Fidus Investment Q1 2026 Earnings Call Transcript

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Provided by Quartr
May 8, 2026

Key Takeaways

  • Positive Sentiment: Adjusted NII was $0.62 per share (up 14.8% to $23.7M), surpassing the $0.43 base dividend and enabling a Q2 total dividend of $0.62 (including a $0.19 supplemental payout).
  • Positive Sentiment: NAV held steady at $742 million ($19.55/share) and the portfolio totaled $1.4 billion (102.5% of cost) with 87% of debt in first‑lien positions and only one non‑accrual (<1% of portfolio), signaling strong credit quality.
  • Neutral Sentiment: Q1 fee income was materially boosted by a near‑$6.97 million one‑time refinancing fee from American AllWaste, which drove part of the quarter’s outperformance but is not expected to be recurring.
  • Negative Sentiment: The company recognized about $12.2 million of net realized losses in Q1, including a $15.8 million loss on the exit/conversion of City Connector’s debt to equity.
  • Positive Sentiment: Liquidity and leverage remain solid with roughly $244.2 million of total liquidity, net debt‑to‑equity of 0.9x (statutory leverage 0.6x excluding SBA debentures) and a weighted average interest rate on debt of 5.2%.
AI Generated. May Contain Errors.
Earnings Conference Call
Fidus Investment Q1 2026
00:00 / 00:00

Transcript Sections

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Operator

Good day, and welcome to the Fidus first quarter 2026 earnings conference call. All participants will be in listen only mode. Should you need assistants, please signal conference specialists by pressing the star key followed by zero. After today presentation, the will be an opportunity to ask questions. To ask a question, you may press star then one on a touchtone phone. To withdraw your question, please press star then two. Please noted that this event is being recorded. I would now like to turn the conference over to Jody Burfening. Please go ahead.

Jody Burfening
Managing Director at Alliance Advisors

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.

Jody Burfening
Managing Director at Alliance Advisors

Although management believes these statements are reasonable, based on estimates, assumptions and projections as of today, May 7th, 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.

Ed Ross
Ed Ross
Chairman and CEO at Fidus Investment Corporation

Good morning, Jody, and good morning, everyone. Welcome to our first quarter 2026 earnings conference call. On today's call, I'll start with a review of our first quarter performance in our portfolio at quarter end and then share with you our outlook for 2026. 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 over earn our base dividend of $0.43 per share and to support a payout of excess earnings to shareholders.

Ed Ross
Ed Ross
Chairman and CEO at Fidus Investment Corporation

Adjusted NII grew 14.8%-$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.

Ed Ross
Ed Ross
Chairman and CEO at Fidus Investment Corporation

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 1st 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.

Ed Ross
Ed Ross
Chairman and CEO at Fidus Investment Corporation

We also invested $1.8 million in equity securities of two 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. We monetized equity investment in two 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 City Connector's debt into equity.

Ed Ross
Ed Ross
Chairman and CEO at Fidus Investment Corporation

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 non-accrual 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 companies.

Ed Ross
Ed Ross
Chairman and CEO at Fidus Investment Corporation

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 two maintenance covenants. 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.

Ed Ross
Ed Ross
Chairman and CEO at Fidus Investment Corporation

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 companies 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.

Ed Ross
Ed Ross
Chairman and CEO at Fidus Investment Corporation

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?

Shelby Sherard
Shelby Sherard
CFO at Fidus Investment Corporation

Thank you, Ed. 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 three months ended March thirty-first. 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.

Shelby Sherard
Shelby Sherard
CFO at Fidus Investment Corporation

Total expenses, including tax provision, were $22.9 million for the first quarter, a $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.

Shelby Sherard
Shelby Sherard
CFO at Fidus Investment Corporation

Net investment income, or NII, for the three months ended March 31st 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 three months ended March 31st, 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 City Connector, taking this non-accrual off our books, which was partially offset by a $3.9 million in realized gains on our equity investments in CIH Intermediate and Zonkd.

Shelby Sherard
Shelby Sherard
CFO at Fidus Investment Corporation

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 31st 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 31st, our total investment portfolio had a fair value of $1.4 billion.

Shelby Sherard
Shelby Sherard
CFO at Fidus Investment Corporation

Our average portfolio company investment on a cost basis was $13.8 million, which excludes investments in seven portfolio companies that sold their operations or are 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 thirty-first, 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 non-accrual, if any. I'd like to discuss our available liquidity.

Shelby Sherard
Shelby Sherard
CFO at Fidus Investment Corporation

As of March 31st, 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. I'll turn the call back to Ed for concluding comments.

Ed Ross
Ed Ross
Chairman and CEO at Fidus Investment Corporation

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

We will now begin the question-and-answer session. To ask a question, you may press star then one on your touch tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. The first question is from Robert Dodd with Raymond James. Please go ahead. Excuse me. I just put Christopher Nolan on the podium. My apologies. Robert will be next. Christopher Nolan with-

Christopher Nolan
Christopher Nolan
Analyst at Ladenburg Thalmann

That's okay.

Operator

Ladenburg Thalmann. Yes, please go ahead.

Christopher Nolan
Christopher Nolan
Analyst at Ladenburg Thalmann

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

Ed Ross
Ed Ross
Chairman and CEO at Fidus Investment Corporation

Well done there.

Christopher Nolan
Christopher Nolan
Analyst at Ladenburg Thalmann

No offense, Robert. Shelby, were there any non-recurring items in the quarter or am I missing in your comments?

