Earnings call transcript Q2 2023

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Operator

Good morning, and welcome to the Fidus Second Quarter 2023 Earnings Conference Call. I will now turn the call over to Jody Burfening.

Jody Burfening

Thank you, Savi, and good morning, everyone, and thank you for joining us for Fidus Investment Corporation's Second Quarter 2023 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. press the available company's the Relations the of of page website copy release on is Investor A at fdus.com.

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

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

in Actual now to Exchange any other results but that, the of no not Fidus a result differ forth with I Ed. With would as to, undertakes turn update Ed. call factors Good company's Securities the to of the risks, Commission. obligation filings and including, these materially uncertainties to over limited statements. the and set like morning, forward-looking may factors

Edward Ross

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

portfolio basis spread. on to our assets benefiting end in million enhance to amount portfolio a For building high-performing active of power a fair by of quarter income-producing the earnings capital $XXX.X fair work our and the our and to widened portfolio total We putting value second a reasonably a quarter. we healthy at second further from grew continued quarter, of

companies with standards. strict spotty, and outlooks industry enable flow cash to predictable and in generation is knowledge meet our deal revenues, with positive activity underwriting us our deal invest continue to still strong selectively Although relationships long-term sponsors, experience that

attributable In excess excluding dividend addition, which the investment adjusted as gains increased any to $XX.X share and compared income, incentive investment and or realized investment $XX.X net base $X.XX last to losses net quarter. $X.XX unrealized million XX.X% the per income, well year. Adjusted in fee continue capital to net for to million or gain generate we share we income define of per

in year. the expanded per $X.XX share. points a our income yield of share, dividend dividend Interest We and $X.XX last special that per of per share per basis debt a a growth dividends second XXX quarter totaling paid increased $X.XX of to base of dividend cash a compared supplemental XX.X% to debt consisting $X.XX due portfolio and to share,

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

through per was $XX.X XX. in June the added of asset record or value million $XX.XX M&A of was share on of to which of dividend and as surplus For as Originations the will for base of quarter supplemental per that the the the per NII per $XX.X special $XXX.X million declared $X.XX XXXX, of XX, XXX% million Board a September $X.XX over Directors XXXX. a prior equal new in $X.XX stockholders on of September portfolio invested companies be cash quarter X or dividends XX, from totaling share, to dividend of about of were payable to totaled per $X.XX share, XXXX, third share, dividend adjusted financing. XX, the of portfolio the dividend July X/X base Net quarter, share, consisting which a

in X in X add-ons our investments total a first portfolio remaining new of invested was companies. we The portfolio further, of down of existing $XX.X support portion invested Drilling the in lien in companies. of originations million

build to primarily continue of safety to our We resulting exit returns. received securities that recurring a and margin creating net enhance of from proceeds $XX.X million adding securities of the including equity originations totaling proceeds debt of the quarter. a We for of $X.X and $XX.X generate as companies portfolio equity from means million, the co-invested in interest sales, in X in million opportunity income

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

$XXX.X million First The underlying operations. portfolio to the piece at fair equity value account lien and value quarter. the stood quarter the end increase $XXX.X at investments sold with the including the ended portfolio for largest representing to of costs XX end equal portfolio at XX%, million. X fair of compared continue have companies to the first the second companies our and their a of X.X% of active of debt quarter that total XXX.X% We of portfolio

in credit And well. continue invested equity portfolio million debt lien quarter first most healthy end, our perspective. part, new our a to $XX and from the to Overall, subordinated a remains Subsequent we perform portfolio for in company. debt, companies portfolio

nonaccrual has have are is of performing takes have seen and the and As been performance a positive outlook. end, struggling we always, puts for some on that placed that and you from a portfolio our and outlook. already quarter size, there nonaccrual, few during portfolio improved Vertex while removed materially better a expect would To companies others already

improve few but medium a hiccups, had in has term. the Vertex to we both and near performance expect While

million loss. addition, we in wrote Netherlands In our an investment off recognized and $XX.X

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

excess ample XXXX, and positive in debt remain characteristics, models in of and well further the market defensive that continue invest healthy recurring opportunities of lower generating of adjusted With middle cash to portfolio and dividends. generate NII co-investing base possess see to investment. in positioned equity strong high-quality debt income, building half portfolio growth our growing flow-generating investments a we companies to second to long-term business the strong outlook, we ahead Looking and

