Fidus Investment Corp (FDUS) Q2 2024 Earnings Call Highlights: Strong Income Growth Amidst ...
Adjusted Net Investment Income: $18.4 million, a 17.7% increase from $15.6 million last year.
Adjusted Net Investment Income Per Share: $0.57, compared to $0.62 last year.
Dividends Declared for Q3 2024: $0.57 per share, including a base dividend of $0.43 and a supplemental dividend of $0.14.
Net Asset Value: $646.8 million, up 9.7% from $589.5 million as of December 31, 2023.
Net Asset Value Per Share: $19.50, compared to $19.37 as of December 31, 2023.
Originations: $62.4 million, including $17.8 million in one new portfolio company.
Net Realized Gains: $9.2 million from equity investments.
Total Investment Income: $35.7 million for Q2 2024.
Total Expenses: $18.7 million for Q2 2024.
Debt Outstanding: $472.8 million as of June 30, 2024.
Debt-to-Equity Ratio: 0.7 times, or 0.5 times statutory leverage excluding exempt SBA debentures.
Weighted Average Interest Rate on Debt: 4.6% as of June 30, 2024.
Weighted Average Effective Yield on Debt Investments: 14% as of June 2024.
Liquidity and Capital Resources: $115.8 million, including cash and line of credit availability.
Release Date: August 02, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
Fidus Investment Corp (NASDAQ:FDUS) reported a 17.7% increase in adjusted net investment income for the second quarter, reaching $18.4 million compared to $15.6 million last year.
The company declared dividends totaling $0.57 per share for the third quarter, including a base dividend of $0.43 and a supplemental dividend of $0.14.
Net asset value increased by 9.7% to $646.8 million at the end of the quarter, compared to $589.5 million as of December 31, 2023.
The debt portfolio consists entirely of first lien investments, which grew to 71% of the debt portfolio at quarter end, indicating a focus on high-quality, secured investments.
Fidus Investment Corp (NASDAQ:FDUS) maintained a healthy credit quality with non-accruals staying under 1% of the total portfolio on a fair value basis.
Negative Points
Adjusted net investment income per share decreased to $0.57 from $0.62 in the same period last year, reflecting a dilution effect from a higher average share count.
Total expenses increased by $1.7 million from the previous quarter, driven by higher capital gains fee accruals and management fees.
The company experienced a slower than normal second quarter in terms of new investment originations, partly due to a less robust M&A environment.
Despite a strong portfolio performance, Fidus Investment Corp (NASDAQ:FDUS) continues to manage issues with two operating companies on non-accrual.
The company remains under-levered, which has impacted its adjusted NII yield, running below last year's levels.
Q & A Highlights
Q: Can you provide an update on the potential for a new SBIC license and your approach to managing the capital structure, especially given the low debt-to-equity ratio? A: Edward H. Ross, CEO: We are progressing with the SBIC license process and remain confident about obtaining it by year-end. The increase in our revolving credit facility and achieving an investment-grade rating are positive developments. We are focused on maintaining a strong liquidity position and have options like equity, the SBIC license, and the revolver to manage our capital structure effectively.
Q: What are your expectations for new originations and repayments in the second half of the year? A: Edward H. Ross, CEO: We anticipate a pickup in M&A activity, which should lead to increased investment opportunities. However, we also expect repayments to rise as several portfolio companies are evaluating strategic alternatives. While the market isn't robust, we believe originations will outpace repayments, although net portfolio growth may be less than the first half of the year.
Q: How is the credit quality of your portfolio holding up given the economic environment and rising interest rates? A: Edward H. Ross, CEO: Our portfolio is performing well, with 65% of companies growing their cash flow or EBITDA. We focus on high-caliber, defensive growth companies with strong cash flows. Our strategy of moving towards a first lien portfolio and maintaining modest leverage levels has helped us manage credit quality effectively.
Q: Are you considering more non-sponsored deals due to pressure on spreads in the sponsored middle market? A: Edward H. Ross, CEO: While we have historically looked at non-sponsored deals, our portfolio is currently over 90% sponsored. We continue to evaluate non-sponsored opportunities, but the bar is high. Sponsored deals remain the majority of our pipeline, but we are open to non-sponsored deals that meet our criteria.
Q: With lower originations in Q2 and excess cash, why not pay off the credit facility balance? A: Shelby Sherard, CFO: We did pay off the line of credit subsequent to quarter-end. Our cash position is influenced by timing and pipeline considerations. We aim to maintain flexibility and will use cash and the credit facility as our primary sources of funds for future growth.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.