Fidus Investment (FDUS) 2 Aug 242024 Q2 Earnings call transcript

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

I would now like to turn the conference over to Jody Burfening. Please go ahead.

Thank you, Cindy, and good morning, everyone, and thank you for joining us today for Fidus Investment Corporation's Second Quarter 2024 Earnings Conference Call. release are Officer; Fidus Financial quarterly and Corporation a morning and Corporation's Officer. Fidus financial this the issued Executive with Chief Shelby press results. me Ed the Investment Ross, Chairman Investment details With of afternoon company's yesterday Sherard, Chief page A of Relations release company's website on the is copy the available at press Investor the of fdus.com.

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

of reasonable as no may performance. be management these X, replay. Time-sensitive accurate statements August longer Although of time at webcast estimates, guarantees assumptions These or based of statements any future today, and telephonic projections are information XXXX. believes the not on are

the other update the uncertainties but Exchange Actual any not result of Securities to the undertakes results risks, Commission. these forward-looking to, of set revise materially a and Fidus may no factors, including, as filings with factors obligation and or forth differ limited statements. company's in

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

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

of strategy. strength demonstrate portfolio of results and the quarter our power our second the investment Our

high debt income, adjusted levels amply covering Our investment our base dividend. generated net portfolio of

in our focused companies $X.X lower investing met of face market middle portfolio advantages competitive and environment, stayed that a with models. we robust In resilient gains the equity produced net underwriting deals of on in less business realized than million. standards, M&A Our strong the

to $XX.X investment higher Adjusted count $X.XX net Taking income million ATM $XX.X and to interest for year, the into for reflecting the account excess average share compared last share period million last net per was for base investment quarter. income grew XX.X% income share quarter the $X.XX higher well to the per from dividend. compared adjusted in our same of primarily issuances, year

in distribution a per addition $X.XX QX, for of per the dividend share of we In to to dividend paid total base $X.XX supplemental per share. shareholders share, $X.XX a

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

end, to On for compared company. of December XXXX. $XX.X $XX.XX quarter, at totaled per asset value Originations share the and $XXX.X basis, value asset December was end a million quarter net portfolio share million, than million $XX.XX $XX.X net of per higher at quarter new one including as in X.X% At as million asset of $XXX.X XX, net value XXXX. stood second XX,

follow-on Our resulting investment quarter, be as $XX.X the to in portfolio whole second a in acquisitive very continued activity. in million

in and repayments Pool $X.X Proceeds for equity Equity gains resulting which $XX.X the million lien the & of of X companies, including million. second of million Products in were co-invest in totaled from million, investments and to securities. Electrical we realized in company. investments primarily as $XX.X million monetization Tile, quarter, in Virginia proceeds net investments, portfolio from first the portfolio totaled totaled realizations all Net of $XX.X equity $X.X continue

one Subsequent prepayment and payment fees. close, lien in million, $XX.X to investment including we first full quarter exited of received debt

portfolio to $XXX.X XXXX, With a originations million equal consisting of debt million for portfolio second equity June portfolio active fair and of on investments an we and to XX% as grew lien totaling lien the XX, securities value companies. XXX.X% first end. quarter the a with of quarter entirely of XX basis $X.X consisting billion first of portfolio debt $XXX.X portfolio grew quarter debt end, at at Our to of the quarter, ended costs

good portfolio overall. our in In remains healthy terms of shape credit quality, and

continue through on stayed a operating the value nonaccrual nonaccrual the on the under quarter. as portfolio percentage basis, X% X for manage to companies issues fair second total We a of of

flow outlook. our to remainder to of be Turning at the for levels. and We reasonable year deal activity still M&A expect the

sponsors expect the lower to we We expertise see and do companies levels, our opportunities with middle also a are numerous repayment to alternatives. relationships deal activity that see in within pickup expect industry standards, leveraging we strategic higher remain our underwriting on meet market. our While as portfolio investment focused strict evaluating

