Fidus Investment (FDUS) 5 May 232023 Q1 Earnings call transcript

Good day, and welcome to the Fidus Investment Corporation First Quarter 2023 Earnings Conference Call. [Operator Instructions]. And finally, I would like to advise all participants that this call is being recorded. Thank you.

I'd now like to welcome Shelby Sherard to begin the conference. you. to over Shelby,

with and release Fidus everyone. at XXXX Investment issued Relations copy the yesterday Call. Gavin, quarterly of the joining results. page available financial Earnings you on us fdus.com. Fidus A afternoon release press for Corporation's this a website details good you, of Thank company's press morning, of for Conference the is Thank company's First Investor Quarter the

disclosure to also will information Investment regarding results to Fidus statements Corporation. of harbor your strategies, customary I'd operating The contain today future cash goals, beliefs, including forward-looking attention on call the call. like statements, today's regarding included the flows and potential, safe call conference forward-looking

as and statements today, X, of webcast may the Although results are these may with any the not management uncertainties are the no believes at Fidus in or forward-looking statements revise filings performance. company's a as assumptions any longer XXXX, May not update and the to factors and projections Time-sensitive set of these reasonable time differ Exchange to, obligation but telephonic including, of estimates, guarantees future result statements. undergoes on Securities Commission. accurate limited materially or information Actual factors forth other be of replay. based risks, no these of

With that, Ed. to I morning, would now Good like to over turn the Ed. call

call, the liquidity our happy After remarks, of the middle lower results we have Welcome everyone. end your and an morning, conference and with the on be XXXX. first start today's our in for quarter portfolio position. our conditions performance market financial good review about Shelby On first we'll give take cover at will and quarter and to views questions. of quarter Shelby, rest you morning, first to I'll our quarter Good update call. a prepared then earnings completed our our XXXX market

of our success quarter enhanced which results income-producing earnings the our of building our from year higher and first in from assets derives portfolio yields. portfolio, Our last demonstrate power

industry though knowledge we build lower tough credit first demonstrates Our slow even performance relatively the with as middle also our remained quarter relationships to sacrificing market. and of our activity portfolio quality, in without conditions remain deal experience, deal and sponsors the efficacy continue

strategy in defensive that continues flow produce long-term know operate high-quality investing healthy of cash Our and free well a selectively positive with industries generate characteristics, portfolio. companies and in strong outlooks high-performing and we to

generated XX% combination or debt average million per gain income, adjusted and we investment the We Adjusted a or XX.X% share higher basis last in incentive investment higher for year. $XX.X capital than and points the and million net base which interest net of yield the losses, reflected income performance $X.XX excluding per attributable of of year. income, any fee to increase excess this $X.XX and yield to investment drove the first compared increased net as well last $XX.X quarter. quarter income gains share positive realized in for which the dividend define investments debt unrealized XX.X%, to A XXX debt is

first of cash special paid and quarter, base of we share, a totaling $X.XX per dividend of consisting $X.XX dividend $X.XX the share a dividend For supplemental dividends share. share, per $X.XX a of per per

line to year level. income distributing per are this As a RIC in quarter dividend satisfy each spillover reminder, with to bring we a target our our cash of and $X.XX share special requirements

XX, the $X.XX base dividend XXXX, quarter, consisting stockholders of of of a XXXX. Board second from on XXX% per June Directors per the payable over dividends which supplemental of XXXX, of For special May of XX, will the equal quarter dividend first on $X.XX NII dividend of to dividend a adjusted be June per a and share, share, cash surplus to the $X.XX $X.XX and totaling the declared share share base record X, per as of

the NAV we the $X.XX share, per with quarter of an dividend of special $XX.XX $XXX.X cash Including ended per million share. or

originations further our income securities strategy recurring execute incremental debt while of terms to equity million, the invested continuing securities safety a our also margin expanding profits. for to quarter, add co-investing generate that $XX.X we portfolio In of to and interest the in of generate of opportunity

