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Fidus Investment (FDUS)

Participants
Ed Ross Chairman and CEO
Shelby Sherard CFO, Chief Compliance Officer and Secretary
Jody Burfening IR
Robert Dodd Raymond James
Ryan Lynch Keefe, Bruyette & Woods
Mickey Schleien Ladenburg
Call transcript
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Operator

Good day, and welcome to the Fidus Second Quarter 2022 Earnings Call. Today's call is being recorded. I would now like to turn the conference over to Jody Burfening. Please go ahead.

Jody Burfening

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

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

Ed Ross

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

debt small carefully incremental of continue our well, investing income the service profit gain from growth in companies investing an know equity deliberately of our quarter strategy debt that portfolio. recurring for interest a in securities to higher second or debt and proceeds, margin net build We in resilient models to business positive interest this a portion industries of and By our million to that per we safety. support and high equity flow securities long-term merits portfolio, redeploying from generate generate quarter monetizing results generated quality equity outlooks. $X.XX realized and of and portfolio share and our possess operate and cash we $XX.X demonstrates a Our debt of income

As unrealized a ongoing million, result realized overall term, or uncertainties $XXX share $X.XX income, healthy, which of gains this attributable was we portfolio share. and gain notwithstanding managing long economic $X.XX for or proven investment of net versus Adjusted share, $XX.XX capital unchanged net remains essentially incentive or investment strategy excluding income, stresses. per losses, and million define as last per and our NAV fee $XX.X investment philosophy was any the per to and $XX.X million year.

share, dividend $X.XX from dividend the XXX% base and first per a of of second a the paid the For $X.XX quarter. supplemental over base equal surplus Fidus the dividend per NII adjusted quarter, share in of to

will declared Board stockholders XXXX $X.XX of a share of XX, share. September to dividend payable quarter, the as For per record X, September of third the Directors be and per supplemental of of dividends a base $X.XX on XXXX. dividend The

XX, as payable XXXX. supplemental share of the and to dividend of of at dividends X, a $X.XX XXXX per of Directors the for a stockholders quarter. per on In addition, declared The share record least be of dividend $X.XX base fourth December Board December will

of declaration QX company investment distribute RIC, our XX% required ICTI. of are satisfy taxable ICTI. requirement a at least our The is of intended dividend XXXX minimum we income, a distribution the now to to As or

and $XX.X regarding were quarter November. million however, to to were a two in invested million the finish across expected, announced portfolio in as not companies QX as that expect quarter, new than early securities, solid, bit Investments first is we a equity information debt albeit incremental call. producing we as redeploy special deals the environment. subsequent weaker portfolio call our further have strong into supplemental as companies, and proving total, quarter our on $XX.X line to dividends this at harder as the for In earnings equity assets. getting income bit including Originations we events in the first new We next continue proceeds in in

fundings lien, subordinated portfolio integrated debt we The electronic LP, a lien reminder, remaining of $XX.X million the debt a investment securities. leading the commitments, of was all subordinated omnichannel securities of and companies. related lien $X debt doing Virtex new leading Choice evenly million second debt Almost a million in million manufacturing primarily made existing in million debt fairly and as to Technology $X.X Solutions, LLC, a to Merchant second up invested under payments first LLC in first energy, million $XX additional add-on other $XX.X $XX Choice lien Enterprises, in provider. We services vertically Solutions, business invested in lien was among platform. spread debt and commitment investments As first global invested in

we have make continue investments, investments second debt on lien remain subordinated and we well. to debt While been as opportunistically first will and lien focused

In in repayments realizations proceeds of and second quarter, the million. we received terms totaling $XX.X

of had first the I alternative companies quarter portfolio our As some strategic initiated discussions. mentioned call, on

the accounted and repayments half $XX monetization quarter, first for about the total investments realizations this the bringing $XX.X the of gains reason, total to equity million. this year proceeds realized of half year-to-date to and of net for equity For million

