Fidus Investment (US:FDUS)2021-02-26 19:49Financial Data and Key Metrics Changes - The net asset value (NAV) at year-end increased by $21.2 million or 5.4% to $410.8 million from $389.6 million at the end of the third quarter [10] - The NAV per share was $16.81, just $0.04 shy of the level at the end of 2019 [10] - Adjusted net investment income (NII) was $10.7 million or $0.44 per share compared to $8.3 million or $0.34 per share for the same period last year [13] - Total investment income was $23.6 million for Q4, a $2.6 million increase from Q3 [22] - Total expenses were $17.6 million for Q4, approximately $3.4 million higher than the prior quarter [22] Business Line Data and Key Metrics Changes - The fair market value of the investment portfolio as of December 31, 2020, was $742.9 million, equal to 108.1% of cost [12] - The portfolio consisted of 66 active companies, with first lien debt accounting for 25.2% of the portfolio on a fair value basis, up from 14.1% at the end of 2019 [12] - The weighted average yield on debt investments was 12.2% as of December 31 [27] Market Data and Key Metrics Changes - The company reported a significant increase in deal activity in the lower middle-market during Q4, with $103.9 million invested in debt and equity securities [15] - M&A activity in the lower middle-market has moderated in the first quarter of 2021, but the company expects decent levels of investments [19] Company Strategy and Development Direction - The company focuses on selectively investing in companies with defensive characteristics, including strong free cash flow and positive long-term outlooks [7] - The strategy includes increasing the mix of first lien debt investments and maintaining a conservative approach to managing the business for long-term capital preservation [12][19] - The company aims to generate attractive risk-adjusted returns while navigating uncertainties in the economic environment [19] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the portfolio's resilience and ability to weather economic stress, noting that 94% of the portfolio is now in the low to medium risk range [10] - The outlook for 2021 includes cautious optimism, with expectations for continued deal flow and investment opportunities despite uncertainties [19] Other Important Information - The company declared a base quarterly dividend of $0.31 per share and a supplemental dividend of $0.07 per share for Q1 2021 [14] - The company experienced a loss of $36.1 million on Accent Food Services, which was significantly impacted by the pandemic [11] Q&A Session Summary Question: Inquiry about the new dividend policy - Management indicated that the new dividend policy is a flexible approach suitable for the current uncertain environment and may be considered for permanence in the future [30][31] Question: Changes in first lien debt positions - Management confirmed a strategic shift towards first lien investments over the past two years, driven by a focus on lower middle-market businesses and a cautious approach post-COVID [32][33] Question: Commentary on the investment pipeline and spreads - Management noted that current yields are reasonable and comparable to pre-COVID levels, with a focus on recurring revenue models [35][36] Question: Expectations for investment originations versus repayments - Management anticipates that repayments may exceed originations in the near term but expects to grow the portfolio over the year as the M&A environment remains healthy [57][58]