Financial Data and Key Metrics Changes - In Q3 2024, the company generated GAAP net investment income of $0.39 per share and core net investment income of $0.40 per share, which excludes estimated excise taxes [7] - Net asset value per share increased by $0.19 during the quarter, primarily due to net unrealized depreciation on the investment portfolio [7] - The investment portfolio at fair value was $908.7 million, up from $899.7 million as of June 30, 2024 [8] Business Line Data and Key Metrics Changes - The company invested $9.4 million in one new portfolio company and had $8.4 million in other investment activity at par during the third quarter [8] - The company received one full repayment totaling $8.4 million and $5.5 million of other repayments, both at par [8] - 98% of loans were secured and 95% were priced at floating rates, with an average loan per company of $9.5 million [8] Market Data and Key Metrics Changes - The company expects to end Q4 with a portfolio between $930 million and $950 million, with anticipated loan repayments of approximately $29 million [10] - The average yield is projected to decrease from 11.7% in the prior quarter to 11% for Q4 due to lower SOFR rates [15] Company Strategy and Development Direction - The company plans to grow its portfolio to over $1 billion, supported by an increased bank facility from $260 million to $315 million [11] - The company declared a dividend for Q4 at a rate of $0.40 per quarter, payable monthly [11] Management's Comments on Operating Environment and Future Outlook - Management noted that the lower SOFR rate impacted net investment income, and they expect investment activity to pick up in Q4 [13][14] - The company is confident in reaching the $930 million to $950 million portfolio target by year-end, citing 10 to 15 active deals [25] Other Important Information - The company has paid over $273 million in dividends since its IPO, representing $16.28 per share to an investor in the IPO [6] - Spillover income stands at $42 million as of the end of Q3 [22] Q&A Session Summary Question: Was there any temporary driver for NII being below the dividend this quarter? - Management indicated that a lower SOFR rate and lighter investment activity contributed to the lower NII, but nothing unusual was noted [13] Question: Is the current EPS run rate sustainable? - Management suggested that the EPS run rate would depend on other income in Q4, with a reminder that SOFR rates have dropped [15] Question: What is the status of the fee waiver? - Management indicated that a fee waiver might occur in Q2 2025, depending on future performance [19] Question: What is the spillover income? - Spillover income currently stands at $42 million [20] Question: Will the appreciation tied to a potential transaction occur in Q4? - Management confirmed that the expected appreciation is anticipated to occur in Q4 [21] Question: How confident is the company in reaching the $930 million to $950 million target? - Management expressed confidence, citing 10 to 15 active deals [25]

Financial Performance - Stellus Capital reported quarterly earnings of $0.40 per share, missing the Zacks Consensus Estimate of $0.46 per share, and down from $0.49 per share a year ago, representing an earnings surprise of -13.04% [1] - The company posted revenues of $26.5 million for the quarter ended September 2024, missing the Zacks Consensus Estimate by 3.14%, and down from $27.17 million year-over-year [2] - The current consensus EPS estimate for the coming quarter is $0.42 on revenues of $27.62 million, and for the current fiscal year, it is $1.84 on revenues of $107.6 million [7] Market Performance - Stellus Capital shares have increased by approximately 7.9% since the beginning of the year, while the S&P 500 has gained 24.3% [3] - The company has surpassed consensus EPS estimates two times over the last four quarters and topped consensus revenue estimates three times during the same period [2] Earnings Outlook - The estimate revisions trend for Stellus Capital is currently unfavorable, resulting in a Zacks Rank 4 (Sell) for the stock, indicating expected underperformance in the near future [6] - The sustainability of the stock's immediate price movement will depend on management's commentary during the earnings call and future earnings expectations [3][4] Industry Context - Stellus Capital operates within the Financial - SBIC & Commercial Industry, which is currently ranked in the bottom 27% of over 250 Zacks industries, suggesting potential challenges ahead [8] - The performance of Stellus Capital may be influenced by the overall outlook for the industry, as research indicates that the top 50% of Zacks-ranked industries outperform the bottom 50% by more than 2 to 1 [8]

