Fidus Investment Corporation (NASDAQ:FDUS) delivered a strong first quarter of 2024, showcasing its ability to navigate the evolving market dynamics and maintain a well-structured investment portfolio. The company reported net investment income of $17.6 million, or $0.57 per share, for the quarter ended March 31, 2024, compared to $14.7 million, or $0.59 per share, in the same period last year. The annual net income for 2023 was $77.1 million, while the annual revenue stood at $154.2 million. The company's annual operating cash flow and free cash flow for 2023 were both $48.4 million.

Business Overview

During the first quarter of 2024, Fidus Investment Corporation made new investments totaling $145.9 million, including $96.1 million in first lien debt and $8.4 million in equity investments. This level of origination activity was nearly equal to the total amount invested in the first half of 2023, demonstrating the company's ability to capitalize on market opportunities. The portfolio's fair value grew to over $1 billion as of March 31, 2024, with 87 active portfolio companies.

The company's investment strategy continues to focus on capital preservation and the generation of attractive risk-adjusted returns. Fidus Investment Corporation targets lower middle-market companies in industries it knows well, leveraging its relationships with deal sponsors and carefully selecting businesses with defensive characteristics, sustainable business models, and positive long-term outlooks.

Financials

The portfolio's weighted average yield on debt investments was 14.0% as of March 31, 2024, compared to 14.2% as of December 31, 2023. This slight decrease in yield reflects the competitive landscape, as the company has been disciplined in its underwriting and focused on maintaining credit quality. Fidus Investment Corporation's debt portfolio is well-structured, with 48 portfolio companies' debt investments bearing interest at a variable rate, representing 72.5% of the debt portfolio on a fair value basis.

Geographically, the company's investment portfolio is diversified, with the largest concentrations in the Southeast (30.6%), Southwest (20.5%), and Northeast (18.9%) regions of the United States. The portfolio is also diversified across various industries, with the largest exposures in Information Technology Services (33.8%), Business Services (13.8%), and Component Manufacturing (7.5%).

Outlook

Looking ahead, Fidus Investment Corporation expects the second quarter of 2024 to see a meaningful decrease in origination activity compared to the first quarter, as the quality of deal flow has been somewhat uneven. However, the company remains optimistic about the overall deal environment, with an expectation of increased activity levels in the second half of the year. The portfolio's healthy positioning and the company's disciplined investment approach position Fidus Investment Corporation well to continue generating attractive risk-adjusted returns for its shareholders.

Liquidity

The company's liquidity position remains strong, with $27.1 million in cash and cash equivalents and $77.5 million of availability under its revolving credit facility as of March 31, 2024, providing ample resources to fund future investments. Fidus Investment Corporation has also made progress in its wind-down of its second SBIC fund, having repaid the remaining $35 million of outstanding SBA debentures in the first quarter.

Capital Allocation

In terms of capital allocation, Fidus Investment Corporation paid a base dividend of $0.43 per share and a supplemental dividend of $0.22 per share in the first quarter, totaling $0.65 per share. For the second quarter of 2024, the company's Board of Directors has declared dividends of $0.43 per share as a base dividend and $0.16 per share as a supplemental dividend, totaling $0.59 per share.

The company's net asset value grew 3.2% to $608.3 million, or $19.36 per share, as of March 31, 2024, compared to $589.5 million, or $19.37 per share, as of December 31, 2023. This growth in net asset value reflects the solid performance of Fidus Investment Corporation's investment portfolio and the company's disciplined approach to capital allocation.

Risks and Challenges

In terms of risks, Fidus Investment Corporation remains vigilant in monitoring the potential impact of macroeconomic factors, such as interest rate volatility, inflation, and geopolitical tensions, on its portfolio companies. The company has two investments on non-accrual status, representing less than 1% of the total portfolio on a fair value basis, and it continues to work closely with the management teams and equity sponsors of these companies to improve their performance.

Conclusion

Overall, Fidus Investment Corporation's first quarter of 2024 results demonstrate the company's ability to navigate the competitive landscape and maintain a well-structured, diversified investment portfolio. The company's disciplined approach to underwriting, focus on capital preservation, and commitment to generating attractive risk-adjusted returns position it well to continue delivering value to its shareholders in the years ahead.