Stellus Capital Investment Corporation Reports Results for its Third Fiscal Quarter Ended September 30, 2024
HOUSTON, Nov. 7, 2024 /PRNewswire/ -- Stellus Capital Investment Corporation (NYSE:SCM) ("Stellus", "we", or the "Company") today announced financial results for its fiscal quarter ended September 30, 2024.
Robert T. Ladd, Chief Executive Officer of Stellus, stated, "I am pleased to report solid operating results for the quarter ended September 30, 2024, in which we earned U.S. GAAP net investment income of $0.39 per share and core net investment income of $0.40 per share, which covered the regular dividend declared of $0.40 per share. Net asset value per share increased by $0.19 per share from the prior quarter end. Subsequent to the quarter end, we increased our capital base by $55 million through the upsizing of our Credit Facility to $315 million. As we celebrate the completion of twelve years of operations, I'm also pleased to report that our investors have received a total of $273 million in distributions, equivalent to $16.28 per share, since we began operations."
FINANCIAL HIGHLIGHTS($ in millions, except data relating to per share amounts and shares outstanding)
Three Months Ended
Nine Months Ended
September 30, 2024
September 30, 2023
September 30, 2024
September 30, 2023
Amount
Per Share
Amount
Per Share
Amount
Per Share
Amount
Per Share
Net investment income
$10.26
$0.39
$10.82
$0.47
$32.29
$1.29
$30.30
$1.42
Core net investment income(1)
10.62
0.40
11.16
0.49
33.59
1.34
30.81
1.45
Net realized (loss) gain on investments
(3.30)
(0.13)
0.60
0.03
(21.69)
(0.87)
0.32
0.01
Net realized loss on foreign currency translation
(0.02)
—
(0.02)
—
(0.08)
—
(0.07)
—
Total realized income(2)
$6.94
$0.26
$11.40
$0.50
$10.52
$0.42
$30.55
$1.43
Distributions
(10.63)
(0.40)
(9.27)
(0.41)
(30.32)
(1.21)
(25.88)
(1.22)
Net unrealized change in appreciation (depreciation) on investments
8.51
0.33
(13.80)
(0.61)
26.44
1.05
(24.34)
(1.14)
Net unrealized change in appreciation (depreciation) on foreign currency translation
0.01
—
—
—
—
—
(0.02)
—
Benefit (provision) for taxes on unrealized depreciation (appreciation) on investments
in taxable subsidiaries
—
—
—
—
0.19
0.01
(0.14)
(0.01)
Net increase (decrease) in net assets resulting from operations
$15.46
$0.59
($2.40)
($0.11)
$37.15
$1.48
$6.05
$0.28
Weighted average shares outstanding
26,326,426
22,824,221
25,066,626
21,289,880
(1)
Core net investment income, as presented, excludes the impact of capital gains incentive fees (reversal) and income taxes, the majority of which are excise taxes. The Company believes presenting core net investment income and the related per share amount is a useful supplemental disclosure for analyzing its financial performance. However, core net investment income is a non-U.S. generally accepted accounting principles ("U.S. GAAP") measure and should not be considered as a replacement for net investment income and other earnings measures presented in accordance with U.S. GAAP. A reconciliation of net investment income in accordance with U.S. GAAP to core net investment income is presented in the table below the financial statements.
(2)
Total realized income is the sum of net investment income, net realized gains (losses) on investments, net realized gains (losses) on foreign currency, and loss on debt extinguishment; all U.S. GAAP measures.
