Alcentra Capital Corporation Announces Fourth Quarter and Full Year 2015 Financial Results and Announces Quarterly Dividend of $0.34 Per Share
Wednesday, March 09, 2016 8:31:00 AM ET
Alcentra Capital Corporation (ABDC ) ("Alcentra" 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 fourth quarter and full year ended December 31, 2015.
Fourth Quarter 2015 Financial Highlights
-- Total investment income of $8.7 million
-- Adjusted and Net investment income of $4.5 million, or $0.34 per share(1)
-- Net decrease in net assets resulting from operations of $2.04 million, or $(0.15) per share
-- Invested $37.5 million in debt and equity securities, including investments in four new portfolio companies
-- Received proceeds from repayments and amortizations of $22.3 million
-- Paid regular quarterly dividend of $0.34 per share on January 7, 2016
-- Net asset value (NAV) of $195.0 million, or $14.43 per share, as of December 31, 2015.
-- Weighted Average Portfolio Leverage - 3.72x, which is consistent with the prior quarter
-- Weighted Average Portfolio Yield - 12.4%, up from 12.2% in the prior quarter
Full Year 2015 Financial Highlights
-- Total investment income of $33.9 million
-- Adjusted and Net investment income of $19.3 million, or $1.43 per share(1)
-- Net increase in net assets resulting from operations of $12.6 million, or $0.93 per share
-- Invested $107.29 million in debt and equity securities, including investments in 10 new portfolio companies
-- Received proceeds from repayments and amortizations of $63.4 million
-- Paid regular quarterly dividends totaling $1.36 per share
"Our fourth quarter results and a healthy flow of deal activity gave us a strong finish to a very solid year
We have previously stated that the M&A market would benefit our portfolio, and we have seen that in the announced sale of HealthFusion to Quality Systems Inc. ("QSII" ) for $165 million of cash consideration plus potential additional contingent consideration of up to $25 million. HealthFusion is a privately held developer of web-based cloud computing software for physicians, hospitals and medical billing services.
We expect more M&A activity to occur in our portfolio over the next six-to nine months".
As we think about the 2016 fiscal year, we are being more cautious in our allocation of capital given the recent volatility in the capital markets. Credit spreads have widened in certain parts of the market, and we are selectively seeing the same dynamic in our market. We believe that we can improve the yield in our portfolio by replacing investments that are repaid through refinancings and M&A activity with new investments at a higher yield. We were able to accomplish this on a quarter to quarter basis throughout 2015; and will strive to continue this risk-adjusted yield strategy throughout 2016. We expect moderate growth in the portfolio throughout the year.
(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.
Fourth Quarter 2015 Financial Results
For the three months ended December 31, 2015, total investment income was $8.7 million. This is slightly increased from last quarter mainly due to timing of repayments and deployment of capital. Interest and PIK income comprised $8.2 million and other income comprised $0.412 million of which prepayment/amendment fee income was approximately $0.214 for the quarter ended September 30, 2015.
For the three months ended December 31, 2015, total expenses were $4.1 million. Interest and financing expenses for the three months ended December 31, 2015 was $1.530 million and the base management fee was $1.302 million. The income based incentive fee for the three months ended December 31, 2015 was $0.521 million and there was no capital gains incentive fee accrual. The administrative service fee, professional fees and other general and administrative expenses totaled $0.794 million for the three months ended December 31, 2015.
Net investment income for the three months ended December 31, 2015 was $4.5 million ($0.34 per share).
During the three months ended December 31, 2015, we recorded a net change in unrealized depreciation on investments of $(10.9) million and a realized gain of $2.6 million from our sale of Net Access, LLC. The unrealized depreciation was largely the result of our investment in DRC Emergency Services, which we believe is an isolated event specific to circumstances surrounding that business, and not reflective of the overall portfolio.
Alcentra Capital Corporations net decrease in net assets resulting from operations during the three months December 31, 2015, was $(2.0) million, or $(0.15) per share.
Per share results for the fourth quarter ended December 31, 2015 are based on shares outstanding of 13.516 million.
Portfolio and Investment Activities
As of December 31, 2015, Alcentra had debt and equity investments in 32 portfolio companies with a total fair value of $296.3 million. The average portfolio investment on a cost basis was $9.6 million with equity constituting 15.0% of the portfolio, which is down from 28% at the time of the IPO. During the fourth quarter ended December 31, 2015, Alcentra made investments of $37.5 million, including investments in four new portfolio companies and received proceeds from repayments and amortizations of investments of $22.3 million. As of December 31, 2015, the weighted average yield on debt investments was 12.4%, which was an increase in the weighted average yield from the September 30, 2015 reporting period of 12.2%.
