NYSE:SCM Stellus Capital Investment Q2 2024 Earnings Report $12.98 +0.21 (+1.64%) Closing price 05/6/2025 03:59 PM EasternExtended Trading$12.98 +0.00 (+0.01%) As of 05/6/2025 07:50 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings HistoryForecast Stellus Capital Investment EPS ResultsActual EPS$0.50Consensus EPS $0.44Beat/MissBeat by +$0.06One Year Ago EPSN/AStellus Capital Investment Revenue ResultsActual Revenue$26.63 millionExpected Revenue$26.41 millionBeat/MissBeat by +$220.00 thousandYoY Revenue GrowthN/AStellus Capital Investment Announcement DetailsQuarterQ2 2024Date8/7/2024TimeN/AConference Call DateThursday, August 8, 2024Conference Call Time12:00PM ETUpcoming EarningsStellus Capital Investment's Q1 2025 earnings is scheduled for Thursday, May 8, 2025Conference Call ResourcesConference Call AudioConference Call TranscriptPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfilePowered by Stellus Capital Investment Q2 2024 Earnings Call TranscriptProvided by QuartrAugust 8, 2024 ShareLink copied to clipboard.There are 5 speakers on the call. Operator00:00:00Good morning, ladies and gentlemen, and thank you for standing by. At this time, I would like to welcome everyone to Stellus Capital Investment Corporation's Conference Call to report financial results for its 2nd Fiscal Quarter Ended June 30, 2024. There will be an opportunity to ask questions after today's presentation. This conference is being recorded, August 8, 2024. It is now my pleasure to turn the call over to Mr. Operator00:00:29Robert Ladd, Chief Executive Officer of Stellus Capital Investment Corporation. Mr. Ladd, you may begin your conference. Speaker 100:00:37Okay. Thank you, Paul, and good morning, everyone, and thank you for joining our conference call today covering the quarter ended June 30, 2024. Joining me this morning is Todd Huskinson, our Chief Financial Officer, who will cover important information about forward looking statements as well as an overview of our financial information. Speaker 200:00:58Thank you, Rob. I'd like to remind everyone that today's call is being recorded. Please note that this call is the property of Stellus Capital Investment Corporation and that any unauthorized broadcast of this call in any form is strictly prohibited. Audio replay of the call will be available by using the telephone number and pen provided in our press release announcing this call. I'd also like to call your attention to the customary Safe Harbor disclosure in our press release regarding forward looking information. Speaker 200:01:22Today's conference call may also include forward looking statements and projections, and we ask that you refer to our most recent filing with the SEC for important factors that could cause actual results to materially differ from these projections. We will not update any forward looking statements unless required by law. To obtain copies of our latest SEC filings, please visit our website at www.stelluscapital.com under the Public Investors link or call us at 713-292-5400. Now I'll cover our operating results for the quarter, but would like to start with our life to date activity. Since our IPO in November 2012, we've invested approximately $2,500,000,000 in over 195 companies and received approximately $1,600,000,000 of repayments, while maintaining stable asset quality. Speaker 200:02:10We've paid over $262,000,000 of dividends to our investors, which represents $15.75 per share to an investor in our IPO in November 2012, which was offered at $15 per share. Turning to operating results. In the 2nd quarter, we more than covered the declared dividend of $0.40 per share with GAAP net investment income of $0.48 per share. Core net investment income was $0.50 per share, which excludes estimated excise taxes. Net investment income per share was benefited by increased fee income from a variety of sources and the waiver of $1,600,000 or 0 point during the quarter due to a limitation from the total return test. Speaker 200:02:52Net asset value per share decreased $0.05 during the quarter due to net unrealized depreciation on our investment portfolio, offset by the generation of net investment income in excess of the dividend. We also realized a gain of $2,000,000 or $0.08 per share on an equity investment during the quarter. Our ATM program was active during the quarter and we issued $25,200,000 in shares at an average gross price of $13.89 per share. All issuances were above net asset value. We ended the quarter with an investment portfolio at fair value of $900,000,000 across 100 portfolio companies, up from $876,000,000 across 94 companies as of March 31, 24. Speaker 200:03:37During the Q2, we invested $53,000,000 in 8 new portfolio companies and had $13,300,000 in other investment activity at par. We also received 2 full repayments totaling $31,000,000 $9,700,000 of other repayments both at par resulting in net portfolio growth of $23,800,000 at fair value. At June 30, 99% of our loans were secured and 98% were priced at floating rates. Our average loan per company is $9,500,000 and the largest overall investment is $19,600,000 both at fair value. All but one portfolio company