Release Date: May 03, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Fidus Investment Corp reported a significant increase in adjusted net investment income, rising 21.8% year-over-year to $18.1 million, reflecting higher interest and fee income.
- The company's total portfolio on a fair value basis grew to over $1 billion, with net originations totaling $85.7 million in the first quarter.
- Fidus Investment Corp declared dividends totaling $0.59 per share for Q2 2024, maintaining a strong commitment to shareholder returns.
- Net asset value per share showed stability, with a slight increase to $19.36 at the end of the quarter, compared to $19.37 as of December 31, 2023.
- The portfolio remains well-structured, focusing on high-quality, cash-generating businesses, with nonaccruals representing under 1% of the total portfolio on a fair value basis.
Negative Points
- Despite a robust first quarter, Fidus Investment Corp anticipates a significant slowdown in originations for Q2 2024, which could impact growth momentum.
- Adjusted net investment income per share slightly decreased to $0.59 from $0.60 in the same period last year, due to a higher average share count from equity raises.
- Total investment income for Q1 2024 saw a decrease of $1.7 million from the previous quarter, primarily due to lower interest income and fee income.
- The company noted that the quality of deal flow is currently 'spotty', indicating potential challenges in maintaining the quality of new investments.
- There are concerns about potential refinancing risks in the portfolio, as some companies may seek lower rates due to an active and competitive market.
Q & A Highlights
Q: On the deployment outlook, what are your expectations for the year in terms of originations?
A: Edward H. Ross, Chairman & CEO of Fidus Investment Corporation, noted that while Q2 is expected to be lighter than Q1, deal flow is solid, albeit with spotty quality. He mentioned that M&A activity is picking up, which could lead to increased activity levels in the latter half of the year. Ross suggested that reaching $400 million in originations is possible but ambitious, expecting a figure slightly lower yet close to that.
Q: Can you comment on the current repayment levels and expectations going forward?
A: Edward H. Ross explained that while Q1 repayments were light, several companies are evaluating strategic alternatives, which could lead to varied repayment levels in the upcoming quarters. He anticipates repayments to pick up in Q3 and Q4, influenced by a more aggressive market and potential M&A activities.
Q: What is your outlook on spreads in your core business areas given the current market conditions?
A: Edward H. Ross observed that spreads have declined due to increased activity from banks and direct lenders compared to a year ago. He expects yields to be stable or slightly declining, noting that current yields on new originations are slightly lower than on repayments.
Q: How are you managing the potential refinancing risk in your portfolio, considering the active upper middle market?
A: Ross acknowledged the possibility of refinancing at lower rates but emphasized the strong relationships and value addition Fidus provides to its portfolio companies, which mitigates some of this risk.
Q: With the pressure on portfolio yields, are you considering increasing balance sheet leverage?
A: Edward H. Ross confirmed that Fidus is looking to increase leverage in a methodical manner, considering the turmoil in debt markets. He highlighted the importance of a diversified capital structure and mentioned potential increases in their credit facility and the ongoing process of obtaining an SBIC license.
Q: What is your perspective on the quality of deals in the current market?
A: Ross described the deal quality as "spotty" this quarter, with fewer high-quality, high free cash flow opportunities that align well for both Fidus and sponsors. He emphasized the company's focus on maintaining high asset quality standards despite these market conditions.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