Fourth quarter 2015 investment activity included the following new portfolio company investments:
-- Xpress Global Systems is headquartered in Chattanooga, TN and is a nationwide logistics provider of time definite surface transportation, warehousing, distribution, related value-added services.
-- National Technologies, Inc. is headquartered in Aurora, IL and provides design, installation, splicing, testing and repair/maintenance services of fiber optic cables to the telecommunications industry..
-- NWN Acquisition Holding Company, LLC is headquartered in Waltham, MA and is a regionally-focused provider of IT equipment and mission critical services.
-- Medsurant Holdings, LLC is headquartered in Philadelphia, PA and is one of the leading national providers of neuro intraoperative monitoring services to healthcare facilities.
Alcentra had no investments on non-accrual status as of December 31, 2015.
Liquidity and Capital Resources
At December 31, 2015, Alcentra had $4.8 million in cash and cash equivalents. Alcentra had $63.5 million of borrowings outstanding on its $135 million senior secured revolving credit facility and $40.0 million outstanding of Alcentra Capital Internotes as of December 31, 2015.
-- On January 4, 2016, Health Fusion was acquired by a third party and, in connection with the acquisition, repaid our $4.8 million 1st lien investment in full, resulting in a realized gain of approximately $1.8 million on the warrants.
-- On January 7, 2016, a $0.34 per share dividend was paid to shareholders of record as of December 31, 2015.
-- On January 15, 2016, A2Z Wireless was acquired by a third party and, in connection with the acquisition, repaid approximately $9.8 million of the debt owed to us pursuant to our 1st lien investment, which bore interest at a rate of 12% per annum, and paid a pre-payment premium of $507,207. Subsequently, we funded a $11.2 million investment in A2Z Wireless (10.00% first lien) and committed to fund up to an additional $3.8 million.
-- On January 18, 2016, the Board of Directors approved a $5.0 million open market stock repurchase program. Pursuant to the program, we are authorized to repurchase up to $5.0 million in the aggregate of our outstanding common stock in the open market. The timing, manner, price and amount of any share repurchases will be determined by our management, in its discretion, based upon the evaluation of economic conditions, stock price, applicable legal and regulatory requirements and other factors. The open market stock repurchase program will be in effect until the approved dollar amount has been used to repurchase shares. The program does not require us to repurchase any specific number of shares and we cannot assure that any shares will be repurchased under the program. The program may be suspended, extended, modified or discontinued at any time.
-- On January 19, 2016, DRC Emergency Services, LLC (DRC) was sold to a third-party. Total proceeds from the disposition, including a related tax benefit, were approximately $2 million. We had previously disclosed various matters relating to DRC, including a since-lifted suspension against DRC from doing federal government contracting work as well as litigation filed against DRC and the Company by Cahaba Disaster Recovery, LLC (Cahaba) alleging that DRC failed to make certain payments due to Cahaba in connection with its provision of certain sub-contracting services to DRC. More recently, a lawsuit was filed in late December 2015 relating to DRC which alleges that certain parties entered into an oral agreement to transfer a 10% equity interest in DRCs parent company to the plaintiff. The sale also provides that the third-party purchaser will indemnify us (and related parties) from any liability in connection with the Cahaba lawsuit, including litigation expenses.
-- On February 11, 2016, Alcentra funded and additional $2.4 million to A2Z Wireless.
-- As of February 19, 2016, we have sold approximately $5.4 million aggregate principal amount of Alcentra Capital InterNotes_ 6.50% notes due 2021.
-- On March 7, 2016, the Board of Directors approved the 2016 first quarter dividend of $0.34 per share for shareholders of record date March 31, 2016 and payable April 7, 2016.
First Quarter 2016 Dividend of $0.34 Per Share Declared
On March 7, 2016, the Companys Board of Directors declared a regular quarterly dividend of $0.34 per share for the first quarter of 2016 payable on April 7, 2016 to stockholders of record as of March 31, 2016.
Alcentra 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 the Company declares a cash dividend, stockholders who have not "opted out" of the DRIP at least three days prior to the dividend payment date will have their cash dividends automatically reinvested in additional shares of the Companys 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.
Fourth Quarter 2015 Financial Results Conference Call
Management will host a conference call to discuss the operating and financial results at 2:30 pm ET on Wednesday, March 9, 2016. To participate in the conference call, please dial (844) 832-0218 approximately 10 minutes prior to the call. International callers should dial (484) 756-4314. Please reference conference ID # 65996143.
