Fidus Investment Corporation Q2 FY2025 earnings call

Ed began by reviewing Q2 performance, noting the health of the portfolio from a credit quality perspective, the durability of the investment strategy, and strength in the lower middle market. Despite economic and tariff policy uncertainty dampening M&A activity, lending opportunities were converted. The debt portfolio performed well, generating higher adjusted NII. Shelby then detailed financial results: total investment income was $40 million for Q2 2025, a $3.5 million increase from Q1; total expenses were $21.3 million, a $3.1 million increase over Q1; net investment income per share was $0.53; adjusted NII per share was $0.57 in Q2; a net realized loss of $7.6 million was recognized; debt outstanding was $540.3 million as of June 30, 2025; net debt-to-equity ratio was 0.7x; statutory leverage was 0.5x; weighted average interest rate on debt was 4.8%; total investment portfolio fair value was $1.1 billion; average portfolio company investment was $12.3 million; equity investments were in approximately 87.6% of portfolio companies; liquidity included cash of $91.2 million, $140 million availability on line of credit, and $21.5 million available SBA debentures, totaling ~$252.7 million.

Fidus' second quarter results demonstrate a healthy portfolio. Adjusted net investment income (NII) for the quarter was $20 million, compared to $18.4 million in Q2 2024. The increase of $1.6 million had fee income accounting for about half. The debt portfolio had a fair value of $1 billion, with 81% consisting of first lien investments. The equity portfolio was $138.8 million, 12% of the total portfolio. Adjusted NII per share was $0.57 for both periods. Dividends paid in the second quarter totaled $0.54 per share.

Looking ahead to the second half of 2025, with M&A activity picking up, Fidus has ample liquidity to build the portfolio by carefully selecting high-caliber companies with defensive characteristics and positive growth outlooks while aiming to grow net asset value over time.

Economic and tariff policy uncertainty dampened M&A activity during the quarter. Actual results may differ materially due to risks, uncertainties, and other factors, including those set forth in the company's filings with the Securities and Exchange Commission.

Q: On M&A activity picking up and its impact on portfolio growth, repayments, and equity realizations.

A: M&A activity improved from late Q2 into Q3, though not robust. Repayments were episodic, and not expecting the same level in Q3. Prepayment fees in Q2 were episodic and not likely to repeat at the same levels in Q3.

Q: On warranty credit in portfolio, Quest Software.

A: Quest is a full suite cybersecurity solution provider, sponsor-backed with a solid long-term outlook. The company was overleveraged and affected by higher interest rates, but executed an LME transaction enhancing the risk profile of the second lien security, with ample liquidity now, and the risk profile reflected in the valuation.