Fidus Investment Q1 Earnings Call Highlights

Key Points

• Fidus generated adjusted net investment income of $0.62 per share in Q1 (up 14.8% to $23.7 million), above its $0.43 base dividend, and the board declared a $0.62 total dividend payable June 29, 2026.
• The quarter was materially boosted by a large refinancing fee (about $6.9 million from American AllWaste) that management called largely one‑time, while the company recorded approximately $12.2 million of net realized losses, including a $15.8 million loss tied to exiting City Connector.
• Portfolio value rose by $46 million to $1.4 billion (87% first‑lien debt) with credit quality intact—only one non‑accrual (<1%)—and the firm finished the quarter with net debt‑to‑equity of 0.9x and roughly $244.2 million of available liquidity.

Fidus Investment NASDAQ: FDUS reported what management described as an “extremely strong” first quarter from an income statement perspective, driven by higher interest income on a larger earning asset base and a sizable refinancing-related fee. On the company’s first quarter 2026 earnings call, Chairman and CEO Ed Ross said the business continues to generate earnings above its base dividend, while Chief Financial Officer Shelby Sherard detailed the quarter’s income drivers, realized losses tied to a non-accrual exit, and the company’s leverage and liquidity position.

Adjusted NII topped base dividend; board declares $0.62 total dividend

Ross said Fidus generated adjusted net investment income (NII) of $0.62 per share in the first quarter, which he said continued to “over earn” the company’s $0.43 per share base dividend and support excess distributions. He added that adjusted NII increased 14.8% to $23.7 million, reflecting a 13.1% increase in interest income on higher average income-producing assets, as well as higher fee income compared with the prior year.

The board declared a second-quarter 2026 total dividend of $0.62 per share, consisting of the $0.43 base dividend and a $0.19 supplemental dividend. Ross said the supplemental amount equals “100% of the surplus in adjusted NII over the base dividend from the prior quarter” and will be payable June 29, 2026 to stockholders of record as of June 16, 2026.

Ross also said the company ended the quarter with estimated spillover income of $1.14 per share. Net asset value was $742 million at quarter-end, or $19.55 per share, which he said held steady.

Investment activity: modest deal flow, portfolio growth, and equity monetizations

Ross characterized deal activity during the quarter as “relatively modest,” including M&A transactions completed by portfolio companies. First-quarter originations totaled $118.7 million, which he said was “nearly all” first-lien debt supporting M&A transactions and debt recapitalizations. Fidus also invested $1.8 million in equity securities of two new portfolio companies, consistent with its strategy of combining recurring income with potential capital gains.

After quarter-end, Ross said the company invested an additional $21.5 million in one new portfolio company.

Proceeds from repayments and realizations totaled $73.1 million in the first quarter, driven by a mix of M&A and refinancing. Ross said Fidus monetized equity investments in two portfolio companies, generating $3.9 million in realized gains. Those gains were offset by approximately $15 million in realized losses tied to the conversion of City Connector’s debt into equity.

On a net basis, Ross said the portfolio grew by $46 million in the quarter (taking debt recapitalizations into account). First-lien investments represented 87% of the debt portfolio, reflecting what he called the company’s continued migration toward first-lien securities. Including an equity portfolio valued at $149.6 million, Fidus ended the quarter with a total portfolio of $1.4 billion at fair value, equal to 102.5% of cost.

Credit quality and AI-related exposure in software and IT services

Ross said the portfolio remained healthy from a credit standpoint, supported by “very solid underlying portfolio company performance.” Fidus ended the quarter with one portfolio company on non-accrual, representing less than 1% of the total portfolio on both a fair value and cost basis.

He also discussed the company’s software and IT services exposure, describing a “well-diversified” group within the portfolio that is exposed to both the opportunities and risks associated with AI. Ross said this group represents about 32% of the total portfolio on a fair value basis, and management has not seen negative impacts from AI on the group. He emphasized that nearly all related debt investments are “highly structured first lien securities” with “at least two maintenance covenants,” and that all but one of the portfolio companies are backed by sponsors Ross described as high quality.

