Financial Data and Key Metrics Changes - For Q1 2025, the company generated GAAP net investment income of $0.35 per share and core net investment income of $0.37 per share, which excludes estimated excise taxes [6] - Net asset value per share decreased by $0.21 during the quarter, primarily due to company-specific write-downs in the loan portfolio and a reduction of spillover income [6] - The company has paid $295 million in dividends since its IPO, representing $17.9 per share to an investor in the IPO [6] Business Line Data and Key Metrics Changes - The investment portfolio at fair value increased to $991.1 million across 110 portfolio companies, up from $953.5 million across 105 companies as of December 31, 2024 [7] - During Q1, the company invested $46.7 million in seven new portfolio companies and had $8.7 million in other investment activity at par [7] - 90% of the loans were secured, and 91% were priced at floating rates, with an average loan per company of $9.4 million [7][8] Market Data and Key Metrics Changes - The company noted that 52% of the portfolio is rated two or on or ahead of plan, while 21% is marked at an investment category of three or below [8] - Loans to five portfolio companies are on non-accrual, comprising 6.7% of the total cost and 4% of the fair value of the total loan portfolio, representing a decrease from the prior quarter [8] Company Strategy and Development Direction - The company plans to draw new leverage under the SBIC III license to continue funding qualifying portfolio company investments [9] - The company aims to grow the portfolio to over $1 billion, with potential for more than $10 million in equity gains by year-end [11] Management's Comments on Operating Environment and Future Outlook - Management expects new loan originations to be offset by loan repayments for the remainder of Q2 2025, indicating a flat portfolio [11] - The management expressed optimism about the return of M&A activity, which was temporarily disrupted due to tariff-related uncertainties [20][50] Other Important Information - The company issued $75 million in aggregate principal amount of 7.25% notes due April 1, 2030, to repay the bank facility [9] - The company has received a green light letter from the Small Business Administration for Stellus Capital SBIC III, which is a significant step in the licensing process [10] Q&A Session Summary Question: Impact of first quarter originations on interest income - Management indicated that the average portfolio in Q1 was higher than in Q4, which should lead to a pickup in yield for Q2 [15][16] Question: Pipeline status and lending opportunities - Management noted that the pipeline is slower compared to three months ago, but they expect interesting opportunities to close in the upcoming quarters [19][20] Question: Trajectory of net investment income (NII) to cover dividends - Management acknowledged that NII is currently less than the dividend but expects to be in a good position by the end of the year due to potential equity co-investments [23][24] Question: Trade education acquisition restructuring - Management confirmed that the business was restructured and recapitalized satisfactorily, expecting it to perform well moving forward [27][28] Question: Logic behind issuing fixed-rate debt - Management explained that the issuance was necessary to retire maturing bonds and to have some unsecured debt in the capital stack [34][35] Question: Future issuance of unsecured debt - Management indicated that more unsecured debt will be needed before the maturity of existing bonds, with the magnitude still being determined [54]

Market Overview - The global hospital information systems market is projected to reach USD 116.75 billion by 2030 from USD 63.80 billion in 2024, at a CAGR of 10.6% from 2024 to 2030 [2][9]. Market Drivers - Growth is driven by government initiatives such as financial incentives from Medicare and Medicaid, including the NY Medicaid EHR Incentive Program offering up to USD 63,750 over six years, which accelerates EHR implementation [4]. - Regulatory mandates like HIPAA, GDPR, and the Information Blocking Rule necessitate robust data security measures, prompting continuous system upgrades [4]. - The 2024-2030 Federal Health IT Strategy is expanding broadband and connected technology in underserved areas, fostering sustained market growth [4]. Market Segmentation - The telehealth and telemedicine segment dominated the market in 2023, driven by the need to mitigate hospital-acquired infections and manage chronic diseases [6]. - The Asia Pacific region is expected to experience the highest growth due to improved healthcare infrastructure, technology adoption, and government support [8]. Competitive Landscape - Leading companies in the hospital information systems market include Epic Systems Corporation, GE HealthCare, UnitedHealth Group, Medical Information Technology, Veradigm LLC, and others [5][14]. Industry Trends - Increasing adoption of Electronic Health Records (EHRs) in hospitals and clinics is a significant trend [11]. - There is a rising emphasis on collaborative care and integrating data analytics into HIS to boost patient care and operational efficiency [11]. - The integration of AI and cloud-based solutions is becoming more prevalent, enhancing patient care and operational capabilities [11].