in companies. a companies. originations total X/X This X In M&A quarter, investments portfolio each the were little of an $XX.X million transaction, case, to support M&A we new activity invested our existing also in made or portfolio than connection was with the continue more of

million million quarter, fair the value we of first equal $XXX.X $XX.X of X repayments of quarter and million at and that operations. originations the net we $X.X of exited companies first realizations end the of XX terms portfolio We with and gain investments in $XX.X recognizing approximately Rhino in Subsequent company ended debt portfolio repayments. a for the in totaling net received portfolio their $XX.X our to the Assembly With million grew $X.X proceeds and million. end, debt quarter including a quarter, companies XXX.X% active cost. to In in new invested in have to quarter debt realized equity million lien sold underlying first Company,

well, pricing investments the fair investments debt power. they challenges current especially economic portfolio terms million. quarter investments credit of of those equity chain By first doing companies signs uncertainties, mix with Cost ended portfolio. portfolio perspective. Overall, $XXX.X basis, of supply In healthy with majority portfolio Debt first representing to a the remains and debt and and total what we XX% navigate value performing the a large, for need of of the to lien portfolio debt total $XXX.X our our pressures million with easing. are do accounted of showing from on the are reasonably

which the We company additional during with led are, nonaccrual company issues, us place however, to performance dealing on select quarter. one

March represented portfolio on of nonaccruals value a XX, of basis. As X% total the fair

legacy nonaccrual X investments portfolio residual in debt companies were part the as a sold reminder, that As list. previously we of have

related all are versus applicable issues nonaccruals to the our to macroeconomic factors company-specific isolated portfolio. entire Importantly,

financial always, portfolio and sponsors our a in are our As teams companies. with we of more closely management manner managing and the specifically, overall proactive portfolio working

far, In is thought continue standards as unfolding serve underwriting would, investment well. proven summary, to and strategy we our XXXX us it and thus

to Although to With companies the expanding been generating lower middle than market and it value continuing deal the and remains grow in term, over to new of attractive assets our NII dividends income-producing capital adjusted portfolio generating and long-term supporting to goals activity positioned the net sheet the was in widening of has very shareholders. balance of in pace of grow cash our spread XXXX, our asset opportunities XXXX returns well for high slower long our are our we of of high-quality, generate find base portfolio and portfolio. environment, benefits most an a attractive flow invest and risk-adjusted preserving excess in in

turn on Shelby some Shelby? details provide to financials I'll call over operating to and Now our results. the

you, morning, the in Thank everyone. Please XXXX. close results more liquidity note, first and comments prior and Ed, our comparative I good on position. our quarter will detail I'll with commentary versus review QX providing quarter be

increase QX, a $X.X in an months debt million dividend for to was $X.X a $X.X in increase as $X.X and in in income, income in increase was income. driven in partially yield income balances interest by million interest interest investment due increase increase March variable XX, an million decrease average investments, on as by debt in our fee the well increase ended primarily rate loans. including X income, a $XX.X million given investment offset million outstanding from The a PIK, the increase rates on Total

$X.X $X.X a occurs $X.X expenses, excise were first and lower credit. interest driven million increase expense Total debentures under QX, line a $X.X by fee $XX.X accrual incentive to in that borrowings by to million tax including related for debt quarter, primarily provision, in related million outstanding, income the million annual the than our and decrease of in both offset million QX, a a tax incremental SBA increase

of We the million million outstanding debt borrowings. on SBA $XXX.X of million with and of $XX.X million debentures, of of $XXX secured ended notes, quarter line unsecured of comprised our $XX credit outstanding million $XXX