Shelby Sherard
Shelby Sherard
CFO at Fidus Investment Corporation

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

Christopher Nolan
Christopher Nolan
Analyst at Ladenburg Thalmann

Okay. That's really it for me. Thank you very much.

Ed Ross
Ed Ross
Chairman and CEO at Fidus Investment Corporation

Thank you, Chris.

Operator

The next question is from Robert Dodd with Raymond James. Please go ahead.

Robert Dodd
Robert Dodd
Analyst at Raymond James

Good morning, and thank you, Christopher Nolan, for letting me go second. Appreciate it. Congratulations to Shelby Sherard and team for a really good quarter. A question about that American AllWaste fee. I mean, if I look, I mean, the position size is about, you know, just on, you know, $50 million now. Obviously it was smaller than that before. A $6.9 million fee on a refi financing of a position that size seems pretty high. Obviously, the first fee last quarter was marked well above cost. There was some oddities, differences in how the prior thing was structured.

Robert Dodd
Robert Dodd
Analyst at Raymond James

Are there any other, is it a normal asset that just happened to repay and generate a really good fee, or was there something unusual about the structure of that asset? I'm just kind of trying to get a feel. Obviously, probably not gonna happen every quarter, but can this kind of outsized refinancing fee happen again in different assets?

Ed Ross
Ed Ross
Chairman and CEO at Fidus Investment Corporation

Sure. It's a great question, Robert. I think, you know, the Could it happen again? To a certain degree. To this magnitude, I mean, sure, anything's possible, but it's a pretty healthy fee, as you've highlighted. It's not the norm of it, of every credit by any stretch of the imagination. We have a few other investments where we have fees that can be earned on the back end. What I would say in this case is, you know, 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. We, we ended up being the source of that capital.

Ed Ross
Ed Ross
Chairman and CEO at Fidus Investment Corporation

We priced that capital in accordance with what we thought the, you know, the numbers should be, if you will. This is not like, okay, this is the business going forward or anything like that. It's just, you know, 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.

Robert Dodd
Robert Dodd
Analyst at Raymond James

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

Ed Ross
Ed Ross
Chairman and CEO at Fidus Investment Corporation

Sure. Great question. Let me give you a little color on just what we've experienced in Q1 and whatnot. You know, as, you know, most people in this space felt, you know, deal flow was more modest in nature and when we believe largely due to seasonal patterns, and I'm talking about Q1. You know, you know, that was prior to the geopolitical conflict in the Middle East. You know, also at that time, general expectations were for an increase in both deal flow and investment activity throughout the year. You know, as we sit here today, we still have confidence in a pickup in activity, the pace will be somewhat dependent upon a reduction in the current level of uncertainty that's in the world today.

Ed Ross
Ed Ross
Chairman and CEO at Fidus Investment Corporation

You know, 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, you know, it's not new. We've all heard. You know, the good news from our perspective, though, is the fragmented nature of the lower middle market and its large overall size. You know, 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. There's still activity going on as we sit here today, but it's clearly not at anything close to robust levels. We do have investment opportunities with both, you know, existing portfolio companies as well as, you know, new investment opportunities. Again, more lackluster relative to robust times, if you will.

Ed Ross
Ed Ross
Chairman and CEO at Fidus Investment Corporation

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

Robert Dodd
Robert Dodd
Analyst at Raymond James

Got it. Got it.

Ed Ross
Ed Ross
Chairman and CEO at Fidus Investment Corporation

Hopefully that gives you some-

Robert Dodd
Robert Dodd
Analyst at Raymond James

Yeah, that is very helpful. Thank you. Then just kind of following on the next part of that really is spreads. Obviously, your yield, portfolio yields bear You're down a tiny bit versus Q4. Looking forward obviously the spreads are kinda stable as well, I think. Looking forward, I mean, there has been There's talking in the marketplace, it's certainly the larger players more upmarket about spread expansion. You know, 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 there's actually a prospect for expansion in the smaller end of the market?

Robert Dodd
Robert Dodd
Analyst at Raymond James

Obviously I would differentiate that between the overall market and maybe what you're seeing on the software side.

Ed Ross
Ed Ross
Chairman and CEO at Fidus Investment Corporation

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

Ed Ross
Ed Ross
Chairman and CEO at Fidus Investment Corporation

There is opportunities to increase, you know, spreads, you know, and but I would argue for great assets. The competition is still, you know, meaningful, if you will.

Robert Dodd
Robert Dodd
Analyst at Raymond James

Got it. Got it. I appreciate it. Thank you.

Ed Ross
Ed Ross
Chairman and CEO at Fidus Investment Corporation

Thank you.

Robert Dodd
Robert Dodd
Analyst at Raymond James

Again, congratulations on the quarter.

Ed Ross
Ed Ross
Chairman and CEO at Fidus Investment Corporation

Thanks, Robert. Good talking to you.

Operator

Again, if you have a question, please press star then one. At this time, we have no further questions in the queue.

Ed Ross
Ed Ross
Chairman and CEO at Fidus Investment Corporation

Okay.

Operator

So this-

Ed Ross
Ed Ross
Chairman and CEO at Fidus Investment Corporation

Well, thank you. Thank you, Debbie.

Operator

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

Ed Ross
Ed Ross
Chairman and CEO at Fidus Investment Corporation

Well, thank you, Debbie. 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.

Operator

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

Executives
    • Ed Ross
      Ed Ross
      Chairman and CEO
    • Shelby Sherard
      Shelby Sherard
      CFO
Analysts
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