Fidus Investment Corporation Stock

Good day, and welcome to the Fidus Second Quarter 2026 Earnings Conference Call.

[Operator Instructions]

Please note this event is being recorded. I would now like to turn the conference over to Jody Burfening. Please go ahead.

Thank you, Danielle, and good morning, everyone, and thank you for joining us for Fidus Investment Corporation's Second Quarter 2026 Earnings Conference Call. With me this morning are Ed Ross, Fidus Investment Corporation's Chairman and Chief Executive Officer; and Shelby Sherard, Chief Financial Officer. Fidus Investment Corporation issued a press release yesterday afternoon with the details of the company's quarterly financial results. A copy of the press release is available on the Investor Relations page of the company's website at fdus.com.

I'd also like to call your attention to the customary safe harbor disclosure regarding forward-looking information included on today's call. The conference call today will contain forward-looking statements, including statements regarding the goals, strategies, beliefs, future potential, operating results and cash flows of Fidus Investment Corporation. Although management believes these statements are reasonable based on estimates, assumptions and projections as of today, August 7, 2026, these statements are not guarantees of future performance.

Time-sensitive information may no longer be accurate at the time of any telephonic or webcast replay. Actual results may differ materially as a result of risks, uncertainties and other factors, including, but not limited to, the factors set forth in the company's filings with the Securities and Exchange Commission. Fidus undertakes no obligation to update or revise any of these forward-looking statements. With that, I would now like to turn the call over to Ed. Good morning, Ed.

Good morning, Jody, and good morning, everyone. Welcome to our second quarter 2026 earnings conference call. On today's call, I'll start with a review of our second quarter performance and our portfolio at quarter end and then share with you our outlook for the second half of 2026. Shelby will cover the second quarter financial results and our liquidity position. After we have completed our prepared remarks, we'll be happy to take your questions.

Although ongoing geopolitical uncertainties and market volatility weighed on deal activity levels in the fragmented lower middle market, we continue to build our diversified portfolio of debt and equity investments in the second quarter. Our long-standing relationships with high-quality sponsors, our proven investment strategy and industry knowledge continue to differentiate Fidus.

These attributes create opportunities for us to add, through disciplined selection, niche market leaders with defensible moats and resilient business models that generate cash flows to service debt and support realistic growth strategies. As a result, our portfolio remains healthy and structured to produce both high levels of current and recurring income and the potential for capital gains from monetizing equity investments.

Adjusted NII of $0.50 per share extended our track record of covering our base dividend. In addition, we realized net gains of $6.4 million or $0.17 per share from the monetization of 3 equity investments. Net asset value was $738.5 million at quarter end or $19.46 per share. For the third quarter of 2026, the Board of Directors declared a total dividend of $0.50 per share, which consists of a base dividend of $0.43 per share and a supplemental dividend of $0.07 per share, equal to 100% of the surplus in adjusted NII over the base dividend from the prior quarter, which will be payable on September 29, 2026, to stockholders of record as of September 15, 2026.

Originations in the second quarter amounted to $98 million, the vast majority of which were M&A-driven first lien investments. We invested a total of $48.1 million in 4 new portfolio companies. In terms of existing portfolio company investments, we continue to support many of them with acquisition capital in the form of debt and equity investments. As we continue to build our portfolio, we remain focused on maintaining a high level of diversity while investing in growing companies that provide essential products and services with an emphasis on manufacturing, distribution and service enterprises.

Proceeds from repayments and realizations totaled $39.2 million for the second quarter. At quarter end, our portfolio on a fair value basis stood at $1.4 billion or 102% of cost and consisted of $1.3 billion in debt investments and $147.2 million in equity investments. Our portfolio remains well structured to produce both high levels of recurring income and capital gains from monetizing equity investments, coupled with attractive loan-to-value characteristics.

Our debt portfolio continues to perform well and is sound from a credit quality perspective given the solid fundamentals of our underlying portfolio companies. At 6/30, one portfolio company, Virtex, remained on nonaccrual, accounting for less than 1% of the total portfolio on both a fair value and cost basis. Subsequent to quarter end, we exited our second lien and subordinated debt investments in Virtex Enterprises LP, which had previously been written down. We received payment of $0.2 million, resulting in an aggregate realized loss of $11 million. As a result, as of today, we do not have any investments on nonaccrual status.

Looking ahead to the second half of 2026, given the pent-up demand in the M&A market, we expect deal flow and investment activity to pick up as geopolitical uncertainties abate. So such timing is not entirely clear. Yet deal flow appears to be picking up as we sit here today. In addition, even in this more muted environment, our portfolio continues to be active and a meaningful source of new investments.

As we have in the past, through periods of both robust and sluggish deal activity and during the heightened risk associated with the pandemic, we will adhere to our strict underwriting standards to maintain a well-diversified portfolio that produces both high levels of current and recurring income and offers the potential for enhanced returns from monetizing equity investments. Our portfolio is well positioned to continue to generate adjusted NII that covers our base dividend. We remain focused on managing the business for the long term and committed to our goals of capital preservation and generating attractive risk-adjusted returns.

Now I'll turn the call over to Shelby to provide some details on our financial and operating results. Shelby?

Thank you, Ed, and good morning, everyone. I'll review our second quarter results in more detail and close with comments on our liquidity position. Please note, I will be providing comparative commentary versus the prior quarter Q1 2026. Total investment income was $43.5 million for the 3 months ended June 30, a $4 million decrease from Q1, primarily driven by a $2.6 million increase in interest income driven by increased average debt investments outstanding, a $0.6 million increase in dividend income from equity investments, offset by a $6.8 million decrease in fee income, primarily related to the fees from the American AllWaste debt refinancing recognized in Q1. Total expenses, including income tax provision, were $24.8 million for the second quarter, a $1.9 million higher than Q1, driven primarily by a $1.2 million increase in interest expense related to higher average debt balances outstanding and the refinancing of our unsecured notes due November 2026 completed in the second quarter, which included approximately $0.4 million of duplicative interest given the timing of the redemption of the unsecured notes.

A $0.3 million increase in base management fees given increase in assets under management, offset by a $1.2 million decrease in income incentive fees given lower fee income in Q2. A $0.4 million increase in G&A expenses primarily related to proxy solicitation costs related to the Annual Shareholder Meeting held in Q2 and a $1.2 million increase in capital gains fee accrual. Net investment income, or NII, for the 3 months ended June 30 was $0.49 per share versus $0.65 per share in Q1. Adjusted NII, which excludes any capital gains, incentive fee accruals or reversals attributable to realized and unrealized gains and losses on investments, was $0.50 per share in Q2 versus $0.62 in Q1.

For the 3 months ended June 30, we recognized approximately $6.4 million of net realized gains on our equity investments in Medsurant Holdings, USG AS Holdings and Worldwide Express Operations. We ended the quarter with [ $739.8 million ] of debt outstanding, comprised of $296 million of SBA debentures, $320 million of unsecured notes, $112.7 million outstanding on the line of credit and $11.1 million of secured borrowings.

Our net debt-to-equity ratio as of June 30 was 1x. Our statutory leverage, excluding exempt SBA debentures was 0.6x. The weighted average interest rate on our outstanding debt was 5.8% as of quarter end versus 5.2% in Q1. The increase in the cost of debt is driven by the refinancing of the 3.5% unsecured notes that were due in November with new unsecured notes with a higher interest rate of 6.625% that are due in June 2029. As a result of the refinancing, our earliest debt maturity is now in June 2029.

Turning now to portfolio statistics. As of June 30, our total investment portfolio had a fair value of $1.4 billion. Our average portfolio investment on a cost basis was $14 million, which excludes investments in 8 portfolio companies that sold their operations during the process of winding down. We have equity investments in approximately 82.4% of our portfolio companies with average fully diluted equity ownership of 2.1%. Weighted average effective yield on debt investments was 12.5% as of June 30, in line with Q1. The weighted average yield is computed using effective interest rates for debt investments at cost, including the accretion of original issue discount and loan origination fees, but excluding investments on nonaccrual, if any.

Now I'd like to briefly discuss our available liquidity. As of June 30, our liquidity and capital resources included cash of $39.3 million, $112.3 million of availability on our line of credit and $18.5 million of available SBA debentures, resulting in total liquidity of approximately $170.1 million. Now I'll turn the call back to Ed for concluding comments.

