Q3 2025 Fidus Investment Corp Earnings Call
Speaker #3: Good day , and welcome to the fittest . Third quarter 2025 Earnings Conference Call . All participants will be in . Listen only mode should you need assistance .
Speaker #3: Please signal a conference specialist by pressing the star key , followed by zero . After today's presentation , there will be an opportunity to ask questions , to ask a question , you may press star , then one on a touchtone phone to withdraw your question .
Speaker #3: Please press star . Then two . Please note this event is being recorded . I would now like to turn the conference over to Jody Burfening .
Speaker #3: Please go ahead .
Speaker #4: Thank you . Bailey , and good morning everyone , and thank you for joining us for Fidus Investment Corporation's third Quarter 2020 earnings conference call .
Speaker #4: With me this morning . Are Edward Ross Fidus Investment Corporation's chairman and chief Executive Officer and Shelby Sherard chief Financial officer , minus Investment Corporation , issued a press release yesterday afternoon with the details of the company's quarterly financial results .
Speaker #4: A copy of the press release is available on the Investor Relations page of the company's website at forscom . I'd also like to call your attention to the customary safe harbor disclosure regarding forward looking information included on today's call conference call today will contain forward looking statements , including statements regarding the goals , strategies , beliefs , future potential , operating results , and cash flows of Fidus Investment Corporation .
Speaker #4: Although management believes these statements are reasonable based on estimates , assumptions and projections as of today , November 7th , 2025 . These statements are not guarantees of future performance .
Speaker #4: Time sensitive information may no longer be accurate at the time of any telephonic or webcast replay . Actual results may differ materially as a result of risks , uncertainties and other factors , including , but not limited to , the factors set forth in the company's filings with the Securities and Exchange Commission .
Speaker #4: Vitus undertakes no obligation to update or revise any of these forward-looking statements. With that, I would now like to turn the call over to Ed.
Speaker #4: Good morning . Ed .
Speaker #5: Good morning Jody , and good morning , everyone . Welcome to our third quarter 2020 earnings conference call . Today's call I'll start with a review of our third quarter performance and our portfolio at quarter end .
Speaker #5: And then share with you our outlook for the last quarter of 2025 . We will cover the third quarter financial results and our liquidity position after we have completed our prepared remarks .
Speaker #5: We'll be happy to take your questions . For the third quarter , Vitus debt portfolio continued to perform well , and we extended our track record of generating adjusted NII well in excess of the base dividend .
Speaker #5: Overall , the portfolio remains healthy from a credit quality perspective , reflecting our strategy of investing in high quality , lower middle market companies with resilient business models .
Speaker #5: That generate recurring revenue and cash flow and have attractive prospects for growth . Our portfolio also remains well diversified by industry and structured to produce both high levels of recurring income and capital gains from monetizing equity investments .
Speaker #5: In terms of market conditions , M&A activity did pick up in the third quarter relative to the first half of the year . As expected , although deal closings were back end loaded and some deals were pushed into October .
Speaker #5: We continued to build our portfolio primarily by supporting our portfolio companies with growth capital , leveraging our long standing relationships with deal sponsors on a per share basis , adjusted NII was $0.50 compared to $0.61 for Q3 2020 .
Speaker #5: For covering our base dividend of $0.43 . With ample cushion total dividends paid for the quarter amounted to $0.57 per share , including a supplemental dividend of $0.14 per share for the fourth quarter of 2025 .
Speaker #5: The Board of directors declared a total dividend of $0.50 per share , which consists of a base dividend of $0.43 per share and a supplemental dividend of $0.07 per share , equal to 100% of the surplus in adjusted NII over the base dividend from the prior quarter , which will be payable on December 29th , 2025 , to stockholders of record as of December 19th , 2025 .
Speaker #5: Net asset value grew 2.7% to $711 million at quarter end , compared to $692.3 million as of June 30th , 2025 , reflecting modest portfolio appreciation and accretive share issuances under the ATM program on a per share basis , net asset value was $19.56 per share as of September 30th , 2025 , compared to $19.57 per share as of June 30th , 2025 .