of our portfolio companies are backed by private equity firm. Speaker 200:04:21Overall, our asset quality is slightly better than planned. At fair value, 23% of our portfolio is rated a 1 or ahead of plan and 15% of the portfolio is marked at an investment category of 3 or below, meaning not meeting plan or expectations. Currently, we have 5 loans on non accrual, which comprise 2.9% of the fair value of the total loan portfolio. With that, I'll turn it back over to Rob to discuss the overall outlook. Speaker 100:04:46Okay. Thank you, Todd. As we look ahead to the 3rd and 4th quarters, I'll cover portfolio growth, equity realizations, capital management and dividends. Based on an active pipeline, we expect to end the 3rd quarter with a portfolio between $920,000,000 $940,000,000 We did not know of any loan repayments in Q3, although we did have an equity realization, which is disclosed in our subsequent events for $2,600,000 of proceeds and a realized gain of a little over $2,000,000 For Q4, we are aware of 2 likely repayments totaling $17,000,000 and one of the companies has an equity co investment, which is currently carried at $1,800,000 at fair value. We expect that new fundings will exceed repayments for Q4. Speaker 100:05:39As Todd noted earlier, we had a good second quarter for equity issuance under our ATM program. We have a meaningful amount of capacity in our bank facility and cash in our SBICs, but we will look to continue to increase the bank facility over time. Given our current capital base, we have the ability to grow the portfolio to over $960,000,000 And finally, regarding dividends, we expect to continue subject to Board approval to distribute at a rate of $0.40 per share per quarter payable monthly through the rest of the year. This should be supported by earnings and a large amount of spillover income. And with that, I'll open up for questions. Speaker 100:06:24And Paul, please, we'll start the Q and A session now. Operator00:06:30Certainly. Thank you. At this time, we'll be conducting a question and answer session. And the first question today is coming from Christopher Nolan from Ladenburg Thalmann. Christopher, your line is live. Speaker 300:07:12Hey, guys. Can you hear me? Speaker 100:07:15Yes, Chris. Good morning, Chris. Speaker 300:07:16Hey, nice quarter by the way. The fee waiver, is that something that we should expect to repeat in coming quarters? Speaker 200:07:28So Chris, first, I would say, it depends, of course, on each quarter's performance going forward in the mechanics of the 12 quarter test. But I think, at this point, we don't expect anything for the remainder of this year under the test absent any other movements in the current performance. Speaker 300:07:47Got it. And then I guess turning to non accruals, real estate, obviously that's a big position there. It's a big driver for the non accruals. Can you give a little color in terms of what sector they're involved in and Speaker 100:08:04a little color Sure, Chris. Yes, Chris. This is a residential realtor title company insurance business in the Midwest. Speaker 300:08:19Okay. And then I guess the final question, it's just the unrealized depreciation in the quarter. Any particular color? Was this normal mark adjustments? Speaker 100:08:31So it's driven more on company specific activities, but again overall not a large number. Speaker 400:08:40Okay. Speaker 300:08:40And then I guess finally, Rob, you mentioned how you're looking to increase the credit facility, but your leverage ratios are so low. Is the thinking here to give the uncertain credit environment to tap the credit facility more going forward or you Speaker 100:08:59be more cautious? Yes. So we have quite a bit of unused capacity in the current credit facility, which has a commitment of 2 $60,000,000 And so we certainly will use that up as we grow the portfolio. But again, we'd like to given the additional capital base that was raised last year and so far this year to have that start to better match the equity base. And this would enable us to take what I described as a portfolio potential of over $960,000,000 to over $1,000,000,000 Speaker 300:09:30Okay. That's it for me guys. Thank you. Speaker 100:09:33Thank you, Chris. Operator00:09:35Thank you. And the next question is coming from Sean Paul Adams from Raymond James. Your line is live. Speaker 400:09:41Hey, guys. Good afternoon and congrats on the quarter. Really quick question, touching back on the non accruals. I know you guys added 1 new non accrual last quarter, JR Watkins. I think now we're sitting at 5 total non accruals. Speaker 400:09:59Is there any timeline or pathway for resolution for any of these? Speaker 100:10:06They all have kind of specific paths from here, Sean. So probably wouldn't describe anything. As you know, we somewhat guarded about talking about individual companies that operate in our country. But each will have their own path and they're being worked hard. How's that? Speaker 400:10:25Yes, that's perfect. That's great. And then turning over to leverage, you guys are a little bit higher in terms of the total leverage basis. What are your thoughts on either