Stellus Capital Investment Q2 2025 Earnings Report

Stellus Capital Investment EPS Results

• Actual EPS: $0.35
• Consensus EPS: $0.35
• Beat/Miss: Met Expectations
• One Year Ago EPS: N/A

Stellus Capital Investment Revenue Results

• Actual Revenue: $25.70 million
• Expected Revenue: $26.15 million
• Beat/Miss: Missed by -$449.00 thousand
• YoY Revenue Growth: N/A

Stellus Capital Investment Announcement Details

• Quarter: Q2 2025
• Date: 8/6/2025
• Time: After Market Closes
• Conference Call Date: Thursday, August 7, 2025
• Conference Call Time: 11:00AM ET

Stellus Capital Investment (NYSE:SCM) is a business development company specializing in investments in private middle-market companies. It invests through first lien, second lien, unitranche, and mezzanine debt financing, often with a corresponding equity investment. The fund prefers to invest in US and Canada. The fund seeks to invest in companies with an EBITDA between $5 million and $50 million.

Stellus Capital Investment Q2 2025 Earnings Call Transcript

Key Takeaways

• Neutral Sentiment: In Q2, Stellus generated $0.34 per share of GAAP net investment income and $0.35 of core net investment income, while NAV per share declined by $0.04 due to reduced spillover income.
• Positive Sentiment: The company’s asset quality improved, with no new non-accrual loans, non-accruals falling to 3.8% of fair value, 98% of loans secured, and 84% of the portfolio on or ahead of plan.
• Positive Sentiment: Investment activity picked up, with $26 million of new funding since June 30 and a portfolio approaching $1 billion across 113 companies, with growth expected in H2.
• Positive Sentiment: Stellus received a green light letter for its SBIC III license and plans to draw new leverage under it to fund additional qualifying investments.
• Positive Sentiment: The board declared a $0.40 per share quarterly dividend for Q3, payable monthly, and expects to maintain the same rate in Q4, subject to approval.

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 second fiscal quarter ended 06/30/2025. At this time, all participants are on a listen only mode, and a question and answer session will follow the formal presentation. As a reminder, this conference is being recorded today, 08/07/2025. It is now my pleasure to turn the floor over to Mr. Robert Ladd, Chief Executive Officer of Stellus Capital Investment Corporation. Mr. Ladd, you may begin your conference.

[Robert Ladd, Chairman, CEO & Managing Partner at Stellus Capital Investment]

Yes. Thank you, Ali. Good morning, everyone, and thank you for joining our call. Welcome to our conference call covering the quarter ended 06/30/2025. 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, Partner, CFO, Chief Compliance Officer, Treasurer and Secretary at Stellus Capital Investment]

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 number and PIN provided in our press release announcing this call. I'd also like to turn your attention to the customary Safe Harbor disclosure in our press release regarding forward looking information.

[Todd Huskinson, Partner, CFO, Chief Compliance Officer, Treasurer and Secretary at Stellus Capital Investment]

Today's conference call may also be 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. To obtain copies of our latest SEC filings, please visit our website at www.selluscapital.com under the public investors link or call us at (713) 292-5400. Now I'll cover operating results for the quarter, but I would like to start with our life to date activity. Since our IPO in November 2012, we've invested approximately $2,700,000,000 in over 210 companies and received approximately 1,700,000,000.0 of repayments while maintaining stable asset quality.

[Todd Huskinson, Partner, CFO, Chief Compliance Officer, Treasurer and Secretary at Stellus Capital Investment]

We've paid $306,000,000 of dividends to our investors, which represents $17.35 per share to an investor in our IPO in November 2012, which was offered at $15 per share. Turning now to the quarterly operating results. In the second quarter, we generated 34¢ per share of GAAP net investment income, and core net investment income was 35¢ per share, which excludes estimated excise taxes. Net asset value per share decreased 4¢ during the quarter due to the reduction of spillover income. During the quarter, we issued approximately 300,000 shares for 3,900,000.0 proceeds under our ATM program.

[Todd Huskinson, Partner, CFO, Chief Compliance Officer, Treasurer and Secretary at Stellus Capital Investment]

Year to date, we've issued approximately 900,000 shares, $13,200,000, and all issuances were above net asset value. Turning to portfolio and asset quality, we ended the quarter with an investment portfolio at fair value of $985,900,000 across 112 portfolio companies, slightly down from $991,000,000 across 110 companies as of 03/31/2025. During the second quarter, we invested $15,400,000 in three new portfolio companies and had $7,400,000 in other investment activity at par. We also received two full repayments totaling $21,700,000, one equity realization to totaling $500,000, which resulted in a realized gain of $200,000, and we received $10,400,000 of other repayments all on par. At June 30, 98% of our loans were secured and 91% were priced at floating rates.