Core Insights - Stellus Capital Investment Corporation reported solid operating results for the fiscal quarter ended September 30, 2024, with U.S. GAAP net investment income of $0.39 per share and core net investment income of $0.40 per share, covering the declared regular dividend of $0.40 per share [1][4] - The net asset value per share increased by $0.19 from the previous quarter, reaching $13.55 [1][12] - The company has increased its capital base by $55 million through the upsizing of its Credit Facility to $315 million [1][10] Financial Highlights - For the three months ended September 30, 2024, net investment income was $10.26 million, down from $10.82 million in the same period of 2023, with per share amounts of $0.39 and $0.47 respectively [2][4] - Core net investment income for the same period was $10.62 million, compared to $11.16 million in 2023, with per share amounts of $0.40 and $0.49 respectively [2][4] - Total realized income for the quarter was $6.94 million, down from $11.40 million in the prior year [2][4] Portfolio Activity - As of September 30, 2024, the company had investments at fair value totaling $908.7 million, an increase from $874.5 million at the end of 2023 [3] - The total assets increased to $957.1 million from $908.1 million [3] - The company made new investments totaling $17.8 million during the quarter, while repayments of investments amounted to $15.5 million, resulting in net activity of $2.3 million [3] Investment Income and Expenses - Investment income for the three months ended September 30, 2024, was $26.5 million, compared to $27.2 million in the same period of 2023 [4][13] - Gross operating expenses for the quarter were $16.2 million, slightly down from $16.3 million in the previous year [4][13] - The company declared aggregate distributions of $0.40 per share for both the current and prior year periods, totaling $10.6 million and $9.3 million respectively [4][9] Recent Developments - The company has continued to invest in various portfolio companies, with notable investments including PCS Software, Trade Education Acquisition, and Bart & Associates during the quarter [5][6] - Subsequent to September 30, 2024, the company made additional investments in Compost 360 Investments and Norplex Micarta Acquisition, totaling $13.05 million [7][10]

Core Viewpoint - Stellus Capital (SCM) reported quarterly earnings of $0.50 per share, exceeding the Zacks Consensus Estimate of $0.44 per share, but slightly down from $0.51 per share a year ago, indicating an earnings surprise of 13.64% [1] Financial Performance - The company achieved revenues of $26.63 million for the quarter ended June 2024, surpassing the Zacks Consensus Estimate by 0.83% and showing a slight increase from $26.59 million year-over-year [2] - Over the last four quarters, Stellus Capital has exceeded consensus EPS estimates three times and has also topped consensus revenue estimates three times [2] Stock Performance and Outlook - Stellus Capital shares have increased by approximately 6.2% since the beginning of the year, while the S&P 500 has gained 9.9% [3] - The future performance of the stock will largely depend on management's commentary during the earnings call and the revisions of earnings estimates [3][4] Earnings Estimates - The current consensus EPS estimate for the upcoming quarter is $0.42, with expected revenues of $27.29 million, and for the current fiscal year, the estimate is $1.73 on revenues of $107.06 million [7] Industry Context - Stellus Capital operates within the Financial - SBIC & Commercial Industry, which is currently ranked in the bottom 30% of over 250 Zacks industries, indicating potential challenges in performance compared to higher-ranked industries [8]

Core Insights - Stellus Capital Investment Corporation reported solid operating results for Q2 2024, with U.S. GAAP net investment income of $0.48 per share and core net investment income of $0.50 per share, covering the declared dividend of $0.40 per share [1][4] - The loan portfolio yielded 11.7% as of June 30, 2024, with total distributions to investors amounting to $262 million over the company's 11 years of operation [1][4] Financial Highlights - Net investment income for Q2 2024 was $11.79 million, compared to $10.41 million in Q2 2023, with per share amounts of $0.48 and $0.49 respectively [2][4] - Core net investment income for Q2 2024 was $12.37 million, or $0.50 per share, down from $10.79 million, or $0.51 per share in Q2 2023 [2][4] - Total realized income for Q2 2024 was $13.75 million, with a per share amount of $0.55, compared to $10.09 million and $0.48 per share in Q2 2023 [2] - The company declared distributions of $0.40 per share for both Q2 2024 and Q2 2023, totaling $10.0 