XX X.X% of of XX, leverage, exempt on XXXX. or as rate ratio X.Xx X.Xx debt-to-equity debentures. SBA was average as Our interest our March March was debt The weighted excluding statutory outstanding

investment or ended $X.XX March fee $X.XX which share and accruals reversals or QX. months to the per Adjusted per QX. unrealized NII, was losses in gains, XX X $X.XX versus share NII, was share for attributable $X.XX QX and share versus per in Net per realized excludes incentive income, any in investments, on capital

statistics. to now portfolio Turning

fair total our XX, had million. March of portfolio value of a investment As $XXX.X

million, average the cost companies process investment operations a basis which sold of down. winding excludes in Our on was during their portfolio portfolio X that $XX.X investments

portfolio companies fully investments of equity average have X.X%. ownership approximately in We diluted with of our equity an XX.X%

effective is the of March if of as weighted XX.X% was at interest investments debt on debt XX. yield at versus origination investments on excluding accretion investments issue yield using any. December loan rates average including cost, The nonaccrual, effective average fees, and for but discount Weighted XX XX.X% original computed

I'd to Now our briefly liquidity. like available discuss

and $XXX.X $XX.X on As of of of line liquidity of million March SBA cash million. our and of capital million, in resources million $X resulting liquidity included total $XX available XX, of our approximately debentures availability credit,

Ed the Now for Ed? back turn to concluding call I'll comments.

Shelby. Thanks,

As Board the continued Directors for our shareholders hard Fidus always, of I'd work and their for and and dedication team our like their to thank at support.

to over turn now Gavin call Gavin? the will I Q&A. for

comes from Mickey of the And Ladenburg. Instructions]. [Operator question first of line Schleien your

right? all me hear you Can

Yes. can. I Yes,

have that most rates. increase Ed, interest interest I better net is surprise, portfolio's bit supporting rate fixed in a the do the the in could cash see please? were which and of of in I your see on and a portfolio increased almost comment ratio it investments coverage considering of that trend, liens you investments. that X/X have first may But ratios what's you

Sure.

there. right? is on One a our think basis. an our leverage, I leverage average Xx things there's few is So

than So in companies. see it's of bigger more what much the some you

Interest rates to part start late really it. until half. didn't I second think -- last that's year of year, last rise

the that's I portfolio improved newer and equation that of also the will. you some then if of companies kind part think ratio, of also

a do the a the I... leverage puzzle. there's I due But So that And there. piece think few of factors fact think Xx it's to I is big

of -- to portfolio How in sort more any questions. cuts are aerospace understand your spending. a of military companies exposed I couple X potential

moment, that on, they're outlooks and They But the the sure. platforms on frankly, quite at strong. are quite are based exposed the for

the portfolio at worked very and very level portfolio fits very customer frankly. our are aerospace feel -- chain and as long that think well starts, both still healthy. So our it feels There's term. But issues being I term, we aerospace whatnot, -- about and company quite about at long they our at good through, supply the their good as when

good to All right. hear. That's

question. of technical Lastly, one sort

or investment I you going below I'm that your to whether Rhino equity. a the received a the gain on think in distribution realized you're a press line. curious you mentioned dividend recognize And release, just from

great question. Sure,

will be the realized operations a Effectively, sold. underlying were gain. That

And a so it's effectively liquidation.

So it financial gain will GAAP be our statements. on a realized

James. Robert next Your question Raymond the from of Dodd comes line of

And the congratulations quarter. on

so the what isolated the response nonaccrual can of give anything that more that, commentary is far? Or the said, color being issues. obviously, been color better being of lack you sponsor I company-specific any appreciated. give on Can -- the us a maybe is confidential, supportive? us sponsor On but any you the not? be also, is But some term, form on sponsor will and Obviously, has twitchy, you realize

absolutely. No, Sure.

that's one as X operating have that you. what companies include one to us been is tougher would another of EbLens supportive them -- X tell the now we them. are you of and I partner, and of situation right And is nonaccrual, So a if that

with other sponsors by companies these cases, X portfolio perspective. as case, X owned a well the have supportive X. been another financial The in in And are from both sponsors case active financial very both capital X as sponsors,

in through in all term -- So for situations working the way -- play cases, it's right believe businesses tougher we both to we hard as the now, outcomes going sponsors and us. and particular, some those but of can them those -- maximize in stakeholders, but and and do we're long best they're the

I newer asset, Got Su it. it. relatively of I new mean it's on think the XXXX. then at right? end And you Co, originated it one, the Got a

