Fidus Investment Corporation

Welcome to FIDA's first quarter 2022 earnings conference call. My name is Hilda and I will be your operator for today. At this time, all participants are in a listen-only mode and later we will conduct a question and answer session. During the question and answer session, if you have a question, please press 01 using your touchstone phone. Again, that's 01 using your touchstone phone. As a reminder, this conference is being recorded. And now I would like to turn the call over to Ms. Jodi Bufferning. You may begin.

Thank you, Hilda, and good morning, everyone. And thank you for joining us for FIDUS Investment Corporation's first quarter 2022 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. Binance 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 FTUS.com. I'd also like to call your attention to the customary safe harbor disclosure regarding forward-looking information included on today's call. 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. Although management believes these statements are reasonable based on estimates, assumptions, and projections as of today, May 6, 2022, these statements are not guarantees of future performance. Time-sensitive information may no longer be accurate at the time of any telephonic or webcast replays. 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, Jody, and good morning, everyone. Welcome to our first quarter 2022 earnings conference call. On today's call, I'll start with a review of our first quarter performance and our portfolio at quarter end, and then offer you an update of our views on deal activity in the lower middle market. Shelby will cover the first quarter financial results and our liquidity position. Once we have completed our prepared remarks, we'll be happy to take your questions. During the first quarter with deal activity in the lower middle market at reasonably healthy levels, We grew our debt portfolio through a combination of our strong relationships with deal sponsors, our industry knowledge, and our differentiated perspective on financing solutions. While global supply chain disruptions and inflationary pressures on input costs, labor, and freight continue to weigh on many businesses' operations and profitability, We found solid opportunities to fit our strategy of investing in high-quality, lower-middle-market businesses that possess resilient business models that generate excess levels of cash flow to service debt and that have positive long-term outlooks. 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, $10.6 million, or 43 cents per share, compared to $11.2 million, or 46 cents per share, last year. That asset value was steady at $486.5 million, or $19.91 per share, reflecting solid operating performance and net realized gains, along with increased total dividend payout for the first quarter. As you may recall, last quarter, the Board of Directors, recognizing the extremely strong portfolio performance and exceptionally high level of net realized gains in 2021, increased the base dividend from $0.32 per share to $0.36 per share and increased the supplemental dividend calculation from 50% of surplus income generated by our portfolio to 100%. Thus, FIDUS paid a base quarterly dividend of 36 cents per share and a supplemental cash dividend of 17 cents per share for a total dividend of 53 cents per share during the first quarter. For the second quarter, on May 2, 2022, the Board of Directors declared a base dividend of 36 cents per share and a supplemental dividend of 7 cents per share equal to 100% of the surplus in adjusted NII over the base dividend from the first quarter, which will be payable on June 24, 2022, to stockholders of record as of June 10, 2022. In terms of originations and repayments, after five consecutive quarters of elevated levels of repayments, we had net originations in the quarter of $91.2 million. We invested $114.4 million in debt and equity securities, nearly all of which was invested in debt securities in new portfolio companies. Following a trend that had started well before the pandemic, the largest percentage of debt investments was in first lien debt, mounting to $76.7 million for the first quarter. In terms of new portfolio companies, we invested $101.2 million in seven of them, consisting of $10.8 million in first lien debt and common equity and AOM Intermediate Holdco LLC doing businesses all over media, a leading provider of alternative out-of-home advertising across the C-store and gas station, retail, truckside, and transit markets, among others. $14.4 million in subordinated debt in common and preferred equity in CIH Intermediate LLC, a technology-based risk management firm that provides education and customized price risk management services to businesses affected by volatility in the agriculture markets. $14.5 million in first lien debt in Fishbowl Solutions LLC, a leading provider of inventory management and manufacturing software. $22.4 million in first lien debt and common equity in Micronics Filtration Holdings, Inc., doing business as Micronics Engineered Filtration Group, Inc., a global provider of aftermarket and OEM filtration equipment and consumables for use in mining, chemical, wastewater, and various other industrial end markets. $15 million in second lien debt in Quest Software, U.S. Holdings, Inc., global cybersecurity data intelligence and IT operations management software provider. $19.1 million in first lien debt, subordinated debt, and preferred equity in Tedia Company LLC, a leading manufacturer of high purity solvents and chemicals focused on laboratory, pharmaceutical, and biotech end markets. And $5 million in first lien debt and common equity in Zonk LLC, a leading supplier of products and services to the home furnishings industry. In terms of repayments and realizations in the first quarter, we received proceeds totaling $23.2 million, of which $12.1 million, or a little more than half of the total, was due to the monetization of equity investments. In terms of sales and exits, we received payment in full of $6.8 million on our second lien debt and Mirage trailers, In addition, we received a distribution of $2.5 million and realized a gain of $0.3 million on our equity investments related to the sale of the business. We received proceeds of $2.2 million and realized a gain of $0.2 million related to the sale of Frontline Food Services. And we received proceeds of $7.1 million and realized a gain of $6.1 million related to the exit of our equity investment and spendment. Subsequent to the end of the quarter, we invested a total of $19.5 million in two new portfolio companies. We invested $8.5 million in first lien debt and made a commitment up to $1 million of additional first lien debt in Choice Technology Solutions, LLC, doing business as Choice Merchant Solutions LLC, a leading omnichannel global payments platform. We invested $11 million in second lien debt of Vertex Enterprises LP, a leading vertically integrated electronic manufacturing services provider. We also received $10.9 million in repayments consisting of payment in full of $8.8 million including a prepayment penalty on our first lien debt investment in Comply 365 LLC. And we received a distribution of $2.4 million from our equity investment in TransGo and realized a gain of $1.9 million related to the sale of the business. The fair value of the portfolio at quarter end was $812 million, equal to 112.8 percent of cost reflecting the underlying solid performances of our portfolio companies and net originations for the quarter. We ended the first quarter with 74 active portfolio companies and 10 companies that have sold their underlying operations. Including net originations of $91.2 million, our overall portfolio remains healthy and well-structured to produce recurring income through our equity investments to provide us not only with incremental profits, but also a reasonable margin of safety. From a risk perspective, our portfolio, including a net addition of four portfolio companies, remains well positioned for the current investment environment. Our residual investments in green fiber and K2 are non-accrual. With net originations primarily in first lien debt during the quarter, our portfolio on a fair value basis remains weighted in favor of first lien debt. In terms of the total portfolio mix on a fair value basis, debt investments increased to 80 percent of the total compared to 77 percent as of December 31st, 2021. Total yield on debt decreased from 12.3 percent last quarter to 11.9 percent. Our outlook for 2022 is unchanged from the perspective we shared with you last quarter. We still expect continued healthy deal activity in the lower middle market, driven by both M&A and refinancings, and we continue to see several opportunities to monetize equity investments as some of our portfolio companies have initiated strategic alternative discussions. Having grown our debt portfolio during the first quarter after five consecutive quarters of heightened repayments, we believe we are well positioned to further increase income-producing assets going forward. In doing so, we will adhere, as always, to our proven underwriting standards, our focus on high-quality businesses, and our long-term goal of generating attractive risk-adjusted returns while delivering value to our stockholders. Now I'll turn the call over to Shelby to provide some details on our financial and operating results. Shelby?