Fidus Investment Corporation

and welcome to FIDUS third quarter 2023 earnings call. All participants will be in listen-only mode. If you need assistance, please signal Conference Specialist by pressing the star key followed by zero. After today's presentation, you'll have the opportunity to ask questions. Please note that this event is being recorded. I'd like to turn the conference over to Ms. Jody Bergering. Please go ahead.

Jody Bergering Thank you, Nick, and good morning, everyone, and thank you for joining us for FIDUS Investment Corporation's third quarter 2023 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 FDUS.com. 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 of Finest Investment Corporation. Although management believes these statements are reasonable based on estimates, assumptions, and projections as of today, November 3, 2023, These statements are not guarantees of 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, Jody, and good morning, everyone. Welcome to our third quarter 2023 earnings conference call. On today's call, I'll start with a review of our third quarter performance and our portfolio at quarter end, and then share with you our outlook for the remainder of 2023. Shelby will cover the third quarter financial results and our liquidity position. After we have completed our prepared remarks, we'll be happy to take your questions. We delivered strong results for the third quarter, with our portfolio continuing to grow adjusted net investment income, and with adjusted net investment income remaining well in excess of our base dividend. Much like the first half of 2023, deal flow was decent but not robust by any means, as M&A activity remained subdued in the lower middle market. We're patient and we're disciplined, and we're staying focused on our proven strategy of selectively investing in value-added businesses that generate high levels of free cash flow and 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, increased 46 percent to $18.2 million in Q3 compared to $12.5 million last year. Interest income growth drove this increase, reflecting both higher average loans outstanding and a 170 basis point increase in average debt yields to 14.6%. Taking into account the increase in weighted average shares outstanding resulting from our equity raise during the quarter, adjusted net investment income on a per share basis increased 33.3% to 68 cents from 51 cents. We pay dividends totaling 72 cents per share consisting of a base dividend of 41 cents per share, a supplemental dividend of 21 cents per share, and a special cash dividend of 10 cents per share. As a reminder, we are distributing a special cash dividend of 10 cents per share each quarter this year to satisfy RIC requirements and to bring our spillover income in line with our target level. roughly the equivalent of dividends for three quarters for the fourth quarter on october 30th 2023 the board of directors declared dividends totaling 80 cents per share consisting of a base dividend of 43 cents per share a supplemental dividend of 27 cents per share equal to a hundred percent of the surplus and adjusted nii over the base dividend from the prior quarter and a special cash dividend of $0.10 per share, which will be payable on December 27, 2023, to stockholders of record as of December 20, 2023. That asset value at quarter end was $548.6 million, or $19.28 per share, compared to $483.3 million, or $19.13 per share, as of June 30th. During the quarter, we continue to invest in our portfolio of debt securities that generate recurring interest income and co-invest it in equity securities as a means of adding a margin of safety and creating the opportunity to enhance returns. Originations totaled $56.7 million, consisting of $48.5 million in debt and $8.2 million in equity. First lien investments accounted for $43.1 million, or nearly all of the additions to the debt portfolio. We invested $33.1 million in two new portfolio companies, that were added to the portfolio, financing M&A transactions. The remaining portion of originations was invested in add-ons in support of our existing portfolio companies. Proceeds totaling $69.9 million were slightly higher than originations for the third quarter, reflecting four debt repayments and two equity realizations, including the sale of Hallmark, which occurred earlier than we had expected. From an equity perspective, we received proceeds of $11 million, resulting in realized gains of $9.8 million, most of which came from the sale of our equity investment in Hallmark. Our portfolio of debt investments on a fair value basis was $798 million, or 86% of the total portfolio at quarter end. First lien investments continue to account for the largest piece of the debt portfolio at 65%. Including the fair value of our equity portfolio of $128.8 million, the fair value of the total portfolio at quarter end stood at $926.9 million, equal to 103.5% of cost. We ended the third quarter with 80 active portfolio companies and two companies that have sold their underlying operations. Subsequent to quarter end, we invested $31.8 million in first lien debt and preferred equity in two new portfolio companies, and we had debt repayments in three companies, generating net proceeds of approximately $29.3 million. As we added debt and equity investments to our portfolio, we continue to carefully select high-quality companies that generate excess levels of cash flow to service debt and to structure our investments with a high percentage of equity cushion in an effort to manage downside risk, which is especially important in today's higher-rate environment. For the most part, our portfolio companies have adjusted to current economic conditions. And those with pricing power have generally found ways to prosper despite inflationary cost pressures and higher interest rates. Select portfolio companies are continuing to navigate today's tougher conditions, and we are monitoring them closely. As of September 30th, we had two operating companies on non-accrual unchanged from the second quarter. Non-accruals represented 1.3% of the total portfolio on a fair value basis. In summary, the credit quality of our portfolio overall remains very solid. As we close out the year, the pace of deal activity in the lower middle market has been picking up relative to Q3. Our portfolio remains healthy, and with our strong liquidity, we are well positioned to grow the portfolio. selectively and deliberately, investing in high-quality companies in the lower middle market that possess resilient business models and positive long-term outlooks and generate high levels of cash flow. As always, we are committed to managing the business for the long term and to our goals of preserving capital, generating attractive risk-adjusted returns, and delivering value for our shareholders. Now I'll turn the call over to Shelby to provide some details on our financial and operating results. Shelby?