Good day, ladies and gentlemen, and welcome to the Fidus Investment Fourth Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. [Operator instructions] As a reminder, this conference call is being recorded. I would like now to introduce your host for today's conference Ms. Jody Burfening. Ma'am you may begin.

Thank you, Kelly, and good morning, everyone. Thank you for joining us for Fidus Investment Corporation’s fourth quarter and full year 2016 earnings conference call. With me this morning are Ed Ross, Fidus Investment Corporation’s Chairman and Chief Executive Officer; and Shelby Sherard, Chief Financial Officer. Fidus Investment Corporation issued a press release yesterday afternoon with 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 Web site at fdus.com. Before starting the call, I’d like to remind everyone that today’s call is being recorded. A replay of today’s call will be available by using the telephone numbers and conference ID provided in the earnings press release. In addition, our archived webcast replay will be available on the Investor Relations page of the Company’s Web site following the conclusion of this I’d also like to call your attention to the customary Safe Harbor disclosure regarding forward-looking information. The conference call today will contain certain forward-looking statements, including statements regarding 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, March 3, 2017, 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. And 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 SEC. Fidus 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 Ross. Good morning, Ed.

Good morning. And thank you Jody. And good morning everyone. Welcome to our fourth quarter and full year 2016 earnings call. I will start the call by highlighting our results for the fourth quarter and full year followed by comments about our fourth quarter investment activity and the performance of our investment portfolio and then offer views about 2017. Then Shelby will go into more detail about our fourth quarter financial results and liquidity position. After that, we will open the call for questions. In looking back at fiscal year 2016, our fifth full year as a public company, we are very pleased to have produced another strong year. Our new investments solidly outpaced realizations, the strength and performance of our investment portfolio produced an 11% increase in total investment income while our adjusted net income -- net investment income covered our annual regular distributions, a goal we have achieved every year since our IPO in 2011. As of December 31, 2016, our net asset value was $353.8 million or $15.76 per share an increase of 4% from $15.17 per share at the end of the prior year. We ended the year on a strong note with our fourth quarter net investment income increasing 9.3% year-over-year to $7.8 million or $0.39 per share and our adjusted net investment income which we defined as net investment income excluding any capital gains incentive fee attributable to realized and unrealized gains and losses surging 20% to $8.8 million or $0.43 per share. We also had several equity distributions in the period which nicely boosted our profitability. Our performance this quarter in absolute and relative terms reflects both the overall quality of our portfolio and the underwriting discipline we have strived to on a daily basis. On December 16, 2016, Fidus paid a special…

Thank you, Ed and good morning everyone. I'll review our fourth quarter results in more details and close with comments on our liquidity positions. Please note, I will be providing comparative commentary versus the prior quarter Q3, 2016. Total investment income was $17.3 million for the three months ended December 31, 2016, a $2.8 million increase from Q3, 2016. Interest income increased by $2.1 million primarily related to higher assets under management and $0.5 million write off in Q3 related to the anticipated restructuring of our investment in Synergy. Fee income was in line with the prior quarter, higher fees from investment activity were offset by fewer prepayment fees in Q4. Dividend income in Q4 was $1.7 million versus $0.9 million in Q3, an increase of $0.8 million primarily related to higher than usual distribution received in Q4 from equity investments in nine portfolio companies including $1.1 million in distributions of earnings and profits related to dividend recap for two of our equity investments in the Wolf Organization and Worldwide Packaging. Total expenses including income tax provision were $9.4 million for the fourth quarter approximately $1.7 million higher than the prior quarter due to an increase in management and incentive fees including accrued capital gains incentive fees. Interest expense was in line with the prior quarter, G&A expenses increased by $0.2 million, base management and income incentive fees increased by a total of roughly $0.6 million and accrued capital gains incentive fees increased by $0.6 million. In addition, we accrued $24 million of excise tax expensed in Q4. Interest expense includes the interest paid on Fidus's SBA debentures in line of credit as well as our any commitment and unused line fees. As if December 31, 2016 the weighted average interest rate on our outstanding debt was 4.1%. As of…

Thanks Shelby. As always I would like to thank our team and the Board of Directors at Fidus Investment Corporation for their dedication and hard work and our shareholders for their continued support. I would now turn the call back over to Kale for Q&A.

Thank you. [Operator Instructions]. Our first question comes from the line of Robert Dodd with Raymond James. Your line is open.