million and $8.7 million respectively [4] Portfolio Activity - As of June 30, 2024, investments at fair value totaled $899.7 million, up from $874.5 million at the end of 2023 [3] - The company made new investments totaling $66.3 million in Q2 2024, compared to $46.5 million in Q2 2023 [3] - The number of portfolio company investments increased to 100 from 93, with debt investments rising to 87 from 81 [3] Liquidity and Capital Resources - As of June 30, 2024, the company had $169.4 million in outstanding borrowings under its credit facility, compared to $160.1 million at the end of 2023 [4] - The company issued 1,855,356 shares under its At-the-Market Program during Q2 2024, raising gross proceeds of $25.8 million at an average price of $13.89 per share [4] Recent Developments - The company declared regular monthly distributions of $0.1333 per share for July, August, and September 2024 [9] - Subsequent to June 30, 2024, the company made an add-on investment of $9,995 in PCS Software, Inc. on July 31, 2024 [8]

Core Viewpoint - Stellus Capital Investment Corporation is set to release its financial results for Q2 2024 on August 7, 2024, after market close [1] Financial Results Announcement - The financial results will be discussed in a conference call on August 8, 2024, at 11:00 AM Central Time, led by the CEO and CFO [2] - A replay of the conference call will be available for a limited time after the event [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 focuses on maximizing total return through investments in private middle-market companies, typically with EBITDA between $5 million and $50 million, using various debt financing and equity investments [4]

Core Points - Stellus Capital Investment Corporation has declared a monthly dividend of $0.1333 for July, August, and September 2024, totaling $0.40 per share for the third quarter [1][4] - The regular dividend will be paid to shareholders of record in August, September, and October 2024 [1][4] Dividend Summary - Declared Ex-Dividend Date: July 31, 2024; Record Date: July 31, 2024; Payment Date: August 15, 2024; Amount per Share: $0.1333 [4] - Declared Ex-Dividend Date: August 30, 2024; Record Date: August 30, 2024; Payment Date: September 13, 2024; Amount per Share: $0.1333 [4] - Declared Ex-Dividend Date: September 30, 2024; Record Date: September 30, 2024; Payment Date: October 15, 2024; Amount per Share: $0.1333 [4] 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 strategies include first lien, second lien, unitranche, and mezzanine debt financing, along with corresponding equity investments [4]

Core Viewpoint - Stellus Capital Investment Corporation (NYSE: SCM) is considered a solid buy for passive income following a recent stock price pullback, with a reasonable dividend safety in a moderate inflation environment [1][2][15] Financial Performance - In 1Q24, Stellus Capital Investment covered its dividend with net investment income of $0.44 per share, resulting in a dividend pay-out ratio of 91% [9] - Total investment income for 1Q24 was reported at $26.0 million, an increase of 8% year-over-year, while net investment income rose by 13% year-over-year to $10.2 million [6][10] Investment Portfolio - As of March 31, 2024, Stellus Capital Investment's portfolio was valued at $875.9 million, with 91% consisting of Senior Secured Loans [3][4] - The company is heavily positioned in floating-rate loans, with 98% of its portfolio benefiting from interest rate hikes, which is expected to enhance net investment income [4][7] Market Conditions - The central bank is unlikely to cut interest rates in 2024, which would favorably impact Stellus Capital Investment's net investment income growth [5][10] - The stock is currently trading at a moderate premium of 3% to net asset value, making it an attractive option for passive income investors [11][15] Valuation and Outlook - The intrinsic value of Stellus Capital Investment is estimated at $14.75 based on a 1.10x NAV multiple, suggesting a potential upside of 6% from the current stock price of $13.88 [11] - The recent pullback in stock price is viewed as a buying opportunity, with the company maintaining a solid dividend coverage and healthy fundamentals [11][15]

Stellus Capital Investment Corporation (NYSE:SCM) Q1 2024 Earnings Conference Call May 10, 2024 12:00 PM ET Company Participants Robert Ladd - Chairman and Chief Executive Officer Todd Huskinson - Chief Financial Officer, Chief Compliance Officer, Treasurer and Secretary Conference Call Participants Christopher Nolan - Ladenburg Thalmann Bryce Rowe - B. Riley Erik Zwick - Hovde Group Operator Good afternoon, ladies and gentlemen, and thank you for standing by. At this time, I would like to welcome everyone ...

