Fidus Investment (FDUS) 3 May 242024 Q1 Earnings call transcript

Good day, and welcome to the Fidus First Quarter 2024 Earnings Conference Call. [Operator Instructions]. Please note this event is being recorded.

I would now like to turn the conference over to Ms. Burfening. Jody ma'am. ahead, go Please

A Ed of like you, press details Financial on the the operating Chuck, for Fidus Quarter goals, flows Investor your and statements, you press afternoon the and morning The regarding morning, is release the Earnings and yesterday Corporation's Chief release future Executive the Investment call. call results beliefs, website and us and Corporation. for Corporation strategies, to cash today's copy company's disclosure good Officer; quarterly are this conference Relations available joining forward-looking me First Sherard, company's Call. everyone, including Fidus the Fidus financial today Investment Conference forward-looking Chairman statements at of page Chief on contain thank results. Investment of potential, Shelby information customary With attention Thank to the Ross, regarding Officer. Fidus Investment of safe XXXX harbor fdus.com. I'd a included with also Corporation's call issued will

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

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

portfolio quarter I'll good then morning, our with first first Welcome cover happy take quarter start our position. of quarter to On morning, the the call, today's quarter our financial After end XXXX XXXX. your Jody, liquidity Shelby performance our of completed share we and be the our review remainder for outlook we'll earnings at first you and conference have call. our Good results questions. with will and remarks, to and everyone. prepared

with first the a shaped in equal the preservation our originations We originations capital activity repayments grew the amount total to to in amount from be the invested To totaling of while net with investment a put the on quarter the were put over $X the for the on fair from a basis very practice, new work, side. perspective redeploying returns. million active million, lighter a $XXX.X expected, half investment With As to first generation fourth of of quarter on fair up billion. $XX.X attractive nearly risk-adjusted total perspective, portfolio capital focus we of value XXXX. Consistent grew the portfolio quarter. established and proceeds our

and support We invest well, outlooks and we with market, lower with relationships defensive businesses growth. and models continue to in to deal that know middle both positive service and cash leveraging industries selecting sponsors, the debt business generate long-term characteristics carefully sustainable in our

past the to $X.XX base dividend share. share account $XX.X increase per fee and portfolio shareholders total the per $X.XX XX a interest debt of for for to an last income basis share from to income quarter. for per year. In of plus share QX, Our per $X.XX income we share compared resulting paid was million adjusted investment raises $X.XX on a net dividend share the a period compared a per equity higher per income over last net primarily same $X.XX distribution of supplemental generated share months, of Taking $XX.X adjusted reflecting higher year, investment million, into average count XX.X% the the

payable X.X% $XX.XX will $X.XX stockholders basis, totaling of of to XX, XXX% to quarter XXXX. Net second $X.XX be in dividend to equal a of dividends of quarter, of a share, on per million. million December share, XX, quarter the per per per share from NII base as June $XXX.X asset of of XX, Directors value Board end declared at to record surplus dividend was a value June On $XXX.X dividend compared the $X.XX XXXX, and which the prior For supplemental asset consisting net XXXX, XXXX. the base compared of the share adjusted grew to of $XX.XX over as

million realizations X portfolio repayments proceeds of portfolio As of invested with million portfolio first investments lien from for from gains and the $XX.X $X.X of the first of on investments, net high investments We in I co-investing mentioned in million, and XX%. Equity sale of $XX amounted in million, equity on $XXX.X from to million investments Of or cushion companies, totaled percentage in million. realized which exit originations, primarily equity to $XXX.X earlier, consisting investments $X.X of totaled primarily new quarter, totaled $XX.X $X.X first which a investing in Debt for million the structuring lien million originations quarter. stay Applied debt million $XX.X of $XXX.X companies. transactions. Proceeds was the totaled of resulting and the focused repayments million on of were Data the equity through Corporation. M&A first total added the

investments at fair XX% debt or was basis on value end. million of quarter portfolio $XXX.X total Our the of a portfolio

end equal of the portfolio $X.XX we cost debt equity at of lien quarter first fair investments at the and The XX of value the XXX.X% billion, portfolio still XX%, companies. stood quarter the largest fair our ended value with total portfolio the to of active $XXX.X portion million. at including of First are portfolio

quarter. produce fourth high the solid companies of remains a change enhanced sale credit our levels perspective for Overall, well portfolio and income from positioned no we securities. remains nonaccrual to portfolio potential equity structured, of Our the in recurring on with the returns from have from the