portfolio of TransGo, of payment distribution including $XX.X debt a penalty, to of exit in LLC. of the our proceeds and million investment and/or companies. LLC, Turboserve Pinnergy quarter, full Thrift, and In for doing of company. a consumables sale and in realized million invested a a and gain in million a in Magenta we & owner Holdings, X.X to a in $X.X made prepayment of We million Subsequent equity received debt received million in We of received gain Investors, our second a exits, a Buyer our BP operator of and Solutions equity in applications. $XX.X AmeriWater, LLC, in provider of business gain in a received global of of a business the related of debt lien debt healthcare to of debt, common $X.X commitment X X water of $XX.X sales and end commitment million, of We and of Corporation. of made AVC LLC. million lien $X.X full We made gain of We the million of thrift including Eco received related received first million, $XX on investment the realized an of Argo exit prepayment lien related terms the payment realized lien on Buyer, leading million cybersecurity purification lien totaling second $X.X industrial million Unique sale of retail Ltd. in $X.X our LLC. a as CRS three LLC. stores. doing including the and parts of We we of debt, million aftermarket $XX.X commitments related million, to distribution And as we We and million in first to penalty, X.X leading million invested proceeds million and in new $X.X first subordinated ComplyXXX systems $X.X Thrift Trellix, a LLC, realized

of business received a our power, remains models placed ongoing and are experienced fair portfolio recurring a gain nonaccrual. approximately We SES companies realized pressures. Two LLC. in companies equity approximately companies sale in and a resilient companies mean debt. X% a in focus common the distribution XX SES common $XX.X Subsequent gains our realized only $XX.X our We the our in Inc. focused portfolio penalty in not in investment fair well $X.X million are well a on and $XXX.X the million. of portfolios. our areas our accounted realized $X operations. investing have characteristics, portfolio our XXX.X% in including end produce Investors, of profits, us received and also serving debt consisting XX as in million and provide risk sold equity of of and for realized in on quarter depreciation value basis. a in and at incremental common healthy $X.X million a margin end of have LLC, distribution EbLens, is of million that and full urban $X.X investment lien of equity From conjunction $X.X on also total apparel quarter retailer million, and as a face doesn't Nonaccruals with million equal received portfolio Inc. cost. on in We of including are total, from portfolio investment to uncertainties, second Palisade a to these strong the full Pfanstiehl, incremental we our investments That our through and LLC, geopolitical current from inflationary underlying investment about environment. distribution ended the Healthfuse, received a million. facing realizations transaction, widening investments approximately income subordinated a the the on payment of sold our LLC. repayments defensive companies (Texas) our of LLC. In of we Fitness Company, debt prepayment of on related the perspective, of and of portion of of related in received Foam, structured million investment and the on value dynamics. $XX.X lien million invested following. have cost sale also first pricing headwinds all million. we was We $XX.X equity EBL, We to to We net sneaker with portfolio of equity we of gain safety. with slight us our Parts received Precision active proceeds in payment The Bedford We to received equity Bandon Overall, immune gain realized We business And quarter and and macroeconomic debt Spreads on doing a our first their our but reasonable gain June $XX approximately on approximately to that XX of

the basis continued value investments. result fair in on equity level a of the a of quarter, of to monetization As the debt during high portfolio shift mix total favor

to about December XX, compared June as of investments XX% about portfolio of and XX% comprised as XX% March XX, of of As XX, debt XXXX. total the XXXX

debt percentage XX%. lien in First of under first at the in a on allocation. line The first basis the unchanged a also on as with target investments XX%, cost was was yield around with from of percentage a portfolio Equity debt our as investments remains line total quarter. quarter the debt

Looking that half us The of the half relatively do are underwriting attractive market environment. our focus year, invest us although assets deliver track structuring first the shareholders. redeploy to to remain debt equity take income into ahead value uncertain lower like longer a proven further opportunities of well long close of the perform in risk and and active disciplined year, over term expect from last the our and environment, returns the the companies offering and to selection middle investments time for generate deals year first should we to much opportunities on our to current to to percentage high on equity same second this positioned standards, proceeds lien producing perspective, adjusted keep in with than investment cushion in the

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

Shelby Sherard

including provision, ended commentary versus was PIK, million on more was and the $X.X note QX $X.X and decrease position. fee from income be months Ed, XX.X three second you, capital $X.X quarter. QX driven debt were income increase QX XX.X Please in a will Total our detail XX, capital cumulative close Note exceed investment decreased by income GAAP backend for outstanding. million Please for in balances with quarter with good income the by and dividend including morning, comments The tax a accrual in primarily investments, income. incentive average million. due majority in fee in however, interest a unrealized income, investment Total providing the prior in everyone. Thank million XXXX. the payable purposes, quarter appreciation. arrears therefore million and is by results $X.X interest an in losses the that only QX. increase investments I accrued liquidity first decrease realized recall increase June our weighted annually I'll gain comparative and is fee to of increase gains extent were offset million million to in X.X in review closed quarter more The gains the March the incentive line for realized

