Stellus Capital Investment Q4 2025 Earnings Report

Stellus Capital Investment EPS Results

• Actual EPS: $0.29
• Consensus EPS: $0.31
• Beat/Miss: Missed by -$0.02
• One Year Ago EPS: N/A

Stellus Capital Investment Revenue Results

• Actual Revenue: $23.98 million
• Expected Revenue: $26.33 million
• Beat/Miss: Missed by -$2.35 million
• YoY Revenue Growth: N/A

Stellus Capital Investment Announcement Details

• Quarter: Q4 2025
• Date: 3/11/2026
• Time: After Market Closes
• Conference Call Date: Thursday, March 12, 2026
• Conference Call Time: 11:00AM ET

Stellus Capital Investment (NYSE:SCM) (NYSE: SCM) is a business development company that provides customized financing to privately owned middle-market companies. The company primarily invests in debt, including first-lien, second-lien and unitranche loans, and may also make equity investments alongside its loans.

Stellus Capital Investment typically focuses on established companies across a range of industries, with investments designed to support acquisitions, recapitalizations, growth initiatives and other corporate purposes. Its portfolio companies are generally located in the United States and operate in diverse sectors of the economy.

The company is externally managed by Stellus Capital Management, an investment adviser specializing in private credit and middle-market investing. Stellus Capital Investment Corporation began operations in 2012 and is structured as a regulated investment company that has elected to be treated as a business development company under the Investment Company Act of 1940.

Stellus Capital Investment Q4 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: In Q4 GAAP and Core net investment income were $0.29 per share and total realized income was $0.48 per share; NAV declined $0.23 per share because dividends exceeded earnings and due to $0.12 per share of realized losses, while the board declared a $0.34 per share quarterly dividend for Q1 and expects to maintain that level for Q2 (roughly a 15% annualized yield at current share prices).
• Positive Sentiment: The board approved a $20 million share repurchase program to buy back stock trading at about a 30% discount to reported NAV, which management views as a compelling opportunity to create shareholder value.
• Positive Sentiment: Stellus Capital Management agreed to be acquired by Ridgepost Capital (expected mid‑2026 subject to approvals); Stellus Investment Corp. remains a public company and management expects materially increased deal flow and PE sponsor relationships that should boost origination opportunities, likely realizing benefits in H2 2026.
• Neutral Sentiment: Asset quality is described as stable: the portfolio is about $1.01 billion across 115 companies, 99% of loans secured, 81% rated on‑ or ahead‑of‑plan, five non‑accruals representing 4.1% of fair value, and software/AI exposure is limited (5 companies, 6.8% of loans) with management not expecting a material negative impact from AI.
• Neutral Sentiment: Outlook: management expects Q1 portfolio size to be flat or slightly down, has repaid $65 million of SBA debentures freeing capacity (third SBA license pending), and will keep leverage targets unchanged (~1:1 regulatory, ~2:1 including SBIC), which they say could support portfolio growth and NII if deployment and market spreads improve.

Presentation

[Operator]

Good 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 fourth fiscal quarter ended December 31, 2025. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star-star zero on your telephone keypad. This conference is being recorded today, March 12, 2026. It is now my pleasure to turn the call over to Mr. Robert Ladd, Chief Executive Officer of Stellus Capital Investment Corporation. Mr. Ladd, you may begin your conference.

[Robert Ladd, CEO at Stellus Capital Investment Corporation]

Okay. Thank you. Thank you, Paul. Good morning, everyone, and thank you for joining the call. Welcome to our conference call covering the quarter and year ended December 31, 2025. This morning's call will be longer and more in depth than previous calls. We have five topics to cover. First, the financial results for the fourth quarter and year ended December 31, 2025. Asset quality, including commentary regarding software exposure. Outlook for the first and second quarters of 2026. Our share buyback program recently announced. Our investment advisor joining forces with Ridgepost Capital. 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.

[Todd Huskinson, CFO at Stellus Capital Investment Corporation]

Thank 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 numbers and PIN 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. Today'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 differ materially from these projections. We will not update any forward-looking statements unless required by law.

[Todd Huskinson, CFO at Stellus Capital Investment Corporation]

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 fourth quarter and year, but would like to start with our life-to-date activity. Since our IPO in November 2012, we've invested approximately $2.8 billion in over 220 companies and received approximately $1.8 billion of repayments while maintaining stable asset quality. We've paid $333 million in dividends to our investors, which represents $18.27 per share to an investor in our IPO in November 2012, which was offered at $15 per share.

