Fidus Investment Q3 Earnings Call Highlights

Key Points

• Adjusted net investment income rose to $0.54 per share from $0.50 in the prior quarter, while total investment income increased to $45.9 million. Fidus declared a fourth-quarter dividend of $0.54 per share, including a $0.11 supplemental payment.
• Fidus recorded about $11 million in realized losses on Virtex Enterprises debt investments. Net asset value was $19.47 per share, and the company reported no debt investments on non-accrual.
• Management expects fourth-quarter originations and repayments to increase as M&A activity improves, with repayments mainly involving debt. Fidus ended September with $248.5 million in liquidity and net debt-to-equity of 0.9 times.

Fidus Investment NASDAQ: FDUS reported adjusted net investment income of $0.54 per share for the third quarter of 2026, up from $0.50 in the prior quarter, as higher average debt investments boosted interest income.

The company declared a fourth-quarter dividend of $0.54 per share, including a $0.43 base dividend and an $0.11 supplemental payment. Chairman and CEO Ed Ross said the supplemental dividend equals the prior quarter’s adjusted net investment income above the base dividend.

Fidus expects both investment originations and repayments to increase in the fourth quarter as merger and acquisition activity picks up. Ross said expected repayments would primarily involve debt investments, with limited equity realizations anticipated in the quarter.

Investment Income and Portfolio

Total investment income rose to $45.9 million from $43.5 million in the second quarter, CFO Shelby Sherard said. Interest income increased by $2.2 million as average debt investments outstanding grew. A $0.9 million decline in dividend income was offset by a $0.9 million increase in fee income, primarily related to prepayment fees on the repayment of Fidus’ debt investments in True Environmental.

Total expenses, including the income tax provision, were $24.8 million, in line with the prior quarter. Sherard said higher interest expense and management fees were offset in part by lower general and administrative expenses following proxy solicitation costs associated with the second-quarter annual shareholder meeting.

Fidus recognized approximately $11 million in net realized losses on debt investments in Virtex Enterprises that had previously been written down. Net asset value at Sept. 30 was $774.4 million, or $19.47 per share.

Third-quarter originations totaled $51.8 million, primarily first-lien debt investments in existing portfolio companies to support acquisitions. Repayments and realizations totaled $52.4 million.

The portfolio ended the quarter at $1.4 billion in fair value, or 102.8% of cost, comprising approximately $1.3 billion in debt investments and $159 million in equity investments. First-lien instruments represented 88% of the debt portfolio. Fidus had no debt investments on non-accrual, and the weighted average effective yield on debt investments was 12.6%, compared with 12.5% in the second quarter.

Outlook for Deal Activity and Equity Gains

Ross said deal flow began to improve around midyear as market participants became more comfortable with geopolitical conditions and the economy. He characterized the opportunities as primarily involving traditional-economy businesses, such as business services, niche manufacturing and industrial services, rather than software.

Assuming conditions remain stable, Ross said he expects M&A activity to improve in 2027, although he does not expect it to be overly robust. He also expects lending spreads to remain generally stable, with some potential for slight narrowing if interest rates rise.

Ross said fourth-quarter repayments would likely be relatively healthy but lower than originations. Equity realizations could occur in 2027, he said, though the current M&A market has pushed out the timing of some exits.

Fidus held equity investments in approximately 85% of its portfolio companies at quarter end. Ross said the company’s general strategy is to deploy up to 10% of its capital in equity investments on a cost basis, typically alongside private equity sponsors. He does not expect that allocation to increase.

Liquidity and Leverage

Fidus raised $35.5 million in net proceeds by issuing shares through its at-the-market program during the third quarter. It ended September with approximately $248.5 million in liquidity, including $32.7 million in cash, $132.8 million available on its line of credit and $83 million in available Small Business Administration debentures.

Debt outstanding totaled $712.2 million, and net debt to equity was 0.9 times. Ross said Fidus aims to maintain leverage between 0.9 and 1.1 times, generally near the middle of that range, while preserving its investment-grade rating and capacity to pursue opportunities.

The fourth-quarter dividend is payable Dec. 29, 2026, to shareholders of record on Dec. 18.

About Fidus Investment (NASDAQ:FDUS)

Fidus Investment Corporation NASDAQ: FDUS is a business development company that provides financing to privately owned, lower middle-market companies in the United States. The company supports businesses that may have limited access to traditional bank financing and seeks to generate income through a portfolio of corporate investments.

Fidus primarily invests in secured debt, including first-lien and second-lien loans, as well as mezzanine debt and, in some cases, equity interests. Its portfolio companies operate across a range of industries, allowing Fidus to provide customized financing for acquisitions, recapitalizations, growth initiatives and other corporate purposes.

Fidus Investment Corporation is externally managed by Fidus Investment Advisors, LLC.

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