GLADSTONE INVESTMENT CORPORATION\DE Q4 FY2024 earnings call

• Fiscal year 2024 results: Adjusted NII was $1 per share, portfolio fair value rose to $921 million. Invested $184 million, including new buyouts and add-ons. Maintained monthly distribution of $0.08 per share, total annual distributions $2.20 per share.
• Portfolio overview: Since 2005, invested in 58 buyout companies, exited 31, with total assets at $921 million, net realized gains $290 million, and other income $42 million on exits. Balance sheet is strong with low leverage.
• Fourth quarter 2024: Total investment income was $23.6 million, up from $23.1 million prior quarter. Net expenses $18.3 million, net investment income $5.3 million. Adjusted net investment income $8.8 million or $0.24 per share. Portfolio companies on nonaccrual reduced to 2 from 3. Common stock ATM program raised $19 million. NAV increased to $13.43 per share.

For the fiscal year ending March 31, 2024, Gladstone Investment generated adjusted NII of $1 per share and increased the total fair value of its portfolio to $921 million, up from $754 million in the prior year. It invested a total of $184 million, with roughly $61 million in 2 new buyouts and $123 million in add-on investments/recapitalizations at existing portfolio companies. The aggregate annual distributions to shareholders were $2.20 per share. Since inception in 2005, it has invested in 58 buyout portfolio companies totaling ~$1.7 billion, exited 31, with total assets at $921 million, net realized gains of ~$290 million, and other income of ~$42 million on exits. The balance sheet is strong with low leverage, $135 million available on a $200 million credit facility. NAV increased to $13.43 per share in the quarter.

• Deal flow is strong with a building backlog of new opportunities. Actively working on new buyout deals, including add-ons. Expect to continue pursuing add-on opportunities. Balance between timing of exits to generate realized gains for supplementals and maintaining assets to support monthly dividend levels.

Factors causing actual results to differ from forward-looking statements, including risk factors listed in SEC filings. Uncertainties in deal quality and market conditions affecting investment decisions, such as high multiples making some deals less attractive and inconsistent EBITDA/company differentiators in certain opportunities.

Q: Dave, your fund reported a very nice unrealized gain of $0.88 per share apart from the reversal for the Mountain, can you highlight what drove that?

A: Unrealized depreciation is almost entirely due to performance at many portfolio companies, with decreased multiples across the portfolio offset by some companies performing well. There was also a reversal of unrealized depreciation of the Mountain upon its final dissolution.

Q: Given strong performers in the portfolio, is it reasonable to assume that you're going to harvest some of those unrealized gains?

A: Exits are driven by management teams. We take a hard look at reinvestment decisions. It's more likely there might be a good exit over the next year or so, balancing between exits for supplementals and maintaining assets for income.

Q: What's being done with Edge and Hobbs, which have been on nonaccrual?

A: Hobbs has a good management team; they've worked through issues with contracts and are seeing positive margin and EBITDA trends. Edge has some changes underway, and we're working with it to improve its status.

Q: You mentioned volume of opportunities was up but quality was spotty, any thoughts on what makes deals less attractive?

A: We're selective, looking for companies we can buy at 6x to 7.5x EBITDA. Some deals have high multiples (8x to 9x) which we're cautious about. Also, some companies have inconsistent EBITDA, lack clear market differentiators, but are decent businesses we can't fully get behind.