Press release·03/03/2025 00:11:02

OVERVIEW OF GLADSTONE INVESTMENT CORPORATION’S FINANCIAL PERFORMANCE

Gladstone Investment Corporation is a business development company (BDC) that provides debt and equity financing to lower middle market companies in the United States. The company was incorporated in 2005 and has elected to be treated as a regulated investment company (RIC) for U.S. federal income tax purposes.

Gladstone Investment’s primary investment objectives are to generate current income through debt investments and long-term capital appreciation through equity investments in private businesses. The company focuses on providing financing to companies with annual earnings before interest, taxes, depreciation and amortization (EBITDA) between $4 million and $15 million.

Investment Activity and Portfolio Performance

Over the past nine months, Gladstone Investment made several new investments and exits from its portfolio companies:

• In May 2024, the company exited its remaining investment in Funko Acquisition Holdings, LLC, realizing a small gain.
• In July 2024, Gladstone Investment provided additional debt financing to portfolio company Nocturne Luxury Villas, Inc. to fund an acquisition.
• In September 2024, the company exited its investment in Nth Degree Investment Group, LLC, generating a large realized gain on its preferred equity and repayment of its debt.
• Gladstone Investment made several new investments during the period, 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 Investment has invested approximately $2 billion across 62 portfolio companies, generating $374.5 million in total increases to its net assets through realized gains and other income upon exit. The company’s investment portfolio was comprised of 76.3% debt investments and 23.7% equity investments as of December 31, 2024.

Capital Raising and Financing Activities

Gladstone Investment has been able to access the capital markets to meet its financing needs, including through its revolving credit facility and public offerings of unsecured notes and common stock. During the nine months ended December 31, 2024, the company issued $126.5 million of 7.875% Notes due 2030 and sold $2 million of common stock through its at-the-market equity program.

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

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

Financial Performance Comparison

Gladstone Investment’s total investment income decreased 7.4% for the three months ended December 31, 2024 compared to the prior year period, primarily due to lower interest income and dividend/success fee income.

Total expenses, net of fee credits, increased 51.5% for the three-month period, driven by a significant increase in the capital gains-based incentive fee. Net investment income decreased 88.1% as a result.

However, for the nine-month period, total investment income increased 3.9% and net investment income grew 26.8% compared to the prior year, despite a decrease in the capital gains-based incentive fee.

The company recorded net realized gains of $42.3 million for the nine months, primarily from the exit of its Nth Degree investment. But it also had $15.7 million in net unrealized depreciation on its investment portfolio during this period.

Overall, Gladstone Investment reported a 24.4% decrease in net increase in net assets resulting from operations for the nine-month period compared to the prior year.

Regulatory Compliance and Distributions

Gladstone Investment must comply with the asset coverage requirements of the Investment Company Act of 1940, which changed from 200% to 150% in 2019. As of December 31, 2024, the company’s asset coverage ratio on senior securities was 185.9%.

The company has maintained its status as a RIC for tax purposes, which allows it to avoid corporate-level federal income taxes by distributing at least 90% of its investment company taxable income to shareholders. Gladstone Investment paid monthly cash distributions of $0.08 per common share during the nine-month period, as well as a $0.70 per share supplemental distribution.

Outlook and Conclusion

Gladstone Investment continues to actively manage its investment portfolio, making new debt and equity investments while also realizing gains from successful exits. The company’s ability to access the capital markets has provided it with financing flexibility to support its investment activities.

However, the company faces some headwinds, including loans on non-accrual status, unrealized depreciation in parts of its portfolio, and the constraint on equity issuances when its stock trades below net asset value. Maintaining its regulatory compliance and dividend distributions to shareholders will also be an ongoing priority.

Overall, Gladstone Investment appears to be navigating the current business environment effectively, leveraging its expertise in the lower middle market to generate current income and long-term capital appreciation for its shareholders. The company’s diversified portfolio, access to capital, and prudent risk management provide a solid foundation for continued performance.