X of risk on improve, remain the performance the to higher operating of continued situations. nonaccrual them companies While each

on to discipline businesses generating business underwriting in the capital very sustainable portfolio remain value the portfolio growth we carefully prospects. focused and of quarter. The percentage models under with on investing total health deliberate for mind, nonaccruals strict basis, is our first our a selection of positive X% fair a As represented long-term our in preservation process. strong cash in With and investment flow attributable

relative As reasonable we are at ahead time. of positioned the remainder XXXX, and portfolio. continue said, to at the the grow activity slowly present we XXXX. That look M&A to Deal quality and to is is flow spotty levels, improving to

lighter over to healthy generate a excess NII As net result, for to to returns meaningfully be than first quarter. Nevertheless, generate adjusted in term. positioned originations our quarter attractive risk-adjusted base are long continue portfolio dividend asset expected is the of well the second grow value and the our and to

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

interest Total detail morning, first comments million including in prior was a $X.X Please months income quarter the Ed, income to versus in million providing as the comparative QX. The higher million and close PIK, will a more quarter $X.X million new fee in everyone. on increase XXXX. XX% in and was a good primarily closed our interest dividend interest I'll $XX.X decrease income being from in to in Thank fees $X.X you, X on for position. million commentary liquidity was million in back-end results review our and in income and investments given in in prepayment a with fee a note, offset the income, QX capital due ended which increase cash, I of due $X.X approximately decrease QX, invested income $X.X loaded excess QX be decrease by March. investment QX decrease March XX,

Total quarter tax annual outstanding of a and accrual $XXX.X expenses, the million the ended lower the $XXX million $X.X $X.X of income $XXX on related secured capital million line excise borrowings. of debentures, QX, in decrease provision, tax $XX.X and million fee the in $X $XX notes, unsecured comprised first were primarily than million of million quarter, by including $XX.X driven taxes QX. We for to gains income accrual million decrease of outstanding, of a the SBA credit debt million in million with

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

for QX, investment gains the in share and QX. which X includes share investment $X.XX in months or reversals versus excludes Adjusted March unrealized attributable $X.XX and fee shares the weighted ended in NII, Net XX share decrease capital NII, in in outstanding $X.XX increase average QX. an per versus in income, gains, to accrual and capital which the on losses gains any a accruals QX was was per or per $X.XX realized fee incentive

equity sale recognized approximately we related For ended Data net in investments the gains, Corporation. Applied the million months XX, our primarily to realized March X $X.X of of

portfolio to statistics. now Turning

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

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

computed but issue nonaccrual, including cost, any. versus investments yield diluted average XX.X% was XXXX. is accretion our using of excluding rates March and fees, the year-end effective on of with approximately yield average weighted in XX% loan equity equity have at of ownership XX.X% investments companies interest original The at We fully portfolio as average origination on debt effective investments of discount if for X.X%. Weighted investments debt

to wind second debentures I'd available our like this repaid of discuss remaining in the Fund, SBA briefly our completing we down SBIC of Now million QX, In fund. liquidity. outstanding $XX the

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

back I to Now call the concluding will for Ed comments. turn

Shelby. Thanks,

Directors continued to and turn for and their As for the our call I for our shareholders Chuck hard Q&A. thank support. Chuck? work like at over always, to Board the their of team Fidus dedication will and I'd now

with James. [Operator come will from first question Instructions] And Robert Dodd Raymond the

on questions. quarter. Several Congratulations the

number. ballpark? flagged get kind obviously, deployment for -- 'XX you But is which reach year [indiscernible] this your of And the the is large mean, too On time million to just Or will is you be you QX, the in that -- further be first down far. a this originations start still the for $XXX very doing could expectations in year? outlook year, looking out. it are predict the hard QX for We're year? had I of kind XXXs you it's ever the What versus to given

know, predict. what of And about we a to Sure. you had originations as when say, deal deals reasonable level and very are of And flow. talk Great timing I you QX, yes. would mean, hard question. I

the had QX, opportunities holdover We from activity also which some levels, helped transaction you will. if