Thanks, Shelby. As always, I'd like to take -- thank our team and our Board of Directors at Fidus for their dedication and hard work and our shareholders for their continued support. I will now turn the call over to Danielle for Q&A. Danielle?

[Operator Instructions]

The first question comes from Robert Dodd from Raymond James.

Congratulations on the quarter. If I can ask on the market outlook, Ed, I mean, as you say, and there's uncertainty, there's a lot going on globally. Your color kind of indicated that you do think deal activity is going to pick up -- is picking up right now. But overall timing, like I mean, is it going to be strong in the second half? Is it going to be stronger in '27? I mean, can you give us any more feel for kind of like what -- and again, you already hedged a little bit on the timing. So I'm not trying to totally pin you down, but like kind of what does it, kind of, feel like for the second half of this year versus is it just going to be more '27?

It's a great question, Robert, and I wish I had a crystal ball. What I would say, and I did allude to it and you caught it, is that we are seeing a higher level of deal flow today than we were 60 days ago, for sure. And I think that bodes well for Q4 in particular, maybe Q3 for some, but I think it bodes well for Q4. But there clearly are uncertainties in the world today that could get in the way of some of that. But that's how we're thinking about it as we sit here today. Deal flow is picking up. I mean, if I go back to Q1 and Q2, deal flow was not robust. There was some deal flow. I would say quality was also lackluster.

So our hope is quality does and continues to improve. And with that, hopefully, activity levels across the board will pick up a little bit. But I think there's also good news from our perspective, which is our portfolio continues to be quite active. It was in Q1. It was in Q2. I think there has been activity here in Q3. A couple -- we've had one funding of a commitment we made in Q2, and we've also made 2 sizable add-on investments in July that were acquisition related. So I do think things continue to move along from a portfolio investment perspective, and that's healthy, and we like that. The whole idea of incumbency is a good thing. But we also expect new deal activity probably more in Q4 to pick up so.

Got it. I appreciate that color. On credit quality, obviously, I mean, Virtex, after the end of the quarter, was exited. So you're back down to 0 non-accruals right now. I mean, are you seeing anything on the horizon or anything in any particular portfolio that comes up? I mean anything that gives you any concern over the next 6 to 12 months about credit quality, either in your portfolio or even more broadly, I mean, for the economy?

Sure. No, it's a great question. And what I would say is that -- as you know, we have some companies performing really well, some that are performing as expected and a lot that are performing kind of as expected, if you will. So I think we aren't seeing anything systemic, if you will. We're all aware of the higher oil prices. We're all aware of the lower end consumer struggling a little bit more than maybe others. But generally speaking, we are seeing healthy growth in our portfolio. EBITDA growth levels this quarter, about 6%. And so we feel good about kind of the outlook and really the strength of the portfolio as we sit here today.

Got it. If I can, one more. You've talked about it. I mean, it's still topical, software, and you do have a good chunk of software though. It tends to be specialized software. Anything -- have you seen any impacts on any of your software book from the AI discussions or pressures or anything like that? Or is it just business as usual?

I think it's more business as usual. I think our software and tech-enabled services portfolio continues to perform well. Our debt portfolio with regard to our software and tech-enabled services is marked at 99% of cost as we sit here today. We think we've invested in a very resilient group of companies. But as is typical of any 100 company portfolio or with regard to software, a meaningful portfolio, from time to time, we have a few businesses dealing with company-specific issues. But really, as it pertains to AI risk, we are not seeing any widespread performance issues showing up in the portfolio. What I would say is that most borrowers are investing in and adopting AI capabilities to reduce costs and also just improve their products. And we also believe many of them are well positioned to capitalize on their advancing AI capabilities and software capabilities. So we are pleased with where the portfolio is and expect it to continue to perform well as we sit here today.

[Operator Instructions]

The next question comes from Christopher Nolan from Ladenburg Thalmann.

A follow-up on Robert's question in terms of the pickup in deal flow. Ed, what does this all mean for terms and conditions? I mean -- and I guess there is a -- in terms of the deals that you're seeing. And also, is the pickup in deal flow, private equity sponsors, just trying to find an exit after such a lull?

No. I mean, yes, I think there's pent-up demand for exits, and then that will help drive -- but I think that's clearly in the private equity world, but also independent companies that maybe we're thinking about it's time for a transaction to take place. And so we just -- there's just a fair bit of pent-up demand out there. And I think as uncertainties abate, we do expect more activity. I think from a terms and conditions perspective, one of the things we like about the lower middle market is our -- we have maintenance covenants. Our leverage levels are lower. If you were to look at our weighted average leverage of our cash flow portfolio, it's 4.1x. So it's materially lower than the broader market. Pricing is better. You can see that reflected in our spreads.

And so we like the market that we're in, and we expect those general terms to remain stable in terms of covenants and pricing and whatnot and structures. The other one I would mention is just loan to value. Our portfolio today has a loan-to-value, a weighted average loan-to-value of 41%. We target almost every deal having 50% loan-to-value or less. And that has, I think, been helpful to us, but also gives us a fair bit of cushion when things don't go exactly right to weather storms. And so we expect those opportunities to continue as well.

Got you. And I guess for Shelby, as a follow-up, on Virtex Enterprises with the exit in the third quarter, it appears that you exited pretty close to the mark. Am I missing something? Or is that...

That's correct. That's correct.

So it should be pretty neutral on that.

The next question comes from Paul Johnson from KBW.

Congrats on a stable quarter. I'm just wondering maybe more broadly in terms of how you're looking at credit. I think it seems fairly obvious, things are performing quite well and you have a nonaccrual coming off here next quarter. But like in terms of the internal watchlist, if I can call it that, maybe how has that changed here this quarter, if that's gotten any bigger or going the other way, if that continues to get smaller?

Yes, it's a great question, Paul. We -- it actually did increase this quarter. We had one addition to that list, and that would be in, what I call, the grade 3+ names. But it's idiosyncratic type issue for sure. But I think the good news from our perspective is, generally speaking, we're seeing growth, and we're seeing a pretty healthy portfolio. We always have some Grade 3s, for lack of a better word, and we're working through those. We do see several names that we think will actually exit, be sold and we'll get our money back in the next 6 to 9 months. Hopefully, that does happen, but that's what is being worked on right now. And so it was a little luck actually, that Grade 3 portfolio could improve. But overall, we're seeing generally growth in a healthy portfolio.

Got it. Appreciate that. And then it's been a while, I think, since we've talked about, I guess, junior capital opportunities. And you guys have made more of the shift into the unitranche structure. But what is, I guess, like the relative value if those deal opportunities exist today, if there are any in terms of second lien, subordinated type of deals that you could potentially be reviewing right now or if you're still kind of sticking to the knitting in terms of more of the senior unitranche deals?

Yes, it's a great question. I think what has transpired for us and really the industry over the last 5 to 10 years is really move towards more of a first lien solution. There are obviously junior capital opportunities that come up, and we do look at them. But it's kind of what we're looking for with regard to junior capital opportunities are really superlative businesses, attractive loan to values, obviously, attractive pricing. But the real piece of the puzzle is where I started, which is there's just -- the market is very first lien oriented. And so that's driving a large majority of the originations for us. But we do see second lien junior capital opportunities.

We will continue to look at those on the -- obviously, the bar is extremely high from our perspective there, always has been, but we expect our first lien portfolio, our debt portfolio is now 88% first lien. And we think that's probably where it stays or if not, actually increases from there a little bit over time.

Appreciate it. And I guess the last question would be, given you are one of the few BDCs in the space trading above NAV at this point, gross leverage is -- the size, it's probably been in a little while on a statutory basis, it's obviously much lower. But how are you kind of balancing the idea of potential equity capital raises here with a potentially improving pipeline, if we should expect you to potentially be a little bit more active with ATM issuance here in the second half?

Sure. As we -- it's a great question. As we move forward and we see the opportunity for growth, we also see repayments, which have been relatively light this quarter or this year so far. We expect repayments to pick up a little bit here in the second half of the year as well. But having said that, if we are growing like we anticipate we're going to, then we would utilize the ATM program as appropriate for sure as it makes sense. Our target leverage is more -- a range is 0.9 to 1.1, but really the target being in the middle there at 1:1. And so it would make sense to raise capital if it looks appropriate.