[Todd Huskinson, CFO at Stellus Capital Investment Corporation]

In the fourth quarter, we generated $0.29 per share of GAAP net investment income, and Core Net Investment Income was $0.29 per share also, which excludes excise taxes. During the quarter, we also realized gains of $5.5 million on five equity positions, which resulted in total realized income for the quarter of $0.48 per share. Net asset value per share decreased $0.23 during the quarter from two components. The first was $0.11 per share of dividend payments that exceeded earnings, which was necessary to continue to pay out spillover income balance from 2024. The second was net realized losses of $0.12 per share related primarily to two debt investments.

[Todd Huskinson, CFO at Stellus Capital Investment Corporation]

On the capital front, on December 31st, we repaid the remaining $50 million of the $100 million of 2026 Notes prior to their March 2026 maturity. Turning to portfolio and asset quality. We ended the quarter with an investment portfolio at fair value of $1.01 billion across 115 portfolio companies, unchanged from $1.01 billion across 115 portfolio companies as of September 30, 2025. During the fourth quarter, we invested $34.1 million in four new portfolio companies and had $18 million in other investment activity at par. We also received four full repayments totaling $37.9 million, five equity realizations totaling $7 million, which resulted in a realized gain of $5.5 million and received $9.1 million of other repayments, both at par.

[Todd Huskinson, CFO at Stellus Capital Investment Corporation]

At December 31st, 99% of our loans were secured and 92% were priced at floating rates. The average loan per company is $8.8 million, and the largest overall investment is $19.2 million, both at fair value. Substantially all of our portfolio companies are backed by a private equity firm. Overall, our asset quality is slightly better than planned. At fair value, 81% of our portfolio is rated one or two or on or ahead of plan, and 19% of the portfolio is marked at an investment category of three or below, meaning not meeting plan or expectations. We added one new loan to our non-accrual list and removed another from the non-accrual list during the quarter.

[Todd Huskinson, CFO at Stellus Capital Investment Corporation]

Currently, we have loans to five portfolio companies on non-accrual, which comprise 7.5% of the total cost and 4.1% of the fair value of the total investment portfolio, respectively, which represents a slight increase from the prior quarter. We're always focused on diversification, including by industry sector. We have investments in 24 separate industry sectors, and with that, we have approximately 10% in high-tech industries. Over the last months, there's been a lot of press about the impact of artificial intelligence on large-scale SaaS software industry, which has resulted in concern around investment firms' exposure. Both private equity and private credit to the sector. Let me first say, Stellus does not have exposure to the large-scale SaaS software sector.

[Todd Huskinson, CFO at Stellus Capital Investment Corporation]

Rather, we have a small number of loans to software companies that are related to the SaaS space, but are better characterized as industry-specific tech-enabled solutions. This group consists of five companies out of 100 portfolio companies with debt investments and comprises 6.8% of the loan portfolio. The largest position is 1.8%, both at fair value. Each one of these companies provides integral products and services that are embedded in the businesses that they serve. They are using AI to enhance the software and information they provide, and in many cases, are dealing with proprietary data. A common theme for these software businesses is that they are using AI to enhance their value proposition rather than the customer being able to do this all internally with AI.

[Todd Huskinson, CFO at Stellus Capital Investment Corporation]

In summary, we believe AI will enable these and many of our portfolio companies across a variety of industry sectors to improve the speed and quality of information, and we do not believe that AI will supplant the need for what our portfolio companies provide. Let me add, each of these companies is owned by a substantial private equity sponsor, is well-capitalized with material equity below us, has modest leverage and EBITDA that is stable to increasing. The risk rate of these companies is either a one or a two, meaning on or ahead of plan. We will continue to monitor these companies closely, as we do with all of our portfolio companies. Importantly, looking forward, we would be surprised if AI had a material negative impact on the recovery of our loans to these companies.

[Todd Huskinson, CFO at Stellus Capital Investment Corporation]

Now I'd like to turn the call back over to Rob to cover the outlook and a few additional topics.