PART I. FINANCIAL INFORMATION [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited consolidated financial statements for Stellus Capital Investment Corporation as of March 31, 2024, and for the three-month period then ended [Consolidated Statements of Assets and Liabilities](index=3&type=section&id=Consolidated%20Statements%20of%20Assets%20and%20Liabilities) As of March 31, 2024, total assets increased to $935.2 million from $908.1 million at year-end 2023, driven by a rise in cash and investments, with net assets increasing to $323.4 million and NAV per share to $13.41 Consolidated Balance Sheet Summary (unaudited) | Metric | March 31, 2024 | December 31, 2023 | | :--- | :--- | :--- | | **Total Assets** | **$935,221,348** | **$908,086,328** | | Total Investments at Fair Value | $875,884,146 | $874,460,683 | | Cash and cash equivalents | $48,761,721 | $26,125,741 | | **Total Liabilities** | **$611,780,944** | **$588,146,540** | | Credit Facility payable | $181,343,929 | $156,564,776 | | SBA-guaranteed debentures | $320,587,412 | $320,273,358 | | **Net Assets** | **$323,440,404** | **$319,939,788** | | **Net Asset Value Per Share** | **$13.41** | **$13.26** | [Consolidated Statements of Operations](index=4&type=section&id=Consolidated%20Statements%20of%20Operations) For Q1 2024, Net Increase in Net Assets from Operations significantly rose to $13.1 million ($0.54 per share) from $4.7 million ($0.24 per share) in Q1 2023, driven by unrealized appreciation despite a net realized loss Quarterly Operating Results (unaudited) | Metric | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | **Total Investment Income** | **$25,996,749** | **$24,075,347** | | Total Operating Expenses, net | $15,760,833 | $15,007,727 | | **Net Investment Income** | **$10,235,916** | **$9,067,620** | | Net realized (loss) gain | ($20,384,731) | $34,967 | | Net change in unrealized appreciation (depreciation) | $23,518,590 | ($4,249,642) | | **Net Increase in Net Assets from Operations** | **$13,148,460** | **$4,736,147** | | **NII Per Share** | **$0.42** | **$0.46** | | **Net Increase in Net Assets Per Share** | **$0.54** | **$0.24** | | Distributions Per Share | $0.40 | $0.40 | [Consolidated Statements of Changes in Net Assets](index=5&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Net%20Assets) Net assets increased by $3.5 million in Q1 2024 to $323.4 million, primarily due to net investment income and unrealized appreciation, partially offset by realized losses and distributions Reconciliation of Net Assets for Q1 2024 (unaudited) | Description | Amount | | :--- | :--- | | **Net Assets at December 31, 2023** | **$319,939,788** | | Net investment income | $10,235,916 | | Net realized loss on investments | ($20,384,731) | | Net change in unrealized appreciation on investments | $23,518,590 | | Distributions from net investment income | ($9,647,844) | | Other changes | ($221,315) | | **Net Assets at March 31, 2024** | **$323,440,404** | [Consolidated Statements of Cash Flows](index=6&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) The company generated $4.5 million in cash from operating activities in Q1 2024, a significant improvement from the prior year, resulting in a $22.6 million net increase in cash and cash equivalents Summary of Cash Flows (unaudited) | Cash Flow Activity | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net Cash Provided (Used) in Operating Activities | $4,456,954 | ($32,043,024) | | Net Cash Provided by Financing Activities | $18,179,026 | $1,851,795 | | **Net Increase (Decrease) in Cash** | **$22,635,980** | **($30,191,229)** | | Cash and Cash Equivalents at End of Period | $48,761,721 | $17,852,100 | [Consolidated Schedules of Investments](index=7&type=section&id=Consolidated%20Schedules%20of%20Investments) As of March 31, 2024, the investment portfolio had a fair value of $875.9 million across 94 companies, with 90% in senior