-- So developed I quickly or rapidly the seem just that you that issues. relatively color mentioned is underwriting? to something original isolated mean was on the after because company-specific building it this occur burned that Or any down? did

can The on has sector, least Sure, right, services sector tell insurance Suited focused home been sector I is it's and And for platform, digital the generation nor verticals. reasons. sure. lead a the what and to not different mortgage Connector's say hot, the has vertical mortgage insurance the you

last year. deteriorate pretty of quickly performance kind did during from it so perspective And a

And very but tough good management we team, a -- a market conditions. so very the operating good news we believe but have good that is company,

of and investments. but equity a in risk And reflected investments our profile franchise, strong are those valuation the so it's of the debt

it. Got it. Got

more in the is In things a I are give just commentary always. relatively terms quarter. you still mean, excellent of mean you $XX million I broadly, slow, I market first slow mean, seasonally quarter, which deployed as

means So few which so grown, do ago? I has years et we just it million. enhanced do so business just something $XX the than whereas been your of Or a for that ago, years quarter slow now X slow of commentary recalibrate a means enhanced scale context larger, have used the -- of million, what might in might quarter to -- kind different is Does business, to the cetera? slow it a need much now your mean need -- to portfolio's the $XX you

business do years about of it if December, in us least way. started since out the than ago of down day. X the fall of And a In bit. that way. different -- was I year. But a changed think Slow slowed the scale quarter pretty anemic at new you the the at -- that volumes October, It quarter material is November, M&A, it end for last first the quite think was started has then. deal

picked quite positive actually bit. flow quite to have hit you, the processes And also tell I a M&A And miss, Quality the or deal bit. will a picked at is flow moment, has but has little deal up commenced. a up

And so starting are the place. starting, engagements take they're to

go number are are. lot performing making performing just recognizing a this we a think out is that, it. of there's And fine. is we of of Company most are decisions fair that let's the companies So the there are where I look, great, where cycle, folks make in

to sure, slower going the quarter, not crazy. transaction was It's And progresses go to to first so it we increase. we year expect be for in expect volumes the though do for overall, as going not but an and like middle I yes, a we do all, that increase of that last year overall from just slower at think our in do scale And for quarter was or perspective. XXXX over us, time. expect And

the from B. comes Bryce of question Rowe next Your line of Riley.

still this a of thrown The maybe wanted I the obviously or all of Ed. dividend and the powerful talk scenarios, point elements profile dividend with dividend just in to you the pretty special. you'll start X you look about that dividend. dividend there. have regular, Quite good And profile or you coverage construct, I kind kind supplemental a at that even mean comfortably have. rate-type in some cover down like

little doing current regular in the of the or would of is? could it base level So about the you Board are a that Or terms consider the you talk you way at discussions maybe that? adjusting the with higher, bit comfortable kind construct

time evaluate on the base great lot of to Bryce. continuing a a It's and we Sure. it say I dividend. what is are question, spend And would to

bit need decisions quite over months which increased the about XX -- we're -- pleased of think our construct right it that and make all the we we've I the pleased in here what to participating company. And dividend way a or that fully last has so. shareholders now the us gives also earnings less is we're

paying we're excess. of out So XXX% the

flexibility. of gives fair and that so us bit And comfort a

wait kind more X and the shareholders are see of whatnot. outlook -- on But a just quarter, very the feel quarter thought on the to mind. is yes, participating and about we question something a in of your dividend and And and fully and But very and we can this good lot we good it's our the one. business performance or results that's a going the

So that's the thinking.

adjusted positive good is out very the our paying about think we perspective that. XXX% I we're from of And NII. feel

if there's you no to rush So do dividends, base incremental will.

Yes.

