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Fidus Investment Corporation Announces Second Quarter 2021 Financial Results

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Base Dividend of $0.32 and Supplemental Dividend of $0.06 Declared for Third Quarter
Board of Directors Declared Special Dividend of $0.04 Per Share

EVANSTON, Ill., Aug. 05, 2021 (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, 2021.

Second Quarter 2021 Financial Highlights

  • Total investment income of $21.8 million

  • Net investment income of $6.5 million, or $0.26 per share

  • Adjusted net investment income of $10.4 million, or $0.42 per share(1)

  • Net increase in net assets resulting from operations of $25.9 million, or $1.06 per share

  • Invested $104.2 million in debt and equity securities, including six new portfolio companies

  • Received proceeds from repayments and realizations of $93.0 million

  • Paid supplemental dividend of $0.08 per share and regular quarterly dividend of $0.31 per share on June 28, 2021

  • Net asset value (“NAV”) of $429.4 million, or $17.57 per share, as of June 30, 2021

  • Estimated spillover income (or taxable income in excess of distributions) as of June 30, 2021 of $25.5 million, or $1.04 per share

Management Commentary

“Our portfolio performed well in the second quarter, generating a 15% increase in adjusted net investment income year over year. As a result of this solid operating performance along with portfolio fair value appreciation, NAV reached $17.57 per share. With M&A activity remaining at high levels, we invested $104.2 million including in six new portfolio companies, bringing the total number of active portfolio companies to 72, and we received repayments of $93.0 million,” said Edward Ross, Chairman and CEO of Fidus Investment Corporation. “Looking ahead, our healthy liquidity places Fidus in a very strong position to carefully build our portfolio of debt investments in lower middle market companies with resilient business models and positive long-term outlooks. Consistent with our track record of managing the business for the long term and deliberate investment selection, we intend to continue to emphasize quality over quantity while remaining focused on capital preservation and generating attractive risk adjusted returns.”

(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.

Second Quarter 2021 Financial Results

The following table provides a summary of our operating results for the three months ended June 30, 2021, as compared to the same period in 2020 (dollars in thousands, except per share data):

Three Months Ended June 30,

2021

2020

$ Change

% Change

Interest income

$

17,791

$

18,839

$

(1,048

)

(5.6

%)

Payment-in-kind interest income

1,104

1,181

(77

)

(6.5

%)

Dividend income

827

18

809

4494.4

%

Fee income

2,103

393

1,710

435.1

%

Interest on idle funds

1

2

(1

)

(50.0

%)

Total investment income

$

21,826

$

20,433

$

1,393

6.8

%

Net investment income

$

6,473

$

9,291

$

(2,818

)

(30.3

%)

Net investment income per share

$

0.26

$

0.38

$

(0.12

)

(31.6

%)

Adjusted net investment income (1)

$

10,356

$

9,028

$

1,328

14.7

%

Adjusted net investment income per share (1)

$

0.42

$

0.37

$

0.05

13.5

%

Net increase (decrease) in net assets resulting from operations

$

25,886

$

7,973

$

17,913

224.7

%

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

$

1.06

$

0.33

$

0.73

221.2

%

The $1.4 million increase in total investment income for the three months ended June 30, 2021, as compared to the same period in 2020 was primarily attributable to (i) a $1.7 million increase in fee income resulting from an increase in origination, prepayment, and amendment fees, (ii) $0.8 million increase in dividend income due to increased levels of distributions received from equity investments, and (iii) a $1.1 million decrease in total interest income resulting from a decrease in average debt investment balances outstanding, partially offset by a higher weighted average yield on debt investment balances outstanding, during 2021 as compared to 2020.

