Press release·02/13/2025 04:31:05

OVERVIEW OF GLADSTONE INVESTMENT CORPORATION’S FINANCIAL PERFORMANCE

Gladstone Investment Corporation is an externally managed, closed-end, non-diversified management investment company that has elected to be treated as a business development company (BDC) under the Investment Company Act of 1940. The company’s primary investment objectives are to achieve current income by investing in debt securities of established private businesses in the United States, and to provide long-term capital appreciation by investing in equity securities of those businesses.

Investment Activity and Portfolio Over the nine months ended December 31, 2024, Gladstone Investment made several key investments and exits:

• In May 2024, the company exited its remaining investment in Funko Acquisition Holdings, LLC, realizing a small gain.
• In July 2024, Gladstone invested an additional $18.5 million in secured debt to fund an acquisition by portfolio company Nocturne Luxury Villas, Inc.
• In September 2024, the company exited its investment in Nth Degree Investment Group, LLC, realizing a large gain of $42.3 million on its preferred equity.
• Gladstone made several new investments, including $27.2 million in Pyrotek Special Effects, Inc., $71.3 million in Nielsen-Kellerman, Inc., and $78.7 million in Ricardo Defense, Inc.

Overall, Gladstone’s investment portfolio was valued at $1.07 billion as of December 31, 2024, up from $902.8 million a year earlier. The portfolio consisted of 76.3% debt investments and 23.7% equity investments at cost.

Capital Raising and Financing Gladstone has been able to meet its capital needs through its revolving credit facility, as well as by accessing the public markets to issue unsecured notes and common stock. In December 2024, the company issued $126.5 million of 7.875% Notes due 2030. It also sold $2 million of common stock through its “at-the-market” equity program during the quarter.

The company’s credit facility was recently amended to increase the total commitment to $250 million, with the potential to expand it further to $300 million. As of December 31, 2024, Gladstone had $91.5 million outstanding on the credit facility.

Financial Performance For the three months ended December 31, 2024, Gladstone reported:

• Total investment income of $21.4 million, down 7.4% from the prior year period
• Net investment income of $1.2 million, down 88.1%
• Net realized and unrealized gains of $37.3 million, compared to a $3.2 million loss in the prior year period
• A net increase in net assets resulting from operations of $38.5 million, up 485.0%

The decrease in net investment income was primarily due to a $1.2 million decline in interest income and a $0.5 million decline in dividend and success fee income. Expenses increased by $6.9 million, driven by a $7.7 million increase in the capital gains-based incentive fee.

For the nine months ended December 31, 2024, Gladstone reported:

• Total investment income of $66.1 million, up 3.9% from the prior year period
• Net investment income of $20.9 million, up 26.8%
• Net realized and unrealized gains of $26.6 million, down 42.6%
• A net increase in net assets resulting from operations of $47.4 million, down 24.4%

The increase in total investment income was due to higher interest income and dividend/success fee income. Net realized gains were strong at $42.3 million, but down slightly from the prior year period. Net unrealized depreciation of $15.7 million offset the realized gains.

Distributions and Dividends Gladstone has maintained a steady stream of monthly cash distributions to common stockholders, paying $0.08 per share for each of the nine months from April through December 2024. The company also paid a $0.70 per share supplemental distribution in October 2024.

For the fiscal year ended March 31, 2024, the company’s investment company taxable income and net capital gains exceeded the distributions paid, allowing Gladstone to elect to treat a portion of the subsequent year’s distributions as having been paid in the prior year for tax purposes.

Regulatory Compliance As a BDC, Gladstone is subject to regulatory requirements around leverage and asset coverage. The company’s asset coverage ratio on senior securities representing indebtedness was 185.9% as of December 31, 2024, well above the 150% minimum.

In April 2019, Gladstone’s Board of Directors approved a reduction in the asset coverage requirement from 200% to 150%, in line with changes made to the Investment Company Act.

Outlook and Analysis Gladstone Investment has demonstrated its ability to actively manage its investment portfolio and access the capital markets to fund new opportunities. The company’s focus on the lower middle market private businesses has generated a mix of current income from debt investments and capital appreciation from equity stakes.

The decline in net investment income for the three-month period was primarily due to a drop in interest income and higher incentive fees, but this was offset by strong net realized and unrealized gains. Over the nine-month period, Gladstone saw growth in total investment income and net investment income, though net realized and unrealized gains declined.

The company’s credit facility provides flexibility to fund new investments, and the recent note issuances have further diversified its capital structure. Gladstone’s regulatory compliance also remains strong, with ample asset coverage to support its borrowings.

Looking ahead, Gladstone’s ability to continue sourcing attractive lower middle market opportunities, while managing credit quality and realizing gains on equity investments, will be key to sustaining its financial performance. Maintaining access to the capital markets to fund growth will also be an important factor. Overall, Gladstone Investment appears well-positioned to execute on its objectives of generating current income and long-term capital appreciation for shareholders.