Gladstone Investment(GAIN) - 2023 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements The company presents its unaudited consolidated financial statements for the periods ended December 31, 2022 Consolidated Statements of Assets and Liabilities Total assets grew to $771.6 million while NAV per share remained stable at $13.43 as of December 31, 2022 | Metric | December 31, 2022 ($ in thousands) | March 31, 2022 ($ in thousands) | | :--- | :--- | :--- | | Total Investments at fair value | $760,463 | $714,396 | | Total Assets | $771,564 | $740,412 | | Total Liabilities | $322,373 | $294,582 | | Net Assets | $449,191 | $445,830 | | NAV Per Share | $13.43 | $13.43 | Consolidated Statements of Operations Net investment income for the nine-month period grew significantly to $27.4 million, despite a drop in net assets from operations | Metric ($ in thousands) | Nine Months Ended Dec 31, 2022 | Nine Months Ended Dec 31, 2021 | | :--- | :--- | :--- | | Total investment income | $61,686 | $53,306 | | Total expenses, net of credits | $34,330 | $45,046 | | Net Investment Income | $27,356 | $8,260 | | Net realized and unrealized gain | $3,533 | $77,360 | | Net Increase in Net Assets | $30,889 | $85,620 | | Net Investment Income per Share | $0.82 | $0.25 | | Net Increase in Net Assets per Share | $0.93 | $2.58 | Consolidated Statements of Changes in Net Assets Net assets increased by $3.4 million to $449.2 million, with growth from operations offset by stockholder distributions - Net assets grew from $445.8 million at March 31, 2022, to $449.2 million at December 31, 2022[14] - The increase was primarily due to $30.9 million from operations, which was largely offset by $30.9 million in distributions to common stockholders during the nine-month period[14][16] Consolidated Statements of Cash Flows Net cash used in operating activities was $13.4 million, a significant shift from cash provided in the prior year | Cash Flow Activity ($ in thousands) | Nine Months Ended Dec 31, 2022 | Nine Months Ended Dec 31, 2021 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(13,405) | $39,293 | | Net cash provided by (used in) financing activities | $1,757 | $(13,047) | | Net (Decrease) Increase in Cash | $(11,648) | $26,246 | Consolidated Schedules of Investments Total investments at fair value grew to $760.5 million, with high concentration in Diversified/Conglomerate Services Investment Portfolio Composition by Security Type (Fair Value) | Security Type | Dec 31, 2022 (%) | Mar 31, 2022 (%) | | :--- | :--- | :--- | | Secured first lien debt | 58.8% | 59.5% | | Secured second lien debt | 10.0% | 9.5% | | Preferred equity | 29.2% | 30.5% | | Common equity/equivalents | 2.0% | 0.5% | - The top five portfolio investments (Old World, Horizon, Dema/Mai, Brunswick Bowling, and Nocturne) collectively comprised 43.2% of the total investment portfolio at fair value as of December 31, 2022[83] Notes to Consolidated Financial Statements The notes detail the company's accounting policies, investment valuation process, and related-party fee structures - The company's investment objective is a portfolio mix of approximately 75% debt and 25% equity investments, at cost; as of December 31, 2022, the mix was 77.2% debt and 22.8% equity[42] - All investments were valued using Level 3 inputs, except for one investment (Funko) valued with Level 2 inputs[70] - The company has a $180 million revolving line of credit and two series of notes payable totaling $262.5 million in aggregate principal[104][122] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses financial performance, portfolio activity, and capital resources for the reporting period Overview The company operates as a BDC focused on U.S. Lower Middle Market companies with a strong asset coverage ratio - The company focuses on U.S. Lower Middle Market private businesses, generally defined as companies with annual EBITDA of $3 million to $20 million[157] - As of December 31, 2022, the company had unrecognized, contractual success fees of $53.1 million, or $1.59 per common share, which are not yet recorded as income[162] - The company's asset coverage ratio on senior securities was 250.5% as of December 31, 2022, comfortably exceeding the 150% regulatory minimum[169] Results of Operations Net investment income grew 231.2% year-to-date, driven by higher income and lower incentive fees Q3 Performance (Three Months Ended Dec 31) | Metric ($ in thousands) | 2022 | 2021 | % Change | | :--- | :--- | :--- | :--- | | Total investment income | $21,594 | $16,742 | 29.0% | | Net Investment Income | $8,569 | $8,399 | 2.0% | | Net Increase in Net Assets | $15,779 | $10,346 | 52.5% | Year-to-Date Performance (Nine Months Ended Dec 31) | Metric ($ in thousands) | 2022 | 2021 | % Change | | :--- | :--- | :--- | :--- | | Total investment income | $61,686 | $53,306 | 15.7% | | Net Investment Income | $27,356 | $8,260 | 231.2% | | Net Increase in Net Assets | $30,889 | $85,620 | (63.9)% | Liquidity and Capital Resources The company maintains liquidity through its $180 million credit facility, unsecured notes, and an active ATM program - As of December 31, 2022, the company had $150.4 million of availability under its $180 million Credit Facility[239] - The company has two outstanding series of notes: $127.9 million of 5.00% Notes due 2026 and $134.6 million of 4.875% Notes due 2028[240][243] - During the nine months ended December 31, 2022, the company sold 241,978 shares of common stock under its ATM program, raising approximately $3.4 million in net proceeds[227] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk is interest rate fluctuation, mitigated by a variable-rate loan portfolio - The primary market risk is interest rate risk, as net investment income depends on the spread between borrowing rates and investment yields[257] - As of December 31, 2022, 100% of the company's debt investment portfolio consisted of variable-rate loans with a floor, which helps protect income in a changing rate environment[258] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective with no material changes during the quarter - Management concluded that disclosure controls and procedures were effective as of the end of the reporting period[259] - No changes in internal controls that have materially affected, or are reasonably likely to materially affect, internal control over financial reporting were identified during the quarter[260] PART II - OTHER INFORMATION Item 1. Legal Proceedings The company is not currently a party to any material legal proceedings outside the ordinary course of business - The company is not currently involved in any material legal proceedings[261] Item 1A. Risk Factors No material changes to risk factors were reported, referencing the company's latest Annual Report on Form 10-K - There are no material changes from the risk factors previously disclosed in the company's Annual Report on Form 10-K for the fiscal year ended March 31, 2022[262] Other Part II Items Items 2, 3, 4, and 5 are not applicable for this reporting period, while Item 6 lists filed exhibits - Items 2, 3, 4, and 5 of Part II are not applicable for this reporting period[263][264][265][266]