[Operator Instructions]

This concludes our question-and-answer session. I would like to turn the conference back over to Ed Ross for closing remarks.

Thank you, Danielle, and thank you, everyone, for joining us this morning. We look forward to speaking with you on our third quarter call in early November. Have a great day and a great weekend.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good day, and welcome to the Fidus First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Jody Burfening. Please go ahead.

Thank you, Debbie, and good morning, everyone, and thank you for joining us for Fidus Investment Corporation's First Quarter 2026 Earnings Conference Call.

With me this morning are Ed Ross, Fidus Investment Corporation's Chairman and Chief Executive Officer; and Shelby Sherard, Chief Financial Officer.

Fidus Investment Corporation issued a press release yesterday afternoon with the details of the company's quarterly financial results. A copy of the press release is available on the Investor Relations page of the company's website at fdus.com.

I'd also like to call your attention to the customary safe harbor disclosure regarding forward-looking information included on today's call. The conference call today will contain forward-looking statements, including statements regarding the goals, strategies, beliefs, future potential, operating results and cash flows of Fidus Investment Corporation. Although management believes these statements are reasonable based on estimates, assumptions and projections as of today, May 7, 2026, these statements are not guarantees of future performance. Time-sensitive information may no longer be accurate at the time of any telephonic or webcast replay. Actual results may differ materially as a result of risks, uncertainties and other factors, including, but not limited to, the factors set forth in the company's filings with the Securities and Exchange Commission. Fidus undertakes no obligation to update or revise any of these forward-looking statements.

With that, I would now like to turn the call over to Ed. Good morning, Ed.

Good morning, Jody, and good morning, everyone. Welcome to our first quarter 2026 earnings conference call. In today's call, I'll start with a review of our first quarter performance and our portfolio at quarter end and then share with you our outlook for 2020. Shelby will cover the first quarter financial results and our liquidity position. After we have completed our prepared remarks, we'll be happy to take your questions.

Fidus' first quarter results were extremely strong from an income statement perspective with an adjusted NII of $0.62 per share, our debt portfolio continued to overearn our base dividend of $0.43 per share and to support a payout of excess earnings to shareholders. Adjusted NII grew 14.8% to $23.7 million reflecting a 13.1% increase in interest income on higher average income-producing assets, along with higher fee income than last year. We ended the quarter with estimated spillover income of $1.14 per share.

Deal activity was relatively modest during the quarter, including M&A transactions completed by our portfolio companies. Overall, our portfolio remains healthy, characterized by niche market leaders with traits that provide long-term barriers to entry and that ensure their value proposition and competitive positioning. Through our strict underwriting process, we ensure that we are selecting companies with proven resilient business models that generate recurring revenue and cash flow to service debt and to provide capital for growth. We remain focused on industries we know well in the lower middle market, leveraging our established relationships with deal sponsors.

For the second quarter of 2026, the Board of Directors declared a total dividend of $0.62 per share, which consists of a base dividend of $0.43 per share and a supplemental dividend of $0.19 per share, equal to 100% of the surplus in adjusted NII over the base dividend from the prior quarter which will be payable on June 29, 2026, to stockholders of record as of June 16, 2026. Net asset value held steady at $742 million at quarter end or $19.55 per share.

Originations in the first quarter amounted to $118.7 million, nearly all of which consisted of first lien debt investments in support of both M&A transactions and debt recapitalizations. We also invested $1.8 million in equity securities of 2 new portfolio companies, consistent with our investment strategy of maintaining a portfolio that is structured to produce both high levels of current and recurring income and the potential for capital gains from monetizing equity investments. Subsequent to quarter end, we invested an additional $21.5 million in one new portfolio company.

Proceeds from repayments and realizations totaled $73.1 million for the first quarter, resulting from a mix of M&A and refinancing activity, and we monetized equity investments in 2 portfolio companies, generating $3.9 million in realized gains. Offsetting these gains was a total of approximately $15 million in realized losses in connection with the conversion of Suited Connector's debt into equity.

Looking at net investment activity, which takes debt recapitalizations into an account, our portfolio grew by $46 million in Q1. First lien investments comprised 87% of the debt portfolio, reflecting the ongoing migration towards first lien securities. Combined with our $149.6 million equity portfolio, we ended the quarter with a portfolio totaling $1.4 billion on a fair value basis, equal to 102.5% of cost.

Overall, the portfolio remains healthy from a credit quality perspective, supported by very solid underlying portfolio company performance. We ended the quarter with only one portfolio company on nonaccrual that accounted for less than 1% of the total portfolio on both a fair value and cost basis.

Our portfolio remains well diversified by industry, consisting of a mix of manufacturing, distribution and services company. In addition, we have a well-diversified group of software and IT services names within our portfolio that are exposed to both opportunities and risks associated with AI. This group represents about 32% of our total portfolio on a fair value basis. We haven't seen any negative impacts from AI on this portfolio.

Importantly, nearly all of our debt investments in these companies are in highly structured first lien securities with at least 2 maintenance covenants and all portfolio companies, except for one, are backed by high-quality sponsors with proven track records in the space. The weighted average loan-to-value for this portfolio was approximately 42% this quarter, below our total portfolio weighted average loan-to-value of approximately 45% on a cost basis.

In addition, the current contractual duration of our debt investments in this category is 2.2 years, enhancing our ability to manage any tougher situations we might encounter down the road. Equity investments in software and IT services company totaled $16.1 million or approximately 11% of our total equity portfolio on a fair value basis.

In closing, our portfolio remains well positioned to continue to generate adjusted NII in excess of our base dividend and to realize gains from monetizing equity investments. Although M&A activity is currently lackluster in light of the geopolitical uncertainties and associated market volatility, our pipeline of investment opportunities is decent and our long-standing relationships with deal sponsors and lower middle market expertise position us to identify high-quality companies that meet our rigorous underwriting standards for investment. We will, as always, manage the business for the long term, staying focused on our goals of preserving capital and generating attractive risk-adjusted returns for our shareholders.

Now I'll turn the call over to Shelby to provide details on our financial and operating results. Shelby?

Thank you, Ed, and good morning, everyone. I'll review our first quarter results in more detail and close with comments on our liquidity position. Please note, I will be providing comparative commentary versus the prior quarter Q4 2025.

Total investment income was $47.5 million for the 3 months ended March 31, a $5.4 million increase from Q4, primarily driven by a $1.4 million increase in interest income driven by increased average debt investments outstanding and a $4.1 million increase in fee income due to a $6.9 million fee related to the refinancing of our debt investments in American AllWaste, partially offset by lower origination and prepayment fees from investment activity.

Total expenses, including tax provision, were $22.9 million for the first quarter, $0.4 million higher than Q4, primarily driven by a $0.4 million increase in interest expense related primarily to higher average debt balances outstanding, a $1.4 million increase in base management and income incentive fees given the increase in assets under management and higher fee income in Q1, a $0.9 million increase in G&A expenses. G&A expenses were higher due to the write-off of unamortized deferred financing costs and incremental legal expenses related to our new registration statement and the timing of annual audit and tax compliance expenses incurred in Q1. These were offset by a $0.7 million decrease in the capital gains fee and a $1.8 million decrease in income tax provision related to the annual excise tax accrual in Q4.

Net investment income or NII for the 3 months ended March 31 was $0.65 per share versus $0.53 per share in Q4. Adjusted NII, which excludes any capital gains, incentive fee accruals or reversals attributable to realized and unrealized gains and losses on investments, was $0.62 per share in Q1 versus $0.52 in Q4.

For the 3 months ended March 31, we recognized approximately $12.2 million of net realized losses related to a $15.8 million realized loss on the exit of our debt investments in Suited Connector, taking this nonaccrual off our books, which was partially offset by a $3.9 million in realized gains on our equity investments in CIH Intermediate and Zonkd.

We ended the quarter with $682.2 million of debt outstanding, comprised of $260.5 million of SBA debentures, $325 million of unsecured notes, $85.2 million outstanding on the line of credit and $11.6 million of secured borrowings. Our net debt-to-equity ratio as of March 31 was 0.9x. Our statutory leverage, excluding exempt SBA debentures, was 0.6x. The weighted average interest rate on our outstanding debt was 5.2% as of quarter end.