As asset preserving time, to always, our adhere prudent capital and growing attractive long-term remain and our generating focused intend for over our investment strategy value shareholders. on to risk-adjusted our returns goals of we net

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

Shelby Sherard

you, results second I and providing be primarily Thank XXXX. million higher investment $X.X prior in originations more review -- ended and our on income. million million decrease prepayment $X.X dividend in I'll will note, a PIK million income good $X $X.X the months a income quarter X increase commentary in with and income, detail in the liquidity $X.X fee versus Ed, million slightly from Total and fee, Please June by was morning, given comments a for close quarter interest QX everyone. our a position. $XX.X to XX, including due QX increase $X.X million offset an a million increase comparative

debt The in debt loans. an variable as on increase in by the well given balances investments our in an increase interest average as on increase investment rates income outstanding interest increase rate was driven yield in

income incentive $XX.X line Total interest in primarily lower by of million the $X.X provision, gains expenses, in SBA the and by for both million to expenses income increase our and accrued million fees. outstanding, offset under million base in borrowings quarter, debentures second $X.X than capital a increase $X.X a incremental incentive management decrease million credit the debt fee, were and a related including tax $X.X QX, driven

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

as SBA share excluding or debentures. which exempt June any ended was or share Net of capital as June reversals and X.XXx statutory Our QX. or gains, The outstanding income per XX debt-to-equity Adjusted share interest in share average for leverage, losses X.Xx of to QX our was NII $X.XX QX. ratio in XXXX. on versus NII, unrealized X.X% investments, rate months versus gains was XX excludes attributable the accruals investment X incentive XX, $X.XX per $X.XX per on June was and realized debt in $X.XX fee weighted per

as XX. now to statistics Turning portfolio June of

value Our total had $XXX.X million. of fair investment a portfolio

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

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

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

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

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

Edward Ross

Shelby. Thanks,

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

Operator

It [Operator is Q&A session. The floor for open. now Instructions]. is the time

first James. Dodd comes Our question Robert with from Raymond

Robert Dodd

the kind is Congratulations seem end are you -- market big activity does the more quarter. on there's coming smaller any are deals smaller in companies" happening into larger is competitors, any still more shift maybe and it? are market. your Ed, market, of environment, good seeing on you still people the another it company "hey, looking there and at seeing of core It than at in

Edward Ross

Robert. question, Great Yes.

pretty the are is hit say, There call last And for a on slower. decent And quarter, a I commented what call little would was deal pick quarter miss. flows and second. but flows. talk or a, our to up, flow, Just quality it somewhat deal The was market but if the that late on summer We it, continues. this trend a about ebbs you good will. spring, did or

pick for up perspective. Day little Our post from Labor current seasonal expectation a to bit is a

say, decent. in market, deal And overall so our flow is I'd

then are wait. gotten are consider And of are want rates the also way transacting. or that that There saying, total gotten valuations interest expense a okay, of little going in peak number lower, folks in has -- well the have inflation interest I'm and selling there's as plenty a do or interest valuations, to way, fair to

a -- going so bit of there's both on. And little

our decent to there ample I and there flow, be, market, say, continues But in transactions or to what pursue. would are

And quality that do are and the the find so ones to ones to highest we with. best trying

down of by about how larger really that's of do So perspective, I impacting capital. some not the little I -- not providers it's a inching From But us. debt think that. we're a there's think competitive

that's some usually the to companies We of down There's they haven't than lost some equity that a groups as a but well. private I groups am instance, smaller on surprise someone would. into aware inching both equity down for deal are inching private

I for than the that's active but more market market, interesting market think an it's helpful. do big is Hopefully lower middle So the sure.

Robert Dodd

had interactions you incremental said more -- that by capital is whatever didn't and the promptly that new a that, their I they where Yes, underperformance sponsors name the And mean then company. not it. just the medium-term but Got and they helpful. maybe How put and are -- more. or make expect in the with right the -- some little willing How there's you changes down going nonaccrual, now? relative to very up near I holding on specifically write bit ground step are or are improvement. on

Edward Ross

Sure.

