecting cost, customer demand, and supply chain dynamics [9][10] - The company is cautiously optimistic about new acquisitions, expecting to close two new acquisitions shortly [10][11] Company Strategy and Development Direction - The company aims to continue its buyout strategy while being cautious in assessing risks related to tariffs and their impact on portfolio companies [10][12] - The management team has added experienced talent to support portfolio growth and manage the current portfolio of 25 operating companies [7] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the current portfolio's performance and the potential for continued earnings and distributions despite economic uncertainties [12][19] - The recent pause on tariffs was seen as a relief, but management remains cautious about the long-term implications [11][12] Other Important Information - The company ended the fiscal year with $55.3 million in spillover, sufficient to cover current monthly distributions and the recently declared supplemental distribution [19][55] - The company has four portfolio companies on non-accrual status, with three of them being profitable and showing improvement [17][32] Q&A Session Summary Question: How much of the portfolio has exposure to tariff risk? - Management indicated that most companies have some exposure, particularly those producing in China, but they are not overly concerned as they have been proactive in managing inventory and supply chains [25][26] Question: What is the exposure to lower-income customers in the consumer sector? - Management stated that the consumer products in the portfolio are not primarily targeted at lower-income customers, and the impact of tariff costs is relatively small [28][30] Question: Update on non-accrual companies, specifically Hobbs? - Management remains optimistic about Hobbs and expects it to return to accrual status by the end of the year, with improvements in profitability noted [31][32] Question: What is the rationale for the dividend recap with Educators Resource? - The dividend recap was seen as a reinvestment decision, allowing the management team to gain liquidity while the company continues to perform well [49][52] Question: Current spillover amount? - The company ended the year with $55.3 million in spillover, which covers the current monthly distribution and the supplemental distribution to be paid in June [54][55]

分组1 - Gladstone Investment (GAIN) reported quarterly earnings of $0.26 per share, exceeding the Zacks Consensus Estimate of $0.23 per share, and showing an increase from $0.24 per share a year ago, resulting in an earnings surprise of 13.04% [1] - The company posted revenues of $27.55 million for the quarter ended March 2025, surpassing the Zacks Consensus Estimate by 11.19%, compared to $23.65 million in the same quarter last year [2] - The stock has increased approximately 6% since the beginning of the year, while the S&P 500 has declined by 0.6% [3] 分组2 - The current consensus EPS estimate for the upcoming quarter is $0.23 on revenues of $25.43 million, and for the current fiscal year, it is $0.93 on revenues of $99.56 million [7] - The Zacks Industry Rank for Financial - SBIC & Commercial Industry is in the bottom 28% of over 250 Zacks industries, indicating potential challenges for stock performance [8] - Chicago Atlantic BDC, Inc., another company in the same industry, is expected to report quarterly earnings of $0.34 per share, reflecting a significant year-over-year change of +3500% [9]

Investment Income - Total investment income for the fourth quarter ended March 31, 2025, was $27.5 million, a 28.9% increase from $21.4 million in the previous quarter[2] - Net investment income for the fourth quarter was $7.2 million, or $0.20 per weighted-average common share, compared to $1.2 million, or $0.03 per weighted-average common share in the prior quarter[8] - Total investment income for the fiscal year ended March 31, 2025, was $93.7 million, a 7.3% increase from $87.3 million in the previous year[15] - Net investment income for the fiscal year was $28.1 million, or $0.76 per weighted-average common share, compared to $21.8 million, or $0.63 per weighted-average common share in the prior year[14] - Adjusted net investment income for the year ended March 31, 2025, was $35.5 million, or $0.97 per share, compared to $34.5 million, or $1.00 per share, for the previous year[20] Cash Distribution - Cash distribution per common share from net investment income was $0.64, a 40.7% decrease from $1.08 in the previous year[3] - The company paid a monthly distribution of $0.08 per common share from April 2024 to March 2025, along with a supplemental distribution of $0.70 per common share in October 2024[18] - The company declared a total distribution of $0.78 per common share for the quarter ending June 30, 2025, including a supplemental distribution of $0.54 per share[19] Investment Activity - Total dollars invested during the fiscal year was $221.2 million, a 20.3% increase from $183.9 million in the previous year[3] - Total dollars repaid and/or collected from sales and recapitalization of investments for the fiscal year was $199.6 million, a 148.8% increase from $80.2 million in the previous year[3] - The company exited its investment in Nocturne Luxury Villas, resulting in a realized gain of $19.8 million and repayment of $85.6 million at par[12] - The company raised approximately $2.0 million through the sale of 148,714 shares under its ATM program at a weighted-average gross price of $13.64 per share[18] Asset Value - Net asset value per common share as of March 31, 2025, was $13.55, up from $13.30 as of December 31, 2024[11] - As of March 31, 2025, the net asset value per common share was $13.55, an increase from $13.43 as of March 31, 2024, driven by $63.2 million in realized gains and $28.1 million in net investment income[17] Credit Facility - The company amended its credit facility, increasing the size from $200.0 million to $270.0 million[8] - The credit facility was amended to increase its size from $200.0 million to $270.0 million[18] Share Information - The weighted-average shares of common stock outstanding for the year ended March 31, 2025, were 36,735,218[20] - The company issued publicly-traded 7.875% Notes due 2030 with a total principal amount of $126.5 million[18] Non-GAAP Measures - The company emphasizes that Adjusted net investment income is a non-GAAP financial measure and may not be comparable to similar measures presented by other companies[21]

