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Aug 06, 2020
Fidus Investment Corporation Announces Second Quarter 2020 Financial Results
Regular Quarterly Dividend of $0.30 Per Share Declared for Third Quarter 2020

EVANSTON, Ill., Aug. 06, 2020 (GLOBE NEWSWIRE) -- Fidus Investment Corporation (NASDAQ:FDUS) (“Fidus” or the “Company”), a provider of customized debt and equity financing solutions, primarily to lower middle-market companies based in the United States, today announced its financial results for the second quarter ended June 30, 2020.

Second Quarter 2020 Financial Highlights

  • Total investment income of $20.4 million
  • Net investment income of $9.3 million, or $0.38 per share
  • Adjusted net investment income of $9.0 million, or $0.37 per share(1)
  • Net increase in net assets resulting from operations of $8.0 million, or $0.33 per share
  • Invested $16.9 million in debt and equity securities, including two new portfolio companies
  • Received proceeds from repayments and realizations of $2.5 million, recognizing $0.2 million in net realized gains
  • Paid regular quarterly dividend of $0.30 per share on June 26, 2020
  • Net asset value (NAV) of $376.2 million, or $15.39 per share, as of June 30, 2020
  • Estimated spillover income (or taxable income in excess of distributions) as of June 30, 2020 of $27.4 million, or $1.12 per share

Management Commentary

“Our second quarter performance reflects the strength of our strategy of selectively investing in lower middle market businesses that possess resilient business models and generate excess cash for debt service.  Despite ongoing business disruptions and uncertainties associated with the COVID-19 pandemic, our portfolio generated adjusted net investment income of $0.37 with many investments performing materially better than we had expected last quarter, and we were able to remove two of them from non-accrual status,” said Edward Ross, Chairman and CEO of Fidus Investment Corporation.  “Overall, the fair value of the portfolio has stabilized after an approximately 5.7% write-down last quarter and we ended the quarter with NAV per share of $15.39.  During this period of challenging economic conditions, we will continue to manage our business conservatively focused on maintaining liquidity and on long-term capital preservation.” 

Supplemental information regarding adjusted net investment income:

On a supplemental basis, we provide information relating to adjusted net investment income, which is a non-GAAP measure.  This measure is provided in addition to, but not as a substitute for, net investment income.  Adjusted net investment income represents net investment income excluding any capital gains incentive fee expense or (reversal) attributable to realized and unrealized gains and losses.  The management agreement with our advisor provides that a capital gains incentive fee is determined and paid annually with respect to cumulative realized capital gains (but not unrealized capital gains) to the extent such realized capital gains exceed realized and unrealized losses.  In addition, we accrue, but do not pay, a capital gains incentive fee in connection with any unrealized capital appreciation, as appropriate.  As such, we believe that adjusted net investment income is a useful indicator of operations exclusive of any capital gains incentive fee expense or (reversal) attributable to realized and unrealized gains and losses. The presentation of this additional information is not meant to be considered in isolation or as a substitute for financial results prepared in accordance with GAAP. Reconciliations of net investment income to adjusted net investment income are set forth in Schedule 1.

Second Quarter 2020 Financial Results

The following table provides a summary of our operating results for the three months ended June 30, 2020 as compared to the same period in 2019 (dollars in thousands, except per share data):

    Three Months Ended
June 30,
       
           
      2020     2019   $ Change   % Change
Interest income   $   18,839   $   13,847   $   4,992     36.1 %
Payment-in-kind interest income       1,181       2,955       (1,774 )   (60.0 %)
Dividend income       18       631       (613 )   (97.1 %)
Fee income       241       601       (360 )   (59.9 %)
Interest on idle funds and other income       154       34       120     352.9 %
Total investment income   $   20,433   $   18,068   $   2,365     13.1 %
                 
Net investment income   $   9,291   $   9,643   $   (352 )   (3.7 %)
Net investment income per share   $   0.38   $   0.39   $   (0.01 )   (2.6 %)
                 
Adjusted net investment income (1)   $   9,028   $   8,354   $   674     8.1 %
Adjusted net investment income per share (1)   $   0.37   $   0.34   $   0.03     8.8 %
                 
Net increase (decrease) in net assets resulting from operations   $   7,973   $   3,202   $   4,771     149.0 %
Net increase (decrease) in net assets resulting from operations per share   $   0.33   $   0.13   $   0.20     153.8 %

The $2.4 million increase in total investment income for the three months ended June 30, 2020 as compared to the same period in 2019 was primarily attributable to (i) a $3.2 million increase in total interest income (which includes a $1.8 million decrease in payment-in-kind interest income) resulting from higher average debt investment balances outstanding, (ii) a $(0.4) million decrease in fee income resulting from a decrease in structuring fees due to a comparative decrease in new investments, a decrease in prepayment fee income, partially offset by an increase in amendment fees, and (iii)  a $(0.6) million decrease in dividend income.

