EPS of $1.05 increased by 452.6% from previous year
Gross margin of 84.8%
Net income of 38.49M
"N/A" - N/A
Gladstone Investment Corporation (GAINL) QQ3 2025 Results: Robust Net Income in a Volatile Portfolio, With Cash Flow Challenges and Balance Sheet Leverage
Executive Summary
Gladstone Investment Corporation delivered a quarter (QQ3 2025) characterized by a sharp YoY revenue decline but a meaningful QoQ rebound in profitability metrics. Revenue for QQ3 2025 stood at $42.07 million, down 36.8% from the prior-year quarter, while gross profit reached $35.685 million with a robust gross margin of 84.8%. Operating income and net income were both $38.49 million, implying stable margins (operating margin ~91.5%) and a flat tax posture (no income tax expense recorded). Earnings per share were $1.05 on a weighted average share count of ~36.73 million. The quarter’s profitability was accompanied by a strong cash earnings print in GAAP terms but a markedly negative cash flow from operations (CFO) of approximately -$171.86 million, driven by large non-cash items and heavy investing activity. Net cash provided by financing activities offset investing cash outflows, yielding a small net change in cash of $0.47 million and ending cash of $3.15 million. The balance sheet shows substantial long-term investments (~$1.07 billion) and a relatively high short-term debt position (~$455 million), underpinning a leveraged financial position with a debt-to-equity of ~0.93 and a debt-to-capitalization of ~0.481. While liquidity metrics are weak (current and quick ratios around 0.02), the company maintains an attractive dividend yield (~7.1%) with a payout ratio near 89.6%, consistent with a regulated closed-end fund seeking to meet income expectations. Management commentary is not included in the provided transcript dataset, limiting direct quotes; as such, the narrative relies on reported numbers and implied portfolio dynamics. Investors should weigh the compelling earnings print against the cash-flow headwinds and balance-sheet leverage, and monitor portfolio realizations and financing conditions in the near term.
Net Income: $38.49 million; Net Margin: 91.49%; YoY: +485.04%; QoQ: +148.61%
Earnings Per Share (EPS): $1.05; Diluted EPS: $1.05; Weighted Avg Shares: 36.727 million
Financial Highlights
Summary of key metrics and drivers for QQ3 2025:
- Revenue: $42.07 million; YoY change: -36.78%; QoQ change: +92.25%
- Gross Profit: $35.685 million; Gross Margin: 84.8%; YoY: -32.93%; QoQ: +130.46%
- Operating Income: $38.49 million; Margin: 91.49%; YoY: +92.96%; QoQ: +148.61%
- Net Income: $38.49 million; Net Margin: 91.49%; YoY: +485.04%; QoQ: +148.61%
- Earnings Per Share (EPS): $1.05; Diluted EPS: $1.05; Weighted Avg Shares: 36.727 million
- EBITDA: $38.49 million; EBITDA Margin: 91.49%
- Cash Flow (Operating): -$171.86 million; Free Cash Flow: -$171.86 million; CFO per share: -$4.78; FCF per share: -$4.68
- Cash at End of Period: $3.147 million (from $2.674 million at the start)
- Net Cash Provided by/Used in Financing: +$172.33 million; Net Cash Used in Investing: -$181.59 million; Net Change in Cash: +$0.47 million
- Balance Sheet: Total Assets $1.08776 billion; Total Liabilities $597.707 million; Total Equity $490.053 million; Cash & Cash Equivalents $3.147 million; Short-Term Debt $455.058 million; Long-Term Debt: not disclosed; Total Debt $455.058 million; Net Debt $451.911 million
- Liquidity Ratios: Current Ratio 0.0186; Quick Ratio 0.0186; Cash Ratio 0.00622
- Leverage and Valuation: Debt/Equity 0.929; Debt/Capitalization 0.481; P/E 3.16; P/B 0.993; Dividend Yield 7.09%; Dividend Payout Ratio 89.6%
- Portfolio and Invested Capital: Long-Term Investments $1.07223 billion; Total Investments $1.07223 billion
Income Statement
Metric
Value
YoY Change
QoQ Change
Revenue
42.07M
-36.78%
92.25%
Gross Profit
35.69M
-32.93%
130.46%
Operating Income
38.49M
92.96%
148.61%
Net Income
38.49M
485.04%
148.61%
EPS
1.05
452.63%
150.00%
Key Financial Ratios
currentRatio
0.02
grossProfitMargin
84.8%
operatingProfitMargin
91.5%
netProfitMargin
91.5%
returnOnAssets
3.54%
returnOnEquity
7.85%
debtEquityRatio
0.93
operatingCashFlowPerShare
$-4.78
freeCashFlowPerShare
$-4.68
dividendPayoutRatio
89.6%
priceToBookRatio
0.99
priceEarningsRatio
3.16
Net Income vs. Revenue
Expense Breakdown
Management Commentary
Management call transcript not provided in the dataset. No direct quotes available from the QQ3 2025 earnings call. Expected themes in a typical management discussion would include portfolio performance, investment pacing, exit opportunities, leverage management, and distribution policy. Given the margin resilience and the negative operating cash flow, investors should listen for any guidance on portfolio monetization timelines, changes in leverage strategy, and expectations for 4Q 2025 and beyond.
