Declares a $0.34 Per Share
Distribution
Closed Investments of $44.4 million in
Fiscal 2018
OFS Capital Corporation (Nasdaq: OFS) (“OFS Capital”, “we”,
“us”, or “our”) today announced its financial results for the
fiscal quarter and the full year ended December 31, 2017.
FINANCIAL HIGHLIGHTS
- Fourth quarter net investment income of
$3.8 million, or $0.29 per share.
- Closed investments totaled $28.3
million in the fourth quarter of 2017.
- As of March 2, 2018, closed
approximately $44.4 million of additional new investments
during the first quarter of 2018.
- 79% and 76% of the fair value of our
loan portfolio was senior and floating rate, respectively, and the
weighted average yield of our performing loan portfolio was 12.11%
as of December 31, 2017(1).
- 89% of our debt is fixed rate with a
weighted average cost of 3.43% as of December 31, 2017, with
maturities in 2022 and beyond.
- On February 27, 2018, OFS
Capital's Board of Directors declared a distribution
of $0.34 per share for the first quarter of 2018. The
distribution, along with a previously announced $0.37 per share
special distribution, are payable on March 29, 2018 to
stockholders of record as of March 22, 2018.
"We are focused on increasing our net investment income by
executing on our strong pipeline while maintaining the quality of
our portfolio," said Bilal Rashid, OFS
Capital's Chairman and Chief Executive Officer. "So far in the
first quarter, we have deployed $44.4 million of the $73.0 million
of cash we had on hand at year-end. We believe that we are well
positioned to grow our earnings. Our commitment to capital
preservation, and strong long-term performance is enhanced by the
alignment of interests of our stockholders and our external
manager, which continues to own approximately 22% of the
outstanding OFS Capital common stock."
(1) See Highlights contained in this press release
for further information on our weighted average yield. Including
assets on non-accrual, the weighted average yield of our debt
investment portfolio was 11.59% at December 31, 2017.
HIGHLIGHTS
($ in millions, except for per share
data)
Portfolio Overview At December 31,
2017 Total assets $ 357.8 Investment portfolio, at fair value $
277.5 Net assets $ 188.3 Net asset value per share $ 14.12 Weighted
average yield on performing debt investments (1) 12.11 % Weighted
average yield on total debt investments (2) 11.59 % Weighted
average yield on total investments (3) 10.35 % (1) The
weighted average yield on our performing debt investments is
computed as (a) the annual stated accruing interest on our debt
investments at the balance sheet date, plus the annualized
accretion of loan origination fees, original issue discount, market
discount or premium, and loan amendment fees divided by (b)
amortized cost of our debt investments, excluding assets on
non-accrual basis as of the balance sheet date. (2) The
weighted average yield on total debt investments is computed as (a)
the annual stated accruing interest on our debt investments at the
balance sheet date, plus the annualized accretion of loan
origination fees, original issue discount, market discount or
premium, and loan amendment fees divided by (b) amortized cost of
our debt investments, including assets on non-accrual basis as of
the balance sheet date. (3) The weighted average yield on
total investments is computed as (a) the annual stated accruing
interest on our debt investments at the balance sheet date, plus
the annualized accretion of loan origination fees, original issue
discount, market discount or premium, and loan amendment fees, plus
the effective cash yield on our performing preferred equity
investments divided by (b) amortized cost of our total investment
portfolio, including assets on non-accrual basis as of the balance
sheet date. The weighted average yield of investments is not the
same as a return on investment for our stockholders but, rather,
relates to a portion of our investment portfolio and is calculated
before the payment of all of our fees and expenses.