moderating or staying exactly where you're at over the coming quarters in terms of the changes and like the forward rate curve? Speaker 100:10:47Sure, sure. So I'd say a few things to look at leverage. So we're actually less levered now than we normally are. This is due to the equity raise. So as we bring the portfolio back up to kind of full potential, think of us being target leverage on a regulatory test would be about 1 to 1 and on a total test, GAAP test, including the SBIC debentures that little over 2:one. Speaker 100:11:14So we'd like to increase the leverage, but not significantly, but more back to our target levels. One thing that might be less obvious is we have over $30,000,000 of cash right now in our SBIC licenses. So when that's deployed, that won't increase the leverage. So it's just as a footnote there. And then Nishu, as we look ahead, we think it's a very interesting time to invest in the lower middle market in this country and we're optimistic about the future and the many private equity firms we work with. Speaker 100:11:50So we're very selective in our investing and so we'll continue to invest in a smart way. And again, we'd like to see our leverage come back up to more of the target. Speaker 400:12:01That's a wonderful answer. Thank you for the color. I appreciate it. Speaker 100:12:04Yes. Thank you. Operator00:12:06Thank you. And there were no other we Speaker 100:12:14look forward to updating you again in early November for the we look forward to updating you again in early November for the results from the Q3. Operator00:12:25Thank you. This does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallStellus Capital Investment Q2 202400:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsPress Release(8-K)Quarterly report(10-Q) Stellus Capital Investment Earnings HeadlinesFinancial Contrast: Metalpha Technology (NASDAQ:MATH) and Stellus Capital Investment (NYSE:SCM)May 7 at 1:51 AM | americanbankingnews.comHead-To-Head Contrast: Metalpha Technology (NASDAQ:MATH) vs. Stellus Capital Investment (NYSE:SCM)April 30, 2025 | americanbankingnews.comHere’s How to Claim Your Stake in Elon’s Private Company, xAII predict this single breakthrough could make Elon the world’s first trillionaire — and mint more new millionaires than any tech advance in history. And for a limited time, you have the chance to claim a stake in this project, even though it’s housed inside Elon’s private company, xAI.May 7, 2025 | Brownstone Research (Ad)Stellus Capital price target lowered to $13 from $13.50 at Keefe BruyetteApril 9, 2025 | markets.businessinsider.comStellus Capital Investment declares $0.1333 dividendApril 8, 2025 | seekingalpha.comStellus Capital Investment Corporation Announces $0.40 Second Quarter 2025 Regular Dividend, Payable Monthly in Increments of $0.1333 in May, June, and July 2025April 7, 2025 | investing.comSee More Stellus Capital Investment Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like Stellus Capital Investment? Sign up for Earnings360's daily newsletter to receive timely earnings updates on Stellus Capital Investment and other key companies, straight to your email. Email Address About Stellus Capital InvestmentStellus Capital Investment (NYSE:SCM) is a business development company specializing in investments in private middle-market companies. It invests through first lien, second lien, unitranche, and mezzanine debt financing, often with a corresponding equity investment. The fund prefers to invest in US and Canada. The fund seeks to invest in companies with an EBITDA between $5 million and $50 million.View Stellus Capital Investment ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Palantir Stock Drops Despite Stellar Earnings: What's Next?Is Eli Lilly a Buy After Weak Earnings and CVS-Novo Partnership?Is Reddit Stock a Buy, Sell, or Hold After Earnings Release?Warning or Opportunity After Super Micro Computer's EarningsAmazon Earnings: 2 Reasons to Love It, 1 Reason to Be CautiousRocket Lab Braces for Q1 Earnings Amid Soaring ExpectationsMeta Takes A Bow With Q1 Earnings - Watch For Tariff Impact in Q2 Upcoming Earnings ARM (5/7/2025)AppLovin (5/7/2025)Fortinet (5/7/2025)MercadoLibre (5/7/2025)Cencora (5/7/2025)Carvana (5/7/2025)Walt Disney (5/7/2025)Emerson Electric (5/7/2025)Johnson Controls International (5/7/2025)Lloyds Banking Group (5/7/2025) Get 30 Days of MarketBeat All Access for Free Sign up for MarketBeat All Access to gain access to MarketBeat's full suite of research tools. 