Fidus Investment Q2 2026 Earnings Report

Fidus Investment EPS Results

• Actual EPS: $0.50
• Consensus EPS: $0.50
• Beat/Miss: Missed by -$0.00
• One Year Ago EPS: N/A

Fidus Investment Revenue Results

• Actual Revenue: $32.56 million
• Expected Revenue: $42.37 million
• Beat/Miss: Missed by -$9.82 million
• YoY Revenue Growth: N/A

Fidus Investment Announcement Details

• Quarter: Q2 2026
• Date: 8/6/2026
• Time: After Market Closes
• Conference Call Date: Friday, August 7, 2026
• Conference Call Time: 9:00AM ET

Fidus Investment (NASDAQ:FDUS) (NASDAQ: FDUS) is a closed-end, externally managed business development company (BDC) that provides specialized financing solutions to U.S. middle-market companies. Operated by Fidus Investment Advisors, LLC, a registered investment adviser, the company is regulated under the Investment Company Act of 1940 and trades on the Nasdaq Capital Market.

The firm focuses on structuring senior secured and unitranche loans, mezzanine debt and equity investments for established businesses across a range of industries. Fidus aims to support companies pursuing growth initiatives, acquisitions, refinancings and shareholder liquidity events by delivering flexible capital structures tailored to each client’s objectives. Its investment process emphasizes rigorous credit underwriting, active portfolio management and ongoing risk monitoring to pursue current income and long-term capital appreciation.

Fidus concentrates exclusively on companies headquartered in the United States, serving clients in sectors such as manufacturing, healthcare, business services and technology. The company is led by an experienced team of investment professionals whose backgrounds span credit analysis, transaction structuring and portfolio oversight. Through its disciplined approach and hands-on engagement, Fidus seeks to address the evolving financing needs of middle-market enterprises while delivering attractive risk-adjusted returns to shareholders.

Fidus Investment Q2 2026 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: Adjusted net investment income was $0.50 per share, covering the base dividend, while the board declared a third-quarter total dividend of $0.50 per share, including a $0.07 supplemental dividend.
• Positive Sentiment: Fidus realized $6.4 million in net gains from three equity investments, and management said the portfolio remains healthy, with approximately 6% EBITDA growth and no investments on non-accrual status following the post-quarter-end Virtex exit.
• Positive Sentiment: Management reported that deal flow is improving and expects M&A activity to strengthen, particularly in the fourth quarter, as geopolitical uncertainty eases; portfolio companies also generated add-on investment opportunities.
• Negative Sentiment: Second-quarter adjusted NII declined from $0.62 to $0.50 per share, partly because fee income fell by $6.8 million and interest expense increased. The refinancing of 3.5% notes with 6.625% notes raised the weighted average debt cost to 5.8%.
• Neutral Sentiment: Fidus recorded an aggregate realized loss of $11 million on Virtex, while its internal watchlist increased by one company during the quarter; management characterized the issue as idiosyncratic rather than systemic.

Presentation

[Operator]

Good day, welcome to the Fidus second quarter 2026 earnings conference call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touch-tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Jody Burfening. Please go ahead.

[Jody Burfening, Managing Director of Investor Relations at Alliance Advisors]

Thank you, Danielle, 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. The 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 of Investor Relations at Alliance Advisors]

Although management believes these statements are reasonable based on estimates, assumptions, and projections as of today, August 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, Chairman and CEO at Fidus Investment Corporation]

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. Jody 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 continued 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.

[Ed Ross, Chairman and CEO at Fidus Investment Corporation]

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 three equity investments. NAV is $738.5 million at quarter end, or $19.46 per share.

[Ed Ross, Chairman and CEO at Fidus Investment Corporation]

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 and adjusted NII over the base dividend from the prior quarter, which will be payable on September 29th, 2026, to stockholders of record as of September 15th, 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 four 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.

[Ed Ross, Chairman and CEO at Fidus Investment Corporation]

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.

[Ed Ross, Chairman and CEO at Fidus Investment Corporation]

At 6/30, one portfolio company, Virtex, remained on non-accrual, 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 $20.2 million, resulting in an aggregate realized loss of $11 million. As a result, as of today, we do not have any investments on non-accrual 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, though such timing is not entirely clear. Yet deal flow appears to be picking up as we sit here today.