Quarter Ended December 31, Year Ended
December 31, Operating Results 2017
2016 2017 2016 Total investment
income $ 8.3 $ 8.2 $ 33.4 $ 31.1 Net investment income $ 3.8 $ 3.7
$ 15.9 $ 14.1
Net investment income per common share,
basic and
diluted
$ 0.29 $ 0.39 $ 1.28 $ 1.46
Adjusted net investment income (a Non-GAAP
measure
described below)
$ 3.8 $ 3.7 $ 15.9 $ 14.0
Adjusted net investment income (a Non-GAAP
measure
described below) per share, basic and
diluted
$ 0.29 $ 0.39 $ 1.28 $ 1.44 Net increase in net assets resulting
from operations $ 4.2 $ 4.8 $ 7.9 $ 13.8
Quarter Ended December 31, Year Ended
December 31, Portfolio Activity 2017
2016 2017
2016 Number of new portfolio companies 4 3 17
8 Investments in new portfolio companies $ 19.3 $
26.1 $ 118.9 $ 49.4 Investments in existing portfolio companies $
9.0 $ 2.0 $ 24.0 $ 18.8 Number of portfolio companies at end of
period 37 41 37 41
PORTFOLIO AND INVESTMENT ACTIVITIES
During the fourth quarter of 2017, we closed four senior secured
debt investments in four new portfolio companies totaling $18.8
million, one of which also included a new common equity investment
of $0.5 million. In addition, we made $9.0 million of senior
secured debt investments in existing portfolio companies, including
$2.6 million in delayed draw and revolver fundings.
The total fair value of our investment portfolio was $277.5
million at December 31, 2017, which was equal to approximately
96% of amortized cost. As of December 31, 2017, the fair value
of OFS Capital's debt investment portfolio totaled $246.3 million
in 35 portfolio companies, of which 79% and 21% were senior secured
loans and subordinated loans, respectively. As of December 31,
2017, we also held approximately $31.2 million in equity
investments, at fair value, in 17 portfolio companies in which we
also held debt investments and two portfolio companies in which we
solely held an equity investment. We had unfunded commitments of
$9.9 million to three portfolio companies at December 31,
2017. As of December 31, 2017, floating rate loans comprised
76% of OFS Capital’s debt investment portfolio, with the remaining
24% in fixed rate loans, as a percentage of fair value.
RESULTS OF OPERATIONS
Income
Interest Income
Interest income increased approximately $2.0 million primarily
due to a $3.4 million increase in recurring interest income caused
by a 12% increase in the average outstanding loan balance during
2017, offset by a decrease of $1.4 million in recurring interest
income resulting from a 63 basis point decrease in the weighted
average yield in our portfolio during the year ended December 31,
2017. Acceleration of Net Loan Fees (defined as loan origination
fees, original issue discount, market discount or premium, and loan
amendment fees) of $0.6 million and $0.6 million were included in
interest income for the year ended December 31, 2017 and 2016,
respectively, from the repayment of loans prior to their scheduled
due dates.
Fee Income
Fee income increased $0.3 million primarily due to an increase
in prepayment fees and capital structuring fees. We recorded
prepayment fees of $1.0 million resulting from $60.2 million of
unscheduled principal payments during the year ended
December 31, 2017, compared to $0.9 million from $25.0 million
of unscheduled principal payments during 2016. We recognized
capital structuring fees of $0.5 million and $0.4 million for the
years ended December 31, 2017 and 2016, respectively, upon the
closing of $55.7 million and $37.3 million of debt and equity
investments, respectively.
Expenses
Interest expense
Interest expense increased primarily due to an increase in
borrowings under our senior secured revolving credit facility ("PWB
Credit Facility"). The average dollar amount of borrowings
outstanding under the PWB Credit Facility during the years ended
December 31, 2017 and 2016 was $8.5 million and $0.6 million,
respectively.
Management Fees
Management fee expense increased by $0.5 million, due to an
increase in our average total assets, primarily due to an increase
in net investment activity, including deployment of funds from our
follow-on public offering of 3,625,000 shares of our common stock
in April 2017 (the "Offering").
Incentive Fees
Incentive fee expense decreased by $0.4 million primarily due to
a $0.6 million decrease in Part One incentive fees (based on net
investment income), due to a share issuance adjustment related to
the Offering, which raised the hurdle rate to a level that was not
exceeded in the second quarter because the Offering proceeds were
not fully deployed, offset by an increase in pre-incentive fee net
investment income due to an increase in net investment activity,
including additional deployment of funds from the Offering, and an
increase in the accrued Capital Gains Fee (based on cumulative net
unrealized and realized capital gains). During the year ended
December 31, 2017, we did not incur a Capital Gains Fee, compared
to a Capital Gains Fee of $(0.1) million recorded during the year
ended December 31, 2016, which represents the reversal of the
accrued Capital Gains Fee at December 31, 2015.