secured first lien loans and significant concentrations in business services and healthcare Portfolio Composition by Investment Type (March 31, 2024) | Investment Type | Fair Value | % of Total | | :--- | :--- | :--- | | Senior Secured – First Lien | $782,845,785 | 90% | | Senior Secured – Second Lien | $11,948,850 | 1% | | Unsecured Debt | $6,210,612 | 1% | | Equity | $74,878,899 | 8% | | **Total Investments** | **$875,884,146** | **100%** | - The total investment portfolio consisted of investments in 94 companies with a total fair value of **$875.9 million** as of March 31, 2024[184](index=184&type=chunk)[254](index=254&type=chunk) - All investments are valued using significant unobservable inputs and are therefore classified as Level 3 within the fair value hierarchy[35](index=35&type=chunk)[189](index=189&type=chunk) [Notes to Unaudited Financial Statements](index=31&type=section&id=Notes%20to%20Unaudited%20Financial%20Statements) This section details the company's accounting policies, operations as a BDC and RIC, related-party agreements, dividend distributions, equity offerings, portfolio valuation, debt facilities, financial highlights, and subsequent events - The company operates as a Business Development Company (BDC) and a Regulated Investment Company (RIC), focusing on debt and equity investments in U.S. middle-market companies[85](index=85&type=chunk)[96](index=96&type=chunk) - The company utilizes two wholly-owned Small Business Investment Company (SBIC) subsidiaries to access up to **$325 million** in SBA-guaranteed debentures, which are excluded from the BDC asset coverage test[88](index=88&type=chunk)[89](index=89&type=chunk)[223](index=223&type=chunk) Financial Highlights Per Share (Q1 2024 vs Q1 2023) | Per Share Data | Q1 2024 | Q1 2023 | | :--- | :--- | :--- | | Net asset value at beginning of period | $13.26 | $14.02 | | Net investment income | $0.42 | $0.46 | | Total from operations | $0.54 | $0.24 | | Stockholder distributions | ($0.40) | ($0.40) | | **Net asset value at end of period** | **$13.41** | **$13.87** | - As of March 31, 2024, the company's asset coverage ratio was **214%** (or 2.14x), well above the regulatory minimum of **150%**[95](index=95&type=chunk)[209](index=209&type=chunk) - Subsequent to quarter-end, the company made new investments totaling over **$10 million**, realized its investment in Nutritional Medicinals, and declared monthly dividends of **$0.1333** per share for April, May, and June 2024[239](index=239&type=chunk)[240](index=240&type=chunk)[242](index=242&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=61&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's financial condition and operating results, covering investment objectives, portfolio composition, asset quality, operating performance, liquidity, capital resources, and debt facilities - The company's investment objective is to maximize total return through debt and equity investments in middle-market companies, typically those with **$5.0 million** to **$50.0 million** of EBITDA[246](index=246&type=chunk)[253](index=253&type=chunk) - As of March 31, 2024, **82%** of the portfolio by fair value was rated in the top two categories (performing at or above expectations), an improvement from **86%** at year-end 2023, with four portfolio companies on non-accrual status, representing **2.1%** of the portfolio's fair value[269](index=269&type=chunk)[270](index=270&type=chunk) - The increase in net investment income in Q1 2024 compared to Q1 2023 was attributed to portfolio growth and rising interest rates, which was partially offset by higher management and incentive fees[276](index=276&type=chunk)[280](index=280&type=chunk)[282](index=282&type=chunk) - Liquidity is derived from a **$260 million** Credit Facility, **$325 million** in SBA-guaranteed debentures, and **$100 million** in Notes Payable, with **$48.8 million** in cash and cash equivalents