Gladstone Investment Corporation (GAIN) Earnings

Management highlights

### Core Financial and Distribution Strategy - Maintain a hybrid investment strategy combining debt securities (to generate recurring operating income for monthly shareholder distributions) and equity investments (to generate upside capital gains that can support supplemental distributions upon exit), which differentiates Gladstone from most traditional credit BDCs. - Maintained the monthly common share dividend at $0.08 per share ($0.96 annualized), and adjusted net investment income of 26 cents per share was sufficient to cover the quarterly dividend distribution. ### Recent Transaction Activity - During the quarter, entered into an agreement to acquire new portfolio company Extrude Hone, expected to close in the coming weeks pending routine regulatory approvals. - Entered into an agreement to sell the operating entity of portfolio company SFEG Holdings subsequent to quarter end, with closing expected in the coming months. The sale will result in full repayment of Gladstone's investment and a significant capital gain. - Completed the acquisition of new portfolio company DHE Computer Systems in July 2026, and closed an accretive add-on acquisition for existing portfolio company Global Grab Technologies. - Aggregate investments of at least $116 million are expected in the first half of fiscal 2026, which compares favorably to the 3-year average annual investment pace of ~$183 million. ### Capital Structure and Liquidity Improvements - Repaid maturing 5% notes in May 2026 using proceeds from a prior February 5-year note issuance. - Successfully amended the corporate credit facility: cut the spread over SOFR by 40 basis points, increased the total commitment from $300 million to $405 million, and extended maturity to 2031. - Ended the quarter with $158 million drawn on the credit facility, leaving ample unused capacity to fund the current acquisition pipeline. Ended the quarter with a 209% asset coverage ratio and 0.88x debt-to-equity ratio, providing meaningful leverage capacity for future investments. ### Existing Portfolio Performance - Most portfolio companies delivered positive operating results during the quarter; Galaxy Technologies saw strong growth in aerospace and industrial end markets, Diligent's new management team has stabilized the business and generated positive EBITDA (moving it closer to a return to accrual status), and Pyrotech grew through acquisitions and expanding entertainment activity. - Excluding the SFEG Holdings valuation adjustment tied to the pending sale, the remaining portfolio generated net unrealized appreciation, driven by positive operating performance and higher broad market valuation multiples.

Guidance

- Management expects the portfolio's weighted average yield to increase modestly, as investments originated after quarter end include interest rate floors that are above the average of the existing portfolio. - A 50 to 150 basis point increase in SOFR would increase annual net investment income by approximately 2 to 9 cents per share, while an equivalent SOFR decline would reduce annual net investment income by approximately 1 to 3 cents per share, providing strong downside protection and upside for net income. - Management expects to continue the practice of issuing supplemental distributions to shareholders when capital gains are realized from exits of appreciated equity investments, with timing and amount dependent on exit proceeds, tax considerations, and broader capital allocation priorities. - Management intends to access the at-the-market (ATM) common stock equity program selectively only when market conditions are favorable and when accessing equity will support attractive shareholder returns.

Segment performance

As a business development company (BDC) focused on leveraged buyouts of middle-market operating companies with a combined debt and equity investment strategy, Gladstone Investment does not break out results into distinct product segments. The entire investment portfolio delivered the following aggregate performance for the quarter ended June 30, 2026: net investment income of $15.9 million (40 cents per share); total investment income of $28.4 million, up from $25.2 million in the prior quarter; weighted average yield on the $706 million interest-bearing investment portfolio of 12.9%; total portfolio fair value of $1.3 billion; net asset value (NAV) of $16.24 per share, down from $16.78 per share at the end of the prior quarter; spillover distributable income of $22.5 million ($0.56 per share) at quarter end, up from $21.3 million ($0.53 per share) prior quarter; and total distributable income of $160.4 million ($4.03 per share). Non-accrual investments represented 3.9% of the portfolio at cost and 1% at fair value as of quarter end.

Risks & headwinds

- Uncertain macroeconomic conditions, including elevated energy prices, potential supply chain disruptions, and higher tariff costs, create downside risk to portfolio company demand and margins. - The M&A acquisition market is highly competitive due to ample market liquidity, creating challenges sourcing new acquisitions at attractive valuations that fit the firm's investment criteria. - Portfolio company exits require multiple regulatory approvals across different jurisdictions, which creates timing uncertainty for completion of announced sales. - Three portfolio companies remain on non-accrual status, creating downside risk to portfolio valuations and net income if these cannot be returned to accrual or exited in an orderly fashion. - Variable income streams (equity dividend income and debt success fees) are dependent on individual portfolio company events, leading to potential quarter-over-quarter earnings volatility.

Analyst Q&A

• Q: The $5.6 million other income line and SFEG exit: what is it, and should investors expect a net realized gain after the valuation adjustment? /

  A: The $5.6 million is not related to the incentive fee reversal. It is prepaid success fee income from SFEG collected ahead of the pending exit. The current SFEG valuation already accounts for expected transaction costs, and management expects to generate a net realized gain from the exit that is aligned with the current marked valuation.

• Q: Why was the SFEG valuation adjusted lower quarter over quarter, and how did the buyer's valuation view differ from the prior quarter-end mark? /

  A: The valuation adjustment reflects escrow reserves required by the final purchase agreement and small accommodations made after buyer due diligence, not a change to the overall headline transaction value. The firm took a conservative approach to the valuation, and any unused escrow funds could result in additional proceeds later. The overall exit will still deliver a significant capital gain.

• Q: What is the current macroeconomic outlook for non-tech segments of the real economy, particularly regarding the expected increase in U.S. defense spending? /

  A: Most of the firm's diverse portfolio of consumer, industrial, and manufacturing companies are seeing rising quarter-over-quarter earnings with no broad macro disruptions. While the firm only has a small number of defense/aerospace companies, management is seeing more acquisition opportunities in the sector, which indicates owners expect sector growth. Portfolio companies in the space are already building backlog, and management is guardedly optimistic for performance over the next 6 to 9 months.

• Q: What is the plan for distributing the substantial SFEG exit capital gain to shareholders? /

  A: No final decision has been made, as management is carefully evaluating multiple factors including RIC tax requirements, excise tax implications, the firm's cost of capital, and the need to retain capital for future investments. Management will balance rewarding shareholders with current distributions while maintaining sufficient capital to continue sourcing new attractive investments, and has not ruled out a mix of cash and any other distribution structures.