PORTFOLIO ACTIVITY($ in millions, except data relating to per share amounts and number of portfolio companies)
As of
As of
September 30, 2024
December 31, 2023
Investments at fair value
$908.7
$874.5
Total assets
$957.1
$908.1
Net assets
$366.3
$319.9
Shares outstanding
27,039,364
24,125,642
Net asset value per share
$13.55
$13.26
Three Months Ended
Nine Months Ended
September 30, 2024
September 30, 2023
September 30, 2024
September 30, 2023
New investments
$17.8
$51.9
$112.6
$139.7
Repayments of investments
(15.5)
(34.8)
(87.3)
(79.1)
Net activity
$2.3
$17.1
$25.3
$60.6
As of
As of
September 30, 2024
December 31, 2023
Number of portfolio company investments
99
93
Number of debt investments
86
81
Weighted average yield of debt and other income
producing investments (3)
Cash
10.2 %
11.0 %
Payment-in-kind ("PIK")
0.4 %
0.5 %
Fee amortization
0.4 %
0.4 %
Total
11.0 %
11.9 %
Weighted average yield on total investments (4)
Cash
9.5 %
10.3 %
PIK
0.4 %
0.5 %
Fee amortization
0.4 %
0.3 %
Total
10.3 %
11.1 %
(3)
The dollar-weighted average annualized effective yield is computed using the effective interest rate for our debt investments and other income producing investments, including cash and PIK interest, as well as the accretion of deferred fees. The individual investment yields are then weighted by the respective cost of the investments (as of the date presented) in calculating the weighted average effective yield of the portfolio. The dollar-weighted average annualized yield on the Company's investments for a given period will generally be higher than what investors in the Company's common stock would realize in a return over the same period because the dollar-weighted average annualized yield does not reflect the Company's expenses or any sales load that may be paid by investors.
(4)
The dollar-weighted average yield on total investments takes the same yields as calculated in the footnote above but weights them to determine the weighted average effective yield as a percentage of the Company's total investments, including non-income producing loans and equity.
Results of Operations
Investment income for the three months ended September 30, 2024 and 2023 totaled $26.5 million and $27.2 million, respectively, most of which was interest income from portfolio investments.
Gross operating expenses for the three months ended September 30, 2024 and 2023 totaled $16.2 million and $16.3 million, respectively. For the same respective periods, base management fees totaled $3.9 million for both periods, income incentive fees totaled $2.6 million and $2.7 million, fees and expenses related to our borrowings totaled $8.0 million for both periods (including interest and amortization of deferred financing costs), administrative expenses totaled $0.5 million for both periods, income tax totaled $0.4 million and $0.3 million and other expenses totaled $0.8 million and $0.9 million.
Net investment income was $10.3 million and $10.8 million, or $0.39 and $0.47 per common share based on weighted average common shares outstanding of 26,326,426 and 22,824,221 for the three months ended September 30, 2024 and 2023, respectively. Core net investment income, which is a non-U.S. GAAP measure that excludes the capital gains incentive fee (reversal) and income tax expense accruals, for the three months ended September 30, 2024 and 2023 was $10.6 million and $11.2 million, or $0.40 and $0.49 per share, respectively.
For the three months ended September 30, 2024 and 2023, the Company's investment portfolio had a net change in unrealized appreciation (depreciation) of $8.5 million and ($13.8) million, respectively, and the Company had net realized (losses) gains of ($3.3) million and $0.6 million, respectively.
Net increase (decrease) in net assets resulting from operations totaled $15.5 million and ($2.4) million, or $0.59 and ($0.11) per common share, based on weighted average common shares outstanding of 26,326,426 and 22,824,221 for the three months ended September 30, 2024 and 2023, respectively.
Liquidity and Capital Resources
As of September 30, 2024, the Company's amended senior secured revolving credit agreement with certain bank lenders and Zions Bancorporation, N.A. dba Amegy Bank, as administrative agent (as amended from time to time, the "Credit Facility") provided for borrowings in an aggregate amount of up to $260.0 million on a committed basis. As of September 30, 2024 and December 31, 2023, the Credit Facility had an accordion feature which allowed for potential future expansion of the facility size up to $350.0 million.
As of September 30, 2024 and December 31, 2023, the Company had $157.4 million and $160.1 million in outstanding borrowings under the Credit Facility, respectively.
The Company issued 1,058,366 shares during the three months ended September 30, 2024 under the At-the-Market Program ("ATM Program") for gross proceeds of $14.6 million. The average per share offering price of shares issued under the ATM Program during the three months ended September 30, 2024 was $13.79. Stellus Capital Management, LLC, the Company's investment adviser (the "Advisor"), agreed to reimburse the Company for underwriting fees to the extent the per share price of the shares to the public, less underwriting fees, was less then net asset value per share. For the three months ended September 30, 2024, the Advisor was not required to reimburse underwriting fees as all shares were issued at a premium to net asset value.
Distributions
For the three months ended September 30, 2024 and 2023, the Company declared aggregate distributions of $0.40 per share for both periods ($10.6 million and $9.3 million in the aggregate, respectively). Tax characteristics of all distributions will be reported to stockholders on Form 1099-DIV after the end of the calendar year. None of these dividends are expected to include a return of capital.