We businesses continue with business sustainable long-term flow models and to cash outlook. generating positive strong and in invest

we capital structure securities. maintaining time, produces we both levels of for our our high our returns high generating portfolio with and degree asset net current and a preserving and enhanced returns same a the the debt on of income goals from for and that healthy monetization growing continue focused to risk-adjusted attractive a investments long-term the potential recurring portfolio, equity At time, and equity remain With of shareholders. over cushion value of growing

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

million providing with quarter QX interest investments $X.X $XX.X in decrease million QX detail to being a fee quarter to results note, Thank versus you, income $X.X more from in our offset I and income will was PIK, morning, X the XX, investment prior a ended the and good comparative due the XXXX. Total interest investment activity decrease position. months Ed, review excess including was new back-end our everyone. million million million commentary be which Please income $X.X QX a I'll loaded. in primarily partially close to $X for due June by liquidity comments on increase increase on second income, and in in related cash,

income tax provision, to the primarily income related fee in driven a including income increase a gains a fees million QX, second tax million million increase tax incentive million quarter, the for by than capital $X.X higher expenses, base and and accrual, increase payments. were million $X.X $XX.X in state the $X.X Total a management provision in $X.X

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

of net For million related Products sale the June X gains, to approximately recognized months the of realized equity in ended primarily Tile. Electrical Pool $X.X XX, & investments our we Virginia and

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

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

portfolio to Turning now statistics.

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

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

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

Now generating available liquidity. approximately I'd QX, our X.X an $XX.XX million million $XX proceeds. per net like price to at we in briefly In share, issued average of shares discuss

June liquidity. As of of liquidity Subsequent and capital in liquidity $XXX.X and $XX of resources credit, giving XX, included million, $XX.X $XX our incremental end, million resulting from availability credit our total to million quarter we approximately of million cash of line increased to our of us line $XXX on million million. $XXX of

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

Thanks, Shelby.

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

Instructions] [Operator of comes from question Bryce B. Rowe Our first Riley.

if to was facility revolving the And license, the see Ed subsequent a to and expanded one? nice rating thing then get I about structure would and we Shelby, SBIC to capital and for on maybe the liquidity I'll to then quarter, there get start like just is see. there, getting fresh quarter end the too a also update investment-grade an potential Last profile. good talked credit

managing So about the seems of wanted lowest or maybe how feel this debt-to-equity get to debt-to-equity your what industry? the you of of capital the at terms structure especially coverage point, think to be in in ratio in light kind

Shelby Bryce, and let question, I'll jump in well. here Great as

thing, the bringing that is obviously, a you a investment-grade is good I think, the increase I point. the appreciate in rating great revolver up.

be we at in which notes we market, point in I some helpful do will the think when time. very that'd ultimately unsecured issue

SBIC that the of still degree We -- by continuing that through process. end. is a through we'll year that then have are get And we fair go confidence to

it's but of still we good making are bit it's it. we So feel unknown, when completed, about progress, but a an little

so QX, capitalization equity program did were and license, about generally feel liquidity had we the go, -- or decisions on as equity that make perspective, to that soon ATM our also meaning But were sure very last investments well open. raise not. equity, an the now additional some using here new good focused we make in keep we the making we're can our fact meaning our liquidity about Part we've SBIC we wanted So places feel as quarter. we going from the got to capitalization a and as of some revolver. position, through position right good -- liquidity we good I And and we hopefully speaking, to

have any additional there? thoughts you do Shelby, So

echo would I No, just that.

leverage We we're as unsecured us, then balance opportunistic terms debt more positioned but SBIC credit that's once sheet, market, are opposed of and in the first of currently available to its in and near-term underlevered. well to increasing that probably the need. But a line becomes on obviously

Okay.