a in the Excluding incentive than a in $X.X interest million income expenses to $X.X million total gains and increase $X.X primarily management accrued in quarter comprised QX secured in XXX.X increase incentive with of in X.X of million solicitation and meeting, SBA million a decrease in taxes approximately higher debentures, G&A of other the by expense, were $X.X million proxy due XXX.X of fee, ended million capital notes to We offset shareholders million XXX of QX annual debt expenses, related and unsecured a the borrowings. for million $X.X million million outstanding, XX.X increase fees. increase professional a fees,

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

XX, recognized realized and June million For the to [ph] investments Abaco Pinnergy, primarily in equity from sales of ended net XX.X Texas. months we our approximately CRS three TransGo, related gains,

statistics. to now portfolio Turning

had value As XXX.X XX, of of June portfolio investment our million. fair total

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

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

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

of capital of resulting million. included million credit, events, liquidity. into we resources our of million of XX, on cash June SBA million, our debentures As liquidity liquidity XX.X and subsequent account approximately in available of XX.X our have XXX of of availability and XXX.X XXX total approximately line million Taking

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

Ed Ross

Thanks, Shelby.

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

Operator

with ahead. James. from We'll Raymond Thank first Please take Instructions]. Dodd Robert question you. [Operator our go

Robert Dodd

the performance very, and quarter as congratulations just which the on strategy, of very well Ed and but as morning, the quarter, has not overall good. post been Shelby, the Good

more but difficult couple the the questions. you a knew couple Ed, So times, the your across on was a probably is finishing you now. getting I'm ask this of one, went about line kind to you coming. of deals to back going of But -- that first dividend, comment,

agreeing curious? a on little people divergence now there Sounds that's gap about like on pricing sponsors a move is of the pipeline, other Or slower what anything on making a kind that? right is ask, price? Is some is I'm between like that more factor structure on problem borrowers pricing but and it just or there -- quite optimistic is -- ask there your the is

Ed Ross

Robert. Great Sure. question,

as think rise As were you fall a we've most -- make days purchase can discussion. bit XX two issues. would we've came three making And performance imagine, want And those apart that experience really due issues, deals awarded or missing frankly, price sure I to performing in were quite obviously we that maybe purchase little folks investments today the say, what budget gives seen I company's so. the to last which in from, had And expected. a price to

for was sheet not did on a want certain where based a end borrower day. us a had the structure the of then and question signed term other structure we and The the that up to have structure, the at company

And so we backed away.

So do to things we a environment, we're it's But obviously this always environment tougher very how disciplined on been in done. get but things.

a frankly, want about investing close quite I we in is great make sure we what discovery I think that's everyone we transactions. a little And in as feel because mode bit. thing, to good we're think

a it's good our have problem So from perspective. to

Robert Dodd

you for that. thank Yes,

the seeing to you you're just you or historically? an delivered are On core Do think front? certainly and we targets, match you're up if very not hurdle look your outlier, the or kind IRR it, there even the seeing be to longer core IRRs internal and back but opportunities it IRR, structures is your the that but obviously, today IRRs, still attractive. you're the your on years term, we last rates have anything you you've want been maybe, assets, however even the that over seeing, put the several to set opportunities that Can might shifted the today that core that of meet thanks

Ed Ross

our we my has bit companies -- From of Today, portfolio investments. with portfolio have -- about coupled with perspective it to question. are little so do a of Great XX% structures. equity

similar very to done all-in, an obviously the investments those higher think for and making and the about opportunity in what we good feel past. we're do they're there's in returns so And do cases, today we've

only may higher usual. maybe have one there. time. in to XX% see The for investments at a I been mix than us change a We is closer of debt So don't point little

that to so alter it significant. a returns be think move may will bit. enough little don't a And just I be of

see to continue adjusted a risk environment adjusted a return basis. risk from attractive very a we So on or return

continue it strategy being patient. And We equity work takes uncovering, to we're to and are obviously we've we that deployed. continue the hard but and discipline always that opportunities same going like the