For the three months ended June 30, 2020, total expenses, including the incentive fee waiver and income tax provision, were $11.1 million, an increase of $2.7 million, or 32.2%, from the $8.4 million of total expenses, including the incentive fee waiver and income tax provision, for the three months ended June 30, 2019. The increase was primarily attributable to (i) a $1.0 million increase in capital gains incentive fee accrued, (ii) a $0.8 million increase in interest and financing expenses due to an increase in average borrowings outstanding (iii) a $0.4 increase in income incentive fee net of a one-time incentive fee waiver, (iv) a $0.2 million increase in the base management fee due to higher average total assets, and (v) a $0.2 million increase in professional fees.

Net investment income decreased by $(0.3) million, or (3.7)% to $9.3 million during the three months ended June 30, 2020 as compared to the same period in 2019, as a result of the $2.7 million increase in total expenses including incentive fee waiver and income tax provision, partially offset by the $2.4 million increase in total investment income. Adjusted net investment income(1), which excludes the capital gains incentive fee accrual, increased by $0.7 million, or 8.1%, to $9.0 million.

For the three months ended June 30, 2020, the total net realized gain on investments, net of income tax provision on realized gains, was $0.2 million, as compared to total net realized loss on investments, net of income tax provision on realized losses, of $(0.4) million for the same period in 2019.

Portfolio and Investment Activities

As of June 30, 2020, the fair value of our investment portfolio totaled $732.6 million and consisted of 64 active portfolio companies and three portfolio companies that have sold their underlying operations. Our total portfolio investments at fair value were approximately 98.2% of the related cost basis as of June 30, 2020. As of June 30, 2020, 20 portfolio companies' debt investments bore interest at a variable rate, which represented $210.3 million, or 32.0%, of our debt investment portfolio on a fair value basis, and the remainder of our debt investment portfolio was comprised of fixed rate investments. As of June 30, 2020, our average active portfolio company investment at amortized cost was $11.6 million, which excludes investments in the three portfolio companies that have sold their underlying operations. The weighted average yield on debt investments was 12.0% as of June 30, 2020. The weighted average yield was computed using the effective interest rates for debt investments at cost as of June 30, 2020, including the accretion of OID and loan origination fees, but excluding investments on non-accrual status, if any.

Second quarter 2020 investment activity included the following new portfolio company investments:

  • ECM Industries, LLC a global manufacturer and supplier of electrical products through a wide range of premium brands. Fidus invested $12.5 million in subordinated debt and common equity.
  • Ipro Tech, LLC a provider of end-to-end eDiscovery and information governance software to top law firms, corporations, and specialty service providers. Fidus invested $2.5 million in first lien debt.

As of June 30, 2020, we had debt investments in one portfolio company on non-accrual status and a debt investment in one portfolio company on PIK-only non-accrual status, which had an aggregate cost and fair value of $41.6 million and $21.4 million, respectively.

Liquidity and Capital Resources

As of June 30, 2020, we had $19.3 million in cash and cash equivalents and $57.0 million of unused capacity under our senior secured revolving credit facility (the “Credit Facility”). As of June 30, 2020, we had SBA debentures outstanding of $156.5 million, $50.0 million outstanding of our 5.875% notes due 2023 (the “2023 Notes”), $69.0 million outstanding of our 6.000% notes due 2024, $63.3 million outstanding of our 5.375% notes due 2024 (the “November 2024 Notes” and collectively with the 2023 Notes and February 2024 Notes, the “Public Notes”), and $43.0 million outstanding under our Credit Facility. As of June 30, 2020, the weighted average interest rate on total debt outstanding was 4.5%.