Turning now to portfolio statistics. As of March 31, our total investment portfolio had a fair value of $1.4 billion. Our average portfolio company investment on a cost basis was $13.8 million, which excludes investments in 7 portfolio companies that sold their operations or in the process of winding down. We have equity investments in approximately 85.6% of our portfolio companies with an average fully diluted equity ownership of 2%.

Weighted average effective yield on debt investments was 12.5% as of March 31, a slight decrease versus 12.6% at the end of Q4. The weighted average yield is computed using effective interest rates for debt investments at cost, including the accretion of original issue discount and loan origination fees, but excluding investments on nonaccrual, if any.

Now I'd like to discuss our available liquidity. As of March 31, our liquidity and capital resources included cash of $50.4 million, $139.9 million of availability on our line of credit and $54 million of available SBA debentures, resulting in total liquidity of approximately $244.2 million.

Now I'll turn the call back to Ed for concluding comments.

Thanks, Shelby. As always, I'd like to thank our team and the Board of Directors at Fidus for their dedication and hard work and our shareholders for their continued support. I will now turn the call over to Debbie for Q&A. Debbie?

[Operator Instructions] The first question is from Robert Dodd with Raymond James. Excuse me, I just put Christopher Nolan on the podium. My apologies. Robert will be next. So Christopher Nolan with Ladenburg Thalmann, please go ahead.

Obviously, they're preferring the person with better looks over Robert. So I'm honored.

Well done there.

No offense, Robert. Shelby, were there any nonrecurring items in the quarter? I might have missed in your comments.

No, we did incur a rather large fee that I'd characterize as more of a onetime fee. It was kind of about $6.97 million related to the American AllWaste debt refinancing. So that drove the fee income in Q1 and kind of the beat versus consensus.

The next question is from Robert Dodd with Raymond James.

Thank you, Chris, for letting me go second. I appreciate it. Congratulations, Ed and Shelby and team, for a very good quarter. A question about that American AllWaste fee. I mean if I look at -- I mean, the position size is about just $50 million now. And obviously, it was smaller than that before. A $6.9 million fee on a refinancing of a position that size seems pretty high. Now obviously, the first lien last quarter was marked well above cost. So there were some oddities, differences in how the prior thing's structured. Are there any other -- is it a normal asset that just happened to repay and generate a really good fee? Or is there -- was there something unusual about the structure of that asset? I'm just trying to get a feel, obviously, probably not going to happen every quarter, but can this kind of outsized refinancing fee happen again in different assets?

Sure. It's a great question, Robert. I think the -- could it happen again to a certain degree? To this magnitude, I mean, sure anything is possible, but it's a pretty healthy fee as you've highlighted. And it's not the norm of every credit by any stretch of imagination. We have a few other investments where we have fees that can be earned on the back end. And what I would say in this case is, obviously, American AllWaste has been in our portfolio for a while. There was a point in time where there was a need for capital on a relatively quick basis. And we ended up being the source of that capital. And so we price that capital in accordance with what we thought the numbers should be, if you will. And so -- but it's not -- this is not like, okay, this is the business going forward or anything like that. It's just we are a solution provider. We ended up providing a solution that was needed, and we were paid accordingly for that solution is the way I would think about it.

Got it. Got it. I'm not asking, but I wonder if that was COVID timing related because obviously, it was before then. So I appreciate that. And then just the more general, I mean, have you characterized the pipeline as -- the pipeline is decent, but the market is kind of lackluster, which obviously is a theme across the space, not surprisingly with the number of macro uncertainties. I mean would you characterize -- is that lackluster market is driven by these uncertainties? I mean, between oil, macro, et cetera. And do you need more -- do you think the market needs more certainty on that for the PE market in your segment to show a little bit more life?

Sure. Great question. Let me give you a little color on just what we've experienced in Q1 and whatnot. But as most people in this space felt, deal flow was more modest in nature and when we believe largely due to seasonal patterns, and I'm talking about Q1. And then that was prior to the geopolitical conflict in the Middle East. And also at that time, general expectations were for an increase in both deal flow and investment activity throughout the year.

As we sit here today, we still have confidence in a pickup in activity, but the pace will be somewhat dependent upon a reduction in the current level of uncertainty that's in the world today. As we sit here today, there's quite a bit of pent-up demand in M&A, and that's a concept that we've -- not new, we've all heard. The good news from our perspective though is the fragmented nature of the lower middle market and its large overall size, this fact should continue to provide ample investment opportunities for us to pursue no matter if M&A picks up or does not. We really like that aspect of the lower middle market. So there's still activity going on as we sit here today, but it's clearly not anything close to robust levels. And we do have investment opportunities with both existing portfolio companies as well as new investment opportunities. But again, more lackluster relative to robust times, if you will.

At the end of the day, we expect it to be an okay to decent originations quarter. We expect repayments actually to probably be on the lighter side. I say all that, a lot of things can change, a lot of deals that we think are going to close may not close, so who knows. But that would be our expectation as we sit here today is some decent growth this quarter in the portfolio but a little lighter on the repayment side overall. Hopefully, that gives you some...

Yes, that is very helpful. And then just kind of following on the next part of that really is spreads. Obviously, your year portfolio yields down a tiny bit versus Q4. Looking -- obviously, the spreads kind of stable as well, I think. Looking forward, I mean, there has been -- there's talk in the marketplace, certainly the larger players more upmarket about spread expansion. But maybe that's impacted by the flows in the private perpetual vehicles. I mean what are your thoughts on spreads in your end of the market? Do you think stability is more likely? Or do you think that's actually a prospect for the expansion in the smaller end of the market? And obviously, I would differentiate that between the overall market and maybe what you're seeing on the software side.

Sure. Great question. We are seeing what I would say is wider spreads. But I'll also say, and this is where we like to play the most is for truly great assets, great operating companies. There continues to be a high level of competition, albeit slightly better pricing relative to prior to the conflict. But it's a situation where I think there is ample capital out there. And so there is competition. But for the right assets, obviously, we still think the spreads are extremely attractive. And the terms are also remain very strong in the lower middle market in terms of covenants, security, what have you. So there is opportunities to increase spreads. But I would argue for great assets, the competition is still meaningful, if you will.

And again, congratulations on the quarter.

Thanks, Robert. Good talking to you.

[Operator Instructions] At this time, we have no further questions in the queue.

Okay. Well, thank you, Debbie.

Yes, this concludes our question-and-answer session. I would like to turn the conference back over to Ed Ross for closing remarks.

Well, thank you, Debbie, and thank you, everyone, for joining us this morning. We look forward to speaking with you on our second quarter call in early August. Have a great day and a great weekend.

This conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good day, and welcome to the Fidus Investment Corporation's Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Jody Burfening. Please go ahead.

Thank you, Dave, and good morning, everyone, and thank you for joining us for Fidus Investment Corporation's Fourth Quarter 2025 Earnings Conference Call. With me this morning are Ed Ross, Fidus Investment Corporation's Chairman and Chief Executive Officer; and Shelby Sherard, Chief Financial Officer. Fidus Investment Corporation issued a press release yesterday afternoon with the details of the company's quarterly financial results.

A copy of the press release is available on the Investor Relations page of the company's website at -- I'm sorry, fdus.com. I'd also like to call your attention to the customary safe harbor disclosure regarding forward-looking information included on today's call. The conference call today will contain forward-looking statements, including statements regarding the goals, strategies, beliefs, future potential operating results and cash flows of Fidus Investment Corporation.

Although management believes these statements are reasonable based on estimates, assumptions and projections as of today, February 27, 2026 -- these statements are not guarantees of future performance. Time-sensitive information may no longer be accurate at the time of any telephonic or webcast replay. Actual results may differ materially as a result of risks, uncertainties and other factors, including, but not limited to, the factors set forth in the company's filings with the Securities and Exchange Commission. Fidus undertakes no obligation to update or revise any of these forward-looking statements.

With that, I would now like to turn the call over to Ed. Good morning, Ed.