Robert Dodd

it. you've I realize on the information you Yes, next now. utilized that ask the gains, But said months that spectrum. you've you have more you'll In got for that. the on three to past call. I full color. realized the when I dividends. appreciate Got from Thank that's had large you

deemed You've Board Can special it's a a and supplementals. you member dividend just us done of retain Board. allows large to capital, to distribution the paying are give but any the -- everything, color from versus a you got proceeds kind of get to you obviously specials, full necessarily capital, give you which us you credit Can but you've decision, coming deemed distribution don't lot in some of market. -- a equity out

So this? any set you without can thought you now give lean on about -- way potentially your not in right us feet concrete which to going

Ed Ross

some bit why maybe Robert, been highlight just actually me the are I've just I postponed well options as give a as table. that careful thoughts we different things you on But what as Let imagine, little say. with on might the

Robert Dodd

fair enough. Yes,

Ed Ross

is QX Board here $X.XX will as distributions in spillover dividend spillover a you you policy imagine, per our share. further lot gains the only you at But questions. and know, also, about And position the very at as we as increase might at early position. time XXX also high And also, that spent level thinking of know,

requirements only least into to done seven be year, announce sense QX decisions. dividend declarations the believe investment fact at the we call months makes the to it dividend satisfy expected XXXX RIC we ICTI. patient, company is, to we're or and XXXX the QX distribution what until the related we've The that further to income, only are taxable discuss So QX given that earnings

we next our expect over discussing we these to have call. the So until a be next things days lot XX

term well to top stable means over shareholders time. delivering over shareholders is our say long for dividends NAV to perform while I'll also look, us, the well. to And what as priority for growing growing Lastly, is, that

at evaluating a the number special of cash making as to dividend definitely day. healthy earning our grow on includes would enable in select to dividend It retain continue a It options. And the deemed as retain relates term. So position, NAV supplemental a sense as make to well is to of level it spillover and/or spillover may still increasing which a includes BDC the us then order rainy well, over for table level base distributions, the lastly, distribution we're as policy. long to capital

So and to the that's day. are few table things, or four, three what some I the of combination at end of four say. a the obviously it's our hope probably but careful got on from I there's perspective, I helpful, of that guess those with I be

Robert Dodd

And helpful. very I you. apologize Thank for That the is background.

Ed Ross

Robert. No Nice to problem. you. talking Thanks,

Operator

next our Ryan KBW. take We'll from with Lynch question

Ryan Lynch

Hi. Good morning.

Ed Ross

Ryan. morning, Good

Ryan Lynch

question, kind The getting first struck of time it having when question of in up environment. because deals following kind he was a Robert's harder across I had the on this line about talked finish as well me

first the on quarter. sector I for time BDC maybe that the I've the conference calls really that's this heard think

And versus more going the achieve so. that out months is would talked economic now about deal they're so improving lender the maybe uncertain able or terms forward. there environment six ago -- to and what still been most because friendly others Obviously, environment some I call very really

present that So does some challenges.

you terms as just would cause of kind to unpack, statements? -- maybe to love just upper where if as in middle middle middle I'd quickly the market is those aren't that's the make unique something that shifting So lower particularly maybe or core there could you market

Ed Ross

Sure. I certain Great answer one frankly. quite and Ryan, to think an to easy But shifting question, terms are degree. a not

spreads I think to stable are widening.

probably And going QX well. think three those perspective, a they for maybe situations. what just was -- liquid quality QX flow market, I middle in Again, a flow say have is to discovery the trend, to clearly lot on. the bit a going and are has a high are continue levels us for But bounds of just help positive but as lot very out it's little deal covenants and been and coming same leverage much are a as weeks, are credit always not as slower little not thought markets, the in was and a strong. on down be we discovery So and for would experiencing sure. of the I also four price there deal today last been I than of From very lower

And are fair see situations. of high so we starting a to number quality

So But year, some the is, long we're say high I I just quite With to think and for the back, I'd of we're apart fair expected, frankly. But think bit deals didn't regard healthy. rather the that lender just about. our little see days quality line, do short think the a things have is There's and continuing competition. that's transaction. excited of than it ahead rest did see that friendly as previously. And then opportunities. to last finish of have the we in harder If little three close to I There's go of fall bit, opportunities, aren't maybe the as about your the less wait more experience a frankly. just is to and a XX opposed pulled me And quite product talked we it. a environment lenders reasons get across number it's a stuff surprises comment people where

for us and for market. lower And helps. middle as I so well that's that hope the a thing good

