Fifth Street Finance Q4 Profit Up 29%, But Results Miss View

(RTTNews) - Specialty finance company Fifth Street Finance Corp. (FSC) on Monday reported a 29 percent increase in net investment income for the fourth quarter on strong investment income growth. However, results for the quarter missed analysts' expectations, sending the company's shares down by more than 4 percent in extended trades.

Fifth Street Finance is a business development company that specializes in investments in middle market, bridge financing, first and second lien debt financing and mezzanine debt, among others.

The White Plains, New York-based company's net investment income for the fourth quarter was $28.70 million, up from $22.32 million in the year-ago period. However, net investment income per share declined to $0.23 from $0.26 in the prior-year quarter on higher number of weighted common shares outstanding in the latest quarter.

On average, thirteen analysts polled by Thomson Reuters expected the company to report loss of $0.26 per share for the quarter. Analysts' estimates typically exclude special items.

Net increase in net assets resulting from operations declined to $26.14 million or $0.21 per share from $27.07 million or $0.31 per share in the year-ago quarter.

The latest quarter's results include net realized and unrealized losses of $2.6 million or $0.02 per share, compared to net realized and unrealized gains of $4.8 million or $0.06 per share in the prior-year period.

Total investment income for the quarter grew 34 percent to $57.09 million from $42.53 million in the same period last year. Analysts had a consensus revenue estimate of $60.00 million.

The investment income for the latest quarter consisted of $46.9 million of interest income from portfolio investments and $10.1 million of fee income.

The increase in investment income was primarily attributable to a higher average level of outstanding debt investments, primarily due to a net increase of 18 debt investments in the company's portfolio and fee income related to investment activity. This was partly offset by amortization repayments received and a decrease in the weighted average yield on the company's debt investments from 12.0 percent to 11.1 percent during the year-over-year period.

Net asset value per share at the end of the quarter was $9.85, compared to $9.90 as of June 30, 2013. Total assets at September 30, 2013 were $2.1 billion, compared to $1.4 billion at the end of the year-ago period.

During the fourth quarter, Fifth Street Finance closed $307.4 million of investments in 10 new and seven existing portfolio companies, and funded $294.4 million across new and existing portfolio companies. This compares to closing $129.1 million in six new and four existing portfolio companies and funding $123.0 million during the year-ago period.

For fiscal 2013, Fifth Street Finance's net investment income for the year rose to $114.95 million from $88.01 million in the previous year. However, net investment income per share declined to $1.01 from $1.07 last year on higher number of weighted average common shares outstanding.

Total investment income for the year rose 34 percent to $221.61 million from $165.12 million last year.

Analysts expected the company to earn $1.06 per share for the year on revenues of $222.81 million.

Net increase in net assets resulting from operations for the year rose to $101.82 million from $79.40 million last year. Meanwhile, earnings per share declined to $0.90 from $0.97 in the prior year.

The latest year's results include net realized and unrealized losses of $13.1 million or $0.12 per share, compared to net realized and unrealized losses of $8.6 million or $0.11 per share in the prior year.

For the first quarter of fiscal 2014, Fifth Street Finance's board of directors declared monthly dividends totaling $0.24 per share, representative of the net investment income per share that was earned during the quarter ended September 30, 2013.

The company's board also declared monthly dividends that reflect a $1.00 per share annual run rate for calendar year 2014.

FSC closed Monday's regular trading session at $10.17, down $0.02 or 0.20 percent on a volume of 1.70 million shares. In after-hours, the stock further declined $0.42 or 4.13 percent to $9.75.