Okay.

with the you've deals. And on some around question probably the pricing then a and know how banks. past partnered with kind environment in maybe some interacting I Okay. some and you're banks maybe market of

to in cetera. just et that's you could speak And any commentary pricing current if spreads, market? general of around evolving So then kind this maybe how

Sure.

as a perspective, or of market bit now. miss. a actually it was Again, and flow deal right lot seeing hit from just talked a is we are about, So slower, I quality

we you the activity we increase in that, and continue the year, so to particular, expect will year. to and And the expect if in rest the frankly, here quite of in of part second

maintenance points pre-COVID, the as a We've continues. you were, Terms From are had would I say good. wider I still pricing than standpoint, obviously in even XXX Leverage I'd basis say, lower good always very are levels say are if covenants will. middle they spreads market, wider, that lower.

we So pursue. that you can to And invest. as find that's a the attractive time to assuming you view that very it want opportunities

So imagine. we're as but at are we working really selective, being We're very working always -- hard that, and we're at are might hard that. you

we guess they reason. I out same in but mean advantage the of frankly, from opportunity have with are clearly have not have out back are. to back. they are us, from participating they're working banks. also, for question where then business And time in -- creates how doesn't and banks whatever of of situations aggressive Banks quite them environment, transactions on that are business, But, quite and at they're frankly, because pulled banks they for feel good taking new time still the about not It a you how about but and we regional and -- time, asked pulled active business, they're an this

obviously, competitive a terms think us. for as I in pricing dynamic I think good a dynamic it's good And again, So it's well.

of Hovde Zwick the Group. question comes line next Erik of Your from

maybe what like of a that the of And been question seeing mix more a at you question part does pipeline, kind today, Wanted look the flow today. -- I multipart kind earlier hit kind Ed, is lot second in terms the look deal know terms industry quality in asking of to as mentioned preference of start And now, of the also about with has the concentration? your you're maybe pipeline on or a you miss. but

curious if you stress maybe So that that now, of seeing from perspective. some are kind maybe that's shying cracks certain are from or there away FAR or specific industries

any color great. be would there So

questions, Great lot sure. Sure, a there.

working care help And if of we're business. there's repair we're just it now, don't service health I what in the a collision seeing on But So we're frankly, then remember closed it from fair quite that through some very right me a businesses, a hard. all. services, -- We opportunities business on looking space. at, software number

So we're staying revenues, capital-intensive more Generally, sustainable find those. to imagine, and might a quite you companies businesses. variety of a for predictable from, of We're variety looking frankly, with away and places companies. as revenues there's

are to from, consumer-focused an where area from? you staying we staying from? where think a And what those retail about lower maybe staying definitely retail we're capital-intensive services. And energy are energy, away we businesses, are or Obviously, away income retailer, away

have not company any to in performing well there. exposure sector. to that's looking overall, very add portfolio that But one We we're

then and on new -- -- not but from consumer focused ways So fully I is play that and a addition businesses, we perspective Does much generally, well. our Erik? part think answer that, portfolio there's consumer your question, obviously the to as -- on we're different

that's great. Yes,

leverage others some I'd about I have the a was the that say looking you had more stance hit your one in think than And And I at you just industry. curious You of conservative profile, today, it second kind all. today. how just

more use opportunities? kind you good originations portfolio opportunities, You of you you you do of the that taking pay higher? and rest look maybe downs really year, see okay level if for going Or and to just to kind And the consistent then of would new prepayments forward. hold the leverage would risk-adjusted are expect opportunity mentioned fund

Sure. Great we're obviously, question. We're under X:X the -- mark.

it, Our an period period X:X are is, of interim very or long-term of time. comfortable X:X. an extended going target call time we right for now above But

But not to this an sense, great to opportunities So going over the perspective, more leverage not mark we going interim or you We're we're nature in point. our DNA. from our it That's crazy more if focused really are very find leverage be get perspective. on X:X from to would trying if comfortable at invest. will, a makes it obviously but

portfolio also to would relative X, obviously, ago more is our I years X, first-lien X much note, weighted.

to and a easier And bit more is more, okay which well. as so leverage up it's little comfortable

X:X more So well with on we're but from perspective. would positioned of if leverage take it I to sense, stick makes the our target

further at there And Instructions]. [Operator are questions this time. no

So hand back Ed. I'd to like to

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

you That does today. our conference for Thank conclude for participating.

now You disconnect. may all