Ross said the weighted average loan-to-value for the software and IT services portfolio was approximately 42% for the quarter, compared with approximately 45% for the overall portfolio on a cost basis. He added that the contractual duration of the debt investments in this category was 2.2 years, which he said enhances the company’s ability to manage tougher situations if they arise. Equity investments in software and IT services totaled $16.1 million, or about 11% of the equity portfolio on a fair value basis.

Financial details: fee income, realized losses, leverage, and liquidity

Sherard said total investment income was $47.5 million for the three months ended March 31, up $5.4 million from the prior quarter. The increase included a $1.4 million rise in interest income from higher average debt investments and a $4.1 million increase in fee income. Sherard attributed the fee income increase primarily to a $6.9 million fee related to refinancing Fidus’ debt investments in American AllWaste, partially offset by lower origination and prepayment fees.

During the question-and-answer portion, Sherard described the American AllWaste item as a “rather large fee” that she would characterize as “more of a one-time fee,” adding that it drove fee income and the quarter’s performance versus consensus. Ross later told analysts the magnitude was “not the norm of every credit,” though he noted the company has “a few other investments where we have fees that can be earned on the back end.” He described the American AllWaste situation as one where Fidus provided capital quickly when needed and “was paid accordingly for that solution.”

Total expenses, including tax provision, were $22.9 million, up $0.4 million sequentially. Sherard cited higher interest expense due to higher average debt balances, increased base management and incentive fees due to higher assets under management and higher fee income, and higher G&A costs. She said G&A was elevated due to the write-off of unamortized deferred financing costs, legal expenses related to a new registration statement, and the timing of annual audit and tax compliance expenses. These were partially offset by a lower capital gains fee and a lower income tax provision related to an excise tax accrual in the fourth quarter.

NII was $0.65 per share versus $0.53 in the prior quarter. Adjusted NII was $0.62 per share versus $0.52 in the prior quarter.

On realized results, Sherard said Fidus recorded approximately $12.2 million of net realized losses, including a $15.8 million realized loss tied to exiting City Connector debt investments, which she said removed the non-accrual from the books. That loss was partially offset by the $3.9 million in realized gains on equity investments in CIH Intermediate and Zonkd.

As of March 31, Fidus had $682.2 million of debt outstanding, comprised of:

• $260.5 million of SBA debentures
• $325.0 million of unsecured notes
• $85.2 million outstanding on the line of credit
• $11.6 million of secured borrowings

Sherard said net debt-to-equity was 0.9x, while statutory leverage excluding exempt SBA debentures was 0.6x. The weighted average interest rate on outstanding debt was 5.2% at quarter-end.

Liquidity as of March 31 included $50.4 million of cash, $139.9 million of availability on the credit line, and $54.0 million of available SBA debentures, totaling approximately $244.2 million.

Outlook: pipeline “decent,” M&A “lackluster,” and pricing dynamics

Ross said M&A activity remains “lackluster” amid geopolitical uncertainty and market volatility, but described the company’s pipeline as “decent.” He said Fidus still has confidence activity will pick up, though the pace will depend on reducing uncertainty. Ross also pointed to “pent-up demand” for M&A and said the fragmented nature and large size of the lower middle market should continue to provide opportunities regardless of whether M&A accelerates materially.

Looking to the current quarter, Ross said the company expected an “okay to decent originations quarter” and that repayments would likely be “on the lighter side,” while cautioning that deals anticipated to close may not.

On spreads and competition, Ross said the company is seeing “wider spreads,” but added that “for truly great assets” competition remains high, even if pricing is “slightly better” than before the geopolitical conflict. He also said terms in the lower middle market “remain very strong” in areas such as covenants and security.

About Fidus Investment NASDAQ: FDUS

Fidus Investment Corporation 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.

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