Fidus Investment Corporation Announces Third Quarter 2020 Financial Results

Fidus Investment Corporation
·19-min read

Regular Quarterly Dividend of $0.30 Per Share Declared for Fourth Quarter 2020

Board of Directors Declared Supplemental Cash Dividend of $0.04 Per Share

EVANSTON, Ill., Oct. 29, 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 third quarter ended September 30, 2020.

Third Quarter 2020 Financial Highlights

  • Total investment income of $21.1 million

  • Net investment income of $6.9 million, or $0.28 per share

  • Adjusted net investment income of $9.7 million, or $0.40 per share(1)

  • Net increase in net assets resulting from operations of $20.7 million, or $0.85 per share

  • Received proceeds from repayments and realizations of $33.8 million, recognizing $1.3 million in net realized gains

  • Paid regular quarterly dividend of $0.30 per share on September 25, 2020

  • Net asset value (NAV) of $389.6 million, or $15.94 per share, as of September 30, 2020

  • Estimated spillover income (or taxable income in excess of distributions) as of September 30, 2020 of $25.9 million, or $1.06 per share

Management Commentary

“Our third quarter results indicate that the overall health of Fidus’ portfolio continues to improve. We ended the quarter with NAV per share of $15.94, a 3.6% increase versus second quarter,” said Edward Ross, Chairman and CEO of Fidus Investment Corporation. “As expected, originations were paused this quarter but, with deal flow recovering, our pipeline of opportunities is increasingly robust. We remain steadfast in our commitment to our underwriting discipline of selectively investing in lower middle market companies with defensive characteristics and strong cash flow profiles. We continue to manage the business with an abundance of caution, focused on maintaining a healthy liquidity position and preserving long-term capital during these uncertain times.”

(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. 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.

Third Quarter 2020 Financial Results

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

Three Months
Ended September 30,

2020

2019

$ Change

% Change

Interest income

$

18,765

$

16,133

$

2,632

16.3

%

Payment-in-kind interest income

1,249

2,253

(1,004

)

(44.6

%)

Dividend income

471

(38

)

509

NM

Fee income

427

825

(398

)

(48.2

%)

Interest on idle funds and other income

165

28

137

489.3

%

Total investment income

$

21,077

$

19,201

$

1,876

9.8

%

Net investment income

$

6,902

$

7,362

$

(460

)

(6.2

%)

Net investment income per share

$

0.28

$

0.30

$

(0.02

)

(6.7

%)

Adjusted net investment income (1)

$

9,663

$

8,669

$

994

11.5

%

Adjusted net investment income per share (1)

$

0.40

$

0.35

$

0.05

14.3

%

Net increase (decrease) in net assets resulting from operations

$

20,707

$

13,895

$

6,812

49.0

%

Net increase (decrease) in net assets resulting from operations per share

$

0.85

$

0.57

$

0.28

49.1

%


The $1.9 million increase in total investment income for the three months ended September 30, 2020 as compared to the same period in 2019 was primarily attributable to (i) a $1.6 million increase in total interest income (which includes a $1.0 million decrease in payment-in-kind interest income) resulting from higher average debt investment balances outstanding, (ii) a $0.5 million increase in dividend income due to increased levels of distributions received from equity investments and tax true-ups related to the tax character of prior year distributions, and (iii) a $(0.4) million decrease in fee income resulting from a decrease in structuring fees due to a comparative decrease in new investments, partially offset by an increase in prepayment and amendment fees.

For the three months ended September 30, 2020, total expenses, including income tax provision, were $14.2 million, an increase of $2.4 million, or 19.7%, from the $11.8 million of total expenses, including the income tax provision, for the three months ended September 30, 2019. The increase was primarily attributable to (i) a $1.5 million increase in capital gains incentive fee accrued, (ii) a $0.5 million increase in interest and financing expenses due to an increase in average borrowings outstanding (iii) a $0.2 increase in income incentive fee, and (iv) a $0.1 million increase in professional fees.

Net investment income decreased by $(0.5) million, or (6.2)% to $6.9 million during the three months ended September 30, 2020 as compared to the same period in 2019, as a result of the $2.4 million increase in total expenses including income tax provision, partially offset by the $1.9 million increase in total investment income. Adjusted net investment income(1), which excludes the capital gains incentive fee accrual, increased by $1.0 million, or 11.5%, to $9.7 million.