Investment Portfolio Composition - As of March 31, 2025, the investment portfolio consisted of 73.3% in debt investments and 26.7% in equity investments, at cost[21] - The total fair value of the investment portfolio was $979.3 million, with the five largest investments representing $401.7 million, or 41.0%, of the total[30] - The investment strategy includes a target of approximately 75% in debt securities and 25% in equity securities over time[21] - The investment portfolio included investments in 25 portfolio companies across 16 different industries[30] - Secured first lien debt accounted for 62.2% of total investments at fair value in 2025, compared to 52.5% in 2024, indicating a shift towards more secured debt[33] - Preferred equity increased to 30.9% of total investments at fair value in 2025, up from 23.2% in 2024, reflecting a strategic focus on equity investments[33] - The aerospace and defense sector saw a significant increase in fair value investments, rising to 10.9% in 2025 from 3.2% in 2024, highlighting a shift in industry focus[33] - The Midwest region's investments grew to 23.2% of total investments in 2025, up from 15.4% in 2024, indicating a geographic expansion strategy[33] Investment Strategy and Philosophy - The company focuses on lower middle market private businesses with annual EBITDA between $4 million and $15 million[22] - The company seeks to achieve a high level of current income and capital gains through investments in secured debt securities and equity[29] - The company emphasizes a disciplined, value- and income-oriented investment philosophy, focusing on minimizing capital loss while seeking capital appreciation[46] - Extensive due diligence is conducted, including management assessments and market analyses, to ensure alignment with investment criteria[36] - The investment committee comprises experienced professionals with over 30 years in middle market investments, enhancing decision-making capabilities[44] Financial Performance and Incentives - As of March 31, 2025, total investments reached $979.32 million, up from $920.50 million as of March 31, 2024, representing a growth of 6.4%[33] - For the fiscal year ended March 31, 2025, capital gains-based incentive fees of $4.9 million were contractually due and paid to the Adviser, compared to $1.1 million for the fiscal year ended March 31, 2024[74] - The income-based incentive fee is triggered if quarterly net investment income exceeds 1.75% of net assets, with a further tier at 2.1875%[67] - The capital gains-based incentive fee is calculated as 20.0% of realized capital gains, less any realized capital losses and unrealized depreciation[72] Regulatory and Compliance Matters - The company aims to retain its status as a BDC and RIC under applicable regulations[32] - The company must distribute at least 90% of its taxable ordinary income to qualify as a RIC[82] - If the company fails to meet RIC requirements, it would be subject to U.S. federal income tax on all taxable income at the regular corporate income tax rate[86] - The company is regulated as a BDC under the 1940 Act, which imposes restrictions on transactions and requires a majority of independent directors[96] - The company must maintain significant managerial assistance to portfolio companies to count them as qualifying assets[103] Risks and Challenges - The company faces risks related to market conditions, interest rate fluctuations, and the lack of liquidity in privately held investments[104] - Changes in interest rates could negatively impact the rate of return on invested capital, net investment income, NAV, and the market price of securities[118] - The company faces competitive pressure in the BDC and investment company marketplace, which could lead to reduced yields on investments[125] - Economic downturns may have a material adverse effect on Lower Middle Market portfolio companies, impacting their ability to meet debt service requirements[128] - The company may experience difficulties in raising capital due to volatility in capital markets, which could adversely affect the valuations of its investments[114] Management and Operational Structure - The company does not currently have any employees and relies on 20 to 25 full-time employees from the Adviser and Administrator for its operations[107] - The Adviser provides significant managerial assistance to portfolio companies, which includes sourcing credit facilities and negotiating financial relationships[63] - The company is dependent on key management personnel, particularly David Gladstone and David Dullum, for future success[172] - The company has no employees and relies entirely on the Adviser for management, which poses risks if the Adviser discontinues operations or key personnel leave[173] Cybersecurity and Technology Risks - Cybersecurity risks may disrupt operations and negatively impact the company's financial condition and operating results[207] - The company emphasizes the critical importance of maintaining network security due to the storage of highly confidential financial models and portfolio company information[208] - Cyber incidents could lead to disrupted operations, misstated financial data, and increased cybersecurity costs, potentially impacting the company's financial results[208] - The company faces risks associated with artificial intelligence and machine learning technology, particularly from third-party service providers[209] Environmental, Social, and Governance (ESG) Considerations - Increasing public scrutiny regarding environmental, social, and governance (ESG) activities could affect the company's brand value and investor relationships[213] - New regulatory initiatives related to ESG could impose onerous compliance costs and affect the company's profitability[214]