Speaker #5: Originations consisted of $69.7 million in first lien securities and $4.7 million in equity investments , for a total of $74.5 million . For the third quarter .
Speaker #5: Investments were heavily weighted toward add on investments , primarily in support of M&A transactions . We also invested $12.8 million in one new portfolio company subsequent to quarter end .
Speaker #5: We have invested in additional $40.2 million in two new portfolio companies , plus numerous add on investments and existing companies . Proceeds from repayments and realizations totaled $36.7 million for the third quarter , resulting from a mix of M&A and refinancing activity with net originations of $37.8 million .
Speaker #5: Our portfolio grew to $1.2 billion on a fair value basis . As of September 30th , 2025 , equal to 102% of cost .
Speaker #5: First lien investments comprised 82% of our debt portfolio . As the migration of our debt portfolio toward first lien securities continued in our equity portfolio stood at $143.4 million , or 12% of the total portfolio , at quarter end .
Speaker #5: Portfolio credit quality remained sound, with companies on non-accrual unchanged at less than 1% of the total portfolio. On a fair value basis, this represents 2.8% of the total portfolio.
Speaker #5: On a cost basis . As we enter the home stretch for 2025 , market activity is shaping up to be relatively decent . In the fourth quarter , and we are working hard to convert opportunities from our pipeline of potential investments in both new and existing portfolio companies .
Speaker #5: While continuing to add to our overall investment pipeline . As Shelby will detail , we have enhanced our flexibility from a capitalization and liquidity perspective , continuing to position Fidus for the future as we execute our proven investment strategy , methodically building the portfolio and growing net asset value over time .
Speaker #5: In doing so , we will stay focused on our goals of preserving capital and generating attractive risk adjusted returns for our shareholders . Now , I'll turn the call over to Shelby to provide some details on our financial and operating results .
Speaker #5: Shelby .
Speaker #6: Thank you and good morning , everyone . I'll review our third quarter results in more detail and close with comments on our liquidity position .
Speaker #6: Please note , I will be providing comparative commentary versus the prior quarter . Q2 2025 total investment income was $37.3 million for the three months ended September 30th , a $2.7 million decrease from Q2 , driven by a 0.7 million decrease in interest income , primarily due to approximately 0.6 million of accelerated income from Unamortized fees on debt repayments in Q2 , a 2.6 million decrease in fee income given a 1.3 million decrease in prepayment fees , a 0.8 million decrease in origination fees and a 0.5 million decrease in amendment and management fees .
Speaker #6: Dividend income from equity investments increased by 0.4 million in Q3 . Total expenses , including income tax provision , were 19.9 million for the third quarter , a 1.5 million decrease over Q2 , driven primarily by a 1 million decrease in capital gains .
Speaker #6: Incentive fee accrual , a 0.4 million decrease in base management and income incentive fees , a 0.3 million decrease in professional and other G&A fees , primarily related to proxy solicitation expenses for the 2025 annual shareholder meeting held in Q2 , partially offset by increased legal fees in Q3 , a point 3 million increase in taxes related to distributions from our equity investments in Medshare and Holdings .
Speaker #6: Net investment income , or NII , for the three months ended September 30th was $0.49 per share in Q3 versus $0.53 per share in Q2 .
Speaker #6: Adjusted NII , which excludes any capital gains incentive fee accruals or reversals attributable to realized and unrealized gains and losses on investments was $0.50 per share in Q3 versus $0.57 per share in Q2 .
Speaker #6: We ended Q3 with 543.8 million of debt outstanding , comprised of 191 million of SBA debentures , 325 million of unsecured notes , 15 million outstanding on the line of credit , and 12.8 million of secured borrowings .
Speaker #6: Our net debt to equity ratio as of September 30th was 0.7 times our statutory leverage , excluding exempt SBA debentures , was 0.5 times the weighted average interest rate on our outstanding debt was 4.9% .