What great Another our when about it at just would hit I question. asked to nonaccruals, say, it. because I you look

mortgage, and on last a well. the to was We which on digital just One nonaccrual. Connector, lead have operating it's focused services Suited verticals. And companies the X generation insurance it, as on the platform hit home quarter is

owned to a And looking so websites. provide Companies information by consumers shop via company-owned sponsor. comparison

very is a from active capital well. as and been sponsor The has active perspective

look, that's tough, market. so tough a And

a so mortgage and little right sponsors about If other now all of the financial to the the of get by structure side. and the the market us caught capital probably surprise, including you think to goal all constituents,

that we're so they're well. it's what what doing And is as and doing

nonaccrual a all What case, that capital? sponsors they the is as well. situation got supportive for the And we bit Do the love government find situation we've on the providing to a long yes, new a somewhat in long platforms. and that's almost No. -- sponsor. a if term. But and it's reason applications incremental So Vertex different company That's focused term. it's there's of space a manufacturing for is play play then defense one-off in

So manufacturing. it's electronics

the Did So the medium-term well. hiccups, sponsor size those would in the end of is think and by there is say. believe sponsor a a as owned but good company and what supportive positive, some we we and I are have market outlook, near

Operator

next with from Our question Schleien Ladenburg. comes Mickey

Mickey Schleien

of is can of And Ed, and that on that deals that those impacting how of spot are the incremental currently the deals? opportunities Fidus get banks? the you sort you seeing terms for structures from pull sweet are any back regional your

Edward Ross

Great Mickey. Sure. question,

We previously. provide where done banks incremental capital are have opportunity may to seeing just so

banks interested way and But in perspective, they you might what they're interested has the has a of them, not they're we're say. the with point. but that -- of It's first at definitely [indiscernible] less as then companies our of are companies been they it's not the deposits. imagine, getting active where still our flood greatly aggressiveness that's So but product, work with market this say seeing reduced good what as have an from business. -- say I'd not that would the what I of opportunity but a leverage it's would is And active pricing an regard banks, similar, a in part market, we I do in to

But there's we'll continue it so plan to as change huge those structures, to sea of ways forward. are so continue a from pieces we puzzle. to And of bit to aggressiveness. we But change, a but somewhat finding is the and a of a their change, pursue not move do interesting

Mickey Schleien

you're spreads Ed, helpful, SOFR. Robert's I irrational the to those seen on margin. despite there that the and of the generally question, hanging Ed. rise dislocation? in show that whether private in -- been given and some at seeing some just cause capital have Okay. We've before That's sort whether folks LIBOR understand. I'm to And follow-up and starting are up curious attract

Edward Ross

investments to following question, I'm the make the say our capital in people private, sure want irrational our you of mean I just or? you structures When

Mickey Schleien

Competitors that borrowers? offering you the that think No. don't terms be might returns appropriate risk-adjusted deal for are

Edward Ross

no. I got you. is that Generally speaking, the answer to

is we across are primarily good the think pretty discipline I what board. seeing

Fincos, businesses relative I banks, are disciplined think CLO are finance being more periods. yield. quite previous obviously, looking the for to The

aggressive they as have a less the by capital. some shot, well less of of market. I being think out They're them being long almost

a from rational BDCs bit. then are is market. think compete SBIC of being end against but I them, lot down the very little And in the very our a don't perspective. low We

And accept them would think than might they'll if doing for find yields will. investment, an are sometimes that lower they equity you you that you things

it's So it's and not any impacting a greatly but the not business norm, our little of bit, by it's stretch really imagination.

Mickey Schleien

where of We're market so other sort and seeing same revenues sustainable those the of and and the My the the the half sort those not more well your syndicated market? middle are broadly terms you you of well. last doing bifurcation Are Ed, you in to CLOs in portfolio? relation And and concerned own question, in seeing mentioned portfolios of lower market. trends margins EBITDA markets have with half middle and in how bifurcation being you

Edward Ross

of growth analysis, absent the I to what this even X% Sure. EBITDA Great this a and and EBITDA grew quarter. company we're kind slow skew If still this pretty ARR question. our is were about the the perspective, that seeing look quarter large good growth as seeing our is the portfolio. at loans From portfolio, or in

an annualized basis, X%. on be So would that

we're good pretty growth is slow theme. seeing generally the I'd And So still performance. overall say