Jody, and good morning, everyone. Welcome to our fourth quarter 2025 earnings conference call. On today's call, I'll start with a review of our fourth quarter performance in our portfolio at quarter end and then share with you our outlook for 2026. Shelby will cover the fourth quarter financial results and our liquidity position. After we have completed our prepared remarks, we'll be happy to take your questions. During the fourth quarter, deal flow was strong, driven by healthy M&A environment compared to earlier in the year. This resulted in originations of $213.7 million, the highest amount of capital we have invested in a quarter. .

From our perspective, this quarter's surge in originations was primarily related to the demand that in pent-up since Liberation Day was announced last April, which essentially froze decision-making across wide swaths of the economy and activity in the M&A market for a period of time. Once rattled markets began to settle down early in the summer, deal flow picked up in the third quarter. Also contributing to the fourth quarter surge for Fidus were a few deals that spilled over from the third quarter. Over the course of 2025, we invested a total of $498.2 million in new and existing portfolio companies, a higher amount than in 2024. Net originations in 2025 amounted to $210.2 million.

As a result, we grew the total portfolio to $1.3 billion on a fair value basis. extending our track record of steady portfolio growth since we went public in 2011. As we further build the portfolio, we continue to apply our strict underwriting standards in selecting investments in niche market leaders in the lower middle market with proven business models that generate recurring revenue and cash flow coupled with well-defined value creation strategies.

In addition, we continue to structure our debt investments with significant loan-to-value cushions. Fidus' debt portfolio continues to perform well in the fourth quarter. Adjusted NII grew 5.1% to $19.4 million boosted by higher average income producing assets and a 60% increase in fee income compared to the prior year Q4 2024. On a per share basis, adjusted NII was $0.52 compared to $0.54 for Q4 2024. We continue to overearn our base dividend of $0.43 per share and continue to pay out excess earnings. Total dividend paid in the fourth quarter were $0.50 per share, we ended the year with estimated spillover income of $1.01 per share.

For the first quarter of 2026, the Board of Directors declared a total dividend of $0.52 per share which consists of a base dividend of $0.43 per share and a supplemental dividend of $0.09 per share, equal to 100% of the surplus and adjusted NII over the base dividend from the prior quarter, which will be payable on March 30, 2026, to stockholders of record as of March 20, 2026. Net asset value grew 13.2% to $741.9 million at quarter end compared to $655.7 million, as of December 31, 2024. On a per share basis, net asset value was $19.55 as of December 31, 2025, compared to $19.33 as of December 31, 2024.

With respect to originations in the fourth quarter, $121.5 million or a little more than half of the $213.7 million in total originations was invested in 8 new portfolio companies, primarily in connection with M&A transactions. We invested $206.5 million or 97% in first lien securities. In addition, we invested $3.2 million in equity securities. Giving us opportunities to enhance returns. Proceeds from repayments and realizations totaled $84.7 million for the fourth quarter resulting from a mix of M&A and refinancing activity.

Subsequent to the quarter end, we have invested an additional $7 million in 1 new portfolio company executed numerous small add-on investments and realized a $3.4 million gain on the exit of our equity investments in CIH Intermediate LLC. We ended the year with a portfolio totaling $1.3 billion on a fair value basis, equal to 102% of cost. First lien investments comprised 86% of our debt portfolio, reflecting the ongoing migration of our debt portfolio towards first lien securities our equity portfolio stood at $142.3 million or 10.7% of the total portfolio on a fair value basis at quarter end.

Our portfolio remains well diversified by industry consisting of a mix of manufacturing, distribution and services companies. Given the current environment, we wanted to address our software and tech-enabled services portfolio. Worth noting, we have been investing in software companies for over 10 years at Fidus and its alongside leading private equity firms, and it's been a strong performing industry vertical for us. As with all investments we make, we underwrite an acute focus on determining the value proposition of a business and its overall durability, meaning its ability to thrive and generate cash flows over our investment period and beyond.

With regard to software-related businesses, this includes evaluating and ultimately getting comfortable not only with the company's growth prospects and market position, but importantly, each company's technology risk, including AI risk over the past 3 years or so. At Q4 2025, our software and tech-enabled services portfolio. So our portfolio exposed to AI opportunities and risks was $464 million, which comprised of 92% first lien debt, 4% junior debt and 4% equity. This portfolio is well diversified across 28 total names and all but 1 are backed by financial sponsors we know well, who have significant expertise in the space. resulting in an average exposure per name of $17 million.

The weighted average loan-to-value for this portfolio was 37% well below our total portfolio weighted average loan-to-value of 44%. In addition, substantially all of our first lien investments are highly structured investments with at least 2 maintenance covenants. In short, we feel extremely good about the health of this portfolio and its long-term outlook. In addition, the characteristics of our overall portfolio remained quite positive from a credit quality and capital preservation perspective. We ended the year with nonaccruals accounting for less than 1% of the total portfolio on a fair value basis and 2% on a cost basis.

Overall, our portfolio is healthy and well structured to deliver both high levels of recurring income and capital gains from monetizing equity investments. In summary, in the fourth quarter and over the course of 2025, we demonstrated that our model clearly continues to work well and that our long-standing sponsor relationships, investment strategy and industry knowledge in the fragmented lower middle market continue to differentiate Fidus. Looking ahead, we are starting the year with a decent level of deal flow.

We expect activity levels will pick up during the year as some private equity owners are likely to need to bring certain portfolio companies to market. As we deploy capital, we intend to stay focused on our long-term goals of generating attractive risk-adjusted returns for our shareholders and growing net asset value over time.

Now I'll turn the call over to Shelby to provide some details on our financial and operating results. Shelby?

Thank you, Ed, and good morning, everyone. I'll review our fourth quarter results in more detail and close with comments on our liquidity position. Please note, I will be providing comparative commentary versus the prior quarter Q3 2025. Total investment income was $42.2 million for the 3 months ended December 31, a $4.9 million increase from Q3, primarily driven by a $2 million increase in interest income as a result of increased average debt investments outstanding and which includes $0.3 million of accelerated amortization of closing fees related to debt repayments.

A $3.5 million increase in fee income, given an increase in investment activity in Q4, which was partially offset by a $0.8 million decrease in dividend income from equity investments. Total expenses, including tax provision, were $22.5 million for the fourth quarter. A $2.6 million higher than Q3, primarily driven by a $1.4 million increase in income tax provision related to the annual excise tax accrual in Q4, a $1.8 million increase in interest expense related to higher average debt balances outstanding, including the $100 million add-on to our 6.75% notes due in March 2030.

And a $0.8 million increase in base management and income incentive fees given an increase in assets under management and higher investment activity in Q4, offset by a $0.6 million decrease in the capital gains fee accrual and a $0.5 million decrease in G&A expenses. G&A expenses in Q3 were higher due to some onetime items related to the exit of our former debt investment in U.S. green fiber. Net investment income or NII for the 3 months ended December 31 was $0.53 per share versus $0.49 per share in Q3. Adjusted NII, which excludes any capital gains, incentive fee accruals or reversals attributable to realized and unrealized gains and losses on investments, was $0.52 per share in Q4 versus $0.50 in Q3.

For the 3 months ended December 31, we recognized approximately $1.5 million of net realized losses related to a realized loss on the exit of our debt investments in U.S. Green Fiber, which was partially offset by realized gains related to the sale of our equity investments in Oldinger Company and Garlock Printing and converting. We ended the quarter with $658.3 million of debt outstanding, comprised of $237.5 million of SBA debentures, $325 million of unsecured notes, $83.9 million outstanding on the line of credit and $12 million of secured borrowings. Our net debt-to-equity ratio as of December 31 was 0.8x. Our statutory leverage, excluding exempt SBA debentures, was 0.6x. The weighted average interest rate on our outstanding debt was 5.2% as of December 31.

Turning now to portfolio statistics. As of December 31, our total investment portfolio had fair value of $1.3 billion. Our average portfolio company on a cost basis was $13.4 million, which excludes investments in 6 portfolio companies that other operations are in the process of winding down. We have equity investments in approximately 85.4% of our portfolio companies with an average fully diluted equity ownership of 1.9%. Weighted average effective yield on debt investments was 12.6% as of December 31 versus 13% at the end of Q3.