Speaker #6: As of September 30th . Turning now to portfolio statistics . As of September 30th , our total investment portfolio had a fair value of 1.2 billion .
Speaker #6: Our average portfolio company investment on a cost basis was 12.6 million , which excludes investments in six portfolio companies that sold their operations and are in the process of winding down .
Speaker #6: We have equity investments in approximately 87.8% of our portfolio companies , with an average fully diluted equity ownership of 2% , weighted average effective yield on debt investments was 13% as of September 30th , versus 13.1% at the end of Q2 .
Speaker #6: The weighted average yield is computed using effective interest rates for debt investments at cost , including the accretion of original issue , discount and loan origination fees , but excluding investments on Non-accrual .
Speaker #6: If any . Now , I'd like to briefly discuss our available liquidity . Subsequent to quarter end , we completed a 100 million debt add on to our 6.75% notes due in March 2030 .
Speaker #6: The net proceeds were used to fully redeem the 4.75% notes due in January 2026 . In addition , we refinanced our line of credit , which included an upsize to 175 million of availability and a new maturity date of October 16th , 2030 .
Speaker #6: As of September 30th , our liquidity and capital resources included cash of 62.3 million 125 million of availability on our line of credit , and 16.5 million of available SBA debentures , resulting in total liquidity of approximately 203.8 million , taking into account our subsequent events , our liquidity remains approximately 204 million .
Speaker #6: Now I will turn the call back to Ed for concluding comments .
Speaker #5: Thanks , Shelby . As always , I'd like to thank our team and the board of Directors at Fidus for their dedication and hard work and our shareholders for their continued support .
Speaker #5: I will now turn the call over to Baillie for Q&A . Bailey .
Speaker #3: We will now begin the question and answer session . To ask a question , you may press star , then one on your touchtone phone .
Speaker #3: If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw the question, please press star then two.
Speaker #3: At this time, we will pause momentarily to assemble our roster. Our first question comes from Robert Dodd with Raymond James. Please go ahead.
Speaker #7: Hi , everybody . Congratulations on another really good quarter . I've got to ask about your your comment about market activity , outlook for , for for Q I think you called it .
Speaker #7: It looks relatively decent . I think that's the first time you've used those words . I mean , you know , the earlier comments , I mean , deal activity picking up , you've already done 40 million in October .
Speaker #7: I mean , can you give us any more thought ? Do you do you think it's it's going to slow any or do you think it's just going to continue to , to ramp ?
Speaker #7: And is there given some Q3 of the Q3 ramp slipped into October like you said ? Is there is there a risk that there's a lot of activity , but some of it ends up in January ?
Speaker #5: It's a it's a great question , Robert . I think , you know , from a deal flow perspective , things , you know , started to pick up a little in Q2 latter half .
Speaker #5: That trend continued , which isn't always the case in the summertime . But in Q3 , fair number of things pushed out . We lost a couple .
Speaker #5: Well , didn't lose deals , a couple deals fell apart at the end . Things like that , which accounted for a little slower quarter than we were expecting .
Speaker #5: But from an investment perspective . But having said that , deal flow was pretty good and deal flow continues to be pretty good .
Speaker #5: As we sit here today in this week . And so I think that bodes well for the overall current environment . I wouldn't call it robust , but it's it's healthy .
Speaker #5: And so that's a you know , that's a good thing . And so what does that mean for us . I think originations in Q4 are , you know , it's our belief that it will be pretty strong , both from a incremental new investment perspective and from add on investment perspective .
Speaker #5: And we've also had , you know , several add on investments , you know , so far this quarter as well . So it's it's a busy quarter at the moment .
Speaker #5: And our our expectation as we sit here today is for that that kind of trend to continue . Hopefully that's helpful .
Speaker #7: Yeah . That is very helpful . Thank you . And just kind of following on from that , I mean , how are you seeing deal terms and pricing stack up .
