Fidus Investment (US:FDUS)2026-02-27 15:02Financial Data and Key Metrics Changes - In Q4 2025, total investment income was $42.2 million, an increase of $4.9 million from Q3 2025, driven by higher interest income and fee income [16][17] - Adjusted net investment income (NII) grew 5.1% to $19.4 million, with adjusted NII per share at $0.52, compared to $0.50 in Q3 2025 [7][18] - Net asset value increased by 13.2% to $741.9 million at quarter end, with a per-share value of $19.55 [9] Business Line Data and Key Metrics Changes - Originations in Q4 2025 reached $213.7 million, the highest quarterly amount, with total investments for 2025 at $498.2 million [4][5] - The debt portfolio performed well, with first lien investments comprising 86% of the total debt portfolio [11] - The software and tech-enabled services portfolio was valued at $464 million, with 92% in first lien debt [12][13] Market Data and Key Metrics Changes - The company noted a strong M&A environment contributing to increased deal flow, with expectations for continued activity in 2026 [4][15] - The weighted average interest rate on outstanding debt was 5.2% as of December 31, 2025 [19] Company Strategy and Development Direction - The company aims to generate attractive, risk-adjusted returns for shareholders while growing net asset value over time [15] - Focus on investing in niche market leaders with proven business models that generate recurring revenue and cash flow [7][12] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the deal flow for 2026, although Q1 is expected to be more modest compared to Q4 2025 [15][28] - The company is confident in the health of its portfolio, with non-accruals accounting for less than 1% of the total portfolio [13] Other Important Information - The company declared a total dividend of $0.52 per share for Q1 2026, consisting of a base dividend and a supplemental dividend [8] - Total liquidity as of December 31, 2025, was approximately $304.8 million, including cash and available credit [21] Q&A Session Summary Question: Is there any spillover of deals from Q4 into Q1? - Management indicated that Q1 2026 deal flow is expected to be more modest, with some growth anticipated as the year progresses [28] Question: Can you elaborate on the software portfolio and AI risks? - Management emphasized the importance of evaluating the durability and value proposition of software companies, noting that nearly all portfolio companies are adding AI features [32][34] Question: What is the focus on ARR loans? - Approximately 22% of the software portfolio consists of ARR loans, with a focus on growth through covenants [40] Question: How comfortable is the company with its largest investment in Fan Steel? - Management expressed strong confidence in the long-term outlook for Fan Steel, viewing it as a leader in its space [42] Question: What is the average floor in the floating rate debt portfolio? - Most recent floors are in the 2% range, which is a market convention for the company [44] Question: How does the company view recovery rates in the lower middle market? - Management indicated that recovery rates for first lien loans typically range from 60% to 85%, and they do not foresee drastic changes in values [67][68]