Are there any new concerns about credit quality or potential non-accruals in the next 6-12 months, either in the portfolio or broadly in the economy?

Management is not seeing anything systemic. While aware of higher oil prices and struggles for lower-end consumers, the portfolio shows healthy growth (EBITDA growth of ~6%). No widespread concerns. “What I would say is that -- as you know, we have some companies performing really well, some that are performing as expected and a lot that are performing kind of as expected, if you will. So I think we aren't seeing anything systemic, if you will.”

Has the software portfolio been impacted by AI discussions or pressures?

It's "business as usual" for their specialized software and tech-enabled services portfolio, which is performing well (debt portfolio marked at 99% of cost). No widespread performance issues due to AI risk; most borrowers are investing in AI to improve products and reduce costs. “I think it's more business as usual. I think our software and tech-enabled services portfolio continues to perform well. Our debt portfolio with regard to our software and tech-enabled services is marked at 99% of cost as we sit here today.”

What are the implications for deal terms and conditions with the pickup in deal flow, and is the pickup driven by private equity sponsors seeking exits?

There is pent-up demand for exits from private equity and independent companies. Fidus expects terms to remain stable in the lower middle market, with maintenance covenants, lower leverage (weighted average 4.1x cash flow portfolio), better pricing, and target loan-to-value of 50% or less (current portfolio 41%). “I think from a terms and conditions perspective, one of the things we like about the lower middle market is our -- we have maintenance covenants. Our leverage levels are lower. If you were to look at our weighted average leverage of our cash flow portfolio, it's 4.1x.”

FDUS

Fidus (FDUS) Q2 FY26 earnings call: guidance and Q&A

Earnings call· Jun 2026 (Q2 FY26)· Financials· Aug 7, 2026

Source: earnings call transcript

Executive summary

Fidus Q2 FY26 — Strong Adjusted NII and Equity Monetizations

Fidus delivered a solid second quarter, marked by strong adjusted net investment income covering its base dividend and significant realized gains from equity monetizations. Despite geopolitical uncertainties impacting overall deal activity, the company's diversified portfolio remains healthy, with a focus on first-lien investments and low loan-to-value ratios. Management anticipates a pickup in deal flow in the second half of 2026, particularly Q4, while maintaining strict underwriting standards and a focus on capital preservation.

Highlights

Adjusted NII of $0.50 per share covered the base dividend.
Realized net gains of $6.4 million ($0.17 per share) from three equity monetizations.
Portfolio remains healthy with 88% first-lien debt and a weighted average loan-to-value of 41%.
Exited Virtex Enterprises LP, resulting in zero non-accrual investments as of the call date.
EBITDA growth in the portfolio was approximately 6% this quarter.

Concerns

Total investment income decreased by $4 million QoQ, primarily due to a $6.8 million decrease in fee income.
Net investment income (NII) decreased to $0.49 per share from $0.65 per share in Q1.
Weighted average interest rate on outstanding debt increased to 5.8% from 5.2% QoQ due to refinancing.
One portfolio company was added to the internal watchlist (grade 3+ names).

Guidance & targets

Category	Target	Timeline	Confidence
Net debt-to-equity ratio	0.9x to 1.1x (target 1.0x) high materiality	Ongoing	High

Deals & partnerships

null Refinancing of unsecured notes due November 2026 with new unsecured notes due June 2029. $320 million new notes due June 2029

Included approximately $0.4 million of duplicative interest due to timing of redemption. Earliest debt maturity is now June 2029.

Virtex Enterprises LP Exited second lien and subordinated debt investments in Virtex Enterprises LP. $0.2 million received

Virtex had previously been written down and was on nonaccrual. As of the call date, Fidus has no investments on nonaccrual.

Risks & headwinds

Geopolitical uncertainties and market volatility Q1 and Q2 FY26

Weighed on deal activity levels in the fragmented lower middle market in Q1 and Q2.

Mitigation:Expect deal flow to pick up as uncertainties abate; maintaining strict underwriting standards.

Lower end consumer struggles Current

Directional, "struggling a little bit more than maybe others."

Mitigation:Not seeing anything systemic; portfolio shows healthy growth.

Increase in internal credit watchlist (Grade 3+ names) Q2 FY26

One addition to the list this quarter.

Mitigation:Idiosyncratic issue; expect several names to be exited/sold in next 6-9 months.

What to watch in Q3 FY26

Deal flow and investment activity

Q3/Q4 FY26

Current Not robust in Q1/Q2, but picking up now.

Target Increased activity, particularly in Q4.

Why it matters

Indicates future portfolio growth and originations.

What I would say, and I did allude to it and you caught it, is that we are seeing a higher level of deal flow today than we were 60 days ago, for sure. And I think that bodes well for Q4 in particular, maybe Q3 for some, but I think it bodes well for Q4.

Find out whether FDUS delivers this. Inve re-checks your case every morning.

Q&A highlights

When does management expect deal activity to pick up significantly (Q4 2026 vs. 2027)?

Management sees a higher level of deal flow now compared to 60 days ago, boding well for Q4, possibly Q3. They acknowledge global uncertainties but are seeing quality improve. Portfolio companies are also active with new investments.

“What I would say, and I did allude to it and you caught it, is that we are seeing a higher level of deal flow today than we were 60 days ago, for sure. And I think that bodes well for Q4 in particular, maybe Q3 for some, but I think it bodes well for Q4.”

asked by Robert Dodd · answered by Edward Ross

2 min read 5 chapters

Detailed narrative

Portfolio Strategy and Health

Fidus continues to build a diversified portfolio of debt and equity investments, primarily M&A-driven first-lien investments, by leveraging long-standing sponsor relationships and disciplined selection. The portfolio emphasizes niche market leaders with defensible moats and resilient business models, structured to generate high current income and potential capital gains.

As of quarter-end, the portfolio was valued at $1.4 billion, 102% of cost, with $1.3 billion in debt and $147.2 million in equity investments.

Credit Quality and Non-Accruals

The debt portfolio is performing well with sound credit quality. As of June 30, only one company, Virtex, was on non-accrual, representing less than 1% of the portfolio. Subsequent to quarter-end, Fidus exited its Virtex investments for $0.2 million, realizing an $11 million loss, and now has no investments on non-accrual status.

Management noted an increase of one company to the internal watchlist (Grade 3+), but views it as idiosyncratic.

Market Outlook and Deal Flow

While geopolitical uncertainties and market volatility weighed on deal activity in Q1 and Q2, management observes a pickup in deal flow currently, expecting increased investment activity in the second half of 2026, particularly Q4. This is driven by pent-up demand in the M&A market and private equity exits.

Fidus will maintain strict underwriting standards, focusing on companies with healthy EBITDA growth (approx. 6% this quarter) and low leverage.

Software Portfolio Performance

The software and tech-enabled services portfolio is performing well, marked at 99% of cost for debt investments. Management sees no widespread performance issues related to AI risk, noting that most borrowers are adopting AI to reduce costs and improve products, positioning them to capitalize on advancing AI capabilities.

Leverage and Capital Management

Fidus's net debt-to-equity ratio was 1.0x at quarter-end, with a statutory leverage of 0.6x (excluding SBA debentures). The company's target leverage range is 0.9x to 1.1x, with a midpoint target of 1.0x. Management indicated a willingness to utilize the ATM program for equity capital raises if growth opportunities and repayments pick up, aligning with their target leverage.

Summary of the company's earnings call; see how call summaries are prepared. Not investment advice.