Net Gain (Loss) on Investments
We recognized net losses of $4.4 million on senior secured debt
during the year ended December 31, 2017, primarily as a result of a
realized loss of $5.0 million on our senior secured debt investment
in My Alarm, LLC ("My Alarm") recognized upon restructuring in the
third quarter of 2017, offset by the positive net impact of
portfolio company-specific performance factors on other
investments. We held the My Alarm investment from the fourth
quarter of 2015 and recognized unrealized appreciation of $0.2
million and $0 during the years ended December 31, 2016 and 2015,
respectively.
We recognized net losses of $8.7 million on subordinated debt
during the year ended December 31, 2017, primarily as a result of
the net negative impact of portfolio company-specific performance
factors, including unrealized depreciation of $5.4 million
recognized on our debt investment in Community Intervention
Services, Inc., which was placed on non-accrual status during 2016,
unrealized depreciation of $2.1 million recognized on our debt
investment in Southern Technical Institute, LLC, which was placed
on non-accrual status during the fourth quarter of 2017, and $1.6
million of unrealized depreciation on our debt investment in Master
Cutlery, LLC.
We recognized net gains of $5.4 million on preferred equity
investments for the year ended December 31, 2017, primarily as a
result of $7.7 million of net realized gains recognized upon sale
of three equity investments (Strategic Pharma Solutions, Inc.,
smarTours, LLC, and Malabar International), offset by the negative
impact from changes to EBITDA multiples used in our valuations and
negative impacts of portfolio company-specific performance factors,
including a $2.1 million unrealized loss recognized on our equity
investment in Southern Technical Institute, LLC. Included in net
gains of $7.7 million for the year ended December 31, 2017, were
realized gains of $11.0 million we recognized upon sale of the
three aforementioned equity investments. We recognized cumulative
unrealized appreciation of approximately $3.3 million on these
investments through December 31, 2016, which resulted in an
aggregate net gain of $7.7 million during the year ended December
31, 2017. In addition, previously recognized cumulative unrealized
depreciation of $0.3 million at June 30, 2017, on our preferred
equity investments in My Alarm, was realized upon
restructuring.
We recognized net losses of $0.2 million on common equity and
warrant investments for the year ended December 31, 2017, primarily
as a result of the negative impact of portfolio company-specific
performance factors, offset by a $0.4 million net gain realized
upon sale of a common equity investment (Intelli-Mark Technologies,
Inc.), which includes a realized gain of $0.9 million, for which we
had recognized cumulative unrealized appreciation of $0.5 million
through December 31, 2016.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 2017, we had $73.0 million in cash and cash
equivalents, which includes cash and cash equivalents of $72.1
million held by our wholly owned small business investment company,
and $149.9 million in outstanding SBA-guaranteed debentures. As of
December 31, 2017, we had $17.4 million available for
additional borrowings on our PWB Credit Facility and had drawn all
of our available SBA-guaranteed debentures.
CONFERENCE CALL
OFS Capital will host a conference call to discuss these results
on Friday, March 2, 2018, at 10:00 AM Eastern Time. Interested
parties may participate in the call via the following:
INTERNET: Log on to www.ofscapital.com at least 15 minutes prior to
the start time of the call to register, download, and install any
necessary audio software. A replay will be available for 90 days on
OFS Capital’s website at www.ofscapital.com.
TELEPHONE: Dial (877) 510-7674 (Domestic) or (412) 902-4139
(International) approximately 15 minutes prior to the call. A
telephone replay of the conference call will be available through
March 12, 2017 at 9:00 AM Eastern Time and may be accessed by
calling (877) 344-7529 (Domestic) or (412) 317-0088 (International)
and utilizing conference ID #10117298.
For more detailed discussion of the financial and other
information included in this press release, please refer to OFS
Capital’s Form 10-K for the year ended December 31, 2017,
which is to be filed with the Securities and Exchange
Commission.