Subsequent Events

On July 2, 2020, the Company exited its debt investment in Hoonuit, LLC. The Company received payment in full of $7.3 million on its first lien debt, which includes a prepayment penalty.

On July 24, 2020, we exited our debt and equity investments in Microbiology Research Associates, Inc.  We received payment in full of $9.0 million on our subordinated debt investment.  We sold our common equity investment for a realized gain of approximately $1.4 million.

Third Quarter 2020 Dividend of $0.30 Per Share Declared

On August 3, 2020 our board of directors declared a regular quarterly dividend of $0.30 per share payable on September 25, 2020 to stockholders of record as of September 11, 2020.

When declaring dividends, our board of directors reviews estimates of taxable income available for distribution, which differs from consolidated income under generally accepted accounting principles due to (i) changes in unrealized appreciation and depreciation, (ii) temporary and permanent differences in income and expense recognition, and (iii) the amount of undistributed taxable income carried over from a given year for distribution in the following year. The final determination of 2020 taxable income, as well as the tax attributes for 2020 dividends, will be made after the close of the 2020 tax year.  The final tax attributes for 2020 dividends will generally include ordinary taxable income but may also include capital gains, qualified dividends and return of capital.

Fidus has adopted a dividend reinvestment plan (“DRIP”) that provides for reinvestment of dividends on behalf of its stockholders, unless a stockholder elects to receive cash. As a result, when we declare a cash dividend, stockholders who have not “opted out” of the DRIP at least two days prior to the dividend payment date will have their cash dividends automatically reinvested in additional shares of our common stock. Those stockholders whose shares are held by a broker or other financial intermediary may receive dividends in cash by notifying their broker or other financial intermediary of their election.

Second Quarter 2020 Financial Results Conference Call

Management will host a conference call to discuss the operating and financial results at 9:00am ET on Friday, August 7, 2020.  To participate in the conference call, please dial (877) 810-3368 approximately 10 minutes prior to the call. International callers should dial (914) 495-8561.  Please reference conference ID # 1686206. 

A live webcast of the conference call will be available at http://investor.fdus.com/events-presentations.  Please access the website 15 minutes prior to the start of the call to download and install any necessary audio software.

A telephone replay of the conference call will be available from 12:00pm ET on August 7, 2020 until 11:59pm ET on August 15, 2020 and may be accessed by calling (855) 859-2056 (domestic dial-in) or (404) 537-3406 (international dial-in) and reference conference ID # 1686206.  An archived replay of the conference call will also be available in the investor relations section of the Company’s website.

ABOUT FIDUS INVESTMENT CORPORATION

Fidus Investment Corporation provides customized debt and equity financing solutions to lower middle-market companies, which management generally defines as U.S. based companies with revenues between $10 million and $150 million. The Company’s investment objective is to provide attractive risk-adjusted returns by generating both current income from debt investments and capital appreciation from equity related investments. Fidus seeks to partner with business owners, management teams and financial sponsors by providing customized financing for change of ownership transactions, recapitalizations, strategic acquisitions, business expansion and other growth initiatives.

Fidus is an externally managed, closed-end, non-diversified management investment company that has elected to be treated as a business development company under the Investment Company Act of 1940, as amended. In addition, for tax purposes, Fidus has elected to be treated as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended. Fidus was formed in February 2011 to continue and expand the business of Fidus Mezzanine Capital, L.P., which commenced operations in May 2007.

FORWARD-LOOKING STATEMENTS

This press release may contain certain forward-looking statements which are based upon current expectations and are inherently uncertain. Any such statements, other than statements of historical fact, are likely to be affected by other unknowable future events and conditions, including elements of the future that are or are not under the Company’s control and including the impact of COVID-19 and related changes in base interest rates and significant market volatility on our business, our portfolio companies, our industry and the global economy, and that the Company may or may not have considered; accordingly, such statements cannot be guarantees or assurances of any aspect of future performance. Actual developments and results are highly likely to vary materially from these estimates and projections of the future as a result of a number of factors, including those described from time to time in the Company’s filings with the Securities and Exchange Commission. Such statements speak only as of the time when made, and are based on information available to the Company as of the date hereof and are qualified in their entirety by this cautionary statement. The Company undertakes no obligation to update any such statement now or in the future, except as required by applicable law.