expectation bit a an that's strong increase. have have up fortunate, that solid, been of been was very actually think flow transaction to were to there's there spotty. deal QX I do it. great. quarter, a We We bit. quality right, would a we say, has flow a which here M&A, deal So little around pick just activity lot will discussion is starting has

going I would by bit. us, it's quarter, lighter For to say is be continues this than What And to a acquisitive. probably good okay. portfolio QX that's be our

that's a then investments. couple part I they'll of very of deals not, activity, don't or on our And working we're that's transaction close now. So our new hope. know right but if seriously

are So QX. like it's we very not busy, definitely but

year, And activity a so asked, $XXX possibility to over when levels I out the of that. get of to rest you in we increase there's expect look like an million QX. Do I the

number, I think same but at months, we've been last XX that's that a number the pretty near the time. aggressive Over

So that, but of it's get also a something possibility. distinct shy would I

Understood. say. not it's what to had No, Yes, yes. we

lot at while payment to different there's But out the mean, said of a [indiscernible] that's deployed Or level? is time, light given were how repayments portfolio a side, the On the capital in young a repayments months do expect same that result. a portfolio much of should were. have going the you and as the mean I think dynamic the you XX relatively a they lot last is over for I relatively fresh? QX we play you continue to

Sure.

if ball. and wish companies, more several those I push do would ones any actually into evaluating But we QX alternatives of a kind question. transact. I the moment. great have is, say at strategic are had several, that Another what which unclear crystal I or of It's are QX than they probably

those other equity-only and real ones, The of investments not some portfolio is of large companies the instance. piece the are for puzzle

up real in is, expectation a have current repayments expecting moment, the pick we an will at expectation, The not, I'm so on do of And here QX QX. that repayments QX. level it's we than Having based what know high and less that, said in today QX.

us. aggressive. see type As perspective, the [indiscernible]. sale, from taking QX market for company also, realization in that do a know, And QX, is place stuff M&A you more we transactions Hopefully,

Understood. on if the like comment, That was would et direction color for out cetera, if press is capital deployed one March, spreads, color et your very XX% helpful, very can. I although release. figuring be helpful that helpful Shelby, in was in really cetera,

So And me. it you. that's thank for

The Schleien will Mickey next question come with from Ladenburg.

market the above year, that pre-COVID basis last spreads LSEG have they're about points Ed, reporting XX still over middle levels. is but declined

So when debt what's we capital has about spreads bread economy there's in that plenty the how the your business? on and think outlook and remained of there, your available butter resilient out fact

pretty ago. banking lenders was you today. we that's you that bit banks where than a as and and with spreads. it. was question. direct think it's name of of And active, -- fair pretty mentioned, bit are right? just showing people Today, funds, are. very banks comfortable months night with XX different struggling. XX Spread you a economy months The There ago. SBIC It's from are active a resilience is great is active, if a decline getting day, Everyone a ago, about year Also, And in crisis are comes a were it BDCs, the

have bit have has do, we on as $X [ levels, are yields if investments, just spreads $X focused lower. -- you much, your declined. We, the ] a little do very always quality, uncertainty that been investments, lien with first ] some [ So given

of they were markets, XXX that, bit but year in lower even risk-adjusted XXX and above, the than spreads us, pushing envelope, a narrower are the that and attractive obviously. I focused seeing for middle yields on market that's to the -- the deal, would we're puzzle not a been expect quality larger And say, basis basis depending than we're ago. the I'd points on points. even So and are, returns say today XX

XX.X%. like and weighted why to originations that more much that in and than the that were towards at equal again, first upper in, But market And our yields of where a And more investments. if is color repayments so on so are. we it's quarter, last And our were was gives you it about XX.X%, it our seeing come declined. think little aggressive in spreads have originations the you're lien, you average yields our

yields to stable going would I declining, on given So to what's expect, in going slightly forward, today. our marketplace be the just

if really, really That's follow helpful, could Ed. And I that up.