also quarter we originations newer little and last bit one that about Okay. Ed, slower context. terms to second more me. That's for of came in a Maybe certainly, being quarter talked be. great

picking last bit other year your commentary might release quarter that. Can was you little like and press second half of size up what for a half the us? about think around the second the up help in look it talk the I noted you

it that Sure. as new way. slower feeling from investment we mentioned, it would Sure. as We that you No. mentioned go and It's quarter, normal -- a had perspective. was second than a

some And returns how about some of from things sticking we're is knitting and our go a risk-adjusted to that perspective, but are did that, or of lose we pricing timing, deal and X just a focused. our we

And the good thing always so activity M&A so we forward, -- activity do -- not add-on as including is it's robust, the is middle we feel below activity but that levels, on, normal like, in there look our look, is portfolio. about market going lower existing

several that on high platform working that here in investments take be are opportunities hopes we will and those have QX. some new place would of So

We M&A little summer, the a be also from pick so overall and to up here to levels just expect decent. activity bit

as our some of expectation with participate those and hope so is we to move forward. And

our just not our portfolio market. would it's a robust So terrible will And continue acquisitive, market. be to It's guess. not be a

And new originations feel. some for will us. Hopefully, also good gives that drive you that so

I equity-only is strategic of that that do is guess we alternatives, evaluating are And right? nature. numerous one a with comes number are fair But make companies deals, other strategic alternatives. point have I companies more in would smallish that evaluating several are repayments, there

here up meaning things bit a expectation of well. pick the of in new So in QX, but for QX side front and line in do -- to repayments with a end, investment our bit line we expect that's a as on little pickup

from of next Raymond comes James. The question Robert Dodd

Congratulations on quarter. the

or like that on give you obviously, any getting can talking because or market of requests versus, activity alternatives, -- theme alternatives, how I Just it it repayment mean your about So or that by the within area right? to you're et does look cetera. sounds to into kind on be triggered moving different how can on up different follow for repricing of strategic strategic point, portfolio -- color a acquired things. repayments the refinancing whatever, like us

-- the what So color market breakdown a now versus to between seeing expectation you give I of within the repayments having can dynamics versus for are any the company your a refinance to looking on mean, increase? grown different looking segment portfolio us different at on different you and

will I when making. I some little pretty would but it's strategic but and the X investments the are to and have, alternatives suggest -- evaluating I a moment. that Robert, is And equity I'm comment only nuanced, question, that's that sold. those again, mean we Great now And we over numerous numerous, strategic that mature are at alternatives be what have of

X X that's the if year, made will. Repricing. that and the X, sense. a asset an loan. we it that of think or actually wanted company keep repricing delevered puzzle, it in so that and I had piece of it so have was X, -- was to obviously It but executed we transaction. good The And we you did was I Early X or X think only

then companies cheaper do That not the than have syndicated that to had performed overly gotten bigger, And We another QX of that refinancings actually things has market. well, us. went X that's company lender broadly in maybe common. will So happened. refinancing, loan

announced. did Now that a we lower many we did, at And that have level came that that's and and for had better companies achieved That event that loan a we in but happen of they July, then it a are in lender do in first we then took subsequent lien big the portfolio another that pricing. repayment enough were we full that of our to leading often, price. a a event don't was

of about. the as of it trend, I forward. we've move part market be but part This of expect about don't to we how it talked market, it. be huge is as a kind the that is we will So think

then And obviously, year had credit mean that. a appreciate first haven't nonaccrual and like a since new -- point. you it's on -- I in I at it. lien quality, anything Got this XXXX [indiscernible] it's

going seem you more squeezed. is I you [indiscernible] -- the liquidity slowing. up for -- concerns? the has are mean, this mean -- is any the holding well economy up to the to I -- getting So what's and haven't mean in going really in portfolio which so had do been have on rates, does economy can significant how issues. are Rates be holding really any well. a situation and companies portfolio Or just you I with they be while,

-- So can us tell you why?