So we be. portfolio, very higher, paying expense attention flows are to obviously cash right? make need interest you they to sure and got are the to close where pay And attention is

Don't And great. get not wrong. company every doing me is

events number which you companies tougher believe manage as But happen, obviously. this if stable. to I case. that were the X There's out EBITDA from small issues the pretty the it's grew there a metric, you EBITDA that where our and lot those are of portfolio good well. X time portfolio. companies spend feel -- very XX% a thankfully, quarter, X.Xx. have are, that that's we And situations, got we through. down And really think there's that mean Xx had some is I went grew. always the our like I for the to something leverage, and our but at or most of look in stability on, very manageable

Operator

Our Rowe Bryce with Riley. next question from B. comes

Bryce Rowe

these. able that I at cover don't on you're all typically just capital to use capital You wanted you thinking about now. to curious this facility be some outstanding have regularly. obviously, And might structure. Let's see, Shelby, credit point? all But you And structure maybe start the how

from one end, million? just the of capacity what of SBA ultimate kind in usage max you that's of you're kind subsequent an So drew million the about SBA question facility? at is how $X number the another quarter point this And then to to that, perspective $X debentures thinking of is beyond credit relation

Edward Ross

that? Shelby, you to take want

Shelby Sherard

Sure.

-- great Let question. me

know, capital million. So to they're we $XX intermittent kind you And you to an that on apply have have the incremental to as for access capacity, SBIC that money. have applications of

to now able have to that SBA received We be million. access $XX approval

that $X have quarter drawn end between now we million So $XX at incremental an had we the we've million.

of the X a to we've The goal utilizing books, a line work. else in repayments more and the $XX the credit. and year to mean, of, pipeline cash we which call have money RIC kind million. when anything deals, utilize or unlike do we be go it, or kind and of lot had put would have kind the of a then to ago the SBIC-eligible lot plenty got and I find FIC on excess of

use remaining do to And our so of line, be we are plenty to starting do to but able have so. actively more we capacity

Bryce Rowe

Got it.

helpful. That's Okay.

considering I just of still structure appetite of quarter ATM, to on we I ATM, capital activity there's off the backdrop Another equity that about? kind that, especially guess, talked the there here draw assume of

Edward Ross

jump there. I'll in Yes,

now. think, of where its price the with we're pleased stock kind own Bryce, holding I is

raised you year. of the each performance QX in turned and we've of in overall last year. million the of of on capital we the $X of quarters, And the just QX with pleased And very X program commented, so in last also this QX as we're ATM then So business.

are helpful. quarter. that raise looking we position. the Hopefully the would what makes we're we're that's and our perspective, long And whether equity, enhance keep If markets looking this capital open then in good expect shareholders' to attractive, it's do that's sense or accretive the so from to an it's us to to way that for term, debt

Bryce Rowe

Yes. for just one That stats. of me last portfolio is. Maybe kind on one

us past, the is on values if whether whatever relatively medium, average that's appropriate what in being your loan of be to you've could think talked it the I securities, about most kind average, for weighted low debt like looking update today, Ed, you metric?

Edward Ross

the moment. -- the the It's portfolio Sure. XX% loan-to-value at for is

I think that's in line with last quarter.

XX% overall. cushions of XX% when new X would deals, a X minimum. and the say to And So some typically, structuring equity we're years, I some even been in And equity is cushion XX%, type last what cases, ARR over of XX% the XX% somewhat it's XX% to situations.

portfolio. feel very you cushions, value we the So the will, enterprise about good for if

Operator

comes with next Our Johnson from question Paul KBW.

Paul Johnson

the Congrats good one on quarter. me. for or two Only

inflation longer to is with that pretty just little sort smaller, at of combat businesses since just broadly much of Or in in your an the bit Just general, kind those is companies getting smaller no middle are your this response. companies kind of of company, just Fidus portfolio on less that point, is Obviously, a issue the these of market. conversations kind still thoughts of given and lower part size for on inflation really a ability the days?