FIDUS INVESTMENT CORPORATION
Consolidated Statements of Assets and Liabilities
(in thousands, except shares and per share data)

    June 30, 2020      
      December 31,
    (unaudited)   2019
ASSETS            
Investments, at fair value:            
  Control investments (cost: $29,591 and $27,718, respectively)   $   21,929   $   21,820
  Affiliate investments (cost: $40,792 and $56,328, respectively)       70,566       121,555
  Non-control/non-affiliate investments (cost: $675,915 and $620,453, respectively)       640,125       623,544
Total investments, at fair value (cost: $746,298 and $704,499, respectively)       732,620       766,919
Cash and cash equivalents       19,268       15,012
Interest receivable       8,208       6,331
Prepaid expenses and other assets       1,348       1,177
Total assets   $   761,444   $   789,439
LIABILITIES            
SBA debentures, net of deferred financing costs   $   153,061   $   153,802
Public Notes, net of deferred financing costs       177,553       176,901
Borrowings under Credit Facility, net of deferred financing costs       41,715       23,899
Accrued interest and fees payable       3,411       3,505
Base management fee payable – due to affiliate       3,193       3,334
Income incentive fee payable, net of incentive fee waiver – due to affiliate       1,690       1,497
Capital gains incentive fee payable – due to affiliate       3,574       12,715
Administration fee payable and other, net – due to affiliate       415       487
Taxes payable       123       547
Accounts payable and other liabilities       533       442
Total liabilities       385,268       377,129
Commitments and contingencies            
NET ASSETS            
Common stock, $0.001 par value (100,000,000 shares authorized, 24,437,400 and 24,463,119 shares            
 issued and outstanding at June 30, 2020 and December 31, 2019, respectively)       24       24
Additional paid-in capital       365,793       366,061
Total distributable earnings       10,359       46,225
Total net assets       376,176       412,310
Total liabilities and net assets   $   761,444   $   789,439
Net asset value per common share   $   15.39   $   16.85


 

FIDUS INVESTMENT CORPORATION
Consolidated Statements of Operations (unaudited)
(in thousands, except shares and per share data)

          Three Months Ended     Six Months Ended
        June 30,   June 30,
          2020     2019       2020     2019  
Investment Income:                          
  Interest income                          
    Control investments   $   449     $   68       $   881     $   350  
    Affiliate investments       831         1,414           1,814         2,934  
    Non-control/non-affiliate investments       17,559         12,365           33,611         25,815  
      Total interest income       18,839         13,847           36,306         29,099  
  Payment-in-kind interest income                          
    Control investments       445         183           870         1,420  
    Affiliate investments       29         85           69         168  
    Non-control/non-affiliate investments       707         2,687           1,323         3,997  
      Total payment-in-kind interest income        1,181         2,955           2,262         5,585  
  Dividend income                          
    Control investments       —          —            —          —   
    Affiliate investments       1         573           108         941  
    Non-control/non-affiliate investments       17         58           46         (15 )
      Total dividend income       18         631           154         926  
  Fee income                          
    Control investments       —          —            —          349  
    Affiliate investments       66         —            66         22  
    Non-control/non-affiliate investments       175         601           1,457         2,329  
      Total fee income        241         601           1,523         2,700  
  Interest on idle funds and other income       154         34           171         88  
Total investment income       20,433         18,068           40,416         38,398  
Expenses:                          
  Interest and financing expenses       4,863         4,052           9,823         7,776  
  Base management fee       3,193         3,016           6,465         5,887  
  Incentive fee - income       2,113         1,299           3,968         3,784  
  Incentive fee - capital gains       (263 )       (1,289 )         (9,141 )       (934 )
  Administrative service expenses       364         378           830         777  
  Professional fees       654         406           1,207         996  
  Other general and administrative expenses       500         510           835         815  
Total expenses before income incentive fee waiver       11,424         8,372           13,987         19,101  
  Incentive fee waiver - income       (423 )       -            (423 )       -   
Total expenses, net of income incentive fee waiver       11,001         8,372           13,564         19,101  
Net investment income before income taxes       9,432         9,696           26,852         19,297  
  Income tax provision (benefit)       141         53           144         55  
Net investment income       9,291         9,643           26,708         19,242  
Net realized and unrealized gains (losses) on investments:                          
  Net realized gains (losses):                          
    Control investments       —          —            —          (1,268 )
    Affiliate investments       87         (134 )         24,419         (99 )
    Non-control/non-affiliate investments       117         23           7,163         (335 )
  Total net realized gain (loss) on investments       204         (111 )         31,582         (1,702 )
  Income tax (provision) benefit from realized gains on investments       (14 )        (301 )         (1,065 )       (293 )
  Net change in unrealized appreciation (depreciation):                          
    Control investments       (68 )       (64 )         (1,764 )       1,573  
    Affiliate investments       3,797         2,527           (35,453 )       5,286  
    Non-control/non-affiliate investments       (5,237 )       (8,492 )         (38,881 )       (9,343 )
  Total net change in unrealized appreciation (depreciation) on investments       (1,508 )       (6,029 )         (76,098 )       (2,484 )
Net gain (loss) on investments       (1,318 )       (6,441 )         (45,581 )       (4,479 )
Realized losses on extinguishment of debt       —          —            (125 )       (189 )
Net increase (decrease) in net assets resulting from operations   $   7,973     $   3,202       $   (18,998 )   $   14,574  
Per common share data:                          
Net investment income per share-basic and diluted   $   0.38     $   0.39       $   1.09     $   0.79  
Net increase (decrease) in net assets resulting from operations per share — basic and diluted   $   0.33     $   0.13       $   (0.78 )   $   0.60  
Dividends declared per share   $   0.30     $   0.39       $   0.69     $   0.78  
Weighted average number of shares outstanding — basic and diluted       24,437,400         24,463,119           24,447,517         24,463,119  