[Ed Ross, Chairman and CEO at Fidus Investment Corporation]

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

[Shelby Sherard, CFO at Fidus Investment Corporation]

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 three months ended June 30th. 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 Alloys debt refinancing recognized in Q1.

[Shelby Sherard, CFO at Fidus Investment Corporation]

Total expenses, including income tax provision, were $24.8 million for the second quarter, $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 gave an 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.

[Shelby Sherard, CFO at Fidus Investment Corporation]

Net investment income or NII for the three months ended June 30th 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 three months ended June 30th, we recognized approximately $6.4 million of net realized gains on our equity investments in Midshire Holdings, USG AS Holdings, and Worldwide Express Operations.

[Shelby Sherard, CFO at Fidus Investment Corporation]

We ended the quarter with $73.8 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 30th 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.

[Shelby Sherard, CFO at Fidus Investment Corporation]

Turning now to portfolio statistics. As of June 30th, 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 eight portfolio companies that sold their operations or are in 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 30th, in line with Q1.

[Shelby Sherard, CFO at Fidus Investment Corporation]

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 briefly discuss our available liquidity. As of June 30th, 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. I'll turn the call back to Ed for concluding comments.

[Ed Ross, Chairman and CEO at Fidus Investment Corporation]

Thanks, Shelby. As always, I'd like to 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]

Thank you. We will 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 two. The first question comes from Robert Dodd from Raymond James. Please go ahead.

[Robert Dodd, Analyst at Raymond James]

Good morning, Ed, Shelby, congratulations on the quarter. If I can ask on the market outlook, Ed, as you say, there's uncertainty. There's a lot going on globally. You kind of indicated that you do think deal activity is going to pick up. Is picking up right now, overall timing, is it going to be strong in the second half? Is it going to be stronger in 2027? Can you give us any more feel for what? Again, you already hedged a little bit on the timing, so I'm not trying to totally pin you down, what does it kind of feel like for the second half of this year versus is it just going to be more 2027?

[Ed Ross, Chairman and CEO at Fidus Investment Corporation]

It's a great question, Robert, I wish I had a crystal ball.

[Robert Dodd, Analyst at Raymond James]

Fair enough.

[Ed Ross, Chairman and CEO at Fidus Investment Corporation]

What I would say, 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. I think that bodes well for Q4 in particular. Maybe Q3 for some. I think it bodes well for Q4. There clearly are uncertainties in the world today that could get in the way of some of that. That's how we're thinking about it as we sit here today. Deal flow is picking up. 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. Our hope is quality does and continues to improve. With that, hopefully, activity levels across the board will pick up a little bit.

[Ed Ross, Chairman and CEO at Fidus Investment Corporation]

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. We've had one funding of a commitment we made in Q2, and we've also made two sizable add-on investments in July that were acquisition-related. 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. We also expect new deal activity, probably more in Q4 to pick up.

[Robert Dodd, Analyst at Raymond James]

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

[Ed Ross, Chairman and CEO at Fidus Investment Corporation]

Sure. No, it's a great question. What I would say is, as you know, we have some companies performing really well. We have some that aren't performing as expected, and a lot that are performing kind of as expected, if you will. 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. Generally speaking, we are seeing healthy growth in our portfolio. EBITDA growth levels this quarter are about 6%. We feel good about the outlook and really the strength of the portfolio as we sit here today.

[Robert Dodd, Analyst at Raymond James]

Got it. Thank you. If I can, one more. You've talked about it. It's still topical software. You do have a good chunk of software, though it tends to be specialized software. 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?

[Ed Ross, Chairman and CEO at Fidus Investment Corporation]

I think it's more business as usual. 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. 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. Really, as it pertains to AI risk, we are not seeing any widespread performance issues showing up in the portfolio.

[Ed Ross, Chairman and CEO at Fidus Investment Corporation]

What I would say is that most borrowers are investing in and adopting AI capabilities to reduce costs and also just improve their products. We also believe many of them are well-positioned to capitalize on their advancing AI capabilities and software capabilities. We are pleased with where the portfolio is and expect it to continue to perform well as we sit here today.

[Robert Dodd, Analyst at Raymond James]

Got it. Thank you.

[Ed Ross, Chairman and CEO at Fidus Investment Corporation]

Thank you. Good talking to you, Robert.

[Operator]

As a reminder, if you have a question, please press star one. The next question comes from Christopher Nolan from Ladenburg Thalmann. Please go ahead.