Core Viewpoint - Stellus Capital reported quarterly earnings of $0.37 per share, matching the Zacks Consensus Estimate, but down from $0.44 per share a year ago [1] - The company posted revenues of $24.95 million, missing the Zacks Consensus Estimate by 4.99% and down from $26 million year-over-year [2] Group 1: Earnings Performance - The earnings surprise for the last quarter was -2.63%, with the company surpassing consensus EPS estimates only once in the last four quarters [1] - The current consensus EPS estimate for the upcoming quarter is $0.38, with expected revenues of $26.92 million, and for the current fiscal year, the estimate is $1.49 on $107.66 million in revenues [7] Group 2: Stock Performance and Outlook - Stellus Capital shares have declined approximately 4.4% year-to-date, compared to a decline of 3.8% for the S&P 500 [3] - The stock currently holds a Zacks Rank 3 (Hold), indicating expected performance in line with the market in the near future [6] Group 3: Industry Context - The Financial - SBIC & Commercial Industry, to which Stellus Capital belongs, is currently ranked in the bottom 37% of over 250 Zacks industries, suggesting potential challenges ahead [8] - Empirical research indicates a strong correlation between near-term stock movements and trends in earnings estimate revisions, which could impact Stellus Capital's stock performance [5]

Core Insights - Stellus Capital Investment Corporation reported solid operating results for the fiscal quarter ended March 31, 2025, with U.S. GAAP net investment income of $0.35 per share and core net investment income of $0.37 per share [2][9] - The company funded $55 million in investments and received $15 million in repayments, resulting in a total portfolio value of $991 million at fair value [2][5] - Since inception, investors have received a total of $295 million in distributions, equating to $16.95 per share [2] Financial Highlights - For the three months ended March 31, 2025, net investment income was $9.79 million, down from $10.24 million in the same period of 2024 [3][9] - Core net investment income for the same period was $10.29 million, compared to $10.61 million in 2024 [3][9] - The company experienced a net realized loss on investments of $5.97 million, an improvement from a loss of $20.38 million in the previous year [3][10] Portfolio Activity - As of March 31, 2025, investments at fair value increased to $991.1 million from $953.5 million at the end of 2024 [5] - The company made new investments totaling $55.4 million during the quarter, significantly higher than $28.5 million in the same period last year [5] - The weighted average yield on total investments remained stable at 9.6% [5] Liquidity and Capital Resources - The company had $221.8 million in outstanding borrowings under its credit facility as of March 31, 2025, up from $175.4 million at the end of 2024 [13] - The credit facility allows for borrowings of up to $315 million, with an accordion feature for potential expansion to $350 million [12] Distributions - The company declared aggregate distributions of $0.40 per share for both the three months ended March 31, 2025, and 2024, totaling $11.1 million and $9.6 million, respectively [15] Recent Developments - On April 1, 2025, the company issued $75 million in 7.250% Notes due 2030, which will bear interest payable semi-annually [22] - The company has declared regular monthly dividends for April, May, and June 2025, at $0.1333 per share [26]

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) [Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited consolidated financial statements for the quarter ended March 31, 2025, covering assets, operations, net assets, cash flows, investments, and accounting policies [Consolidated Statements of Assets and Liabilities](index=3&type=section&id=Consolidated%20Statements%20of%20Assets%20and%20Liabilities) As of March 31, 2025, total assets were $1,011.7 million, liabilities $639.0 million, and net assets $372.8 million, with NAV per share decreasing to $13.25 Consolidated Statements of Assets and Liabilities (in thousands) | | March 31, 2025 (unaudited) | December 31, 2024 | | :--- | :--- | :--- | | **Total Assets** | $1,011,737 | $980,900 | | **Total Liabilities** | $638,971 | $610,978 | | **Net Assets** | $372,766 | $369,922 | | **Net Asset Value Per Share** | $13.25 | $13.46 | [Consolidated Statements of Operations](index=4&type=section&id=Consolidated%20Statements%20of%20Operations) For Q1 2025, total investment income was $25.0 million, net investment income $9.8 million, and net assets increased by $5.0 million, a decrease from Q1 2024 Key Operational Metrics (unaudited, for the three months ended) | Metric | March 31, 2025 | March 31, 2024 | | :--- | :--- | :--- | | **Total Investment Income** | $24,951,658 | $25,996,749 | | **Total Operating Expenses, net** | $15,162,849 | $15,760,833 | | **Net Investment Income** | $9,788,809 | $10,235,916 | | **Net Increase in Net Assets** | $4,993,545 | $13,148,460 | | **Net Investment Income Per Share** | $0.35 | $0.42 | | **Net Increase in Net Assets Per Share** | $0.18 | $0.54 | [Consolidated Statements of Changes in Net Assets](index=5&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Net%20Assets) Net assets increased from $369.9 million to $372.8 million, driven by net investment income and stock issuance, offset by distributions and realized losses Changes in Net Assets (Q1 2025) | Description | Amount | | :--- | :--- | | **Net Assets at Dec 31, 2024** | **$369,921,940** | | Net investment income | $9,788,809 | | Net realized loss on investments | ($5,967,221) | | Net change in unrealized appreciation | $1,193,293 | | Distributions from net investment income | ($11,087,389) | | Issuance of common stock, net | $8,938,086 | | Other changes | ($21,336) | | **Net Assets at March 31, 2025** | **$372,766,182** | [Consolidated Statements of Cash Flows](index=6&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Q1 2025 saw a net cash outflow of $36.9 million from operations, offset by $27.8 million from financing, resulting in a $9.2 million net decrease in cash Cash Flow Summary (unaudited, for the three months ended) | Activity | March 31, 2025 | March 31, 2024 | | :--- | :--- | :--- | | **Net Cash (Used) Provided in Operating Activities** | ($36,924,026) | $4,456,954 | | **Net Cash Provided by Financing Activities** | $27,754,253 | $18,179,026 | | **Net (Decrease) Increase in Cash** | ($9,169,773) | $22,635,980 | [Consolidated Schedules of Investments](index=7&type=section&id=Consolidated%20Schedules%20of%20Investments) As of March 31, 2025, the $991.1 million investment portfolio, primarily first lien senior secured debt, was diversified across 110 companies with $46.5 million in unfunded commitments Portfolio Composition by Investment Type (March 31, 2025) | Investment Type | Fair Value | % of Total | | :--- | :--- | :--- | | Senior Secured – First Lien | $888,500,654 | 89.6% | | Senior Secured – Second Lien | $11,948,850 | 1.2% | | Unsecured Debt | $6,705,769 | 0.7% | | Equity | $83,948,504 | 8.5% | | **Total Investments** | **$991,103,777** | **100.0%** | - Total investments of **$991.1 million** were held in **110 portfolio companies** as of March 31, 2025[39](index=39&type=chunk)[212](index=212&type=chunk)[288](index=288&type=chunk) - As of March 31, 2025, the company had outstanding unfunded commitments totaling **$46.5 million**, consisting of **$46.2 million** in debt and **$0.3 million** in equity[48](index=48&type=chunk)[214](index=214&type=chunk)[239](index=239&type=chunk) [Notes to Unaudited Financial Statements](index=38&type=section&id=Notes%20to%20Unaudited%20Financial%20Statements) This section details the company's accounting policies, BDC/RIC status, SBIC leverage, Level 3 valuations, major debt instruments, and the subsequent issuance of $75 million in 7.250% Notes due 2030 - The company operates as a BDC and has elected to be treated as a RIC for U.S. federal income tax purposes[107](index=107&type=chunk) - As of March 31, 2025, the company's asset coverage ratio was **216%**, compliant with the **150%** regulatory requirement[116](index=116&type=chunk) - As of March 31, 2025, loans to five portfolio companies were on non-accrual status, representing **4.0%** of the loan portfolio at fair value[144](index=144&type=chunk) - Subsequent to the quarter end, on April 1, 2025, the company issued **$75 million** in aggregate principal amount of **7.250% Notes due 2030**[270](index=270&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=83&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management