The weighted average yield is computed using effective interest rates for debt investments at cost, including the accretion of original issue discount and loan origination fees, but excluding investments on nonaccrual, if any. Now I'd like to briefly discuss our available liquidity. In Q4, we used the net proceeds from the $100 million debt add-on to fully redeem the remaining $100 million of unsecured notes due in January 26. In December, we exercised the accordion feature on our line of credit and increased our borrowing capacity from $175 million to $225 million.

In Q4, we issued accretive shares under our ATM program and raised $31.5 million of net proceeds. As of December 31, our liquidity and capital resources included cash of $79.6 million, $141.2 million of availability on our line of credit and $84 million of available SBA debentures, resulting in total liquidity of approximately $304.8 million.

Now I'll turn the call back to Ed for concluding comments.

Thanks, Shelby. As always, I'd like to thank our team and the Board of Directors at Fidus for their dedication and hard work and our shareholders for their continued support.

I will now turn the call over to Dave for Q&A. Dave?

[Operator Instructions]. Our first question comes from Robert Dodd with Raymond James.

In, congratulations on another good quarter. I do want to touch on software. I think really appreciate the extra disclosure you gave on that this quarter. But before I get to that, on the activity levels, I mean, a really strong back half of the year. Is there any -- it seems unlikely to be the case given what you disclosed about Q1. But is there any spillover of deli how busy in Q4 into Q1 -- or should we expect after that ramp and the kind of at least the pent-up demand in the back half of last year should we expect Q1, maybe Q2 like the first half of of '26 to be much more modest in terms of new portfolio company activity maybe? I mean may always be some add-ons, but can you give us any color -- how much of that was in the back half? Go ahead.

Sure. It's a great question. Look, Q4 was a quarter where most things kind of came to fruition, if you will, very different than Q3 for us. And there was a pretty healthy amount of deal flow towards the end of Q3 and in Q4 and again, I think it has been up demand. I think now in Q1 '26, deal flow is a little more modest in nature. We believe it's somewhat due to seasonal patterns, if you will, and our current expectations are for an increase in both deal flow and activity throughout the year. We are, as we sit here today, working hard on new investment opportunities as well as add-on investment opportunities. And so Q1 going to be anything like Q4, I don't think so.

But I do think investment activity, we'll have some real investment activity here in the last month. I think from a repayments perspective, there will be some repayments, but less than as I sit here today, no crystal ball, but repayments will be less than origination. So our expectation would be some growth this quarter, but nothing like the growth in Q4. So -- hopefully that's helpful. It is picking up a little bit and it will -- we expect it to pick up a fair bit more here as the year goes on. So .

On the software, and you gave the incremental information that NII has been part of a key risk assessment for 3 years. On I mean there's obviously -- can you give us any type of businesses? Because obviously, there's a big potential difference in risk between something that's a piece of application for software that just sits on top of an OS somewhere versus something that might be running the operations at a specialty manufacturing plant or something like that. Obviously, those face very different risks. So a pretty extreme example spend. Can you give us some color on like the type of businesses that you have? I mean, yes, you expect them to thrive, you expect them to be resistant, but why?

Sure, sure. So let me it's an important topic, and let me give you some more thoughts. So I mean, first and foremost, let me say that we believe the recent headlines, although meaningful and serious, the market dislocation and software blown out of proportion from our perspective. When we think about software companies and AI risk, it's important to remember that not all businesses are the same right?

There are varying degrees of quality out there and that has to do with really every type of lower middle market company or a larger market company for that matter. For us, we look to -- for characteristics that provide long-term barriers to entry, elements that help protect the viability and durability of the company's value proposition. And ultimately, it's revenues and cash flows. So what are we looking for? We're looking for a company to have things like data modes. So think about enterprise solutions that serve as a system of record for critical operating data, which is hard to replicate.

Think about vertical markets, specialized industry software that is complex and requires deep industry and process expertise, regulated sectors, software that tracks audits and secures data, deep relationships, so contractual revenue streams, trusted customer relationships, which typically creates high switching costs and then obviously, management. Management is critical. You want a management team that is leveraging their market positions and their incumbency position to embrace change and create value for their customers.

So -- those are the types of things we look for from a qualitative perspective. And then just to touch a little bit more on the portfolio, some of this will be duplicative. But all deals are backed by high-quality sponsors with proven track records in the space. That's a critical component for us. Nearly all of our portfolio companies are currently adding AI features to products and using AI tools to reduce operating costs. Nearly all of our portfolio debt investments are structured as first liens. Our current weighted average loan-to-value for this portfolio is 37%. The current average contractual duration. So maturity date is approximately 2.5 years for our software and tech-enabled services portfolio. And lastly, portfolio is performing very well and currently marked the debt investments as a whole at 100% of cost. So we feel good about it. Hopefully, that gives you some more color and some context on the types of things we look.

And the next question comes from Mickey Schleien with Clear Street Capital.

Ed, thanks for the to your software sector. I just want to ask whether that -- whether it has any focus on ARR loans? Or are these mostly cash flow loans?

No. ARR loans are part of our portfolio and have been a focus. And the context that would give you about 22% of our software portfolio today, or 7.5% of our total portfolio, our ARR loans. As we sit here today, a few of those a few that aren't in that percentage were previous ARR loans that are now EBITDA loans. So when we structure an AR loan, we force growth through covenants. We have covenants that require growth. And we also forced a transition to cash flow, meaning EBITDA positive and EBITDA support for the interest expense as we move forward. .

And Ed, 3% of the portfolio's value is in fan steel, and you've held that a long time. It's a great been a great investment. But it's your largest single investment. And I'd like to understand how comfortable you are holding it at this level from the -- just from the perspective of portfolio risk.

It's a great question. It is -- I guess, in short, in summary, we are extremely comfortable with that position. I think the long-term outlook for that business. They're a leader in their space. And I think it's a growing business and their portfolio of products are also growing. And again, they're differentiated in the market, and we see that then being able to maintain that differentiation. So I feel great about the business and the outlook, and I hear you on that, but I think we're very comfortable with the position today. And obviously, it will be a day when we will look to monetize it, but we feel good about it today. .

And the outlook for dividends from Fan steel, I think you had 2 quarters of dividends in 2025. Can we expect that to continue? Or -- are they in growth mode and they need to reinvest their capital.

It's a great question. We -- as you know, we're not in control of those dividends at all. And so I would view them as more episodic in nature, but also reoccurring annually in some way, shape or form. That's what the history has been, and that's what our expectation would be going forward. And I think the last point I would make is they're very well positioned to make distributions, meaning very underlevered to no leverage and plenty of liquidity to do those type of things.

That's good to hear. And my last question, can you give us an update on the average floors in your floating rate debt portfolio? In other words, how much exposure do you have to still declining forward [indiscernible] ?

Sure, sure. Most of our floors that we've been originating here over the last, let's say, 3, 4 years or are in the 2% range, Mickey -- so that's kind of somewhat of a market convention. From our perspective, but that's a large majority of what we have today. .

So if the Fed were to cut a couple more times this year, that would still flow into your -- flow through your portfolio? .

Yes, it would. Remember, we're about 25% of our debt investments are fixed rate debt investments. So not a 100% flow through. But yes, we do have if SOFR is reduced this year, and the answer to that is yes. We would expect some decline in total yields, if you.

The next question comes from Christopher Nolan with Ladenburg Thalaiman.

On your comments earlier in terms of increased deal flow from M&A and so forth, is this really driven just by private equity firms seeking to get an exit, so they can get liquidity back to their LPs? Or do changes in the tax or regulatory structure start affecting some of this deal activity.

Yes. Great question. I would say a large preponderance of the comment comes from more just pent-up demand from a PE perspective, the average hold for the PE portfolio has expanded, as you know, and there is a desire for LPs to get capital back. And that's that is probably -- is the biggest driver by a long shot from our perspective. .

And then a follow-up to Robert. And a follow-up on the software questions from Robert. Are you seeing that the software companies are deleveraging or are private equity firms trying to just unload them -- just trying to get a sense as to what they're doing financially.

Sure, sure. Great question. From our perspective, what we're seeing in our portfolio is growth, which is what you would expect, and it's a critical component of our underwriting. So we are seeing deleveraging, whether it's an ARR loan or its EBITDA-based loan. And -- but we -- at the same time, we're seeing sponsors continue to look at high-quality software names. And we are also looking at them.