the we're with companies. will very high try. a we're I Sure. I'll -- free I cash looking of We I focus through performance I what noted, are quite have the mean our We for -- is we're know, nonaccruals work. growth has X and lot defensive comes portfolio. with high very rest of generally general characteristics It the pleased And overall of Those well you that frankly, for. do think have say us. strategy on caliber, flow, quite worked working And would well as portfolio is those. well. that performing

flow companies of EBITDA. or quarter, cash This the their XX% grew

portfolio. the about good feel we So

you the -- either cases, immune are We've are part one of it. But few a to those. are of greatly great. expectations, like. expectations said that not are news And underperforming you more more meeting good the we've than in that have always fashion got Having on meaningful That's exceeding in have to that's also expectations. than got doing you few some that a all would and that some companies that, relative we're And positive. some not a companies

market, coverage us of a market perspective. I X.Xx EBITDA modest and much things that's that leverage lower us the helps from than market. the our more or larger core And think broader think cash the helps I bigger and one are the interest levels in middle so

make when a ownership portfolio that the mean for then on asked ask well more -- where typically company to discussion. is not street in the there first liquidity, wants a tighter discussion we portfolio, it towards things aren't do, in, typically a instance, or room gravitated And to know. lien But protected when underperformance, we money has support to of those is. operate. we're And the much put because things you we to sponsor is And the side going as and X-way how of our group of that's cases or there sure our in because for a owners very there's exactly doesn't

in the strategy, of overall So where types things I deals focus think looking think, as strategy strategy companies expected. that's we the as types when helped us lien well. and also, well us moving think general I I strategy but a to of the first has of don't helped go has the we're for, as of And

can really on $XXX the I is a in to up Got first expected I QX, it. so if in pick question. on we like Most ] grew portfolio of second in million mean the was half, first you last over million. mean, repayments. think one, outrun the growth just if little that year, active, mean, really, net X-month Activity of the on the look of half do kind number, One which $XXX was you I a follow Bryce's what's up in is at obviously. that? [ I

because that here be I a that guess As bigger it's I to sit of would the of part less will today, equation. than repayments because become repayments, going

it's I simple. probably that think

so into is happen, hopefully, and point at but likely to will think if that decent originations meeting levels belief look both will, on the context. to the and repayments. very expect activity they're outpace we originations system this what's I QX my gives most But know -- in you repayments. hard coin, It's going you

Our from Schleien Ladenburg. comes Mickey of next question

available. capital the Ed, pressure so market enormous are in sponsored [indiscernible] much with spreads under

deals. sponsored you and do the driving you that's underwriting at of more towards nonsponsored if deals you And are, nonsponsored deals? whether how look versus structuring curious I'm So at looking

with at always I There I'd actually of that was deals. think portfolio, And today. our the portfolio controlled looked nonsponsored those XX% you look characteristics be is do when Having high, aren't And bar imagine. participate of said they we've XX% Mickey. that, to there's of is an need question, might be that well, to so the when that -- XX% and at to the companies much like the and it that really companies the very good in have is are say as our people was equity we as really not on relationships as and a But customers dependent we know outlook, The the case time and deal XX%, our companies got groups. is there industries about. flow do source are of business always looked over we domiciled that by private very and we to careful you Great very, underwriting that opportunities. a situations. of

we so bar continue to but very, And very do the high. remains look,

So if follow I that. could up on

this at In terms nonsponsored of deals a portion of actionable pipeline, that time? your meaningful are

Actually, a of committed we which fund are sponsored and all we definitely. no, that's have longer-term also that, in deals It's Having pipeline. funds. part are deal, quasi sponsored, fund of one in the deals more about had that likely, nonsponsored discussions said complex, some deals. couple, a you And the this week a more is if and will, most than couple of search a

the situations. But it's with we we right, our those activity. equation going deals you're types -- but sponsor-driven are we're of the be to do interested the right opportunities, -- for flow majority still and our part of of is us, So in

follow last for happened. also originations lot is which of want in I recall the on sheet what the guided second you indeed lower understand. quarter, And I kept But question. do in call, up you to balance equity. a the I earnings Okay. issuing that

causing cash yield and So to a NII underlevered, below you're year. holding now which adjusted is you're last of your run lot

not off for rationale balance the at on what's And that So why credit process? least the the pay facility?

take Shelby, that to do the you [indiscernible]? want on

I'll in Yes. there. jump

the off cash the Some to of fact, we would that, line I pipeline before again start end about nuances second there's of Mickey what is that credit. credit expect and of where did, timing line but quarter, quarter and Subsequent where sits. might road on the pay the [indiscernible] borrowing the be excess is cash seeing us the some coming and down to end, in of just timing.