For the three months ended June 30, 2021, total expenses, including the base management and income incentive fee waivers and income tax provision, were $15.3 million, an increase of $4.2 million, or 37.8%, from the $11.1 million of total expenses, including the base management and income incentive fee waivers and income tax provision, for the three months ended June 30, 2020. The increase was primarily attributable to (i) a $4.1 million increase in capital gains incentive fee accrued and a $0.8 million increase in income incentive fee including a one-time incentive fee waiver in 2020, (ii) a $0.3 million decrease in interest and financing expenses due to a decrease in average borrowings outstanding and the weighted average interest rate, and (iii) a $0.3 million decrease in professional fees.

Net investment income decreased by $2.8 million, or (30.3)%, to $6.5 million during the three months ended June 30, 2021 as compared to the same period in 2020, as a result of the $1.4 million increase in total investment income and the $4.2 million increase in total expenses, including base management and income incentive fee waivers and income tax provision. Adjusted net investment income(1), which excludes the capital gains incentive fee accrual, increased by $1.3 million, or 14.7%, to $10.4 million.

For the three months ended June 30, 2021, the total net realized gain/(loss) on investments, net of income tax (provision)/benefit on realized gains, was $2.2 million, as compared to total net realized gain/(loss) on investments, net of income tax (provision)/benefit on realized gains, of $0.2 million for the same period in 2020.

Portfolio and Investment Activities

As of June 30, 2021, the fair value of our investment portfolio totaled $743.5 million and consisted of 72 active portfolio companies and four portfolio companies that have sold their underlying operations. Our total portfolio investments at fair value were approximately 110.8% of the related cost basis as of June 30, 2021. As of June 30, 2021, 28 portfolio company’s debt investments bore interest at a variable rate, which represented $296.2 million, or 50.0%, 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, 2021, our average active portfolio company investment at amortized cost was $9.3 million, which excludes investments in the four portfolio companies that have sold their underlying operations. The weighted average yield on debt investments was 12.2% as of June 30, 2021. The weighted average yield was computed using the effective interest rates for debt investments at cost as of June 30, 2021, including the accretion of OID and loan origination fees, but excluding investments on non-accrual status and investments recorded as a secured borrowing, if any.

Second quarter 2021 investment activity included the following new portfolio company investments:

  • 2KDirect, inc. (dba iPromote), a leading omni-channel digital advertising platform for small and mid-sized businesses. Fidus invested $18.0 million in first lien debt and common equity.

  • Aeronix, Inc., a supplier of data transfer, signal analysis, and communications products and related engineering services primarily to the defense industry. Fidus invested $7.0 million in first lien debt and common equity.

  • ISI PSG Holdings, LLC (dba Incentive Solutions, Inc.), a provider of online rewards, travel incentives, and gift card reward programs. Fidus invested $25.5 million in first lien debt and common equity and subsequently sold a $13.5 million participating interest in the first lien debt.

  • Level Education Group, LLC (dba CE4Less), a leading provider of online continuing education for mental health and nursing professionals. Fidus invested $6.5 million in first lien debt and common equity.

  • UPG Company, LLC, an original design and contract manufacturer of complex assemblies with roots as a manufacturer of precision injection molded plastics. Fidus invested $12.0 million in first lien debt.

  • Winona Foods, Inc., a leading provider of natural and processed cheese products, sauces, and plant-based alternatives. Fidus invested $11.0 million in first lien debt.

Liquidity and Capital Resources

As of June 30, 2021, we had $54.2 million in cash and cash equivalents and $100.0 million of unused capacity under our senior secured revolving credit facility (the “Credit Facility”). As of June 30, 2021, we had SBA debentures outstanding of $139.3 million, $19.0 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 February 2024 Notes, the “Public Notes”), and $125.0 million outstanding of our 4.750% notes due 2026 (the “2026 Notes” and collectively with the Public Notes the “Notes”). As of June 30, 2021, the weighted average interest rate on total debt outstanding was 4.2% (excluding secured borrowings).