Can I ask you, -- and you covered most of what I was interested on the call. A really hard question, you mentioned the strong private equity portfolio liquidity, et cetera, et cetera and all that, and you could see a strong year back-end weighted. The thing that obviously stands out in the fourth quarter was dividend recaps accounted for a little over $1 million. What's your view on what do you think we could see this year in dividend recap activity in the portfolio on an annual basis, I mean quarter-to-quarter, a shot in the dark. But do you think you could see kind of a similar level for the year or was that just really an outlier in the fourth quarter, for even an annual kind of sustainable level?

That is a great question, one we just talked about actually at the board meeting. It's also a really tough question, Robert. I -- clearly we were fortunate to have a couple of companies that were, quite frankly, through free cash flow were in a under-levered position, and the investors or equity groups wanted to take some of that money off the table. And so, that is not something that happens every quarter as you well know, and its really hard to predict. I think last year was probably a very healthy year in terms of that kind of dividend income. And so, I would not forecast that the same levels would happen this year. I do think -- my gut is, we’ll be fortunate and have some good things happen there. We have a number of portfolio companies that are primed for that kind of situation, but I wouldn’t forecast the same level from my perspective. I mean it is too hard to tell.

Yeah. Fair enough. Fair enough. And then just the market overall, I mean are you seeing any changing in terms from borrowers or that you're willing to give on industry specific based the source just, yeah I mean obviously, it’s a very competitive out there, but is there any divergence between various industries at this point? I mean other than normal ones.

Sure, sure. That’s a, it’s a great question. I would say the answer to that is no, and I think -- I will highlight, I think in the lower middle market the types of terms that we’re getting, number one is, the yields are a little bit better than the broader market. But the covenants are also drastically different, meaning they are, you have a say on how much capital expenditures are going to be spent and whether acquisitions are going to take place and what have so. We have a little bit more of a say on things going forward, interestingly we participated in the worldwide transaction in the refinancing, that is now a very large EBITDA business. And to that got market terms and it was an eye opener for me, quite frankly, just the terms that are provided in the "second lien markets" for businesses that are very large, if you will. So, we are not seeing in a change in terms or in covenants or any of that kind of stuff. I think pricing is relatively stable in our market at the moment its competitive, but pricing is relatively stable. So, it’s -- in our market its pretty -- it's kind of stable as what I would say.

Okay. I appreciate it. Thanks a lot.

Yeah. Thank you. Good to talking to you Robert.

Thank you. And our next question comes from the line of Bryce Rowe with Robert W. Baird. Your line is open.

Ed and Shelby, just wanted to maybe ask about the SBA and understand that you guys have repaid the debentures that are due in March of next year. And so curious if you're able to kind a redraw within that first license given the age of it, and if not, now that you are asking for the final capacity on SBA or SBIC 2 will you kind of start the process, initiate the process of requesting a third license?

Sure, Sure. Great question, what I would say is we intend to try to over time maximize the use of the SBA program. And what that means is we want to fully invest SBIC 2. And we do intend on applying for a third SBIC license here in 2017, hopefully we'll get that application in 2017. That will take a little time, but that's clearly a strategic focus of ours. With regard to FNC 1 we do have currently the ability to make additional investments at that fund. But at the same time we are going to manage that fund with conservatism or a margin at safety and what that means is we're going to make sure we prepay, if you will, the maturities and in this case we're doing a year in advance, and that's how we're kind a thinking about things as we move forward. But it's not that -- we do have ability to make additional investments in there, but we are going to also wind it down as we should.

Right okay. And then maybe one other question, you've drawn $10 million that have pooled as of March 01, 2017, Shelby just curious if you can share with us the rate on that pool over the fixed rate that was pooled on March 01?

Yeah that was around 4%, including that fixed charge -- annual fixed charges.

Okay great. And then maybe one final one from me, Ed if you could -- a lot of activity fourth quarter and then subsequent to fourth quarter. Just curious kind of what kind of purchase multiples EBITDA, multiples you're seeing on some of the new activity here fourth quarter [technical difficulty]? Thanks.

Sure, it's a great question. And I think as you know it really varies company-to-company and industry-to-industry. We have seen I do think for "great companies", high free cash flow, the ability to grow and have pretty good stability. We're seeing very high purchase price multiples, very high, as high as I think we've ever seen. But that's been a continuing theme for the past several years quite frankly and probably low interest rates have something to do with that. I think -- but for all high quality situations I'd say there are healthy multiples. I mean we've seen some definitely over 10 times and we've seen some in the 7 or 8, but the 7 or 8 may have been more like 6 times multiples five years ago. So if there is a they remain high as I guess what I would say. Does that answer your question?

