Fidus Investment Corporation (Nasdaq: FDUS) (“Fidus†or the “Companyâ€), 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, 2016.
Third Quarter 2016 Financial Highlights
- Total investment income of $14.4 million
- Net investment income of $6.7 million, or $0.35 per share
- Adjusted net investment income of $7.1 million, or $0.37 per share(1)
- Net increase in net assets resulting from operations of $8.6 million, or $0.45 per share
- Invested $60.0 million in debt and equity securities including three new portfolio companies
- Received proceeds from sales and realizations of $45.9 million
- Paid regular quarterly dividend of $0.39 per share on September 23, 2016
- Net asset value (NAV) of $299.3 million, or $15.58 per share, as of September 30, 2016
Management Commentary
“For the third quarter, our investment portfolio continued to deliver solid results reflecting the overall stability and quality of our debt and equity investments.Market activity picked up during the quarter and has remained at healthy levels.As a result, we grew the portfolio by a net $14.1 million in the third quarter.We closed transactions consistent with our practice of focusing on high-quality companies in industries we know well, that generate strong free cash flow and have positive long-term outlooks,†said Edward Ross, Chairman and CEO of Fidus Investment Corporation.“Our Board of Directors has declared a special cash dividend for the eighth time since our IPO in June 2011 and remains focused on delivering stable dividends for our shareholders. Having ended the quarter with approximately $153 million of available liquidity, we have ample funds to further grow our portfolio in a deliberate manner focused on capital preservation and attractive risk-adjusted returns.â€Â Â
(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 2016 Financial Results
For the three months ended September 30, 2016, total investment income was $14.4 million, an increase of $0.9 million, or 6.4%, over the $13.6 million of total investment income for the three months ended September 30, 2015. The increase was attributable to a $1.0 million increase in fee income resulting from a higher level of investment activity for the three months ended September 30, 2016, as compared to the three months ended September 30, 2015, and a $0.4 million increase in dividend income due to increased levels of distributions received from equity investments, which were partially offset by a $0.5 million decrease in interest income resulting from the reversal of uncollectible interest income on a non-accrual debt investment.
For the three months ended September 30, 2016, total expenses, including income tax provision, were $7.7 million, an increase of $1.2 million or 18.3%, over the $6.5 million of total expenses, including income tax provision, for the three months ended September 30, 2015. Interest and financing expenses for the three months ended September 30, 2016 were $2.6 million, an increase of $0.3 million or 10.9%, compared to $2.4 million for the three months ended September 30, 2015 as a result of higher average balances of SBA debentures and borrowings under the Credit Facility outstanding during 2016. The base management fee increased $0.1 million, or 7.0%, to $2.1 million for the three months ended September 30, 2016 due to higher average total assets less cash and cash equivalents for the three months ended September 30, 2016 than the three months ended September 30, 2015. The incentive fee for the three months ended September 30, 2016 was $2.1 million, a $0.8 million, or 56.8%, increase from the $1.4 million incentive fee for the three months ended September 30, 2015 which was primarily the result of a $0.7 million increase in the capital gains incentive fee to $0.4 million. The administrative service fee, professional fees and other general and administrative expenses totaled $0.8 million for both the three months ended September 30, 2016 and 2015.
Net investment income for the three months ended September 30, 2016 was $6.7 million, which was a decrease of $0.3 million, or 4.5%, compared to net investment income of $7.1 million during the three months ended September 30, 2015 as a result of the $0.9 million increase in total investment income and the $1.2 million increase in total expenses, including income tax provision.
For the three months ended September 30, 2016, the total net realized (loss) on investments was $(6.0) million. During the three months ended September 30, 2016, we recorded a net change in unrealized appreciation on investments of $7.8 million attributable to (i) the reversal of net unrealized depreciation of $11.0 million related to the exit or sale of investments, resulting in unrealized appreciation, (ii) net unrealized depreciation of $1.7 million on debt investments and (iii) net unrealized depreciation of $1.5 million on equity investments. During the three months ended September 30, 2016, no income tax provision for realized gains on investments was recorded.
As a result of these events, our net increase in net assets resulting from operations during the three months ended September 30, 2016 was $8.6 million, an increase of $3.1 million, or 56.6%, compared to a net increase in net assets resulting from operations of $5.5 million during the prior year period.
Per share results for the third quarter ended September 30, 2016 are based on weighted average shares outstanding of 19.2 million, compared to 16.3 million weighted average shares outstanding for the third quarter of 2015, an increase of 18.0%.
Portfolio and Investment Activities
As of September 30, 2016, Fidus had debt and equity investments with an aggregate fair value of $470.1 million, or 102.4% of cost, in 49 active portfolio companies and five portfolio companies that have sold their underlying operations. The average portfolio investment on a cost basis was $9.4 million, which excludes investments in the five portfolio companies that have sold their operations and are in the process of winding down. Fidus held equity ownership in 85.2% of its portfolio companies. During the third quarter ended September 30, 2016, Fidus made debt and equity investments of $60.0 million, including investments in three new portfolio companies and received proceeds from sales and realizations of $45.9 million. As of September 30, 2016, the weighted average yield on debt investments (excluding any debt investments on non-accrual) was 13.1%.