I mean I think in the lower middle market and what we're experiencing is at the lack of a better word at the operating level and we're financing transactions and what have you, it's somewhat status quo. I mean I think look, everyone kind of is fully aware of of the concerns out there. We have been aware of the concerns and the bar probably only gets higher for everyone, including us. But we feel very good about the portfolio and the outlook of the portfolio.

And so no one's doing anything drastic or reacting in a huge way. Clearly, if you get into the liquid markets, that's different, right? A lot of loans have traded down. Some folks are taking advantage of them. Some folks are trying to loosen up their exposures, if you will. But that's not the market that we play in, and we are kind of 1 investment in time and really working with each portfolio company. But again, we're not seeing performance issues right now. And so it's -- hopefully, that gives you some context is helpful.

[Operator Instructions] Our next question comes from Paul Johnson with KBW.

I'm just curious, within the lower middle market, from your experience, either whether it's observations of other restructurings or of your -- within your own book. That has been kind of like the typical average or, if you will, recovery rate on just a regular first lien kind of direct lending, lower middle market loan historically? And how do you think about that in terms of software going forward? Has that traditionally been in line kind of with direct lending recoveries and with everything going on with compressed EB multiples, et cetera, potentially compressing margins. And what's kind of your thoughts on potential recoveries if we were to start to see turbulence in that sector?

Great question. Look, I think recoveries in the lower middle market are similar to the broader market. I don't have that data in front of me, and I don't want to misspeak. But I think in first lien loans recoveries have been generally more in the 60% to 85% range depending on a vintage or what have you. And we feel -- we're not -- it's very interesting and fully understand the risks and are paying attention more than most, I would argue. But we're not seeing the concerns that obviously are in the marketplace, as I stated at the beginning of the discussion with Robert.

And we feel good about -- and we don't see changes in recoveries or drastic changes in values of businesses. Clearly, today, a lot of software companies. My guess is the the equity value has been hit by what's going on in the market. But again, our -- at 12/31, our loan-to-value is 37%. So there's a huge cushion there between 37% and our security to kind of weather a storm. And we would -- we don't think these companies, these are very value-added, high-quality businesses that we've invested in, we don't see the value just dissipating overnight but by any stretch of the imagination, quite frankly. So if there were problems, I would expect them to kind of react in a similar fashion as you would a normal kind of restructured deal or bad deal, if you will, from a recovery perspective. Hopefully, that's helpful. I'm just trying to give you a little color.

And the next question comes from Dylan Haynes with B. Riley Securities.

Great quarter. I was wondering about software and tech names just in terms of deployments and like what the private markets are looking like, given the the BDC headlines and more on a specific tech names, how this impacted pricing and yield? Is there any new trends you could take advantage of for deployments?

Sure. It's a great question. What I would say there -- we are continuing to look at best-in-class software names, niche market leaders that have competitive position and quite frankly, product and service positions that are differentiated enough to get us comfortable to invest. And so -- we are looking for those kinds of names. We do expect there to be, and I'm looking forward. It's not really happened yet. -- but we do expect there to be some unique opportunities that come about due to the recent dislocation in the market. I do think it will trend down a little bit. .

And so we are -- though we think our overall portfolio positioning is kind of where we want it. But we -- if the right opportunities come along at the margin, we are interested in and continuing to invest in the sector, and we'll do so at the margin. And so it's a focus of ours. It's something we've had a lot of success with -- there are very differentiated companies and opportunities out there, and we want to continue to focus on that group. And so if they come up, yes, we will try to take advantage of it. the public markets, that's different in the liquid software names that you see from a debt perspective, that's a different market, different underwrite, different type of situation, and it's really not kind of the market we play in or what we're seeing right now. But we do expect some dislocation.

[Operator Instructions] this concludes our question-and-answer session. I would like to turn the conference back over to Ed Ross, CEO, for any closing remarks.

Thank you, Dave, and thank you, everyone, for joining us this morning. We look forward to speaking with you on our first quarter call in early May. Have a great day and a great weekend. .

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good day, and welcome to the Fidus Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Jody Burfening. Please, go ahead.

Thank you, Bailey, and good morning, everyone, and thank you for joining us for Fidus Investment Corporation's Third Quarter 2020 Earnings Conference Call. With me this morning are Ed Ross, Fidus Investment Corporation's Chairman and Chief Executive Officer; and Shelby Sharad, Chief Financial Officer.

Fidus Investment Corporation issued a press release yesterday afternoon with the details of the company's quarterly financial results. A copy of the press release is available on the Investor Relations page of the company's website at fdus.com. I'd also like to call your attention to the customary harbor disclosure regarding forward-looking information included on today's call. conference call today will contain forward-looking statements, including statements regarding the goals, strategies, beliefs, future potential, operating results and cash flows of Fidus Investment Corporation.

Although management believes these statements are reasonable based on estimates, assumptions and projections as of today, November 7, 2025. These statements are not guarantees of future performance. time-sensitive information may no longer be accurate at the time of any telephonic or webcast replay. Actual results may differ materially as a result of risks, uncertainties and other factors, including, but not limited to, the factors set forth in the company's filings with the Securities and Exchange Commission. Fidus undertakes no obligation to update or revise any of these forward-looking statements.

With that, I would now like to turn the call over to Ed. Good morning. .

Good morning, Jody. And good morning, everyone. Welcome to our third quarter 2025 earnings conference call. In today's call, I'll start with a review of our third quarter performance and our portfolio at quarter end and then share with you our outlook for the last quarter of 2025. Shelby Elizabeth will cover the third quarter financial results and our liquidity position. After we have completed our prepared remarks, we'll be happy to take your questions. .

For the third quarter, Fidus' debt portfolio continued to perform well, and we extended our track record generating adjusted NII well in excess of the base dividend. Overall, the portfolio remains healthy from a credit quality perspective reflecting our strategy of investing in high-quality, lower middle market companies with resilient business models that generate recurring revenue and cash flow and have attractive prospects for growth. Our portfolio also remains well diversified by industry and structure to produce both high levels of recurring income and capital gains from monetizing equity investments.

In terms of market conditions, M&A activity did pick up in the third quarter relative to the first half of the year as expected. Although deal closings were back-end loaded, and some deals were pushed into October, we continued to build our portfolio primarily by supporting our portfolio companies with growth capital, leveraging our long-standing relationships with deal sponsors. On a per share basis, adjusted NII was $0.50 compared to $0.61 for Q3 2024, covering a base dividend of $0.43 with ample cushion.

Total dividends paid for the quarter amounted to $0.57 per share, including a supplemental dividend of $0.14 per share. For the fourth quarter of 2025, the Board of Directors declared a total dividend of $0.50 per share, which consists of a base dividend of $0.43 per share and a supplemental dividend of $0.07 per share, equal to 100% of the surplus in adjusted NII over the base dividend from the prior quarter which will be payable on December 29, 2025, to stockholders of record as of December 19, 2025.

Net asset value grew 2.7% to $711 million at quarter end compared to $692.3 million as of June 30, 2025. Reflecting modest portfolio appreciation and accretive share issuances under the ATM program. On a per share basis, net asset value was $19.56 per share as of September 30, 2025 compared to $19.57 per share as of June 30, 2025. Originations consisted of $69.7 million in first lien securities and $4.7 million in equity investments for a total of $74.5 million for the third quarter.

Investments were heavily weighted toward add-on investments, primarily in support of M&A transactions, we also invested $12.8 million in 1 new portfolio company. Subsequent to quarter end, we have invested an additional $40.2 million in 2 new portfolio companies plus numerous add-on investments in existing companies. Proceeds from repayments and realizations totaled $36.7 million for the third quarter resulting from a mix of M&A and refinancing activity. With net originations of $37.8 million, our portfolio grew to $1.2 billion on a fair value basis as of September 30, 2025, equal to 102% of cost.

First lien investments comprised 82% of our debt portfolio as the migration of our debt portfolio toward first lien securities continued, and our equity portfolio stood at $143.4 million or 12% of the total portfolio at quarter end. Portfolio credit quality remains sound with companies on nonaccrual, unchanged and less than 1% of the total portfolio on a fair value basis and 2.8% of the total portfolio on a cost basis.

As we enter the home stretch for 2025, market activity is shaping up to be relatively decent in the fourth quarter, and we are working hard to convert opportunities from our pipeline of potential investments in both new and existing portfolio companies, while continuing to add to our overall investment pipeline.