A live webcast of the conference call will be available at http://investors.alcentracapital.com/events-presentations . Please access the website 15 minutes prior to the start of the call to download and install any necessary audio software.
An archived webcast replay will be available on the Companys website until March 31, 2017.
ABOUT ALCENTRA CAPITAL CORPORATION
Alcentra Capital Corporation provides customized debt and equity financing solutions to lower middle-market companies, which the Company generally defines as U.S. based companies having revenues between $10.0 million and $100.0 million. Alcentra investment objective is to provide attractive risk-adjusted returns by generating both current income from our debt investments and capital appreciation from our equity related investments. Alcentra 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.
Alcentra 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, Alcentra has elected to be treated as a regulated investment company, or RIC, under Subchapter M of the Internal Revenue Code of 1986, as amended, or the Code.
This press release may contain certain forward-looking statements. Any such statements, other than statements of historical fact, are based on managements current expectations, estimates, projections, beliefs and assumptions about the Company, its current and prospective portfolio investments, and its industry. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond the Companys control, difficult to predict and could cause actual results to differ materially from those expected or forecasted in such forward-looking statements. Actual developments and results are likely to vary materially from these estimates and projections as a result of a number of factors, including those described from time to time in Alcentra filings with the Securities and Exchange Commission. Such statements speak only as of the time when made, and Alcentra undertakes no obligation to update any such forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.
Alcentra Capital Corporation and Subsidiary
Consolidated Statements of Assets and Liabilities
As of As of
Portfolio investments, at fair value
Non-controlled, non-affiliated investments, at fair value (cost of $219,715,263 and $165,921,535, respectively) $ 221,349,073 $ 167,325,100
Non-controlled, affiliated investments, at fair value (cost of $56,426,475 and $61,564,299, respectively) 59,243,999 61,253,192
Controlled, affiliated investments, at fair value (cost $27,289,995 and $26,596,938, respectively) 15,748,539 30,055,562
Total of portfolio investments, at fair value (cost $303,431,733 and $254,082,772, respectively) 296,341,611 258,633,854
Cash 4,866,972 10,022,617
Dividends and interest receivable 2,607,205 1,417,500
Receivable for investments sold -- 4,753
Deferred financing costs 2,183,881 1,986,520
Deferred note offering costs 1,156,622 25,743
Deferrred tax asset 1,382,408 --
Prepaid expenses and other assets 113,730 128,388
Total Assets $ 308,652,429 $ 272,219,375
Credit facility payable $ 63,504,738 $ 62,499,154
Notes payable 40,000,000 --
Payable for investments purchased -- 8,717
Other accrued expenses and liabilities 271,801 539,417
Directors fees payable 37,025 85,692
Professional fees payable 481,333 409,628
Interest and credit facility expense payable 813,222 216,476
Management fee payable 1,302,213 615,668
Income-based incentive fees payable 1,081,797 --
Distributions payable 4,595,700 4,595,700
Unearned structuring fee revenue 689,577 517,339
Income tax liability 842,812 45,272
Deferred tax liability -- 1,697,004
Total Liabilities 113,620,218 71,230,067
Commitments and Contingencies (Note 13)
Common stock, par value $0.001 per share (100,000,000 shares authorized, 13,516,766 and 13,516,766 shares issued and outstanding, respectively) 13,517 13,517
Additional paid-in capital 197,652,086 197,838,155
Accumulated net realized gain (loss) 2,791,590 71,712
Undistributed net investment income 1,130,327 211,846
Net unrealized appreciation (depreciation) on investments, net of (Benefit) provision for taxes of $(534,813) and $1,697,004 as of December 31, 2015 and December 31, 2014, respectively (6,555,309) 2,854,078
Total Net Assets 195,032,211 200,989,308
Total Liabilities and Net Assets $ 308,652,429 $ 272,219,375
Net Asset Value Per Share $ 14.43 $ 14.87
Alcentra Capital Corporation and Subsidiary
Consolidated Statement of Operations
Three Months Ended December 31, Alcentra Capital Corporation and Subsidiary BNY Mellon-Alcentra Mezzanine III, L.P. Alcentra Capital Corporation and Subsidiary