Ryan Lynch

not are done, deals discipline backing there just And getting not having are that. be across that off better And fall, of And I deals as of thoughtful maybe could explicitly and finish a maybe Yes, other the that not there line that maybe if deals but it done completely are deals makes being lot aren't right, agree deals and right companies terms, that sort that's also stating that on complete be in sense. well. you getting they're also are the are could other getting helpful.

that's So fair.

deal a quarter. I congrats it you talk versus of partial why of Can nature the your what was fast monetization? was a behind The was monetization? was, full that partial other monetization question about on nature partial third the that? a What monetization in only And had

Ed Ross

company monetization perspective, is been in that negotiation getting a sense. quality our primary now call invested with partial Sure. our liquidity we've high the The from Well, of Very this little so bit. a made business. XX the years it, And a around company. perspective owner or was from for,

ended reason our And for up high the of It's is than investment our quality we the a less we selling the long-term feel well half company. So of very position. that about as for company. prospects good as

smart a Hopefully, it retain our thing it see But And the sense that. as pleased we're to for to was that pleased think to partial able very to equity be But the and partial event so ownership shareholders. with in realization do how goes thought future. makes liquidity do also that a we're just liked made we sense. we that. We

Ryan Lynch

a table sense chips few Yes, really successful just on makes the it a off investment. taking

quarter. you what -- we Shelby. that any income quarter-to-quarter on the lumpy. but of on is one but predict kind to for basis, hard Just maybe can I that? really Dividend the this But thoughts have do dropped be which to be I had, a very last predict, should for hard it's expecting know in preliminary third significantly quarter

Shelby Sherard

Yes. QX on basis. larger was I just run than expect rate I a would probably say would what What is

that few annual a have companies dividend. select maybe portfolio We an make

of more so forward, outsized. QX. I would with be to going that's things QX to of line caused what be in expect Kind kind more And

Ryan Lynch

my time appreciate and the appreciate taking I helpful. you that's today Okay, questions.

Ed Ross

you, it. Thank to I you. Good appreciate Ryan. talking

Ryan Lynch

You too.

Operator

Ladenburg. [Operator Instructions]. We'll Mickey take with our next question from Schleien

Mickey Schleien

I've -- the paycheck under also class that the to middle way upper, economic are a management much represents struggling that just be wanted middle arguments are consumer domestic only of lower ask might the the out class control folks that the is paycheck and fine. heard I It's kill current to There's Good the part how there that you the this risk question. consumer given inflation everyone. morning, as the class to get economy. Ed, under the living conditions. economy, the middle Fed's that the to theory going

And risk there so much there's perceived. not is as perhaps as

there heard with the say given that with And respect that in think So how is I I is you with Fed's much struggle to inflation, a comments? particular, the you shop? in thrift And portfolio does in my line consumer? risk -- in your invested

Ed Ross

close great in business, to regard and question. committed very well a It's that. With the this should the pretty it's also diversified thrift Sure, in The performing environment. just great quarter. well to we shop, a deal later

like, and all has we company obviously feel those at, this So performed we cycles. looked pretty at looked when we well previous cycles through

it's as perspective very stable one a feel well. So good in from environment our this business about we and

So staples it's lower taking with day maybe higher being income comments and from prices, in on spending frankly. if impacted from about discretionary things Evelyn's certain items, by if agree, that consumer like areas, think that food to prices, you perspective. I more focused of experienced that's market you will. is urban a on to day you probably if gas are differentiated living focused share quite We will. more type [ph] Evelyn's higher bracket, more do your will, more more a I extent, they the

exposed questions limited, some question how last I portfolio? think one have of very we So but your would you And And I the was is I exposure, you the our agree with or say, asked, frankly. comments. it's consumer quite asked

think a of companies, a now exposure. It's that feel the of really we're them well two on we're as some I so like positioned we one And names maybe feeling of right move little we handful And bit Evelyn's. have forward. being pressure

notwithstanding difficult great our feel we construction the overall, good our about outlook and about portfolio, operating a that of very feel portfolio it's environment. So

Mickey Schleien

hope a morning. good I you have for you. your Thank I agree. time. it I That's appreciate me weekend. this

Ed Ross

Thanks.

too, You Mickey.

Operator

does Ed Ross like turn call remarks. session. back the that question-and-answer any to to or conclude I closing over the And would for additional

Ed Ross

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

Operator

may disconnect. Thank you your presentation. for today's concludes that And you And participation. now