As Shelby will detail, we have enhanced our flexibility from a capitalization and liquidity perspective, continuing to position Fidus for the future as we execute our proven investment strategy. methodically building the portfolio and growing net asset value over time. In doing so, we will stay focused on our goals of preserving capital and generating attractive risk-adjusted returns for our shareholders.

Now I'll turn the call over to Shelby to provide some details on our financial and operating results. Shelby?

Thank you, Ed, and good morning, everyone. I'll review our third quarter results in more detail and close with comments on our liquidity position. Please note, I will be providing comparative commentary versus the prior quarter, Q2 2025. Total investment income was $37.3 million for the 3 months ended September 30, a $2.7 million decrease from Q2 driven by a $0.7 million decrease in interest income primarily due to approximately $0.6 million of accelerated income from unamortized fees on debt repayments in Q2, $2.6 million decrease in fee income given a $1.3 million decrease in prepayment fees, a $0.8 million decrease in origination fees and a $0.5 million decrease in amendment and management fees. .

Dividend income from equity investments increased by $0.4 million in Q3. Total expenses, including income tax provision, were $19.9 million for the third quarter, a $1.5 million decrease over Q2 driven primarily by a $1 million decrease in capital gains incentive fee accrual, a $0.4 million decrease in base management and income incentive fees a $0.3 million decrease in professional and other G&A fees primarily related to proxy solicitation expenses for the 2025 Annual Shareholder Meeting held in Q2, partially offset by increased legal fees in Q3, a $0.3 million increase in taxes related to distributions from our equity investments in Med share and Holdings.

Net investment income or NII for the 3 months ended September 30 was $0.49 per share in Q3 versus $0.53 per share in Q2. Adjusted NII, which excludes any capital gains, incentive fee accruals or reversals attributable to realized and unrealized gains and losses on investments, was $0.50 per share in Q3 versus $0.57 per share in Q2. We ended Q3 with $543.8 million of debt outstanding, comprised of $191 million of SBA debentures, $325 million of unsecured notes, $15 million outstanding on the line of credit and $12.8 million of secured borrowings. Our net debt-to-equity ratio as of September 30 was 0.7x. Our statutory leverage, excluding exempt SBA debentures, was 0.5x.

The weighted average interest rate on our outstanding debt was 4.9% as of September 30.

Turning now to portfolio statistics. As of September 30, our total investment portfolio had a fair value billion. Our average portfolio company investment on a cost basis was $12.6 million, which excludes investments in 6 portfolio companies that sold their operations and are in the process of winding down. We have equity investments in approximately 87.8% of our portfolio companies with an average fully diluted equity ownership of 2%. The Weighted average effective yield on debt investments was 13% as of September 30 versus 13.1% at the end of -- the weighted average yield is computed using effective interest rates for debt investments at cost, including the accretion of original discount and loan origination fees, but excluding investments on nonaccrual, if any.

Now I'd like to briefly discuss our available liquidity. Subsequent to quarter end, we completed a $100 million debt add-on to our 6.75% notes due in March 2030. The net proceeds were used to fully deem the 4.75% notes due in January 2026, in addition, we refinanced our line of credit, which included an upsize to $175 million of availability and a new maturity date of October 16, 2030. As of September 30, our liquidity and capital resources included cash of $62.3 million, $125 million of availability on our line of credit, and $16.5 million of available SBA debentures, resulting in total liquidity of approximately $203.8 million.

Taking into account our subsequent events, our liquidity remains approximately $204 million. Now I will turn the call back to Ed for concluding comments.

Thanks, Shelby. As always, I'd like to thank our team and the Board of Directors at Fidus for their dedication and hard work. and our shareholders for their continued support. I will now turn the call over to Bailey for Q&A. Bailey?

[Operator Instructions] Our first question comes from Robert Dodd with Raymond James.

Congratulations on another good quarter. I've got to ask about your coming about market activity outlook for 4Q. I think you call it, it looks relatively decent. I think it was the first time you used those words. I mean, the earlier comments have been the deal activity picking up, you've already done $40 million in October. I mean -- can you give us any more -- do you think it's going to slow any? Or do you think it's just going to continue to ramp?

And is there given some of the Q3 ramp slipped into October, like you said, is there a risk that there's a lot of activity, but some of it ends up in January?

It's a great question, Robert. I think from a deal flow perspective, things starting to pick up a little in Q2, latter half. That trend continued, which isn't always the case in the summertime. But in fair number of things pushed out. We lost a couple of -- didn't lose deals, a couple of deals fell apart at the end, things like that, which accounted for a little slower quarter than we were expecting.

But from an investment perspective -- but having said that, deal flow was pretty good. And deal flow continues to be pretty good as we sit here today and this week. And so I think that bodes well for the overall current environment. I wouldn't call it robust, but it's healthy. And so that's a good thing. So what does that mean for us? I think originations in Q4, it's our belief it will be pronged, both from an incremental new investment perspective and from add-on investment perspective.

And we've also had several add-on investments so far this quarter as well. So it's a busy quarter at the moment. And our expectation as we sit here today is for that kind of trend to continue. Hopefully, that's helpful.

Yes, that is very helpful. And just kind of following on that. I mean, how are you seeing deal terms and pricing stack up. Obviously, the terms are good enough or you wouldn't be doing them. But has there been any evolution in terms of how structures are being proposed as you go into this to build the pipeline?

Good question. In the lower middle market, I think things are pretty stable from my perspective. Clearly, pricing has come down over the last couple of years. I think that -- and I'm talking about spreads there. But that trend has kind of stabilized over the last 6 to 9 months. So we're not really seeing changes from a pricing standpoint, obviously, we're pricing risk. And so some deals may be in the spreads in the low 5s, and some may be actually in the 6s. So it's -- you can't normalized, if you will.

But pricing has stabilized, which is a good thing. And I think one of the other positives of the lower middle market is structures. I mean we have 2 covenants in almost all of our deals, typically a leverage covenant and a fixed charge covenant. And so the structures are the same. I think leverage levels have stayed pretty close to the same. So there haven't been increased risk, if you will, that we're taking to generate the yields that we're getting. So I think all of that's positive and gives us the ability to generate attractive risk-adjusted returns.

Congrats again on the quarter.

Thank you. Good talking to you, Robert. .

Our next question comes from Mickey Schleien with Clear Street.

Yes, this quarter, we've seen in the space, more impact from tariff policy, particularly in relation to China. We've been talking about this for a while, but these things develop slowly. Can you remind us, do you have companies that are relatively exposed to importation from China? And is pressure developing on those companies?

Great question, Mickey. We have exposure, but what I would say is quite limited. Really, we have 2 portfolio companies that have meaningful direct exposure from an import perspective. We have others that I'd put it in the moderate category. And the moderate ones, to be honest, the moderate ones in the -- obviously, the high-risk ones and so we call them -- we have 2 that are in the high-risk category.

Both of those companies are performing well as we sit here today and are managing the risk. And so -- we -- from just an overall magnitude perspective, I think it's quite limited. It's between 5% and 6% of our total portfolio. And then what I would say is it's not meaningfully impacting the profitability of the businesses as we sit here today. Obviously, there's been a various actions taken by these portfolio companies, whether it's price increases, whether it's negotiations, what have you. But we feel good about kind of the outlook of both of those companies and quite frankly, the rest of the portfolio.

And a follow-up question. It may be transient, but the government shutdown is now longer than we would like. Is that going to impact any of your portfolio companies? I know it may be a short-term sort of event, but it could take a while to get things back to normal as the government reopens.

No, good point and great question. And from our -- we do have a couple of companies that have some what I would call limited direct exposure to government contracts but in both those cases, we are not experiencing or seeing problems with regard to those contracts or at those portfolio companies. So I think our exposure is quite limited there. And at the moment, we're not seeing concerns or problems.

Clearly, obviously, things can change, but it's not expected in either one of those cases.

[Operator Instructions] This concludes our question-and-answer session. I would like to turn the conference back over to Ed Ross for any closing remarks.

Thank you, Bailey, and thank you, everyone, for joining us this morning. We look forward to speaking with you on our fourth quarter call in early March 2026. Have a great day and a great weekend.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.