Yes that's very helpful thanks. Good quarter guys.

Thank you. Good talking to you Bryce.

Thank you. Our next question comes from the line of Chris Kotowski with Oppenheimer. Your line is open.

Yeah, if I could go back to the SBA facility, so I mean currently you have 224 outstanding and 51 available for a total of 275. The 24.8 that got repaid that would take that, the capacity under the current lines down to like 250, right. Am I thinking about that at the right way?

That’s correct. And then the only other piece I would add is that we are submitting a commitment application for an additional 225 million of borrowing capacity under FMC-2.

25 million.

25 million, yeah.

Okay. And I guess what I had -- next question was, do you have any other outstanding high coupon SBA debentures that, in the end is there incentive to pay those down and then try to draw again in the lower rate environment that we have here or is this 24.8 million kind of the extent of that?

The short answer is yes. So the next tranche that matures in September of 2018 is at an average rate of 6.4 and then after that we still have some 5.3. So the maturities that we have in the nearest firm are the higher rates, so we could take advantage of that. The timing and everything as I’ve mentioned we certainly are planning on staying on front of the maturities, but the timing is largely going to just be driven by repayments in FMC-1 and just a little bit of cash management and figuring out if there is an opportunistic way to prepay SBA debt and lever up on to the new funds when that approved.

Okay. Got it, but there is some flexibility around that. And then I guess you know whether these more global existential questions and knowing that the administration’s tax plan is not out, but it just somehow seems that loosing deductibility of interest would cut while against debt financing in general, but in particular it just conceptually seems like it would cut against Mezannine finance and I guess, first question is, is that your perception as well? And then secondly is the uncertainty around all this, is it changing the behavior of the sponsor community that you work with and I mean it would seem like that uncertainty always creates a reason to hit the pause button and I am wondering if that’s happening in your market?

Sure, that’s a great question and obviously a full one. I'm going to take the last part of that first. From a "uncertainty perspective" and has that changed any behavior, sponsors or people that we're working with, I would say at this point no. Deal flow has gotten to be pretty good, it was slow in December, it was slow in January, which I think was somewhat expected. But it’s picked up, and I think people are looking to invest if you will on the equity side of things as well as on the debt side of things. So I don’t think that’s changing people’s approach at this point in time in a material way. I am sure people are thinking about it and we’re thinking about it but I don’t think it’s changing the approach greatly. I would say we’ll -- the prospects of some tax changes hurt Mezannine finance, I'm not convinced that that’s the case, so I don’t know that I'd share that perspective. I think that what I would say is that we have a very flexible capital base and can create structures and solutions in a wide variety of ways. And so, we feel like we can fully participate in this lower middle market as these changes take place and are not expecting a big change. I think there is its very early, these are premature conversations. And so, I think the devil will be in the details and we can react to those details at that point. But at this point, we’re not concerned about our ability to continue to invest in high quality situations as we move forward. And then lastly, I just -- with regard to the existing portfolio, because I think it's worth touching on that as well, as I said I mean there is a total lack of clarity here. So, these are all very premature ideas and it doesn’t make too much sense to quantify [ph] it, but I'll make a couple of statements. And first it appears that if there is a change, I think the change would occur primarily with regard to sea corporations and not pass through entities. And so, when you look at our market, a large majority of that market is pass through entities. And so, would there be some change or would it impact sea corporations a little bit, I think the answer to that is, yes. But it wouldn’t be a huge impact to our portfolio. I would also add, that if you're exchanging tax reductions for interest not being tax deductible, it's probably a wash not for sure again that’s premature, but it is probably a wash. And lastly, I think with regard to our equity portfolio, there is a reduction in rates with regard to pass through entities that would be a positive. So, we’re not seeing anything overly negative at this point, but does -- what I would say is those are premature thoughts and subject to change.

Yeah. I think we’re all wondering what's going to come down the pike in the end, but thanks for your thoughts. And that’s it for me.

All right. Great.

Thank you. Our next question comes from the line of Ryan Lynch with KBW. Your line is open.

So, we heard other BDCs that played maybe more on the middle market, upper middle market, talk about a very competitive environment. You guys said it was competitive, but you guys were able to still find quite a bit of deals that you saw were attractive and then put a good amount of capital work in the quarter. The question is you also mentioned Worldwide Express, as you guys participated in that and as that company got larger and you guys participated in the refinancing, the pricing got a lot -- significantly worse or much lower yields. So, my question is, as you continue to grow the portfolio, you guys grew it significantly this quarter, you guys have a lot of capital to grow. As you guys cross over to closer to 600 million plus, what is your ability to still stay in kind of your core and mid, you're doing in lower middle market companies that maybe aren't as competitive and keep the high pricing and good structures that you currently have at your portfolio?