OFS Capital Corporation and
Subsidiaries
Condensed Consolidated Balance
Sheets
(Dollar amounts in thousands, except
per share data)
December 31, 2017
2016 Assets Investments, at fair value
Non-control/non-affiliate investments (amortized cost of $209,360
and $178,279, respectively) $ 197,374 $ 173,219 Affiliate
investments (amortized cost of $70,402 and $76,306, respectively)
69,557 81,708 Control investments (amortized cost of $10,213 and
$24,722, respectively) 10,568 26,700 Total investments at fair
value (amortized cost of $289,975 and $279,307, respectively)
277,499 281,627 Cash and cash equivalents 72,952 17,659 Interest
receivable 2,734 1,770 Prepaid expenses and other assets 4,593
3,974
Total assets $ 357,778 $ 305,030
Liabilities Revolving line of credit $ 17,600 $ 9,500 SBA
debentures (net of deferred debt issuance costs of $2,656 and
$3,037, respectively) 147,223 146,843 Interest payable 1,596 1,599
Management and incentive fees payable 1,987 2,119 Administration
fee payable 476 435 Accrued professional fees 433 477 Other
liabilities 127 279
Total liabilities 169,442 161,252
Commitments and contingencies
Total net assets
188,336 143,778
Total liabilities and net assets $
357,778 $ 305,030 Number of shares outstanding 13,340,217
9,700,297 Net asset value per share $ 14.12 $ 14.82
OFS Capital Corporation and
Subsidiaries
Consolidated Statements of
Operations
(Dollar amounts in thousands, except
per share data)
Quarter Ended December 31,
Year Ended December 31, 2017
2016 2017 2016 Investment
income Interest income: Non-control/non-affiliate investments $
5,534 $ 4,116 $ 20,078 $ 17,076 Affiliate investments 1,417 2,676
6,506 7,451 Control investment 238 541 1,540
1,873 Total interest income 7,189 7,333 28,124 26,400
Payment-in-kind interest and dividend income:
Non-control/non-affiliate investments 424 280 1,400 1,070 Affiliate
investments 256 408 1,375 1,437 Control investment 28 39
132 120 Total payment-in-kind interest and
dividend income: 708 727 2,907 2,627 Dividend income:
Non-control/non-affiliate investments — — 50 36 Affiliate
investments 22 (192 ) 140 170 Control investment 30 75
292 269 Total dividend income 52 (117 ) 482
475 Fee income: Non-control/non-affiliate investments 82 202 1,086
1,366 Affiliate investments 244 23 675 110 Control investment 17
41 152 116 Total fee income 343
266 1,913 1,592
Total investment
income 8,292 8,209 33,426 31,094
Expenses Interest expense 1,584 1,366 5,813 5,302
Management fees 1,273 1,192 4,999 4,516 Incentive fee 713 926 2,962
3,333 Professional fees 275 323 1,115 1,200 Administration fee 332
295 1,314 1,304 General and administrative expenses 296 371
1,346 1,294
Total expenses 4,473
4,473 17,549 16,949
Net
investment income 3,819 3,736 15,877
14,145
Net realized and unrealized gain (loss) on
investments Net realized gain (loss) on
non-control/non-affiliate investments 1,793 (237 ) (3,248 ) 2,387
Net realized gain on affiliate investments 5,590 17 10,081 17
Net unrealized appreciation (depreciation)
on non-control/non-affiliateinvestments
(2,365 ) (3,031 ) (9,715 ) (6,699 ) Net unrealized appreciation
(depreciation) on affiliate investments (2,845 ) 3,262 (5,088 )
3,341 Net unrealized appreciation on control investments (1,842 )
1,076 3 637
Net gain (loss) on
investments 331 1,087 (7,967 ) (317 )
Net increase in net assets resulting from operations $ 4,150
$ 4,823 $ 7,910 $ 13,828 Net
investment income per common share - basic and diluted $ 0.29
$ 0.39 $ 1.28 $ 1.46
Net increase in net assets resulting from
operations per common share - basicand diluted
$ 0.31 $ 0.50 $ 0.64 $ 1.43 Distributions declared per common share
$ 0.34 $ 0.34 $ 1.36 $ 1.36 Basic and
diluted weighted average shares outstanding 13,334,909
9,697,277 12,403,706 9,692,634
Non-GAAP Financial Measure – Adjusted
Net Investment Income (“Adjusted NII”)
On a supplemental basis, we disclose Adjusted NII (including on
a per share basis), which is a financial measure calculated and
presented on a non-GAAP basis. Adjusted NII represents net
investment income excluding the net capital gains incentive fee
(fee adjustments) in periods in which they occur. Our management
agreement with OFS Capital Management, LLC provides that a capital
gains incentive fee is determined and paid annually with respect to
realized capital gains (but not unrealized capital gains) to the
extent such realized capital gains exceed realized and unrealized
capital losses for such year. Management believes that Adjusted NII
is a useful indicator of operations exclusive of any net capital
gains incentive fee, as net investment income does not include
gains associated with the capital gains incentive fee. In addition,
management believes that providing Adjusted NII may facilitate a
more complete analysis and greater transparency into OFS Capital’s
ongoing operations, particularly in comparing underlying results
from period to period, and afford investors a view of results that
may be more easily compared to those of other companies.