[Robert Ladd, CEO at Stellus Capital Investment Corporation]

Okay. Thank you, Todd. As we look ahead to the first quarter of 2026, I'll cover four topics. First, the outlook for Q1 and Q2. The recent announcement concerning our advisors' plans to join Ridgepost Capital's platform. A $20 million share buyback program. And our view on the private credit sector overall. Outlook for Q1 and Q2. Today, our portfolio is approximately $996 million across 115 portfolio companies. With the turbulence that we've all been observing, M&A activity has slowed some after a very robust fourth quarter for us. Therefore, we expect to end the first quarter of 2026 with a portfolio at the current level or slightly less. We expect continued equity realizations in Q1 of approximately $2 million, resulting in a $1 million realized gain.

[Robert Ladd, CEO at Stellus Capital Investment Corporation]

Regarding dividends, in January, we declared the dividends for the first quarter of 2026 of $0.34 per share in the aggregate, payable monthly. We expect to keep the dividend at this level of $0.34 for the second quarter, which will be declared in early April, of course, subject to board approval. Just looking at our stock price today, that's a little under $9 a share. The second quarter dividend is a 15% annualized yield. Now turning to Ridgepost. On February 5th, we announced that our external manager, Stellus Capital Management, agreed to be purchased by Ridgepost Capital, formerly known as P10. Ridgepost is a leading private markets solutions provider that similarly serves the lower middle market. Stellus will continue to be managed by its current partners who will retain control of its day-to-day operations, including investment decisions and investment committee processes.

[Robert Ladd, CEO at Stellus Capital Investment Corporation]

We like to say there will be no changes on how we operate. Todd Huskinson will continue to be Stellus Capital Investment Corporation's CFO, and I will continue to serve as the company's Chairman and CEO. Now turning back to Ridgepost. Ridgepost Capital, which has more than $43 billion in assets under management, invest across private equity, private credit, and venture capital in access-constrained strategies with a focus on the middle and lower middle market. We believe that our advisor joining the Ridgepost Capital platform is a very positive development for a number of reasons. The most important of which is the anticipated investment opportunities that Ridgepost Capital will open up for Stellus Capital Investment Corporation and our affiliates. Ridgepost's largest strategy is a lower middle-market private equity firm specializing in North American small buyouts through primary, secondary, and co-investment vehicles known as RCP Advisors, which is based in Chicago.

[Robert Ladd, CEO at Stellus Capital Investment Corporation]

RCP Advisors has invested with more than 250 lower middle-market private equity firms, and is typically the largest or one of the largest LPs in the PE funds in which they invest. As you will recall, all of our lending is to companies owned by lower middle-market private equity firms. As part of Ridgepost Capital, we expect to see a material increase in investment opportunities coming from those PE relationships, many of which we do not currently have. Given the nearly identical size profile of the RCP sponsor relationships and our sponsor relationships, we think we have a meaningful opportunity to increase the top of our funnel for new origination opportunities. We are excited by this new growth opportunity, and we believe it will benefit all shareholders.

[Robert Ladd, CEO at Stellus Capital Investment Corporation]

This transaction with Ridgepost Capital is expected to close in mid-2026, subject to BDC board and BDC shareholder approvals, and other customary closing conditions. Let me add, some of our shareholders have asked, "Are you selling Stellus Capital Investment Corporation, our public company, ticker SCM, to Ridgepost Capital?" We are not. Stellus Capital Investment Corporation will remain publicly traded. Our leadership will remain the same, as I mentioned earlier, and our independent board members will also remain in place. Our shareholders will continue to own Stellus Capital Investment Corporation, SCM symbol, stock. Now, turning to share repurchase. Our board of directors recently approved a stock repurchase program of up to $20 million. This decision reflects the current trading level of our shares, which are at approximately a 30% discount to recently reported net asset value. Historically, our stock has traded at or above NAV for many years.

[Robert Ladd, CEO at Stellus Capital Investment Corporation]

At the current price levels, we believe repurchasing shares represents a compelling opportunity to generate meaningful value for our shareholders. This authorization will remain in place for at least one year. Finally, I'm going to turn to private credit today. Given the significant press coverage of perceived stress in private credit, we thought this would be a good time to share our view of private credit overall. I'll first cover our strategy versus larger managers. Second, a reminder of our history in private credit. Finally, the importance of private credit for the US economy. Stellus Capital focuses on direct, originated, senior secured loans to lower middle market private equity-backed companies rather than participating in large, broadly shared loans or nationally syndicated credits. This represents a fundamental difference between the Stellus platform, including Stellus Capital Investment Corporation, and many of the larger private credit managers and larger BDCs.

