Good morning, everyone, and welcome to the Fidus Second Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note that this event is being recorded. I would now like to turn the conference over to Jody Burfening. Please go ahead, ma'am.

Thank you, Cole, and good morning, everyone, and thank you for joining us for Fidus Investment Corporation's Second Quarter 2025 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 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 Fidus Investment Corporation. Although management believes these statements are reasonable based on estimates, assumptions and projections as of today, August 8, 2025. 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. 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. Good morning, Ed.

Good morning, Jody, and good morning, everyone. Welcome to our second quarter 2025 earnings conference call. On today's call, I'll start with a review of our second quarter performance and our portfolio at quarter end and then share with you our outlook for the second half of 2025. Shelby will cover the second quarter financial results and our liquidity position. After we have completed our prepared remarks, we'll be happy to take your questions. At a high level, Fidus' second quarter results demonstrate the health of our portfolio from a credit quality perspective, the durability of our investment strategy of generating attractive risk-adjusted return and preserving capital over the long term and the strength of our competitive positioning in the fragmented lower middle market. Although economic and tariff policy uncertainty dampened M&A activity during the quarter, we converted lending opportunities from our pipeline of both new investment opportunities and add-on investments. Relying on our long-standing relationships with deal sponsors, industry expertise and investment experience in the lower middle market, we continue to carefully and purposefully select high-quality companies that possess on the whole sustainable competitive advantages and resilient business models that generate cash flow to service debt and support growth. Our debt portfolio continues to perform well, generating higher adjusted net investment income in a competitive environment. For the quarter, adjusted NII was $20 million compared to $18.4 million for Q2 2024 with fee income accounting for about half of the $1.6 million increase. On a per share basis, adjusted NII was $0.57 for both periods which takes into account the increase in average shares outstanding resulting from the shares issued under our equity ATM program over the past 12 months. Adjusted NII continues to cover the base dividend with plenty of cushion. For the second quarter, dividends paid totaled…

Thank you, Ed, and good morning, everyone. I'll review our second quarter results in more detail and close with comments on our liquidity position. Please note, I will be providing comparative commentary versus the prior quarter Q1 2025. Total investment income was $40 million for the 3 months ended June 30, a $3.5 million increase from Q1 driven by a $2.1 million increase in interest income, primarily due to an increase in assets under management, driven by the net investment activity in Q1 and approximately $0.6 million of accelerated unamortized fee amortization on debt repayments, a $1.8 million increase in fee income given by a $1.3 million increase in prepayment fees in Q2 related to our debt investments in 4 portfolio companies, offset by a $0.6 million decrease in dividend income from... Total expenses, including income tax provision, were $21.3 million for the second quarter, a $3.1 million increase over Q1, driven primarily by a $1 million increase in the capital gains incentive fee accrual. A $1 million increase in interest expense related to higher average debt balances outstanding, including the $100 million note issuance in March 2025, a $0.4 million increase in base management and income incentive fees and a $0.4 million increase in professional fees primarily related to proxy solicitation expenses for the 2025 Annual Shareholder Meeting held in Q2. Net investment income or NII for the 3 months ended June 30 was $0.53 per share in line with Q1. Adjusted NII, which excludes any capital gains, incentive fee accruals or reversals attributable to realized and unrealized gains and losses on investments, was $0.57 per share in Q2 versus $0.54 per share in Q1. For the 3 months ended June 30, we recognized a net realized loss of $7.6 million related to a $14.4 million realized loss on…

Thanks, Shelby. As always, I'd like to thank our team and the Board of Directors at Fidus for their dedication and hard work and our shareholders for their continued support. I'll now turn the call over to Cole for Q&A. SP-2 Cole?

[Operator Instructions] And our first question today will come from Robert Dodd from Raymond James.

On the -- I mean congrats on the quarter, talking about the second half that I mean you mentioned M&A activity is picking up. I mean just to what degree do you think that, that activity is picking up and going to kind of close in the fourth quarter? So that's about just portfolio growth. But also, do you think -- I mean, -- do you think that's going to result in elevated repayments. Do you think that could result in elevated equity realizations. I mean any thoughts on how all that kind of shakes out?