Speaker #7: Obviously the terms are good enough or you wouldn't be doing them . But but you know , has there been any evolution in terms of how structures are being proposed as you go into this , this , this build a pipeline ?
Speaker #5: Yeah . Great question . You know , in the lower middle market , I think things are , you know , pretty stable from my perspective .
Speaker #5: Clearly pricing has come down over the last couple of years . I think that and I'm talking about spreads there . But you know , that that trend is is kind of stabilized over the last 6 to 9 months .
Speaker #5: So we're not really seeing changes from a pricing standpoint . Obviously , we're pricing risk . And so some deals may be in the spreads in the low fives and some may be actually in the sixes .
Speaker #5: So it's you can't you know , you know normalize if you will . But pricing is stabilized which is a good thing . And I think one of the other positives of the lower middle market is structures .
Speaker #5: I mean , we have two covenants in almost all of our deals . Typically a leverage covenant . And a fixed charge covenant .
Speaker #5: And so the structures are the same . I think leverage levels are have stayed pretty close to the same , you know , so there haven't been , you know , increased risks , if you will , that we're taking to generate the yields that we're getting .
Speaker #5: So I think all that's positive and gives us the ability to generate , you know , attractive risk adjusted returns .
Speaker #7: Got it . Thank you . That's it for me . Congrats again on the quarter .
Speaker #5: Thank you . Good talking to you Robert .
Speaker #3: Our next question comes from Mickey Schlein with Clear Street . Please go ahead .
Speaker #8: Yes . Good morning everyone . Ed , this quarter we've seen in the space more impact from tariff policy , particularly in relation to China .
Speaker #8: You know , we've been talking about this for a while . But these things develop slowly . Can you remind us , you know , do you have companies that are , you know , relatively exposed to importation from China and is pressure developing on those companies ?
Speaker #5: Great question , Mickey . We have exposure . But what I would say it's quite limited really . We have two portfolio companies that have meaningful direct exposure from an import perspective .
Speaker #5: We have others that I put it in the moderate category and the moderate ones , to be honest , the moderate ones and the obviously the high risk ones .
Speaker #5: And so we call them we have two that are in the high risk category , both of those companies are performing well . As we sit here today and are managing the risks .
Speaker #5: And so we , you know , from just an overall magnitude perspective , I think it's quite limited . It's between 5 and 6% of our total portfolio .
Speaker #5: And then what I would say is , you know , it's it's not meaningfully impacting the profitability of the business businesses . As we sit here today , obviously , there's been a , you know , various actions taken by these portfolio companies , whether it's price increases , whether it's negotiations , what have you .
Speaker #5: But we feel good about kind of the outlook of both of those companies and quite frankly , the rest of the portfolio .
Speaker #8: Well , that's good to hear . And and a follow up question , you know , it may be transient , but , you know , the government shutdown is now , you no longer than we would like .
Speaker #8: Is that going to impact any of your portfolio companies ? I know it may be a short term sort of event , but it could take a while to to to get things back to normal as the government reopens .
Speaker #5: Yeah , no . Good point . And great question . And you know , from from our we do have a couple companies that have some what I would call limited direct exposure to government contracts .
Speaker #5: But in both those cases we are not experiencing or seeing problems with regard to those contracts or at those portfolio companies . So I think our exposure is quite limited .
Speaker #5: There . And at the moment we're not seeing concerns or problems clearly . You know , obviously things can change , but it's not expected in either one of those cases .
Speaker #8: Okay . That's good to hear as well .
Speaker #5: Yeah .
Speaker #8: Those are all my questions this morning . Good talking with you . And .
Speaker #5: Likewise nice talking to you Mickey . Thank you .
Speaker #3: Again if you have a question please press star then one . This concludes our question and answer session . I would like to turn the conference back over to Ed Ross for any closing remarks .
Speaker #5: Thank you, Bailey, and thank you everyone for joining us this morning. We look forward to speaking with you on our fourth quarter call in early March 2026.
Speaker #5: Have a great day and a great weekend .