[Robert Ladd, CEO at Stellus Capital Investment Corporation]

Larger managers are lending to all types of companies, many without deep-pocketed private equity owners and some with complex capital structures or off-balance sheet vehicles. Now a reminder of our history. First, we're one of the longest-tenured active private credit managers with a history of investing that is 22 years across 400 companies and $10 billion of deployment. The Stellus management team has an investing history that has been resilient across multiple macroeconomic cycles, including the global financial crisis of 2008-2009, COVID-19, the global pandemic, and periods of other market volatility, such as the international tariff disruption of 2025. Second, our asset quality across the portfolio has remained stable over time with a weighted average risk rate of approximately two, which corresponds to investments performing on plan. All of our loans have financial covenants.

[Robert Ladd, CEO at Stellus Capital Investment Corporation]

All but one of our portfolio companies are backed by our private equity sponsor and all have substantial equity below us at the time the loans are made. Third, all of our investment vehicles, starting with our public company, have the same investment mandate, all lend to the same businesses. We have no competing strategies or distractions. All of our work is focused on doing well for our shareholders and investors. Lastly, fourth, we have a long history of equity co-investments alongside our debt investments. This is where we buy a small piece of equity in the companies we lend money to, usually 5% of the total portfolio at cost. The equity co-investments have resulted in substantial equity gains.

[Robert Ladd, CEO at Stellus Capital Investment Corporation]

For Stellus Capital Investment Corporation, this has generated approximately $98 million of net realized gains life to date with an historical return on equity co-investments of greater than 2.5x. Now I'll turn to the private credit sector more broadly. We believe there is a lot of opportunity for growth in the private credit space, especially in our market, the lower middle market. In our market, there is a tremendous amount of dry powder in lower middle market private equity firms who are our client base, if you will. When they buy private businesses, we are there to finance the purchases. The best data we have would indicate there is approximately 10x the dry powder to invest by lower middle market private equity versus the amount of dry powder in lower middle market private credit providers. We will be there to provide the financing.

[Robert Ladd, CEO at Stellus Capital Investment Corporation]

Finally, for private credit overall, the need for this capital is very large. Why? Private credit in our country fills the large gap that commercial banks cannot provide. The reason for this is commercial banks are typically levered 10-11x and are mostly lending out retail and commercial deposits. As a result, their risk profile is very tight and they are highly regulated to safeguard these deposits. Private credit providers are not highly levered, typically 1-2x, and we are not investing bank deposits. We are investing equity capital coupled with modest institutional leverage. I will say both banks and private credit providers are focused on protecting their capital bases. Private credit, though, has the flexibility to provide more leverage, earn higher returns, and can participate in the equity upside of our portfolio companies.

[Robert Ladd, CEO at Stellus Capital Investment Corporation]

Together, private credit and commercial banks are the growth engine of our US economy. The takeaway for our shareholders is we have a long history of investing in private credit. We think there is a lot of opportunity to invest going forward in the lower middle market where we've always been and also to provide strong return, strong returns for our shareholders. With that, I recognize today's call was longer than normal. We hope that it was helpful to better understand our business and the industry we operate in. With that, Paul, please open up the line for Q&A.

[Operator]

Certainly. At this time, we will be conducting a question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Okay. The first question today is coming from Christopher Nolan from Ladenburg Thalmann. Christopher, your line is live.

[Christopher Nolan, SVP at Ladenburg Thalmann]

Hey, guys.

[Robert Ladd, CEO at Stellus Capital Investment Corporation]

Good morning. Good morning, Chris.

[Christopher Nolan, SVP at Ladenburg Thalmann]

Thanks for the detail, Rob. Given the change in the ownership of the external manager and the share repurchase initiative, will there be any change in the leverage targets for SCM?

[Robert Ladd, CEO at Stellus Capital Investment Corporation]

Thank you. Good morning, Chris. No, a good question. There will not be a change in our targeted leverage for SCM, which you'll recall is approximately 1:1 on the regulatory test and approximately 2:1, including SBIC debentures.