The following table provides a reconciliation from net
investment income (the most comparable GAAP measure) to Adjusted
NII for the periods presented:
Quarter Ended December 31,
Year Ended December 31, 2017
2016 2017 2016 (Dollar amounts
in thousands, except per share data) Net investment income $
3,819 $ 3,736 $ 15,877 $ 14,145 Capital gains incentive fee
— — — (139 ) Adjusted net investment income $ 3,819 $
3,736 $ 15,877 $ 14,006 Adjusted net
investment income per common share: Basic and diluted $ 0.29
$ 0.39 $ 1.28 $ 1.44 Weighted average
shares outstanding: Basic and diluted 13,334,909 9,697,277
12,403,706 9,700,297
ABOUT OFS CAPITAL
OFS Capital Corporation is an externally managed, closed-end,
non-diversified management investment company that has elected to
be regulated as a business development company. OFS Capital's
investment objective is to provide stockholders with both current
income and capital appreciation primarily through debt investments
and, to a lesser extent, equity investments. OFS Capital invests
primarily in privately held middle-market companies in the United
States, including lower-middle-market companies, targeting
investments of $3 million to $20 million in companies with annual
EBITDA between $3 million and $50 million. OFS Capital offers
flexible solutions through a variety of asset classes including
senior secured loans, which includes first-lien, second-lien and
unitranche loans, as well as subordinated loans and, to a lesser
extent, warrants and other equity securities. OFS Capital's
investment activities are managed by OFS Capital Management, LLC,
an investment adviser registered under the Investment Advisers Act
of 1940 and headquartered in Chicago, Illinois, with additional
offices in New York and Los Angeles.
FORWARD-LOOKING STATEMENTS
Statements in this press release regarding management's future
expectations, beliefs, intentions, goals, strategies, plans or
prospects, including statements relating to: OFS Capital’s results
of operations, including net investment income, net asset value and
net investment gains and losses and the factors that may affect
such results; OFS Capital’s expectations regarding earnings growth;
and other factors may constitute forward-looking statements for
purposes of the safe harbor protection under applicable securities
laws. Forward-looking statements can be identified by terminology
such as “anticipate,” “believe,” “could,” “could increase the
likelihood,” “estimate,” “expect,” “intend,” “is planned,” “may,”
“should,” “will,” “will enable,” “would be expected,” “look
forward,” “may provide,” “would” or similar terms, variations of
such terms or the negative of those terms. Such forward-looking
statements involve known and unknown risks, uncertainties and other
factors including those risks, uncertainties and factors referred
to in OFS Capital’s Annual Report on Form 10-K for the year ended
December 31, 2017 filed with the Securities and Exchange Commission
under the section “Risk Factors,” as well as other documents that
may be filed by OFS Capital from time to time with the Securities
and Exchange Commission. As a result of such risks, uncertainties
and factors, actual results may differ materially from any future
results, performance or achievements discussed in or implied by the
forward-looking statements contained herein. OFS Capital is
providing the information in this press release as of this date and
assumes no obligations to update the information included in this
press release or revise any forward-looking statements, whether as
a result of new information, future events or otherwise.
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INVESTOR RELATIONS:OFS Capital CorporationSteve Altebrando,
646-652-8473saltebrando@ofsmanagement.com
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