[Todd Huskinson, Partner, CFO, Chief Compliance Officer, Treasurer and Secretary at Stellus Capital Investment]

The average loan per company is $9,200,000, and the largest overall investment is 21,200,000.0, both at fair value. All but one of our portfolio companies are backed by a private equity firm. Overall, our asset quality is slightly better than plan. At fair value, 84% of our portfolio is rated a one or a two or on or ahead of plan, and 16% of the portfolio is marked in an investment category of three or below, meaning not meeting plan or expectations. We did not add any new loans to our nonaccrual list during the quarter.

[Todd Huskinson, Partner, CFO, Chief Compliance Officer, Treasurer and Secretary at Stellus Capital Investment]

Currently, we have loans to five portfolio companies on nonaccrual, which comprise 6.8% of the total cost and 3.8% of the fair value of the total loan portfolio respectively, which represents a decrease from the prior quarter. With respect to capital, as a reminder, we've received a green light letter from the small business administration for Stella's Capital SBIC three. This is an important step in the process, and we therefore expect to receive a license, although it's not guaranteed. In general, as our existing debentures are repaid, we intend to draw new leverage under the SBIC three license to continue funding qualifying portfolio company investments. And with that, I'll turn it back over to Rob to discuss the overall outlook.

[Robert Ladd, Chairman, CEO & Managing Partner at Stellus Capital Investment]

Okay. Thank you, Todd. As we look ahead to the 2025, I'll cover portfolio growth, equity realizations, and dividends. Investment activity has picked up meaningfully over the past thirty days or so. We expect the second half of the year to be busy, as evidenced by the $26,000,000 of new funding since June 30.

[Robert Ladd, Chairman, CEO & Managing Partner at Stellus Capital Investment]

Our portfolio now stands at approximately $1,000,000,000 with 113 companies now our largest number. Based on new fundings and repayments, we should end the quarter at about the same level. With M and A activity picking up, we expect to see more equity realizations over the next five months. Our best estimate today is 12,000,000 of proceeds and approximately $10,000,000 of gains. Finally, regarding dividends, we declared the dividend for the third quarter of $0.40 per share payable monthly.

[Robert Ladd, Chairman, CEO & Managing Partner at Stellus Capital Investment]

We expect the fourth quarter to also be payable at this $0.40 per share rate for the quarter, again payable monthly, of course subject to Board approval. And with that, we'll open it up for questions, and Ali, you may begin the question and answer session, please.

[Operator]

Thank you. Ladies and gentlemen, at this time we will begin our 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. And you may press star two if you would like to remove your question from the queue.

[Operator]

Our first question is coming from Christopher Nolan with Ladenburg Thalmann. Your line is live.

[Christopher Nolan, SVP - Equity Research at Ladenburg Thalmann & Co. Inc]

Hey, guys.

[Robert Ladd, Chairman, CEO & Managing Partner at Stellus Capital Investment]

Good morning, Chris.

[Christopher Nolan, SVP - Equity Research at Ladenburg Thalmann & Co. Inc]

The EPS is not covering the dividend for the last few quarters. Two questions. How much spillover is there left over? And what's strategy in terms of increasing your leverage to cover the dividend?

[Robert Ladd, Chairman, CEO & Managing Partner at Stellus Capital Investment]

Yeah, Todd, why don't you cover the spillover and then I'll I'll cover the question about leverage.

[Todd Huskinson, Partner, CFO, Chief Compliance Officer, Treasurer and Secretary at Stellus Capital Investment]

Okay. Yeah. Sounds good, Rob. So good morning, Chris. So with respect to spillover, so this year we have, just under $45,000,000 of spillover that we are working off through the dividend.

[Todd Huskinson, Partner, CFO, Chief Compliance Officer, Treasurer and Secretary at Stellus Capital Investment]

And then, you know, going into next year for next year's amount, we expect it to be about 38,000,000. And, you know, we'll continue to kind of reduce it from there. So that's what we're working on with respect to the dividend.