[Christopher Nolan, SVP at Ladenburg Thalmann]

Okay. Turning to SBA for a second, what's the remaining capacity in the SBA? Should we be looking at that to be a growth engine for you guys in the first half of the year?

[Robert Ladd, CEO at Stellus Capital Investment Corporation]

Yes. We ultimately have quite a bit of new capacity that we'll have in the SBA. We, as you may have noted in Todd's remarks, in our press release that we paid down $39 million of debentures on March first under our first license, which brings the total to $65 million. That would be one example. We have $65 million of new debentures that we'll be able to take out plus more when we obtain our third license. It's a good question. A lot of growth from here, given that we've repaid $65 million of debentures so far.

[Christopher Nolan, SVP at Ladenburg Thalmann]

Great. Final question. I noticed that you've done some subsequent investments to Venbrook and EH Real Estate Services, both of which are non-accrual. Can you give a little detail of what's going on with those guys?

[Robert Ladd, CEO at Stellus Capital Investment Corporation]

Of course, we don't talk much about the detail of individual companies, but these are companies that have been working with others to provide additional capital to see them through kind of a rough spot. EH Real Estate Services, LLC is a realtor business based in the Midwest, and Vennbrook is an insurance company, an insurance agency. These are small advances to further the company's operations during a little bit of a slow period.

[Christopher Nolan, SVP at Ladenburg Thalmann]

Great. That's it for me. Thank you, Rob.

[Robert Ladd, CEO at Stellus Capital Investment Corporation]

Yeah. Thank you, Chris.

[Operator]

Thank you. The next question will be from Brian McKenna from Citizens. Brian, your line is live.

[Brian McKenna, Managing Director of Equity Research at Citizens]

Okay, great. Thanks. Morning, everyone. Just a bigger picture fundraising question for you guys as it relates to the broader Stellus platform. What are you hearing from some of your institutional investors in terms of having some incremental exposure to the lower middle markets and moving some capital away from the large cap managers in the upper middle markets? I'm curious, you know, we'll see how the environment plays out from here, but given maybe the dynamic there, could we actually see a scenario where fundraising at Stellus starts to accelerate over the next year or so?

[Robert Ladd, CEO at Stellus Capital Investment Corporation]

Yes. Good morning, Brian, and thank you for the question. We've definitely seen for the overall Stellus platform an increasing interest in the lower middle market where we operate. This is coming from large institutional investors that have noticed in some of their larger managers some overlap in different credits and found our type of investing interesting. We've definitely seen an uptick in that area. This would be, of course, across the Stellus platform.

[Brian McKenna, Managing Director of Equity Research at Citizens]

Yeah. Okay, got it. That's helpful. Rob, you've clearly done a great job managing the business throughout a number of cycles and operating environments over the past 20 years or so. I think you have a great perspective as well. While each cycle and period of dislocation is always a little bit different, history always rhymes. You know, what past experiences can you lean on today to make sure you're prudently managing your business in the current environment?

[Robert Ladd, CEO at Stellus Capital Investment Corporation]

Yeah. I'd say, you know, historically, it's important in times like this to not be over-levered, which we're not. I would add that the private credit industry is not. You know, modest leverage is helpful in these times. Certainly, we're very focused on strong underwriting throughout periods. You may have heard us say before that when we look at a new company, we're thinking we're gonna have a recession within the first 18-24 months. Whether we are is another matter, but we underwrite to that. We'll continue that diligent underwriting, expecting if this company got into trouble or there was a cycle, economic cycle down, how would it behave or how does the sector behave? I think strong underwriting will continue for us. Then I'd say we'll be very selective about opportunities.

[Robert Ladd, CEO at Stellus Capital Investment Corporation]

My guess is too that you may see some improved pricing in our sector. In other words, spreads may widen a little bit to the benefit of our shareholders. But I'd say throughout our investing period, this goes back 20+ years, what we have found in our part of the market, again, the lower middle market, is that we've always had large equity checks below us. We've always had financial covenants and therefore well-capitalized businesses from the start. Again, I think it's the same that we've been doing historically, but you know, we'll be very focused and cautious if we think things are turning. We think there's a lot of noise in the system today that is less about the quality of the portfolios in private credit.

[Brian McKenna, Managing Director of Equity Research at Citizens]

All right. Thanks so much. I'll leave it there.

[Robert Ladd, CEO at Stellus Capital Investment Corporation]

Thanks so much, Brian, for joining.