Subsequent Events

On July 16, 2021, we exited our debt investments in Hilco Technologies. We received payment in full of $10.3 million on our first lien debt and revolving loan. We received a distribution on our equity investments for a realized loss of approximately ($1.0) million.

On July 23, 2021, we exited our debt investment in CRS Solutions Holdings, LLC. We received payment in full of $11.4 million on our second lien debt.

On July 26, 2021, we exited our debt and equity investments in Worldwide Express Operations, LLC, which was acquired under a new holding company, Accord Topco, LP (dba Worldwide Express). We received payment in full of $20.0 million on our second lien debt. We sold a portion of our common equity investment for a realized gain of approximately $3.0 million. In conjunction with the transaction, we invested $1.5 million in common equity, of which $0.8 million was rolled over from our original common equity investment and funded a $20.0 million second lien loan commitment.

Third Quarter 2021 Base Dividend of $0.32, Supplemental Dividend of $0.06, and Special Dividend of $0.04 Per Share Declared

On August 2, 2021, our board of directors declared a base dividend of $0.32 per share, a supplemental dividend of $0.06 per share, and a special dividend of $0.04 per share for the third quarter. The dividends will be payable on September 28, 2021, to stockholders of record as of September 14, 2021.

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 2021 taxable income, as well as the tax attributes for 2021 dividends, will be made after the close of the 2021 tax year. The final tax attributes for 2021 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 2021 Financial Results Conference Call

Management will host a conference call to discuss the operating and financial results at 9:00am ET on Friday, August 6, 2021. 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 # 6857165.

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 6, 2021, until 11:59pm ET on August 13, 2021, and may be accessed by calling (855) 859-2056 (domestic dial-in) or (404) 537-3406 (international dial-in) and reference conference ID # 6857165. 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 and is licensed by the U.S. Small Business Administration as a Small Business Investment Company (SBIC).

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 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,

December 31,

2021

2020

ASSETS

Investments, at fair value:

Control investments (cost: $71,869 and $32,969, respectively)

$

61,168

$

28,253

Affiliate investments (cost: $26,713 and $31,836, respectively)

92,639

81,394

Non-control/non-affiliate investments (cost: $572,350 and $622,222, respectively)

589,651

633,222

Total investments, at fair value (cost: $670,932 and $687,027, respectively)

743,458

742,869

Cash and cash equivalents

54,211

124,308

Interest receivable

7,767

7,548

Prepaid expenses and other assets

2,244

1,015

Total assets

$

807,680

$

875,740

LIABILITIES

SBA debentures, net of deferred financing costs

$

135,848

$

144,004

Notes, net of deferred financing costs

202,857

300,294

Borrowings under Credit Facility, net of deferred financing costs

(824

)

(1,048

)

Secured Borrowings

13,500

-

Accrued interest and fees payable

5,476

3,500

Base management fee payable, net of base management fee waiver – due to affiliate

3,186

3,244

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

2,550

2,610

Capital gains incentive fee payable – due to affiliate

15,005

11,031

Administration fee payable and other, net – due to affiliate

183

576

Taxes payable

(425

)

275

Accounts payable and other liabilities

957

494

Total liabilities

378,313

464,980

Commitments and contingencies

NET ASSETS

Common stock, $0.001 par value (100,000,000 shares authorized, 24,437,400 and 24,437,400 shares

issued and outstanding at June 30, 2021 and December 31, 2020, respectively)

24

24

Additional paid-in capital

363,751

363,751

Total distributable earnings

65,592

46,985

Total net assets

429,367

410,760

Total liabilities and net assets

$

807,680

$

875,740

Net asset value per common share

$

17.57

$

16.81

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,

2021

2020

2021

2020

Investment Income:

Interest income

Control investments

$

975

$

449

$

1,568

$

881

Affiliate investments

711

831

1,559

1,814

Non-control/non-affiliate investments

16,105

17,559

33,802

33,611

Total interest income

17,791

18,839

36,929

36,306

Payment-in-kind interest income

Control investments

596

445

937

870

Affiliate investments

84

29

195

69

Non-control/non-affiliate investments

424

707

940

1,323

Total payment-in-kind interest income

1,104

1,181

2,072

2,262

Dividend income

Control investments

568

568

Affiliate investments

110

1

110

108

Non-control/non-affiliate investments

149

17

242

46

Total dividend income

827

18

920

154

Fee income

Control investments

400

Affiliate investments

85

66

268

66

Non-control/non-affiliate investments

2,018

327

4,526

1,618

Total fee income

2,103

393

5,194

1,684

Interest on idle funds

1

2

1

10

Total investment income

21,826

20,433

45,116

40,416

Expenses:

Interest and financing expenses

4,562

4,863

9,756

9,823

Base management fee

3,215

3,193

6,391

6,465

Incentive fee - income

2,550

2,113

5,219

3,968

Incentive fee (reversal) - capital gains

3,883

(263

)

3,974

(9,141

)

Administrative service expenses

430

364

843

830

Professional fees

312

654

635

1,207

Other general and administrative expenses

396

500

741

835

Total expenses before base management and income incentive fee waivers

15,348

11,424

27,559

13,987

Base management and income incentive fee waivers

(29

)

(423

)

(29

)

(423

)

Total expenses, net of base management and incentive fee waivers

15,319

11,001

27,530

13,564

Net investment income before income taxes

6,507

9,432

17,586

26,852

Income tax provision (benefit)

34

141

32

144

Net investment income

6,473

9,291

17,554

26,708

Net realized and unrealized gains (losses) on investments:

Net realized gains (losses):

Control investments

957

Affiliate investments

87

-

24,419

Non-control/non-affiliate investments

2,150

117

4,409

7,163

Total net realized gain (loss) on investments

2,150

204

5,366

31,582

Income tax (provision) benefit from realized gains on investments

(14

)

-

(1,065

)

Net change in unrealized appreciation (depreciation):

Control investments

(6,877

)

(68

)

(5,985

)

(1,764

)

Affiliate investments

12,416

3,797

16,368

(35,453

)

Non-control/non-affiliate investments

11,724

(5,237

)

6,301

(38,881

)

Total net change in unrealized appreciation (depreciation) on investments

17,263

(1,508

)

16,684

(76,098

)

Net gain (loss) on investments

19,413

(1,318

)

22,050

(45,581

)

Realized losses on extinguishment of debt

(2,180

)

(125

)

Net increase (decrease) in net assets resulting from operations

$

25,886

$

7,973

$

37,424

$

(18,998

)

Per common share data:

Net investment income per share-basic and diluted

$

0.26

$

0.38

$

0.72

$

1.09

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

$

1.06

$

0.33

$

1.53

$

(0.78

)

Dividends declared per share

$

0.39

$

0.30

$

0.77

$

0.69

Weighted average number of shares outstanding — basic and diluted

24,437,400

24,437,400

24,437,400

24,447,517

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 June 30, 2021 and 2020.

($ in thousands)

($ in thousands)

Three Months Ended

Six Months Ended

June 30,

June 30,

(unaudited)

(unaudited)

2021

2020

2021

2020

Net investment income

$

6,473

$

9,291

$

17,554

$

26,708

Capital gains incentive fee expense (reversal)

3,883

(263

)

3,974

(9,141

)

Adjusted net investment income (1)

$

10,356

$

9,028

$

21,528

$

17,567

(Per share)

(Per share)

Three Months Ended

Six Months Ended

June 30,

June 30,

(unaudited)

(unaudited)

2021

2020

2021

2020

Net investment income

$

0.26

$

0.38

$

0.72

$

1.09

Capital gains incentive fee expense (reversal)

0.16

(0.01

)

0.16

(0.37

)

Adjusted net investment income (1)

$

0.42

$

0.37

$

0.88

$

0.72

(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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