[Robert Ladd, Chairman, CEO & Managing Partner at Stellus Capital Investment]

And then, Chris, relative to use of leverage, so we're currently running at about 0.9 on a regulatory test and total leverage for GAAP about 1.7 times. Our target leverage we've stated for a good while is about one to one on the regulatory test. So we don't intend to change that in the near term. So we have the capacity to move leverage up through the use of our bank facility. We expect that we have the capital base to really take the portfolio, what is currently about $1,000,000,000 up 50,000,000 to $75,000,000 higher over time. Is that helpful? Yes,

[Christopher Nolan, SVP - Equity Research at Ladenburg Thalmann & Co. Inc]

it is. And just as a quick follow-up, for the SBIC III LIFE, how much of your deal flow is eligible for the SBIC? How quickly do you think you can fill that?

[Robert Ladd, Chairman, CEO & Managing Partner at Stellus Capital Investment]

Interestingly, historically, roughly half of what we look at qualifies, so it is a meaningful part of our deal flow and an important aspect of the company.

[Christopher Nolan, SVP - Equity Research at Ladenburg Thalmann & Co. Inc]

So you can wrap that up. Pretty quick order, I'd imagine.

[Robert Ladd, Chairman, CEO & Managing Partner at Stellus Capital Investment]

Yes. So this is helpful for us. And we anticipate we'll be able to get it approved, Todd indicated.

[Christopher Nolan, SVP - Equity Research at Ladenburg Thalmann & Co. Inc]

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

[Robert Ladd, Chairman, CEO & Managing Partner at Stellus Capital Investment]

Okay. Many thanks, Chris.

[Operator]

Thank you. Our next question is coming from Eric Zwick with Lucid Capital Markets. Your line is live.

[Robert Ladd, Chairman, CEO & Managing Partner at Stellus Capital Investment]

Good morning, Eric.

[Justin Marca, VP - Equity Research at Lucid Capital Markets LLC]

Hey, good morning. This is Justin on for Eric today. Rob, just going off your comments, obviously, good momentum to start the quarter with some sizable new investments. Just curious how the pipeline is looking for the remainder of the year and where you're seeing opportunities, whether that's new or add on investments.

[Robert Ladd, Chairman, CEO & Managing Partner at Stellus Capital Investment]

Yes. So again, as I indicated, quite a pickup in M and A activity. It looked like it started to happen after July 4. The, I guess the noise around the tariffs has quieted some, although there's more in the news the last couple of days. But I think that certainly private equity firms with whom we work exclusively are much more active in the marketplace, looking at opportunities, so things have picked up meaningfully.

[Robert Ladd, Chairman, CEO & Managing Partner at Stellus Capital Investment]

So again, we would expect, and our pipeline runs typically, I'd say 10 opportunities at a time that are very actionable, and we see five to seven new opportunities a week. So we're very busy, but also very selective. So I do think we've got the ability to continue to grow here, and as indicated, we have the capital to grow as well. As part of that, though, of course, we would expect repayments to speed up, which have been slower this year. But we think, notwithstanding the repayments expected, we'll be able to grow the portfolio between now and the end of the calendar year.

[Justin Marca, VP - Equity Research at Lucid Capital Markets LLC]

Okay, that's great. And then just a follow-up on credit quality. I know you guys can't disclose much given the private aspect of all your portfolio companies, but any insight into any potential resolutions or progress that's being made with the current non accrual list?

[Robert Ladd, Chairman, CEO & Managing Partner at Stellus Capital Investment]

Yeah, and thanks for noting the privacy aspect. Continue to work through them. All have private equity firms associated with them backing them. So we'll need more time. But fortunately, this quarter, as Todd noted, we had no new non accruals.

[Robert Ladd, Chairman, CEO & Managing Partner at Stellus Capital Investment]

So I think they'll all take more time, but I think generally in a good spot, and where necessary, we'll get more involved in the situation to make sure the company continues. But our experience has been good private equity firms who we deal with typically put new money in a couple of times to support their businesses. These are ones working through that system, if you will. Okay, great. That's all for

[Justin Marca, VP - Equity Research at Lucid Capital Markets LLC]

me today. Thanks for taking my questions.

[Robert Ladd, Chairman, CEO & Managing Partner at Stellus Capital Investment]

Yeah, thank you, Justin.

[Operator]

Thank you. Our next question is coming from Robert Dodd with Raymond James. Your line is live.

[Robert Dodd, Director - Finance at Raymond James Financial]

Hi, guys. Good morning, Raymond. On Good morning. Good morning. How are doing?