N/A
— N/A
N/A
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Forward Guidance
Guidance is not present in the provided data. Absent explicit management targets, the forward view should be anchored to portfolio activity and financing conditions. Potential scenarios:
- Base case: Continued emphasis on realized gains from exits/recapitalizations and selective capital deployment, with a gradual improvement in operating cash flow if non-cash adjustments normalize and investment activity moderates.
- Downside risk: Prolonged macro volatility or higher credit risk leading to slower exits and continued heavy investing activity that depresses CFO and FCF in the near term.
Key factors to monitor: (1) portfolio realization events and timing of exits/recapitalizations, (2) changes in leverage or debt facilities and financing costs, (3) net investments and realizations from long-term investments, (4) dividend coverage given payout policy and market conditions, and (5) any guidance on quarterly dividend targets or capital deployment pace.
Competitive Position
Company
Gross Margin
Operating Margin
Return on Equity
P/E Ratio
GAINL Focus
84.82%
91.50%
7.85%
3.16%
Gross Profit Margin
Operating Profit Margin
Return on Equity
P/E Ratio Comparison
Investment Outlook
QQ3 2025 presents a paradox: strong reported profitability metrics (operating income and net income) alongside pronounced cash-flow headwinds and a highly leveraged balance sheet. The high dividend yield and near-1x price-to-book valuation imply the market is pricing in risk, with potential upside if portfolio monetization events and favorable financing conditions materialize. Investors should assess two key levers: (1) the likelihood and timing of exits/recapitalizations that could unlock cash and reduce leverage, and (2) any prospect of improving operating cash flow through normalization of non-cash adjustments and disciplined deployment of capital. In a relatively illiquid asset-management context, the stock may appeal to yield-focused investors who can tolerate capital-intensive finance dynamics and potential volatility in cash flow. The absence of explicit management guidance in the provided dataset warrants a cautious stance; monitoring portfolio realization cadence, debt management, and changes in fee-based revenue will be critical to validate the sustainability of the current earnings trajectory. Overall, the investment thesis hinges on value realization within the portfolio and the ability to manage leverage while maintaining a stable distribution profile.
Key Investment Factors
Growth Potential
Potential upside from monetization of long-term investments, successful exits/recapitalizations, and selective new deal origination within Gladstone's lower middle market focus. Portfolio diversification across manufacturing, consumer products, and business services may help dampen sector-specific shocks. The combination of debt and minority/majority equity stakes can create multiple value creation levers (interest income, dividends, equity appreciation, and exit proceeds).
Profitability Risk
Key risks include: (i) liquidity and cash-flow volatility given heavy investing activity and large non-cash adjustments; (ii) credit risk and asset-quality deterioration in a leveraged portfolio; (iii) sensitivity to interest rate movements affecting borrowing costs and exit markets; (iv) equity-market volatility impacting portfolio valuations; (v) regulatory and macroeconomic shifts that could affect end-market demand and exit timing.
Financial Position
The balance sheet shows substantial long-term investments and a leveraged capital structure. Total assets of $1.088B with long-term investments of $1.072B indicate a focus on illiquid asset classes. Short-term debt of $455.06M and net debt of $451.91M imply material leverage, albeit with a relatively modest equity base ($490.053M). Liquidity metrics are weak (current ratio and quick ratio ≈ 0.02), suggesting reliance on financing activities to fund investing and distributions. The payout ratio is elevated at 89.6%, consistent with a closed-end fund strategy that targets steady distributions but may constrain balance sheet flexibility if cash flows deteriorate.
SWOT Analysis
Strengths
Significant scale of long-term investments (~$1.07B) supporting ongoing income streams.
High gross margin (84.8%) and robust EBITDA margins (~91.5%) in QQ3 2025.
Dividend-focused strategy with a 7.1% yield and a payout ratio of 89.6%, aligning with investor appetite for income.
Experienced asset-management/private-equity play in the lower middle market with a structured approach to debt and equity investments.
Weaknesses
Severely limited liquidity, with current and quick ratios around 0.02 and CFO consistently negative in the reported quarter.
Material leverage and short-term debt exposure, raising refinancing risk and sensitivity to rate changes.