Justin (on behalf of Alex Scott)

Justin, on behalf of Erik Zwick, inquired about the current state of underwriting conditions, specifically if there's pressure on terms or structure due to the tighter spread environment. He also asked about the health of the investment pipeline compared to a year ago and if any specific sectors are yielding better deals. Lastly, Justin sought an update on the outlook for asset quality and potential near-term resolutions for companies on the non-accrual list.

Answer

David Dullum, President of Gladstone Investment, stated that their underwriting model (70% debt, 30% equity, targeting 2x cash on cash for equity) has not significantly changed, and they remain disciplined on multiples despite market competition. He noted the pipeline is similar to or healthier than a year ago, with activity across sectors, though the consumer area is slightly weaker due to tariffs, while business services and aerospace/defense manufacturing show promise. Dullum and Taylor Ritchie, CFO, expressed a positive outlook on the non-accrual companies, noting they are all generating positive EBITDA and that actions are being taken towards potential exits or a return to accrual status, with the situation looking more positive than a year ago.

Justin asked about the current state of underwriting conditions, specifically if there's pressure on terms or structure due to the tighter spread environment, how the current pipeline compares to a year ago, and the outlook for asset quality, including opportunities to resolve non-accrual names.

Answer

David Dullum, President of Gladstone Investment, stated that their underwriting model (70% debt, 30% equity, targeting 2x cash-on-cash for equity) remains disciplined, with no significant changes due to market conditions. He noted the pipeline is similar to a year ago, with consumer sectors slightly weaker due to tariffs, while business services and aerospace/defense show good activity. Dullum and David Gladstone, Chairman and CEO, expressed a more positive outlook on the three non-accrual companies, noting they are generating positive EBITDA and actions are underway that could lead to their return to accrual status or potential exits.

Justin (on behalf of Alex Scott) inquired about the 1% impact on retail organic growth and whether recent results indicate a mean reversion to the previously stated low single-digit organic growth for retail in the long term.

Answer

CEO Powell Brown explained the 1% impact was due to a negative adjustment for employee benefits incentive commissions, resulting from overperformance in 2024 and not meeting increased targets in 2025, which will also affect Q4. He reiterated the company's consistent 16-year stance that retail is a low to mid-single-digit organic growth business in a steady economy, acknowledging the current 2.7% organic growth.

Justin asked if recent retail organic growth results indicate a mean reversion towards the company's long-term low single-digit expectation, as the company plans for the upcoming year.

Answer

Powell Brown, President and CEO, reiterated the company's consistent 16-year view that the retail business is a low to mid-single-digit organic growth business in a steady-state economy. He acknowledged the 2.7% organic growth for retail, including headwinds, but did not provide 2026 guidance.