[Operator]

Thank you. The next question will be from Justin Marca from Lucid Capital. Justin, your line is live.

[Justin Marca, VP of Equity Research at Lucid Capital]

Hey, guys. Good morning. I'm in for Eric today. Just wanna talk a little bit more about the Ridgepost transaction. Sounds like a good fit for your investment strategy. When do you expect to see the full benefits of increased deal flow and opportunities should the deal go through in mid-2026?

[Robert Ladd, CEO at Stellus Capital Investment Corporation]

Justin, thank you for joining. Again, as you pointed out that, subject to the various approvals, this transaction would close in the summer of this year. We've had initial conversations with the RCP subsidiary, if you will, of Ridgepost, and we think there's a great opportunity there. Our hope and plan would be that we get to this summer, and we'll hit the ground running. I think that collectively, we think there's lots of opportunity to open up. I would say that, you know, not to be overly optimistic, but I would imagine this will kick in in the second half of 2026.

[Justin Marca, VP of Equity Research at Lucid Capital]

Okay. All right. That's great. Looking at PIK income, it's kind of been a significant increase year over year. Are these portfolio companies prioritizing growth, or are there operational issues? What kind of strategies can you implement to get borrowers back to cash pay?

[Robert Ladd, CEO at Stellus Capital Investment Corporation]

Although our PIK income has increased, we're still at the low end of our competitor set. When you see PIK income from us, we don't go into a new loan. By the way, we understand in the upper market that lenders will go into a new credit with some PIK income. We do not. At the outset, all the loans are cash pay. If you see PIK income up with us, it would mean that the company needs some relief from a cash flow perspective. Typically, when we have some PIK aspect to the income, it means that the private equity owner is contributing new capital. This we think is a good trade for both parties.

[Robert Ladd, CEO at Stellus Capital Investment Corporation]

It turns out then that for that PIK to come down, it will be that those companies that needed relief have improved their performance, or we've exited the investment. In other words, the company's been sold or refinanced. Anyway, that's the nature of our PIK income, not something that's planned on the front end.

[Justin Marca, VP of Equity Research at Lucid Capital]

Okay. Last one for me, just on the new base distribution, still kind of above the 4Q NII run rate. What sort of levers can you guys pull to get earnings back to or above the new distribution? Or is there potential to right-size the distribution rate later on this year?

[Robert Ladd, CEO at Stellus Capital Investment Corporation]

Yes. We're striving to improve the NII. I would say that, you know, SOFR stays where it is, which perhaps for a while, this will be helpful to us. The new leverage that we would receive under a third license from the SBA will get the portfolio back up. Again, as I mentioned, quite a bit of increased portfolio that was result from our third license getting recapitalized. This would be helpful as well. Again, we always strive to receive the best returns on the loans we're making. We'll continue to work on that, but it'd be a combination of things. In any event, though, we do have a fair amount of spillover from last year.

[Robert Ladd, CEO at Stellus Capital Investment Corporation]

As a result, we'll have this level of dividend, at least that I said, through the second quarter. We'll reevaluate. We'll have more to talk about it this summer as we hopefully get our third license with the SBA.

[Justin Marca, VP of Equity Research at Lucid Capital]

Okay, great. Thanks for taking my questions today.

[Robert Ladd, CEO at Stellus Capital Investment Corporation]

Yeah. Thank you, Justin.

[Operator]

Thank you. The next question will be from Robert Dodd from Raymond James. Robert, your line is live.

[Robert Dodd, Director of Specialty Finance at Raymond James]

Hi, guys. A lot of my questions have been answered, and I appreciate the color you gave at the beginning on how much exposure you've got to software or AI risk assets. That kind of feels like so last month at this point. On what would you say your exposure is to in the portfolio to higher energy prices? Obviously, I mean, oil is up, could go meaningfully higher, potentially. We don't have a lot of, you know, direct, you know, oil and gas production exposure, obviously, but there's feed through to other areas of the economy if oil prices do continue to rise or spike again or etcetera. Could you give us any color on what the exposure is in the portfolio to that kind of issue?