analyzes Q1 2025 financial condition and operations, covering portfolio growth, asset quality, decreased net investment income, liquidity, capital resources, and subsequent note issuance [Portfolio Composition and Investment Activity](index=84&type=section&id=Portfolio%20Composition%20and%20Investment%20Activity) The investment portfolio grew to $991.1 million across 110 companies, primarily first lien debt, with $55.4 million in new investments and a 10.3% weighted average yield Portfolio Value and Composition | Date | Total Fair Value | Number of Companies | First Lien Debt % (Fair Value) | | :--- | :--- | :--- | :--- | | **Mar 31, 2025** | $991.1 million | 110 | 90% | | **Dec 31, 2024** | $953.5 million | 105 | 90% | - In Q1 2025, investment activity included **$55.4 million** in new investments and **$15.0 million** in proceeds from repayments[301](index=301&type=chunk) - The weighted average yield on all debt investments was approximately **10.3%** as of March 31, 2025[299](index=299&type=chunk) [Asset Quality](index=91&type=section&id=Asset%20Quality) Asset quality improved with non-accrual loans decreasing to 4.0% of fair value, and 84% of the portfolio rated at or above expectations Investment Risk Ratings (% of Total Portfolio Fair Value) | Investment Category | March 31, 2025 | December 31, 2024 | | :--- | :--- | :--- | | 1 (Above Expectations) | 26% | 24% | | 2 (Within Expectations) | 58% | 59% | | 3 (Below Expectations) | 12% | 12% | | 4 (Substantially Below) | 3% | 4% | | 5 (Loss Expected) | 1% | 1% | - Loans on non-accrual status decreased to **5 companies**, representing **4.0%** of the loan portfolio at fair value as of March 31, 2025, compared to **7 companies** representing **5.4%** at December 31, 2024[306](index=306&type=chunk) [Results of Operations](index=92&type=section&id=Results%20of%20Operations) Q1 2025 net investment income decreased to $9.8 million due to lower investment income, partially offset by reduced expenses, leading to a sharp decline in net asset increase Comparison of Results of Operations (in millions) | Metric | Q1 2025 | Q1 2024 | | :--- | :--- | :--- | | **Total Investment Income** | $25.0 | $26.0 | | **Total Operating Expenses, net** | $15.2 | $15.8 | | **Net Investment Income** | $9.8 | $10.2 | | **Net Realized Loss** | ($6.0) | ($20.4) | | **Net Change in Unrealized Appreciation** | $1.2 | $23.5 | | **Net Increase in Net Assets** | $5.0 | $13.1 | [Financial Condition, Liquidity and Capital Resources](index=96&type=section&id=Financial%20Condition%2C%20Liquidity%20and%20Capital%20Resources) The company maintains liquidity via credit facilities and notes, with $630.6 million total debt and a 216% asset coverage ratio, further bolstered by a $75.0 million note issuance post-quarter - As of March 31, 2025, the company had cash and cash equivalents of **$10.9 million**[300](index=300&type=chunk)[332](index=332&type=chunk) Debt Outstanding as of March 31, 2025 | Debt Instrument | Amount Outstanding | | :--- | :--- | | Credit Facility | $221.8 million | | SBA-guaranteed debentures | $308.8 million | | 4.875% Notes due 2026 | $100.0 million | - The company's asset coverage ratio was **216%** as of March 31, 2025[332](index=332&type=chunk) - Subsequent to quarter-end, on April 1, 2025, the company issued **$75.0 million** of **7.250% Notes due 2030**[368](index=368&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=108&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate volatility, with 91.4% floating-rate debt, where a 100 bps rate change impacts net interest income by $6.1 million annually - As of March 31, 2025, **91.4%** of the loans in the company's portfolio bore interest at a floating rate[373](index=373&type=chunk) Annual Impact on Net Income from Interest Rate Changes (in millions) | Change in Basis Points | Net Interest Income Change | | :--- | :--- | | Up 200 | $12.3 | | Up 100 | $6.1 | | Down 100 | ($6.1) | | Down 200 | ($12.3) | [Controls and Procedures](index=109&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of March 31, 2025, with no material changes to internal control over financial reporting - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures are effective as of March 31, 2025[377](index=377&type=chunk) - No material changes to the company's internal control over financial reporting were identified during the first quarter of 2025[378](index=378&type=chunk) [PART II. OTHER INFORMATION](index=110&type=section&id=PART%20II.