And grow look are in succeed. companies into will about risk upper what You refinance could that and your that and active well of mentioned in How say want invest that you is part in companies portfolio mean market, call some middle very playbook the, to the refinancing middle your I pretty middle concerned I frothiness to let's I a don't the of your have market. remember potentially but to just market. portfolio? upper it, done imagine you upper

I investments. mean are terribly. those Not

think right. exactly you're I

companies support at next have future at And well. in are yes. and continue performing you. get refinanced some could in to lower is, We they some time to answer companies, months rates that and that point the those XX have what or we the The extremely

value. think of same they're adding built We've and of lot I portfolio strong add companies. got time, on the trust -- value we a relationships, but at to

the but That market your good -- part one. so today. And is point a a is of

for the there'll just And the not so alarming equation it's it's part sure. or or to think. I of of year. it next us. that a whether It's is piece into -- of be QX That's It's activity, our QX expectation that some puzzle

my regarding question balance sheet leverage. understand. I last And

at about believe X.X. with financial X.X which is I moving yields, of to target, portfolio deliver to balance discussion to your account I of takes performance that, increasing below equity But understand to leverage debt hoping had that a still you continue on you the lot BDC? into You're different parts. pressure to sheet are the just

answer The to on to long-term what trying sense makes do for basis. Mickey. shareholders yes. is, question, We're Great our that a

particular, a of look revolver. we And ability our As have liquidity capital structure, has and here capital, treasury revolver, We to the to impact turmoil if some I'd unsecured We the those strong which our ways position. do then at probably relative increase you markets. have the in right? access markets, in know, size also the other say, there's recently, revolver is other the nature you markets the in debt the to most smallish been which have BDCs.

were then We going SBIC a that was queue we we and us have the that. in -- that be there, So we be take And for application. that of applied in and it while. will continued told well. as obviously to -- equation to the We knew the part but December, continue for

But for the methodical the to answer that long absolutely. it in we're our trying makes do is over and manner So a do right sense. yes, what's term. If shareholders

The come next B. Rowe with from question will Bryce Riley.

the terms to on maybe you still being from to the facility the the just made, comments those like your credit maybe you'd Ed, facility, newer of year. that last I about SBA place where Is about and credit you SBA up around color wanted commitment. any expectation the perspective? see in the expanding go maybe a And license follow middle talked then of one, quarter, by timing maybe this in think license, I

is I tough think the a one. SBA license

hard told going us I while, think was predict. just to they take to a the it SBA, it's and

June where or don't little QX aggressive. this assume timing hey, new aggressive. a is think June, do very are along, here if moving QX any have a I real probably point. to think I at things is but today I predict say, I that's sit would I I'd and tough little information,

have are we that size that but we as thinking a perspective, of increasing I target, facility. say the a we're credit will looking here about, facility I don't specific From to -- we today, sit know the

going a to from capital structure is perspective, I diversity makes that I important. think strategy sense. back And think

secured -- of I piece X that piece leverage And an pieces to It's kind it the we've having time, debentures. puzzle puzzle if in ability large mean unsecured important, the the So I a matter areas. got all those of having and of that includes SBIC you increase like. think all will. being picking a is we just are of of of

Okay.

use up the follow to maybe to what that 'spotty' mean terms quality wanted seeing that I today, does in market of of on you're in that adjective Okay. kind particular? in

we're us, high cash of quality, free flow, multiple those of quarter the just EBITDA transactions, last well multiple to sponsor value-add pretty There's For looking so this high meaning high where stars the for -- generally in businesses. we're opportunities And wins and quarter. high relative aligning less positioned. terms

it's it's crop financing as happen. there. of -- of other and out place very that whether -- so the fewer at fortune, just don't the We're And sponsor mix. doesn't careful. right think very, little do And then it's sometimes not those there or just right word, you will, luck the bit they facility, equation, quality in And the then times, win companies the maybe the don't being and asset transaction much. looking it's are if are cream fall have we doesn't of from perspective, we of if kind have we things But right but good just is I don't

for to sticking just marker at. of has knitting -- quality and focusing really but that's on very us hopefully what our we're really a helpful, that's always. and those so types But been getting And businesses I'm that's the important

seeing of average weighted this leverage quantify -- here kind what loan-to-value on one quality. a from kind of Any to point, the Yes. weighted way leverage credit a at too? Yes. Maybe in perspective and average you're is portfolio where

Sure.

market you core if So lower of think. the world, leverage absent investments will, larger in I DSL for our our portfolio, at a X.XXx, leverage couple middle world, is

last So And coverage at then question? interest was debt-debt and EBITDA the was what X.Xx. --

of you loan within value to the -- about kind the portfolio talked think in I past?

stable. pretty just value quarter. to the It's is Loan XX% under Yes. in

The from with will come next question Johnson KBW. Paul

nice. you the significant But portfolio, marks the marks notable quarter. is within any gain portfolio? mentioned the movements the equity this one there on within That Kind other equity was or

marks there question, to want Were is correctly. I that you Paul? just Were sure there -- make heard the changes, notable I

Yes.