Edward Ross

company, it's almost increases, it's No, input but or what companies Paul. what costs, raising prices Great to ways will. if I But offset to subsided. cases, whether all the labor, And whether that's totally question, have found you. say, normal, most cost you have really not say deal to it's Sure. would wouldn't adjust in new every I

need of of with businesses, value-added have in is able do one element investing of things kind free flow invest typically to companies power risk. like we pricing have to so being deal to. this important an that power the pricing And cash is And when high businesses they that that in

will. So oriented, if you less commodity

the lot a it's input of mean freight, I instance, But again, think there's costs a And there. think a stay. costs about terrible a Maybe but way most down of point. companies have so lot to right do declined for and now, have adjusted this bit. to think it's there think quite to I are this normal. a And that's They're slowed that I somewhat about it's not discussion, thing new it. at

Paul Johnson

mezzanine kind structure of sort recent Got central your that lastly, as just you up of cropping [indiscernible] the thing And part not I'm interesting I years curious in any found that been is radar? been have obviously, I on has it. appreciate [indiscernible] this or more just mean of investment are that. you subordinated if too really spreads capital not then strategy, to just here, just but capital good that opportunities guys' or

Edward Ross

lot investments. No, of large, situations X first increase of makes like there question. opportunities and opportunities. perspective of in were lien Great see originations on of plenty we majority is We're this the say I more going what a are are an And and but to a the category, a Sure. attractive. our junior quarter, is would security to large sense continuing debt there lien X where just highly from first of focus our probably

to it piece expect will we of of the to And so continue but expect here, be be us minority forward. senior portion debt as a the and a from move puzzle the portfolio debt increase we portfolio to probably for junior

with for have we looking and great we're outlooks view. companies where a us, high flow we situations cash For have type free great strong

cases, understanding get a strong I especially those market, We think in all we security. with have good type a of in view. that returns, but In this attractive markets and can

clearly the So not piece is but it focus, it's puzzle a of perspective. primary from our the

Operator

Eric Our question last Group. from Hovde with is Zwick

Erik Zwick

more present? if ago? market in there And you directionally are that it particular maybe terms stands today or just quantify where Curious secondly, dollar to days pipeline are relative just or at industries the the Wanted could with to first start pipeline. segments any either there prominent XX in

Edward Ross

up was it's kind not low, recently. get pipeline to of Great they're -- a But flows. I There little question. and Eric, Sure. funny, and working had here trying a us, us, in picked all it's obviously We're to for on documentation but it's awards ebbs cases. hard some awarded. the for bit things of think those

And -- but robust several a be the we it towards over last And would has quarter. the think I decent what say pretty any activity picked will not by stretch weeks. as to market, up we so -- is here the continue move fourth

So little industry a the perspective, from an bit it's board. across

have industrial -- that right same We some that situations at more businesses, question, But distributors, will. all type Hopefully, seeing that's tech-enabled sure. time, for broad-based, the healthcare answers software, are and then the your if pipeline pieces but it's of we're the pretty now. you

Erik Zwick

Yes, on that's other just their operations. X sold could quick me remain that underlying provide portfolio in And one only you great color. the a companies update is, that then for the the have

they the just of is? and what for the while of around status going to a kind Are can't Just those stay outlook or I recall.

Edward Ross

type get There we're kind They're get one in case, It's sold value trying think an it's I I probably been situation. resolution. a of kind a those -- to mean to want -- resolution. to is to escrow and have But companies Sure. we of there.

more it a ultimate than waiting how the outcome. see years in we'll So up, ends we're for X resolution interested

on being So done that. there's some work

a -- The in loan. place a other the situation of I've articulated That -- loss keeping before. more one is Fiber it and it's in That's that we're Green now.

not going that's like it's back. to So come

come year think a unclear, in realm, so I that's you is that's next know don't that if We will, expect X loss, expectation the will not, or play the it's -- I that think it's but stay that -- to off that I at in and if now. a right in

beyond cash account. that's it's Hopefully, But some helpful. is an in there X. So that,

Operator

appears It there questions. are other right. that no All

closed. to Ed back now is Q&A the the direct will So call Ross. I

Edward Ross

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

Operator

the meeting. concludes This

now disconnect. may You

Fidus Investment (FDUS) 4 Aug 232023 Q2 Earnings call transcript