%20OTHER%20INFORMATION) [Legal Proceedings](index=110&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently subject to any material legal proceedings, nor is it aware of any threatened against it - The company is not currently a party to any material legal proceedings[381](index=381&type=chunk) [Risk Factors](index=110&type=section&id=Item%201A.%20Risk%20Factors) No material changes to previously disclosed risk factors were identified during the three months ended March 31, 2025 - There have been no material changes to the risk factors previously disclosed in the company's SEC filings during the three months ended March 31, 2025[383](index=383&type=chunk) [Unregistered Sales of Equity Securities and Use of Proceeds](index=110&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company did not engage in any unregistered sales of equity securities or issue shares via its dividend reinvestment program in Q1 2025 - The company did not conduct any unregistered sales of equity securities in the three months ended March 31, 2025[384](index=384&type=chunk) [Other Information](index=110&type=section&id=Item%205.%20Other%20Information) No directors or executive officers adopted or terminated Rule 10b5-1 trading plans or other trading arrangements during Q1 2025 - No directors or executive officers adopted or terminated any Rule 10b5-1 trading plans during the quarter[387](index=387&type=chunk) [Exhibits](index=111&type=section&id=Item%206.%20Exhibits) This section lists all exhibits filed, including CEO/CFO certifications, XBRL data, and incorporated by reference documents like the 7.250% Notes due 2030 indenture - The report includes required CEO and CFO certifications pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[388](index=388&type=chunk) - The Fourth Supplemental Indenture related to the **7.250% Notes due 2030** is incorporated by reference[388](index=388&type=chunk)

Core Viewpoint - Stellus Capital Investment Corporation is set to release its financial results for Q1 2025 on May 12, 2025, after market close [1] Group 1: Financial Results Announcement - The financial results for the first quarter ended March 31, 2025, will be disclosed on May 12, 2025 [1] - A conference call to discuss these results will take place on May 13, 2025, at 10:00 AM Central Time, which is a change from the previously scheduled time [2] Group 2: Conference Call Details - The conference call can be accessed via phone by dialing 888-506-0062 with passcode 260621 [3] - A replay of the conference call will be available starting approximately two hours after the call until May 27, 2025, by dialing 877-481-4010 and entering passcode 52407 [3] - The conference will also be available via live webcast on the company's website, with a replay accessible for approximately 90 days [3] Group 3: Company Overview - Stellus Capital Investment Corporation is an externally-managed, closed-end, non-diversified investment management company regulated as a business development company under the Investment Company Act of 1940 [4] - The company's investment objective is to maximize total return to stockholders through current income and capital appreciation by investing primarily in private middle-market companies with EBITDA between $5.0 million and $50.0 million [4] - Investment activities are managed by Stellus Capital Management, LLC [4]

Core Viewpoint - Stellus Capital Investment Corporation is set to release its financial results for Q1 2025 on May 12, 2025, after market close [1] - A conference call to discuss these results will take place on May 13, 2025, at 11:00 AM Central Time, led by the CEO and CFO [2] Financial Results Release - The financial results for the first quarter ended March 31, 2025, will be disclosed on May 12, 2025 [1] - The results will be discussed in a conference call on May 13, 2025 [2] Conference Call Details - The conference call can be accessed via phone at 888-506-0062 with passcode 260621 [3] - A replay of the call will be available until May 27, 2025, by dialing 877-481-4010 with passcode 52407 [3] - The call will also be available via live webcast on the company's website, with a replay accessible for approximately 90 days [3] Company Overview - Stellus Capital Investment Corporation is an externally-managed, closed-end, non-diversified investment management company regulated as a business development company under the Investment Company Act of 1940 [4] - The company's investment objective is to maximize total return to stockholders through current income and capital appreciation by investing primarily in private middle-market companies [4] - The investment strategy includes first lien, second lien, unitranche, and mezzanine debt financing, along with corresponding equity investments [4]