And the perspective, of to capital you typically amount sheet? cash Shelby, on sort a of just hold balance minimum what working your from want

it's less a $XX really is up any have I and I mean, if covenant down, facile, we go of don't line to -- from easy base concerns perspective. and million. mean, our than fairly or so borrowing credit

out of the So to there's from sit RIC. -- cash really need no on unclarified excess

do know, have funds. SBIC As you we some

timing And then so pay not at need an time, can generally excess SBIC shortly be to cash and might down going some closings we there very sit around fluid. I'm on need. from there's line of and why fund. to is speaking, But to the reasons a But not time thereafter. borrow turn And

So of predict. to it's kind hard

Right.

that terms in half, trajectory, plan then facility credit is first is cash and your the second more net perhaps debt, correct? in a and then portfolio just So hope Ed's if pans or growth of the SBIC funds down for the out of road source

Correct.

The next Paul question KBW. Johnson from of comes

return I'm more on and on and of Kind portfolio, quarter the Obviously, just continues there M&A. the I across capital. the that obviously where your mean, kind companies the of realizations have are exits. following these -- there's these just more way. these slower effect questions just obviously curious, markets, out more maybe for inherently been and along it's potential buyers private any under some that's Congrats but the to is smaller of pressure and on businesses there successful to to community for just due is -- equity

be kind So portfolio portfolios. M&A lower anything despite that outperforming potentially places guess, within on in that realizations to continue maybe supporting have I prune potentially in to of, But guess, these these there, there's easier if their you are just out market? I the wondering would just companies your

invest just much of And the about as transactions as in take the think are newspapers. is lower another one middle the market I speaks They're you market. or in Sell you talked X then to pretty what of our it is, know, lower businesses, M&A. It's large, to mean, that XX% strategic. I place private to those if not to sell Sure. opportunity of the right? end do the group middle it lower good a grow equity And there's typically strategies a to is or things. X

And of strategies. so it's one the

And mature for I'm they're are pretty us, investments not. ago. mentioning all what X I that meaning They made would say is names X weren't or the years

And no so investments. probably know, XX, that the you of don't equity longer as we exact debt investments are we have XX have -- may I to investments know number associated equity with those

And so some ones those the of names, talking I'm about.

-- point, taken need just just it's they they've at equity-driven bit do deals, private longer. mostly some little to realize So they're and a

it's of the of middle So deals not can we place. like market. now, middle speaks lower terms M&A companies this majority the numbers, right of in the just not I about and the dead, the portfolio always size that's of they robust to and is is somewhat think the it that one really things XX active, is the fact that's and market just lower where

does new mentioned when deal you've is platform just of that? That's and or built deals well? that a platform you're that's mean curious, evaluating a helpful. kind that's And deal, then vertical specific just new I'm you in that as done, industry a that's an when investment that that's experience and industry industry new you've Or for and as up a already that new and don't identified potentially around attractive you buyer, potentially that have platform for expertise

our on a type platform business, I experience different markets which or and have to tech-enabled industry and of X to is lot we think segment, We not a really XX% services it's what to Within portfolio quarter services, whatnot, end today. for you. expertise, we and but of try XX% focus have have typically us. new tech-enabled where about last new that a company No, the software

stick we understand. really So we what try to to

also when equity -- of and the buyout that say equity private equity new ownership financing a the I control change private we're group, in typically is then group of group. equity platform, are the the new those private securities transactions, driven, so it's a and co-investing So alongside change

back This turn any concludes over our I session. to for like closing Ross, Ed conference CEO, question-and-answer would remarks. the to

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

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

now may disconnect. You