Fidus Investment Corporation

Ladies and gentlemen, thank you for standing by. Welcome to the 5th and 3rd Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star then 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star then 0. I would now like to hand the conference over to your speaker today, Ms. Joey Berkman. Thank you. Please go ahead.

Thank you, Jimmy, and good morning, everyone, and thank you for joining us for FIDUS Investment Corporation's third quarter 2020 earnings conference call. With me this morning are Ed Ross, FIDUS Investment Corporation's chairman and chief executive officer, and Shelby Sherrod, 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 sbus.com. I'd like to remind everyone today that this call is being recorded. A replay of today's call can be available by using the telephone numbers and conference ID provided in the earnings press release. In addition, an archived website replay will be available on the investor relations page of the company's website following the conclusion of this conference call. 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 by this investment corporation. Local management believes these statements are reasonable based on estimates, assumptions, and projections as of today, October 30, 2020. These statements are not guaranteed for 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. BIDIS 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.

Good morning, Jodi, and good morning, everyone. Welcome to our third quarter 2020 earnings conference call. I hope all of you, your families, friends, and coworkers are staying healthy and well. Since our first quarter earnings call, when the shelter-in-place orders related to the pandemic began to weigh on our portfolio company's business operations, I have focused my prepared remarks on the state of our portfolio. As uncertainties associated with the pandemic and the economy are still with us, on this morning's call, I'm going to once again open with a status report on our portfolio. I'll also share you my assessment of M&A trends in the lower middle market and deal activity levels as we move into the home stretch of 2020. Shelby will cover the third quarter financial results and our liquidity position. Once we have completed our prepared remarks, we'll be happy to take your questions. Since the pandemic hit us in the United States towards the end of the first quarter, management teams at our portfolio companies have done a great job overall of adapting their businesses to the new normal, executing plans to ensure business continuity, flexing the current demand dynamics, and focusing on what they can control. Some of them are focusing on enhancing business operations, while others are taking advantage of competitive openings to accelerate growth plans. Although we are not out of the woods yet, our portfolio companies continue to hold their own. I'm pleased to report that the overall health of the portfolio continues to improve. Our assessment of portfolio risk based on company operations and valuations has steadily abated since the first quarter. when we considered a little more than 80 percent of the portfolio to be in the low to medium risk range, to the second quarter when our view was that about 88 percent of the portfolio was in the low to medium risk range and about 65 percent in the low risk category. Now our view is that 93 percent is in the low to medium risk range with roughly 70 percent in the low risk category. We do still have the debt investment in Accent Food Service on non-accrual, and we wrote down the fair value of this investment by about two-thirds to $5.3 million during the quarter. This portfolio company has been hard hit by the adverse effects of the pandemic. Mirage Trailers is back on accrual status. As a result, we ended the quarter with a non-accrual balance of less than 1% of our portfolio on a fair value basis. This represents an improvement from the end of the first quarter when we had three portfolio companies on non-accrual and one on PIC non-accrual equal to 6.7 percent of the portfolio on a fair value basis. In spite of the write-down of Accent Foods, NAV increased $13.4 million to $389.6 million or $15.94 per share at the end of the third quarter. a 3.6 percent increase from $376.2 million, or $15.39 per share, at the end of the second quarter. As improved performance and outlooks of some of our portfolio companies merited appreciation in the valuations of our debt and equity investments. As you can see, our strategy of selectively investing in companies with defensive characteristics is working for us. Companies with resilient business models that can withstand economic stresses and generate strong free cash flows that operate in industries we know well and that possess positive long-term outlooks. In terms of our portfolio construction and metrics, the fair market value of our investment portfolio as of September 30, 2020, was $715.4 million, equal to 99.9 percent of cost. We ended the quarter with 63 active portfolio companies and three companies that have sold their underlying operations. On a fair value basis, the breakdown of the portfolio by investment type as of September 30th was as follows. First lien debt, 18.3%. Second lien debt, 49.2%. And subordinated debt, 20.1%. And equity investments, 12.4%. We continue to believe our portfolio is well-structured with strong equity cushions to handle severe economic stresses. Turning to our results for the quarter, we reported adjusted net investment income, which we define as net investment income excluding any capital gain incentive fee attributable to realized and unrealized gains and losses of $9.7 million, or 40 cents per share. compared to $8.7 million or 35 cents per share for the same period last year. On September 25th, 2020, FIDUS paid a regular quarterly dividend of 30 cents per share to stockholders of record as of September 11th. On October 26th, 2020, the Board of Directors declared a regular quarterly dividend of 30 cents per share And I'm pleased to report the Board also declared a supplemental cash dividend of 4 cents per share, extending FIDUS's record of paying special dividends to eight consecutive years. Both the regular quarterly dividend and the supplemental cash dividend will be payable on December 18th, 2020, to stockholders of record as of December 4th. In terms of repayments and realizations, we received proceeds of $33.8 million and recognized $1.3 million in net realized gains. In terms of exits, we received payment in full of $7.3 million, including prepayment penalty on first lien debt in Hunuit, LLC. We exited our debt and equity investments in Microbiology Research Associates, Inc. We received payment in full of $9 million on our subordinated debt investment and realized a gain of approximately $1.4 million on our equity investment. And we received payment in full of $10.6 million, including a prepayment penalty on second lien debt and SpendMen LLC. Subsequent to quarter end, we exited Pew Lubricants LLC, receiving payment in full of $26.6 million including a prepayment penalty on our second lien debt investment and realized a gain of approximately $.5 million on the sale of our equity investment. We invested $6 million in second lien debt and $1.5 million in equity in a leading regional distributor of pool equipment and supplies. The debt investment was a partial funding of a $12 million note commitment. After hitting the pause button on deal activity during the second quarter out of an abundance of caution, we began evaluating opportunities again last July while adhering to our strict underlying disciplines. There is fertile ground for M&A in the lower middle market among companies which have not been meaningfully impacted by the pandemic, and we are seeing a fair number of high-quality businesses in the market today. Based on the improving health of our portfolio and the strength of our balance sheet, we're well positioned to participate in this busy season of deal activity. This supports our view that we are staying on the path of continued improvement in the health of our portfolio. While having a fairly robust pipeline is encouraging as we head toward the end of the year, we are nevertheless continuing to operate with an abundance of caution in managing the business for the long term. focused on generating attractive risk-adjusted returns and preserving capital in the interests of our shareholders. Now, I'll turn the call over to Shelby to provide some details on our financials and operating results. Shelby?