Recent Portfolio Activity
The Company invested in the following portfolio companies during the three months ended September 30, 2024:
Activity Type
Date
Company Name
Company Description
Investment Amount
Instrument Type
Add-On Investment
July 31, 2024
PCS Software, Inc.*
Provider of integrated transportation management software
for the inland trucking industry
$
9,995
Equity
Add-On Investment
August 12,2024
Trade Education Acquisition, L.L.C.*
Online education platform for retail investors
$
80,000
Revolver Commitment
New Investment
August 16,2024
Bart & Associates, LLC
Provides IT modernization services for federal customers
$
8,942,723
Senior Secured – First Lien
$
1,733,387
Delayed Draw Term Loan Commitment
$
1,046,677
Revolver Commitment
$
418,671
Equity
Add-On Investment
August 26,2024
Impact Home Services LLC*
Residential garage door, electrical, and plumbing services provider
$
1,571,984
Delayed Draw Term Loan Commitment
Add-On Investment
September 11,2024
Service Minds Company, LLC*
Provider of residential electrical services
$
20,000
Revolver Commitment
Add-On Investment
September 30,2024
The Hardenbergh Group, Inc. *
Provider of temporary professional staffing of medical services
professionals, external peer review, consulting and physician
leadership solutions
$
804,031
Senior Secured – First Lien
Add-On Investment
September 30,2024
Monitorus Holding, LLC*
Provider of media monitoring and evaluation services
$
11,629
Unsecured Convertible Bond
Add-On Investment
September 30,2024
ADS Group Opco, LLC*
Full-service manufacturer for OEMs, prime contractors, and Tier I
suppliers across the defense, space, and aerospace industries
$
69,453
Revolver Commitment
*Existing portfolio company
The Company realized investments in the following portfolio companies during the three months ended September 30, 2024:
Activity Type
Date
Company Name
Company Description
Proceeds Received
Realized Gain
Instrument Type
Full Realization
August 1, 2024
ICD Holdings, LLC*
Financial company that connects corporate treasury departments
with money market and short duration bond funds
$
2,599,378
$
2,192,411
Equity
Full Repayment
September 27, 2024
EHI Buyer, Inc.*
Provider of design, engineering, installation, and maintenance
services for building management systems
$
6,050,229
$
—
Senior Secured – First Lien
$
2,322,310
$
—
Delayed Draw Term Loan
*Existing portfolio company
Events Subsequent to September 30, 2024
The Company's management has evaluated subsequent events through November 7, 2024. There have been no subsequent events that require recognition or disclosure except for the following described below.
Investment Portfolio
The Company invested in the following portfolio companies subsequent to September 30, 2024:
Activity Type
Date
Company Name
Company Description
Investment Amount
Instrument Type
Add-On Investment
October 18, 2024
Compost 360 Investments, LLC*
Organic waste recycler and producer of compost,
mulch, and engineered soils
$
49,280
Equity
New Investment
October 31, 2024
Norplex Micarta Acquisition, Inc.
Manufacturer of thermoset composite laminates
$
13,000,000
Senior Secured – First Lien
$
500,000
Revolver Commitment
$
739,804
Equity
Add-On Investment
November 7, 2024
Green Intermediateco II, Inc.*
Cyber-security focused value-added reseller and
associated service provider
$
1,300,000
Senior Secured – First Lien
*Existing portfolio company
The Company realized an investment in the following portfolio company subsequent to September 30, 2024:
Activity Type
Date
Company Name
Company Description
Proceeds Received
Realized Gain
Instrument Type
Full Repayment
November 4, 2024
Baker Manufacturing Company, LLC*
Manufacturer of water well equipment, specialized
filtration pumps, and custom castings
$
12,738,093
$
—
Senior Secured – First Lien
Full Realization
November 5, 2024
Health Monitor Holdings, LLC*
Provider of point-of-care patient engagement and
marketing solutions for pharmaceutical companies
$
1,704,298
$
651,379
Equity
*Existing portfolio company
Credit Facility
On October 30, 2024, the Company entered into an Increase Agreement to the Credit Facility which, among other things, amends the Credit Facility to increase the total available commitments under the Credit Facility from $260.0 million to $315.0 million on a committed basis.
The outstanding balance under the Credit Facility as of