For the three months ended September 30, 2020, the total net realized gain on investments, net of income tax provision on realized gains, was $1.3 million, as compared to total net realized gain on investments, net of income tax provision on realized gains, of $10.6 million for the same period in 2019.

Portfolio and Investment Activities

As of September 30, 2020, the fair value of our investment portfolio totaled $715.4 million and consisted of 63 active portfolio companies and three portfolio companies that have sold their underlying operations. Our total portfolio investments at fair value were approximately 99.9% of the related cost basis as of September 30, 2020. As of September 30, 2020, 19 portfolio company’s debt investments bore interest at a variable rate, which represented $203.0 million, or 32.4%, 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 September 30, 2020, our average active portfolio company investment at amortized cost was $11.3 million, which excludes investments in the three portfolio companies that have sold their underlying operations. The weighted average yield on debt investments was 12.1% as of September 30, 2020. The weighted average yield was computed using the effective interest rates for debt investments at cost as of September 30, 2020, including the accretion of OID and loan origination fees, but excluding investments on non-accrual status, if any.

As of September 30, 2020, we had debt investments in one portfolio company on non-accrual status, which had an aggregate cost and fair value of $35.3 million and $5.3 million, respectively.

Liquidity and Capital Resources

As of September 30, 2020, we had $24.7 million in cash and cash equivalents and $77.0 million of unused capacity under our senior secured revolving credit facility (the “Credit Facility”). As of September 30, 2020, we had SBA debentures outstanding of $147.0 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 $23.0 million outstanding under our Credit Facility. As of September 30, 2020, the weighted average interest rate on total debt outstanding was 4.6%.

Subsequent Events

On October 1, 2020, we exited our debt and equity investments in Pugh Lubricants, LLC. We received payment in full of $26.6 million on our subordinated debt investment, which includes a prepayment fee. We received a distribution on our common equity investment for a realized gain of approximately $0.5 million.

On October 28, 2020, we invested $6.0 million in second lien debt, which was a partial funding of a $12.0 million note commitment, and $1.5 million common equity in a leading regional distributor of pool equipment and supplies.

Fourth Quarter 2020 Dividend of $0.30 Per Share and Supplemental Dividend of $0.04 Per Share Declared

On October 26, 2020, our board of directors declared a regular quarterly dividend of $0.30 per share payable on December 18, 2020 to stockholders of record as of December 4, 2020. In addition, our Board of Directors declared a supplemental dividend of $0.04 per share payable December 18, 2020 to stockholders of record as of December 4, 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.

Third 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, October 30, 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 # 7287532.

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 October 30, 2020 until 11:59pm ET on November 7, 2020 and may be accessed by calling (855) 859-2056 (domestic dial-in) or (404) 537-3406 (international dial-in) and reference conference ID # 7287532. 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)

September 30, 2020

December 31,

(unaudited)

2019

ASSETS

Investments, at fair value:

Control investments (cost: $31,044 and $27,718, respectively)

$

23,989

$

21,820

Affiliate investments (cost: $40,920 and $56,328, respectively)

77,852

121,555

Non-control/non-affiliate investments (cost: $644,455 and $620,453, respectively)

613,564

623,544

Total investments, at fair value (cost: $716,419 and $704,499, respectively)

715,405

766,919

Cash and cash equivalents

24,682

15,012

Interest receivable

7,071

6,331

Prepaid expenses and other assets

1,143

1,177

Total assets

$

748,301

$

789,439

LIABILITIES

SBA debentures, net of deferred financing costs

$

143,871

$

153,802

Public Notes, net of deferred financing costs

177,883

176,901

Borrowings under Credit Facility, net of deferred financing costs

21,837

23,899

Accrued interest and fees payable

2,122

3,505

Base management fee payable – due to affiliate

3,224

3,334

Income incentive fee payable, net of incentive fee waiver – due to affiliate

2,374

1,497

Capital gains incentive fee payable – due to affiliate

6,335

12,715

Administration fee payable and other, net – due to affiliate

554

487

Taxes payable

123

547

Accounts payable and other liabilities

426

442

Total liabilities

358,749

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 September 30, 2020 and December 31, 2019, respectively)

24

24

Additional paid-in capital

365,793

366,061

Total distributable earnings

23,735

46,225

Total net assets

389,552

412,310

Total liabilities and net assets

$

748,301

$

789,439

Net asset value per common share

$

15.94

$

16.85

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

Three Months Ended

Nine Months Ended

September 30,

September 30,

2020

2019

2020

2019

Investment Income:

Interest income

Control investments

$

467

$

70

$

1,348

$

420

Affiliate investments

849

1,192

2,663

4,126

Non-control/non-affiliate investments

17,449

14,871

51,060

40,686

Total interest income

18,765

16,133

55,071

45,232

Payment-in-kind interest income

Control investments

453

191

1,323

1,611

Affiliate investments

106

86

175

254

Non-control/non-affiliate investments

690

1,976

2,013

5,973

Total payment-in-kind interest income

1,249

2,253

3,511

7,838

Dividend income

Control investments

Affiliate investments

357

1

465

942

Non-control/non-affiliate investments

114

(39

)

160

(54

)

Total dividend income

471

(38

)

625

888

Fee income

Control investments

349

Affiliate investments

6

4

72

26

Non-control/non-affiliate investments

421

821

1,878

3,150

Total fee income

427

825

1,950

3,525

Interest on idle funds and other income

165

28

336

116

Total investment income

21,077

19,201

61,493

57,599

Expenses:

Interest and financing expenses

4,878

4,421

14,701

12,197

Base management fee

3,223

3,179

9,688

9,066

Incentive fee - income

2,374

2,163

6,342

5,947

Incentive fee - capital gains

2,761

1,307

(6,380

)

373

Administrative service expenses

412

422

1,242

1,199

Professional fees

301

217

1,508

1,213

Other general and administrative expenses

224

210

1,059

1,025

Total expenses before income incentive fee waiver

14,173

11,919

28,160

31,020

Incentive fee waiver - income

-

-

(423

)

-

Total expenses, net of income incentive fee waiver

14,173

11,919

27,737

31,020

Net investment income before income taxes

6,904

7,282

33,756

26,579

Income tax provision (benefit)

2

(80

)

146

(25

)

Net investment income

6,902

7,362

33,610

26,604

Net realized and unrealized gains (losses) on investments:

Net realized gains (losses):

Control investments

(1,268

)

Affiliate investments

(65

)

26

24,354

(73

)

Non-control/non-affiliate investments

1,380

10,507

8,543

10,172

Total net realized gain (loss) on investments

1,315

10,533

32,897

8,831

Income tax (provision) benefit from realized gains on investments

32

(1,065

)

(261

)

Net change in unrealized appreciation (depreciation):

Control investments

607

(9,843

)

(1,157

)

(8,270

)

Affiliate investments

7,158

(1,701

)

(28,295

)

3,585

Non-control/non-affiliate investments

4,899

7,722

(33,982

)

(1,621

)

Total net change in unrealized appreciation (depreciation) on investments

12,664

(3,822

)

(63,434

)

(6,306

)

Net gain (loss) on investments

13,979

6,743

(31,602

)

2,264

Realized losses on extinguishment of debt

(174

)

(210

)

(299

)

(399

)

Net increase in net assets resulting from operations

$

20,707

$

13,895

$

1,709

$

28,469

Per common share data:

Net investment income per share-basic and diluted

$

0.28

$

0.30

$

1.37

$

1.09

Net increase in net assets resulting from operations per share — basic and diluted

$

0.85

$

0.57

$

0.07

$

1.16

Dividends declared per share

$

0.30

$

0.39

$

0.99

$

1.17

Weighted average number of shares outstanding — basic and diluted

24,437,400

24,463,119

24,444,120

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 nine months ended September 30, 2020 and 2019.

($ in thousands)

($ in thousands)

Three Months Ended

Nine Months Ended

September 30,

September 30,

(unaudited)

(unaudited)

2020

2019

2020

2019

Net investment income

$

6,902

$

7,362

$

33,610

$

26,604

Capital gains incentive fee expense (reversal)

2,761

1,307

(6,380

)

373

Adjusted net investment income (1)

$

9,663

$

8,669

$

27,230

$

26,977

(Per share)

(Per share)

Three Months Ended

Nine Months Ended

September 30,

September 30,

(unaudited)

(unaudited)

2020

2019

2020

2019

Net investment income

$

0.28

$

0.30

$

1.37

$

1.09

Capital gains incentive fee expense (reversal)

0.11

0.05

(0.26

)

0.02

Adjusted net investment income (1)

$

0.40

$

0.35

$

1.11

$

1.10

(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