Company Overview - Stellus Capital (SCM) shares increased by 7.1% to close at $12.52, following a notable trading volume compared to typical sessions, despite a 15.4% loss over the past four weeks [1] - The stock surge was influenced by a broader market jump, attributed to President Trump's announcement of a 90-day tariff pause for non-retaliating nations, which positively impacted investor sentiment [2] Earnings Expectations - Stellus Capital is expected to report quarterly earnings of $0.37 per share, reflecting a year-over-year decline of 15.9%, with revenues projected at $26.26 million, a 1% increase from the previous year [2] - The consensus EPS estimate for Stellus Capital has been revised 4.6% higher in the last 30 days, indicating a positive trend that may lead to price appreciation [4] Industry Context - Stellus Capital operates within the Zacks Financial - SBIC & Commercial Industry, where another company, WhiteHorse Finance (WHF), saw a 5.4% increase in its stock price, closing at $9.14, despite a -11.7% return over the past month [4] - WhiteHorse's consensus EPS estimate has decreased by 11.1% to $0.33, representing a year-over-year change of -29.8%, and it currently holds a Zacks Rank of 4 (Sell) [5]

Group 1 - The Company declared a monthly dividend of $0.1333 for April, May, and June 2025, totaling $0.40 per share for the second quarter [1] - The regular dividend will be paid to shareholders of record in May, June, and July 2025 [1] - The ex-dividend dates are set for April 30, May 30, and June 30, 2025, with payment dates on May 15, June 13, and July 15, 2025 [2] Group 2 - Stellus Capital Investment Corporation is an externally-managed, closed-end, non-diversified investment management company regulated as a business development company under the Investment Company Act of 1940 [3] - The Company's investment objective is to maximize total return to stockholders through current income and capital appreciation by investing primarily in private middle-market companies with EBITDA between $5.0 million and $50.0 million [3] - The Company focuses on first lien loans, including unitranche loans, often with corresponding equity investments [3]

Core Viewpoint - Stellus Capital Investment Corporation has announced a public offering of $75 million in 7.25% notes due 2030, aimed at repaying part of its outstanding credit facility and potentially investing in lower middle-market companies [1][3]. Group 1: Offering Details - The public offering consists of $75 million aggregate principal amount of 7.25% notes, maturing on April 1, 2030, with interest payable semi-annually starting October 1, 2025 [1]. - The notes may be redeemed at the Company's option at par plus a "make-whole" premium [1]. - The offering is managed by Raymond James & Associates, Inc. as the lead book-running manager, with Goldman Sachs & Co. LLC and Keefe, Bruyette & Woods, Inc. as passive book-runners [2]. Group 2: Use of Proceeds - The net proceeds from the offering will be used to repay a portion of the $236.4 million outstanding under the Company's credit facility [3]. - The Company may re-borrow under its credit facility to invest in lower middle-market companies and for general corporate purposes [3]. Group 3: Company Overview - Stellus Capital Investment Corporation is an externally-managed, closed-end, non-diversified investment management company regulated as a business development company under the Investment Company Act of 1940 [7]. - The Company's investment objective is to maximize total return through current income and capital appreciation by investing primarily in private lower middle-market companies with EBITDA between $5 million and $50 million [7].