[Robert Ladd, CEO at Stellus Capital Investment Corporation]

Yes, Robert. Good morning. First, as you indicated, we have no direct exposure to the oil and gas industry. I would say that we also, as a matter of underwriting, have a handful of principal tenets, one of which is to not have commodity price risk exposure. This would transcend direct oil and gas exposure. I think that the larger impact would be just the impact on the consumer if this started to cause consumer stress, that we do have some businesses that are exposed to the consumer spending, but I'd say not a material amount. Don't expect any material impact, certainly directly with companies. It would end up being more of just does that cause some change in the overall economy? Which my personal opinion, I would not expect.

[Robert Ladd, CEO at Stellus Capital Investment Corporation]

Not to get into the war in Iran, but would expect this would probably moderate over time. Again, don't expect it to. Maybe in summary, just don't expect to have a material impact on the portfolio.

[Robert Dodd, Director of Specialty Finance at Raymond James]

Got it. Thank you. On the more stressed assets in the non-accrual you have, do you have, you know, right now a kind of expectation, you know, guess maybe about like the timeframe for resolution of some of those? Because obviously to that point right now, there's a decent slug of the portfolio that's not income producing and maybe could be again at some point in the future. What's the kind of timeline there?

[Robert Ladd, CEO at Stellus Capital Investment Corporation]

Yes, Robert, this would certainly of course range by individual company.

[Robert Dodd, Director of Specialty Finance at Raymond James]

Mm-hmm.

[Robert Ladd, CEO at Stellus Capital Investment Corporation]

I won't get into that specifically. I would say that, you know, we're having some that are coming off non-accrual, and we did one in the fourth quarter that came off non-accrual.

[Robert Dodd, Director of Specialty Finance at Raymond James]

Yep.

[Robert Ladd, CEO at Stellus Capital Investment Corporation]

I think you'll see a gradual change over the next 12-18 months with regard to the portfolio. I would say that if something is non-accrual, it's being or has been restructured, and that we as a lender group and then typically the owner, because they're not able to pay interest, we're looking for exits to monetize the position, reinvest that capital and then earn, you know, have earnings on it again. I think naturally it's, you know, typically a year to 18-month process as you go. Some may take longer, some may take shorter. You know, can't cover specifics, but a gradual resolution, I would say, throughout 2026 and into 2027.

[Robert Dodd, Director of Specialty Finance at Raymond James]

Got it. Thank you for that. If I can, one more kind of just a general question. I mean, you mentioned you might see improved pricing. Obviously, the marketplace has been extremely competitive over, you know, call it the last 24 months with spreads coming down. And there's some early signs maybe that's gonna move. I mean, what's your confidence, but really it's a crystal ball question. What's your confidence that spreads will in fact widen sustainably over the next, you know, year or two versus do you think the near term indications on that, you know, is that just a short-term phenomenon? I realize this is a really tough question, but any thoughts there would be appreciated.

[Robert Ladd, CEO at Stellus Capital Investment Corporation]

Sure. First, in terms of the public, if you will, loan indices have widened materially over the last 60 days, but we have not seen that in the private market that we operate in yet. This will be driven, I'd say, by you know, more than one factor. One would be capital flows. Appears to be less capital coming to the industry, the sector currently. The next would be perceived risk and discipline by the underwriters. Unfortunately, I can't predict whether it'll occur, but certainly has the ingredients of what we're observing to cause spreads, certainly not to get tighter and potentially to widen. Public markets are reflecting it. Have not seen it yet in the private area where we operate, but certainly the ingredients for it are there.

[Robert Dodd, Director of Specialty Finance at Raymond James]

Got it. Thank you.

[Robert Ladd, CEO at Stellus Capital Investment Corporation]

Yeah. Thank you, Robert.

[Operator]

Thank you. There were no other questions at this time. I would now like to hand the call back to Robert Ladd for closing remarks.

[Robert Ladd, CEO at Stellus Capital Investment Corporation]

Okay. Thank you, Paul, very much, and thanks everyone for joining the call. Thank you for your support, and we sure look forward to speaking with you again in early May as we report the first quarter.

[Operator]

Thank you. This does conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.

Participants

Executives

• Robert Ladd, CEO
• Todd Huskinson, CFO

Analysts

• Brian McKenna, Managing Director of Equity Research at Citizens
• Christopher Nolan, SVP at Ladenburg Thalmann
• Justin Marca, VP of Equity Research at Lucid Capital
• Robert Dodd, Director of Specialty Finance at Raymond James