Investment Income: 2015 2014 For the year ended December 31, 2015 For the period from January 1, 2014 through May 7, 2014 For the period from May 8, 2014 through December 31, 2014
From non-controlled, non-affiliated investments:
Interest income from portfolio investments $ 5,647,278 $ 3,404,275 $ 19,225,065 $ 2,335,475 $ 7,099,277
Paid in-kind income from portfolio investments 786,729 1,181,867 3,128,501 569,637 1,793,553
Other income from portfolio investments 412,213 (566,816) 1,819,533 649,961 316,063
Dividend income from portfolio investments - 201,860 302,874 251,752 576,520
From non-controlled, affiliated investments:
Interest income from portfolio investments 1,021,703 1,133,912 4,231,004 1,089,807 2,676,843
Paid in-kind income from portfolio investments 734,531 537,378 2,632,281 341,850 1,201,757
Other income from portfolio investments - 2,020 72,320 788,083 2,967
Dividend income from portfolio investments - - - - -
From controlled, affiliated investments:
Interest income from portfolio investments 533,270 544,233 2,280,106 769,953 1,701,725
Paid in-kind income from portfolio investments (458,810) 231,673 159,722 521,321 625,083
Other income from portfolio investments - 1 64,843 444,055 172,426
Dividend income from portfolio investments - - - - -
Total investment income 8,676,914 6,670,403 33,916,249 7,761,894 16,166,214
Management fees 1,302,213 1,056,912 4,943,886 699,473 2,506,937
Income-based incentive fees 521,295 202,509 2,270,450 - 966,059
Capital gains incentive fees - 1,001,467 -
Professional fees 439,380 576,051 966,671 84,642 800,873
Valuation services 106,527 213,705 419,264 - 376,405
Interest and credit facility expense 1,271,454 420,581 4,142,013 50,214 1,016,505
Amortization of deferred financing costs 258,813 132,152 867,786 - 326,835
Directors fees 71,900 85,692 243,726 - 192,608
Insurance Expense 67,341 183,882 272,331 - 183,882
Other expenses 108,389 (108,735) 491,953 7 212,248
Total expenses 4,147,312 2,762,749 15,619,547 834,336 6,582,352
Waiver of management and incentive fees by the Investment Advisor - (643,752) - - (2,017,870)
Waiver of capital gains incentive fees (1,001,467) -
Net expenses 4,147,312 2,118,997 14,618,080 834,336 4,564,482
Net investment income 4,529,602 4,551,406 19,298,169 6,927,558 11,601,732
Realized Gain (Loss) and Net Change in Unrealized Appreciation (Depreciation) From Portfolio Investments
Net realized gain (loss) on:
Non-controlled, non-affiliated investments 2,625,441 160,422 2,722,992 51,961 178,297
Non-controlled, affiliated investments - 29,203 - - 29,203
Controlled, affiliated investments - 71,711 - - 71,711
Net realized gain (loss) from portfolio investments 2,625,441 261,336 2,722,992 51,961 279,211
Net change in unrealized appreciation (depreciation) on:
Non-controlled, non-affiliated investments 1,510,631 585,204 230,245 2,974,591 1,403,565
Non-controlled, affiliated investments (674,396) (1,279,678) 3,128,631 - (311,107)
Controlled, affiliated investments (11,743,547) 624,805 (15,000,080) - 3,458,624
Net change in unrealized appreciation (depreciation) from portfolio investments (10,907,312) (69,669) (11,641,204) 2,974,591 4,551,082
Benefit/(Provision) for taxes on unrealized gain on investments 1,704,047 (1,697,004) 2,231,817 - (1,697,004)
Net realized gain (loss) and net change in unrealized appreciation (depreciation) from portfolio
investments (6,577,824) (1,505,337) (6,686,395) 3,026,552 3,133,289
Net Increase in Net Assets from Operations $ (2,048,222) $ 3,046,069 $ 12,611,774 $ 9,954,110 $ 14,735,021
Per common share data:
Net Investment income per share 0.34 0.34 1.43 N/A 0.86
Net increase/(decrease) in net assets resulting from operation per share (0.15) 0.23 0.93 N/A 1.09
Dividends Declared per common share 0.34 0.34 1.36 N/A 0.86
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. 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 December 31, 2015.
($ in thousands) ($ in thousands)
Three months ended Years ended
December 31, December 31,
2015 2014 2015 2014
Net investment income $4,529 $4,551 $19,298 $11,601
Capital gains incentive fee (reversal) expense $0 $0 $0 $0
Adjusted net investment income $4,529 $4,551 $19,298 $11,601
(Per Share) (Per Share)
Three months ended Years ended
December 31, December 31,
2015 2014 2015 2014
Net investment income $0.34 $0.34 $1.43 $0.86
Capital gains incentive fee (reversal) expense $0 $0 $0 $0
Adjusted net investment income $0.34 $0.34 $1.43 $0.86
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SOURCE Alcentra Capital Corporation