[Robert Dodd, Director - Finance at Raymond James Financial]

On the potential equity realizations, that I think you mentioned, maybe $1,212,000,000 proceeds, 10,000,000 in gains in the second half of year, What's the level of confidence on that? Like, because, I mean, it it does you know, if the the market activity's picked up, who knows? Like, mean, how how high is the confidence level on realizing them this year? I mean, if they don't get realized this year, then it just happens later. But how's your feeling on the certainty of those things actually happening this year?

[Robert Ladd, Chairman, CEO & Managing Partner at Stellus Capital Investment]

Sure, sure Robert. Yes, that's a great question. So when we indicate and forecast, again, things can change. Those are businesses that are in the market being marketed, some further along than others, but all are being actively marketed by a banker or by a company. And all are well performing businesses.

[Robert Ladd, Chairman, CEO & Managing Partner at Stellus Capital Investment]

So we think the likelihood would be high, And sometimes things don't happen. And also, there could be things that we're not aware of, especially if we're just in an equity only position, don't have the debt instrument anymore. But we'd say fairly high, again, based on active marketing by the companies.

[Robert Dodd, Director - Finance at Raymond James Financial]

Got it. Got it. Thank you. And then if I can go to the not so much the non accrual side, but the 15% of the portfolio is rated three or or lower, I. E.

[Robert Dodd, Director - Finance at Raymond James Financial]

Not meeting plan. I mean, we exclude the non accruals, because those have obviously already, you know, are having their issues currently, what how much of of the remainder of that are you seriously nervous about versus, yeah, it's not meeting plan, but we're not that worried kind of thing?

[Robert Ladd, Chairman, CEO & Managing Partner at Stellus Capital Investment]

Given its category of being a three, by definition it means that we expect to receive all of our principal and all of the associated income. To be a four, it would be we don't expect to receive the income, And five to be we don't expect the income or all of the principal. So our current thinking is, by definition, we expect to receive all principal and income. That'd be the best way to characterize it, I think, Robert.

[Robert Dodd, Director - Finance at Raymond James Financial]

Okay. I appreciate that. And then if I can, one one more just on on that, just kind of, you know, like you said, and you've you've kind of partly addressed it, you know, activity picked up after July 4 and and and meaningfully over the last thirty days. I mean, the the time frame because obviously some some businesses take longer to due diligence than than others. What you you said you expect to to still grow the portfolio by year end, but how how much uncertainty is in that given the pipeline and kind of the timing of where we are with four months left in the year and these processes ramping up now?

[Robert Dodd, Director - Finance at Raymond James Financial]

And I'm not talking about the echo, I just think kind of the pipeline.

[Robert Ladd, Chairman, CEO & Managing Partner at Stellus Capital Investment]

Sure, sure. So the pipeline as indicated earlier is quite robust. So number of opportunities that are what we would describe as a 75% or higher probability. So a lot in that bucket. And then a lot of things that we're looking at that, given that we're here in August, all of which have a good chance if they move forward and were selected to certainly close by the fourth quarter.

[Robert Ladd, Chairman, CEO & Managing Partner at Stellus Capital Investment]

So again, itis hard to predict these things on both ends. We have found that repayments sometimes happen more quickly than new fundings, but we expect weill have both and can grow the portfolio the balance of the year.

[Robert Dodd, Director - Finance at Raymond James Financial]

Thank you.

[Robert Ladd, Chairman, CEO & Managing Partner at Stellus Capital Investment]

Thank you, Robert.

[Operator]

Thank you. As we currently have no further questions on the lines at this time, I would like to hand the call back over to Mr. Ladd for any closing remarks.

[Robert Ladd, Chairman, CEO & Managing Partner at Stellus Capital Investment]

Okay. Thank you very much and thank everyone for being on the call today and your support of our company. And we look forward to providing the update on our third quarter results, which will be in early November. Take care.

[Operator]

Thank you, ladies and gentlemen. This does conclude today's call. You may disconnect your lines at this time, and have a wonderful day. And we thank you for your participation.

Participants

Executives

• Robert Ladd, Chairman, CEO & Managing Partner
• Todd Huskinson, Partner, CFO, Chief Compliance Officer, Treasurer and Secretary

Analysts

• Christopher Nolan, SVP - Equity Research at Ladenburg Thalmann & Co. Inc
• Justin Marca, VP - Equity Research at Lucid Capital Markets LLC
• Robert Dodd, Director - Finance at Raymond James Financial