Gladstone Investment NASDAQ: GAIN reported results for its fiscal third quarter ended Dec. 31, 2025, highlighting portfolio growth, a sharp increase in net asset value, and continued emphasis on maintaining its monthly distribution while pursuing buyout investments that combine both debt and equity.

Quarterly performance and portfolio growth

President David Dullum said the company delivered “a very strong performance” in fiscal 2026 to date, driven by both portfolio expansion and results at existing portfolio companies. Gladstone Investment ended the quarter with adjusted net investment income (NII) of $0.21 per share and total assets of about $1.2 billion, up roughly $92 million from the prior quarter.

The asset increase was attributed to one new buyout investment during the quarter and “fairly significant appreciation” of the investment portfolio. With that new investment, the company had 29 operating companies and management described the acquisition pipeline as “very healthy.”

Through the first nine months of fiscal 2026, Gladstone Investment said it invested approximately $163 million across four new portfolio companies, compared with about $221 million invested during all of fiscal 2025. Dullum emphasized that the firm’s strategy typically involves becoming the majority economic owner while financing acquisitions with a mix of equity and debt—equity for potential capital gains at exit and debt to generate recurring income to support shareholder distributions.

Income, yields, and the impact of rate floors

CFO Taylor Ritchie said total investment income was $25.1 million, slightly below $25.3 million in the prior quarter. He attributed the decline primarily to lower dividend and success fee income, partially offset by higher interest income as the debt investment portfolio grew.

The weighted average principal balance of interest-bearing investments rose to $699 million, up $30 million from the previous quarter. Adjusted for the collection of past-due interest from investments that had previously been on non-accrual, the portfolio’s weighted average yield decreased modestly from 13.2% to 12.9%. Ritchie said the 24-basis-point decline was broadly consistent with a 32-basis-point decline in SOFR during the quarter and was “mitigated” by interest rate floors embedded in each debt investment.

As of Dec. 31, the company’s weighted average interest rate floor (excluding non-accrual investments in revolving credit lines) was 12.1%. Ritchie said new debt investments are being underwritten with “elevated interest rate floors” in the 13% to 13.5% range to help mitigate potential declines in SOFR. He added that with “over half” of the debt portfolio currently at their floors, management believes portfolio yield is “well protected” against further rate declines.

On the call, Ritchie clarified that reaching the portfolio-wide floor would require a “significant” drop in SOFR, noting that it would take roughly 210 basis points of additional SOFR declines for more investments to hit their floors, and that the impact of rate decreases would not be one-for-one because of those floors.

Expenses, unrealized appreciation, and NAV jump

Ritchie said net expenses increased to $31.6 million from $21.0 million in the prior quarter, primarily due to a $9.9 million increase in the accrual of capital gains-based incentive fees. Base management fees rose by $0.5 million, which management linked to new buyout activity and significant unrealized appreciation. Fee credits from the adviser declined by $0.4 million, and interest expense decreased by $0.2 million due to the timing of debt issuance and redemption activity as well as new investment activity.

The quarter resulted in a net investment loss of $6.5 million, compared with net investment income of $4.3 million in the prior quarter. Adjusted NII—which excludes accrued or reversed capital gains-based incentive fees—was $8.2 million, or $0.21 per share, versus $9.2 million, or $0.24 per share, in the previous quarter.

On valuation, Ritchie said portfolio company valuations in the aggregate increased by $70.2 million of net unrealized appreciation, driven by improved performance at some portfolio companies and higher valuation multiples across the portfolio, partially offset by weaker performance elsewhere.

Gladstone Investment’s NAV increased to $14.95 per share from $13.53 at the end of the prior quarter. Ritchie said the move was primarily driven by $1.77 per share of net unrealized appreciation and $0.09 per share of net realized gains, partially offset by $0.24 per share of distributions, $0.16 per share of net investment loss, and $0.03 per share of realized losses tied to the redemption of 8% notes.

Balance sheet actions, liquidity, and leverage

Management highlighted several financing actions aimed at liquidity and interest cost reduction. Ritchie said Gladstone Investment redeemed the full $74.8 million outstanding balance of its 8% notes, using proceeds from newly issued $60 million of 6.875% notes and borrowings under its credit facility. The move reduced the interest burden for approximately $75 million of debt capital by about 110 basis points, according to the company.

The company also expanded its credit facility to add City National Bank with a $30 million commitment. Total commitments under the facility increased to $300 million, and the company reported about $171 million of remaining availability as of its earnings release.

During the quarter, Gladstone Investment raised approximately $3.2 million in net proceeds through its common stock at-the-market program, though management said it was limited by the trading price and would seek future issuances when they are accretive to NAV.

Leverage remained within management’s comfort zone. Ritchie reported an asset coverage ratio of 201% as of Dec. 31, 2025, which management said provides ample cushion relative to the 100% required ratio.

Distributions, spillover, and portfolio credit

Management reiterated its commitment to the monthly dividend, maintaining distributions of $0.08 per share per month, or $0.96 per share annually. Ritchie said the company began the prior fiscal year with $55.3 million of spillover income (about $1.50 per share), which supported the regular monthly distribution and a $0.54 per share supplemental distribution paid in June. As of Dec. 31, estimated spillover was approximately $22.9 million, or $0.58 per share.

Ritchie also reported total distributable income of $108.7 million, or $2.73 per share, which he said primarily reflects net unrealized appreciation and the GAAP-adjusted spillover balance on the balance sheet. Over the last five fiscal years, the company said it has paid 13 supplemental distributions totaling $3.26 per share, in addition to $4.68 per share of monthly distributions during that period. Looking ahead, management said supplemental distributions are expected to remain part of the shareholder return strategy, with timing and amounts driven by realized capital gains and other capital allocation considerations.

On credit quality, Ritchie said the company had three portfolio companies on non-accrual, unchanged from the prior quarter. Those non-accrual investments represented 3.8% of the total portfolio at cost and 1.5% at fair value. In the Q&A, management said it feels “better” about the non-accrual names than a year ago, citing actions being taken and noting the companies are generating positive EBITDA, though structural issues remain before a return to accrual status.

During analyst questions, management attributed notable NAV appreciation in certain investments to EBITDA growth rather than multiple expansion, including for Schylling, Old World Christmas, and SFE-SFEG. Executives also described the M&A market as liquid and competitive, noting that valuations can be challenging, but said the company remains disciplined in underwriting and continues to pursue both new platform investments and add-on acquisitions for existing portfolio companies.

About Gladstone Investment NASDAQ: GAIN

Gladstone Investment NASDAQ: GAIN is a publicly traded business development company (BDC) that focuses on providing debt and equity financing to U.S. middle-market companies. As an externally managed closed-end fund, Gladstone Investment seeks to generate current income and capital appreciation for its shareholders by originating senior secured debt, subordinated debt and equity investments. The firm typically targets established businesses with revenues between $10 million and $150 million, across a range of industry sectors including business services, health care, industrials and specialty manufacturing.

The company’s investment strategy centers on deploying capital through first-lien and second-lien term loans, mezzanine debt and equity co-investments, often including warrants or other equity kickers.

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