as of March 31, 2024[293](index=293&type=chunk)[295](index=295&type=chunk) [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=78&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company's primary market risk is interest rate risk, as 98% of its debt portfolio consists of floating-rate loans, with a 100 basis point interest rate increase or decrease impacting annual net interest income by approximately $6.1 million - As of March 31, 2024, **98%** of the company's loans by fair value bore interest at floating rates, primarily indexed to SOFR, making the company sensitive to changes in interest rates[330](index=330&type=chunk) Annual Impact of Interest Rate Changes on Net Income (as of March 31, 2024) | Change in Basis Points | Net Interest Income Impact ($ in millions) | | :--- | :--- | | Up 200 | $12.1 | | Up 100 | $6.1 | | Up 50 | $3.1 | | Down 50 | ($3.1) | | Down 100 | ($6.1) | | Down 200 | ($12.1) | [Item 4. Controls and Procedures](index=79&type=section&id=Item%204.%20Controls%20and%20Procedures) Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of March 31, 2024, with no material changes to internal control over financial reporting during the quarter - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures are effective as of the end of the period covered by the report[335](index=335&type=chunk) - No changes in internal control over financial reporting occurred during the quarter ended March 31, 2024, that materially affected, or are reasonably likely to materially affect, the company's internal controls[336](index=336&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=80&type=section&id=Item%201.%20Legal%20Proceedings) The company is not currently subject to any material legal proceedings, nor is it aware of any material legal proceedings being threatened against it - The company reports no material legal proceedings as of the filing date[338](index=338&type=chunk) [Item 1A. Risk Factors](index=80&type=section&id=Item%201A.%20Risk%20Factors) There have been no material changes to the risk factors previously disclosed in the company's Annual Report on Form 10-K for the year ended December 31, 2023 - No material changes to the risk factors discussed in the company's Annual Report on Form 10-K filed on March 4, 2024, were identified during the three months ended March 31, 2024[339](index=339&type=chunk)[340](index=340&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=80&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) The company did not engage in any unregistered sales of its equity securities during the three months ended March 31, 2024 - The company did not conduct any unregistered sales of equity securities in the first quarter of 2024[341](index=341&type=chunk) [Item 3. Defaults Upon Senior Securities](index=80&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This item is not applicable as there were no defaults upon senior securities during the reporting period - Not applicable[342](index=342&type=chunk) [Item 4. Mine Safety Disclosures](index=80&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[343](index=343&type=chunk) [Item 5. Other Information](index=80&type=section&id=Item%205.%20Other%20Information) During the fiscal quarter ended March 31, 2024, none of the company's directors or executive officers adopted or terminated any Rule 10b5-1 trading plans or any non-Rule 10b5-1 trading arrangements - No directors or executive officers adopted or terminated any Rule 10b5-1 trading plans during the quarter[344](index=344&type=chunk) [Item 6. Exhibits](index=81&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed as part of the quarterly report, including certifications by the CEO and CFO as required by the Sarbanes-Oxley Act of 2002 and XBRL data files - The report includes required certifications from the CEO and CFO pursuant to Sections 302 and 906 of the Sarbanes-Oxley Act of 2002[345](index=345&type=chunk)