Core Viewpoint - Gladstone Investment (GAIN) is anticipated to report a year-over-year decline in earnings despite an increase in revenues for the quarter ending March 2025, with the consensus outlook indicating a potential impact on its near-term stock price [1][2]. Earnings Expectations - The upcoming earnings report is expected to reveal quarterly earnings of $0.23 per share, reflecting a year-over-year decrease of 4.2%, while revenues are projected to be $24.78 million, an increase of 4.8% from the previous year [3]. - The consensus EPS estimate has been revised down by 1.43% over the last 30 days, indicating a bearish sentiment among analysts regarding the company's earnings prospects [4][10]. Earnings Surprise Prediction - The Zacks Earnings ESP model shows a negative Earnings ESP of -1.43%, suggesting that the Most Accurate Estimate is lower than the Zacks Consensus Estimate, complicating predictions of an earnings beat [11][10]. - The company currently holds a Zacks Rank of 3 (Hold), which further indicates uncertainty regarding the likelihood of surpassing the consensus EPS estimate [11]. Historical Performance - In the last reported quarter, Gladstone Investment was expected to post earnings of $0.24 per share but delivered only $0.23, resulting in a surprise of -4.17% [12]. - The company has not exceeded consensus EPS estimates in any of the last four quarters, highlighting a trend of underperformance [13]. Industry Comparison - In comparison, Morgan Stanley Direct Lending Fund (MSDL), another player in the Zacks Financial - SBIC & Commercial Industry, is expected to report earnings of $0.56 per share for the same quarter, reflecting a year-over-year decline of 11.1%, with revenues anticipated at $103.52 million, up 4.5% [17]. - Similar to Gladstone Investment, Morgan Stanley Direct Lending Fund has a negative Earnings ESP of -3.57% and a Zacks Rank of 3, making it difficult to predict an earnings beat [18].

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Company Overview - Gladstone Investment (GAIN) shares increased by 11% in the last trading session, closing at $13.06, with significantly higher trading volume compared to normal sessions [1] - The stock had previously experienced a 10% loss over the past four weeks [1] Market Influence - The sharp rally in Gladstone Investment shares was influenced by broad market strength following President Donald Trump's announcement of a 90-day suspension on tariffs for non-retaliating countries, which eased trade tensions and improved market sentiment [2] Earnings Expectations - Gladstone Investment is expected to report quarterly earnings of $0.24 per share, unchanged from the same quarter last year, with revenues projected at $24.57 million, reflecting a 3.9% increase year-over-year [3] - The consensus EPS estimate for the quarter has remained unchanged over the last 30 days, indicating that stock price movements may not sustain without trends in earnings estimate revisions [4] Industry Context - Gladstone Investment is part of the Zacks Financial - SBIC & Commercial Industry, where Morgan Stanley Direct Lending Fund (MSDL) also operates, closing the last trading session at $18.73, up 5.3%, but with a -11.4% return over the past month [4] - Morgan Stanley Direct Lending Fund has a consensus EPS estimate of $0.57 for the upcoming report, which is a -9.5% change from the previous year, and currently holds a Zacks Rank of 4 (Sell) [5]