Schedule 1

Supplemental Information Regarding Adjusted Net Investment Income

On a supplemental basis, we provide information relating to adjusted net investment income, which is a non-GAAP measure.  This measure is provided in addition to, but not as a substitute for, net investment income. Adjusted net investment income represents net investment income excluding any capital gains incentive fee expense or (reversal) attributable to realized and unrealized gains and losses.  The management agreement with our advisor provides that a capital gains incentive fee is determined and paid annually with respect to cumulative realized capital gains (but not unrealized capital gains) to the extent such realized capital gains exceed realized and unrealized losses for such year, less the aggregate amount of any capital gains incentive fees paid in all prior years.  In addition, we accrue, but do not pay, a capital gains incentive fee in connection with any unrealized capital appreciation, as appropriate.  As such, we believe that adjusted net investment income is a useful indicator of operations exclusive of any capital gains incentive fee expense or (reversal) attributable to realized and unrealized gains and losses. The presentation of this additional information is not meant to be considered in isolation or as a substitute for financial results prepared in accordance with GAAP. The following table provides a reconciliation of net investment income to adjusted net investment income for the three and six months ended June 30, 2020 and 2019.

          ($ in thousands)     ($ in thousands)
          Three Months Ended     Six Months Ended
          June 30,     June 30,
        (unaudited)   (unaudited)
          2020     2019       2020     2019  
Net investment income   $   9,291     $   9,643       $   26,708     $   19,242  
Capital gains incentive fee expense (reversal)       (263 )       (1,289 )         (9,141 )       (934 )
Adjusted net investment income (1)   $   9,028     $   8,354       $   17,567     $   18,308  
                                 
                                 
          (Per share)     (Per share)
          Three Months Ended     Six Months Ended
          June 30,     June 30,
        (unaudited)   (unaudited)
          2020     2019       2020     2019  
Net investment income   $   0.38     $   0.39       $   1.09     $   0.79  
Capital gains incentive fee expense (reversal)       (0.01 )       (0.05 )         (0.37 )       (0.04 )
Adjusted net investment income (1)   $   0.37     $   0.34       $   0.72     $   0.75  

(1) Adjusted net investment income per share amounts are calculated as adjusted net investment income dividend by weighted average shares outstanding for the period. Due to rounding, the sum of net investment income per share and capital gains incentive fee expense (reversal) amounts may not equal the adjusted net investment income per share amount presented here.

Company Contact:   Investor Relations Contact:
Shelby E. Sherard   Jody Burfening
Chief Financial Officer   LHA
(847) 859-3940   (212) 838-3777
ssherard@fidusinv.com   jburfening@lhai.com

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Source: Fidus Investment Corporation