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There are 5 speakers on the call. Operator00:00:00Good morning, ladies and gentlemen, and thank you for standing by. At this time, I would like to welcome everyone to Stellus Capital Investment Corporation's Conference Call to report financial results for its 2nd Fiscal Quarter Ended June 30, 2024. There will be an opportunity to ask questions after today's presentation. This conference is being recorded, August 8, 2024. It is now my pleasure to turn the call over to Mr. Operator00:00:29Robert Ladd, Chief Executive Officer of Stellus Capital Investment Corporation. Mr. Ladd, you may begin your conference. Speaker 100:00:37Okay. Thank you, Paul, and good morning, everyone, and thank you for joining our conference call today covering the quarter ended June 30, 2024. Joining me this morning is Todd Huskinson, our Chief Financial Officer, who will cover important information about forward looking statements as well as an overview of our financial information. Speaker 200:00:58Thank you, Rob. I'd like to remind everyone that today's call is being recorded. Please note that this call is the property of Stellus Capital Investment Corporation and that any unauthorized broadcast of this call in any form is strictly prohibited. Audio replay of the call will be available by using the telephone number and pen provided in our press release announcing this call. I'd also like to call your attention to the customary Safe Harbor disclosure in our press release regarding forward looking information. Speaker 200:01:22Today's conference call may also include forward looking statements and projections, and we ask that you refer to our most recent filing with the SEC for important factors that could cause actual results to materially differ from these projections. We will not update any forward looking statements unless required by law. To obtain copies of our latest SEC filings, please visit our website at www.stelluscapital.com under the Public Investors link or call us at 713-292-5400. Now I'll cover our operating results for the quarter, but would like to start with our life to date activity. Since our IPO in November 2012, we've invested approximately $2,500,000,000 in over 195 companies and received approximately $1,600,000,000 of repayments, while maintaining stable asset quality. Speaker 200:02:10We've paid over $262,000,000 of dividends to our investors, which represents $15.75 per share to an investor in our IPO in November 2012, which was offered at $15 per share. Turning to operating results. In the 2nd quarter, we more than covered the declared dividend of $0.40 per share with GAAP net investment income of $0.48 per share. Core net investment income was $0.50 per share, which excludes estimated excise taxes. Net investment income per share was benefited by increased fee income from a variety of sources and the waiver of $1,600,000 or 0 point during the quarter due to a limitation from the total return test. Speaker 200:02:52Net asset value per share decreased $0.05 during the quarter due to net unrealized depreciation on our investment portfolio, offset by the generation of net investment income in excess of the dividend. We also realized a gain of $2,000,000 or $0.08 per share on an equity investment during the quarter. Our ATM program was active during the quarter and we issued $25,200,000 in shares at an average gross price of $13.89 per share. All issuances were above net asset value. We ended the quarter with an investment portfolio at fair value of $900,000,000 across 100 portfolio companies, up from $876,000,000 across 94 companies as of March 31, 24. Speaker 200:03:37During the Q2, we invested $53,000,000 in 8 new portfolio companies and had $13,300,000 in other investment activity at par. We also received 2 full repayments totaling $31,000,000 $9,700,000 of other repayments both at par resulting in net portfolio growth of $23,800,000 at fair value. At June 30, 99% of our loans were secured and 98% were priced at floating rates. Our average loan per company is $9,500,000 and the largest overall investment is $19,600,000 both at fair value. All but one portfolio company of our portfolio companies are backed by private equity firm. Speaker 200:04:21Overall, our asset quality is slightly better than planned. At fair value, 23% of our portfolio is rated a 1 or ahead of plan and 15% of the portfolio is marked at an investment category of 3 or below, meaning not meeting plan or expectations. Currently, we have 5 loans on non accrual, which comprise 2.9% of the fair value of the total loan portfolio. With that, I'll turn it back over to Rob to discuss the overall outlook. Speaker 100:04:46Okay. Thank you, Todd. As we look ahead to the 3rd and 4th quarters, I'll cover portfolio growth, equity realizations, capital management and dividends. Based on an active pipeline, we expect to end the 3rd quarter with a portfolio between $920,000,000 $940,000,000 We did not know of any loan repayments in Q3, although we did have an equity realization, which is disclosed in our subsequent events for $2,600,000 of proceeds and a realized gain of a little over $2,000,000 For Q4, we are aware of 2 likely repayments totaling $17,000,000 and one of the companies has an equity co investment, which is currently carried at $1,800,000 at fair value. We expect that new fundings will exceed repayments for Q4. Speaker 100:05:39As Todd noted earlier, we had a good second quarter for equity issuance under our ATM program. We have a meaningful amount of capacity in our bank facility and cash in our SBICs, but we will look to continue to increase the bank facility over time. Given our current capital base, we have the ability to grow the portfolio to over $960,000,000 And finally, regarding dividends, we expect to continue subject to Board