Press release·03/02/2025 23:51:49

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 in Nocturne Luxury Villas, Inc. to fund an acquisition.
• 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 totaling $132.2 million, including $27.2 million in Pyrotek Special Effects, Inc., $71.3 million in Nielsen-Kellerman, Inc., and $78.7 million in Ricardo Defense, Inc.

From its initial public offering in 2005 through December 2024, Gladstone has invested approximately $2.0 billion across 62 companies, generating $374.5 million in net realized gains and other income upon exit. The company’s investment portfolio is currently comprised of 76.3% debt investments and 23.7% equity investments.

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. In February 2025, the company amended its credit facility to increase the total commitment to $250 million.

During the nine months ended December 31, 2024, Gladstone issued $126.5 million of 7.875% Notes due 2030 and sold $2.0 million of common stock through its at-the-market equity program. In the prior year, the company issued $74.8 million of 8.00% Notes due 2028 and sold $44.5 million of common stock.

The company’s ability to issue equity is constrained when its stock trades below net asset value per share. As of December 31, 2024, Gladstone’s stock was trading at a 0.4% discount to its $13.30 NAV per share.

Regulatory Compliance As a BDC, Gladstone is subject to regulatory requirements including maintaining asset coverage of at least 150% on its senior securities. As of December 31, 2024, the company’s asset coverage ratio on senior securities was 185.9%.

Financial Performance Comparison

Three Months Ended December 31, 2024 vs. 2023

• Total investment income decreased 7.4% to $21.4 million, primarily due to lower interest income and dividend/success fee income.
• Total expenses, net of fee credits, increased 51.5% to $20.2 million, driven by a $7.5 million increase in the capital gains-based incentive fee.
• Net investment income decreased 88.1% to $1.2 million.
• Net realized and unrealized gains were $37.3 million, compared to a $3.2 million loss in the prior year period.
• Net increase in net assets from operations was $38.5 million, up from $6.6 million.

Nine Months Ended December 31, 2024 vs. 2023

• Total investment income increased 3.9% to $66.1 million, with higher interest income and dividend/success fee income.
• Total expenses, net of fee credits, decreased 4.1% to $45.2 million, as a $7.6 million decrease in the incentive fee offset increases in other expenses.
• Net investment income increased 26.8% to $20.9 million.
• Net realized and unrealized gains were $26.6 million, compared to $46.3 million.
• Net increase in net assets from operations was $47.4 million, down from $62.7 million.

Analysis of Financial Performance

Gladstone’s investment income performance was mixed over the periods, with interest income increasing but dividend and success fee income declining. The decrease in the latter was a key driver of the 7.4% drop in total investment income in Q3 2024.

The large swing in net realized and unrealized gains/losses was a significant factor in the company’s profitability. In Q3 2024, Gladstone recognized $37.3 million in net gains, compared to a $3.2 million loss a year earlier, boosting the net increase in net assets. However, for the nine-month period, net gains declined from the prior year.

The increase in expenses, particularly the capital gains incentive fee, weighed on net investment income in Q3 2024, which fell 88% year-over-year. But for the nine-month period, the 26.8% increase in net investment income was a positive.

Overall, Gladstone demonstrated the ability to generate solid investment income and realized gains, though unrealized fluctuations and variable expenses created volatility in profitability. The company’s focus on debt investments in lower middle market companies appears to be generating attractive risk-adjusted returns.

Outlook and Risks

Looking ahead, Gladstone will need to navigate a challenging economic environment, with the potential for rising interest rates, increased competition for deals, and portfolio company performance issues. The company’s ability to continue growing its investment portfolio and realizing gains will be critical.

Regulatory constraints on equity issuance when the stock trades below NAV could limit Gladstone’s financial flexibility if that situation persists. Maintaining sufficient access to capital through its credit facility and debt markets will be important.

Additionally, the company’s exposure to non-accrual loans, which totaled $90 million as of December 31, 2024, bears watching. Gladstone will need to carefully monitor the performance of these investments and manage any potential losses.

Despite these risks, Gladstone’s track record of successfully exiting investments and growing its net asset value provides reason for optimism about the company’s long-term prospects. Its focus on the lower middle market, where competition may be less intense, could continue to yield attractive risk-adjusted returns. Prudent capital management and disciplined underwriting will be keys to navigating the current environment.