[Christopher Nolan, Analyst at Ladenburg Thalmann]

Hi. Thanks for taking my questions. 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, I guess there's in terms of the deals that you're seeing. Also, is the pickup in deal flow private equity sponsors just trying to find an exit after such a lull?

[Ed Ross, Chairman and CEO at Fidus Investment Corporation]

No. I mean, yeah, I think there's pent-up demand for exits. I think that's clearly in the private equity world, but also independent companies that maybe were thinking about it's time for a transaction to take place. There's just a fair bit of pent-up demand out there. 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 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. It's materially lower than the broader market. Pricing's better. You can see that reflected in our spreads.

[Ed Ross, Chairman and CEO at Fidus Investment Corporation]

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. That is, 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. We expect those opportunities to continue as well.

[Christopher Nolan, Analyst at Ladenburg Thalmann]

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

[Shelby Sherard, CFO at Fidus Investment Corporation]

That's correct. No, that's correct.

[Christopher Nolan, Analyst at Ladenburg Thalmann]

Okay. It should be pretty neutral on that. Okay, great. Thank you very much for taking my questions.

[Ed Ross, Chairman and CEO at Fidus Investment Corporation]

Thank you, Chris. Good talking to you.

[Christopher Nolan, Analyst at Ladenburg Thalmann]

Likewise.

[Operator]

The next question comes from Paul Johnson from KBW. Please go ahead.

[Paul Johnson, Analyst at KBW]

Good morning. Thanks for taking my questions, 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 non-accrual coming off here next quarter. 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?

[Ed Ross, Chairman and CEO at Fidus Investment Corporation]

It's a great question, Paul. It actually did increase this quarter. We had one addition to that list, and that would be in what I call the Grade 3 plus names. It's idiosyncratic type issue for sure. 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 six to nine months. Hopefully, that does happen, but that's what is being worked on right now. With a little luck, actually, that Grade 3 portfolio could improve. Overall, we're seeing generally growth and a healthy portfolio.

[Paul Johnson, Analyst at KBW]

Got it. Appreciate that. It's been a while since we've talked about junior capital opportunities, and you guys have made more of the shift into the unitranche structure. What is, I guess, 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.

[Ed Ross, Chairman and CEO at Fidus Investment Corporation]

Yeah, it's a great question. What has transpired for us and really the industry over the last five to 10 years is really moved towards more of a first lien solution. There are obviously junior capital opportunities that come up, and we do look at them. What we're looking for regard to junior capital opportunities are really superlative businesses, attractive loan to values, obviously attractive pricing. The real piece of the puzzle is where I started, which is, the market is very first lien oriented.

[Ed Ross, Chairman and CEO at Fidus Investment Corporation]

That's driving a large majority of the originations for us. We do see second lien junior capital opportunities. We will continue to look at those. Obviously, the bar is extremely high from our perspective there, always has been, we expect our first lien portfolio or our debt portfolio is now 88% first lien, we think that's probably where it stays or if not, actually increases from there a little bit over time.

[Paul Johnson, Analyst at KBW]

Appreciate it. Thank you very much for that. 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 as high as it's probably been in a little while. On a statutory base, it's obviously much lower, 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.

[Ed Ross, Chairman and CEO at Fidus Investment Corporation]

Sure. 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. 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. It makes sense. Our target leverage is more, range is 0.9x-1.1x, really, the target being in the middle there at one-to-one. It would make sense to raise capital if it looks appropriate.

[Paul Johnson, Analyst at KBW]

I appreciate it. That's all for me. Thank you very much.

[Ed Ross, Chairman and CEO at Fidus Investment Corporation]

Yeah. Thank you, Paul. Good talking to you.

[Operator]

Again, if you have a question, please press star one. This concludes our question-and-answer session. I would like to turn the conference back over to Ed Ross for closing remarks.

[Ed Ross, Chairman and CEO at Fidus Investment Corporation]

Thank you, Danielle. 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.

[Operator]

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

Participants

Executives

• Ed Ross, Chairman and CEO
• Shelby Sherard, CFO

Analysts

• Jody Burfening, Managing Director of Investor Relations at Alliance Advisors
• Robert Dodd, Analyst at Raymond James
• Christopher Nolan, Analyst at Ladenburg Thalmann
• Paul Johnson, Analyst at KBW