Great question, Robert. I -- it's been an interesting year, right? Q1, there was decent deal flow. Quality was hit or miss. Q2 activity levels dropped in April. The uncertainty as a result of liberation day impacted overall activity and I'd say, a meaningful manner and really deal flow, but the deal flow continued to -- or started to improve in late Q2 and now it continues into Q3, which is a nice thing to see in the summer months. And so what we're seeing is an increase in deal flow. It's not robust, but it's definitely an increase in deal flow and kind of the expectation for a continuation of that theme. So again, we're not at robust levels, but we do think that market activity is poised to be relatively decent here in the latter half of Q3 and then into Q4. Too early to really have a view of Q4. I don't have one. But again, market activity has improved, which is obviously a very nice thing to see. From a repayments perspective, I think that can be episodic. Last quarter for us, there's a pretty high level of repayments, 1 large realization and then some other just refinancing of high-quality companies that we had, quite frankly, we were probably underlevered at that point. As we look at this quarter, we don't expect the same level of activity from a repayments perspective. So we feel like we're pretty well poised to grow this quarter by how much clearly unknown. There's a lot of investment activity yet to happen, but we are working hard on both new investments and add-on activity with some of our portfolio companies. So it's a much better environment than it was in Q2. But it's unclear how good it will be in Q4, but it feels like there'll be an improvement, especially relative to Q2.

Got it. Got it. And then all competitive environment is there anything changing there? I mean it's obviously it's always competitive, right? But I mean, is anything changing on banks being willing to do some things or anybody moving down mark or any real significant changes -- if you think you're going to have any impact, right? Just any thoughts there?

Another great question. And it's somewhat dynamic, right? We're in a market with, again, M&A is not robust. There has been a lot of capital raised. But most of that is really for the large middle market and the upper market, if you will, the large asset managers are obviously raising a fair bit of capital, but that we don't really see them very often. And so but it's competitive. It's clearly competitive, and I think there's been an increase in competitiveness, if you will, over the past 2 years and clearly over the past 5 years. But that's okay from our perspective. And -- but beyond that, no real changes.

Got it. Got it. And then if I can kind of one housekeeping one. The -- I think there was 1 -- if I got it all written down right, there was $1.3 million in prepayment fees, not beyond even accelerated utilization or anything like that in Q2. Seems like if there's not a lot of repayments in Q3, we should expect essentially all of that to go away in the Q3 numbers. Is that right?

That's probably a pretty good assumption. Shelby, I'd be interested in your thoughts is obviously on this one, but that's probably a pretty good assumption.

No, I would agree with that. With the $1.3 million in prepayment fees and about $600,000 in amortization, Q2 did have the benefit of about $1.9 million in incremental income that's really more episodic that I would not necessarily expect to repeat in Q3 at those levels.

And our next question will come from Paul Johnson with KBW.

Congrats on a good quarter. I just wanted to ask about one warranty credit in the portfolio. Quest Software, looked like it was written up this quarter. Obviously, a positive sign there. Any color you guys could provide on that company?

Sure, sure. Great question. Full -- Quest is a full suite provider of cybersecurity solution really for large and smaller companies and also government and any. It's a pretty large for us. It's a very large side of things from a company size perspective. Sponsor-backed, we believe the long-term outlook is very solid. Having said that, the company has been in an overleveraged position for a while and you've been dealing with the impact of higher interest rates. And then last quarter, the company executed an LME transaction that has enhanced the risk profile of our second lien security. Company's liquidity is more than ample now and there was no principal reduction to our second lien securities. So that's not a normal outcome for such an LME. So we're aligned with the sponsor as they're a very large holder in the second lien securities as well. So the risk profile of our investment is reflected in the valuation. But hopefully, that gives you a helpful color.

Yes, that's great color. I appreciate all that. And then just on the higher dividend income sort of picking up this quarter. I was wondering kind of generally, in the perspective of the sponsor, what I guess sort of the priority is kind of capital structure optimization, kind of refinancing existing debt over kind of return of capital, if there's enough pressure there to kind of take some capital out of the company, take some dividend income kind of off our distribution versus loans that the company has grown and leveraged, as you said?

Sure, sure. No, it's -- there are clearly financial sponsors that are looking for ways to return capital, right, to LPs or even if it's not a sponsored back, if they're -- companies are in a position to do so, they're wanting to do it. We have -- in Q1, we had some pretty healthy dividend -- a healthy dividend level, and that was -- I would argue episodic in nature. And then in Q2, I think it was also what I would consider an episodic-driven dividend level, but we had a company that got refinanced from a debt perspective, we're an equity owner. There was a pretty sizable distribution and we've now returned all of our equity capital there and there was dividend income over and above that. So it is clearly, I think it's part of the market today, but I don't know that I would say it's not something that maybe it's reoccurring in nature from time to time but not recurring in nature, if you will. But it's nice to see at the same time.

[Operator Instructions] And this will conclude our question-and-answer session. I'd like to turn the conference back over to Ed Ross for any closing remarks.

Thank you, Cole, and thank you, everyone, for joining us this morning. We look forward to speaking with you on our third quarter call in early November 2025. Have a great day and a great weekend.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines at this time.