Yes.

that equity have So I destocking overall, position, kind well. -- company of performed quite at Pfanstiehl, did to a kind the portfolio that, continues believe. is of nothing -- write-down But which we're the weather mean, trend. our We the in end largest that pharma and we of

of we destocking expect outlook. with start at be so very with that. The what debt this to I in going improve. quite good continues trend as tail And in just Pfanstiehl of to and It's a end the the stable and rest is appreciated through portfolio, performed business I well. it's portfolio mean a space, high-quality the to portfolio. the really did pharma inventory despite very equity the performance of That quarter the kind mentioned think I

So it was a stable solid and good performance. quarter, very very

of the any kind that opportunities Thanks opportunities that terms something you flow And on versus think of your the of seeing of makes to out in you that markets, of are you're value seeing then wondering, relative that's you're thoughts trying for what in structure lien and deal the sense? of that. the get just there even and see today kind sort that subordinated first

and a question a it's great Sure. too. Sure. It's tough one,

well I a of market. are you more mezzanine as market part the much still lien -- first said think the has investments a to very a know, core market, of solution. Having that, the moved of part

market us. show Just world, And from to mezzanine in a perspective, for lower. it's continues share today's up

so investments high-quality we companies. mezzanine X last in made quarter And very

portfolio actively would continue mezzanine expect as I and of a investments our the to to -- companies. large those going the also that the solution to lien we like of majority suggest for majority are a is of debt looking those would But what to continue look And But large be I first would we so of for types market we opportunities. and move in is I attractive the situations equity prospective where we're what forward.

come with Hovde Your Erik next Zwick Group. will question from

follow-up. wanted with a a bit first just to I of start

competition side, You this -- spreads. any mentioned guess, intense, is fairly the the seeing and market the you're active Curious market active somewhat on structure if the in I point is, to at to so in deterioration impacting underwriting and sticking that's if any losing credit terms you're your to others your and at you're finding you're starting bend all? deals standards are speak, that guns, of where quality

Great Sure. question.

We haven't really seen structural changes.

in of leverage lower different like would situations things the is And X you maintenance our about upper our times, market, larger market, have we and And of investments. different. the the covenants. fixed charge. the covenants, the that's also One covenants will, than middle a spreads maintenance both if the we those we market have real very say are Many That's I majority narrower. a large to

So to the the you we yet, a ability And from market, see which honest, spreads in that narrowing good today, perspective. the any a structures change a to we table, from market the is strong be seen have the really real thing. not Clearly, not to at pretty of business like started pricing lower part and end and of in is don't but day. have have structures away seat the at changes middle the deviation a

things you investments, market of risk the So our the if our we again, will. and really lower it's ability about like one to middle manage

you. with the to That's agree Thanks, I for me. last hear. one And then good

underlying the that 'improving,' the kind trends there to could a And -- color are there term with you more provide and high but of companies at or you're the of think if the improving in mentioned sort little it's financial bit you if referring metrics resolution? Wondering some maybe non-accruals, of just risk. the to your X remain comment? what towards I just for situations progressing comments existing at kind

question. Great to EBITDA referring What Sure. is level. really the I'm there

had in on way. were businesses So in at both meaningful a improving as levels same last XX-month and and EBITDA basis a some idiosyncratic basis cases the meaningful that on time, But and well. issues growing are current these

or that EBITDA improving. either case. any in do resolutions quick And is not so the We like expect anything performance

through cases And cases. would trying position so we've the try equity great. There I of to both which outlook well, say a assets, just ways work to got an improve we're overall is situation, the a through managing those being to done got kind is of both both supportive in go. work in improved And to we've sponsors also but lot of as

concludes conference back turn closing ahead. This our I like Instructions] remarks. the over for Mr. Ross would Ed any Please question-and-answer session. to [Operator to go

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

today's Thank now concluded. conference has you The attending for presentation.

now disconnect. You may