Sure. Great question Ryan, another tough one. But I would say, back to my comments, there are huge differences when you start talking about companies that are over five times the average EBITDA of our system portfolio. So there is a big difference in portfolios or in company size in that case versus what we're doing today. So there is a lot of room in between this what I would say. And secondly, I think we have plenty of room to continue to grow the portfolio on a deliberate and cautious basis in the market we're playing at. We're in a -- we'll still look at things as well as $3 million in EBITDA. If we do something there it's probably going to be on a unit tranche basis where we do a senior secured loan. And then we also will go up to $20 million in EBITDA and even higher quite frankly. But that's the target and so when you get into the plus 10 and EBITDA size there is a lot of room to continue to grow the portfolio from our perspective. So I don't have concerns about having to rely on the "second lean market" the larger market that I just referenced, at least right now. I mean we getting up to $1 billion in size, we may need to just think about how we want to grow from there. But I think right now we feel like we got plenty of room to run.

Okay. And then I just had one more question. Can you guys have the sense that the prepayment fees you've received in Worldwide Express and Grindmaster in the first quarter?

Sure, Grindmaster was 105,000 and Worldwide Express was 90,000.

Okay. Those were all the questions from me, great quarter guys.

Thanks. Good talking to you Ryan. Thank you.

Thank you. Our next question comes from the line of -- with D. A. Davidson. Your line is open.

The commentary you've made about M&A activity likely being healthy in 2017. But what's driving your views on that? Is it the underlying company activities discussions with sponsors, et cetera? What gets you that fate that you have a solid environment this year?

I think first and for most it's just what we're seen really starting at the end of January and early February, deal flow pickup in a meaningful way. I wouldn't tell you it's pretty low in December and January. But I also have been talking to bankers the M&A folks are working and they're quite busy. And so I think that's one element of it. And I think just generally speaking there is a view that there is going to pretty good stability here in the economy if you will and thus the underlying portfolio, in our portfolio is quite stable. So when we think about the fact that there is plenty of equity capital out there and there is stability in modest growth in the economy. We expect there to be continued M&A activity and that's what we're seeing in deal flow. That's what we're seeing when we're talking to M&A bankers. And quite frankly that's what we're seeing within our portfolio. We do have a fair number well not fair [ph], there was several portfolio companies that are considering strategic alternatives right now. And as a result we're not seeing that we're going to have a ton of growth in our portfolio in this first half of the year, and part of that's just because we expect to have some repayments and some realizations. And so -- but what does that all mean, I means it is pretty active out there, but for us repayment could and realizations could offset our originations. But given the slow start from a deal flow perspective, that’s why we're saying, we think our portfolio will probably grow more in the second half of the year versus the first half. Does that help?

Yes, very much, thanks. And then in terms of the repayments and realization it is more refi driven or is it kind of better situations where companies have deleveraged and they're just looking for a different capital ratio structure?

Yes, I think there are -- in the cases that I just referenced, they are more just -- they are companies, and the boards, and the investor groups are looking to exit their investments. And so they are more just trying to realize on their equity investments they made previously. So there is a little bit of refi activity, but we see lees of that in our market, at the moment at least. It's more M&A no different than Grindmaster was M&A transaction and Worldwide Express was a transition from one equity owner to another or controlled party. And so that’s what we are seeing right now.

Great. And then just last one, it's a relatively small investment, but the investment in LNG. You talked about that commodity risk exposure there and how that would differ from typical oil and gas investment?

Sure. I think it's a great question, and I think it's very different than your typical oil and gas or oil and gas services business, synergy clearly is -- it's a supplier of natural gas and liquefied nature gas in the mid-west. Sales to diverse end markets, including truck fleets like UPS, industrial operations, utilities, asphalt plants and then they utilize long term contracts with their customers. So I would say there is not no risk from a price in volume of natural gas, but there is limited from our perspective, it's not overly really material risk on the commodity side. It's a different business model.

Thank you. And I am showing no further questions at this time. I would like to turn the call back to Mr. Ross for closing remarks.

Thank you, Kelly. And thank you everyone for joining us this morning. We look forward to speaking with you on our first quarter call in May. Have a great day and a great weekend.

Ladies and gentlemen, thank you for participating in today’s conference. This does conclude the program. And you may all disconnect. Everyone have a wonderful day.