approval to distribute at a rate of $0.40 per share per quarter payable monthly through the rest of the year. This should be supported by earnings and a large amount of spillover income. And with that, I'll open up for questions. Speaker 100:06:24And Paul, please, we'll start the Q and A session now. Operator00:06:30Certainly. Thank you. At this time, we'll be conducting a question and answer session. And the first question today is coming from Christopher Nolan from Ladenburg Thalmann. Christopher, your line is live. Speaker 300:07:12Hey, guys. Can you hear me? Speaker 100:07:15Yes, Chris. Good morning, Chris. Speaker 300:07:16Hey, nice quarter by the way. The fee waiver, is that something that we should expect to repeat in coming quarters? Speaker 200:07:28So Chris, first, I would say, it depends, of course, on each quarter's performance going forward in the mechanics of the 12 quarter test. But I think, at this point, we don't expect anything for the remainder of this year under the test absent any other movements in the current performance. Speaker 300:07:47Got it. And then I guess turning to non accruals, real estate, obviously that's a big position there. It's a big driver for the non accruals. Can you give a little color in terms of what sector they're involved in and Speaker 100:08:04a little color Sure, Chris. Yes, Chris. This is a residential realtor title company insurance business in the Midwest. Speaker 300:08:19Okay. And then I guess the final question, it's just the unrealized depreciation in the quarter. Any particular color? Was this normal mark adjustments? Speaker 100:08:31So it's driven more on company specific activities, but again overall not a large number. Speaker 400:08:40Okay. Speaker 300:08:40And then I guess finally, Rob, you mentioned how you're looking to increase the credit facility, but your leverage ratios are so low. Is the thinking here to give the uncertain credit environment to tap the credit facility more going forward or you Speaker 100:08:59be more cautious? Yes. So we have quite a bit of unused capacity in the current credit facility, which has a commitment of 2 $60,000,000 And so we certainly will use that up as we grow the portfolio. But again, we'd like to given the additional capital base that was raised last year and so far this year to have that start to better match the equity base. And this would enable us to take what I described as a portfolio potential of over $960,000,000 to over $1,000,000,000 Speaker 300:09:30Okay. That's it for me guys. Thank you. Speaker 100:09:33Thank you, Chris. Operator00:09:35Thank you. And the next question is coming from Sean Paul Adams from Raymond James. Your line is live. Speaker 400:09:41Hey, guys. Good afternoon and congrats on the quarter. Really quick question, touching back on the non accruals. I know you guys added 1 new non accrual last quarter, JR Watkins. I think now we're sitting at 5 total non accruals. Speaker 400:09:59Is there any timeline or pathway for resolution for any of these? Speaker 100:10:06They all have kind of specific paths from here, Sean. So probably wouldn't describe anything. As you know, we somewhat guarded about talking about individual companies that operate in our country. But each will have their own path and they're being worked hard. How's that? Speaker 400:10:25Yes, that's perfect. That's great. And then turning over to leverage, you guys are a little bit higher in terms of the total leverage basis. What are your thoughts on either moderating or staying exactly where you're at over the coming quarters in terms of the changes and like the forward rate curve? Speaker 100:10:47Sure, sure. So I'd say a few things to look at leverage. So we're actually less levered now than we normally are. This is due to the equity raise. So as we bring the portfolio back up to kind of full potential, think of us being target leverage on a regulatory test would be about 1 to 1 and on a total test, GAAP test, including the SBIC debentures that little over 2:one. Speaker 100:11:14So we'd like to increase the leverage, but not significantly, but more back to our target levels. One thing that might be less obvious is we have over $30,000,000 of cash right now in our SBIC licenses. So when that's deployed, that won't increase the leverage. So it's just as a footnote there. And then Nishu, as we look ahead, we think it's a very interesting time to invest in the lower middle market in this country and we're optimistic about the future and the many private equity firms we work with. Speaker 100:11:50So we're very selective in our investing and so we'll continue to invest in a smart way. And again, we'd like to see our leverage come back up to more of the target. Speaker 400:12:01That's a wonderful answer. Thank you for the color. I appreciate it. Speaker 100:12:04Yes. Thank you. Operator00:12:06Thank you. And there were no other we Speaker 100:12:14look forward to updating you again in early November for the we look forward to updating you again in early November for the results from the Q3. Operator00:12:25Thank you. This does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.Read morePowered by