Fidus Investment (US:FDUS)2023-03-03 17:15Financial Data and Key Metrics Changes - Adjusted net investment income (NII) for Q4 2022 was $12.6 million or $0.51 per share, an increase from $12 million or $0.49 per share in the previous year [9] - Total investment income for Q4 2022 was $27.5 million, a $2.5 million increase from Q3 2022, primarily due to a rise in interest income [27] - Total expenses for Q4 2022 were $15 million, which is $2.7 million higher than Q3 2022, driven by increased income taxes and professional fees [29] - The company ended Q4 2022 with a net asset value of $480.3 million or $19.43 per share [10] Business Line Data and Key Metrics Changes - The company invested $65.9 million in debt securities during the quarter, focusing on high-quality companies [14] - Debt investments increased from $549.8 million or 77% of the total as of December 31, 2021, to $740.5 million or 86% of the total as of December 31, 2022 [18] - The fair value of the portfolio at quarter end was $860.3 million, equal to 103.8% of cost [16] Market Data and Key Metrics Changes - The weighted average interest rate on outstanding debt was 4% as of December 31, 2022 [30] - The weighted average effective yield on debt investments increased to 13.8% as of December 31, 2022, from 12.9% at September 30, 2022 [40] Company Strategy and Development Direction - The company aims to preserve capital and generate attractive risk-adjusted returns for shareholders while focusing on high free cash flow and defensive growth companies [25] - The company plans to continue making equity co-investments alongside debt investments, indicating a strategy to enhance portfolio resilience [71] Management's Comments on Operating Environment and Future Outlook - Management noted that the credit environment was tougher in Q4 2022 compared to the previous year, but they continue to find attractive investment opportunities [8][25] - The company expects to grow its portfolio in 2023 despite macroeconomic uncertainties, including potential recession scenarios [25] Other Important Information - The company declared a total cash dividend of $0.66 per share for the first quarter of 2023, which includes a base dividend and supplemental dividends [13] - The company has approximately $179.3 million in total liquidity as of December 31, 2022 [35] Q&A Session Summary Question: What does the pipeline look like for 2023? - Management indicated that while Q4 was a low point for activity, there has been an uptick in January and they expect to continue growing the portfolio in Q2 2023 [44] Question: What is the target for balance sheet leverage? - The company aims for a long-term leverage target of 1:1, with comfort in a range from 0.75 to 1.25x [47] Question: How are portfolio companies managing current challenges? - Management stated that portfolio companies are raising prices, cutting costs, and managing operational challenges effectively [57] Question: Has competition in the market changed? - Management confirmed that competition has pulled back significantly compared to a year ago, particularly from banks and CLOs [65] Question: What is the expectation for realized gains in 2023? - Management expects incremental gains but at a more modest pace compared to previous years due to market conditions [68] Question: Are purchase price multiples contracting for new M&A deals? - Management noted that while multiples have come down slightly, they have not dropped significantly, and they continue to see opportunities for equity co-investments [70]